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Home My WebLink About20230109INT to Staff Attachment - Response to No. 28_2017-Annual-Report,-10-K-2018-Proxy.pdfof natural gas pipeline capacity1.6 Bcf/day 1.1 million 13th 1 billion tons of aggregate reserves 78 cents Paid dividends80 consecutive years Increased dividends27 consecutive years $284.2 million / $1.45 EPS, 10,140 employees Conducting business in 48 states utility customers largest specialty contractor, according to Engineering News-Record 2017 annual dividend declared per share: 2017 earnings: At December 31, 2017. includes beneﬁt of $39.5 million, or 20 cents per share, attributable to tax reform fromcontinuingoperations MDU Resources Group, Inc.1 of natural gas pipeline capacity1.6 Bcf/day 1.1 million 13th 1 billion tons of aggregate reserves 78 cents Paid dividends80 consecutive years Increased dividends27 consecutive years $284.2 million / $1.45 EPS, 10,140 employees Conducting business in 48 states utility customers largest specialty contractor, according to Engineering News-Record 2017 annual dividend declared per share: 2017 earnings: At December 31, 2017. includes beneﬁt of $39.5 million, or 20 cents per share, attributable to tax reform fromcontinuingoperations MDU Resources Group, Inc.2 Highlights Forward-looking statements: This Annual Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary statements and important factors included in “Part I, Forward-Looking Statements” and “Item 1A — Risk Factors” of the company’s “2017 Form 10-K.” Forward-looking statements are all statements other than statements of historic fact, including without limitation those statements that are identified by the words anticipates, estimates, expects, intends, plans, predicts and similar expressions. Years ended December 31, 2017 2016 (In millions, where applicable) Operating revenues $ 4,443.4 $4,128.8 Operating income $ 428.7 $ 409.1 Earnings on common stock from continuing operations $ 284.2 $ 232.4 Earnings on common stock, including discontinued operations $ 280.4 $ $63.7 Earnings per common share from continuing operations $ 1.45 $ 1.19 Earnings per common share, including discontinued operations $ 1.43 $ .33 Dividends declared per common share $ .775 $ .755 Weighted average common shares outstanding — diluted 195.7 195.6 Total assets $ 6,335 $ 6,284 Total equity $ 2,429 $ 2,316 Total debt $ 1,715 $ 1,790 Capitalization ratios: Total equity 58.6% 56.4% Total debt 41.4 43.6 100% 100% Price/earnings from continuing operations ratio (12 months ended) 18.5x 24.2x Book value per common share $ 12.44 $ 11.78 Market value as a percent of book value 216.1% 244.2% 10,140 9,598 MDU Resources Group, Inc.3 Regulated Energy Delivery Electric and Natural Gas Utilities MDU Resources Group’s utility companies serve approximately 1.1 million customers. Cascade Natural Gas Corporation distributes natural gas in Oregon and Washington. Great Plains Natural Gas Co. distributes natural gas in western Minnesota and southeastern North Dakota. Intermountain Gas Company distributes natural gas in southern Idaho. Montana-Dakota Utilities Co. generates, transmits and distributes electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming. These operations also supply related value-added services. 2017 Key Statistics 2017 Key Statistics Note: The revenues and earnings noted on this page exclude discontinued operations, the Other category and intercompany eliminations. Pipeline and Midstream WBI Energy provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides cathodic protection and other energy-related services. Revenues (millions) $122.2Earnings (millions) $20.5 Pipeline (MMdk) Transportation 312.5 Gathering 16.1 SD MT ID WY OR ND MN WA Electric and natural gas utility areas Electric generating stations States of operations SD MT WY ND Company storage fields Midstream assets States of operations Pipeline systems Interconnecting pipelines NE SD MT ID HI WY COUTNV CA OR WA AZ NM ND MN IA MO AR LA TN MS NC VAWVKY IN OH PA NJ CTNY ME AL GA FL SC IL MIWI KS OK TX NH AK Construction materials locations Construction services offices States of operations for construction materials and authorized states of operations for construction services Authorized states of operations for construction services 2017 Key Statistics Revenues (millions) Electric $342.8 Natural gas $848.4 Earnings (millions) Electric $49.4 Natural gas $32.2 Electric retail sales (million kWh) 3,306.5 Natural gas distribution (MMdk) Sales 112.5 Transportation 144.5 Revenues (millions) Construction materials $1,812.5 Construction services $1,367.6 Earnings (millions) Construction materials $123.4 Construction services $53.3 Construction materials sales (thousands) Aggregates (tons) 28,213 Asphalt (tons) 6,237 Ready-mix concrete (cubic yards) 3,548 Construction materials aggregate reserves (billion tons) 1.0 Construction Materials and Services Construction Materials and Contracting Knife River Corporation mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mix concrete, cement, asphalt, liquid asphalt and other value-added products. It also performs integrated contracting services. Construction Services MDU Construction Services Group provides inside and outside specialty contracting services, including constructing and maintaining electric and communication lines, gas pipelines, fire suppression systems, and external lighting and traffic signalization. It also provides utility excavation and inside electrical and mechanical services, and manufactures and distributes transmission line construction equipment and supplies. Our Businesses MDU Resources Group, Inc.4 We are very pleased with our 2017 operating results. The year underscored the strength of our two-pillar strategy, with both our regulated energy delivery businesses and our construction materials and services businesses performing well. We are optimistic about 2018, as well, with a high volume of work in the queue for our construction companies and growth opportunities well underway at our regulated energy companies. We are confident our company will continue to provide the long-term returns you expect from your investment. Earnings in 2017 from continuing operations were $284.2 million, or $1.45 per share, compared to 2016 earnings from continuing operations of $232.4 million, or $1.19 per share. Including discontinued operations, MDU Resources reported 2017 earnings of $280.4 million, or $1.43 per share, compared to $63.7 million, or 33 cents per share, in 2016. The company recorded a benefit in the fourth quarter of $39.5 million, or 20 cents per share, to 2017 earnings attributable to the federal Tax Cuts and Jobs Act, which was signed into law Dec. 22. Absent the benefit from tax reform, our earnings from continuing operations were up 6 cents per share or approximately 5 percent. This year, we are celebrating our 70th year of being listed on the New York Stock Exchange. Only a handful of companies have been on the exchange as long as ours. We also are listed on Standard & Poor’s High-Yield Dividend Aristocrat index. In November, we increased our dividend for the 27th consecutive year, and we have paid dividends uninterrupted for 80 years. Fewer than 100 other U.S.-listed companies have increased their dividend as many consecutive years as MDU Resources. Utility sees growth in sales, customers Our electric and natural gas utility business earned $81.6 million, compared to $69.3 million in 2016. The 2017 results include a $6.4 million charge related to an adjustment of net deferred tax assets resulting from tax reform. In 2017, we sold 2 percent more electricity and 13 percent more natural gas than we did in 2016, primarily because our customer base grew 2 percent and our service territories experienced colder weather. Cost recovery through regulatory relief also contributed to the earnings increase. We recently announced that we will buy the Thunder Spirit Wind farm expansion in southwestern North Dakota. We already own the original 107.5-megawatt Thunder Spirit Wind farm. Construction on the 16-turbine, 48-MW expansion is underway, and we will finalize the estimated $85 million purchase of these assets when the project is complete at the end of this year. With the addition, our electric generation portfolio will be approximately 27 percent renewables. We expect our utility customer base of nearly 1.1 million customers to keep growing 1 to 2 percent annually, and we continue our investments in upgrading and expanding our facilities across our system to safely and reliably meet demand. Construction continues through this year on our joint-venture transmission line project, which stretches from Ellendale, North Dakota, to Big Stone City, South Dakota. This Midcontinent Independent System Operator-approved project, expected to be complete in 2019, will help move electricity from renewable generation sources to the MISO market. We also have other growth projects on our system underway that will serve new markets, such as the 21-mile, 12-inch pipeline we expect to complete this year to deliver natural gas to a manufacturing facility and other potential customers in Gwinner, North Dakota. Based on our customer and demand growth projections, the integrated resource plan we filed in 2017 with the North Dakota Public Service Commission indicates that we expect it will be necessary to develop a large, combined-cycle natural gas-fired electric generation facility around the 2025 timeframe. Coinciding with investments in our facilities is a significant effort to recover costs through regulatory relief. Rate recovery for our electric utility was approved in every jurisdiction, including by the Federal Energy Regulatory Commission, in 2017. We expect our rate base in the next five years to continue growing 6 percent annually on a compound basis. Our utility operations also must file plans with each state regulatory agency in our service territory regarding tax reform’s impacts to customers, so it will be a busy year for our regulatory team. Pipeline business continues organic growth Our pipeline and midstream business earned $20.5 million in 2017, compared to $23.4 million in 2016. The 2017 results include a $200,000 charge related to an adjustment of net deferred tax assets resulting from tax reform. The decrease in earnings reflects the absence of results from the Pronghorn natural gas processing facility, after selling our interest in the assets at the start of 2017 and receiving approximately $100 million in proceeds. While our earnings may have been lower, our pipeline business performed very well. We transported a record volume of natural gas through our system in 2017, up nearly 10 percent over 2016. This was due, in part, to two growth projects that we completed in the second quarter. These projects increased pipeline capacity about 62 million cubic feet per day. With our pipeline system situated in the heart of the Bakken region, which is producing record volumes of natural gas, we are focused on additional organic growth projects that will help move that gas to market. In 2018, we expect to Report to Stockholders MDU Resources Group, Inc.5 complete our 38-mile, 16-inch Valley Expansion project that will connect our existing system near Mapleton, North Dakota, to a third-party pipeline near Felton, Minnesota. We also this year will construct a 13-mile, 24-inch expansion project, which we call Line Section 27, in the heart of the Bakken near Watford City, North Dakota. When these projects are completed, our natural gas transportation capacity will exceed 1.8 billion cubic feet per day. Additional projects are in the early stages of planning, and we look forward to providing you with more information about those as they progress. Construction services revenues set record The construction services business had record revenues in 2017 of $1.37 billion and earned $53.3 million, compared to 2016’s earnings of $33.9 million. The 2017 results include a benefit of $4.3 million from an adjustment to net deferred tax liabilities resulting from tax reform. We saw higher workloads and margins in 2017 in both inside specialty electrical contracting work and outside specialty electrical contracting work. Within our inside work, we saw particularly high demand in the high-tech, manufacturing and retail areas. In outside work, we saw a strong uptick in equipment sales and rentals and engaged in a variety of transmission projects. We also performed storm-recovery work, helping utility companies and their customers who were affected by hurricane activity during the year. Unfortunately, some of our own employees suffered devastating losses as a result of natural disasters this year, and we continue assisting those impacted. Early in 2017, we announced that we sold our membership interests in Nevada Valley Solar Solutions II LLC. We provided turnkey engineering, procurement and construction on this 17.5-megawatt community solar project, installing more than 51,400 solar photovoltaic panels on an 80-acre site. Our company is ranked No. 26 on Solar Power World’s 2017 Top 500 U.S. Solar Contractors list. Year-end backlog of $708 million for this business was up 49 percent compared to 2016. We are the 13th largest specialty contractor in the U.S., according to MDU Resources Group Chair Harry J. Pearce, left, and MDU Resources Group President and Chief Executive Officer David L. Goodin. MDU Resources Group, Inc. MDU Resources Group, Inc.6 well, with our strong balance sheet, good liquidity and a BBB+ credit rating with a stable outlook from our rating agencies. Our employees are a vital component of our growth equation. Their drive and passion for Building a Strong America® helps us successfully provide our customers with the best possible products and services. It is their attention to safety and integrity that makes them the best in the industries in which we operate. It is their concern for their neighbors and each other that make them indispensable in their workplace and their communities. Our board of directors and management team also play key roles in ensuring our operations are sustainable, by continuing to guide corporate strategy and ensuring diligence in governance, financial, environmental, social and cybersecurity practices. We constantly review the controls we have in place to protect your investment. We look forward to continuing to provide you with the long-term value you expect from your ownership in MDU Resources, and we thank you for your continued support of our company. Harry J. Pearce Chair of the Board David L. Goodin President and Chief Executive Officer February 23, 2018 Engineering News Record’s 2017 Top 600 Specialty Contractors list, and we have more than 5,000 skilled employees working across 47 states for this business. We are exploring acquisition opportunities in construction services to further grow our market share. Construction materials has strong finish to year Earnings at our construction materials business were $123.4 million in 2017, compared to $102.7 million in 2016. The 2017 results include a benefit of $41.9 million from an adjustment to net deferred tax liabilities resulting from tax reform. Our construction materials operations were impacted early in 2017 by above- average precipitation in nearly every market and natural disasters in some areas. In fact, precipitation was so heavy in some areas, Knife River Corporation was called on to help complete emergency work, including repairs on the Oroville Dam in California when concerns surfaced over the dam’s ability to withstand flooding. A slowdown of construction work in energy-producing states, such as Alaska, North Dakota and Wyoming, also impacted our operations. Despite the slow start to the year, favorable weather in the fourth quarter allowed our construction materials operations to successfully complete a number of projects, especially in our western markets. We have strong momentum coming into this year, and we are optimistic about the 2018 spring construction bidding season. Our nearly 1 billion tons of aggregate reserves in growing markets means we are well-positioned to execute on additional opportunities provided by state and local infrastructure spending initiatives, such as the $52 billion infrastructure plan approved in California and the $5.3 billion transportation funding bill passed in Oregon. We are closely following the national conversation on the proposed $1.5 trillion federal infrastructure package as well and look forward to the projects it would present for both our construction materials and services businesses. The construction materials business ended the year with backlog of $486 million, our third best on record. We are evaluating acquisition opportunities this year for this business to expand our footprint in existing and adjacent markets. Optimism high going into 2018 We expect 2018 to provide clarity on the impacts the federal Tax Cuts and Jobs Act will have on our company. With regard to our regulated businesses, customers will receive the benefit of the lower income tax rates through the regulatory process. On the construction side of our operations, we anticipate tax reform will result in our customers having more capital to invest in their businesses, which in turn will provide additional project bidding opportunities for us. We are excited as the mounting momentum we saw through 2017 continues into this year, with no signs of slowing. We have strong prospects for growth at all our companies, with planned capital investment of $2.3 billion over the next five years, including $628 million slated for projects this year. Acquisitions will be incremental to this investment. We have the financial flexibility to execute on these projects, as MDU Resources Group, Inc.7 Numbers indicate age and years of service ( ) on the MDU Resources Board of Directors as of December 31, 2017. Audit CommitteeDennis W. Johnson, ChairMark A. HellersteinA. Bart HoladayJohn K. Wilson Compensation CommitteeThomas Everist, ChairKaren B. FaggWilliam E. McCrackenPatricia L. Moss Nominating and Governance CommitteeKaren B. Fagg, ChairA. Bart HoladayWilliam E. McCrackenPatricia L. Moss Harry J. Pearce 75 (21) Detroit, Michigan Chair of MDU Resources Board of Directors Retired, formerly chair of Hughes Electronics Corp., a subsidiary of General Motors Corp., and former vice chair and director of GM; on the board of several organizations. Expertise: Multinational business management, leadership, finance, engineering and law. David L. Goodin 56 (5) Bismarck, North Dakota President and Chief Executive Officer of MDU Resources Formerly president and chief executive officer of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co. Thomas Everist 68 (23) Sioux Falls, South Dakota President and chair of The Everist Co., formerly a construction materials company; a director of several corporations. Expertise: Business management, construction and sand, gravel and aggregate production. Karen B. Fagg 64 (13) Billings, Montana Retired, formerly vice president of DOWL HKM and formerly chair, chief executive officer and majority owner of HKM Engineering Inc.; on the board of several organizations. Expertise: Engineering, construction and business management. A. Bart Holaday 75 (10) Denver, Colorado, and Grand Forks, North Dakota Retired, formerly managing director of Private Markets Group of UBS Asset Management; on the board of several organizations. Expertise: Energy industry, business development, finance and law. Mark A. Hellerstein 65 (5) Denver, Colorado Retired, formerly chair, president and chief executive officer of St. Mary Land & Exploration Co.; a former director of Transocean Inc. Expertise: Energy industry, business management, accounting and finance. Patricia L. Moss 64 (15) Bend, Oregon Formerly vice chair, president and chief executive officer of Cascade Bancorp and Bank of the Cascades; a director of First Interstate BancSystem Inc. Expertise: Finance, banking, business development and human resources. William E. McCracken 75 (5) Warren, New Jersey Retired, formerly chair and chief executive officer of CA Technologies; previously held executive positions with IBM Corp.; on the board of several organizations; a former director of IKON Office Solutions Inc. Expertise: Multinational business management, corporate governance, technology and cybersecurity. John K. Wilson 63 (15) Omaha, Nebraska Formerly president of Durham Resources LLC, a privately held financial management company, and formerly a director of a mutual fund; on the board of several organizations. Expertise: Public utilities, accounting and finance. Dennis W. Johnson 68 (17) Dickinson, North Dakota Vice Chair of MDU Resources Board of Directors Chair, president and chief executive officer of TMI Corp., an architectural woodwork manufacturer; former president of the Dickinson City Commission; a former director of Federal Reserve Bank of Minneapolis. Expertise: Business management, engineering and finance. Board of Directors MDU Resources Group, Inc.8 Numbers indicate age and years of service ( ) as of December 31, 2017. Other Corporate and Senior Company OfficersStephanie A. Barth, 45 (22)Vice President, Chief Accounting Officer and Controller of MDU Resources David L. Goodin 56 (35) President and Chief Executive Officer of MDU Resources Serves on the company’s Board of Directors and as chair of the board of all major subsidiary companies; formerly president and chief executive officer of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co. Trevor J. Hastings 44 (22) President and Chief Executive Officer of WBI Holdings, Inc. Formerly vice president of business development and operations support with Knife River Corporation. Anne M. Jones 54 (36) Vice President of Human Resources of MDU Resources Formerly vice president of human resources, customer service and safety of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co. David C. Barney 62 (32) President and Chief Executive Officer of Knife River Corporation Formerly held executive and management positions with Knife River. Nicole A. Kivisto 44 (23) President and Chief Executive Officer of Cascade Natural Gas Corporation, Great Plains Natural Gas Co., Intermountain Gas Company and Montana-Dakota Utilities Co. Formerly vice president of operations of Great Plains Natural Gas and Montana-Dakota Utilities. Daniel S. Kuntz 64 (14) Vice President, General Counsel and Secretary of MDU Resources Serves as general counsel and secretary of all major subsidiary companies; formerly associate general counsel and assistant secretary of MDU Resources. Jason L. Vollmer 40 (13) Vice President, Chief Financial Officer and Treasurer of MDU Resources Formerly vice president, chief accounting officer and treasuer of MDU Resources. Jeffrey S. Thiede 55 (14) President and Chief Executive Officer of MDU Construction Services Group, Inc. Formerly held executive and management positions with MDU Construction Services Group. Peggy A. Link 51 (13) Vice President and Chief Information Officer of MDU Resources Formerly assistant vice president of technology and cybersecurity officer of MDU Resources. Management ChangesDennis L. Haider, executive vice president of business development of MDU Resources, retired effective June 12, 2017. Jason L. Vollmer was named vice president, chief financial officer and treasurer of MDU Resources effective September 30, 2017. He replaced Doran N. Schwartz, who resigned September 29, 2017. Stephanie A. Barth was named vice president, chief accounting officer and controller of MDU Resources effective September 30, 2017, upon Jason L. Vollmer’s promotion to vice president, chief financial officer and treasurer. Trevor J. Hastings was named president and chief executive officer of WBI Holdings, Inc. effective October 16, 2017. He replaced Martin A. Fritz, who resigned effective May 23, 2017. Corporate Management MDU Resources Group, Inc.9 Comparison of One-Year Total Stockholder Return (as of December 31, 2017) Comparison of Five-Year Total Stockholder Return (in dollars) $100 invested December 31, 2012, in MDU Resources was worth $146.85 at year-end 2017. 2012 2013 2014 2015 2016 2017 MDU Resources Group, Inc. $100.00 $147.54 $116.28 $94.22 $152.68 $146.85 S&P 500 Index 100.00 132.39 150.51 152.59 170.84 208.14 Peer Group 100.00 122.43 139.60 146.50 198.50 219.29 Comparison of 10-Year Total Stockholder Return (in dollars) $100 invested December 31, 2007, in MDU Resources was worth $130.91 at year-end 2017. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 MDU Resources Group, Inc. $100.00 $79.94 $90.24 $80.02 $87.33 $89.14 $131.53 $103.66 $83.99 $136.10 $130.91 S&P 500 Index 100.00 63.00 79.67 91.68 93.61 108.59 143.76 163.44 165.71 185.52 226.03 Peer Group 100.00 82.87 86.90 93.36 96.27 109.18 133.67 152.43 159.96 216.73 239.43 050100150200250 Old Peer GroupNew Peer GroupS&P 500 IndexMDU Resources Group, Inc.20132012201120102009 0 50 100 150 200 $250 S&P 500 Index Peer GroupMDU Resources ’17’16’15’14’13’12 0 50 100 150 200 250 300 Old Peer Group New Peer Group S&P 500 MDU Resources 20142013201220112010200920082007200620052004 0 50 100 150 200 250 ’17’16’15’14’13’12’11’10’09’08’07 Peer GroupS&P 500 IndexMDU Resources PeerGroupS&P 500IndexMDUResources -4% 22% 10% Stockholder Return Comparison MDU Resources Group, Inc.10 Data is indexed to December 31, 2016, for the one-year total stockholder return comparison, December 31, 2012, for the five-year total stockholder return comparison and December 31, 2007, for the 10-year total stockholder return comparison for MDU Resources, the S&P 500 and the peer group. Total stockholder return is calculated using the December 31 price for each year. It is assumed that all dividends are reinvested in stock at the frequency paid, and the returns of each component peer issuer of the group are weighted according to the issuer’s stock market capitalization at the beginning of the period. Peer group issuers are ALLETE, Inc., Alliant Energy Corporation, Atmos Energy Corporation, Avista Corporation, Black Hills Corporation, EMCOR Group, Inc., Granite Construction Incorporated, IDACORP, Inc., IES Holdings, Inc., Martin Marietta Materials, Inc., MYR Group Inc., National Fuel Gas Company, Northwest Natural Gas Company, NorthWestern Corporation, Quanta Services, Inc., Sterling Construction Company, Inc., U.S. Concrete, Inc., Vectren Corporation and Vulcan Materials Company. Stockholder Return Comparison UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commission file number 1-03480 MDU RESOURCES GROUP, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction ofincorporation or organization)(I.R.S. Employer Identification No.) 1200 West Century Avenue P.O. Box 5650 Bismarck, North Dakota 58506-5650 (Address of principal executive offices) (Zip Code) (701) 530-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one): ý o o (Do not check if a smaller reporting company)o o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý. State the aggregate market value of the voting common stock held by nonaffiliates of the registrant as of June 30, 2017: $5,116,974,651. Indicate the number of shares outstanding of the registrant's common stock, as of February 15, 2018: 195,304,376 shares. DOCUMENTS INCORPORATED BY REFERENCE Relevant portions of the registrant's 2018 Proxy Statement, to be filed no later than 120 days from December 31, 2017, are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14 of this Report. Part I Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Items 1 and 2 Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Electric. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Natural Gas Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Pipeline and Midstream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Construction Materials and Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Construction Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Part II Item 5 Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . .28 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Item 8 Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Item 9A Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Part III Item 10 Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .106 Item 14 Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Part IV Item 15 Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Item 16 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 Exhibits Contents 2 MDU Resources Group, Inc. Form 10-K The following abbreviations and acronyms used in this Form 10-K are defined below: Abbreviation or Acronym AFUDC Allowance for funds used during construction Andeavor Field Services LLC Formerly QEP Field Services, LLC doing business as Tesoro Logistics Rockies LLC Army Corps U.S. Army Corps of Engineers ASC FASB Accounting Standards Codification ATBs Atmospheric tower bottoms Bcf Billion cubic feet Big Stone Station 475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percent ownership) Company's former investment in companies owning three electric transmission lines in Brazil British thermal unit Calumet Specialty Products Partners, L.P. Capital Electric Capital Electric Construction Company, Inc., a direct wholly owned subsidiary of MDU Construction Services Cascade Natural Gas Corporation, an indirect wholly owned subsidiary of MDU Energy Capital Centennial Energy Holdings, Inc., a direct wholly owned subsidiary of the Company Centennial Holdings Capital LLC, a direct wholly owned subsidiary of Centennial Centennial's Consolidated EBITDA Centennial's consolidated net income from continuing operations plus the related interest expense, taxes, depreciation, depletion, amortization of intangibles and any non-cash charge relating to asset impairment for the preceding 12-month period Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial Comprehensive Environmental Response, Compensation and Liability Act Federal Clean Air Act Federal Clean Water Act MDU Resources Group, Inc. Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation 427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership) Dakota Prairie Refinery 20,000-barrel-per-day diesel topping plant built by Dakota Prairie Refining in southwestern North Dakota Dakota Prairie Refining Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet (previously included in the Company's refining segment) United States Court of Appeals for the District of Columbia Circuit Decatherm Dodd-Frank Wall Street Reform and Consumer Protection Act Earnings before interest, taxes, depreciation, depletion and amortization Employer Identification Number United States Environmental Protection Agency Employee Retirement Income Security Act of 1974 Endangered Species Act Securities Exchange Act of 1934, as amended Financial Accounting Standards Board Federal Energy Regulatory Commission Fidelity Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings (previously referred to as the Company's exploration and production segment) Funding improvement plan Accounting principles generally accepted in the United States of America Greenhouse gas Great Plains Natural Gas Co., a public utility division of the Company Generation Verification Test Capacity International Brotherhood of Electrical Workers International Chemical Workers Union International Financial Reporting Standards Definitions MDU Resources Group, Inc. Form 10-K 3 Intermountain Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital IPUC Idaho Public Utilities Commission Item 8 Financial Statements and Supplementary Data Knife River Knife River Corporation, a direct wholly owned subsidiary of Centennial Knife River - Northwest Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River K-Plan Company's 401(k) Retirement Plan kW Kilowatts kWh Kilowatt-hour LWG Lower Willamette Group MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations Mdk Thousand dk MDU Construction Services MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial MDU Energy Capital MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company MEPP Multiemployer pension plan MISO Midcontinent Independent System Operator, Inc. MMBtu Million Btu MMdk Million dk MNPUC Minnesota Public Utilities Commission Montana-Dakota Montana-Dakota Utilities Co., a public utility division of the Company Montana DEQ Montana Department of Environmental Quality MPPAA Multiemployer Pension Plan Amendments Act of 1980 MTPSC Montana Public Service Commission MW Megawatt NDPSC North Dakota Public Service Commission NGL Natural gas liquids Oil Includes crude oil and condensate OPUC Oregon Public Utility Commission Oregon DEQ Oregon State Department of Environmental Quality PCBs Polychlorinated biphenyls Pronghorn Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017) Proxy Statement PRP RCRA ROD RP SDPUC SEC SEC Defined Prices The average price of oil and natural gas during the applicable 12-month period, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions Securities Act Securities Act Industry Guide 7 Sheridan System South Dakota DENR SSIP Stock Purchase Plan Company's Dividend Reinvestment and Direct Stock Purchase Plan which was terminated effective December 5, 2016 Tax Cuts and Jobs Act Tesoro Refining & Marketing Company LLC State of Washington Thurston County Superior Court Definitions 4 MDU Resources Group, Inc. Form 10-K UA United Association of Journeyman and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada Supreme Court of the United States Variable interest entity Washington State Department of Ecology WBI Energy, Inc., a direct wholly owned subsidiary of WBI Holdings WBI Energy Midstream, LLC, an indirect wholly owned subsidiary of WBI Holdings WBI Energy Transmission, Inc., an indirect wholly owned subsidiary of WBI Holdings WBI Holdings, Inc., a direct wholly owned subsidiary of Centennial Washington Utilities and Transportation Commission 100-MW coal-fired electric generating facility near Gillette, Wyoming (25 percent ownership) Wyoming Public Service Commission ZRCs Zonal resource credits - a MW of demand equivalent assigned to generators by MISO for meeting system reliability requirements Definitions MDU Resources Group, Inc. Form 10-K 5 Part I 6 MDU Resources Group, Inc. Form 10-K Forward-Looking Statements This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 7 - MD&A - Business Segment Financial and Operating Data. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished. Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements in this Form 10-K, including statements contained within Item 1A - Risk Factors. Items 1 and 2. Business and Properties General The Company is a regulated energy delivery and construction materials and services business, which was incorporated under the laws of the state of Delaware in 1924. Its principal executive offices are at 1200 West Century Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone (701) 530-1000. The Company operates with a two-platform business model. Its regulated energy delivery platform and its construction materials and services platform are each comprised of different operating segments. Some of these segments experience seasonality related to the industries in which they operate. The two-platform approach helps balance this seasonality and the risk associated with each type of industry. Through its regulated energy delivery platform, the Company provides electric and natural gas services to customers, generates, transmits and distributes electricity, and provides natural gas transportation, storage and gathering services. These businesses are regulated by state public service commissions and/or the FERC. The construction materials and services platform provides construction services to a variety of industries, including commercial, industrial and governmental, and provides construction materials through aggregate mining and marketing of related products, such as ready-mix concrete and asphalt. The Company is organized into five reportable business segments. These business segments include: electric, natural gas distribution, pipeline and midstream, construction materials and contracting, and construction services. The Company's reportable segments are determined based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The internal reporting of these segments is defined based on the reporting and review process used by the Company's chief executive officer. Montana-Dakota, Great Plains, Cascade and Intermountain comprise the natural gas distribution segment. Montana-Dakota also comprises the electric segment. The Company, through its wholly owned subsidiary, Centennial, owns WBI Holdings, Knife River, MDU Construction Services, Centennial Resources and Centennial Capital. WBI Holdings is the pipeline and midstream segment, Knife River is the construction materials and contracting segment, MDU Construction Services is the construction services segment, and Centennial Resources and Centennial Capital are both reflected in the Other category. On November 21, 2017, the Company announced that its board of directors has directed senior management to explore reorganization to a holding company structure. The purpose of a potential reorganization would be to make Montana-Dakota and Great Plains, which today are divisions of the Company, into a subsidiary of the holding company, just as the Company’s other operating companies are wholly owned subsidiaries. For more information on the Company's business segments and discontinued operations, see Item 8 - Notes 2 and 13. As of December 31, 2017, the Company had 10,140 employees with 205 employed at MDU Resources Group, Inc., 963 at Montana- Dakota, 35 at Great Plains, 348 at Cascade, 240 at Intermountain, 319 at WBI Holdings, 3,466 at Knife River and 4,564 at MDU Construction Services. The number of employees at certain Company operations fluctuates during the year depending upon the number and size of construction projects. The Company considers its relations with employees to be satisfactory. The following information regarding the number of employees represented by labor contracts is as of December 31, 2017. At Montana-Dakota and WBI Energy Transmission, 353 and 68 employees, respectively, are represented by the IBEW. Labor contracts with such employees are in effect through April 30, 2018, and March 31, 2018, respectively. At Cascade, 192 employees are represented by the ICWU. The labor contract with the field operations group is effective through March 31, 2018. At Intermountain, 127 employees are represented by the UA. Labor contracts with such employees are in effect through September 30, 2019. Knife River operates under 43 labor contracts that represent 685 of its construction materials and contracting employees. Knife River is in negotiations on one of its labor contracts. MDU Construction Services has 130 labor contracts representing the majority of its employees. MDU Construction Services is in negotiations on 10 of its labor contracts. The majority of the labor contracts contain provisions that prohibit work stoppages or strikes and provide for binding arbitration dispute resolution in the event of an extended disagreement. The Company's principal properties, which are of varying ages and are of different construction types, are generally in good condition, are well maintained and are generally suitable and adequate for the purposes for which they are used. The financial results and data applicable to each of the Company's business segments, as well as their financing requirements, are set forth in Item 7 - MD&A and Item 8 - Note 13 and Supplementary Financial Information. The operations of the Company and certain of its subsidiaries are subject to federal, state and local laws and regulations providing for air, water and solid waste pollution control; state facility-siting regulations; zoning and planning regulations of certain state and local authorities; federal health and safety regulations and state hazard communication standards. The Company believes that it is in substantial compliance with these regulations, except as to what may be ultimately determined with regard to items discussed in Environmental matters in Item 8 - Note 17. There are no pending CERCLA actions for any of the Company's properties, other than the Portland, Oregon, Harbor Superfund Site and the Bremerton Gasworks Superfund Site. The Company produces GHG emissions primarily from its fossil fuel electric generating facilities, as well as from natural gas pipeline and storage systems, and operations of equipment and fleet vehicles. GHG emissions also result from customer use of natural gas for heating and other uses. As interest in reductions in GHG emissions has grown, the Company has developed renewable generation with lower or no GHG emissions. Governmental legislative and regulatory initiatives regarding environmental and energy policy are continuously evolving and could negatively impact the Company's operations and financial results. Until legislation and regulation are finalized, the impact of these measures cannot be accurately predicted. The Company will continue to monitor legislative and regulatory activity related to environmental and energy policy initiatives. Disclosure regarding specific environmental matters applicable to each of the Company's businesses is set forth under each business description later. In addition, for a discussion of the Company's risks related to environmental laws and regulations, see Item 1A - Risk Factors. This annual report on Form 10-K, the Company's quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company's Web site as soon as reasonably practicable after the Company has electronically filed such reports with, or furnished such reports to, the SEC. The Company's Web site address is www.mdu.com. The information available on the Company's Web site is not part of this annual report on Form 10-K. Part I MDU Resources Group, Inc. Form 10-K 7 Electric General Montana-Dakota provides electric service at retail, serving 142,901 residential, commercial, industrial and municipal customers in 178 communities and adjacent rural areas as of December 31, 2017. For more information on the retail customer classes served, see the table below. The principal properties owned by Montana-Dakota for use in its electric operations include interests in 16 electric generating units at 11 facilities and three small portable diesel generators, as further described under System Supply, System Demand and Competition, approximately 3,200 and 4,900 miles of transmission and distribution lines, respectively, and 73 transmission and 296 distribution substations. Montana-Dakota has obtained and holds, or is in the process of renewing, valid and existing franchises authorizing it to conduct its electric operations in all of the municipalities it serves where such franchises are required. Montana-Dakota intends to protect its service area and seek renewal of all expiring franchises. At December 31, 2017, Montana-Dakota's net electric plant investment was $1.4 billion, and rate base was $1.1 billion. The retail customers served and respective revenues by class for the electric business were as follows: 2017 2016 2015 CustomersServed Revenues CustomersServed Revenues CustomersServed Revenues (Dollars in thousands) Residential 118,379 $ 121,171 118,483 $ 117,014 118,413 $ 107,767 Commercial 22,764 140,856 22,693 135,390 22,423 121,463 Industrial 242 34,417 244 31,913 240 32,786 Other 1,516 8,275 1,528 7,580 1,511 6,791 142,901 $ 304,719 142,948 $291,897 142,587 $268,807 Other electric revenues for Montana-Dakota were $38.1 million, $30.4 million and $11.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The percentage of electric retail revenues by jurisdiction was as follows: 2017 2016 2015 North Dakota 66% Montana 20% Wyoming 9% South Dakota 5% Retail electric rates, service, accounting and certain security issuances are subject to regulation by the MTPSC, NDPSC, SDPUC and WYPSC. The interstate transmission and wholesale electric power operations of Montana-Dakota also are subject to regulation by the FERC under provisions of the Federal Power Act, as are interconnections with other utilities and power generators, the issuance of securities, accounting and other matters. Through MISO, Montana-Dakota has access to wholesale energy, ancillary services and capacity markets for its interconnected system. MISO is a regional transmission organization responsible for operational control of the transmission systems of its members. MISO provides security center operations, tariff administration and operates day-ahead and real-time energy markets, ancillary services and capacity markets. As a member of MISO, Montana-Dakota's generation is sold into the MISO energy market and its energy needs are purchased from that market. System Supply, System Demand and Competition Through an interconnected electric system, Montana-Dakota serves markets in portions of western North Dakota, including Bismarck, Mandan, Dickinson, Williston and Watford City; eastern Montana, including Sidney, Glendive and Miles City; and northern South Dakota, including Mobridge. The interconnected system consists of 15 electric generating units at 10 facilities and three small portable diesel generators, which have an aggregate nameplate rating attributable to Montana-Dakota's interest of 704,143 kW and total net ZRCs of 528.2 in 2017. ZRCs are a MW of demand equivalent measure and are allocated to individual generators to meet planning reserve margin requirements within MISO. For 2017, Montana-Dakota's total ZRCs, including its firm purchase power contracts, were 553.1. Montana-Dakota's planning reserve margin requirement within MISO was 530.2 for 2017. The maximum electric peak demand experienced to date attributable to Montana-Dakota's sales to retail customers on the interconnected system was 611,542 kW in August 2015. Montana-Dakota's latest forecast for its interconnected system indicates that its annual peak will continue to occur during the summer and the sales growth rate through 2022 will approximate two percent annually. Montana-Dakota's interconnected system electric generating capability includes five steam-turbine generating units at four facilities using coal for fuel, four combustion Part I 8 MDU Resources Group, Inc. Form 10-K turbine units at three facilities, three wind electric generating facilities, two reciprocating internal combustion engines at one facility, a heat recovery electric generating facility and three small portable diesel generators. In June 2016, Montana-Dakota and a partner began construction on a 345-kilovolt transmission line within the footprint of MISO from Ellendale, North Dakota, to Big Stone City, South Dakota, a distance of about 160 miles, which will facilitate public policy goals and objectives, including delivery of renewable wind energy from North Dakota to eastern markets. The project has been approved as a MISO multivalue project. All necessary easements have been secured and the project is expected to be completed in 2019. In December 2016, Montana-Dakota signed a 25-year agreement to purchase power from the expansion of the Thunder Spirit Wind farm in southwest North Dakota. In November 2017, the NDPSC approved the advance determination of prudence for the purchase of the Thunder Spirit Wind farm expansion. Montana-Dakota expects to soon have a purchase agreement in place and finalize the purchase when the construction is complete in late 2018. With the addition of the expansion, Montana-Dakota's total wind farm generation capacity will be approximately 155 MW and increase Montana-Dakota's electric generation portfolio to approximately 27 percent renewables. The original 107.5-MW wind farm includes 43 turbines; it was purchased by Montana-Dakota in December 2015. The expansion will include 16 turbines. Acquisition costs for the project are estimated to be approximately $85 million. Additional energy will be purchased as needed, or if more economical, from the MISO market. In 2017, Montana-Dakota purchased approximately 26 percent of its net kWh needs for its interconnected system through the MISO market. Approximately 24 percent of the electricity delivered to customers from Montana-Dakota's owned generation in 2017 was from renewable resources. Although Montana-Dakota's generation resource capacity has increased to serve the needs of customers, the carbon dioxide emission intensity of the electric generation resource fleet has been reduced by more than 25 percent since 2003 and is expected to continue to decline. Through the Sheridan System, Montana-Dakota serves Sheridan, Wyoming, and neighboring communities. The maximum peak demand experienced to date attributable to Montana-Dakota sales to retail customers on that system was approximately 61,501 kW in July 2012. Montana-Dakota has a power supply contract with Black Hills Power, Inc. to purchase up to 49,000 kW of capacity annually through December 31, 2023. Wygen III serves a portion of the needs of its Sheridan-area customers. Part I MDU Resources Group, Inc. Form 10-K 9 The following table sets forth details applicable to the Company's electric generating stations: Generating Station Type NameplateRating (kW) 2017 ZRCs (a) 2017 NetGeneration (kWhin thousands) Interconnected System: North Dakota: Coyote (b)Steam 103,647 83.4 652,071 Heskett Steam 86,000 87.1 454,134 Heskett Combustion Turbine 89,038 59.0 3,400 Glen Ullin Heat Recovery 7,500 4.0 45,548 Cedar Hills Wind 19,500 5.0 59,385 Diesel Units Oil 5,475 3.7 9 Thunder Spirit Wind 107,500 20.6 428,528 South Dakota: Big Stone (b)Steam 94,111 101.8 469,709 Montana: Lewis & Clark Steam 44,000 50.9 225,984 Lewis & Clark Reciprocating Internal Combustion Engine 18,700 16.1 5,453 Glendive Combustion Turbine 75,522 68.8 2,333 Miles City Combustion Turbine 23,150 21.5 406 Diamond Willow Wind 30,000 6.3 93,696 704,143 528.2 2,440,656 Sheridan System: Wyoming: Wygen III (b)Steam 28,000 N/A 189,984 732,143 528.2 2,630,640 (a) Interconnected system only. MISO requires generators to obtain their summer capability through the GVTC. The GVTC is thenconverted to ZRCs by applying each generator's forced outage factor against its GVTC. Wind generator's ZRCs are calculated basedon a wind capacity study performed annually by MISO. ZRCs are used to meet supply obligations within MISO.(b) Reflects Montana-Dakota's ownership interest. Virtually all of the current fuel requirements of the Heskett and Lewis & Clark stations are met with coal supplied by subsidiaries of Westmoreland Coal Company under contracts that expire in December 2021 and December 2020, respectively. The Heskett and Lewis & Clark coal supply agreements provide for the purchase of coal necessary to supply the coal requirements of these stations at contracted pricing. Montana-Dakota estimates the Heskett and Lewis & Clark coal requirement to be in the range of 425,000 to 460,000 tons and 250,000 to 350,000 tons per contract year, respectively. The owners of Coyote Station, including Montana-Dakota, have a contract with Coyote Creek for coal supply to the Coyote Station that expires December 2040. Montana-Dakota estimates the Coyote Station coal supply agreement to be approximately 2.5 million tons per contract year. For more information, see Item 8 - Note 17. The owners of Big Stone Station, including Montana-Dakota, have coal supply agreements, which meet a portion of the Big Stone Station's fuel requirements, for the purchase of 250,000 tons in 2018 and 2019 from Contura Coal Sales, LLC and 550,000 tons in 2018 from Peabody COALSALES, LLC both at contracted pricing. The remainder of the Big Stone Station fuel requirements will be secured through separate future contracts. Montana-Dakota has a coal supply agreement with Wyodak Resources Development Corp., to supply the coal requirements of Wygen III at contracted pricing through June 1, 2060. Montana-Dakota estimates the maximum annual coal consumption of the facility to be 585,000 tons. The average cost of coal purchased, including freight, at Montana-Dakota's electric generating stations (including the Big Stone, Coyote and Wygen III stations) was as follows: Years ended December 31,2017 2016 2015 Average cost of coal per MMBtu $2.07 $1.89 $1.75 Average cost of coal per ton $ 30.04 $27.45 $25.41 Part I 10 MDU Resources Group, Inc. Form 10-K Montana-Dakota expects that it has secured adequate capacity available through existing baseload generating stations, renewable generation, turbine peaking stations, demand reduction programs and firm contracts to meet the peak customer demand requirements of its customers through 2024. Future capacity that is needed to replace contracts and meet system growth requirements is expected to be met by constructing new generation resources, or acquiring additional capacity through power purchase contracts or the MISO capacity auction. Montana-Dakota has major interconnections with its neighboring utilities and considers these interconnections adequate for coordinated planning, emergency assistance, exchange of capacity and energy and power supply reliability. Montana-Dakota is subject to competition in varying degrees, in certain areas, from rural electric cooperatives, on-site generators, co- generators and municipally owned systems. In addition, competition in varying degrees exists between electricity and alternative forms of energy such as natural gas. Regulatory Matters and Revenues Subject to Refund In North Dakota, Montana-Dakota's results of operations reflect monthly increases or decreases in electric fuel and purchased power costs (including demand charges) and Montana-Dakota is deferring those electric fuel and purchased power costs that are greater or less than amounts presently being recovered through its existing rate schedules. In Montana, a monthly Fuel and Purchased Power Tracking Adjustment mechanism allows Montana-Dakota's results of operations to reflect 90 percent of the increases or decreases in electric fuel and purchased power costs (including demand charges) and Montana-Dakota is deferring 90 percent of costs that are greater or less than amounts presently being recovered through its existing rate schedules. A fuel adjustment clause contained in South Dakota jurisdictional electric rate schedules allows Montana-Dakota's results of operations to reflect monthly increases or decreases in electric fuel and purchased power costs. In Wyoming, an annual Electric Power Supply Cost Adjustment mechanism allows Montana-Dakota's results of operations to reflect increases or decreases in purchased power costs (including demand charges) related to power supply and Montana-Dakota is deferring costs that are greater or less than amounts presently being recovered through its existing rate schedules. Such orders generally provide that these amounts are recoverable or refundable through rate adjustments which are filed annually. Montana-Dakota's results of operations reflect 95 percent of the increases or decreases from the base purchased power costs and in addition also reflects 85 percent of the increases or decreases from the base coal price, which is also recovered through the Electric Power Supply Cost Adjustment. For more information, see Item 8 - Note 4. For the Thunder Spirit Wind project, Montana-Dakota implemented a renewable resource cost adjustment rider, and all of Montana-Dakota's wind resources pertaining to North Dakota electric operations were placed in this rider upon a final order of the most recent North Dakota electric general rate case. Montana-Dakota also has in place in North Dakota a transmission tracker to recover transmission costs associated with MISO and the Southwest Power Pool, regional transmission systems serving Montana-Dakota, along with certain of the transmission investments not recovered through retail rates. The tracking mechanism has an annual true-up. In South Dakota, Montana-Dakota recovers the South Dakota investment in the Thunder Spirit Wind project through an Infrastructure Rider tracking mechanism that is subject to an annual true-up. Montana-Dakota also has in place in South Dakota a transmission tracker to recover transmission costs associated with MISO and the Southwest Power Pool, regional transmission systems serving Montana-Dakota, along with certain of the transmission investments not recovered through retail rates. The tracking mechanism has an annual true-up. In Montana, Montana-Dakota recovers in rates through a tracking mechanism the increases associated with its allocated share of Montana state and local taxes assessed to electric operations on an after tax basis. For more information on regulatory matters, see Item 8 - Note 16. Environmental Matters Montana-Dakota's electric operations are subject to federal, state and local laws and regulations providing for air, water and solid waste pollution control; state facility-siting regulations; zoning and planning regulations of certain state and local authorities; federal health and safety regulations; and state hazard communication standards. Montana-Dakota believes it is in substantial compliance with these regulations. Montana-Dakota's electric generating facilities have Title V Operating Permits, under the Clean Air Act, issued by the states in which they operate. Each of these permits has a five-year life. Near the expiration of these permits, renewal applications are submitted. Permits continue in force beyond the expiration date, provided the application for renewal is submitted by the required date, usually six months prior to expiration. The Title V Operating Permit renewal application for Big Stone Station was submitted timely to the South Dakota DENR in November 2013, and a final permit was issued in May 2017. An application to modify the Title V Operating Permit for incorporation of two new natural gas-fired engines at Lewis & Clark Station was submitted to the Montana DEQ timely in December 2016, and a final permit was issued in July 2017. The Title V Operating Permit renewal application for Coyote Station was submitted timely to the North Dakota Department of Health in September 2017, with the permit expected to be issued in 2018. Wygen III is allowed to operate under the facility's construction permit until the Title V Operating Permit is issued by the Wyoming Department of Environmental Quality. The Title V Operating Permit application for Wygen III was submitted timely in January 2011, with the permit expected to be issued in 2018. Part I MDU Resources Group, Inc. Form 10-K 11 State water discharge permits issued under the requirements of the Clean Water Act are maintained for power production facilities on the Yellowstone and Missouri rivers. These permits also have five-year lives. Montana-Dakota renews these permits as necessary prior to expiration. Other permits held by these facilities may include an initial siting permit, which is typically a one-time, preconstruction permit issued by the state; state permits to dispose of combustion by-products; state authorizations to withdraw water for operations; and Army Corps permits to construct water intake structures. Montana-Dakota's Army Corps permits grant one-time permission to construct and do not require renewal. Other permit terms vary and the permits are renewed as necessary. Montana-Dakota's electric operations are conditionally exempt small-quantity hazardous waste generators and subject only to minimum regulation under the RCRA. Montana-Dakota routinely handles PCBs from its electric operations in accordance with federal requirements. PCB storage areas are registered with the EPA as required. Montana-Dakota incurred $3.7 million of environmental capital expenditures in 2017, mainly for coal ash management projects at Lewis & Clark Station, Big Stone Station and Coyote Station. Environmental capital expenditures are estimated to be $9.6 million, $9.2 million and $1.5 million in 2018, 2019 and 2020, respectively, for various environmental upgrades and improvements for air emission and water and coal ash management at power plants. Montana-Dakota's capital and operational expenditures could also be affected by future air emission regulations, including a future regulation that may replace the Clean Power Plan rule published by the EPA in October 2015. The Clean Power Plan requires existing fossil fuel-fired electric generating facilities to reduce carbon dioxide emissions. On February 9, 2016, the United States Supreme Court granted an application for a stay of the Clean Power Plan pending disposition of the applicants' petition for review in the D.C. Circuit Court and disposition of the applicants' petition for a writ of certiorari if such a writ is sought. The EPA filed a motion with the D.C. Circuit Court on March 28, 2017, requesting the Clean Power Plan's case be held in abeyance. The D.C. Circuit Court granted the EPA’s motion to hold the case in abeyance for 60 days. On August 8, 2017, the D.C. Circuit Court issued an order holding the case in abeyance for an additional 60-day period and directed the EPA to file status reports at 30-day intervals. In parallel, the EPA published a proposal on October 16, 2017, to repeal the Clean Power Plan in its entirety and followed with an advance notice of proposed rulemaking published in the Federal Register on December 28, 2017, requesting comment on replacing the Clean Power Plan through new rulemaking. Part I 12 MDU Resources Group, Inc. Form 10-K Natural Gas Distribution General The Company's natural gas distribution operations consist of Montana-Dakota, Great Plains, Cascade and Intermountain, which sell natural gas at retail, serving 938,867 residential, commercial and industrial customers in 335 communities and adjacent rural areas across eight states as of December 31, 2017, and provide natural gas transportation services to certain customers on the Company's systems. For more information on the retail customer classes served, see the table below. These services are provided through distribution systems aggregating approximately 19,600 miles. The natural gas distribution operations have obtained and hold, or are in the process of renewing, valid and existing franchises authorizing them to conduct their natural gas operations in all of the municipalities they serve where such franchises are required. These operations intend to protect their service areas and seek renewal of all expiring franchises. At December 31, 2017, the natural gas distribution operations' net natural gas distribution plant investment was $1.5 billion, and rate base was $975 million. The retail customers served and respective revenues by class for the natural gas distribution operations were as follows: 2017 2016 2015 CustomersServed Revenues CustomersServed Revenues CustomersServed Revenues (Dollars in thousands) Residential 833,255 $ 477,699 818,163 $ 429,828 803,846 $ 455,301 Commercial 104,795 283,899 103,438 253,333 101,688 277,022 Industrial 817 24,030 807 23,337 811 26,568 938,867 $ 785,628 922,408 $706,498 906,345 $758,891 Transportation and other revenues for the natural gas distribution operations were $62.8 million, $59.6 million and $58.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The percentage of the natural gas distribution operations' retail sales revenues by jurisdiction was as follows: 2017 2016 2015 Idaho 33% Washington 26% North Dakota 13% Montana 9% Oregon 8% South Dakota 6% Minnesota 3% Wyoming 2% The natural gas distribution operations are subject to regulation by the IPUC, MNPUC, MTPSC, NDPSC, OPUC, SDPUC, WUTC and WYPSC regarding retail rates, service, accounting and certain security issuances. System Supply, System Demand and Competition The natural gas distribution operations serve retail natural gas markets, consisting principally of residential and firm commercial space and water heating users, in portions of Idaho, including Boise, Nampa, Twin Falls, Pocatello and Idaho Falls; western Minnesota, including Fergus Falls, Marshall and Crookston; eastern Montana, including Billings, Glendive and Miles City; North Dakota, including Bismarck, Mandan, Dickinson, Wahpeton, Williston, Watford City, Minot and Jamestown; central and eastern Oregon, including Bend, Pendleton, Ontario and Baker City; western and north-central South Dakota, including Rapid City, Pierre, Spearfish and Mobridge; western, southeastern and south-central Washington, including Bellingham, Bremerton, Longview, Aberdeen, Wenatchee/Moses Lake, Mount Vernon, Tri-Cities, Walla Walla and Yakima; and northern Wyoming, including Sheridan and Lovell. These markets are highly seasonal and sales volumes depend largely on the weather, the effects of which are mitigated in certain jurisdictions by a weather normalization mechanism discussed in Regulatory Matters. In addition to the residential and commercial sales, the utilities transport natural gas for larger commercial and industrial customers who purchase their own supply of natural gas. Competition in varying degrees exists between natural gas and other fuels and forms of energy. The natural gas distribution operations have established various natural gas transportation service rates for their distribution businesses to retain interruptible commercial and industrial loads. These services have enhanced the natural gas distribution operations' competitive posture with alternative fuels, although certain customers have bypassed the distribution systems by directly accessing transmission pipelines within close proximity. These bypasses did not have a material effect on results of operations. The natural gas distribution operations and various distribution transportation customers obtain their system requirements directly from producers, processors and marketers. The Company's purchased natural gas is supplied by a portfolio of contracts specifying market-based pricing and is transported under transportation agreements with WBI Energy Transmission, Northern Border Pipeline Company, Northwest Pipeline LLC, South Dakota Intrastate Pipeline, TransCanada Corporation, Northern Natural Gas, Gas Transmission Northwest LLC, Northwestern Energy, Viking Gas Transmission Company, Westcoast Energy Inc., Ruby Pipeline LLC, Foothills Pipe Lines Ltd. and NOVA Gas Transmission Ltd. The natural gas distribution operations have contracts for storage services to provide gas supply during the winter heating season and to meet peak day demand with various storage providers, including WBI Energy Transmission, Questar Pipeline Company, Northwest Pipeline LLC and Northern Natural Gas. In addition, certain of the operations have entered into natural gas supply management agreements with various parties. Demand for natural gas, which is a widely traded commodity, has historically been sensitive to seasonal heating and industrial load requirements as well as changes in market price. The natural gas distribution operations believe that, based on current and projected domestic and regional supplies of natural gas and the pipeline transmission network currently available through their suppliers and pipeline service providers, supplies are adequate to meet their system natural gas requirements for the next decade. Regulatory Matters The natural gas distribution operations' retail natural gas rate schedules contain clauses permitting adjustments in rates based upon changes in natural gas commodity, transportation and storage costs. Current tariffs allow for recovery or refunds of under- or over-recovered gas costs through rate adjustments which are filed annually. Montana-Dakota's North Dakota and South Dakota natural gas tariffs contain weather normalization mechanisms applicable to certain firm customers that adjust the distribution delivery charge revenues to reflect weather fluctuations during the November 1 through May 1 billing periods. In Montana, Montana-Dakota recovers in rates through a tracking mechanism the increases associated with Montana state and local taxes assessed to natural gas operations on an after tax basis. Part I MDU Resources Group, Inc. Form 10-K 13 On December 28, 2015, the OPUC approved an extension of Cascade's decoupling mechanism until January 1, 2020, with an agreement that Cascade would initiate a review of the mechanism by September 30, 2019. Cascade also has an earnings sharing mechanism with respect to its Oregon jurisdictional operations as required by the OPUC. On July 7, 2016, the WUTC approved a full decoupling mechanism where Cascade is allowed recovery of an average revenue per customer regardless of actual consumption. The mechanism also includes an earnings sharing component if Cascade earns beyond its authorized return. The decoupling mechanism will be reviewed following the end of 2019. On December 22, 2016, the MNPUC approved a request by Great Plains to implement a full revenue decoupling mechanism pilot project. The decoupling mechanism will reflect the period October 1 through September 30 with the first adjustment to be billed to customers effective December 1 each year for the 3 year pilot project. For more information on regulatory matters, see Item 8 - Note 16. Environmental Matters The natural gas distribution operations are subject to federal, state and local environmental, facility-siting, zoning and planning laws and regulations. The natural gas distribution operations believe it is in substantial compliance with those regulations. The Company's natural gas distribution operations are conditionally exempt small-quantity hazardous waste generators and subject only to minimum regulation under the RCRA. Certain locations of the natural gas distribution operations routinely handle PCBs from their natural gas operations in accordance with federal requirements. PCB storage areas are registered with the EPA as required. Capital and operational expenditures for natural gas distribution operations could be affected in a variety of ways by potential new GHG legislation or regulation. In particular, such legislation or regulation would likely increase capital expenditures for energy efficiency and conservation programs and operational costs associated with GHG emissions compliance. Natural gas distribution operations expect to recover the operational and capital expenditures for GHG regulatory compliance in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations. The natural gas distribution operations did not incur any material environmental expenditures in 2017. Except as to what may be ultimately determined with regard to the issues described in the following paragraph, the natural gas distribution operations do not expect to incur any material capital expenditures related to environmental compliance with current laws and regulations through 2020. Montana-Dakota and Great Plains have ties to six historic manufactured gas plants as a successor corporation or through direct ownership of the plant. Montana-Dakota is investigating one of these former manufactured gas plant sites and providing input on another site investigation conducted by a third party. To the extent not covered by insurance, Montana-Dakota may seek recovery in its natural gas rates charged to customers for certain investigation and remediation costs incurred for these sites. Cascade has ties to nine historic manufactured gas plants as a successor corporation or through direct ownership of the plant. Cascade is involved in the investigation and remediation of three of these manufactured gas plants in Washington and Oregon. See Item 8 - Note 17 for a further discussion of these three manufactured gas plants. To the extent not covered by insurance, Cascade will seek recovery of investigation and remediation costs through its natural gas rates charged to customers. Part I 14 MDU Resources Group, Inc. Form 10-K Pipeline and Midstream General WBI Energy owns and operates both regulated and nonregulated businesses. The regulated business of this segment, WBI Energy Transmission, owns and operates approximately 4,000 miles of natural gas transmission, gathering and storage lines in Montana, North Dakota, South Dakota and Wyoming. Three underground storage fields in Montana and Wyoming provide storage services to local distribution companies, industrial customers, natural gas marketers and others, and serve to enhance system reliability. Its system is strategically located near five natural gas producing basins, making natural gas supplies available to its transportation and storage customers. The system has 13 interconnecting points with other pipeline facilities allowing for the receipt and/or delivery of natural gas to and from other regions of the country and from Canada. Under the Natural Gas Act, as amended, WBI Energy Transmission is subject to the jurisdiction of the FERC regarding certificate, rate, service and accounting matters, and at December 31, 2017, its net plant investment was $404.6 million. The nonregulated business of this segment owns and operates gathering facilities in Montana and Wyoming. In total, facilities include approximately 800 miles of operated field gathering lines, some of which interconnect with WBI Energy's regulated pipeline system. The nonregulated business provides natural gas gathering services and a variety of other energy-related services, including cathodic protection and energy efficiency product sales and installation services to large end-users. In November 2016, the Company entered into an agreement to sell its ownership in the Pronghorn assets, which included a 50 percent undivided interest in a natural gas processing plant, both oil and gas gathering pipelines, an oil storage terminal and an oil pipeline in western North Dakota. The transaction closed in January 2017. A majority of its pipeline and midstream business is transacted in the northern Great Plains and Rocky Mountain regions of the United States. System Supply, System Demand and Competition Natural gas supplies emanate from traditional and nontraditional production activities in the region from both on-system and off-system supply sources. New incremental supply from nontraditional sources have developed, such as the Bakken area in Montana and North Dakota, which has helped offset declines in traditional regional supply sources and supports WBI Energy Transmission's transportation and storage services. In addition, off-system supply sources are available through the Company's interconnections with other pipeline systems. WBI Energy Transmission will continue to look for opportunities to increase transportation, gathering and storage services through system expansion and/or other pipeline interconnections or enhancements that could provide substantial future benefits. WBI Energy Transmission's underground natural gas storage facilities have a certificated storage capacity of approximately 353 Bcf, including 193 Bcf of working gas capacity, 85 Bcf of cushion gas and 75 Bcf of native gas. These storage facilities enable customers to purchase natural gas throughout the year and meet winter peak requirements. WBI Energy Transmission competes with several pipelines for its customers' transportation, storage and gathering business and at times may discount rates in an effort to retain market share. However, the strategic location of its system near five natural gas producing basins and the availability of underground storage and gathering services, along with interconnections with other pipelines, serve to enhance its competitive position. Although certain of WBI Energy Transmission's firm customers, including its largest firm customer Montana-Dakota, serve relatively secure residential, commercial and industrial end-users, they generally all have some price-sensitive end-users that could switch to alternate fuels. WBI Energy Transmission transports substantially all of Montana-Dakota's natural gas, primarily utilizing firm transportation agreements, which for 2017 represented 34 percent of WBI Energy Transmission's subscribed firm transportation contract demand. The majority of the firm transportation agreements with Montana-Dakota expire in June 2022. In addition, Montana-Dakota has contracts with WBI Energy Transmission to provide firm storage services to facilitate meeting Montana-Dakota's winter peak requirements expiring in July 2035. The nonregulated business competes for existing customers in the fields in which it operates. Its focus on customer service and the variety of services it offers serve to enhance its competitive position. Environmental Matters The pipeline and midstream operations are generally subject to federal, state and local environmental, facility-siting, zoning and planning laws and regulations. The Company believes it is in substantial compliance with those regulations. Ongoing operations are subject to the Clean Air Act, the Clean Water Act, the RCRA and other state and federal regulations. Administration of many provisions of these laws has been delegated to the states where WBI Energy and its subsidiaries operate. Permit terms vary and all permits carry operational compliance conditions. Some permits require annual renewal, some have terms ranging from one to five years and others have no expiration date. Permits are renewed and modified, as necessary, based on defined permit expiration dates, operational demand and/or regulatory changes. Detailed environmental assessments and/or environmental impact statements as required by the National Environmental Policy Act are included in the FERC's environmental review process for both the construction and abandonment of WBI Energy Transmission's natural gas transmission pipelines, compressor stations and storage facilities. The pipeline and midstream operations did not incur any material environmental expenditures in 2017 and do not expect to incur any material capital expenditures related to environmental compliance with current laws and regulations through 2020. Part I MDU Resources Group, Inc. Form 10-K 15 Construction Materials and Contracting General Knife River operates construction materials and contracting businesses headquartered in Alaska, California, Hawaii, Idaho, Iowa, Minnesota, Montana, North Dakota, Oregon, Texas, Washington and Wyoming. These operations mine, process and sell construction aggregates (crushed stone, sand and gravel); produce and sell asphalt mix; and supply ready-mixed concrete. These products are used in most types of construction, performed by Knife River and other companies, including roads, freeways and bridges, as well as homes, schools, shopping centers, office buildings and industrial parks. Knife River focuses on vertical integration of construction services to support the aggregate based product lines including aggregate placement, asphalt and concrete paving, and site development and grading. Although not common to all locations, other products include the sale of cement, liquid asphalt for various commercial and roadway applications, various finished concrete products and other building materials and related contracting services. Knife River's backlog was approximately $486 million, $538 million and $491 million at December 31, 2017, 2016 and 2015, respectively. The decrease in backlog at December 31, 2017, compared to backlog at December 31, 2016, was primarily attributable to a lower backlog of state agency work. Backlog increases with awards of new contracts and decreases as work is performed on existing contracts. Knife River expects to complete a significant amount of the backlog at December 31, 2017, during the next 12 months. Knife River's backlog is comprised of the anticipated revenues from the uncompleted portion of services to be performed under job-specific contracts. A project is included in backlog when a contract is awarded and agreement on contract terms has been reached. However, backlog does not contain contracts for time and material projects that a fixed amount cannot be determined. Backlog is comprised of: (a) original contract amounts, (b) change orders for which customers have approved and (c) claim amounts that have been made against customers for which are determined to have a legal basis under existing contractual arrangements and as to which recovery is considered to be probable. Such claim amounts were immaterial for all periods presented. Backlog may be subject to delay, default or cancellation at the election of the customers. Historically, cancellations have not had a materially adverse effect on backlog. Due to the nature of its contractual arrangements, in many instances Knife River's customers are not committed to the specific volumes of services to be purchased under a contract, but rather Knife River is committed to perform these services if and to the extent requested by the customer. Therefore, there can be no assurance as to the customers' requirements during a particular period or that such estimates at any point in time are predictive of future revenues. Competition Knife River's construction materials products and contracting services are marketed under highly competitive conditions. Price is the principal competitive force to which these products and services are subject, with service, quality, delivery time and proximity to the customer also being significant factors. Knife River focuses on markets located near aggregate sites to reduce transportation costs which allows Knife River to remain competitive with the pricing of aggregate products. The number and size of competitors varies in each of Knife River's principal market areas and product lines. The demand for construction materials products and contracting services is significantly influenced by the cyclical nature of the construction industry in general. In addition, construction materials and contracting services activity in certain locations may be seasonal in nature due to the effects of weather. The key economic factors affecting product demand are changes in the level of local, state and federal governmental spending on roads and infrastructure projects, general economic conditions within the market area that influence both the commercial and residential sectors, and prevailing interest rates. Knife River's customers are a diverse group which includes federal, state and municipal government agencies, commercial and residential developers, and private parties. The mix of sales by customer will vary each year depending on the work available. Knife River is not dependent on any single customer or group of customers for sales of its products and services, the loss of which would have a material adverse effect on its construction materials businesses. Reserve Information Aggregate reserve estimates are calculated based on the best available data. This data is collected from drill holes and other subsurface investigations, as well as investigations of surface features such as mine high walls and other exposures of the aggregate reserves. Mine plans, production history and geologic data also are utilized to estimate reserve quantities. Estimates are based on analyses of the data described above by experienced internal mining engineers, operating personnel and geologists. Property setbacks and other regulatory restrictions and limitations are identified to determine the total area available for mining. Data described previously are used to calculate the thickness of aggregate materials to be recovered. Topography associated with alluvial sand and gravel deposits is typically flat and volumes of these materials are calculated by applying the thickness of the resource over the areas available for mining. Volumes are then converted to tons by using an appropriate conversion factor. Typically, 1.5 tons per cubic yard in the ground is used for sand and gravel deposits. Topography associated with the hard rock reserves is typically much more diverse. Therefore, using available data, a final topography map is created and computer software is utilized to compute the volumes between the existing and final topographies. Volumes are then converted to tons by using an appropriate conversion factor. Typically, 2 tons per cubic yard in the ground is used for hard rock quarries. Estimated reserves are probable reserves as defined in Securities Act Industry Guide 7. Remaining reserves are based on estimates of volumes that can be economically extracted and sold to meet current market and product applications. The reserve estimates include only salable tonnage and thus exclude waste materials that are generated in the crushing and processing phases of the operation. Approximately 891 million tons of the 965 million tons of aggregate reserves are permitted reserves. The remaining reserves are on properties that are expected to be permitted for mining under current regulatory requirements. The data used to calculate the remaining reserves may require revisions in the future to account for changes in customer requirements and unknown geological occurrences. The years remaining were calculated by dividing remaining reserves by the three-year average sales from 2015 through 2017. Actual useful lives of these reserves will be subject to, among other things, fluctuations in customer demand, customer specifications, geological conditions and changes in mining plans. Part I 16 MDU Resources Group, Inc. Form 10-K The following table sets forth details applicable to the Company's aggregate reserves under ownership or lease as of December 31, 2017, and sales for the years ended December 31, 2017, 2016 and 2015: Number of Sites(Crushed Stone)Number of Sites(Sand & Gravel)Tons Sold (000's)EstimatedReserves(000's tons)LeaseExpiration ReserveLife(years)Production Area owned leased owned leased 2017 2016 2015 Anchorage, AK — —1 —1,425 1,343 1,837 14,548 N/A 9 Hawaii — 5 — —1,614 1,901 1,892 50,659 2018-2064 28 Northern CA — —9 1 1,785 1,604 1,580 43,812 2018 26 Southern CA — 2 — —55 224 118 91,567 2035 Over 100 Portland, OR 1 3 5 3 4,694 4,044 3,562 213,018 2025-2057 52 Eugene, OR 3 4 6 —633 662 819 153,975 2021-2049 Over 100 Central OR/WA/ID — 1 5 2 2,160 1,685 1,493 86,307 2020-2087 49 Southwest OR 5 5 10 6 2,367 2,689 1,872 100,875 2019-2053 44 Central MT — —3 2 1,065 1,135 1,383 28,294 2023-2027 24 Northwest MT — —8 1 1,745 1,514 1,423 64,451 2020 41 Wyoming — —1 2 613 742 888 10,092 2019-2020 13 Central MN — 1 33 8 2,773 2,831 2,556 50,092 2018-2028 18 Northern MN 2 —14 2 270 537 595 23,248 2018-2021 50 ND/SD — —2 17 1,100 1,643 1,959 24,389 2019-2028 16 Texas 1 2 1 —1,192 1,243 1,138 9,709 2022-2029 8 Sales from other sources 4,722 3,783 3,844 28,213 27,580 26,959 965,036 The 965 million tons of estimated aggregate reserves at December 31, 2017, are comprised of 457 million tons that are owned and 508 million tons that are leased. Approximately 45 percent of the tons under lease have lease expiration dates of 20 years or more. The weighted average years remaining on all leases containing estimated probable aggregate reserves is approximately 23 years, including options for renewal that are at Knife River's discretion. Based on a three-year average of sales from 2015 through 2017 of leased reserves, the average time necessary to produce remaining aggregate reserves from such leases is approximately 47 years. Some sites have leases that expire prior to the exhaustion of the estimated reserves. The estimated reserve life assumes, based on Knife River's experience, that leases will be renewed to allow sufficient time to fully recover these reserves. The changes in Knife River's aggregate reserves for the years ended December 31 were as follows: 2017 2016 2015 (000's of tons) Aggregate reserves: Beginning of year 989,084 1,022,513 1,061,156 Acquisitions 2,726 24,993 7,406 Sales volumes*(23,491)(23,797) (23,115) Other**(3,283)(34,625)(22,934) End of year 965,036 989,084 1,022,513 * Excludes sales from other sources. ** Includes property sales, revisions of previous estimates and expiring leases. Environmental Matters Knife River's construction materials and contracting operations are subject to regulation customary for such operations, including federal, state and local environmental compliance and reclamation regulations. Except as to the issues described later, Knife River believes it is in substantial compliance with these regulations. Individual permits applicable to Knife River's various operations are managed largely by local operations, particularly as they relate to application, modification, renewal, compliance and reporting procedures. Knife River's asphalt and ready-mixed concrete manufacturing plants and aggregate processing plants are subject to the Clean Air Act and the Clean Water Act requirements for controlling air emissions and water discharges. Some mining and construction activities also are subject to these laws. In most of the states where Knife River operates, these regulatory programs have been delegated to state and local regulatory authorities. Knife River's facilities also are subject to the RCRA as it applies to the management of hazardous wastes and Part I MDU Resources Group, Inc. Form 10-K 17 underground storage tank systems. These programs also have generally been delegated to the state and local authorities in the states where Knife River operates. Knife River's facilities must comply with requirements for managing wastes and underground storage tank systems. Some Knife River activities are directly regulated by federal agencies. For example, certain in-water mining operations are subject to provisions of the Clean Water Act that are administered by the Army Corps. Knife River operates several such operations, including gravel bar skimming and dredging operations, and Knife River has the associated permits as required. The expiration dates of these permits vary, with five years generally being the longest term. Knife River's operations also are occasionally subject to the ESA. For example, land use regulations often require environmental studies, including wildlife studies, before a permit may be granted for a new or expanded mining facility or an asphalt or concrete plant. If endangered species or their habitats are identified, ESA requirements for protection, mitigation or avoidance apply. Endangered species protection requirements are usually included as part of land use permit conditions. Typical conditions include avoidance, setbacks, restrictions on operations during certain times of the breeding or rearing season, and construction or purchase of mitigation habitat. Knife River's operations also are subject to state and federal cultural resources protection laws when new areas are disturbed for mining operations or processing plants. Land use permit applications generally require that areas proposed for mining or other surface disturbances be surveyed for cultural resources. If any are identified, they must be protected or managed in accordance with regulatory agency requirements. The most comprehensive environmental permit requirements are usually associated with new mining operations, although requirements vary widely from state to state and even within states. In some areas, land use regulations and associated permitting requirements are minimal. However, some states and local jurisdictions have very demanding requirements for permitting new mines. Environmental impact reports are sometimes required before a mining permit application can be considered for approval. These reports can take up to several years to complete. The report can include projected impacts of the proposed project on air and water quality, wildlife, noise levels, traffic, scenic vistas and other environmental factors. The reports generally include suggested actions to mitigate the projected adverse impacts. Provisions for public hearings and public comments are usually included in land use permit application review procedures in the counties where Knife River operates. After taking into account environmental, mine plan and reclamation information provided by the permittee as well as comments from the public and other regulatory agencies, the local authority approves or denies the permit application. Denial is rare, but land use permits often include conditions that must be addressed by the permittee. Conditions may include property line setbacks, reclamation requirements, environmental monitoring and reporting, operating hour restrictions, financial guarantees for reclamation, and other requirements intended to protect the environment or address concerns submitted by the public or other regulatory agencies. Knife River has been successful in obtaining mining and other land use permit approvals so sufficient permitted reserves are available to support its operations. For mining operations, this often requires considerable advanced planning to ensure sufficient time is available to complete the permitting process before the newly permitted aggregate reserve is needed to support Knife River's operations. Knife River's Gascoyne surface coal mine last produced coal in 1995 but continues to be subject to reclamation requirements of the Surface Mining Control and Reclamation Act, as well as the North Dakota Surface Mining Act. Portions of the Gascoyne Mine remain under reclamation bond until the 10-year revegetation liability period has expired. A portion of the original permit has been released from bond and additional areas are currently in the process of having the bond released. Knife River's intention is to request bond release as soon as it is deemed possible. Knife River did not incur any material environmental expenditures in 2017 and, except as to what may be ultimately determined with regard to the issues described in the following paragraph, Knife River does not expect to incur any material expenditures related to environmental compliance with current laws and regulations through 2020. In December 2000, Knife River - Northwest was named by the EPA as a PRP in connection with the cleanup of a commercial property site, acquired by Knife River - Northwest in 1999, and part of the Portland, Oregon, Harbor Superfund Site. For more information, see Item 8 - Note 17. Mine Safety The Dodd-Frank Act requires disclosure of certain mine safety information. For more information, see Item 4 - Mine Safety Disclosures. Part I 18 MDU Resources Group, Inc. Form 10-K Construction Services General MDU Construction Services provides inside and outside specialty contracting services. Its outside services include design, construction and maintenance of overhead and underground electrical distribution and transmission lines, substations, external lighting, traffic signalization, and gas pipelines, as well as utility excavation and the manufacture and distribution of transmission line construction equipment. Its inside services include design, construction and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping and services. This business also designs, constructs and maintains renewable energy projects. These specialty contracting services are provided to utilities and large manufacturing, commercial, industrial, institutional and government customers. Construction and maintenance crews are active year round. However, activity in certain locations may be seasonal in nature due to the effects of weather. MDU Construction Services operates a fleet of owned and leased trucks and trailers, support vehicles and specialty construction equipment, such as backhoes, excavators, trenchers, generators, boring machines and cranes. In addition, as of December 31, 2017, MDU Construction Services owned or leased facilities in 17 states. This space is used for offices, equipment yards, manufacturing, warehousing, storage and vehicle shops. MDU Construction Services’ backlog at December 31 was as follows: 2017 2016 2015 (In millions) Inside specialty contracting $625 $435 $408 Outside specialty contracting 83 40 85 $708 $475 $493 The increase in backlog at December 31, 2017, compared to backlog at December 31, 2016, was primarily attributable to an increase in projects from all revenue streams based on customer demand. Backlog increases with awards of new contracts and decreases as work is performed on existing contracts. MDU Construction Services expects to complete a significant amount of the backlog at December 31, 2017, during the next 12 months. MDU Construction Services’ backlog is comprised of the anticipated revenues from the uncompleted portion of services to be performed under job-specific contracts. A project is included in backlog when a contract is awarded and agreement on contract terms has been reached. However, backlog does not contain contracts for time and material projects that a fixed amount cannot be determined. Backlog is comprised of: (a) original contract amounts, (b) change orders for which customers have approved, (c) pending change orders expected to receive confirmation in the ordinary course of business and (d) claim amounts that have been made against customers for which are determined to have a legal basis under existing contractual arrangements and as to which recovery is considered to be probable. Such claim amounts were immaterial for all periods presented. Backlog may be subject to delay, default or cancellation at the election of the customers. Historically, cancellations have not had a material adverse effect on backlog. Due to the nature of its contractual arrangements, in many instances MDU Construction Services' customers are not committed to the specific volumes of services to be purchased under a contract, but rather MDU Construction Services is committed to perform these services if and to the extent requested by the customer. Therefore, there can be no assurance as to the customers' requirements during a particular period or that such estimates at any point in time are predictive of future revenues. MDU Construction Services works with the National Electrical Contractors Association, the IBEW and other trade associations on hiring and recruiting a qualified workforce. Competition MDU Construction Services operates in a highly competitive business environment. Most of MDU Construction Services' work is obtained on the basis of competitive bids or by negotiation of either cost-plus or fixed-price contracts. The workforce and equipment are highly mobile, providing greater flexibility in the size and location of MDU Construction Services' market area. Competition is based primarily on price and reputation for quality, safety and reliability. The size and location of the services provided, as well as the state of the economy, will be factors in the number of competitors that MDU Construction Services will encounter on any particular project. MDU Construction Services believes that the diversification of the services it provides, the markets it serves throughout the United States and the management of its workforce will enable it to effectively operate in this competitive environment. Utilities and independent contractors represent the largest customer base for this segment. Accordingly, utility and subcontract work accounts for a significant portion of the work performed by MDU Construction Services and the amount of construction contracts is dependent to a certain extent on the level and timing of maintenance and construction programs undertaken by customers. MDU Construction Services relies on repeat customers and strives to maintain successful long-term relationships with these customers. Environmental Matters MDU Construction Services' operations are subject to regulation customary for the industry, including federal, state and local environmental compliance. MDU Construction Services believes it is in substantial compliance with these regulations. Part I MDU Resources Group, Inc. Form 10-K 19 The nature of MDU Construction Services' operations is such that few, if any, environmental permits are required. Operational convenience supports the use of petroleum storage tanks in several locations, which are permitted under state programs authorized by the EPA. MDU Construction Services has no ongoing remediation related to releases from petroleum storage tanks. MDU Construction Services' operations are conditionally exempt small-quantity waste generators, subject to minimal regulation under the RCRA. Federal permits for specific construction and maintenance jobs that may require these permits are typically obtained by the hiring entity, and not by MDU Construction Services. MDU Construction Services did not incur any material environmental expenditures in 2017 and does not expect to incur any material capital expenditures related to environmental compliance with current laws and regulations through 2020. For information regarding construction services litigation, see Item 8 - Note 17. Part I 20 MDU Resources Group, Inc. Form 10-K Item 1A. Risk Factors The Company's business and financial results are subject to a number of risks and uncertainties, including those set forth below and in other documents that it files with the SEC. The factors and the other matters discussed herein are important factors that could cause actual results or outcomes for the Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document. If any of the risks described below actually occur, the Company's business, prospects, financial condition or financial results could be materially harmed. Economic Risks The Company is subject to government regulations that may delay and/or have a negative impact on its business and its results of operations and cash flows. Statutory and regulatory requirements also may limit another party's ability to acquire the Company or impose conditions on an acquisition of or by the Company. The Company's electric and natural gas transmission and distribution businesses are subject to comprehensive regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of return and recovery of investment and cost, financing, rate structures, health care coverage and cost, income taxes, property and other taxes, franchises; recovery of purchased power and purchased natural gas costs; and siting of generation and transmission facilities. These governmental regulations significantly influence the Company's operating environment and may affect its ability to recover costs from its customers. The Company is unable to predict the impact on operating results from the future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on the Company's results of operations and cash flows. There can be no assurance that applicable regulatory commissions will determine all the costs of the Company's electric and natural gas transmission and distribution businesses to have been prudent, which could result in disallowance of costs. Also, the regulatory process for approval of rates for these businesses may not result in full recovery of the costs of providing services. Changes in regulatory requirements or operating conditions may require early retirement of certain assets. While regulation typically provides relief for these types of retirements, there is no assurance the regulators will allow full recovery of all remaining costs leaving stranded asset costs. Rising fuel costs could increase the risk that the utility businesses will not be able to fully recover those fuel costs from their customers. Approval from a number of federal and state regulatory agencies would need to be obtained by any potential acquirer of the Company as well as for acquisitions by the Company. The approval process could be lengthy and the outcome uncertain, which may defer potential acquirers from approaching the Company or impact the Company's ability to pursue otherwise attractive acquisitions. Economic volatility affects the Company's operations, as well as the demand for its products and services. Unfavorable economic conditions can negatively affect the level of public and private expenditures on projects and the timing of these projects which, in turn, can negatively affect the demand for the Company's products and services, primarily at the Company's construction businesses. The level of demand for construction products and services could be adversely impacted by the economic conditions in the industries the Company serves, as well as in the economy in general. State and federal budget issues affect the funding available for infrastructure spending. The ability of the Company's electric and natural gas distribution businesses to grow in service territory, customer base and usage demand is affected by the economic environments and population growth of the markets served. This economic volatility could have a material adverse effect on the Company's results of operations, cash flows and asset values. Further, any material decreases in energy demand by customers, for economic or other reasons, could have a material adverse impact on the Company's earnings and results of operations. The Company's operations involve risks that may result from catastrophic events. The Company's operations include a variety of inherent hazards and operating risks, such as product leaks, explosions, mechanical failures, vandalism, acts of terrorism and acts of war, which could result in loss of human life; personal injury; property damage; environmental pollution; impairment of operations; and substantial financial losses. The Company maintains insurance against some, but not all, of these risks and losses. The occurrence of these losses not fully covered by insurance could have a material effect on the Company’s financial position, results of operations and cash flows. The Company relies on financing sources and capital markets. Access to these markets may be adversely affected by factors beyond the Company's control. If the Company is unable to obtain cost effective financing in the future, the Company's ability to execute its business plans, make capital expenditures or pursue acquisitions that the Company may otherwise rely on for future growth could be impaired. As a result, the market value of the Company's common stock may be adversely affected. If the Company issues a substantial amount of common stock it could have a dilutive effect on its existing shareholders. The Company's operations, particularly its electric and natural gas transmission and distribution businesses, require significant capital investment. The Company relies on the issuance of long-term debt and equity securities as sources of liquidity for capital requirements not satisfied by its cash flow from operations. If the Company is not able to access capital at competitive rates, the ability to implement its business plans may be adversely affected. Market disruptions may increase the cost of borrowing or adversely affect its ability to access one or more financial markets. Such disruptions could include: • A significant economic downturn • The financial distress of unrelated industry leaders in the same line of business • Deterioration in capital market conditions • Turmoil in the financial services industry • Volatility in commodity prices • Terrorist attacks • Cyberattacks The issuance of a substantial amount of the Company's common stock, whether issued in connection with an acquisition or otherwise, could have a dilutive effect on existing shareholders, or the perception that such an issuance could occur, may adversely affect the market price of the Company's common stock. The regulatory approval, permitting, construction, startup and/or operation of pipelines and power generation and transmission facilities may involve unanticipated events, delays and unrecoverable costs. The construction, startup and operation of pipelines and power generation and transmission facilities involve many risks, which may include: delays; breakdown or failure of equipment; inability to obtain required governmental permits and approvals; inability to obtain or renew easements; public opposition; inability to complete financing; inability to negotiate acceptable equipment acquisition, construction, fuel supply, off-take, transmission, transportation or other material agreements; changes in markets and market prices for power; cost increases and overruns; the risk of performance below expected levels of output or efficiency; and the inability to obtain full cost recovery in regulated rates. Such unanticipated events could negatively impact the Company's business, its results of operations and cash flows. Additionally, operating or other costs required to comply with current pipeline safety regulations and potential new regulations under various agencies could be significant. The regulations require verification of pipeline infrastructure records by pipeline owners and operators to confirm the maximum allowable operating pressure of certain lines. Increased emphasis on pipeline safety issues and increased regulatory scrutiny may result in penalties and higher costs of operations. If these costs are not fully recoverable from customers, they could have a material adverse effect on the Company’s results of operations and cash flows. Financial market changes could impact the Company’s pension and post-retirement benefit plans and obligations. The global demand and price volatility for natural resources, interest rate changes, governmental budget constraints and threat of terrorism can create volatility in the financial markets. Changing financial market conditions could negatively affect the value of assets held in the Company's pension and other postretirement benefit plans and may increase the amount and accelerate the timing of required funding contributions for those plans as well liabilities and funding requirements for multiemployer plans to which the Company is a participating employer. Part I MDU Resources Group, Inc. Form 10-K 21 The backlogs at the Company's construction materials and contracting and construction services businesses may not accurately represent future revenue. Backlog consists of the uncompleted portion of services to be performed under job-specific contracts. Contracts are subject to delay, default or cancellation and the contracts in the Company's backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the applicable contracts. Backlog may also be affected by project delays or cancellations resulting from weather conditions, external market factors and economic factors beyond the Company's control. Accordingly, there is no assurance that backlog will be realized. The timing of contract awards, duration of large new contracts and the mix of services can significantly affect backlog. Backlog at any given point in time may not accurately represent the revenue or net income that is realized in any period and the backlog as of the end of the year may not be indicative of the revenue and net income expected to be earned in the following year and should not be relied upon as a stand-alone indicator of future revenues or net income. The Company's pipeline and midstream business is dependent on factors, including commodity prices and commodity price basis differentials, that are subject to external influences. Fluctuations in oil, NGL and natural gas production and prices; fluctuations in commodity price basis differentials; domestic and foreign supplies of oil, NGL and natural gas; political and economic conditions in oil producing countries; actions of the Organization of Petroleum Exporting Countries; and other external factors impact the development of natural gas supplies and the expansion and operation of natural gas pipeline systems. Prolonged depressed prices for oil, NGL and natural gas could negatively affect the growth, results of operations, cash flows and asset values of the Company's pipeline and midstream business. Reductions in the Company's credit ratings could increase financing costs. There is no assurance that the Company's current credit ratings, or those of its subsidiaries, will remain in effect or that a rating will not be lowered or withdrawn by a rating agency. The Company's credit ratings may also change as a result of the differing methodologies or changes in the methodologies used by the rating agencies. A downgrade in credit ratings could lead to higher borrowing costs. A credit rating is not a recommendation to buy, sell or hold securities and is applicable only to the specific security to which it applies. Investors should make their own evaluation as to whether an investment in the security is appropriate. Increasing costs associated with health care plans may adversely affect the Company's results of operations. The Company's self-insured costs of health care benefits for eligible employees continues to increase. Increasing levels of large individual health care claims and overall health care claims could have an adverse impact on operating results, financial position and liquidity. Legislation related to health care could also change the Company's benefit program and costs. The Company is exposed to risk of loss resulting from the nonpayment and/or nonperformance by the Company's customers and counterparties. If the Company's customers or counterparties experience financial difficulties, the Company could experience difficulty in collecting receivables. The nonpayment and/or nonperformance by the Company's customers and counterparties, particularly customers and counterparties of the Company’s construction materials and contracting and construction services businesses for large construction projects, could have a negative impact on the Company's results of operations and cash flows. The Company may also have indirect credit risk due to participation in energy markets such as MISO in which credit losses are socialized to all participants. Changes in tax law may negatively affect the Company's business. On December 22, 2017, President Trump signed into law the TCJA that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes reductions to United States federal tax rates, repeals the domestic production deduction, disallows regulated utility property for immediate expensing, and modifies or repeals many other business deductions and credits. The changes to the Internal Revenue Code could materially impact the Company. Future guidance, regulations and interpretations clarifying items within the TCJA may be contrary to the Company’s current interpretation or regulatory actions and could have an adverse impact to the Company. The Company continues to examine the impact the TCJA may have on the Company in future periods. The TCJA's impact on the economy, including overall demand and competition for the products and services the Company provides and associated labor availability and costs, is unknown and there could be negative impacts to the Company. The Company's utility businesses' cash flows may be negatively impacted by the disallowance of immediate expensing of utility property. Other changes to federal and state tax laws have the ability to benefit or adversely affect the Company's earnings and customer costs. Significant changes to corporate tax rates could result in the impairment of deferred tax assets that are established based on existing law at the time of deferral. Changes to the value of various tax credits could change the economics of resources and the resource selection for the electric generation business. Regulation incorporates Part I 22 MDU Resources Group, Inc. Form 10-K changes in tax law into the rate setting process for the regulated energy delivery businesses and therefore could create timing delays before the impact of changes are realized. Environmental and Regulatory Risks The Company's operations could be adversely impacted by climate change. Climate change may create physical and financial risks to the Company. Such risks could have an adverse effect on the Company's financial condition, results of operations and cash flows. Utility customers’ energy needs vary with weather conditions, primarily temperature and humidity. For residential customers, heating and cooling represent the largest energy use. To the extent weather conditions are affected by climate change, customers’ energy use could increase or decrease. Increased energy use by its utility customers due to weather changes may require the Company to invest in additional generating assets, transmission and other infrastructure to serve increased load. Decreased energy use due to weather changes may result in decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stress, including service interruptions. Weather conditions outside of the Company's service territory could also have an impact on revenues. The Company buys and sells electricity that might be generated outside its service territory depending upon system needs and market opportunities. Extreme weather conditions creating high energy demand may raise electricity prices, which would increase the cost of energy provided to customers. Severe weather impacts the Company's utility service territories, primarily when thunderstorms, tornadoes and snow or ice storms occur. Severe weather events may damage or disrupt the Company's electric and natural gas transmission and distribution facilities, which could increase costs to repair damaged facilities and restore service to customers. The cost of providing service could increase to the extent the frequency of extreme weather events increases because of climate change or otherwise. The Company may not recover all costs related to mitigating these physical risks. Severe weather may result in disruptions to the pipeline and midstream business's natural gas supply and transportation systems. These changes could result in increased maintenance and capital costs, disruption of service, regulatory actions and lower customer satisfaction. Extreme weather conditions caused by climate change or otherwise may cause infrastructure construction projects to be delayed or canceled and limit resources available for such projects increasing the project costs at the construction materials and contracting and construction services businesses. Climate change may impact a region’s economic health, which could impact revenues at all of the Company's businesses. The Company's financial performance is tied to the health of the regional economies served. The Company provides natural gas and electric utility service, as well as construction materials and services, for states and communities that are economically affected by the agriculture industry. Increases in severe weather events or significant changes in temperature and precipitation patterns could adversely affect the agriculture industry and correspondingly the economies of the states and communities affected by that industry. The price of energy also has an impact on the economic health of communities. The cost of additional regulatory requirements to combat climate change, such as regulation of carbon dioxide emissions under the Clean Air Act, or other environmental regulation could impact the availability of goods and prices charged by suppliers which would normally be borne by consumers through higher prices for energy and purchased goods. To the extent financial markets view climate change and emissions of GHGs as a financial risk, this could negatively affect the Company's ability to access capital markets or cause less than ideal terms and conditions. The Company's operations are subject to environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose the Company to environmental liabilities. The Company is subject to environmental laws and regulations affecting many aspects of its operations, regarding air and water quality, waste management and other environmental considerations. These laws and regulations can increase capital, operating and other costs, cause delays as a result of litigation and administrative proceedings, and create compliance, remediation, containment, monitoring and reporting obligations, particularly relating to electric generation and natural gas gathering, transmission and storage operations. These laws and regulations generally require the Company to obtain and comply with a variety of environmental licenses, permits, inspections and other approvals. Although the Company strives to comply with all applicable environmental laws and regulations, public and private entities and private individuals may interpret the Company's legal or regulatory requirements differently and seek injunctive relief or other remedies against the Company. The Company cannot predict the outcome, financial or operational, of any such litigation or administrative proceedings. Part I MDU Resources Group, Inc. Form 10-K 23 Existing environmental laws and regulations may be revised and new laws and regulations seeking to protect the environment may be adopted or become applicable to the Company. These laws and regulations could require the Company to limit the use or output of certain facilities, restrict the use of certain fuels, retire and replace certain facilities, install pollution controls, remediate environmental impacts, remove or reduce environmental hazards, or forego or limit the development of resources. Revised or new laws and regulations that increase compliance costs or restrict operations, particularly if costs are not fully recoverable from customers, could have a material adverse effect on the Company's results of operations and cash flows. On April 17, 2015, the EPA published a rule, under the RCRA, for coal combustion residuals that regulates coal ash as a solid waste and not a hazardous waste. Site and groundwater analyses as required by the rule may identify the need to upgrade or close impoundments or the Company may need to install replacement ash management systems. The cost of replacement ash impoundments or landfills may be material. If these costs are not fully recoverable from customers, they could have a material adverse effect on the Company's results of operations and cash flows. On August 15, 2014, the EPA published a rule under Section 316(b) of the Clean Water Act, establishing requirements for water intake structures at existing steam electric generating facilities. The purpose of the rule is to reduce impingement and entrainment of fish and other aquatic organisms at cooling water intake structures. The majority of the Company's electric generating facilities are either not subject to the rule or have completed studies that project compliance expenditures are not material. The Lewis & Clark Station will complete a study that will be submitted to the Montana DEQ by July 31, 2019, to be used in determining any required controls. It is unknown at this time what controls may be required at this facility or if compliance costs will be material. The installation schedule for any required controls would be established with the permitting agency after the study is completed. Initiatives to reduce GHG emissions could adversely impact the Company's operations. Concern that GHG emissions are contributing to global climate change has led to international, federal and state legislative and regulatory proposals to reduce or mitigate the effects of GHG emissions. The Company’s primary GHG emission is carbon dioxide from fossil fuels combustion at Montana-Dakota's electric generating facilities, particularly its coal-fired facilities. Approximately 50 percent of Montana- Dakota's owned generating capacity and approximately 76 percent of the electricity it generated in 2017 was from coal-fired facilities. On October 23, 2015, the EPA published the Clean Power Plan rule that requires existing fossil fuel-fired electric generating facilities to reduce carbon dioxide emissions. On February 9, 2016, however, the United States Supreme Court granted an application for a stay of the Clean Power Plan pending disposition of the applicants' petition for review in the D.C. Circuit Court and disposition of the applicants' petition for a writ of certiorari if such a writ is sought. The EPA filed a motion with the D.C. Circuit Court on March 28, 2017, requesting the Clean Power Plan's case be held in abeyance. The D.C. Circuit Court granted the EPA’s motion to hold the case in abeyance for 60 days. On August 8, 2017, the D.C. Circuit Court issued an order holding the case in abeyance for an additional 60-day period and directed the EPA to file status reports at 30-day intervals. In parallel, the EPA published a proposal on October 16, 2017, to repeal the Clean Power Plan in its entirety and followed with an advance notice of proposed rulemaking published in the Federal Register on December 28, 2017, requesting comment on replacing the Clean Power Plan through new rulemaking. Compliance costs will become clearer as the EPA completes new rulemaking. On January 14, 2015, the federal government of the United States announced a goal to reduce methane emissions from the oil and natural gas industry by 40 percent to 45 percent below 2012 levels by 2025. On June 3, 2016, the EPA published a rule updating new source performance standards for the oil and natural gas industry. The rule builds on 2012 requirements to reduce volatile organic compound emissions from oil and natural gas sources by establishing requirements to reduce methane emissions from previously regulated sources, as well as adding volatile organic compound and methane requirements for sources previously not covered by the rule. The rule impacts new and modified natural gas gathering and boosting stations and transmission and storage compressor stations. WBI Energy is currently complying with the rules impacting new and modified sources. In addition, on March 10, 2016, the EPA announced plans to reduce emissions from the oil and natural gas industry by moving to regulate emissions from existing sources. On November 10, 2016, the EPA issued an Information Collection Request to oil and gas facility operators, including WBI Energy, to begin the process of existing source rule development. On March 7, 2017, the EPA published notice of withdrawal of the Information Collection Request. On September 15, 2016, the Washington DOE issued a Clean Air rule that requires carbon dioxide emission reductions from various industries in the state, including emissions from the combustion of natural gas supplied to end-use customers by natural gas distribution companies, such as Cascade. In 2017, the rule requires Cascade to hold carbon dioxide emissions to a baseline, equal to the average emissions in 2012 to 2016. Beginning in 2018, annual carbon dioxide emissions are reduced by an additional 1.7 percent of the baseline from the previous year's emissions. Compliance for natural gas suppliers is to be achieved through purchasing emissions credits from projects located within the state of Washington and, to a limited and declining extent, out-of-state allowances. Purchasing emissions credits and allowances will increase operating costs for Cascade. If Cascade is not able to receive timely and full recovery of compliance costs from its customers, such costs could adversely impact the results of its operations. On September 27, 2016 and September 30, 2016, Cascade Part I 24 MDU Resources Group, Inc. Form 10-K and three other natural gas distribution utility companies jointly filed complaints in the United States District Court for the Eastern District of Washington and the Thurston County Superior Court, respectively, asking the courts to deem the rule invalid. The companies asserted that the Washington DOE undertook this rulemaking without the requisite statutory authority. On December 15, 2017, the Thurston County Superior Court vacated the Clean Air rule holding that it is invalid due to a lack of legislative approval to adopt the rule. The ruling may still be appealed by the Washington DOE or interveners. Litigation in the United States District Court for the Eastern District of Washington remains in abeyance pending evaluation of the recent ruling in the Thurston County Superior Court. Additional treaties, legislation or regulations to reduce GHG emissions may be adopted that affect the Company's utility operations by requiring additional energy conservation efforts or renewable energy sources, as well as other mandates that could significantly increase capital expenditures and operating costs or reduce demand for the Company's utility services. If the Company’s utility operations do not receive timely and full recovery of GHG emission compliance costs from customers, then such costs could adversely impact the results of its operations and cash flows. The Company monitors, analyzes and reports GHG emissions from its other operations as required by applicable laws and regulations. The Company will continue to monitor GHG regulations and their potential impact on operations. Due to the uncertain availability of technologies to control GHG emissions and the unknown obligations that potential GHG emission legislation or regulations may create, the Company cannot determine the potential financial impact on its operations. Other Risks The Company's various businesses are seasonal and subject to weather conditions that can adversely affect the Company's operations, revenues and cash flows. The Company's results of operations can be affected by changes in the weather. Weather conditions influence the demand for electricity and natural gas and affect the price of energy commodities. Utility operations have historically generated lower revenues when weather conditions are cooler than normal in the summer and warmer than normal in the winter particularly in jurisdictions that do not have decoupling mechanisms in place. Where decoupling mechanism are in place, there is no assurance the Company will continue to receive such regulatory protection from adverse weather in future rates. Adverse weather conditions, such as heavy or sustained rainfall or snowfall, storms, wind, and colder weather may affect the demand for products and the ability to perform services at the construction businesses and affect ongoing operation and maintenance and construction activities for the electric and natural gas transmission and distribution businesses. In addition, severe weather can be destructive, causing outages, and/or property damage, which could require additional costs to be incurred. As a result, adverse weather conditions could negatively affect the Company's results of operations, financial position and cash flows. Competition exists in all of the Company's businesses. The Company's businesses are subject to competition. Construction services' competition is based primarily on price and reputation for quality, safety and reliability. Construction materials products are marketed under highly competitive conditions and are subject to such competitive forces as price, service, delivery time and proximity to the customer. The electric utility and natural gas industries also experience competitive pressures as a result of consumer demands, technological advances and other factors. The pipeline and midstream business competes with several pipelines for access to natural gas supplies and for gathering, transportation and storage business. Competition could negatively affect the Company's results of operations, financial position and cash flows. The Company's inability to obtain, develop and retain key personnel and skilled labor forces may have a negative effect on the Company's operations. The Company must attract, develop and retain executive officers and other professional, technical and skilled labor forces with the skills and experience necessary to successfully manage, operate and grow the Company's businesses. Competition for these employees is high, and in some cases competition for these employees is on a regional or national basis. A shortage in the supply of these skilled personnel creates competitive hiring markets and increased labor expenses, decreased productivity and potentially lost business opportunities. Additionally, if the Company is unable to hire employees with the requisite skills, the Company may also be forced to incur significant training expenses. As a result, the Company's ability to maintain productivity, relationships with customers, competitive costs, and quality services is limited by the ability to employ the necessary skilled personnel and could negatively affect the Company's results of operations, financial position and cash flows. Part I MDU Resources Group, Inc. Form 10-K 25 The Company's construction materials and contracting and construction services businesses may be exposed to warranty claims. The Company, particularly its construction businesses, may provide warranties guaranteeing the work performed against defects in workmanship and material. If warranty claims occur, they may require the Company to re-perform the services or to repair or replace the warranted item, at a cost to the Company, and could also result in other damages if the Company is not able to adequately satisfy warranty obligations. In addition, the Company may be required under contractual arrangements with customers to warrant any defects or failures in materials the Company purchased from third parties. While the Company generally requires suppliers to provide warranties that are consistent with those the Company provides to customers, if any of the suppliers default on their warranty obligations to the Company, the Company may nonetheless incur costs to repair or replace the defective materials. Costs incurred as a result of warranty claims could adversely affect the Company's results of operations, financial condition and cash flows. The Company could be subject to limitations on its ability to pay dividends. The Company depends on earnings from its divisions and dividends from its subsidiaries to pay dividends on its common stock. Regulatory, contractual and legal limitations, as well as capital requirements and the Company's financial performance or cash flows, could restrict or influence the Company's ability or decision to pay dividends on its common stock and adversely affect the Company's stock price. Costs related to obligations under MEPPs could have a material negative effect on the Company's results of operations and cash flows. Various operating subsidiaries of the Company participate in approximately 75 MEPPs for employees represented by certain unions. The Company is required to make contributions to these plans in amounts established under numerous collective bargaining agreements between the operating subsidiaries and those unions. The Company may be obligated to increase its contributions to underfunded plans that are classified as being in endangered, seriously endangered or critical status as defined by the Pension Protection Act of 2006. Plans classified as being in one of these statuses are required to adopt RPs or FIPs to improve their funded status through increased contributions, reduced benefits or a combination of the two. Based on available information, the Company believes that approximately 35 percent of the MEPPs to which it contributes are currently in endangered, seriously endangered or critical status. The Company may also be required to increase its contributions to MEPPs if the other participating employers in such plans withdraw from the plans and are not able to contribute amounts sufficient to fund the unfunded liabilities associated with their participation in the plans. The amount and timing of any increase in the Company's required contributions to MEPPs may also depend upon one or more factors including the outcome of collective bargaining, actions taken by trustees who manage the plans, actions taken by the plans' other participating employers, the industry for which contributions are made, future determinations that additional plans reach endangered, seriously endangered or critical status, government regulations and the actual return on assets held in the plans, among others. The Company may experience increased operating expenses as a result of the required contributions to MEPPs, which may have a material adverse effect on the Company's results of operations, financial position or cash flows. In addition, pursuant to ERISA, as amended by MPPAA, the Company could incur a partial or complete withdrawal liability upon withdrawing from a plan, exiting a market in which it does business with a union workforce or upon termination of a plan to the extent these plans are underfunded. The Company could also incur additional withdrawal liability if its withdrawal from a plan is determined by that plan to be part of a mass withdrawal. Information technology disruptions or cyberattacks could adversely impact the Company's operations. The Company's operations require uninterrupted operation of information technology systems and network infrastructure. While the Company has policies, procedures and processes in place designed to strengthen and protect these systems, they may be vulnerable to failures or unauthorized access due to hacking, theft, sabotage, malicious software, acts of terrorism, acts of war, acts of nature or other causes. If these systems fail or become comprised, and they are not recovered in a timely manner, the Company may be unable to fulfill critical business functions. This may include interruption of electric generation, transmission and distribution facilities, natural gas storage and pipeline facilities, and facilities for delivery of construction materials or other products and services. The Company’s accounting systems and its ability to collect information and invoice customers for products and services could also be disrupted. If the Company’s operations were disrupted, it could result in decreased revenues or significant remediation costs that have a material adverse effect on the Company's results of operations and cash flows. Additionally, because electric generation and transmission systems and natural gas pipelines are part of interconnected systems with other operators’ facilities, a cyber-related disruption in another operator’s system could negatively impact the Company's business. Part I 26 MDU Resources Group, Inc. Form 10-K The Company, through the ordinary course of business, requires access to sensitive customer, employee and Company data. While the Company has implemented extensive security measures, a breach of its systems could compromise sensitive data. Such an event could result in negative publicity and reputational harm, remediation costs, legal claims and fines that could have an adverse effect on the Company's financial results. Third-party service providers that perform critical business functions for the Company or have access to sensitive information within the Company also may be vulnerable to security breaches and information technology risks that could have an adverse effect on the Company. The Company may be subject to potential material liabilities relating to the past sale of assets or businesses, primarily arising from events prior to sale. The Company previously sold its oil and natural gas assets and its membership interests in Dakota Prairie Refining. The Company may be subject to potential liabilities, either directly or through indemnification of the buyers or others, relating to these transactions or other sales, primarily arising from events prior to the sale, or from breaches of any representations, warranties or covenants in the purchase and sale agreements. Other factors that could impact the Company's businesses. The following are other factors that should be considered for a better understanding of the risks to the Company. These other factors may materially negatively impact the Company's financial results in future periods. • Acquisition, disposal and impairments of assets or facilities • Changes in operation, performance and construction of plant facilities or other assets • Changes in present or prospective generation • The availability of economic expansion or development opportunities • Population growth rates and demographic patterns • Market demand for, available supplies of, and/or costs of, energy- and construction-related products and services • The cyclical nature of large construction projects at certain operations • Unanticipated project delays or changes in project costs, including related energy costs • Unanticipated changes in operating expenses or capital expenditures • Labor negotiations or disputes • Inability of the contract counterparties to meet their contractual obligations • Changes in accounting principles and/or the application of such principles to the Company • Changes in technology • Changes in legal or regulatory proceedings • Losses or costs relating to litigation • The ability to effectively integrate the operations and the internal controls of acquired companies Part I MDU Resources Group, Inc. Form 10-K 27 Item 1B. Unresolved Staff Comments The Company has no unresolved comments with the SEC. Item 3. Legal Proceedings For information regarding legal proceedings required by this item, see Item 8 - Note 17, which is incorporated herein by reference. Item 4. Mine Safety Disclosures For information regarding mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, see Exhibit 95 to this Form 10-K, which is incorporated herein by reference. Part II 28 MDU Resources Group, Inc. Form 10-K Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock is listed on the New York Stock Exchange under the symbol "MDU." The price range of the Company's common stock as reported by the New York Stock Exchange during 2017 and 2016 and dividends declared thereon were as follows: CommonStock Price(High) CommonStock Price(Low) Common StockDividendsDeclaredPer Share 2017 First quarter $29.74 $25.83 $.1925 Second quarter 27.89 25.58 .1925 Third quarter 27.73 25.14 .1925 Fourth quarter 28.22 25.89 .1975 $.7750 2016 First quarter $19.55 $15.57 $.1875 Second quarter 24.01 18.70 .1875 Third quarter 25.79 22.47 .1875 Fourth quarter 29.92 24.49 .1925 $.7550 As of December 31, 2017, the Company's common stock was held by approximately 11,703 stockholders of record. The Company depends on earnings from its divisions and dividends from its subsidiaries to pay dividends on common stock. The declaration and payment of dividends is at the sole discretion of the board of directors, subject to limitations imposed by the Company's credit agreements, federal and state laws, and applicable regulatory limitations. For more information on factors that may limit the Company's ability to pay dividends, see Item 8 - Note 9. The following table includes information with respect to the Company's purchase of equity securities: ISSUER PURCHASES OF EQUITY SECURITIES Period (a)Total Numberof Shares(or Units)Purchased (1) (b) Average Price Paidper Share(or Unit) (c)Total Number of Shares(or Units) Purchasedas Part of PubliclyAnnounced Plansor Programs (2) (d)Maximum Number (orApproximate Dollar Value) of Shares (or Units) that May Yet BePurchased Under thePlans or Programs (2) October 1 through October 31, 2017 ———— November 1 through November 30, 2017 38,121 $26.88 —— December 1 through December 31, 2017 2,451 $27.70 —— Total 40,572 —— (1) Represents shares of common stock purchased on the open market in connection with annual stock grants made to the Company's non-employee directors and for those directors who elected to receive additional shares of common stock in lieu of a portion of their cash retainer. (2) Not applicable. The Company does not currently have in place any publicly announced plans or programs to purchase equity securities. Item 6. Selected Financial Data 2017 2016 2015 2014 2013 2012 Selected Financial Data Operating revenues (000's): Electric $ 342,805 $ 322,356 $ 280,615 $ 277,874 $ 257,260 $ 236,895 Natural gas distribution 848,388 766,115 817,419 921,986 851,945 754,848 Pipeline and midstream 122,213 141,602 154,904 157,292 144,568 142,610 Construction materials and contracting 1,812,529 1,874,270 1,904,282 1,765,330 1,712,137 1,617,425 Construction services 1,367,602 1,073,272 926,427 1,119,529 1,039,839 938,558 Other 7,874 8,643 9,191 9,364 9,620 10,370 Intersegment eliminations (58,060)(57,430) (78,786) (136,302) (95,201) (74,595) $ 4,443,351 $ 4,128,828 $ 4,014,052 $ 4,115,073 $ 3,920,168 $ 3,626,111 Operating income (loss) (000's): Electric $ 82,153 $ 68,497 $ 57,955 $ 61,331 $ 54,274 $ 49,852 Natural gas distribution 84,878 65,014 53,810 65,633 78,829 67,579 Pipeline and midstream 36,924 43,374 29,988 46,713 20,896 49,139 Construction materials and contracting 143,716 178,719 146,026 86,462 93,629 57,864 Construction services 81,590 53,705 43,376 82,309 85,246 66,531 Other (549)(189) (8,438) (5,366) (4,384) (5,325) Intersegment eliminations —— (2,942) (9,900) (7,176)— $ 428,712 $ 409,120 $ 319,775 $ 327,182 $ 321,314 $ 285,640 Earnings (loss) on common stock (000's): Electric $ 49,366 $ 42,222 $ 35,914 $ 36,731 $ 34,837 $ 30,634 Natural gas distribution 32,225 27,102 23,607 30,484 37,656 29,409 Pipeline and midstream 20,493 23,435 13,250 24,666 7,701 26,588 Construction materials and contracting 123,398 102,687 89,096 51,510 50,946 32,420 Construction services 53,306 33,945 23,762 54,432 52,213 38,429 Other (1,422)(3,231) (14,941) (7,386) (10,776) (7,209) Intersegment eliminations 6,849 6,251 5,016 (6,095) (4,307)— Earnings on common stock before income (loss)from discontinued operations 284,215 232,411 175,704 184,342 168,270 150,271 Income (loss) from discontinued operations, netof tax*(3,783)(300,354)(834,080)109,311 109,615 (151,710) Loss from discontinued operations attributable tononcontrolling interest —(131,691)(35,256)(3,895)(363)— $ 280,432 $ 63,748 $ (623,120) $ 297,548 $ 278,248 $ (1,439) Earnings (loss) per common share beforediscontinued operations - diluted $1.45 $1.19 $.90 $.96 $.89 $.80 Discontinued operations attributable to theCompany, net of tax (.02)(.86)(4.10).59 .58 (.81) $ 1.43 $ .33 $ (3.20) $ 1.55 $ 1.47 $ (.01) Common Stock Statistics Weighted average common shares outstanding -diluted (000's)195,687 195,618 194,986 192,587 189,693 188,826 Dividends declared per common share $ .7750 $ .7550 $ .7350 $ .7150 $ .6950 $ .6750 Book value per common share $ 12.44 $ 11.78 $ 12.83 $ 16.66 $ 15.01 $ 13.95 Market price per common share (year end)$ 26.88 $ 28.77 $ 18.32 $ 23.50 $ 30.55 $ 21.24 Market price ratios: Dividend payout**53%84% Yield 2.9%3.2% Market value as a percent of book value 216.1%152.3% * Reflects oil and natural gas properties noncash write-downs of $315.3 million (after tax) and $246.8 million (after tax) in 2015 and 2012, respectively, and fair value impairments of assets held for sale of $157.8 million (after tax) and $475.4 million (after tax) in 2016 and 2015, respectively. ** Based on continuing operations. Part II MDU Resources Group, Inc. Form 10-K 29 Item 6. Selected Financial Data (continued) 2017 2016 2015 2014 2013 2012 General $ 6,334,666 Total long-term debt (000's)$ 1,714,853 $ 1,790,159 $ 1,796,163 $ 2,016,198 $ 1,773,050 $ 1,738,833 Total equity 59%60% Total debt 41 44 42 38 38 40 100%100% Electric 3,306,470 553.1 559.7 547.3 584.0 583.5 552.8 Electric system peak demand obligation, includingfirm purchase contracts, planning reserve marginrequirement (Interconnected system)530.2 559.7 547.3 522.4 508.3 550.7 611,542 611,542 611,542 582,083 573,587 573,587 2,630,640 955,687 Average cost of electric fuel and purchased powerper kWh $.022 $.021 $.024 $.025 $.025 $.023 Natural Gas Distribution 112,551 144,477 Degree days (% of normal) 100% 107% Intermountain 111%91% Pipeline and Midstream Transportation (Mdk)312,520 285,254 290,494 233,483 178,598 137,720 Gathering (Mdk)16,064 20,049 33,441 38,372 40,737 47,084 Customer natural gas storage balance (Mdk)22,397 26,403 16,600 14,885 26,693 43,731 Construction Materials and Contracting Sales (000's): Aggregates (tons)28,213 27,580 26,959 25,827 24,713 23,285 Asphalt (tons)6,237 7,203 6,705 6,070 6,228 5,988 Ready-mixed concrete (cubic yards)3,548 3,655 3,592 3,460 3,223 3,157 Aggregate reserves (000's tons)965,036 989,084 1,022,513 1,061,156 1,083,376 1,088,236 Part II 30 MDU Resources Group, Inc. Form 10-K Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's strategy is to apply its expertise in the regulated energy delivery and construction materials and services businesses to increase market share, increase profitability and enhance shareholder value through organic growth opportunities and strategic acquisitions. The Company is focused on a disciplined approach to the acquisition of well-managed companies and properties. The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper facilities, revolving credit facilities, and the issuance from time to time of debt and equity securities. For more information on the Company's capital expenditures, see Liquidity and Capital Commitments. On December 22, 2017, President Trump signed into law the TCJA making significant changes to the United States federal income tax laws. Some of the more material changes from the TCJA impacting the Company includes lower corporate tax rates, repealing the domestic production deduction, disallowance of immediate expensing for regulated utility property and modifying or repealing many other business deductions and credits. During the fourth quarter of 2017, the Company performed a one-time revaluation of the net deferred tax liabilities to account for the reduction in the corporate tax rate from 35 percent to 21 percent, as discussed in Item 8 - Note 11. The Company is currently reviewing the components of the TCJA and evaluating the impact on the Company for 2018 and thereafter. For information pertinent to the specific impacts or trends identified by the Company's business segments, see Business Segment Financial and Operating Data. Part II MDU Resources Group, Inc. Form 10-K 31 Consolidated Earnings Overview The following table summarizes the contribution to consolidated earnings (loss) by each of the Company's business segments. Years ended December 31,2017 2016 2015 (In millions, except per share amounts) Electric $49.4 $42.2 $35.9 Natural gas distribution 32.2 27.1 23.6 Pipeline and midstream 20.5 23.4 13.3 Construction materials and contracting 123.4 102.7 89.1 Construction services 53.3 33.9 23.8 Other (1.5)(3.2)(15.0) Intersegment eliminations 6.9 6.3 5.0 Earnings before discontinued operations 284.2 232.4 175.7 Loss from discontinued operations, net of tax (3.8)(300.4)(834.1) Loss from discontinued operations attributable to noncontrolling interest —(131.7)(35.3) Earnings (loss) on common stock $ 280.4 $63.7 $(623.1) Earnings (loss) per common share - basic: Earnings before discontinued operations $1.46 $1.19 $.90 Discontinued operations attributable to the Company, net of tax (.02)(.86)(4.10) Earnings (loss) per common share - basic $1.44 $.33 $(3.20) Earnings (loss) per common share - diluted: Earnings before discontinued operations $1.45 $1.19 $.90 Discontinued operations attributable to the Company, net of tax (.02)(.86)(4.10) Earnings (loss) per common share - diluted $1.43 $.33 $(3.20) 2017 compared to 2016 The Company recognized consolidated earnings of $280.4 million in 2017, compared to consolidated earnings of $63.7 million in 2016. This increase was the result of: • Discontinued operations which reflect the absence in 2017 of a loss associated with the sale of the refining business in June 2016 • An income tax benefit of $39.5 million primarily for the revaluation of the Company's net deferred tax liabilities, as discussed in Item 8 - Note 11 • Higher inside and outside specialty contracting margins at the construction services business • Higher natural gas retail sales margins at the natural gas distribution business • Higher electric retail sales margins at the electric business These increases were partially offset by: • Lower asphalt product margins and lower construction margins at the construction materials and contracting business • Lower gathering and processing revenues at the pipeline and midstream business 2016 compared to 2015 The Company recognized consolidated earnings of $63.7 million in 2016, compared to a consolidated loss of $623.1 million in 2015. This increase was due to: • Discontinued operations which reflect the absence in 2016 of fair value impairments of the exploration and production business's assets of $475.4 million (after tax) and a noncash write-down of oil and natural gas properties of $315.3 million (after tax) offset in part by a fair value impairment of the refining business of $156.7 million (after tax) in 2016 • Higher construction, asphalt product and aggregate margins at the construction materials and contracting business • Other loss decreased primarily as the result of lower operation and maintenance and interest expense due to the sales of the exploration and production and refining businesses • Higher inside construction margins offset in part by lower outside construction margins, which includes lower equipment sales and rental margins, at the construction services business • Lower impairment in 2016 at the pipeline and midstream business • Higher electric retail sales margins offset in part by higher operation and maintenance expense and higher depreciation, depletion and amortization expense at the electric business Part II 32 MDU Resources Group, Inc. Form 10-K Business Segment Financial and Operating Data Following are key financial and operating data for each of the Company's business segments. Also included are highlights on key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters of the Company's business segments. Many of these highlighted points are "forward-looking statements." There is no assurance that the Company's projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed in Item 1A - Risk Factors. Changes in such assumptions and factors could cause actual future results to differ materially from the Company's growth and earnings projections. 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 13. Electric and Natural Gas Distribution Strategy and challenges The electric and natural gas distribution segments provide electric and natural gas distribution services to customers, as discussed in Items 1 and 2 - Business Properties. Both segments strive to be a top performing utility company measured by integrity, safety, employees, customer service and shareholder performance, while continuing to focus on providing safe, reliable and competitively priced energy and related services to customers. The Company continues to monitor opportunities for these segments to retain, grow and expand their customer base through extensions of existing operations, including building and upgrading electric generation and transmission and natural gas systems, and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity to earn a competitive return on investment. The continued efforts to create operational improvements and efficiencies across both segments promotes the Company's business integration strategy. The primary factors that impact the results of these segments are the ability to earn authorized rates of return, the cost of natural gas, cost of electric fuel and purchased power, competitive factors in the energy industry and economic conditions in the segments' service areas. The electric and natural gas distribution segments are subject to extensive regulation in the jurisdictions where they conduct operations with respect to costs, timely recovery of investments and permitted returns on investment as well as certain operational, system integrity and environmental regulations. To assist in the reduction of regulatory lag with the increase in investments, tracking mechanisms have been implemented. Legislative and regulatory initiatives to increase renewable energy resources and reduce GHG emissions could impact the price and demand for electricity and natural gas and result in the retirement of certain electric generating facilities before they are fully depreciated. Although the current administration has slowed environmental regulations, the segments continue to invest in facility upgrades to be in compliance with the existing and future regulations. 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 the economic environment of the markets served and competition from other energy providers and fuels. The construction of any new electric generating facilities, transmission lines and other service facilities is subject to increasing cost and lead time, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which will necessitate increases in electric energy prices. Revenues are impacted by both customer growth and usage, the latter of which is primarily impacted by weather. Very cold winters increase demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially among residential and commercial customers. Average consumption among natural gas customers has tended to decline as more efficient appliances and furnaces are installed, and as the Company has implemented conservation programs. 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. Earnings overview - electric The following information summarizes the performance of the electric segment. Years ended December 31,2017 2016 2015 (Dollars in millions, where applicable) Operating revenues $ 342.8 $322.3 $280.6 Operating expenses: Operation and maintenance 120.0 115.2 87.7 Electric fuel and purchased power 78.7 75.5 86.2 Depreciation, depletion and amortization 47.7 50.2 37.6 Taxes, other than income 14.3 12.9 11.1 Total operating expenses 260.7 253.8 222.6 Operating income 82.1 68.5 58.0 Earnings $49.4 $42.2 $35.9 Retail sales (million kWh): Residential 1,153.5 1,132.5 1,173.9 Commercial 1,513.1 1,491.8 1,499.6 Industrial 539.9 544.2 550.3 Other 100.0 90.0 92.2 3,306.5 3,258.5 3,316.0 Average cost of electric fuel and purchased power per kWh $.022 $.021 $.024 2017 compared to 2016 Electric earnings increased $7.2 million (17 percent) compared to the prior year. The increase resulted from: • Increased electric retail sales margins from the recovery of additional investment in a MISO multivalue project, approved rate recovery in all jurisdictions and 2 percent higher retail sales volumes to commercial and residential customers • Lower depreciation, depletion and amortization expense of $1.5 million (after tax) from lower depreciation rates implemented in conjunction with regulatory recovery activity Partially offsetting the increase were: • Higher operation and maintenance expense of $3.0 million (after tax) largely from higher payroll-related costs, material costs and contract services • Income tax expense of $2.1 million for the revaluation of nonutility net deferred tax assets, as discussed in Item 8 - Note 11 2016 compared to 2015 Electric earnings increased $6.3 million (18 percent) compared to the prior year due to: • Increased electric retail sales margins, largely due to approved final and interim rate increases reduced in part by decreased electric sales volumes of 2 percent, largely from decreased residential customer volumes • Favorable income tax changes, which includes $10.1 million due to higher production tax credits Partially offsetting these increases were: • Higher operation and maintenance expense of $17.1 million (after tax) primarily due to higher contract services and higher payroll-related costs • Higher depreciation, depletion and amortization expense of $7.8 million (after tax) due to increased property, plant and equipment balances • Lower other income, which includes $7.1 million (after tax) primarily related to AFUDC • Higher interest expense, which includes $4.4 million (after tax) largely the result of higher long-term debt Certain of the higher operation and maintenance expense, higher depreciation, depletion and amortization expense and higher production tax credits in 2016, due to increased capital investments, are potentially recoverable and/or refundable through the rate recovery process. The previous table also reflects lower average cost of electric fuel and purchased power per kWh due to no electric fuel and purchased power costs associated with the Thunder Spirit Wind farm in 2016 as compared to 2015. Part II MDU Resources Group, Inc. Form 10-K 33 Earnings overview - natural gas distribution The following information summarizes the performance of the natural gas distribution segment. Years ended December 31,2017 2016 2015 (Dollars in millions, where applicable) Operating revenues $ 848.4 $766.1 $817.4 Operating expenses: Operation and maintenance 163.7 158.1 153.5 Purchased natural gas sold 479.9 431.5 499.0 Depreciation, depletion and amortization 69.4 65.4 64.8 Taxes, other than income 50.5 46.1 46.3 Total operating expenses 763.5 701.1 763.6 Operating income 84.9 65.0 53.8 Earnings $ 32.2 $ 27.1 $ 23.6 Volumes (MMdk) Retail sales: Residential 63.6 56.2 54.0 Commercial 44.3 38.9 37.6 Industrial 4.6 4.2 4.0 112.5 99.3 95.6 Transportation sales: Commercial 2.0 1.8 1.8 Industrial 142.5 145.8 152.4 144.5 147.6 154.2 Total throughput 257.0 246.9 249.8 Degree days (% of normal)* Montana-Dakota/Great Plains 100% Cascade 107% Intermountain 111% Average cost of natural gas, including transportation, per dk $ 4.26 $4.35 $5.22 *Degree days are a measure of the daily temperature-related demand for energy for heating. 2017 compared to 2016 The natural gas distribution business experienced an increase in earnings of $5.1 million (19 percent) compared to the prior year because of increased natural gas retail sales margins. The margin increase resulted from: • Increased retail sales volumes of 13 percent across all customer classes from colder weather in all jurisdictions, offset in part by weather normalization in certain jurisdictions, and 2 percent customer growth • Approved final and interim rate increases Partially offsetting the increase were: • Income tax expense of $4.3 million for the revaluation of nonutility net deferred tax assets, as discussed in Item 8 - Note 11 • Higher operation and maintenance expense, which includes $3.7 million (after tax) largely from higher payroll-related costs and material costs • Higher depreciation, depletion and amortization expense of $2.4 million (after tax) as a result of increased property, plant and equipment balances 2016 compared to 2015 The natural gas distribution business experienced an increase in earnings of $3.5 million (15 percent) compared to the prior year from higher natural gas retail sales margins. The margin increase resulted from: • Increased retail sales volumes of 4 percent to all customer classes from customer growth and colder weather in certain regions • Approved final and interim rate increases Part II 34 MDU Resources Group, Inc. Form 10-K Partially offsetting the increase were higher operation and maintenance expense, which includes $4.6 million (after tax) largely from higher payroll-related costs, and higher depreciation, depletion and amortization expense from increased property, plant and equipment balances. The previous table also includes lower nonutility project costs reflected in operation and maintenance expense, as well as the pass-through of lower natural gas prices which are reflected in the decrease in both sales revenue and purchased natural gas sold in 2016. Outlook The Company expects these segments will grow rate base by approximately 6 percent annually over the next five years on a compound basis. This growth projection is on a much larger base, having grown rate base at a record pace of 12 percent compounded annually over the past five-year period. Operations are spread across eight states where the Company expects customer growth to be higher than the national average. Customer growth is expected to grow by 1 percent to 2 percent per year. This customer growth, along with system upgrades and replacements needed to supply safe and reliable service, will require investments in new electric generation and transmission and natural gas systems. The Company continues to be focused on the regulatory recovery of its investments. Since, January 1, 2017, these segments have implemented rate increases in Idaho, Minnesota, Montana, North Dakota, Oregon, Wyoming and before the FERC. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by jurisdiction are discussed in Item 8 - Note 16. With the enactment of the TCJA, the state regulators in jurisdictions where the segments operate have requested companies submit plans for the estimated impact of the TCJA. As such, the segments are using the deferral method of accounting for the revaluation of its regulated deferred tax assets and liabilities. The impact of the revaluation of the segments' regulatory deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment, have been included in the Company's regulatory assets and liabilities, as discussed in Item 8 - Note 4. The Company does not anticipate the corporate tax rate reduction to increase earnings at the utility businesses. The Company anticipates the TCJA will negatively impact the segments' cash flows due to not being able to immediately expense utility property. In December 2016, the Company signed a 25-year agreement to purchase power from the expansion of the Thunder Spirit Wind farm in southwest North Dakota. In November 2017, the NDPSC approved the advance determination of prudence for the purchase of the Thunder Spirit Wind farm expansion. The Company expects to soon have a purchase agreement in place and finalize the purchase when the construction is complete in late 2018. With the addition of the expansion, the Company's total wind farm generation capacity will be approximately 155 MW and increase the Company's electric generation portfolio to approximately 27 percent renewables based on nameplate ratings. The Company's integrated resource plans in North Dakota and Montana include additional generation projects. In June 2016, the Company, along with a partner, began construction on a 345-kilovolt transmission line from Ellendale, North Dakota, to Big Stone City, South Dakota. The estimated capital investment for this project is $130 million to $150 million. All necessary easements have been secured and the project is expected to be completed in 2019. In 2018, the Company will begin the construction of a new 12-inch natural gas pipeline that will run approximately 21 miles from northeast Milnor, North Dakota, to southwest of Gwinner, North Dakota. The pipeline will serve, in part, a manufacturing facility in Gwinner and is expected to be in service by late 2018. The pipeline has the capacity to expand natural gas service to other key industries in the region. Part II MDU Resources Group, Inc. Form 10-K 35 Pipeline and Midstream Strategy and challenges The pipeline and midstream segment provides natural gas transportation, gathering and underground storage services, as discussed in Items 1 and 2 - Business Properties. The segment focuses on utilizing its extensive expertise in the design, construction and operation of energy infrastructure and related services to increase market share and profitability through optimization of existing operations, organic growth, and investments in energy-related assets within or in close proximity to its current operating areas. The segment focuses on the continual safety and reliability of its systems, which entails building and maintaining safe natural gas pipelines and facilities. The segment continues to evaluate growth opportunities including the expansion of existing storage, gathering and transmission facilities; incremental pipeline projects which expand pipeline capacity; and expansion of energy-related services in the region leveraging on core competencies. The segment is exposed to energy price volatility which is impacted by the fluctuations in pricing, production and basis differentials of the energy market's commodities. Legislative and regulatory initiatives to increase pipeline safety regulations and reduce methane emissions could also impact the price and demand for natural gas. The pipeline and midstream segment is subject to extensive regulation including certain operational, system integrity and environmental regulations as well as various permit terms and operational compliance conditions. The segment is charged with the ongoing process of reviewing existing permits and easements as well as securing new permits and easements as necessary to meet current demand and future growth opportunities. Exposure to pipeline opposition groups could also cause negative impacts on the segment with increased costs and potential delays to project completion. The segment focuses on the recruitment and retention of a skilled workforce to remain competitive and provide services to its customers. The industry in which it operates relies on a skilled workforce to construct energy infrastructure and operate existing infrastructure in a safe manner. A shortage of skilled personnel can create a competitive labor market which could increase costs incurred by the segment. Competition from other pipeline and midstream companies can also have a negative impact on the segment. Earnings overview - pipeline and midstream The following information summarizes the performance of the pipeline and midstream segment. Years ended December 31,2017 2016 2015 (Dollars in millions) Operating revenues $ 122.2 $141.6 $154.9 Operating expenses: Operation and maintenance 56.0 61.4 84.7 Depreciation, depletion and amortization 16.8 24.9 28.0 Taxes, other than income 12.5 11.9 12.2 Total operating expenses 85.3 98.2 124.9 Operating income 36.9 43.4 30.0 Earnings $20.5 $23.4 $13.3 Transportation volumes (MMdk)312.5 285.3 290.5 Natural gas gathering volumes (MMdk)16.1 20.0 33.4 Customer natural gas storage balance (MMdk): Beginning of period 26.4 16.6 14.9 Net injection (withdrawal)(4.0)9.8 1.7 End of period 22.4 26.4 16.6 2017 compared to 2016 Pipeline and midstream earnings decreased $2.9 million (13 percent) compared to the prior year largely resulting from lower gathering and processing revenues of $14.0 million (after tax). The decrease in revenues resulted from lower volumes from the sale of the Pronghorn assets in January 2017, as discussed in Item 8 - Note 2. Also included in the decrease in earnings was income tax expense of $200,000 for the TCJA revaluation, as discussed in Item 8 - Note 11. Partially offsetting the decrease were: • Lower depreciation, depletion and amortization expense of $5.0 million (after tax) resulting from the absence of the Pronghorn assets, as previously discussed • Lower operation and maintenance expense, which includes $2.2 million (after tax) primarily from the absence of Pronghorn, as previously discussed, as well as the absence in 2017 of a $1.4 million (after tax) fair value impairment in 2016 associated with the Pronghorn sale • Lower interest expense due to lower debt balances • Higher transportation revenues of $1.0 million largely resulting from increased off-system transportation volumes due to recently completed organic growth projects 2016 compared to 2015 Pipeline and midstream earnings increased $10.1 million (77 percent) largely due to: • Lower operation and maintenance expense, which includes $13.6 million (after tax) largely due to the absence in 2016 of impairments of natural gas gathering assets of $10.6 million (after tax), as discussed in Item 8 - Notes 1 and 5, lower payroll-related costs and lower material costs partially offset by a fair value impairment in 2016 of $1.4 million (after tax) associated with the sale of Pronghorn, as previously discussed • Lower depreciation, depletion and amortization of $1.9 million (after tax), largely due to the sale of certain non-strategic natural gas gathering assets in the fourth quarter of 2015 • Higher storage services earnings, primarily due to higher average interruptible storage balances • Lower interest expense of $1.2 million (after tax), primarily the result of lower debt interest rates and balances Partially offsetting the earnings increase was lower gathering and processing revenues of $8.0 million (after tax) resulting from lower natural gas gathering volumes, primarily due to the sale of certain non-strategic natural gas gathering assets, as previously discussed, and lower oil gathering volumes, partially offset by higher oil gathering rates at Pronghorn. Part II 36 MDU Resources Group, Inc. Form 10-K Outlook The Company has continued to feel the effects of natural gas production at record levels which keeps downward pressure on natural gas prices in the near term. The Company continues to focus on growth and improving existing operations through organic projects in all areas in which it operates. The following describes recent growth projects. The Company's Valley Expansion project, a 38-mile pipeline that will deliver natural gas supply to eastern North Dakota and far western Minnesota, is expected to be complete in the fourth quarter of 2018. The project, which is designed to transport 40 million cubic feet of natural gas per day, is under the jurisdiction of the FERC. In February 2018, the Company received an order issuing a certificate of public convenience and necessity from the FERC. Construction is expected to begin as soon as the conditions of the certificate have been met, including the receipt of outstanding permits. In June 2017, the Company announced plans to complete a Line Section 27 expansion project in the Bakken area of northwestern North Dakota. The project will include approximately 13 miles of new pipeline and associated facilities. The project, as designed, will increase capacity by over 200 million cubic feet per day and bring total capacity of the Line Section 27 to over 600 million cubic feet per day. The project is expected to be placed in service in the fall of 2018. In 2017, the Company completed and placed into service the Charbonneau and Line Section 25 expansion projects, which include a new compression station as well as other compressor additions and enhancements at existing stations. The Company's revenues have been positively impacted by the increase in transportation volumes with these projects. The impact of the TCJA on the pipeline and midstream industry is uncertain. With the enactment of the TCJA, the regulated pipeline is using the deferral method of accounting for the revaluation of its regulated deferred tax assets and liabilities. The impact of the revaluation of the regulated pipeline's regulatory deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment, have been included in the Company's regulatory assets and liabilities, as discussed in Item 8 - Note 4. Part II MDU Resources Group, Inc. Form 10-K 37 Construction Materials and Contracting Strategy and challenges The construction materials and contracting segment provides an integrated set of construction services, as discussed in Items 1 and 2 - Business Properties. The segment focuses on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas; strengthening the long-term, strategic aggregate reserve position through available purchase and/or lease opportunities; enhancing profitability through cost containment, margin discipline and vertical integration of the segment's operations; development and recruitment of talented employees; and continued growth through organic and acquisition opportunities. A key element of the Company's long-term strategy for this business is to further expand its market presence in the higher-margin materials business (rock, sand, gravel, liquid asphalt, asphalt concrete, ready-mixed concrete and related products), complementing and expanding on the segment's expertise. The segment expects to continue cost containment efforts, positioning its operations for the resurgence in the private market, while continuing the emphasis on industrial, energy and public works projects. As one of the country's largest sand and gravel producers, the segment will continue to strategically manage its 1.0 billion tons of aggregate reserves in all its markets, as well as take further advantage of being vertically integrated. The segment's vertical integration allows the segment 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 construction materials and contracting segment faces challenges that are not under the direct control of the business. The segment operates in highly competitive markets. Competition can put negative pressure on the ability of the segment to earn a reasonable return. The segment is also subject to volatility in the cost of raw materials such as diesel, gasoline, liquid asphalt, cement and steel. Such volatility can have a negative impact on the segment's margins. Other variables that can impact the segment's margins include adverse weather conditions, the timing of project starts or completion and declines or delays in new and existing projects due to the cyclical nature of the construction industry. The segment also faces challenges in the recruitment and retention of employees. Trends in the labor market include an aging workforce and availability issues. The segment also faces increasing pressure to reduce costs and the need for temporary employment because of the seasonality of the work performed in certain regions. Earnings overview - construction materials and contracting The following information summarizes the performance of the construction materials and contracting segment. Years ended December 31,2017 2016 2015 (Dollars in millions) Operating revenues $ 1,812.5 $1,874.3 $1,904.3 Operating expenses: Cost of sales: Operation and maintenance 1,500.7 1,533.2 1,576.4 Depreciation, depletion and amortization 52.5 54.1 61.0 Taxes, other than income 38.0 37.5 36.1 1,591.2 1,624.8 1,673.5 Selling, general and administrative expense: Operation and maintenance 70.4 62.2 75.9 Depreciation, depletion and amortization 3.4 4.3 4.9 Taxes, other than income 3.8 4.3 4.0 77.6 70.8 84.8 Total operating expenses 1,668.8 1,695.6 1,758.3 Operating income 143.7 178.7 146.0 Earnings $ 123.4 $102.7 $89.1 Sales (000's): Aggregates (tons)28,213 27,580 26,959 Asphalt (tons)6,237 7,203 6,705 Ready-mixed concrete (cubic yards)3,548 3,655 3,592 2017 compared to 2016 Earnings at the construction materials and contracting business increased $20.7 million (20 percent) compared to the prior year. The increase was the result of: • An income tax benefit of $41.9 million for the revaluation of the segment's net deferred tax liabilities, as discussed in Item 8 - Note 11 • Higher aggregate margins of $5.0 million (after tax) primarily due to strong commercial and residential demand in certain regions Partially offsetting these increases were: • Lower asphalt product margins resulting from lower revenues driven by competitive pricing and lower volumes from unfavorable weather during the first half of the year, less available work and increased competition in certain regions • Lower construction margins of $5.5 million (after tax), largely decreased workloads caused by unfavorable weather during the first half of the year and less available work in energy-producing states • Higher selling, general and administrative expense of $4.1 million (after tax) from the absence in 2017 of a $6.7 million (after tax) reduction to a MEPP withdrawal liability, as discussed in Item 8 - Note 14, offset in part by lower depreciation, depletion and amortization and lower office expense 2016 compared to 2015 Earnings at the construction materials and contracting business increased $13.6 million (15 percent) due to: • Higher construction margins of $8.1 million (after tax) resulting from higher revenues due to more available work in most regions • Lower selling, general and administrative expense from a $6.7 million (after tax) reduction in 2016 to a previously recorded MEPP withdrawal liability compared to an increase to a MEPP withdrawal liability of $1.5 million (after tax) in 2015, as discussed in Item 8 - Note 14 • Higher asphalt product margins of $2.9 million (after tax) resulting from higher volumes and lower asphalt oil and production costs • Higher aggregate margins of $2.3 million (after tax) resulting from higher volumes due to increased demand Partially offsetting these increases were: • Higher effective income tax rates • Lower other product lines margins of $1.3 million (after tax) Lower diesel fuel costs contributed to higher earnings from all product lines in 2016. Part II 38 MDU Resources Group, Inc. Form 10-K Outlook 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- mixed concrete, asphaltic concrete and public and private construction markets. The contracting services and construction materials are sold primarily to construction contractors in connection with street, highway and other public infrastructure projects, as well as private commercial and residential development projects. The public infrastructure projects have traditionally been more stable markets as public funding is more secure during periods of economic decline. The public funding is, however, dependent on federal funding such as appropriations to the Federal Highway Administration. Spending on private development is highly dependent on both local and national economic cycles, providing additional sales during times of strong economic cycles. The Company remains optimistic about overall economic growth and infrastructure spending. The IBIS World Industry Report for sand and gravel mining in the United States projects a 2.7 percent annual growth rate over the next five years. The report also states the demand for clay and refractory materials is projected to continue deteriorating in several downstream manufacturing industries, but this decline will be offset by stronger demand from the housing market and buoyant demand from the highway and bridge construction market. This stronger demand in the housing markets along with continued demand from the highway and bridge construction markets should provide a stable demand for construction materials and contracting products and services in the near future. The impact of the TCJA on the economy as a whole is unclear at this time. As such, the impact to the construction materials and contracting industry is also uncertain. Under the TCJA, the domestic production deduction will no longer be able to be taken. The domestic production deduction was originally introduced to incentivize domestic production activities and was a deduction of up to 9 percent on qualified production activity income for which this segment's activities qualified. The Company expects the lower federal corporate tax rate will more than offset the loss of the domestic production deduction for this segment. Part II MDU Resources Group, Inc. Form 10-K 39 Construction Services Strategy and challenges The construction services segment provides inside and outside specialty contracting, as discussed in Items 1 and 2 - Business Properties. The construction services segment focuses on providing a superior return on investment by building new and strengthening existing customer relationships; ensuring quality service; safely executing projects; effectively controlling costs; collecting on receivables; retaining, developing and recruiting talented employees; growing through organic and acquisition opportunities; and focusing efforts on projects that will permit higher margins while properly managing risk. The construction services segment faces challenges in the highly competitive markets in which it operates. Competitive pricing environments, project delays and effects from restrictive regulatory requirements have negatively impacted margins in the past and could affect margins in the future. Additionally, margins may be negatively impacted on a quarterly basis due to adverse weather conditions, as well as timing of project starts or completions, declines or delays in new projects due to the cyclical nature of the construction industry and other factors. These challenges may also impact the risk of loss on certain projects. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period. The need to ensure available specialized labor resources for projects also drives strategic relationships with customers and project margins. These trends include an aging workforce and labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of customer capital programs. Due to these and other factors, we believe customer demand for labor resources will continue to increase, possibly outpacing, the supply of industry resources. Earnings overview - construction services The following information summarizes the performance of the construction services segment. Years ended December 31,2017 2016 2015 (In millions) Operating revenues $ 1,367.6 $1,073.3 $926.4 Operating expenses: Cost of sales: Operation and maintenance 1,153.9 905.4 783.7 Depreciation, depletion and amortization 14.2 13.5 11.8 Taxes, other than income 43.4 35.2 27.4 1,211.5 954.1 822.9 Selling, general and administrative expense: Operation and maintenance 69.0 59.9 54.8 Depreciation, depletion and amortization 1.5 1.8 1.6 Taxes, other than income 4.0 3.8 3.7 74.5 65.5 60.1 Total operating expenses 1,286.0 1,019.6 883.0 Operating income 81.6 53.7 43.4 Earnings $53.3 $33.9 $23.8 2017 compared to 2016 Construction services earnings increased $19.4 million (57 percent) compared to the prior year largely because of: • Higher inside specialty contracting margins of $12.8 million (after tax) driven by an increase in revenues from an increase in the number and size of construction projects in 2017 and decreased costs from the successful management of labor performance on projects in a majority of the business activities performed partially offset by job losses on certain projects • Higher outside specialty contracting margins of $9.8 million (after tax) driven by higher contracting workloads and equipment revenues in areas impacted by storm activity • An income tax benefit of $4.3 million for the revaluation of the segment's net deferred tax liabilities, as discussed in Item 8 - Note 11 Partially offsetting these increases were: • Higher selling, general and administrative expense, largely payroll-related costs • The absence in 2017 of a $1.5 million tax benefit related to the disposition of a non-strategic asset 2016 compared to 2015 Construction services earnings increased $10.1 million (43 percent) compared to the prior year largely because of: • Higher inside specialty contracting margins of $13.0 million (after tax) resulting from higher workloads from the successful completion of construction projects in certain markets, as well as lower labor costs due to increased efficiencies and lower workers' compensation claim costs partially offset by a loss on a project • Higher margins of $3.5 million (after tax) resulting from the sale of a non-strategic asset in 2015 These increases were partially offset by: • Higher selling, general and administrative expense of $4.0 million (after tax), primarily due to higher payroll and benefit-related costs and higher bad debt expense • Lower outside construction margins, primarily lower equipment revenues impacted by decreased customer demand Outlook The Company continues to expect long-term growth in the electric transmission market, although the timing of large bids and subsequent construction is likely to be highly variable from year to year. The Company believes several multi-year transmission projects will be available for bid in the 2018 timeframe and also expects bidding activity in small and medium-sized transmission and distribution projects to continue in 2018. The impact of the TCJA on the economy as a whole is unclear at this time. As such, the impact to the construction services industry is also uncertain. While it is unclear what impact the TCJA may have on the construction services industry, the Company is optimistic about overall economic growth and infrastructure spending and believes that improving industry activity will continue in both market segments and the drivers for investment will remain intact. The Company believes that regulatory reform, state renewable portfolio standards, the aging of the electric grid, and the general improvement of the economy will positively impact the level of spending by its customers. Although competition remains strong, these trends are viewed as positive factors in the future. Part II 40 MDU Resources Group, Inc. Form 10-K The Company expects bidding activity to remain strong in both outside and inside specialty construction companies for the year 2018. Although bidding remains highly competitive in all areas, the Company expects the segment's skilled workforce will continue to provide a benefit in securing and executing profitable projects. Part II MDU Resources Group, Inc. Form 10-K 41 Other Years ended December 31,2017 2016 2015 (In millions) Operating revenues $7.9 $8.6 $9.2 Operating expenses: Operation and maintenance 6.2 6.6 15.4 Depreciation, depletion and amortization 2.0 2.1 2.1 Taxes, other than income .2 .1 .1 Total operating expenses 8.4 8.8 17.6 Operating loss (.5)(.2)(8.4) Loss $(1.5)$(3.2) $(15.0) Included in Other are 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. 2017 compared to 2016 Other loss decreased $1.7 million compared to the prior year primarily the result of lower interest expense from the repayment of long-term debt with the sale of the remaining exploration and production assets. Lower operation and maintenance expense was due to the absence of the refining business in 2017 offset in part by the loss on the disposition of certain assets during the year. 2016 compared to 2015 Other loss decreased $11.8 million compared to the prior year primarily due to lower operation and maintenance expense and interest expense previously allocated to the exploration and production business, due to the sale of that business which included the repayment of long-term debt. Also contributing to the decreased loss was lower operation and maintenance expense in 2016 due to the absence of a 2015 corporate asset impairment and the absence of a 2015 foreign currency translation loss including the effects of the sale of the Company's remaining interest in the Brazilian Transmission Lines. Discontinued Operations Years ended December 31,2017 2016 2015 (In millions) Income (loss) from discontinued operations before intercompanyeliminations, net of tax $3.1 $(303.2) $(829.9) Intercompany eliminations*(6.9)2.8 (4.2) Loss from discontinued operations, net of tax (3.8)(300.4)(834.1) Loss from discontinued operations attributable to noncontrolling interest —(131.7)(35.3) Loss from discontinued operations attributable to the Company, net of tax $(3.8)$(168.7) $(798.8) * Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations. 2017 compared to 2016 The loss from discontinued operations attributable to the Company was $3.8 million compared to a loss of $168.7 million in the prior year. The decreased loss was largely due to the absence in 2017 of a loss associated with the sale of the refining business in June 2016, as well as the reversal in 2017 of a previously accrued liability due to the resolution of a legal matter, as discussed in Item 8 - Note 2. 2016 compared to 2015 The loss from discontinued operations attributable to the Company was $168.7 million compared to a loss of $798.8 million in the prior year. The decreased loss is primarily due to the completion of the sales of Company's exploration and production and refining businesses. The decreased loss was largely the result of the absence in 2016 of a noncash write-down of oil and natural gas properties of $315.3 million (after tax) and fair value impairments of the exploration and production business's assets held for sale of $475.4 million (after tax), as discussed in Item 8 - Note 2, partially offset by a fair value impairment of the refining business of $156.7 million (after tax) in 2016, as discussed in Item 8 - Note 2. Intersegment Transactions Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company's elimination of intersegment transactions. The amounts related to these items were as follows: Years ended December 31,2017 2016 2015 (In millions) Intersegment transactions: Operating revenues $58.0 $57.4 $78.8 Operation and maintenance 9.1 8.7 26.9 Purchased natural gas sold 48.9 48.7 48.9 Income from continuing operations*(6.9)(6.3)(5.0) * Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations. For more information on intersegment eliminations, see Item 8 - Note 13. Part II 42 MDU Resources Group, Inc. Form 10-K New Accounting Standards For information regarding new accounting standards, see Item 8 - Note 1, which is incorporated herein by reference. Liquidity and Capital Commitments At December 31, 2017, the Company had cash and cash equivalents of $34.6 million and available borrowing capacity of $687.1 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; the Company's credit facilities, as described later in Capital resources; the issuance of long-term debt; and issuance of equity securities. Cash flows Operating activities The changes in cash flows from operating activities generally follow the results of operations as discussed in Business Segment Financial and Operating Data and also are affected by changes in working capital. Changes in cash flows for discontinued operations are related to the former exploration and production and refining businesses. Cash flows provided by operating activities in 2017 decreased $14.2 million from 2016. The decrease in cash flows provided by operating activities reflects higher working capital requirements at the construction services business largely resulting from higher receivables due to increased workloads during the year and at the construction materials business due to higher receivables resulting from increased workloads later in the year. Higher natural gas purchases including the effects of colder weather also added to higher working capital requirements at the natural gas distribution business. Higher income taxes paid from continuing operations was largely offset by higher income taxes received from discontinued operations resulting from the realization of net operating losses at the discontinued operations. Higher earnings from continuing operations in 2017, compared to 2016, partially offset the decrease in cash flows provided by operating activities. Higher margins at the electric, natural gas distribution and construction services businesses were partially offset by lower margins at the construction materials business. Cash flows provided by operating activities in 2016 decreased $199.6 million from 2015. The decrease in cash flows provided by operating activities was largely from lower cash flows at the exploration and production business. The decrease was also due to higher working capital requirements at the electric, natural gas distribution and pipeline and midstream businesses. Partially offsetting the decrease in cash flows provided by operating activities was higher cash flows from continuing operations (excluding working capital) at the electric, pipeline and midstream and construction materials and contracting businesses. Investing activities Cash flows used in investing activities in 2017 decreased $90.9 million from 2016 largely resulting from net proceeds from the sale of Pronghorn in January 2017 at the pipeline and midstream business. Cash flows used in investing activities in 2016 decreased $77.4 million from 2015 primarily due to lower capital expenditures largely at the electric and refining businesses. Partially offsetting this decrease were lower proceeds from the sale of properties at the exploration and production business. Financing activities Cash flows used in financing activities in 2017 increased $50.4 million from 2016 primarily due to the higher net repayment of long-term debt. Cash flows used in financing activities in 2016 decreased $60.8 million from 2015 primarily due to the lower repayment of long-term debt of $250.9 million, partially offset by debt repayment in connection with the sale of the refining business, lower capital contributions at the refining business and lower issuance of long-term debt of $36.9 million. Part II MDU Resources Group, Inc. Form 10-K 43 Defined benefit pension plans The Company has noncontributory qualified defined benefit pension plans for certain employees. Plan assets consist of investments in equity and fixed-income securities. Various actuarial assumptions are used in calculating the benefit expense (income) and liability (asset) related to the pension plans. Actuarial assumptions include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company within certain guidelines. At December 31, 2017, the pension plans' accumulated benefit obligations exceeded these plans' assets by approximately $91.5 million. Pretax pension expense reflected in the years ended December 31, 2017, 2016 and 2015, was $1.7 million, $2.1 million and $2.0 million, respectively. The Company's pension expense is currently projected to be approximately $2.0 million to $3.0 million in 2018. Funding for the pension plans is actuarially determined. The minimum required contributions for 2017 and 2015 were approximately $3.1 million and $3.9 million, respectively. There were no minimum required contributions for 2016. For more information on the Company's pension plans, see Item 8 - Note 14. Capital expenditures The Company's capital expenditures from continuing operations for 2015 through 2017 and as anticipated for 2018 through 2020 are summarized in the following table. Actual (a)Estimated 2015 2016 2017 2018 2019 2020 Capital expenditures: Electric $ 333 $ 111 $ 109 $ 229 $ 107 $ 98 Natural gas distribution 131 126 147 203 211 172 Pipeline and midstream 18 35 31 97 100 109 Construction materials and contracting 48 38 44 79 78 76 Construction services 38 60 19 17 16 16 Other 4 2 2 3 2 1 Total capital expenditures $572 $372 $ 352 $628 $514 $472 (a) Capital expenditures for 2017, 2016 and 2015 include noncash capital expenditure-related accounts payable and AFUDC, totaling $10.5 million, $(15.8) million and $35.3 million, respectively. The 2017 capital expenditures were met from internal sources. The Company has included in the estimated capital expenditures for 2018 the purchase of the Thunder Spirit Wind farm expansion, the Valley Expansion project and the Line Section 27 expansion project, as previously discussed in Business Segment Financial and Operating Data. Estimated capital expenditures for the years 2018 through 2020 include those for: • System upgrades • Routine replacements • Service extensions • Routine equipment maintenance and replacements • Buildings, land and building improvements • Pipeline, gathering and other midstream projects • Power generation and transmission opportunities, including certain costs for additional electric generating capacity • Environmental upgrades • Other growth opportunities The Company continues to evaluate potential future acquisitions and other growth opportunities; however, they are dependent upon the availability of economic opportunities and, as a result, capital expenditures may vary significantly from the estimates in the preceding table. It is anticipated that all of the funds required for capital expenditures for the years 2018 through 2020 will be met from various sources, including internally generated funds; the Company's credit facilities, as described later; issuance of long-term debt; and issuance of equity securities. Capital resources Certain debt instruments of the Company and its subsidiaries, including those discussed later, contain restrictive covenants and cross- default provisions. In order to borrow under the respective credit agreements, the Company and its subsidiaries must be in compliance with the applicable covenants and certain other conditions, all of which the Company and its subsidiaries, as applicable, were in compliance with at December 31, 2017. In the event the Company and its subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued. For more information on the covenants, certain other conditions and cross-default provisions, see Item 8 - Note 6. The following table summarizes the outstanding revolving credit facilities of the Company and its subsidiaries at December 31, 2017: Company Facility FacilityLimit AmountOutstanding Lettersof Credit ExpirationDate (In millions) MDU Resources Group, Inc.Commercial paper/Revolvingcredit agreement (a)$175.0 $73.8 (b)$—5/8/19 Cascade Natural GasCorporation Revolving credit agreement $75.0 (c)$17.3 $2.2 (d) 4/24/20 Intermountain Gas Company Revolving credit agreement $ 85.0 (e) $ 40.0 $ —4/24/20 Centennial Energy Holdings,Inc.Commercial paper/Revolvingcredit agreement (f)$500.0 $14.6 (b)$—9/23/21 (a) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of the Company on stated conditions, up to a maximum of $225.0 million). There were no amounts outstanding under the revolving credit agreement. (b) Amount outstanding under commercial paper program. (c) Certain provisions allow for increased borrowings, up to a maximum of $100.0 million. (d) Outstanding letter(s) of credit reduce the amount available under the credit agreement. (e) Certain provisions allow for increased borrowings, up to a maximum of $110.0 million. (f) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennial on stated conditions, up to a maximum of $600.0 million). There were no amounts outstanding under the revolving credit agreement. The Company's and Centennial's 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, the Company 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 the construction businesses. The Company's coverage of fixed charges including preferred stock dividends was 4.2 times and 3.9 times for the 12 months ended December 31, 2017 and 2016, respectively. The coverage of fixed charges is used as an indicator of the Company's ability to satisfy fixed charges. Total equity as a percent of total capitalization was 59 percent and 56 percent at December 31, 2017 and 2016, respectively. This ratio is calculated as the Company's total equity, divided by the Company's total capital. Total capital is the Company's total debt, including short- term borrowings and long-term debt due within one year, plus total equity. This ratio is an indicator of how the Company is financing its operations, as well as its financial strength. The following includes information related to the preceding table. MDU Resources Group, Inc. The Company's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. The Company's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Historically, downgrades in the Company's credit ratings have not limited, nor are currently expected to limit, the Company's ability to access the capital markets. If the Company were to experience a downgrade of its credit ratings in the future, it may need to borrow under its credit agreement and may experience an increase in overall interest rates with respect to its cost of borrowings. Prior to the maturity of the credit agreement, the Company expects that it will negotiate the extension or replacement of this agreement. If the Company is unable to successfully negotiate an extension of, or replacement for, the credit agreement, or if the fees on this facility become too expensive, which the Company does not currently anticipate, the Company would seek alternative funding. Cascade Natural Gas Corporation On April 25, 2017, Cascade amended its revolving credit agreement to increase the borrowing limit from $50.0 million to $75.0 million and extend the termination date from July 9, 2018 to April 24, 2020. The credit agreement contains Part II 44 MDU Resources Group, Inc. Form 10-K 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. Cascade's credit agreement also contains cross-default provisions. These provisions state that if Cascade fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, Cascade will be in default under the revolving credit agreement. Intermountain Gas Company On April 25, 2017, Intermountain amended its revolving credit agreement to increase the borrowing limit from $65.0 million to $85.0 million and extend the termination date from July 13, 2018 to April 24, 2020. 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. Intermountain's credit agreement also contains cross-default provisions. These provisions state that if Intermountain fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, or certain conditions result in an early termination date under any swap contract that is in excess of a specified amount, then Intermountain will be in default under the revolving credit agreement. Centennial Energy Holdings, Inc. Centennial's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. Centennial's objective is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. Historically, downgrades in Centennial's credit ratings have not limited, nor are currently expected to limit, Centennial's ability to access the capital markets. If Centennial were to experience a downgrade of its credit ratings in the future, it may need to borrow under its credit agreement and may experience an increase in overall interest rates with respect to its cost of borrowings. Prior to the maturity of the Centennial credit agreement, Centennial expects that it will negotiate the extension or replacement of this agreement, which provides credit support to access the capital markets. In the event Centennial is unable to successfully negotiate this agreement, or in the event the fees on this facility become too expensive, which Centennial does not currently anticipate, it would seek alternative funding. WBI Energy Transmission, Inc. WBI Energy Transmission has a $200.0 million uncommitted note purchase and private shelf agreement with an expiration date of May 16, 2019. WBI Energy Transmission had $100.0 million of notes outstanding at December 31, 2017, which reduced the remaining capacity under this uncommitted private shelf agreement to $100.0 million. On December 22, 2017, WBI Energy Transmission contracted to issue an additional $40.0 million under the private shelf agreement at an interest rate of 4.18 percent on June 15, 2018. Part II MDU Resources Group, Inc. Form 10-K 45 Off balance sheet arrangements As of December 31, 2017, the Company had no material off balance sheet arrangements as defined by the rules of the SEC. Contractual obligations and commercial commitments For more information on the Company's contractual obligations on long-term debt, operating leases and purchase commitments, see Item 8 - Notes 6 and 17. At December 31, 2017, the Company's commitments under these obligations were as follows: 2018 2019 2020 2021 2022 Thereafter Total (In millions) Long-term debt $ 148.5 $ 125.5 $ 73.0 $ 15.3 $ 147.2 $ 1,211.0 $ 1,720.5 Estimated interest payments*71.2 62.6 62.2 59.1 58.7 512.9 826.7 Operating leases 55.5 45.3 33.2 18.6 7.0 40.8 200.4 Purchase commitments 360.8 215.0 162.4 135.3 99.1 773.8 1,746.4 $636.0 $448.4 $330.8 $228.3 $312.0 $2,538.5 $4,494.0 * Estimated interest payments are calculated based on the applicable rates and payment dates. At December 31, 2017, the Company had total liabilities of $342.0 million related to asset retirement obligations that are excluded from the table above. Of the total asset retirement obligations, the current portion was $4.3 million at December 31, 2017, and was included in other accrued liabilities on the Consolidated Balance Sheet. The remainder, which constitutes the long-term portion of asset retirement obligations, was included in deferred credits and other liabilities - other on the Consolidated Balance Sheet. Due to the nature of these obligations, the Company cannot determine precisely when the payments will be made to settle these obligations. For more information, see Item 8 - Note 7. The Company has no uncertain tax positions in 2018. The Company's minimum funding requirements for its defined benefit pension plans for 2018, which are not reflected in the previous table, are $3.1 million. For information on potential contributions above the funding minimum requirements, see item 8 - Note 14. The Company's MEPP contributions are based on union employee payroll, which cannot be determined in advance for future periods. The Company may also be required to make additional contributions to its MEPPs as a result of their funded status. For more information, see Item 1A - Risk Factors and Item 8 - Note 14. Part II 46 MDU Resources Group, Inc. Form 10-K Critical Accounting Policies Involving Significant Estimates The Company has prepared its financial statements in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. The Company's significant accounting policies are discussed in Item 8 - Note 1. Estimates are used for items such as impairment testing of long-lived assets and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions; uncollectible accounts; environmental and other loss contingencies; accumulated provision for revenues subject to refund; costs on construction contracts; unbilled revenues; actuarially determined benefit costs; asset retirement obligations; and the valuation of stock-based compensation. The Company's critical accounting policies are subject to judgments and uncertainties that affect the application of such policies. As discussed below, the Company's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. The following critical accounting policies involve significant judgments and estimates. Impairment of long-lived assets and intangibles The Company reviews the carrying values of its long-lived assets and intangibles, excluding assets held for sale, whenever events or changes in circumstances indicate that such carrying values may not be recoverable and at least annually for goodwill. Goodwill The Company performs its goodwill impairment testing annually in the fourth quarter. In addition, the test is performed on an interim basis whenever events or circumstances indicate that the carrying amount of goodwill may not be recoverable. Examples of such events or circumstances may include a significant adverse change in business climate, weakness in an industry in which the Company's reporting units operate or recent significant cash or operating losses with expectations that those losses will continue. The goodwill impairment test is a two-step process performed at the reporting unit level. The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. For more information on the Company's operating segments, see Item 8 - Note 13. The first step of the impairment test involves comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the test is complete and no impairment is recorded. If the fair value of a reporting unit is less than its carrying value, step two of the test is performed to determine the amount of impairment loss, if any. The impairment is computed by comparing the implied fair value of the reporting unit's goodwill to the carrying value of that goodwill. If the carrying value is greater than the implied fair value, an impairment loss must be recorded. For the years ended December 31, 2017, 2016, and 2015, there were no significant impairment losses recorded. At December 31, 2017, the fair value substantially exceeded the carrying value at all reporting units. Determining the fair value of a reporting unit requires judgment and the use of significant estimates which include assumptions about the Company's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, weighted average cost of capital, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is determined using a weighted combination of income and market approaches. The Company uses a discounted cash flow methodology for its income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the best estimate of the weighted average cost of capital at each reporting unit. The weighted average cost of capital, which varies by reporting unit and is in the range of 5 percent to 9 percent, and a long-term growth rate projection of approximately 3 percent were utilized in the goodwill impairment test performed in the fourth quarter of 2017. Under the market approach, the Company estimates fair value using multiples derived from comparable sales transactions and enterprise value to EBITDA for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company believes that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information. Long-Lived Assets Unforeseen events and changes in circumstances and market conditions and material differences in the value of long-lived assets and intangibles due to changes in estimates of future cash flows could negatively affect the fair value of the Company's assets and result in an impairment charge. If an impairment indicator exists for tangible and intangible assets, excluding goodwill, the asset group held and used is tested for recoverability by comparing an estimate of undiscounted future cash flows attributable to the assets compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value. There is risk involved when determining the fair value of assets, tangible and intangible, as there may be unforeseen events and changes in circumstances and market conditions that have a material impact on the estimated amount and timing of future cash flows. In addition, the fair value of the asset could be different using different estimates and assumptions in the valuation techniques used. The Company believes its estimates used in calculating the fair value of long-lived assets, including goodwill and identifiable intangibles, are reasonable based on the information that is known when the estimates are made. Revenue recognition Revenue is recognized when the earnings process is complete, as evidenced by an agreement between the customer and the Company, when delivery has occurred or services have been rendered, when the fee is fixed or determinable and when collection is reasonably assured. The recognition of revenue requires the Company to make estimates and assumptions that affect the reported amounts of revenue. Critical estimates related to the recognition of revenue include costs on construction contracts under the percentage-of-completion method. The Company recognizes construction contract revenue from fixed-price and modified fixed-price construction contracts at its construction businesses using the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. This method depends largely on the ability to make reasonably dependable estimates related to the extent of progress toward completion of the contract, contract revenues and contract costs. Inasmuch as contract prices are generally set before the work is performed, the estimates pertaining to every project could contain significant unknown risks such as volatile labor, material and fuel costs, weather delays, adverse project site conditions, unforeseen actions by regulatory agencies, performance by subcontractors, job management and relations with project owners. Changes in estimates could have a material effect on the Company's results of operations, financial position and cash flows. Several factors are evaluated in determining the bid price for contract work. These include, but are not limited to, the complexities of the job, past history performing similar types of work, seasonal weather patterns, competition and market conditions, job site conditions, work force safety, reputation of the project owner, availability of labor, materials and fuel, project location and project completion dates. As a project commences, estimates are continually monitored and revised as information becomes available and actual costs and conditions surrounding the job become known. If a loss is anticipated on a contract, the loss is immediately recognized. The Company believes its estimates surrounding percentage-of-completion accounting are reasonable based on the information that is known when the estimates are made. The Company has contract administration, accounting and management control systems in place that allow its estimates to be updated and monitored on a regular basis. Because of the many factors that are evaluated in determining bid prices, it is inherent that the Company's estimates have changed in the past and will continually change in the future as new information becomes available for each job. There were no material changes in contract estimates at the individual contract level in 2017. Pension and other postretirement benefits The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. Various actuarial assumptions are used in calculating the benefit expense (income) and liability (asset) related to these plans. Costs of Part II MDU Resources Group, Inc. Form 10-K 47 providing pension and other postretirement benefits bear the risk of change, as they are dependent upon numerous factors based on assumptions of future conditions. The Company makes various assumptions when determining plan costs, including the current discount rates and the expected long-term return on plan assets, the rate of compensation increases, actuarially determined mortality data, and health care cost trend rates. In selecting the expected long-term return on plan assets, which is considered to be one of the key variables in determining benefit expense or income, the Company considers historical returns, current market conditions and expected future market trends, including changes in interest rates and equity and bond market performance. Another key variable in determining benefit expense or income is the discount rate. In selecting the discount rate, the Company matches forecasted future cash flows of the pension and postretirement plans to a yield curve which consists of a hypothetical portfolio of high-quality corporate bonds with varying maturity dates, as well as other factors, as a basis. The Company's pension and other postretirement benefit plan assets are primarily made up of equity and fixed-income investments. Fluctuations in actual equity and bond market returns as well as changes in general interest rates may result in increased or decreased pension and other postretirement benefit costs in the future. Management estimates the rate of compensation increase based on long-term assumed wage increases and the health care cost trend rates are determined by historical and future trends. The Company estimates that a 50 basis point decrease in the discount rate or in the expected return on plan assets would each increase expense by less than $1.5 million (after tax) for the year ended December 31, 2017. 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. 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 14. Income taxes The Company is required to make judgments regarding the potential tax effects of various financial transactions and ongoing operations to estimate the Company's obligation to taxing authorities. These tax obligations include income, real estate and sales/use taxes. Judgments related to income taxes require the recognition in the Company's financial statements of a tax position that is more-likely-than-not to be sustained on audit. Judgment and estimation is required in developing the provision for income taxes and the reporting of tax-related assets and liabilities and, if necessary, any valuation allowances. The interpretation of tax laws can involve uncertainty, since tax authorities may interpret such laws differently. Actual income tax could vary from estimated amounts and may result in favorable or unfavorable impacts to net income, cash flows, and tax-related assets and liabilities. In addition, the effective tax rate may be affected by other changes including the allocation of property, payroll and revenues between states. The Company assesses the deferred tax assets for recoverability taking into consideration historical and anticipated earnings levels; the reversal of other existing temporary differences; available net operating losses and tax carryforwards; and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, a valuation allowance against the deferred tax assets. As facts and circumstances change, adjustment to the valuation allowance may be required. Part II 48 MDU Resources Group, Inc. Form 10-K Effects of Inflation Inflation did not have a significant effect on the Company's operations in 2017, 2016 or 2015. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to the impact of market fluctuations associated with interest rates. The Company has policies and procedures to assist in controlling these market risks and from time to time has utilized derivatives to manage a portion of its risk. Interest rate risk The Company uses fixed and variable rate long-term debt to partially finance capital expenditures and mandatory debt retirements. These debt agreements expose the Company to market risk related to changes in interest rates. The Company manages this risk by taking advantage of market conditions when timing the placement of long-term financing. The Company from time to time has utilized interest rate swap agreements to manage a portion of the Company's interest rate risk and may take advantage of such agreements in the future to minimize such risk. For additional information on the Company's long-term debt, see Item 8 - Notes 5 and 6. At December 31, 2017 and 2016, the Company had no outstanding interest rate hedges. The following table shows the amount of long-term debt, which excludes unamortized debt issuance costs and discount, and related weighted average interest rates, both by expected maturity dates, as of December 31, 2017. 2018 2019 2020 2021 2022 Thereafter Total FairValue (Dollars in millions) Long-term debt: Fixed rate $ 148.5 $ 51.7 $ 15.7 $ .7 $ 147.2 $ 1,211.0 $ 1,574.8 $ 1,680.6 Weighted average interest rate 6.1%4.8%— Variable rate — $ 73.8 $ 57.3 $ 14.6 —— $ 145.7 $ 145.7 Weighted average interest rate ———2.5%— Part II MDU Resources Group, Inc. Form 10-K 49 Item 8. Financial Statements and Supplementary Data Management's Report on Internal Control Over Financial Reporting The management of MDU Resources Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), management concluded that the Company's internal control over financial reporting was effective as of December 31, 2017. The effectiveness of the Company's internal control over financial reporting as of December 31, 2017, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report. David L. Goodin Jason L. Vollmer President and Chief Executive Officer Vice President, Chief Financial Officer and Treasurer Part II 50 MDU Resources Group, Inc. Form 10-K Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of MDU Resources Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of MDU Resources Group, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits include performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Minneapolis, Minnesota February 23, 2018 We have served as the Company's auditor since 2002. Part II MDU Resources Group, Inc. Form 10-K 51 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of MDU Resources Group, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of MDU Resources Group, Inc. and subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2017, of the Company and our report dated February 23, 2018, expressed an unqualified opinion on those consolidated financial statements and financial statement schedules. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Minneapolis, Minnesota February 23, 2018 Part II 52 MDU Resources Group, Inc. Form 10-K Consolidated Statements of Income Years ended December 31,2017 2016 2015 (In thousands, except per share amounts) Operating revenues: Electric, natural gas distribution and regulated pipeline and midstream $ 1,244,759 $ 1,141,454 $ 1,149,038 Nonregulated pipeline and midstream, construction materials and contracting,construction services and other 3,198,592 2,987,374 2,865,014 Total operating revenues 4,443,351 4,128,828 4,014,052 Operating expenses: 323,120 Nonregulated pipeline and midstream, construction materials and contracting,construction services and other 2,807,682 2,580,895 2,527,052 3,130,802 430,954 207,486 166,673 78,724 Total operating expenses 4,014,639 3,719,708 3,694,277 Operating income 428,712 Other income 4,103 Interest expense 82,788 87,848 91,179 Income before income taxes 350,027 Income taxes 65,041 93,132 70,664 Income from continuing operations 284,986 Loss from discontinued operations, net of tax (Note 2)(3,783)(300,354) (834,080) Net income (loss)281,203 Loss from discontinued operations attributable to noncontrolling interest (Note 2)— Loss on redemption of preferred stocks (Note 8)600 —— Dividends declared on preferred stocks 171 685 685 Earnings (loss) on common stock $ 280,432 $ 63,748 $ (623,120) Earnings (loss) per common share - basic: $ 1.46 Discontinued operations attributable to the Company, net of tax (.02)(.86)(4.10) Earnings (loss) per common share - basic $ 1.44 $.33 $ (3.20) Earnings (loss) per common share - diluted: $ 1.45 Discontinued operations attributable to the Company, net of tax (.02)(.86)(4.10) Earnings (loss) per common share - diluted $ 1.43 $.33 $ (3.20) Weighted average common shares outstanding - basic 195,304 195,299 194,928 Weighted average common shares outstanding - diluted 195,687 195,618 194,986 The accompanying notes are an integral part of these consolidated financial statements. Part II MDU Resources Group, Inc. Form 10-K 53 Consolidated Statements of Comprehensive Income Years ended December 31,2017 2016 2015 (In thousands) Net income (loss)$ 281,203 $ (67,258) $ (657,691) Other comprehensive income (loss): Reclassification adjustment for loss on derivative instruments included in netincome (loss), net of tax of $224, $226 and $233 in 2017, 2016 and 2015,respectively 366 367 404 Postretirement liability losses arising during the period, net of tax of $(1,162),$(836) and $(55) in 2017, 2016 and 2015, respectively (1,812)(1,470)(88) Amortization of postretirement liability losses included in net periodic benefitcost (credit), net of tax of $645, $1,425 and $1,128 in 2017, 2016 and2015, respectively 1,013 2,506 1,794 Reclassification of postretirement liability adjustment (from) to regulatory asset,net of tax of $(876), $0 and $1,416 in 2017, 2016 and 2015, respectively (1,143)—2,255 Postretirement liability adjustment (1,942)1,036 3,961 Foreign currency translation adjustment recognized during the period, net of taxof $(3), $31 and $(105) in 2017, 2016 and 2015, respectively (6)51 (173) Reclassification adjustment for loss on foreign currency translation adjustmentincluded in net income (loss), net of tax of $0, $0 and $490 in 2017, 2016and 2015, respectively ——802 Foreign currency translation adjustment (6)51 629 Net unrealized loss on available-for-sale investments arising during the period,net of tax of $(75), $(98) and $(91) in 2017, 2016 and 2015, respectively (139)(182)(170) Reclassification adjustment for loss on available-for-sale investments included innet income (loss), net of tax of $65, $77 and $70 in 2017, 2016 and 2015,respectively 120 143 131 Net unrealized loss on available-for-sale investments (19)(39)(39) Other comprehensive income (loss)(1,601)1,415 4,955 Comprehensive income (loss)279,602 (65,843) (652,736) Comprehensive loss from discontinued operations attributable to noncontrollinginterest —(131,691)(35,256) Comprehensive income (loss) attributable to common stockholders $ 279,602 $ 65,848 $ (617,480) The accompanying notes are an integral part of these consolidated financial statements. Part II 54 MDU Resources Group, Inc. Form 10-K Consolidated Balance Sheets December 31,2017 2016 (In thousands, except shares and per share amounts) Assets Current assets: Cash and cash equivalents $ 46,107 Receivables, net 630,243 Inventories 238,273 Prepayments and other current assets 48,461 Current assets held for sale 14,391 Total current assets 1,069,995 977,475 Investments 137,613 125,866 Property, plant and equipment (Note 1)6,770,829 6,510,229 2,691,641 Net property, plant and equipment 4,079,188 3,931,327 Deferred charges and other assets: Goodwill (Note 3)631,791 Other intangible assets, net (Note 3)5,925 Other 415,419 Noncurrent assets held for sale 196,664 Total deferred charges and other assets 1,047,870 1,249,799 Total assets $ 6,334,666 $ 6,284,467 Liabilities and Stockholders' Equity Current liabilities: Long-term debt due within one year $ 43,598 Accounts payable 279,962 Taxes payable 48,164 Dividends payable 37,767 Accrued compensation 65,867 Other accrued liabilities 184,377 Current liabilities held for sale 9,924 Total current liabilities 812,858 669,659 Long-term debt (Note 6)1,566,354 1,746,561 Deferred credits and other liabilities: Deferred income taxes 668,226 Other 883,777 Total deferred credits and other liabilities 1,526,411 1,552,003 Commitments and contingencies (Notes 14, 16 and 17) Stockholders' equity: Preferred stocks (Note 8)15,000 Common stockholders' equity: Common stock (Note 9)Authorized - 500,000,000 shares, $1.00 par valueIssued - 195,843,297 shares in 2017 and 2016 195,843 195,843 1,233,412 1,040,748 (37,334) (3,626) 2,429,043 Total stockholders' equity 2,429,043 2,316,244 Total liabilities and stockholders' equity $ 6,334,666 $ 6,284,467 The accompanying notes are an integral part of these consolidated financial statements. Part II MDU Resources Group, Inc. Form 10-K 55 Consolidated Statements of Equity Years ended December 31, 2017, 2016 and 2015 OtherPaid-inCapital RetainedEarnings Noncon-trollingInterest Preferred Stock Common Stock Treasury Stock Shares Amount Shares Amount Shares Amount Total Balance at December 31, 2014 150,000 $15,000 194,754,812 $194,755 $1,207,188 $1,762,827 $(42,103)(538,921)$(3,626)$115,743 $3,249,784 Net loss — —— —— (622,435) — — — (35,256) (657,691) — —— ——— 4,955 — — — 4,955 — —— —— (685)— — — — (685) — —— —— (143,352)— — — — (143,352) — —— — 3,689 — — — — — 3,689 — —— — (1,606)— — — — — (1,606) — — 1,049,853 1,050 20,848 — — — — — 21,898 — —— ——— — — — 52,000 52,000 — —— ——— — — — (8,444)(8,444) Balance at December 31, 2015 — —— ——— 1,415 — — — 1,415 — —— —— (685)— — — — (685) — —— —— (147,821)— — — — (147,821) — —— — 4,383 — — — — — 4,383 — —— — (1,663)— — — — — (1,663) — — 38,632 38 (361)— — — — — (323) — —— ——— — — — 7,648 7,648 Balance at December 31, 2016 — —— ——— (1,601)— — — (1,601) — —— —— (171)— — — — (171) — —— —— (151,966)— — — — (151,966) — —— — 3,375 — — — — — 3,375 — —— ——— — (64,384)(1,684)— (1,684) — —— — (2,441)— — 64,384 1,684 — (757) (150,000)(15,000)— —— (600)— — — — (15,600) Balance at December 31, 2017 — $ — 195,843,297 $195,843 $1,233,412 $1,040,748 $(37,334) (538,921) $(3,626) $ — $2,429,043 The accompanying notes are an integral part of these consolidated financial statements. Part II 56 MDU Resources Group, Inc. Form 10-K Consolidated Statements of Cash Flows Years ended December 31,2017 2016 2015 (In thousands) Operating activities: Net income (loss)$ 281,203 $ (67,258)$ (657,691) Loss from discontinued operations, net of tax (3,783)(300,354) (834,080) 284,986 Adjustments to reconcile net income (loss) to net cash provided by operating activities: 207,486 (25,423) (108,255) 9,135 (30,588) 26,013 4,648 Other noncurrent changes (18,790)(26,459) (10,240) 349,212 Net cash provided by discontinued operations 98,799 39,251 198,053 Net cash provided by operating activities 448,011 462,209 661,832 Investing activities: Capital expenditures (388,183)(536,832) Net proceeds from sale or disposition of property and other 44,826 54,569 Investments (1,396)1,515 Net cash used in continuing operations (344,753)(480,748) Net cash provided by discontinued operations 2,234 39,658 98,295 Net cash used in investing activities (214,168)(305,095) (382,453) Financing activities: Issuance of long-term debt 309,064 345,920 Repayment of long-term debt (315,647)(566,498) Proceeds from issuance of common stock —21,898 Dividends paid (147,156)(142,835) Redemption of preferred stock —— Repurchase of common stock —— Tax withholding on stock-based compensation (323)— Net cash used in continuing operations (154,062)(341,515) Net cash provided by (used in) discontinued operations —(40,852) 85,785 Net cash used in financing activities (245,350)(194,914) (255,730) Effect of exchange rate changes on cash and cash equivalents (1)4 (225) Increase (decrease) in cash and cash equivalents (11,508)(37,796) 23,424 Cash and cash equivalents - beginning of year 46,107 83,903 60,479 Cash and cash equivalents - end of year $ 34,599 $ 46,107 $ 83,903 The accompanying notes are an integral part of these consolidated financial statements. Part II MDU Resources Group, Inc. Form 10-K 57 Notes to Consolidated Financial Statements Part II 58 MDU Resources Group, Inc. Form 10-K Note 1 - Summary of Significant Accounting Policies Basis of presentation The abbreviations and acronyms used throughout are defined following the Notes to Consolidated Financial Statements. The consolidated financial statements of the Company include the accounts of the following businesses: electric, natural gas distribution, pipeline and midstream, construction materials and contracting, construction services and other. The electric and natural gas distribution businesses, as well as a portion of the pipeline and midstream business, are regulated. Construction materials and contracting, construction services and the other businesses, as well as a portion of the pipeline and midstream business, are nonregulated. For further descriptions of the Company's businesses, see Note 13. Intercompany balances and transactions have been eliminated in consolidation, except for certain transactions related to the Company's regulated operations in accordance with GAAP. The statements also include the ownership interests in the assets, liabilities and expenses of jointly owned electric generating facilities. The Company's regulated businesses are subject to various state and federal agency regulations. The accounting policies followed by these businesses are generally subject to the Uniform System of Accounts of the FERC. These accounting policies differ in some respects from those used by the Company's nonregulated businesses. The Company's regulated businesses account for certain income and expense items under the provisions of regulatory accounting, which requires these businesses to defer as regulatory assets or liabilities certain items that would have otherwise been reflected as expense or income, respectively, based on the expected regulatory treatment in future rates. The expected recovery or flowback of these deferred items generally is based on specific ratemaking decisions or precedent for each item. Regulatory assets and liabilities are being amortized consistently with the regulatory treatment established by the FERC and the applicable state public service commissions. See Note 4 for more information regarding the nature and amounts of these regulatory deferrals. Depreciation, depletion and amortization expense is reported separately on the Consolidated Statements of Income and therefore is excluded from the other line items within operating expenses. Management has also evaluated the impact of events occurring after December 31, 2017, up to the date of issuance of these consolidated financial statements. On December 22, 2017, President Trump signed into law the TCJA which includes lower corporate tax rates, repealing the domestic production deduction, disallowance of immediate expensing for regulated utility property and modifying or repealing many other business deductions and credits. In accordance with the accounting guidance on accounting for income taxes, entities must account for the effects of the change in tax laws or rates in the period of enactment. In the fourth quarter of 2017, the period of enactment, the Company performed a one-time revaluation of the net deferred tax liabilities to account for the reduction in the corporate tax rate from 35 percent to 21 percent effective January 1, 2018. For more information on the impacts of the TCJA on the year ended December 31, 2017, see Notes 4 and 11. The Company is currently reviewing the components of the TCJA and evaluating the impact on the Company's consolidated financial statements and related disclosures for 2018 and thereafter. As part of the Company's strategic plan to grow its capital investments while focusing on creating a greater long-term value and reducing the Company's risk by decreasing exposure to commodity prices, the Company completed the sales of substantially all of Fidelity's oil and and natural gas assets between October 2015 and April 2016 and Dakota Prairie Refining on June 27, 2016. The assets and liabilities for the Company's discontinued operations have been classified as held for sale and the results of operations are shown in loss from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded. Unless otherwise indicated, the amounts presented in the accompanying notes to the consolidated financial statements relate to the Company's continuing operations. For more information on the Company's discontinued operations, see Note 2. Cash and cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts receivable and allowance for doubtful accounts Accounts receivable consists primarily of trade receivables from the sale of goods and services which are recorded at the invoiced amount net of allowance for doubtful accounts, and costs and estimated earnings in excess of billings on uncompleted contracts. For more information, see Percentage-of-completion method in this note. The total balance of receivables past due 90 days or more was $34.7 million and $29.2 million at December 31, 2017 and 2016, respectively. The allowance for doubtful accounts is determined through a review of past due balances and other specific account data. Account balances are written off when management determines the amounts to be uncollectible. The Company's allowance for doubtful accounts at December 31, 2017 and 2016, was $8.1 million and $10.5 million, respectively. Inventories and natural gas in storage Natural gas in storage for the Company's regulated operations is generally carried at lower of cost or net realizable value, or cost using the last-in, first-out method. All other inventories are stated at the lower of cost or net realizable value. The portion of the cost of natural gas in storage expected to be used within one year was included in inventories. Inventories at December 31 consisted of: 2017 2016 Aggregates held for resale $ 115,268 $ 115,471 Asphalt oil 30,360 29,103 Natural gas in storage (current)20,950 25,761 Materials and supplies 18,650 18,372 Merchandise for resale 14,905 16,437 Other 26,450 33,129 Total $ 226,583 $238,273 The remainder of natural gas in storage, which largely represents the cost of gas required to maintain pressure levels for normal operating purposes, was included in deferred charges and other assets - other and was $49.3 million and $49.5 million at December 31, 2017 and 2016, respectively. Investments The Company's investments include the cash surrender value of life insurance policies, an insurance contract, mortgage-backed securities and U.S. Treasury securities. The Company measures its investment in the insurance contract at fair value with any unrealized gains and losses recorded on the Consolidated Statements of Income. The Company has not elected the fair value option for its mortgage-backed securities and U.S. Treasury securities and, as a result, the unrealized gains and losses on these investments are recorded in accumulated other comprehensive income (loss). For more information, see Notes 5 and 14. Property, plant and equipment Additions to property, plant and equipment are recorded at cost. When regulated assets are retired, or otherwise disposed of in the ordinary course of business, the original cost of the asset is charged to accumulated depreciation. With respect to the retirement or disposal of all other assets, the resulting gains or losses are recognized as a component of income. The Company is permitted to capitalize AFUDC on regulated construction projects and to include such amounts in rate base when the related facilities are placed in service. In addition, the Company capitalizes interest, when applicable, on certain construction projects associated with its other operations. The amount of AFUDC and interest capitalized for the years ended December 31 were as follows: 2017 2016 2015 Interest capitalized $—$— $ 4,381 AFUDC - borrowed $966 $914 $ 4,907 AFUDC - equity $909 $565 $7,971 Generally, property, plant and equipment are depreciated on a straight-line basis over the average useful lives of the assets, except for depletable aggregate reserves, which are depleted based on the units-of-production method. The Company collects removal costs for plant assets in regulated utility rates. These amounts are recorded as regulatory liabilities, which are included in deferred credits and other liabilities - other. Part II MDU Resources Group, Inc. Form 10-K 59 Property, plant and equipment at December 31 was as follows: 2017 2016 WeightedAverageDepreciableLife in Years Regulated: Electric: Generation $ 1,034,765 $ 1,036,373 39 Distribution 415,543 398,382 44 Transmission 296,941 284,048 57 Construction in progress 117,906 62,212 — Other 117,109 107,598 15 Natural gas distribution: Distribution 1,831,795 1,718,633 47 Construction in progress 19,823 19,934 — Other 468,227 440,846 18 Pipeline and midstream: Transmission 516,932 490,143 53 Gathering 37,837 37,831 20 Storage 45,629 45,350 62 Construction in progress 17,488 16,507 — Other 41,054 40,873 33 Nonregulated: Pipeline and midstream: Gathering and processing 31,678 31,682 19 Construction in progress 17 13 — Other 9,649 9,800 10 Construction materials and contracting: Land 95,745 94,625 — Buildings and improvements 102,435 102,347 20 Machinery, vehicles and equipment 947,979 930,471 12 Construction in progress 7,750 16,181 — Aggregate reserves 406,139 405,751 * Construction services: Land 5,216 5,346 — Buildings and improvements 27,351 26,693 25 Machinery, vehicles and equipment 137,924 132,217 6 Other 6,774 7,105 4 Other: Land 2,837 2,837 — Other 28,286 46,431 19 Less accumulated depreciation, depletion and amortization 2,691,641 2,578,902 Net property, plant and equipment $ 4,079,188 $3,931,327 * Depleted on the units-of-production method based on recoverable aggregate reserves. Impairment of long-lived assets The Company reviews the carrying values of its long-lived assets, excluding goodwill and assets held for sale, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value. In the third quarter of 2015, the Company recognized an impairment of $14.1 million (before tax), largely related to the sale of certain non-strategic natural gas gathering assets that were written down to their estimated fair value that was determined using the market approach. In the second quarter of 2015, the Company recognized an impairment of $3.0 million (before tax) related to coalbed natural gas gathering assets located in Wyoming where there had been continued decline in natural gas development and production activity due to low natural gas prices. The coalbed natural gas gathering assets were Part II 60 MDU Resources Group, Inc. Form 10-K written down to their estimated fair value that was determined using the income approach. The impairments are recorded in operation and maintenance expense on the Consolidated Statements of Income. For more information on these nonrecurring fair value measurements, see Note 5. No significant impairment losses were recorded in 2016 or 2017, other than those related to the Company's assets held for sale and discontinued operations. For more information regarding these impairments, see Note 2. Unforeseen events and changes in circumstances could require the recognition of impairment losses at some future date. Goodwill Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is required to be tested for impairment annually, which is completed in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The goodwill impairment test is a two-step process performed at the reporting unit level. The Company has determined that the reporting units for its goodwill impairment test are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which segment management regularly reviews the operating results. For more information on the Company's operating segments, see Note 13. The first step of the impairment test involves comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the test is complete and no impairment is recorded. If the fair value of a reporting unit is less than its carrying value, step two of the test is performed to determine the amount of impairment loss, if any. The impairment is computed by comparing the implied fair value of the reporting unit's goodwill to the carrying value of that goodwill. If the carrying value is greater than the implied fair value, an impairment loss must be recorded. For the years ended December 31, 2017, 2016 and 2015, there were no significant impairment losses recorded. At December 31, 2017, the fair value substantially exceeded the carrying value at all reporting units. Determining the fair value of a reporting unit requires judgment and the use of significant estimates which include assumptions about the Company's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, weighted average cost of capital, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is determined using a weighted combination of income and market approaches. The Company uses a discounted cash flow methodology for its income approach. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the best estimate of the weighted average cost of capital at each reporting unit. The weighted average cost of capital, which varies by reporting unit and is in the range of 5 percent to 9 percent, and a long-term growth rate projection of approximately 3 percent were utilized in the goodwill impairment test performed in the fourth quarter of 2017. Under the market approach, the Company estimates fair value using multiples derived from comparable sales transactions and enterprise value to EBITDA for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, the Company adds a reasonable control premium when calculating the fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants. The Company believes that the estimates and assumptions used in its impairment assessments are reasonable and based on available market information. Revenue recognition Revenue is recognized when the earnings process is complete, as evidenced by an agreement between the customer and the Company, when delivery has occurred or services have been rendered, when the fee is fixed or determinable and when collection is reasonably assured. The Company recognizes utility revenue each month based on the services provided to all utility customers during the month. Accrued unbilled revenue which is included in receivables, net, represents revenues recognized in excess of amounts billed. Accrued unbilled revenue at Montana-Dakota, Cascade and Intermountain was $112.7 million and $117.7 million at December 31, 2017 and 2016, respectively. The Company recognizes construction contract revenue at its construction businesses using the percentage-of-completion method as discussed later. The Company recognizes all other revenues when services are rendered or goods are delivered. The Company presents revenues net of taxes collected from customers at the time of sale to be remitted to governmental authorities, including sales and use taxes. Percentage-of-completion method The Company recognizes construction contract revenue from fixed-price and modified fixed-price construction contracts at its construction businesses using the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. If a loss is anticipated on a contract, the loss is immediately recognized. Part II MDU Resources Group, Inc. Form 10-K 61 Costs and estimated earnings in excess of billings on uncompleted contracts represent revenues recognized in excess of amounts billed and were included in receivables, net. Billings in excess of costs and estimated earnings on uncompleted contracts represent billings in excess of revenues recognized and were included in accounts payable. Costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts at December 31 were as follows: 2017 2016 Costs and estimated earnings in excess of billings on uncompleted contracts $ 109,541 $ 64,558 Billings in excess of costs and estimated earnings on uncompleted contracts $ 84,123 $64,832 Amounts representing balances billed but not paid by customers under retainage provisions in contracts at December 31 were as follows: 2017 2016 Short-term retainage*$ 57,134 $ 45,109 Long-term retainage**1,410 1,506 Total retainage $ 58,544 $46,615 * Expected to be paid within one year or less and included in receivables, net. ** Included in deferred charges and other assets - other. Asset retirement obligations The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the Company capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company either settles the obligation for the recorded amount or incurs a gain or loss at its nonregulated operations or incurs a regulatory asset or liability at its regulated operations. For more information on asset retirement obligations, see Note 7. Legal costs The Company expenses external legal fees as they are incurred. Natural gas costs recoverable or refundable through rate adjustments Under the terms of certain orders of the applicable state public service commissions, the Company is deferring natural gas commodity, transportation and storage costs that are greater or less than amounts presently being recovered through its existing rate schedules. Such orders generally provide that these amounts are recoverable or refundable through rate adjustments which are filed annually. Natural gas costs refundable through rate adjustments were $28.5 million and $25.6 million at December 31, 2017 and 2016, respectively, which is included in other accrued liabilities. Natural gas costs recoverable through rate adjustments were $14.5 million and $2.2 million at December 31, 2017 and 2016, respectively, which is included in prepayments and other current assets. Stock-based compensation The Company records the compensation expense for performance share awards using an estimated forfeiture rate. The estimated forfeiture rate is calculated based on an average of actual historical forfeitures. The Company also preforms an analysis of any known factors at the time of the calculation to identify any necessary adjustments to the average historical forfeiture rate. At the time actual forfeitures become more than estimated forfeitures, the Company records compensation expense using actual forfeitures. Income taxes The Company provides deferred federal and state income taxes on all temporary differences between the book and tax basis of the Company's assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Excess deferred income tax balances associated with the Company's rate-regulated activities have been recorded as a regulatory liability and are included in other liabilities. These regulatory liabilities are expected to be reflected as a reduction in future rates charged to customers in accordance with applicable regulatory procedures. The Company uses the deferral method of accounting for investment tax credits and amortizes the credits on regulated electric and natural gas distribution plant over various periods that conform to the ratemaking treatment prescribed by the applicable state public service commissions. Part II 62 MDU Resources Group, Inc. Form 10-K The Company records uncertain tax positions in accordance with accounting guidance on accounting for income taxes on the basis of a two- step process in which (1) the Company determines whether it is more-likely-than-not that the tax position will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely than-not recognition threshold, the Company recognizes the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Tax positions that do not meet the more-likely-than-not criteria are reflected as a tax liability. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income taxes. Earnings (loss) per common share Basic earnings (loss) per common share were computed by dividing earnings (loss) on common stock by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share were computed by dividing earnings (loss) on common stock by the total of the weighted average number of shares of common stock outstanding during the year, plus the effect of nonvested performance share awards. Common stock outstanding includes issued shares less shares held in treasury. Earnings (loss) on common stock was the same for both the basic and diluted earnings (loss) per share calculations. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings (loss) per share calculation was as follows: 2017 2016 2015 Weighted average common shares outstanding - basic 195,304 195,299 194,928 Effect of dilutive performance share awards 383 319 58 Weighted average common shares outstanding - diluted 195,687 195,618 194,986 Shares excluded from the calculation of diluted earnings per share ——— Use of estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates are used for items such as long-lived assets and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; aggregate reserves; property depreciable lives; tax provisions; uncollectible accounts; environmental and other loss contingencies; accumulated provision for revenues subject to refund; costs on construction contracts; unbilled revenues; actuarially determined benefit costs; asset retirement obligations; and the valuation of stock-based compensation. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. New accounting standards Recently adopted accounting standards Simplifying the Measurement of Inventory In July 2015, the FASB issued guidance regarding inventory that is measured using the first-in, first-out or average cost method. The guidance does not apply to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling price in the normal course of business less reasonably predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with IFRS. The Company adopted the guidance on January 1, 2017, on a prospective basis. The guidance did not have a material effect on the Company's results of operations, financial position, cash flows or disclosures. Improvements to Employee Share-Based Payment Accounting In March 2016, the FASB issued guidance regarding simplification of several aspects of the accounting for share-based payment transactions. The guidance affects the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and calculation of dilutive shares. The Company adopted the guidance on January 1, 2017. All amendments in the guidance that apply to the Company were adopted on a prospective basis resulting in no adjustments being made to retained earnings. The adoption of the guidance impacted the Consolidated Statement of Income and the Consolidated Balance Sheet in the first quarter of 2017 due to the taxes related to the stock-based compensation award that vested in February 2017 being recognized as income tax expense as compared to a reduction to additional paid-in capital under the previous guidance. Adoption of the guidance also increased the number of shares included in the diluted earnings per share calculation due to the exclusion of tax benefits in the incremental shares calculation. The change in the weighted average common shares outstanding - diluted did not result in a material effect on the earnings per common share - diluted. Part II MDU Resources Group, Inc. Form 10-K 63 Recently issued accounting standards not yet adopted Revenue from Contracts with Customers In May 2014, the FASB issued guidance on accounting for revenue from contracts with customers. The guidance provides for a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In August 2015, the FASB issued guidance deferring the effective date of the revenue guidance and allowing entities to early adopt. With this decision, the guidance was effective for the Company on January 1, 2018. Entities had the option of using either a full retrospective or modified retrospective approach to adopting the guidance. Under the modified retrospective approach, an entity recognizes the cumulative effect of initially applying the guidance with an adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the guidance on January 1, 2018, using the modified retrospective approach. The Company has substantially completed the evaluation of contracts and methods of revenue recognition under the previous accounting guidance and has not identified any material cumulative effect adjustments to be made to retained earnings. In addition, the Company will have expanded revenue disclosures, both quantitatively and qualitatively, related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers in the first quarter of 2018. The Company has reviewed substantially all of its revenue streams to evaluate the impact of this guidance and does not anticipate a significant change in the timing of revenue recognition, results of operations, financial position or cash flows. The Company reviewed its internal controls related to revenue recognition and disclosures and concluded that the guidance impacts certain business processes and controls. As such, the Company has developed modifications to its internal controls for certain topics under the guidance as they apply to the Company and such modifications were not deemed to be significant. Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued guidance regarding the classification and measurement of financial instruments. The guidance revises the way an entity classifies and measures investments in equity securities, the presentation of certain fair value changes for financial liabilities measured at fair value and amends certain disclosure requirements related to the fair value of financial instruments. This guidance was effective for the Company on January 1, 2018. The guidance was to be applied using a modified retrospective approach with the exception of equity securities without readily determinable fair values which should be applied prospectively. The Company continues to evaluate the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures and does not anticipate a material impact. Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued guidance to clarify the classification of certain cash receipts and payments in the statement of cash flows. The guidance is intended to standardize the presentation and classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements and distributions from equity method investments. In addition, the guidance clarifies how to classify transactions that have characteristics of more than one class of cash flows. The Company adopted the guidance on January 1, 2018, on a prospective basis. The Company does not anticipate the guidance to have a material effect on its future results of operations, financial position, cash flows and disclosures. Clarifying the Definition of a Business In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The guidance also affects other aspects of accounting, such as determining reporting units for goodwill testing and whether an entity has acquired or sold a business. The Company adopted the guidance on January 1, 2018, on a prospective basis. The Company does not anticipate the guidance to have a material effect on its future results of operations, financial position, cash flows and disclosures. Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost In March 2017, the FASB issued guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires the service cost component to be presented in the income statement in the same line item or items as other compensation costs arising from services performed during the period. Other components of net benefit costs shall be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The guidance also allows only the service cost component to be eligible for capitalization. The guidance was effective for the Company on January 1, 2018, including interim periods, on a retrospective basis for all periods presented with the exception of the capitalization of the service cost component which was adopted on a prospective basis. The Company will reclassify all components of net periodic benefit costs, except for the service cost component, from operating expenses to other income (expense) on the Consolidated Statements of Income for all years presented prior to January 1, 2018, beginning in the first quarter of 2018, with no impact to earnings. The guidance will not have a material impact on the Company's disclosures or cash flows. Under FERC regulation, all components of net periodic benefit costs are currently eligible for capitalization. The Company's electric and natural gas distribution businesses have elected to continue to defer all components of net periodic benefit costs as regulatory assets or liabilities. Part II 64 MDU Resources Group, Inc. Form 10-K Leases In February 2016, the FASB issued guidance regarding leases. The guidance requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for operating and financing leases with terms of more than 12 months. The guidance remains largely the same for lessors, although some changes were made to better align lessor accounting with the new lessee accounting and to align with the revenue recognition standard. The guidance also requires additional disclosures, both quantitative and qualitative, related to operating and finance leases for the lessee and sales-type, direct financing and operating leases for the lessor. This guidance will be effective for the Company on January 1, 2019, and should be applied using a retrospective approach with early adoption permitted. The Company continues to evaluate the potential impact the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures. The Company is planning to adopt the standard on January 1, 2019, utilizing the practical expedient that allows the Company to not reassess whether an expired or existing contract contains a lease, the classification of leases or initial direct costs. In January 2018, the FASB issued a practical expedient for land easements under the new lease guidance. The practical expedient permits an entity to elect the option to not evaluate land easements under the new guidance if they existed or expired before the adoption of the new lease guidance and were not previously accounted for as leases under the previous lease guidance. Once an entity adopts the new guidance, the entity should apply the new guidance on a prospective basis to all new or modified land easements. The Company is currently evaluating the impact of the practical expedient. On January 5, 2018, the FASB issued a proposed accounting standard update to the guidance that would allow an entity the option to adopt the guidance on a modified retrospective basis. Under the modified retrospective approach, an entity would recognize a cumulative effect adjustment of initially applying the guidance to the opening balance of retained earnings in the period of adoption. The Company is monitoring the status of the proposal. Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment by eliminating Step 2, which required an entity to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of such goodwill. This guidance requires entities to perform a quantitative impairment test, previously Step 1, to identify both the existence of impairment and the amount of impairment loss by comparing the fair value of a reporting unit to its carrying amount. Entities will continue to have the option of performing a qualitative assessment to determine if the quantitative impairment test is necessary. The guidance also requires additional disclosures if an entity has one or more reporting units with zero or negative carrying amounts of net assets. The guidance will be effective for the Company on January 1, 2020, and should be applied on a prospective basis with early adoption permitted. The Company is evaluating the effects the adoption of the new guidance will have on its results of operations, financial position, cash flows and disclosures. Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In February 2018, the FASB issued guidance that allows an entity to reclassify the stranded tax effects resulting from the newly enacted federal corporate income tax rate from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for the Company on January 1, 2019, including interim periods, with early adoption permitted. The guidance can be applied using one of two methods. One method is to record the reclassification of the stranded income taxes at the beginning of the period of adoption. The other method is to apply the guidance retrospectively to each period in which the income tax effects of the TCJA are recognized in accumulated other comprehensive income (loss). The Company is evaluating adoption of the guidance in the first quarter of 2018. At December 31, 2017, the Company had $7.7 million of stranded tax effects in the accumulated other comprehensive loss balance. Variable interest entities The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the primary beneficiary. GAAP provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interest and results of activities of a VIE in its consolidated financial statements. A VIE should be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE's most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE's assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated. The Company's evaluation of whether it qualifies as the primary beneficiary of a VIE involves significant judgments, estimates and assumptions and includes a qualitative analysis of the activities that most significantly impact the VIE's economic performance and whether the Company has the power to direct those activities, the design of the entity, the rights of the parties and the purpose of the arrangement. Part II MDU Resources Group, Inc. Form 10-K 65 Comprehensive income (loss) Comprehensive income (loss) is the sum of net income (loss) as reported and other comprehensive income (loss). The Company's other comprehensive income (loss) resulted from gains (losses) on derivative instruments qualifying as hedges, postretirement liability adjustments, foreign currency translation adjustments and gains (losses) on available-for-sale investments. The after-tax changes in the components of accumulated other comprehensive loss as of December 31, 2017, 2016 and 2015, were as follows: NetUnrealizedGain (Loss) onDerivative Instruments Qualifyingas Hedges Post-retirement LiabilityAdjustment ForeignCurrency Translation Adjustment NetUnrealizedGain (Loss) onAvailable-for-saleInvestments TotalAccumulated OtherComprehensive Loss (In thousands) Balance at December 31, 2015 $(2,667) $(34,257) $(200) $(24) $(37,148) Other comprehensive income (loss) beforereclassifications —(1,470)51 (182)(1,601) Amounts reclassified from accumulated othercomprehensive loss 367 2,506 —143 3,016 Net current-period other comprehensive income (loss)367 1,036 51 (39)1,415 Balance at December 31, 2016 (2,300)(33,221)(149)(63)(35,733) Other comprehensive loss before reclassifications —(1,812)(6)(139)(1,957) Amounts reclassified from accumulated othercomprehensive loss 366 1,013 —120 1,499 Amounts reclassified to accumulated othercomprehensive loss from a regulatory asset —(1,143)——(1,143) Net current-period other comprehensive income (loss)366 (1,942)(6)(19)(1,601) Balance at December 31, 2017 $ (1,934) $ (35,163) $(155) $(82) $ (37,334) Reclassifications out of accumulated other comprehensive loss for the years ended December 31 were as follows: 2017 2016 Location on ConsolidatedStatements of Income Reclassification adjustment for loss on derivativeinstruments included in net income (loss): Interest rate derivative instruments $ (590)$(593)Interest expense 224 226 Income taxes (366)(367) Amortization of postretirement liability losses includedin net periodic benefit cost (credit)(1,658)(3,931)(a) 645 1,425 Income taxes (1,013)(2,506) Reclassification adjustment for loss on available-for-saleinvestments included in net income (loss)(185)(220)Other income 65 77 Income taxes (120)(143) Total reclassifications $ (1,499)$(3,016) (a) Included in net periodic benefit cost (credit). For more information, see Note 14. Part II 66 MDU Resources Group, Inc. Form 10-K Note 2 - Assets Held for Sale and Discontinued Operations Assets held for sale The assets of Pronghorn were classified as held for sale in the fourth quarter of 2016. Pronghorn's results of operations for 2016 were included in the pipeline and midstream segment. Pronghorn On November 21, 2016, WBI Energy Midstream announced it had entered into a purchase and sale agreement to sell its 50 percent non-operating ownership interest in Pronghorn to Andeavor Field Services LLC. The transaction closed on January 1, 2017, which generated approximately $100 million of proceeds for the Company. The sale of Pronghorn further reduced the Company's risk exposure to commodity prices. The carrying amounts of the major classes of assets classified as held for sale associated with Pronghorn on the Company's Consolidated Balance Sheets at December 31 were as follows: 2016 (In thousands) Assets Current assets: Prepayments and other current assets $68 Total current assets held for sale 68 Noncurrent assets: Net property, plant and equipment 93,424 Goodwill 9,737 Less allowance for impairment of assets held for sale 2,311 Total noncurrent assets held for sale 100,850 Total assets held for sale $ 100,918 The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the fourth quarter of 2016, the fair value assessment was determined using the market approach based on the purchase and sale agreement with Andeavor Field Services LLC. The fair value assessment indicated an impairment based on the carrying value exceeding the fair value, which resulted in the Company recording an impairment of $2.3 million ($1.4 million after tax) in the quarter ended December 31, 2016. The fair value of Pronghorn's assets have been categorized as Level 3 in the fair value hierarchy. The impairment was recorded in operation and maintenance expense on the Consolidated Statement of Income. Discontinued operations The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are shown in loss from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded. Dakota Prairie Refining On June 24, 2016, WBI Energy entered into a membership interest purchase agreement with Tesoro to sell all of the outstanding membership interests in Dakota Prairie Refining to Tesoro. WBI Energy and Calumet each previously owned 50 percent of the Dakota Prairie Refining membership interests and were equal members in building and operating Dakota Prairie Refinery. To effectuate the sale, WBI Energy acquired Calumet's 50 percent membership interest in Dakota Prairie Refining on June 27, 2016. The sale of the membership interests to Tesoro closed on June 27, 2016. The sale of Dakota Prairie Refining reduced the Company's risk by decreasing exposure to commodity prices. Centennial continues to guarantee certain debt obligations of Dakota Prairie Refining; however, Tesoro has agreed to indemnify Centennial for any losses and litigation expenses arising for the guarantee. For more information related to the guarantee, see Note 17. Part II MDU Resources Group, Inc. Form 10-K 67 The carrying amounts of the major classes of assets and liabilities classified as held for sale, related to the operations of and activity associated with Dakota Prairie Refining, on the Company's Consolidated Balance Sheets at December 31 were as follows: 2017 2016 Assets Current assets: Income taxes receivable $ 1,778 $ 13,987 Total current assets held for sale 1,778 13,987 Total assets held for sale $ 1,778 (a)$13,987 Liabilities Current liabilities: Accounts payable $—$ 7,425 Total current liabilities held for sale —7,425 Noncurrent liabilities: Deferred income taxes (b)37 14 Total noncurrent liabilities held for sale 37 14 Total liabilities held for sale $37 $7,439 (a) On the Company's Consolidated Balance Sheets, these amounts were reclassified to current income taxes payable andare reflected in current liabilities held for sale.(b) On the Company's Consolidated Balance Sheets, these amounts were reclassified to noncurrent deferred income tax assetsand are reflected in noncurrent assets held for sale. The Company retained certain liabilities of Dakota Prairie Refining which were reflected in current liabilities held for sale on the Consolidated Balance Sheet at December 31, 2016. In the first quarter of 2017, the Company recorded a reversal of a previously accrued liability of $7.0 million ($4.3 million after tax) due to the resolution of a legal matter. As of December 31, 2017, Dakota Prairie Refining had not incurred any material exit and disposal costs, and does not expect to incur any material exit and disposal costs. The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the second quarter of 2016, the fair value assessment was determined using the market approach based on the sale transaction to Tesoro. The fair value assessment indicated an impairment based on the carrying value exceeding the fair value, which resulted in the Company recording an impairment of $251.9 million ($156.7 million after tax) in the quarter ended June 30, 2016. The impairment was included in operating expenses from discontinued operations. The fair value of Dakota Prairie Refining's assets have been categorized as Level 3 in the fair value hierarchy. Fidelity In the second quarter of 2015, the Company began the marketing and sale process of Fidelity with an anticipated sale to occur within one year. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell substantially all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. The sale of Fidelity was part of the Company's strategic plan to grow its capital investments in the remaining business segments and to focus on creating a greater long-term value. Part II 68 MDU Resources Group, Inc. Form 10-K The carrying amounts of the major classes of assets and liabilities classified as held for sale, related to the operations of Fidelity, on the Company's Consolidated Balance Sheets at December 31 were as follows: 2017 2016 Assets Current assets: Receivables, net $479 $355 Total current assets held for sale 479 355 Noncurrent assets: Net property, plant and equipment 1,631 5,507 Deferred income taxes 2,637 91,098 Other 161 161 Less allowance for impairment of assets held for sale —938 Total noncurrent assets held for sale 4,429 95,828 Total assets held for sale $ 4,908 $96,183 Liabilities Current liabilities: Accounts payable $30 $141 Taxes payable 10,857 19 (a) Other accrued liabilities 2,884 2,358 Total current liabilities held for sale 13,771 2,518 Total liabilities held for sale $ 13,771 $2,518 (a) On the Company's Consolidated Balance Sheets, this amount was reclassified to prepayments and other current assets and is reflected in current assets held for sale. At December 31, 2017 and 2016, the Company’s deferred tax assets included in assets held for sale were largely comprised of $2.6 million and $89.3 million, respectively, of federal and state net operating loss carryforwards. The Company realized substantially all of the outstanding net operating loss carryforwards in 2017. The Company had federal income tax net operating loss carryforwards of $4.4 million and $297.2 million at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, the Company had various state income tax net operating loss carryforwards of $13.8 million and $189.1 million, respectively. The federal net operating loss carryforwards expire in 2036 and 2037 if not utilized. The state net operating loss carryforwards are due to expire between 2023 and 2037. It is likely a portion of the benefit from the state carryforwards will not be realized; therefore, valuation allowances of $349,000 and $500,000 have been provided in 2017 and 2016, respectively. The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the first quarter of 2016, the fair value assessment was determined using the market approach largely based on a purchase and sale agreement. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.4 million ($900,000 after tax) in the first quarter of 2016. In the second quarter of 2016, the fair value assessment was determined using the income and market approaches. The income approach was determined by using the present value of future estimated cash flows. The market approach was based on market transactions of similar properties. The estimated carrying value exceeded the fair value and the Company recorded an impairment of $900,000 ($600,000 after tax) in the second quarter of 2016. In the second quarter of 2015, the estimated fair value was determined using the income and the market approaches. The income approach was determined by using the present value of future estimated cash flows. The income approach considered management's views on current operating measures as well as assumptions pertaining to market forces in the oil and gas industry including estimated reserves, estimated prices, market differentials, estimates of well operating and future development costs and timing of operations. The estimated cash flows were discounted using a rate believed to be consistent with those used by principal market participants. The market approach was provided by a third party and based on market transactions involving similar interests in oil and natural gas properties. The fair value assessment indicated an impairment based on the carrying value exceeding the estimated fair value, which is resulted in the Company writing down Fidelity's assets at June 30, 2015, and recording an impairment of $400.0 million ($252.0 million after tax) during the second quarter of 2015. In the third quarter of 2015, the estimated fair value of Fidelity was determined by agreed upon pricing in the purchase and sale agreements for the assets subject to the agreements, the majority of which closed during the fourth quarter of 2015, including customary purchase price adjustments. The values received in the bid proposals were lower than originally anticipated due to lower commodity prices Part II MDU Resources Group, Inc. Form 10-K 69 than those projected in the second quarter of 2015. For those assets for which a purchase and sale agreement had not been entered into at that time, the fair value was based on the market approach utilizing multiples based on similar interests in oil and natural gas properties. The fair value assessment indicated an impairment based on the carrying value exceeding the estimated fair value, which resulted in the Company writing down Fidelity's assets at September 30, 2015, and recording an impairment of $356.1 million ($224.4 million after tax). In the fourth quarter of 2015, the fair value assessment was determined using the market approach based on purchase and sale agreements. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.6 million ($1.0 million after tax) in the fourth quarter of 2015. The impairments were included in operating expenses from discontinued operations. The estimated fair value of Fidelity's assets have been categorized as Level 3 in the fair value hierarchy. The Company incurred transaction costs of approximately $300,000 in the first quarter of 2016 and $2.5 million in 2015. In addition to the transaction costs, and due in part to the change in plans to sell the assets of Fidelity rather than sell Fidelity as a company, Fidelity incurred and expensed approximately $5.6 million of exit and disposal costs in 2016, and has incurred $10.5 million of exit and disposal costs to date. The Company does not expect to incur any additional material exit and disposal costs. The exit and disposal costs are associated with severance and other related matters and exclude the office lease expiration discussed in the following paragraph. Fidelity vacated its office space in Denver, Colorado in 2016. The Company incurred lease payments of approximately $900,000 in 2016. Lease termination payments of $3.2 million and $3.3 million were made during the second quarter of 2016 and fourth quarter of 2015, respectively. Existing office furniture and fixtures were relinquished to the lessor in the second quarter of 2016. Historically, the company used the full-cost method of accounting for its oil and natural gas production activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized and amortized on the units- of-production method based on total proved reserves. Prior to the oil and natural gas properties being classified as held for sale, capitalized costs were subject to a "ceiling test" that limits such costs to the aggregate of the present value of future net cash flows from proved reserves discounted at 10 percent, as mandated under the rules of the SEC, plus the cost of unproved properties not subject to amortization, plus the effects of cash flow hedges, less applicable income taxes. Proved reserves and associated future cash flows are determined based on SEC Defined Prices and exclude cash outflows associated with asset retirement obligations that have been accrued on the balance sheet. If capitalized costs, less accumulated amortization and related deferred income taxes, exceed the full-cost ceiling at the end of any quarter, a permanent noncash write-down is required to be charged to earnings in that quarter regardless of subsequent price changes. The Company's capitalized cost under the full-cost method of accounting exceeded the full-cost ceiling at March 31, 2015. SEC Defined Prices, adjusted for market differentials, were used to calculate the ceiling test. Accordingly, the Company was required to write down its oil and natural gas producing properties. The Company recorded a $500.4 million ($315.3 million after tax) noncash write-down in operating expenses from discontinued operations in the first quarter of 2015. Fidelity previously held commodity derivatives that were not designated as hedging instruments. The amount of loss recognized in discontinued operations, before tax, was $18.3 million in the year ended December 31, 2015. Dakota Prairie Refining and Fidelity The reconciliation of the major classes of income and expense constituting pretax income (loss) from discontinued operations, which includes Dakota Prairie Refining and Fidelity, to the after-tax loss from discontinued operations on the Company's Consolidated Statements of Income for the years ended December 31 were as follows: 2017 2016 2015 Operating revenues $465 $ 123,024 $ 363,115 Operating expenses (4,607)513,813 1,666,941 Operating income (loss)5,072 (390,789) (1,303,826) Other income (expense)(13)306 3,149 Interest expense 250 1,753 2,124 Income (loss) from discontinued operations before income taxes 4,809 (392,236) (1,302,801) Income taxes*8,592 (91,882) (468,721) Loss from discontinued operations (3,783)(300,354) (834,080) Loss from discontinued operations attributable to noncontrolling interest —(131,691) (35,256) Loss from discontinued operations attributable to the Company $ (3,783)$(168,663) $(798,824) * Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations. Part II 70 MDU Resources Group, Inc. Form 10-K The pretax income (loss) from discontinued operations attributable to the Company, related to the operations of and activity associated with Dakota Prairie Refining, was $6.9 million, $(253.5) million and $(31.5) million for the years ended December 31, 2017, 2016 and 2015, respectively. Part II MDU Resources Group, Inc. Form 10-K 71 Note 3 - Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill for the year ended December 31, 2017, were as follows: Balance atJanuary 1, 2017 Goodwill AcquiredDuring the Year Balance atDecember 31, 2017 Natural gas distribution $ 345,736 $— $ 345,736 Construction materials and contracting 176,290 —176,290 Construction services 109,765 —109,765 Total $631,791 $—$631,791 The changes in the carrying amount of goodwill for the year ended December 31, 2016, were as follows: Balance atJanuary 1, 2016 *Goodwill AcquiredDuring the Year Less Held for Sale Balance atDecember 31, 2016 Natural gas distribution $ 345,736 $— $— $ 345,736 Pipeline and midstream 9,737 —9,737 — Construction materials and contracting 176,290 ——176,290 Construction services 103,441 6,324 —109,765 Total $635,204 $6,324 $9,737 $631,791 * Balance is presented net of accumulated impairment of $12.3 million at the pipeline and midstream segment, which occurred in prior periods. Other amortizable intangible assets at December 31 were as follows: 2017 2016 Customer relationships $ 15,248 $ 17,145 Less accumulated amortization 13,382 13,917 1,866 3,228 Noncompete agreements 2,430 2,430 Less accumulated amortization 1,805 1,658 625 772 Other 6,990 7,768 Less accumulated amortization 5,644 5,843 1,346 1,925 Total $ 3,837 $5,925 Amortization expense for amortizable intangible assets for the years ended December 31, 2017, 2016 and 2015, was $2.0 million, $2.5 million and $2.5 million, respectively. Estimated amortization expense for intangible assets is $1.3 million in 2018, $1.0 million in 2019, $500,000 in 2020, $300,000 in 2021, $200,000 in 2022 and $500,000 thereafter. Note 4 - Regulatory Assets and Liabilities The following table summarizes the individual components of unamortized regulatory assets and liabilities as of December 31: Estimated RecoveryPeriod *2017 2016 (In thousands) Regulatory assets: Pension and postretirement benefits (a)(e)$ 163,896 $ 176,025 Taxes recoverable from customers (a)Over plant lives 12,073 28,278 Manufactured gas plant sites remediation (a)-18,213 18,259 Asset retirement obligations (a)Over plant lives 56,078 42,580 Natural gas costs recoverable through rate adjustments (b)Up to 1 year 14,465 2,242 Long-term debt refinancing costs (a)Up to 20 years 5,563 6,248 Costs related to identifying generation development (a)Up to 9 years 2,960 3,407 Other (a) (b)Up to 20 years 27,715 30,281 Total regulatory assets 300,963 307,320 Regulatory liabilities: Plant removal and decommissioning costs (c)176,190 176,972 Taxes refundable to customers (c)279,668 11,010 Pension and postretirement benefits (c)11,056 9,099 Natural gas costs refundable through rate adjustments (d)28,514 25,580 Other (c) (d)23,870 19,191 Total regulatory liabilities 519,298 241,852 Net regulatory position $ (218,335)$65,468 * Estimated recovery period for regulatory assets currently being recovered in rates charged to customers. (a) Included in deferred charges and other assets - other on the Consolidated Balance Sheets. (b) Included in prepayments and other current assets on the Consolidated Balance Sheets. (c) Included in deferred credits and other liabilities - other on the Consolidated Balance Sheets. (d) Included in other accrued liabilities on the Consolidated Balance Sheets. (e) Recovered as expense is incurred or cash contributions are made. The regulatory assets are expected to be recovered in rates charged to customers. A portion of the Company's regulatory assets are not earning a return; however, these regulatory assets are expected to be recovered from customers in future rates. As of December 31, 2017 and 2016, approximately $269.1 million and $255.4 million, respectively, of regulatory assets were not earning a rate of return. In the fourth quarter of 2017, the Company performed a one-time revaluation of the Company's regulated deferred tax assets and liabilities for the reduction of the corporate tax rate from 35 percent to 21 percent effective January 1, 2018, as identified in the TCJA. The revaluation of the Company's regulatory deferred tax assets and liabilities are being deferred as the Company works with the various regulators on a plan for amounts expected to be returned to customers, as discussed in Note 16. In the fourth quarter of 2017, the revaluation of the deferred tax assets and liabilities resulted in a decrease of $15.5 million in taxes recoverable from customers and an increase of $270.0 million in taxes refundable to customers. These regulatory amounts are expected to generally be refunded over the remaining life of the related assets as prescribed in the TCJA. The approved regulatory treatment of the impacts of the TCJA by the various regulators may affect the analyses performed. If, for any reason, the Company's regulated businesses cease to meet the criteria for application of regulatory accounting for all or part of their operations, the regulatory assets and liabilities relating to those portions ceasing to meet such criteria would be removed from the balance sheet and included in the statement of income or accumulated other comprehensive income (loss) in the period in which the discontinuance of regulatory accounting occurs. Part II 72 MDU Resources Group, Inc. Form 10-K Note 5 - Fair Value Measurements The Company measures its investments in certain fixed-income and equity securities at fair value with changes in fair value recognized in income. The Company anticipates using these investments, which consist of an insurance contract, to satisfy its obligations under its unfunded, nonqualified benefit plans for executive officers and certain key management employees, and invests in these fixed-income and equity securities for the purpose of earning investment returns and capital appreciation. These investments, which totaled $77.4 million and $70.9 million at December 31, 2017 and 2016, respectively, were classified as investments on the Consolidated Balance Sheets. The net unrealized gains on these investments for the years ended December 31, 2017, 2016 and 2015, were $9.3 million, $3.4 million and $1.7 million, respectively. The change in fair value, which is considered part of the cost of the plan, is classified in operation and maintenance expense on the Consolidated Statements of Income. The Company did not elect the fair value option, which records gains and losses in income, for its available-for-sale securities, which include mortgage-backed securities and U.S. Treasury securities. These available-for-sale securities are recorded at fair value and are classified as investments on the Consolidated Balance Sheets. Unrealized gains or losses are recorded in accumulated other comprehensive income (loss). Details of available-for-sale securities were as follows: December 31, 2017 Cost GrossUnrealizedGains GrossUnrealizedLosses Fair Value Mortgage-backed securities $ 10,342 $4 $129 $ 10,217 U.S. Treasury securities 205 —1 204 Total $ 10,547 $4 $130 $ 10,421 December 31, 2016 Cost GrossUnrealizedGains GrossUnrealizedLosses Fair Value Mortgage-backed securities $ 10,546 $8 $105 $ 10,449 Total $10,546 $8 $105 $10,449 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The ASC establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs. The estimated fair values of the Company's assets and liabilities measured on a recurring basis are determined using the market approach. The Company's Level 2 money market funds are valued at the net asset value of shares held at the end of the period, based on published market quotations on active markets, or using other known sources including pricing from outside sources. The estimated fair value of the Company's Level 2 mortgage-backed securities and U.S. Treasury securities are based on comparable market transactions, other observable inputs or other sources, including pricing from outside sources. The estimated fair value of the Company's Level 2 insurance contract is based on contractual cash surrender values that are determined primarily by investments in managed separate accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs or corroborated market data. Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2017 and 2016, there were no transfers between Levels 1 and 2. Part II MDU Resources Group, Inc. Form 10-K 73 The Company's assets measured at fair value on a recurring basis were as follows: Fair Value Measurementsat December 31, 2017, Using Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) Balance atDecember 31,2017 Assets: Money market funds $— $ 6,965 $— $ 6,965 Insurance contract*—77,388 —77,388 Available-for-sale securities: Mortgage-backed securities —10,217 —10,217 U.S. Treasury securities —204 —204 Total assets measured at fair value $—$94,774 $—$94,774 * The insurance contract invests approximately 49 percent in fixed-income investments, 23 percent in common stock of large-cap companies, 14 percent incommon stock of mid-cap companies, 11 percent in common stock of small-cap companies, 2 percent in target date investments and 1 percent in cashequivalents. Fair Value Measurementsat December 31, 2016, Using Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) Balance atDecember 31,2016 Assets: Money market funds $— $ 1,602 $— $ 1,602 Insurance contract*—70,921 —70,921 Available-for-sale securities: Mortgage-backed securities —10,449 —10,449 Total assets measured at fair value $—$82,972 $—$82,972 *The insurance contract invests approximately 52 percent in fixed-income investments, 22 percent in common stock of large-cap companies, 13 percent in common stock of mid-cap companies, 10 percent in common stock of small-cap companies, 1 percent in target date investments and 2 percent in cash equivalents. The Company applies the provisions of the fair value measurement standard to its nonrecurring, non-financial measurements, including long-lived asset impairments. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. The Company reviews the carrying value of its long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that such carrying amounts may not be recoverable. During the second quarter of 2015, coalbed natural gas gathering assets at the pipeline and midstream segment were reviewed for impairment and found to be impaired and were written down to their estimated fair value using the income approach. Under this approach, fair value is determined by using the present value of future estimated cash flows. The factors used to determine the estimated future cash flows include, but are not limited to, internal estimates of gathering revenue, future commodity prices and operating costs and equipment salvage values. The estimated cash flows are discounted using a rate that approximates the weighted average cost of capital of a market participant. These fair value inputs are not typically observable. At June 30, 2015, natural gas gathering assets were written down to the nonrecurring fair value measurement of $1.1 million. During the third quarter of 2015, the Company was negotiating the sale of certain non-strategic natural gas gathering assets at the pipeline and midstream segment and as a result these assets were found to be impaired and were written down to their estimated fair value using the market approach. The estimated fair value of natural gas gathering assets that were impaired at September 30, 2015, was largely determined by agreed upon pricing in a purchase and sale agreement that the Company was negotiating, and these assets were sold in the fourth quarter of 2015. At September 30, 2015, natural gas gathering assets were written down to the nonrecurring fair value measurement of $10.8 million. Part II 74 MDU Resources Group, Inc. Form 10-K The fair value of these natural gas gathering assets have been categorized as Level 3 in the fair value hierarchy. The Company performed a fair value assessment of the assets and liabilities classified as held for sale. For more information on these Level 3 nonrecurring fair value measurements, see Note 2. The Company's long-term debt is not measured at fair value on the Consolidated Balance Sheets and the fair value is being provided for disclosure purposes only. The fair value was based on discounted future cash flows using current market interest rates. The estimated fair value of the Company's Level 2 long-term debt at December 31 was as follows: 2017 2016 CarryingAmount FairValue CarryingAmount FairValue Long-term debt $ 1,714,853 $ 1,826,256 $1,790,159 $1,841,885 The carrying amounts of the Company's remaining financial instruments included in current assets and current liabilities approximate their fair values. Part II MDU Resources Group, Inc. Form 10-K 75 Note 6 - Debt Certain debt instruments of the Company and its subsidiaries, including those discussed later, contain restrictive covenants and cross- default provisions. In order to borrow under the respective credit agreements, the Company and its subsidiaries must be in compliance with the applicable covenants and certain other conditions. In the event the Company and its subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued. The following table summarizes the outstanding revolving credit facilities of the Company and its subsidiaries: Company Facility FacilityLimit AmountOutstanding atDecember 31,2017 AmountOutstanding atDecember 31, 2016 Letters ofCredit atDecember 31,2017 ExpirationDate MDU ResourcesGroup, Inc.Commercial paper/Revolvingcredit agreement (a)$175.0 $73.8 (b)$111.0 (b)$—5/8/19 Cascade NaturalGas Corporation Revolving credit agreement $75.0 (c)$17.3 $—$2.2 (d) 4/24/20 Intermountain GasCompany Revolving credit agreement $85.0 (e)$40.0 $20.9 $—4/24/20 Centennial EnergyHoldings, Inc.Commercial paper/Revolvingcredit agreement (f)$500.0 $14.6 (b)$151.0 (b)$—9/23/21 (a) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of the Company on stated conditions, up to a maximum of $225.0 million). There were no amounts outstanding under the revolving credit agreement. (b) Amount outstanding under commercial paper program. (c) Certain provisions allow for increased borrowings, up to a maximum of $100.0 million. (d) Outstanding letter(s) of credit reduce the amount available under the credit agreement. (e) Certain provisions allow for increased borrowings, up to a maximum of $110.0 million. (f) The commercial paper program is supported by a revolving credit agreement with various banks (provisions allow for increased borrowings, at the option of Centennial on stated conditions, up to a maximum of $600.0 million). There were no amounts outstanding under the revolving credit agreement. The Company's and Centennial's 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, the Company 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 the construction businesses. The following includes information related to the preceding table. Long-term debt MDU Resources Group, Inc. The Company's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. The credit agreement contains customary covenants and provisions, including covenants of the Company not to permit, as of the end of any fiscal quarter, (A) the ratio of funded debt to total capitalization (determined on a consolidated basis) to be greater than 65 percent or (B) the ratio of funded debt to capitalization (determined with respect to the Company alone, excluding its subsidiaries) to be greater than 65 percent. Other covenants include limitations on the sale of certain assets and on the making of certain loans and investments. There are no credit facilities that contain cross-default provisions between the Company and any of its subsidiaries. Cascade Natural Gas Corporation 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. On April 25, 2017, Cascade amended its revolving credit agreement to increase the borrowing limit from $50.0 million to $75.0 million and extend the termination date from July 9, 2018 to April 24, 2020. 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. Cascade's credit agreement also contains cross-default provisions. These provisions state that if Cascade fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, Cascade will be in default under the revolving credit agreement. Intermountain Gas Company 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. On April 25, 2017, Intermountain amended its revolving credit agreement to increase the borrowing limit from $65.0 million to $85.0 million and extend the termination date from July 13, 2018 to April 24, 2020. 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. Intermountain's credit agreement also contains cross-default provisions. These provisions state that if Intermountain fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, or certain conditions result in an early termination date under any swap contract that is in excess of a specified amount, then Intermountain will be in default under the revolving credit agreement. Centennial Energy Holdings, Inc. Centennial's revolving credit agreement supports its commercial paper program. Commercial paper borrowings under this agreement are classified as long-term debt as they are intended to be refinanced on a long-term basis through continued commercial paper borrowings. Centennial's revolving credit agreement and certain debt outstanding under an expired uncommitted long-term master shelf agreement contain customary covenants and provisions, including a covenant of Centennial, not to permit, as of the end of any fiscal quarter, the ratio of total consolidated debt to total consolidated capitalization to be greater than 65 percent (for the revolving credit agreement) and a covenant of Centennial and certain of its subsidiaries, not to permit, as of the end of any fiscal quarter, the ratio of total debt to total capitalization to be greater than 60 percent (for the master shelf agreement). The master shelf agreement also includes a covenant that does not permit the ratio of Centennial's EBITDA to interest expense, for the 12-month period ended each fiscal quarter, to be less than 1.75 to 1. Other covenants include restricted payments, restrictions on the sale of certain assets, limitations on subsidiary indebtedness, minimum consolidated net worth, limitations on priority debt and the making of certain loans and investments. Certain of Centennial's financing agreements contain cross-default provisions. These provisions state that if Centennial or any subsidiary of Centennial fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the applicable agreements will be in default. WBI Energy Transmission, Inc. WBI Energy Transmission has a $200.0 million uncommitted note purchase and private shelf agreement with an expiration date of May 16, 2019. WBI Energy Transmission had $100.0 million of notes outstanding at December 31, 2017, which reduced the remaining capacity under this uncommitted private shelf agreement to $100.0 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 and restrictions on the Part II 76 MDU Resources Group, Inc. Form 10-K sale of certain assets and the making of certain investments. On December 22, 2017, WBI Energy Transmission contracted to issue an additional $40.0 million under the private shelf agreement at an interest rate of 4.18 percent on June 15, 2018. Long-term Debt Outstanding Long-term debt outstanding was as follows: Weighed AverageInterest Rate atDecember 31, 2017 December 31, 2017 December 31, 2016 (In thousands) Senior Notes due on dates ranging from June 19, 2018 to January 15, 2055 4.71%$ 1,499,916 $ 1,437,831 Commercial paper supported by revolving credit agreements 1.72%88,350 262,000 Medium-Term Notes due on dates ranging from September 1, 2020 toMarch 16, 2029 6.68%50,000 50,000 Other notes due on dates ranging from July 1, 2019 to November 30, 2038 5.24%24,982 24,471 Credit agreements due on April 24, 2020 3.71%57,300 21,793 Less unamortized debt issuance costs 5,694 5,832 Less discount 1 104 Total long-term debt 1,714,853 1,790,159 Less current maturities 148,499 43,598 Net long-term debt $ 1,566,354 $1,746,561 Schedule of Debt Maturities Long-term debt maturities, which excludes unamortized debt issuance costs and discount, for the five years and thereafter following December 31, 2017, were as follows: 2018 2019 2020 2021 2022 Thereafter (In thousands) Long-term debt maturities $148,499 $125,504 $73,012 $15,312 $147,214 $1,211,007 Part II MDU Resources Group, Inc. Form 10-K 77 Note 7 - Asset Retirement Obligations The Company records obligations related to retirement costs of natural gas distribution mains and lines, natural gas transmission lines, storage facilities, decommissioning of certain electric generating facilities, reclamation of certain aggregate properties, special handling and disposal of hazardous materials at certain electric generating facilities, natural gas distribution facilities and buildings, and certain other obligations as asset retirement obligations. A reconciliation of the Company's liability, which is included in other accrued liabilities and deferred credits and other liabilities - other on the Consolidated Balance Sheets, for the years ended December 31 was as follows: 2017 2016 (In thousands) Balance at beginning of year $ 314,970 $ 242,224 Liabilities incurred 15,110 15,114 Liabilities settled (4,981)(4,338) Accretion expense*16,839 13,918 Revisions in estimates 31 48,052 Balance at end of year $ 341,969 $314,970 *Includes $15.6 million and $12.7 million in 2017 and 2016, respectively, related to regulatory assets. The 2016 revisions in estimates consist principally of updated asset retirement obligation costs associated with natural gas transmission lines and storage facilities at the pipeline and midstream segment. The Company believes that largely all expenses related to asset retirement obligations at the Company's regulated operations will be recovered in rates over time and, accordingly, defers such expenses as regulatory assets. For more information on the Company's regulatory assets and liabilities, see Note 4. Note 8 - Preferred Stocks Preferred stocks at December 31 were as follows: 2017 2016 (In thousands, except sharesand per share amounts) Authorized: Preferred - 500,000 shares, cumulative, par value $100, issuable in series Preferred stock A - 1,000,000 shares, cumulative, without par value, issuable in series(none outstanding) Preference - 500,000 shares, cumulative, without par value, issuable in series (noneoutstanding) Outstanding: 4.50% Series - 100,000 shares $—$ 10,000 4.70% Series - 50,000 shares —5,000 Total preferred stocks $—$15,000 For the years 2016 and 2015, dividends declared on the 4.50% Series and 4.70% Series preferred stocks were $4.50 and $4.70 per share, respectively. On April 1, 2017, the Company redeemed all outstanding 4.50% Series and 4.70% Series preferred stocks at $105 per share and $102 per share, respectively, for a repurchase price of approximately $15.6 million and $300,000 of redeemable preferred stock classified as long-term debt. Part II 78 MDU Resources Group, Inc. Form 10-K Note 9 - Common Stock For the years 2017, 2016 and 2015, dividends declared on common stock were $.7750, $.7550 and $.7350 per common share, respectively. The Stock Purchase Plan provided interested investors the opportunity to make optional cash investments and to reinvest all or a percentage of their cash dividends in shares of the Company's common stock. The K-Plan provides participants the option to invest in the Company's common stock. From January 2015 through August 2015, the Stock Purchase Plan and K-Plan, with respect to Company stock, purchased shares of authorized but unissued common stock from the Company. From September 2015 through December 2017, the K-Plan purchased shares of common stock on the open market. At December 31, 2017, there were 7.8 million shares of common stock reserved for original issuance under the K-Plan. From September 2015 through December 4, 2016, the Stock Purchase Plan purchased shares of common stock on the open market. On December 5, 2016, the Stock Purchase Plan was terminated and all remaining shares reserved for original issuance under the plan were de-registered. The Company depends on earnings from its divisions and dividends from its subsidiaries to pay dividends on common stock. The declaration and payment of dividends is at the sole discretion of the board of directors, subject to limitations imposed by the Company's credit agreements, federal and state laws, and applicable regulatory limitations. In addition, the Company and Centennial are generally restricted to paying dividends out of capital accounts or net assets. The following discusses the most restrictive limitations. Pursuant to a covenant under a credit agreement, Centennial may only declare or pay distributions if as of the last day of any fiscal quarter, the ratio of Centennial's average consolidated indebtedness as of the last day of such fiscal quarter and each of the preceding three fiscal quarters to Centennial's Consolidated EBITDA does not exceed 3 to 1; and after giving effect to such distribution, all distributions made during the 12-month period ending on the last day of the fiscal quarter in which such distribution is made will not exceed the remainder of Centennial's Consolidated EBITDA minus Centennial's capital expenditures less the net cash proceeds from all sales of capital assets from continuing operations, for the immediately preceding 12-month period. Intermountain has regulatory limitations on the amount of dividends it can pay. Based on these limitations, approximately $1.3 billion of the net assets of the Company's subsidiaries were restricted from being used to transfer funds to the Company at December 31, 2017. In addition, the Company's credit agreement also contains restrictions on dividend payments. The most restrictive limitation requires the Company not to permit the ratio of funded debt to capitalization (determined with respect to the Company alone, excluding its subsidiaries) to be greater than 65 percent. Based on this limitation, approximately $384 million of the Company's (excluding its subsidiaries) net assets, which represents common stockholders' equity including retained earnings, would be restricted from use for dividend payments at December 31, 2017. In addition, state regulatory commissions may require the Company to maintain certain capitalization ratios. These requirements are not expected to affect the Company's ability to pay dividends in the near term. Note 10 - Stock-Based Compensation The Company has several stock-based compensation plans under which it is currently authorized to grant restricted stock and other stock awards. As of December 31, 2017, there were 5.1 million remaining shares available to grant under these plans. The Company generally purchases shares on the open market for non-employee director stock awards. The Company purchased shares on the open market for the employee performance shares that vested in 2017. The Company anticipates future employee performance share awards will continue to be satisfied by purchasing shares on the open market. Total stock-based compensation expense (after tax) was $2.7 million, $3.3 million and $2.9 million in 2017, 2016 and 2015, respectively. As of December 31, 2017, total remaining unrecognized compensation expense related to stock-based compensation was approximately $4.8 million (before income taxes) which will be amortized over a weighted average period of 1.5 years. Stock awards Non-employee directors receive shares of common stock in addition to and in lieu of cash payment for directors' fees. Shares of common stock were issued under the non-employee director stock compensation plan or the non-employee director long-term incentive compensation plan. There were 40,572 shares with a fair value of $1.1 million, 37,218 shares with a fair value of $1.1 million and 58,181 shares with a fair value of $1.1 million issued under these plans during the years ended December 31, 2017, 2016 and 2015, respectively. Performance share awards Since 2003, key employees of the Company have been awarded performance share awards each year. Entitlement to performance shares is based on the Company's total shareholder return over designated performance periods as measured against a selected peer group. Target grants of performance shares outstanding at December 31, 2017, were as follows: Grant Date PerformancePeriod Target Grantof Shares February 2016 2016-2018 258,825 March 2016 2016-2018 2,151 February 2017 2017-2019 164,558 Participants may earn from zero to 200 percent of the target grant of shares based on the Company's total shareholder return relative to that of the selected peer group. Compensation expense is based on the grant-date fair value as determined by Monte Carlo simulation. The blended volatility term structure ranges are comprised of 50 percent historical volatility and 50 percent implied volatility. Risk-free interest rates were based on U.S. Treasury security rates in effect as of the grant date. Assumptions used for grants of performance shares issued in 2017, 2016 and 2015 were: 2017 2016 2015 Weighted average grant-date fair value $24.31 $14.60 $18.98 Blended volatility range 22.70%–25.56%29.25%–22.86% – 24.61% Risk-free interest rate range .69%–1.61%.47%–.05% – 1.07% Weighted average discounted dividends per share $1.70 $1.56 $1.57 The fair value of the performance shares that vested during the years ended December 31, 2017 and 2016, was $9.6 million and $953,000, respectively. There were no performance shares that vested in 2015. A summary of the status of the performance share awards for the year ended December 31, 2017, was as follows: Number ofShares WeightedAverageGrant-DateFair Value Nonvested at beginning of period 664,188 $ 21.47 Granted 203,646 24.31 Additional performance shares earned 81,643 19.22 Less: Vested 360,319 24.88 Forfeited 163,624 24.46 Nonvested at end of period 425,534 $18.35 Part II MDU Resources Group, Inc. Form 10-K 79 Note 11 - Income Taxes The components of income before income taxes from continuing operations for each of the years ended December 31 were as follows: 2017 2016 2015 (In thousands) United States $ 350,064 $ 326,252 $ 248,379 Foreign (37)(24)(1,326) Income before income taxes from continuing operations $ 350,027 $326,228 $247,053 Income tax expense from continuing operations for the years ended December 31 was as follows: 2017 2016 2015 (In thousands) Current: Federal $ 74,272 $ 81,989 $ 85,897 State 16,192 13,190 10,093 Foreign —2 30 90,464 95,181 96,020 Deferred: Income taxes: Federal (24,497)(2,102) (19,632) State (864)1,184 (5,304) Investment tax credit - net (62)(1,131)(420) (25,423)(2,049)(25,356) Total income tax expense $ 65,041 $93,132 $70,664 In accordance with the accounting guidance on accounting for income taxes, the tax effects of the change in tax laws or rates are to be recorded in the period of enactment. The TCJA was enacted on December 22, 2017, as discussed in Note 1. Therefore, the reduction in the corporate tax rate from 35 percent to 21 percent required the Company to prepare a one-time revaluation of the Company's deferred tax assets and liabilities in the fourth quarter of 2017, the period of enactment. The deferred taxes were revalued at the new tax rate because deferred taxes should reflect what the Company expects to pay or receive in future periods under the applicable tax rate. As a result of the revaluation, the Company reduced the value of these assets and liabilities and recorded a tax benefit from continuing operations of $39.5 million on the Consolidated Statements of Income for the year ended December 31, 2017. Included in the tax benefit from continuing operations was income tax expense of $7.7 million related to amounts in accumulated other comprehensive loss and $1.0 million related to the Company's assets held for sale. The Company's regulated operations prepared a one-time revaluation of the Company's regulatory deferred tax assets and liabilities in the fourth quarter of 2017 related to the enactment of the TCJA. The revaluation is being deferred under regulatory accounting as the Company works with the various regulators on a plan for amounts expected to be returned to customers, as discussed in Notes 4 and 16. The revaluation of the deferred tax assets and liabilities resulted in a net decrease of $285.5 million in the fourth quarter of 2017. These regulatory amounts are expected to generally be refunded over the remaining life of the related assets as prescribed in the TCJA. The approved regulatory treatment of the impacts of the TCJA by the various regulators may affect the analyses performed. The changes included in the TCJA are broad and complex. While the Company was able to make reasonable estimates of the impact of the reduction in corporate tax rate on the Company's net deferred tax liabilities, it may be affected by other analyses related to the TCJA, including, but not limited to, the state tax effect of adjustments to federal temporary differences and the calculation of deemed repatriation of deferred foreign income. The final transition impacts of the TCJA may differ from amounts disclosed, possibly materially, due to, among other things, changes in interpretations, legislative action to address questions, changes in accounting standards for income taxes or related interpretations, or updates or changes to estimates the Company has utilized to calculate the transition impacts. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by December 31, 2018, which will be included in income from continuing operations. Part II 80 MDU Resources Group, Inc. Form 10-K Components of deferred tax assets and deferred tax liabilities at December 31 were as follows: 2017 2016 Deferred tax assets: Postretirement $ 55,736 $ 87,872 Compensation-related 16,298 44,995 Alternative minimum tax credit carryforward 37,683 29,338 Federal renewable energy credit 19,367 16,944 Customer advances 8,712 13,524 Legal and environmental contingencies 7,363 9,895 Asset retirement obligations 6,380 8,867 Other 35,738 46,957 Total deferred tax assets 187,277 258,392 Deferred tax liabilities: Depreciation and basis differences on property, plant and equipment 429,577 774,838 Postretirement 43,505 70,670 Intangible asset amortization 16,979 26,413 Other 32,591 45,580 Total deferred tax liabilities 522,652 917,501 Valuation allowance 11,896 9,117 Net deferred income tax liability $ 347,271 $668,226 As of December 31, 2017 and 2016, the Company had various state income tax net operating loss carryforwards of $130.1 million and $114.7 million, respectively, and federal and state income tax credit carryforwards, excluding alternative minimum tax credit carryforwards, of $52.5 million and $43.3 million, respectively. Included in the state credits are various regulatory investment tax credits of approximately $28.0 million and $20.7 million at December 31, 2017 and 2016, respectively. The federal income tax credit carryforwards expire in 2036 and 2037 if not utilized and state income tax credit carryforwards are due to expire between 2018 and 2045. It is likely that a portion of the benefit from the state carryforwards will not be realized; therefore, valuation allowances have been provided. Changes in tax regulations or assumptions regarding current and future taxable income could require additional valuation allowances in the future. The alternative minimum tax credit carryforwards are refundable. For information regarding net operating loss carryforwards and valuation allowances related to discontinued operations, see Note 2. The following table reconciles the change in the net deferred income tax liability from December 31, 2016, to December 31, 2017, to deferred income tax benefit: 2017 (In thousands) Change in net deferred income tax liability from the preceding table $ (320,955) Deferred taxes associated with other comprehensive loss 1,182 Deferred taxes associated with TCJA enactment for regulated activities 285,520 Other 8,830 Deferred income tax benefit for the period $ (25,423) Part II MDU Resources Group, Inc. Form 10-K 81 Total income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference were as follows: Years ended December 31,2017 2016 2015 Amount %Amount % Amount % Computed tax at federal statutory rate $ 122,509 35.0 $ 114,179 35.0 $ 86,468 35.0 Increases (reductions) resulting from: State income taxes, net of federal income tax 10,724 3.1 9,027 2.8 8,208 3.3 Federal renewable energy credit (13,958)(4.0)(13,544) (4.2) (3,400) (1.4) Tax compliance and uncertain tax positions (643)(.2)(3,028) (.9) (2,607) (1.0) Domestic production deduction (6,849)(2.0)(6,251) (1.9) (6,842) (2.8) TCJA revaluation (47,242) (13.5)— —— — TCJA revaluation related to accumulated other comprehensive loss balance 7,735 2.2 — —— — Other (7,235) (2.0)(7,251) (2.3) (11,163) (4.5) Total income tax expense $ 65,041 18.6 $93,132 28.5 $70,664 28.6 Included in the TCJA is the deemed repatriation transition tax which is a one-time transition tax on previously untaxed accumulated earnings and profits of certain foreign operations that is payable over 8 years. At December 31, 2017, the Company's liability for the deemed repatriation transition tax was $447,000. Historically, deferred income taxes were accrued with respect to the Company's foreign operations. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for years ending prior to 2014. With few exceptions, as of December 31, 2017, the Company is no longer subject to state and local income tax examinations by tax authorities for years ending prior to 2013. The Company had no unrecognized tax benefits (excluding interest) for the years ended December 31, 2017, 2016 and 2015. Included in income tax expense is interest on uncertain tax positions. For the years ended December 31, 2017, 2016 and 2015, the Company recognized approximately $(99,000), $(92,000) and $122,000, respectively, of interest (income) expense in income tax expense. At December 31, 2017 and 2016, the Company had accrued receivables of approximately $46,000 and $54,000, respectively, for interest. Part II 82 MDU Resources Group, Inc. Form 10-K Note 12 - Cash Flow Information Cash expenditures for interest and income taxes for the years ended December 31 were as follows: 2017 2016 2015 Interest, net*$ 79,638 $87,920 $88,775 Income taxes paid, net**$ 112,137 $105,908 $61,405 * Capitalized interest and AFUDC - borrowed was $966,000, $914,000 and $9.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. ** Income taxes paid, net of discontinued operations, were $9.7 million, $1.3 million and $2.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Noncash investing transactions at December 31 were as follows: 2017 2016 2015 Property, plant and equipment additions in accounts payable $ 29,263 $22,712 $39,754 Note 13 - Business Segment Data The Company's reportable segments are those that are based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. The internal reporting of these operating segments is defined based on the reporting and review process used by the Company's chief executive officer. The vast majority of the Company's operations are located within the United States. The electric segment generates, transmits and distributes electricity in Montana, North Dakota, South Dakota and Wyoming. The natural gas distribution segment distributes natural gas in those states as well as in Idaho, Minnesota, Oregon and Washington. These operations also supply related value-added services. The pipeline and midstream segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. This segment also provides cathodic protection and other energy-related services. For information on the Company's natural gas and oil gathering and processing facility sold on January 1, 2017, see Note 2. The construction materials and contracting segment operations mine, process and sell construction aggregates (crushed stone, sand and gravel); produce and sell asphalt mix; and supply ready-mixed concrete. This segment focuses on vertical integration of construction services to support the aggregate based product lines including aggregate placement, asphalt and concrete paving, and site development and grading. Although not common to all locations, other products include the sale of cement, liquid asphalt for various commercial and roadway applications, various finished concrete products and other building materials and related contracting services.This segment operates in the central, southern and western United States and Alaska and Hawaii. The construction services segment provides inside and outside specialty contracting services. Its outside services include design, construction and maintenance of overhead and underground electrical distribution and transmission lines, substations, external lighting, traffic signalization, and gas pipelines, as well as utility excavation and the manufacture and distribution of transmission line construction equipment. Its inside services include design, construction and maintenance of electrical and communication wiring and infrastructure, fire suppression systems, and mechanical piping and services. This business also designs, constructs and maintains renewable energy projects. These specialty contracting services are provided to utilities and large manufacturing, commercial, industrial, institutional and government customers. The Other category includes the activities of Centennial Capital, which insures various types of risks as a captive insurer for certain of the Company's subsidiaries. The function of the captive insurer is to fund the deductible self-insured layers of the insured companies' general liability, automobile liability, pollution liability and other coverages. Centennial Capital also owns certain real and personal property. The Other category also includes certain general and administrative costs (reflected in operation and maintenance expense) and interest expense which were previously allocated to the refining business and Fidelity and do not meet the criteria for income (loss) from discontinued operations. The Other category also includes Centennial Resources' former investment in Brazil. Discontinued operations includes the results and supporting activities of Dakota Prairie Refining and Fidelity other than certain general and administrative costs and interest expense as described above. Dakota Prairie Refining refined crude oil and produced and sold diesel fuel, naphtha, ATBs and other by-products of the production process. In the second quarter of 2016, the Company sold all of the outstanding membership interests in Dakota Prairie Refining. Fidelity engaged in oil and natural gas development and production activities in the Rocky Mountain and Mid-Continent/Gulf States regions of the United States. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell substantially all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. For more information on discontinued operations, see Note 2. Part II MDU Resources Group, Inc. Form 10-K 83 The information below follows the same accounting policies as described in Note 1. Information on the Company's segments as of December 31 and for the years then ended was as follows: 2017 2016 2015 (In thousands) External operating revenues: Regulated operations: Electric $ 342,805 $ 322,356 $ 280,615 Natural gas distribution 848,388 766,115 817,419 Pipeline and midstream 53,566 52,983 51,004 1,244,759 1,141,454 1,149,038 Nonregulated operations: Pipeline and midstream 19,602 39,602 54,281 Construction materials and contracting 1,811,964 1,873,696 1,901,530 Construction services 1,366,317 1,072,663 907,767 Other 709 1,413 1,436 3,198,592 2,987,374 2,865,014 Total external operating revenues $ 4,443,351 $4,128,828 $4,014,052 Intersegment operating revenues: Regulated operations: Electric $—$— $— Natural gas distribution ——— Pipeline and midstream 48,867 48,794 49,065 48,867 48,794 49,065 Nonregulated operations: Pipeline and midstream 178 223 554 Construction materials and contracting 565 574 2,752 Construction services 1,285 609 18,660 Other 7,165 7,230 7,755 9,193 8,636 29,721 Intersegment eliminations (58,060)(57,430) (78,786) Total intersegment operating revenues $—$—$— Depreciation, depletion and amortization: Electric $ 47,715 $ 50,220 $ 37,583 Natural gas distribution 69,381 65,426 64,756 Pipeline and midstream 16,788 24,885 27,981 Construction materials and contracting 55,862 58,413 65,937 Construction services 15,739 15,307 13,420 Other 2,001 2,067 2,070 Total depreciation, depletion and amortization $ 207,486 $216,318 $211,747 Interest expense: Electric $ 25,377 $ 24,982 $ 17,421 Natural gas distribution 31,234 30,405 29,471 Pipeline and midstream 4,990 7,903 9,895 Construction materials and contracting 14,778 15,265 15,183 Construction services 3,742 4,059 3,959 Other 3,564 5,854 15,853 Intersegment eliminations (897)(620)(603) Total interest expense $ 82,788 $87,848 $91,179 Part II 84 MDU Resources Group, Inc. Form 10-K 2017 2016 2015 (In thousands) Income taxes: Electric $ 7,699 $ 1,449 $ 11,523 Natural gas distribution 22,756 9,181 11,377 Pipeline and midstream 12,281 12,408 7,505 Construction materials and contracting 5,405 60,625 41,619 Construction services 25,558 17,748 16,432 Other (1,809)(2,028)(9,834) Intersegment eliminations (6,849)(6,251)(7,958) Total income taxes $ 65,041 $93,132 $70,664 Earnings (loss) on common stock: Regulated operations: Electric $ 49,366 $ 42,222 $ 35,914 Natural gas distribution 32,225 27,102 23,607 Pipeline and midstream 20,620 22,060 20,680 102,211 91,384 80,201 Nonregulated operations: Pipeline and midstream (127)1,375 (7,430) Construction materials and contracting 123,398 102,687 89,096 Construction services 53,306 33,945 23,762 Other (1,422)(3,231) (14,941) 175,155 134,776 90,487 Intersegment eliminations (a)6,849 6,251 5,016 Earnings on common stock before loss from discontinued operations 284,215 232,411 175,704 Loss from discontinued operations, net of tax (a)(3,783)(300,354)(834,080) Loss from discontinued operations attributable to noncontrolling interest —(131,691)(35,256) Total earnings (loss) on common stock $ 280,432 $63,748 $(623,120) Capital expenditures: Electric $ 109,107 $ 111,134 $ 332,876 Natural gas distribution 146,981 126,272 130,793 Pipeline and midstream 31,054 34,467 18,315 Construction materials and contracting 44,302 37,845 48,126 Construction services 18,630 60,344 38,269 Other 1,850 2,358 3,755 Total capital expenditures (b)$ 351,924 $372,420 $572,134 Assets: Electric (c)$ 1,470,922 $ 1,406,694 $ 1,325,858 Natural gas distribution (c)2,201,081 2,099,296 2,038,433 Pipeline and midstream 566,295 550,615 591,651 Construction materials and contracting 1,238,696 1,220,459 1,261,963 Construction services 591,382 513,093 442,845 Other (d)261,419 283,255 287,940 Assets held for sale 4,871 211,055 616,464 Total assets $ 6,334,666 $6,284,467 $6,565,154 Part II MDU Resources Group, Inc. Form 10-K 85 (a) Includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations. (b) Capital expenditures for 2017, 2016 and 2015 include noncash capital expenditure-related accounts payable and AFUDC, totaling $10.5 million, $(15.8) million and $35.3 million, respectively. (c) Includes allocations of common utility property. (d) Includes assets not directly assignable to a business (i.e. cash and cash equivalents, certain accounts receivable, certain investments and other miscellaneous current and deferred assets). 2017 2016 2015 (In thousands) Property, plant and equipment: Electric (c)$ 1,982,264 $ 1,888,613 $ 1,786,148 Natural gas distribution (c)2,319,845 2,179,413 2,076,581 Pipeline and midstream 700,284 672,199 758,729 Construction materials and contracting 1,560,048 1,549,375 1,553,428 Construction services 177,265 171,361 163,279 Other 31,123 49,268 49,537 Less accumulated depreciation, depletion and amortization 2,691,641 2,578,902 2,489,322 Net property, plant and equipment $ 4,079,188 $3,931,327 $3,898,380 Part II 86 MDU Resources Group, Inc. Form 10-K Note 14 - Employee Benefit Plans Pension and other postretirement benefit plans The Company has noncontributory qualified defined benefit pension plans and other postretirement benefit plans for certain eligible employees. The Company uses a measurement date of December 31 for all of its pension and postretirement benefit plans. Prior to 2013, defined pension plan benefits and accruals for all nonunion and certain union plans were frozen. On June 30, 2015, an additional union plan was frozen. As of June 30, 2015, all of the Company's defined pension plans were frozen. These employees were eligible to receive additional defined contribution plan benefits. Effective January 1, 2010, eligibility to receive retiree medical benefits was modified at certain of the Company's businesses. Employees who had attained age 55 with 10 years of continuous service by December 31, 2010, will be provided the current retiree medical insurance benefits or can elect the new benefit, if desired, regardless of when they retire. All other current employees must meet the new eligibility criteria of age 60 and 10 years of continuous service at the time they retire. These employees will be eligible for a specified company funded Retiree Reimbursement Account. Employees hired after December 31, 2009, will not be eligible for retiree medical benefits at certain of the Company's businesses. In 2012, the Company modified health care coverage for certain retirees. Effective January 1, 2013, post-65 coverage was replaced by a fixed-dollar subsidy for retirees and spouses to be used to purchase individual insurance through an exchange. Changes in benefit obligation and plan assets for the years ended December 31, 2017 and 2016, and amounts recognized in the Consolidated Balance Sheets at December 31, 2017 and 2016, were as follows: Pension Benefits OtherPostretirement Benefits 2017 2016 2017 2016 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 436,307 $ 442,960 $ 89,304 $ 92,734 Service cost ——1,508 1,647 Interest cost 16,207 17,218 3,265 3,688 Plan participants' contributions ——1,368 1,405 Actuarial (gain) loss 19,119 1,882 1,781 (3,872) Benefits paid (25,710)(25,753)(6,020)(6,298) Benefit obligation at end of year 445,923 436,307 91,206 89,304 Change in net plan assets: Fair value of plan assets at beginning of year 333,509 332,667 82,846 82,593 Actual gain on plan assets 45,473 26,595 9,612 4,184 Employer contribution 1,112 —933 962 Plan participants' contributions ——1,368 1,405 Benefits paid (25,710)(25,753)(6,020)(6,298) Fair value of net plan assets at end of year 354,384 333,509 88,739 82,846 Funded status - under $ (91,539)$(102,798)$ (2,467)$(6,458) Amounts recognized in the ConsolidatedBalance Sheets at December 31: Deferred charges and other assets - other $—$—$ 19,114 $ 13,131 Other accrued liabilities ——612 538 Deferred credits and other liabilities - other 91,539 102,798 20,969 19,051 Benefit obligation liabilities - net amount recognized $ (91,539)$(102,798)$ (2,467)$(6,458) Amounts recognized in accumulated other comprehensive (income) loss orregulatory assets (liabilities) consist of: Actuarial loss $ 186,486 $ 198,668 $ 13,423 $ 17,470 Prior service credit ——(11,632)(13,003) Total $ 186,486 $198,668 $ 1,791 $4,467 Employer contributions and benefits paid in the preceding table include only those amounts contributed directly to, or paid directly from, plan assets. Accumulated other comprehensive (income) loss in the above table includes amounts related to regulated operations, which are recorded as regulatory assets (liabilities) and are expected to be reflected in rates charged to customers over time. For more information on regulatory assets (liabilities), see Note 4. Unrecognized pension actuarial losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of assets are amortized over the average life expectancy of plan participants for frozen plans. The market-related value of assets is determined using a five-year average of assets. The pension plans all have accumulated benefit obligations in excess of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans at December 31 were as follows: 2017 2016 (In thousands) Projected benefit obligation $ 445,923 $ 436,307 Accumulated benefit obligation $ 445,923 $ 436,307 Fair value of plan assets $ 354,384 $333,509 Part II MDU Resources Group, Inc. Form 10-K 87 Components of net periodic benefit cost (credit) for the Company's pension and other postretirement benefit plans for the years ended December 31 were as follows: Pension Benefits OtherPostretirement Benefits 2017 2016 2015 2017 2016 2015 Components of net periodic benefit cost (credit): Service cost $ —$ — $ 86 $ 1,508 $ 1,647 $ 1,816 Interest cost 16,207 17,218 17,141 3,265 3,688 3,607 Expected return on assets (20,528)(20,924) (22,254)(4,641)(4,533) (4,795) Amortization of prior service cost (credit)——36 (1,371)(1,371) (1,371) Recognized net actuarial loss 6,355 6,215 7,016 857 1,491 1,960 Curtailment loss —— 258 ——— Net periodic benefit cost (credit), including amount capitalized 2,034 2,509 2,283 (382)922 1,217 Less amount capitalized 310 381 316 (370)(52)120 Net periodic benefit cost (credit)1,724 2,128 1,967 (12)974 1,097 Other changes in plan assets and benefit obligations recognizedin accumulated comprehensive (income) loss or regulatoryassets (liabilities): Net (gain) loss (5,827)(3,789) 8,257 (3,190)(3,523) (1,336) Amortization of actuarial loss (6,355)(6,215) (7,016)(857)(1,491) (1,960) Amortization of prior service (cost) credit —— (294)1,371 1,371 1,371 Total recognized in accumulated other comprehensive (income)loss or regulatory assets (liabilities)(12,182)(10,004)947 (2,676)(3,643)(1,925) Total recognized in net periodic benefit cost (credit),accumulated other comprehensive (income) loss andregulatory assets (liabilities)$(10,458)$(7,876) $2,914 $(2,688)$(2,669) $(828) The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss and regulatory assets into net periodic benefit cost in 2018 is $7.0 million. The estimated net loss and prior service credit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss and regulatory assets into net periodic benefit cost in 2018 are $800,000 and $1.4 million, respectively. Prior service cost is amortized on a straight line basis over the average remaining service period of active participants. Weighted average assumptions used to determine benefit obligations at December 31 were as follows: Pension Benefits OtherPostretirement Benefits 2017 2016 2017 2016 Discount rate 3.38%3.41%3.86% Expected return on plan assets 6.75%5.75%5.75% Rate of compensation increase N/A N/A 3.00%3.00% Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows: Pension Benefits OtherPostretirement Benefits 2017 2016 2017 2016 Discount rate 3.83%4.00%3.86%4.06% Expected return on plan assets 6.75%6.75%5.75%5.75% Rate of compensation increase N/A N/A 3.00%3.00% The expected rate of return on pension plan assets is based on a targeted asset allocation range determined by the funded ratio of the plan. As of December 31, 2017, the expected rate of return on pension plan assets is based on the targeted asset allocation range of 40 percent to 50 percent equity securities and 50 percent to 60 percent fixed-income securities and the expected rate of return from these asset categories. The expected rate of return on other postretirement plan assets is based on the targeted asset allocation range of 20 percent to 25 percent equity securities and 75 percent to 80 percent fixed-income securities and the expected rate of return from these asset categories. The expected return on plan assets for other postretirement benefits reflects insurance-related investment costs. Part II 88 MDU Resources Group, Inc. Form 10-K Health care rate assumptions for the Company's other postretirement benefit plans as of December 31 were as follows: 2017 2016 Health care trend rate assumed for next year 7.5%–8.5%8.6%– Health care cost trend rate - ultimate 4.5% Year in which ultimate trend rate achieved 2024 2024 The Company's other postretirement benefit plans include health care and life insurance benefits for certain retirees. The plans underlying these benefits may require contributions by the retiree depending on such retiree's age and years of service at retirement or the date of retirement. The accounting for the health care plans anticipates future cost-sharing changes that are consistent with the Company's expressed intent to generally increase retiree contributions each year by the excess of the expected health care cost trend rate over six percent. Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one percentage point change in the assumed health care cost trend rates would have had the following effects at December 31, 2017: 1 Percentage Point Increase 1 PercentagePoint Decrease Effect on total of service and interest cost components $306 $(247) Effect on postretirement benefit obligation $5,433 $(4,551) Outside investment managers manage the Company's pension and postretirement assets. The Company's investment policy with respect to pension and other postretirement assets is to make investments solely in the interest of the participants and beneficiaries of the plans and for the exclusive purpose of providing benefits accrued and defraying the reasonable expenses of administration. The Company strives to maintain investment diversification to assist in minimizing the risk of large losses. The Company's policy guidelines allow for investment of funds in cash equivalents, fixed-income securities and equity securities. The guidelines prohibit investment in commodities and futures contracts, equity private placement, employer securities, leveraged or derivative securities, options, direct real estate investments, precious metals, venture capital and limited partnerships. The guidelines also prohibit short selling and margin transactions. The Company's practice is to periodically review and rebalance asset categories based on its targeted asset allocation percentage policy. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The ASC establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs. The estimated fair values of the Company's pension plans' assets are determined using the market approach. The carrying value of the pension plans' Level 2 cash equivalents approximates fair value and is determined using observable inputs in active markets or the net asset value of shares held at year end, which is determined using other observable inputs including pricing from outside sources. The estimated fair value of the pension plans' Level 1 equity securities is based on the closing price reported on the active market on which the individual securities are traded. The estimated fair value of the pension plans' Level 1 and Level 2 collective and mutual funds are based on the net asset value of shares held at year end, based on either published market quotations on active markets or other known sources including pricing from outside sources. The estimated fair value of the pension plans' Level 2 corporate and municipal bonds is determined using other observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, future cash flows and other reference data. The estimated fair value of the pension plans' Level 1 U.S. Government securities are valued based on quoted prices on an active market. The estimated fair value of the pension plans' Level 2 U.S. Government securities are valued mainly using other observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, to be announced prices, future cash flows and other reference data. Some of these securities are valued using pricing from outside sources. Part II MDU Resources Group, Inc. Form 10-K 89 Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2017 and 2016, there were no transfers between Levels 1 and 2. The fair value of the Company's pension plans' assets (excluding cash) by class were as follows: Fair Value Measurements at December 31, 2017, Using Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1) SignificantOtherObservableInputs (Level 2) SignificantUnobservable Inputs (Level 3) Balance atDecember 31,2017 (In thousands) Assets: Cash equivalents $— $ 3,814 $— $ 3,814 Equity securities: U.S. companies 13,345 ——13,345 International companies 1,766 ——1,766 Collective and mutual funds*171,822 67,749 — 239,571 Corporate bonds —74,956 —74,956 Municipal bonds —16,839 —16,839 U.S. Government securities 1,038 ——1,038 Total assets measured at fair value $187,971 $163,358 $—$351,329 * Collective and mutual funds invest approximately 31 percent in common stock of international companies, 28 percent in corporate bonds, 19 percent in common stock of large-cap U.S. companies, 7 percent in cash equivalents, 1 percent in U.S. Government securities and 14 percent in other investments. Fair Value Measurements at December 31, 2016, Using Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1) SignificantOtherObservableInputs (Level 2) SignificantUnobservable Inputs (Level 3) Balance atDecember 31,2016 Assets: Cash equivalents $— $ 6,347 $— $ 6,347 Equity securities: U.S. companies 11,348 ——11,348 International companies 1,584 ——1,584 Collective and mutual funds*162,055 64,052 — 226,107 Corporate bonds —68,677 —68,677 Municipal bonds —11,002 —11,002 U.S. Government securities 4,352 2,044 —6,396 Total assets measured at fair value $179,339 $152,122 $—$331,461 * Collective and mutual funds invest approximately 29 percent in common stock of international companies, 21 percent in corporate bonds, 20 percent in common stock of large-cap U.S. companies, 8 percent in cash equivalents, 7 percent in U.S. Government securities and 15 percent in other investments. The estimated fair values of the Company's other postretirement benefit plans' assets are determined using the market approach. The estimated fair value of the other postretirement benefit plans' Level 2 cash equivalents is valued at the net asset value of shares held at year end, based on published market quotations on active markets, or using other known sources including pricing from outside sources. The estimated fair value of the other postretirement benefit plans' Level 1 equity securities is based on the closing price reported on the active market on which the individual securities are traded. Part II 90 MDU Resources Group, Inc. Form 10-K The estimated fair value of the other postretirement benefit plans' Level 2 insurance contract is based on contractual cash surrender values that are determined primarily by investments in managed separate accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs or corroborated market data. Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2017 and 2016, there were no transfers between Levels 1 and 2. The fair value of the Company's other postretirement benefit plans' assets (excluding cash) by asset class were as follows: Fair Value Measurements at December 31, 2017, Using Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1) SignificantOtherObservableInputs (Level 2) SignificantUnobservable Inputs (Level 3) Balance atDecember 31,2017 Assets: Cash equivalents $— $ 4,815 $— $ 4,815 Equity securities: U.S. companies 2,316 ——2,316 International companies 4 ——4 Insurance contract*3 81,601 —81,604 Total assets measured at fair value $2,323 $86,416 $—$88,739 * The insurance contract invests approximately 38 percent in corporate bonds, 23 percent in common stock of large-cap U.S. companies, 21 percent in U.S. Government securities, 9 percent in mortgage-backed securities and 9 percent in other investments. Fair Value Measurements at December 31, 2016, Using Quoted Pricesin ActiveMarkets forIdenticalAssets (Level 1) SignificantOtherObservableInputs (Level 2) SignificantUnobservable Inputs (Level 3) Balance atDecember 31,2016 (In thousands) Assets: Cash equivalents $— $250 $— $250 Equity securities: U.S. companies 2,328 ——2,328 International companies 5 ——5 Insurance contract*—80,263 —80,263 Total assets measured at fair value $2,333 $80,513 $—$82,846 * The insurance contract invests approximately 38 percent in corporate bonds, 25 percent in common stock of large-cap U.S. companies, 20 percent in U.S. Government securities, 9 percent in mortgage-backed securities and 8 percent in other investments. The Company expects to contribute approximately $17.7 million to its defined benefit pension plans and approximately $800,000 to its postretirement benefit plans in 2018. Part II MDU Resources Group, Inc. Form 10-K 91 The following benefit payments, which reflect future service, as appropriate, and expected Medicare Part D subsidies are as follows: Years PensionBenefits OtherPostretirementBenefits ExpectedMedicarePart D Subsidy 2018 $ 25,111 $ 5,490 $152 2019 25,280 5,525 147 2020 25,587 5,396 141 2021 25,866 5,391 132 2022 26,185 5,470 123 2023 - 2027 130,994 27,106 454 Nonqualified benefit plans In addition to the qualified defined pension benefit plans reflected in the table at the beginning of this note, the Company also has unfunded, nonqualified benefit plans for executive officers and certain key management employees that generally provide for defined benefit payments at age 65 following the employee's retirement or, upon death, to their beneficiaries for a 15-year period. In February 2016, the Company froze the unfunded, nonqualified defined benefit plans to new participants and eliminated benefit increases. Vesting for participants not fully vested was retained. The Company's net periodic benefit cost for these plans was $4.7 million, $1.8 million and $7.1 million in 2017, 2016 and 2015, respectively, which reflects a curtailment gain of $3.3 million in the first quarter of 2016 . The total projected benefit obligation for these plans was $102.5 million and $101.8 million at December 31, 2017 and 2016, respectively. The accumulated benefit obligation for these plans was $102.5 million and $101.8 million at December 31, 2017 and 2016, respectively. A weighted average discount rate of 3.20 percent and 3.56 percent at December 31, 2017 and 2016, respectively, was used to determine the benefit obligation. No rate of compensation increase was used to determine the benefit obligation at December 31, 2017 and 2016, due to the plans being froze. A discount rate of 3.56 percent and 3.77 percent for the years ended December 31, 2017 and 2016, respectively, and a rate of compensation increase of 4.00 percent for the year ended 2016 was used to determine net periodic benefit cost. The amount of benefit payments for the unfunded, nonqualified benefit plans are expected to aggregate $7.1 million in 2018; $7.3 million in 2019; $7.7 million in 2020; $7.7 million in 2021; $7.0 million in 2022 and $37.0 million for the years 2023 through 2027. In 2012, the Company established a nonqualified defined contribution plan for certain key management employees. Expenses incurred under this plan for 2017, 2016 and 2015 were $736,000, $395,000 and $207,000, respectively. The Company had investments of $122.9 million and $111.0 million at December 31, 2017 and 2016, respectively, consisting of equity securities of $68.3 million and $62.5 million, respectively, life insurance carried on plan participants (payable upon the employee's death) of $36.5 million and $35.5 million, respectively, and other investments of $18.1 million and $13.0 million, respectively. The Company anticipates using these investments to satisfy obligations under these plans. Defined contribution plans The Company sponsors various defined contribution plans for eligible employees and the costs incurred under these plans were $41.2 million in 2017, $40.9 million in 2016 and $36.8 million in 2015. Multiemployer plans The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects: • Assets contributed to the MEPP by one employer may be used to provide benefits to employees of other participating employers • If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers • If the Company chooses to stop participating in some of its MEPPs, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability The Company's participation in these plans is outlined in the following table. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2017 and 2016 is for the plan's year-end at December 31, 2016, and December 31, 2015, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded. Part II 92 MDU Resources Group, Inc. Form 10-K EIN/PensionPlan Number Pension Protection ActZone Status FIP/RP StatusPending/Implemented Contributions SurchargeImposed Expiration Dateof CollectiveBargainingAgreementPension Fund 2017 2016 2017 2016 2015 Alaska Laborers-EmployersRetirement Fund 91-6028298-001 Yellow as of6/30/2017 Yellow as of6/30/2016 Implemented $690 $766 $917 No 12/31/2018 Edison Pension Plan 93-6061681-001 Green Green No 12,725 6,242 5,517 No 6/30/2019 IBEW Local No. 82Pension Plan 31-6127268-001 Green as of6/30/2017 Green as of6/30/2016 No 1,757 2,560 2,252 No 12/1/2019 IBEW Local 212Pension Trust Fund 31-6127280-001 Green as of4/30/2016 Yellow as of4/30/2015 No 1,312 1,146 937 No 6/2/2019 IBEW Local No. 357Pension Plan A 88-6023284-001 Green Green No 3,286 3,016 1,896 No 5/31/2018 IBEW Local 648Pension Plan 31-6134845-001 Red as of2/28/2017 Red as of2/29/2016 Implemented 2,254 773 745 No 9/2/2018 Idaho Plumbers andPipefitters PensionPlan 82-6010346-001 Green as of5/31/2017 Green as of5/31/2016 No 1,156 1,221 1,169 No 9/30/2019 Minnesota TeamstersConstructionDivision PensionFund 41-6187751-001 Green as of11/30/2016 Green as of11/30/2015 No 826 690 737 No 4/30/2019 National AutomaticSprinkler IndustryPension Fund 52-6054620-001 Red Red Implemented 718 775 677 No 7/31/2018-3/31/2021 53-0181657-001 Green Green No 8,891 6,366 5,271 No 95-6052257-001 Yellow Red Implemented 1,016 1,087 714 No 6/30/2018 Southwest MarinePension Trust 95-6123404-001 Red Red Implemented 48 50 26 No 1/31/2019 Other funds 22,066 19,835 18,254 Total contributions $56,745 $44,527 $39,112 The Company was listed in the plans' Forms 5500 as providing more than 5 percent of the total contributions for the following plans and plan years: Pension Fund Year Contributions to Plan Exceeded More Than 5 Percentof Total Contributions (as of December 31 of the Plan's Year-End) Edison Pension Plan 2016 and 2015 IBEW Local 82 Pension Plan 2016 and 2015 IBEW Local 124 Pension Trust Fund 2016 and 2015 IBEW Local 212 Pension Trust Fund 2016 and 2015 IBEW Local 357 Pension Plan A 2016 and 2015 IBEW Local 648 Pension Plan 2016 and 2015 Idaho Plumbers and Pipefitters Pension Plan 2016 and 2015 International Union of Operating Engineers Local 701 Pension Trust Fund 2016 and 2015 Minnesota Teamsters Construction Division Pension Fund 2016 and 2015 Pension and Retirement Plan of Plumbers and Pipefitters Local 525 2016 and 2015 On September 24, 2014, Knife River provided notice to the Operating Engineers Local 800 & WY Contractors Association, Inc. Pension Plan for Wyoming that it was withdrawing from the plan effective October 26, 2014. In the fourth quarter of 2016, Knife River and the plan entered into a settlement agreement whereby the plan administrator assessed Knife River’s final withdrawal liability with quarterly payments of approximately $42,000 until all benefits are satisfied. Knife River discounted the expected future payments. Based on this calculation, Knife River adjusted its liability accrual from $16.4 million to $5.2 million in the fourth quarter of 2016. The Company also contributes to a number of multiemployer other postretirement plans under the terms of collective-bargaining agreements that cover its union-represented employees. These plans provide benefits such as health insurance, disability insurance and life insurance to retired union employees. Many of the multiemployer other postretirement plans are combined with active multiemployer health and welfare plans. The Company's total contributions to its multiemployer other postretirement plans, which also includes contributions to active Part II MDU Resources Group, Inc. Form 10-K 93 multiemployer health and welfare plans, were $51.7 million, $36.1 million and $31.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Amounts contributed in 2017, 2016 and 2015 to defined contribution multiemployer plans were $32.2 million, $23.8 million and $19.5 million, respectively. Part II 94 MDU Resources Group, Inc. Form 10-K Note 15 - Jointly Owned Facilities The consolidated financial statements include the Company's ownership interests in the assets, liabilities and expenses of the Big Stone Station, Coyote Station and Wygen III. Each owner of the stations is responsible for financing its investment in the jointly owned facilities. The Company's share of the stations operating expenses was reflected in the appropriate categories of operating expenses (fuel, operation and maintenance and taxes, other than income) in the Consolidated Statements of Income. At December 31, the Company's share of the cost of utility plant in service and related accumulated depreciation for the stations was as follows: 2017 2016 (In thousands) Big Stone Station: Utility plant in service $ 158,084 $ 157,144 Less accumulated depreciation 51,740 49,568 $ 106,344 $107,576 Coyote Station: Utility plant in service $ 155,287 $ 156,334 Less accumulated depreciation 103,897 105,928 $ 51,390 $50,406 Wygen III: Utility plant in service $ 65,065 $ 66,251 Less accumulated depreciation 7,652 7,550 $ 57,413 $58,701 Note 16 - Regulatory Matters The Company regularly reviews the need for electric and natural gas rate changes in each of the jurisdictions in which service is provided. The Company files for rate adjustments to seek recovery of operating costs and capital investments, as well as reasonable returns as allowed by regulators. The Company's most recent cases by jurisdiction are discussed in the following paragraphs. The jurisdictions in which the Company provides service have requested the Company furnish plans for the effect of the reduced corporate tax rate due to the enactment of the TCJA which may impact the Company's rates. The following paragraphs include additional details on each jurisdiction's request. IPUC On August 12, 2016, Intermountain filed an application with the IPUC for a natural gas rate increase of approximately $10.2 million annually or approximately 4.1 percent above current rates. The request includes rate recovery associated with increased investment in facilities and increased operating expenses. On January 17, 2017, Intermountain provided the IPUC with an updated revenue request of approximately $9.4 million. On April 28, 2017, the IPUC issued an order approving an increase of approximately $4.1 million or approximately 1.6 percent above current rates based on a 9.5 percent return on equity effective with service rendered on and after May 1, 2017. On May 18, 2017, Intermountain filed a petition for reconsideration with the IPUC requesting the reconsideration of certain items denied in the order dated April 28, 2017. On June 15, 2017, the IPUC granted the request for reconsideration. On August 17, 2017, Intermountain, the IPUC staff and the interveners of the case filed a stipulation and settlement resolving all issues. The stipulation and settlement reflected an increase of approximately $1.2 million or 1.36 percent more in annual revenue than the amounts approved on April 28, 2017, as well as changes in billing determinants. The total annual increase in revenue of approximately $6.7 million was approved by the IPUC on September 14, 2017, with rates effective October 1, 2017. On January 17, 2018, the IPUC issued a general order initiating the investigation of the impacts of the TCJA. The order required the tax rate reduction to be deferred as a regulatory liability and for companies to report on the expected impacts of the TCJA by March 30, 2018. MNPUC On December 21, 2016, Great Plains filed an application with the MNPUC requesting authority to implement a gas utility infrastructure cost tariff of approximately $456,000 annually. The tariff will allow Great Plains to recover infrastructure investments, not previously included in rates, mandated by federal or state agencies associated with Great Plains' pipeline integrity programs. On October 6, 2017, the MNPUC approved the implementation of the natural gas utility infrastructure cost tariff to collect an annual increase of approximately $456,000. Great Plains submitted a compliance filing on October 10, 2017, and the rates were implemented for service rendered on and after November 1, 2017. On December 29, 2017, the MNPUC issued a notice of investigation related to tax changes with the enactment of the TCJA. On January 19, 2018, the MNPUC issued a notice of request for information, commission planning meeting and subsequent comment period. Great Plains was to provide preliminary impacts of the TCJA by January 30, 2018. A commission planning meeting was held on February 6, 2018, to discuss the impacts of the TCJA. Initial filings addressing the impacts of the TCJA are to be submitted by March 2, 2018. MTPSC On September 25, 2017, Montana-Dakota filed an application with the MTPSC for a natural gas rate increase of approximately $2.8 million annually or approximately 4.1 percent above current rates. The requested increase is primarily to recover the increased investment in distribution facilities to enhance system safety and reliability and the depreciation and taxes associated with the increase in investment. Montana-Dakota is also introducing an SSIP and the proposed adjustment mechanism required to fund the SSIP. Montana-Dakota requested an interim increase of approximately $1.6 million or approximately 2.3 percent, subject to refund. On December 27, 2017, the MTPSC requested Montana-Dakota identify a plan for the impacts of the TCJA for the natural gas segment within the natural gas rate case. On January 12, 2018, Montana-Dakota filed a revised interim increase of approximately $764,000, subject to refund, incorporating the estimated impacts of the TCJA reduction in the federal corporate income tax rate. A hearing is scheduled for April 26, 2018. This matter is pending before the MTPSC. On December 27, 2017, the MTPSC requested Montana-Dakota identify a plan for the impacts of the TCJA and to file a proposal for the impacts on the electric segment by March 31, 2018. NDPSC On June 30, 2017, Montana-Dakota filed an application for advance determination of prudence and a certificate of public convenience and necessity with the NDPSC to purchase an expansion of the Thunder Spirit Wind farm. The advance determination of prudence would provide Montana-Dakota with assurance that the project is prudent and in the best interest of the public and assists in the recovery of Montana- Dakota's investment upon completion of the project. The expansion is expected to serve customers by the end of 2018 and is estimated to cost approximately $85 million. On November 16, 2017, the NDPSC granted Montana-Dakota's request for an advance determination of prudence and certificate of public convenience and necessity to acquire and operate the Thunder Spirit Wind farm expansion. On July 21, 2017, Montana-Dakota filed an application with the NDPSC for a natural gas rate increase of approximately $5.9 million annually or approximately 5.4 percent above current rates. The requested increase is primarily to recover the increased investment in distribution facilities to enhance system safety and reliability and the depreciation and taxes associated with the increase in investment. Montana-Dakota is also introducing an SSIP and the proposed adjustment mechanism required to fund the SSIP. Montana-Dakota requested an interim increase of approximately $4.6 million or approximately 4.2 percent, subject to refund. On September 6, 2017, the NDPSC approved the request for interim rates effective with service rendered on or after September 19, 2017. On January 12, 2018, Montana- Dakota requested a delay of the rate case as a result of the enactment of the TCJA to allow the Company time to investigate the implications of the TCJA on the rate case. On February 14, 2018, the NDPSC approved the delay of hearing and scheduled it to begin on May 30, 2018. Also on February 14, 2018, Montana-Dakota filed a revised interim increase request of approximately $2.7 million, subject to refund, incorporating the estimated impacts of the TCJA reduction in the federal corporate income tax rate.This matter is pending before the NDPSC. On January 10, 2018, the NDPSC issued a general order initiating the investigation into the effects of the TCJA. The order required regulatory deferral accounting on the impacts of the TCJA and for companies to file comments and the expected impacts. On February 15, 2018, Montana-Dakota filed a summary of the primary impacts of the TCJA on the electric and natural gas utilities. OPUC On September 29, 2017, Cascade filed an application with the OPUC for an annual pipeline replacement safety cost recovery mechanism of approximately $784,000 or approximately 1.2 percent of additional revenue. The requested increase includes incremental pipeline replacement investments associated with qualifying pipeline integrity projects. This matter is pending before the OPUC. Part II MDU Resources Group, Inc. Form 10-K 95 On December 29, 2017, Cascade filed a request with the OPUC to use deferral accounting for the 2018 net benefits associated with the implementation of the TCJA. SDPUC On December 29, 2017, the SDPUC issued an order initiating the investigation into the effects of the TCJA. The order required Montana- Dakota to provide comments by February 1, 2018, regarding the general effects of the TCJA on the cost of service in South Dakota and possible mechanisms for adjusting rates. The order also stated that all rates impacted by the federal income tax shall be adjusted effective January 1, 2018, subject to refund. WUTC On May 31, 2017, Cascade filed an application with the WUTC for an annual pipeline replacement cost recovery mechanism of approximately $1.6 million or approximately .75 percent of additional revenue. The requested increase includes incremental pipeline replacement investments associated with qualifying pipeline integrity projects. On October 12, 2017, Cascade filed a required update revising the request to approximately $1.3 million or approximately .61 percent of additional revenue and on October 26, 2017, the WUTC approved the order with rates effective November 1, 2017. On August 31, 2017, Cascade filed an application with the WUTC for a natural gas rate increase of approximately $5.9 million annually or approximately 2.7 percent above current rates. The requested increase includes costs associated with increased infrastructure investment and the associated operating expenses. Also included in the request is recovery of operation and maintenance costs associated with a maximum allowable operating pressure validation plan. On January 3, 2018, the WUTC filed a bench request requiring Cascade to provide information related to the impacts of the TCJA on Cascade's revenue requirement and a proposed ratemaking treatment of those impacts. On January 12, 2018, Cascade filed a response to the bench request reducing the revenue requirement to approximately $1.7 million annually, which includes the estimated impacts of the TCJA. This matter is pending before the WUTC. WYPSC On December 29, 2017, the WYPSC issued a general order requiring regulatory deferral accounting on the impacts of the TCJA. A technical conference was held on February 6, 2018, to discuss the implications of the TCJA. FERC On September 1, 2017, Montana-Dakota submitted an update to its transmission formula rate under the MISO tariff, which reflects an incremental increase of approximately $2.5 million to include a revenue requirement for the Company's multivalue project, for a total of $13.6 million, which was effective January 1, 2018. Montana-Dakota and certain MISO Transmission Owners with projected rates submitted a filing to the FERC on February 1, 2018, requesting the FERC to waive certain provisions of the MISO tariff in order for Montana-Dakota and certain MISO Transmission Owners with projected rates to revise their rates to reflect the reduction in the corporate tax rate. Under the MISO tariff, rates are to be changed only on an annual basis with any changes reflected in subsequent true-ups. If the waiver is granted, MISO expects to implement new rates reflecting the reduction in the tax rate beginning with services rendered on March 1, 2018, and will re-bill January and February 2018 services to reflect the new rates. On February 7, 2018, WBI Energy Transmission announced it will hold an initial rate change pre-filing settlement meeting with customers on April 10, 2018. In accordance with WBI Energy Transmission’s offer of settlement and stipulation and agreement with the FERC dated June 4, 2014, the Company is to make a filing with new proposed rates to be effective no later than May 1, 2019. Assuming a five-month suspension period, WBI Energy Transmission would expect to file by October 31, 2018. Part II 96 MDU Resources Group, Inc. Form 10-K Note 17 - Commitments and Contingencies The Company is party to claims and lawsuits arising out of its business and that of its consolidated subsidiaries, which may include, but are not limited to, matters involving property damage, personal injury, and environmental, contractual, statutory and regulatory obligations. The Company accrues a liability for those contingencies when the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss. Accruals are based on the best information available, but in certain situations management is unable to estimate an amount or range of a reasonably possible loss including, but not limited to when: (1) the damages are unsubstantiated or indeterminate, (2) the proceedings are in the early stages, (3) numerous parties are involved, or (4) the matter involves novel or unsettled legal theories. The Company accrued liabilities of $35.4 million and $31.8 million, which have not been discounted, including liabilities held for sale, for contingencies, including litigation, production taxes, royalty claims and environmental matters at December 31, 2017 and 2016, respectively. This includes amounts that may have been accrued for matters discussed in Litigation and Environmental matters within this note. The Company will continue to monitor each matter and adjust accruals as might be warranted based on new information and further developments. Management believes that the outcomes with respect to probable and reasonably possible losses in excess of the amounts accrued, net of insurance recoveries, while uncertain, either cannot be estimated or will not have a material effect upon the Company's financial position, results of operations or cash flows. Unless otherwise required by GAAP, legal costs are expensed as they are incurred. Litigation Construction Services Capital Electric provided employees in 2012 to perform work for a contractor on a project in Kansas. One of the Capital Electric employees was injured while working on the project and brought a lawsuit against the contractor. Judgment was entered in favor of the employee and his spouse on November 3, 2016, in the amount of $44.8 million following a court determination that the employee’s injuries were caused by the contractor’s negligence. The contractor claims that Capital Electric was contractually required, but failed, to name the contractor as an additional insured under any liability policy in effect at the time of the project and that such failure resulted in the entry of judgment against the contractor. In March 2017, Capital Electric filed a petition for declaratory judgment in the District Court of Wyandotte County, Kansas for a judicial determination that any agreement between Capital Electric and the contractor for the project did not require Capital Electric to include the contractor as an additional insured under any liability policy issued to Capital Electric and that if such an agreement was found to exist, it would be void and unenforceable under Kansas law. Subsequent to December 31, 2017, the matter has been settled with Capital Electric being released from all claims of liability and the declaratory judgment action being dismissed. Environmental matters Portland Harbor Site In December 2000, Knife River - Northwest was named by the EPA as a PRP in connection with the cleanup of a riverbed site adjacent to a commercial property site acquired by Knife River - Northwest from Georgia-Pacific West, Inc. in 1999. The riverbed site is part of the Portland, Oregon, Harbor Superfund Site. The EPA wants responsible parties to share in the cleanup of sediment contamination in the Willamette River. To date, costs of the overall remedial investigation and feasibility study of the harbor site are being recorded, and initially paid, through an administrative consent order by the LWG, a group of several entities, which does not include Knife River - Northwest or Georgia-Pacific West, Inc. Investigative costs are indicated to be in excess of $100 million. On January 6, 2017, Region 10 of the EPA issued an ROD with its selected remedy for cleanup of the in-river portion of the site. Implementation of the remedy is expected to take up to 13 years with a present value cost estimate of approximately $1 billion. Corrective action will not be taken until remedial design/remedial action plans are approved by the EPA. Knife River - Northwest also received notice in January 2008 that the Portland Harbor Natural Resource Trustee Council intends to perform an injury assessment to natural resources resulting from the release of hazardous substances at the Harbor Superfund Site. The Portland Harbor Natural Resource Trustee Council indicates the injury determination is appropriate to facilitate early settlement of damages and restoration for natural resource injuries. It is not possible to estimate the costs of natural resource damages until an assessment is completed and allocations are undertaken. Based upon a review of the Portland Harbor sediment contamination evaluation by the Oregon DEQ and other information available, Knife River - Northwest does not believe it is a responsible party. In addition, Knife River - Northwest has notified Georgia-Pacific West, Inc., that it intends to seek indemnity for liabilities incurred in relation to the above matters pursuant to the terms of their sale agreement. Knife River - Northwest has entered into an agreement tolling the statute of limitations in connection with the LWG's potential claim for contribution to the costs of the remedial investigation and feasibility study. By letter in March 2009, LWG stated its intent to file suit against Knife River - Northwest and others to recover LWG's investigation costs to the extent Knife River - Northwest cannot demonstrate its non-liability for the contamination or is unwilling to participate in an alternative dispute resolution process that has been established to address the matter. At this time, Knife River - Northwest has agreed to participate in the alternative dispute resolution process. The Company believes it is not probable that it will incur any material environmental remediation costs or damages in relation to the above referenced matter. Manufactured Gas Plant Sites There are three claims against Cascade for cleanup of environmental contamination at manufactured gas plant sites operated by Cascade's predecessors. The first claim is for contamination at a site in Eugene, Oregon which was received in 1995. There are PRPs in addition to Cascade that may be liable for cleanup of the contamination. Some of these PRPs have shared in the investigation costs. It is expected that these and other PRPs will share in the cleanup costs. The Oregon DEQ released an ROD in January 2015 that selected a remediation alternative for the site as recommended in an earlier staff report. The total estimated cost for the selected remediation, including long-term maintenance, is approximately $3.5 million of which $400,000 has been incurred. It is not known at this time what share of the cleanup costs will Part II MDU Resources Group, Inc. Form 10-K 97 actually be borne by Cascade; however, Cascade has paid 50 percent of the ongoing investigation and design costs and anticipates its proportional share of the final costs could be approximately 50 percent. Cascade has an accrual balance of $1.6 million for remediation of this site. In January 2013, the OPUC approved Cascade's application to defer environmental remediation costs at the Eugene site for a period of 12 months starting November 30, 2012. Cascade received orders reauthorizing the deferred accounting for the 12-month periods starting November 30, 2013, December 1, 2014, December 1, 2015, December 1, 2016 and December 1, 2017. The second claim is for contamination at the Bremerton Gasworks Superfund Site in Bremerton, Washington which was received in 1997. A preliminary investigation has found soil and groundwater at the site contain contaminants requiring further investigation and cleanup. The EPA conducted a Targeted Brownfields Assessment of the site and released a report summarizing the results of that assessment in August 2009. The assessment confirms that contaminants have affected soil and groundwater at the site, as well as sediments in the adjacent Port Washington Narrows. Alternative remediation options have been identified with preliminary cost estimates ranging from $340,000 to $6.4 million. Data developed through the assessment and previous investigations indicates the contamination likely derived from multiple, different sources and multiple current and former owners of properties and businesses in the vicinity of the site may be responsible for the contamination. In April 2010, the Washington DOE issued notice it considered Cascade a PRP for hazardous substances at the site. In May 2012, the EPA added the site to the National Priorities List of Superfund sites. Cascade has entered into an administrative settlement agreement and consent order with the EPA regarding the scope and schedule for a remedial investigation and feasibility study for the site. Current estimates for the cost to complete the remedial investigation and feasibility study are approximately $7.6 million of which $1.7 million has been incurred. Cascade has accrued $5.9 million for the remedial investigation and feasibility study as well as $6.4 million for remediation of this site; however, the accrual for remediation costs will be reviewed and adjusted, if necessary, after completion of the remedial investigation and feasibility study. In April 2010, Cascade filed a petition with the WUTC for authority to defer the costs, which are included in other noncurrent assets, incurred in relation to the environmental remediation of this site. The WUTC approved the petition in September 2010, subject to conditions set forth in the order. The third claim is for contamination at a site in Bellingham, Washington. Cascade received notice from a party in May 2008 that Cascade may be a PRP, along with other parties, for contamination from a manufactured gas plant owned by Cascade and its predecessor from about 1946 to 1962. The notice indicates that current estimates to complete investigation and cleanup of the site exceed $8.0 million. Other PRPs have reached an agreed order and work plan with the Washington DOE for completion of a remedial investigation and feasibility study for the site. A report documenting the initial phase of the remedial investigation was completed in June 2011. There is currently not enough information available to estimate the potential liability to Cascade associated with this claim although Cascade believes its proportional share of any liability will be relatively small in comparison to other PRPs. The plant manufactured gas from coal between approximately 1890 and 1946. In 1946, shortly after Cascade's predecessor acquired the plant, it converted the plant to a propane-air gas facility. There are no documented wastes or by-products resulting from the mixing or distribution of propane-air gas. Cascade has not recorded an accrual for this site. Cascade has received notices from and entered into agreement with certain of its insurance carriers that they will participate in defense of Cascade for these contamination claims subject to full and complete reservations of rights and defenses to insurance coverage. To the extent these claims are not covered by insurance, Cascade intends to seek recovery through the OPUC and WUTC of remediation costs in its natural gas rates charged to customers. The accruals related to these matters are reflected in regulatory assets. For more information, see Note 4. Operating leases The Company leases certain equipment, facilities and land under operating lease agreements. The amounts of annual minimum lease payments due under these leases as of December 31, 2017, were: 2018 2019 2020 2021 2022 Thereafter (In thousands) Operating leases $55,511 $45,307 $33,168 $18,562 $7,047 $40,833 Rent expense was $73.7 million, $65.0 million and $53.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Part II 98 MDU Resources Group, Inc. Form 10-K Purchase commitments The Company has entered into various commitments, largely construction, natural gas and coal supply, purchased power, natural gas transportation and storage, and service, shipping and construction materials supply contracts, some of which are subject to variability in volume and price. The commitment terms vary in length, up to 43 years. The commitments under these contracts as of December 31, 2017, were: 2018 2019 2020 2021 2022 Thereafter (In thousands) Purchase commitments $360,751 $215,005 $162,424 $135,334 $99,068 $773,820 These commitments were not reflected in the Company's consolidated financial statements. Amounts purchased under various commitments for the years ended December 31, 2017, 2016 and 2015, were $516.1 million, $539.3 million and $842.1 million, respectively. Guarantees In June 2016, WBI Energy sold all of the outstanding membership interests in Dakota Prairie Refining. In connection with the sale, Centennial agreed to continue to guarantee certain debt obligations of Dakota Prairie Refining which totaled $56.3 million at December 31, 2017, and are expected to mature in 2023. Tesoro agreed to indemnify Centennial for any losses and litigation expenses arising from the guarantee. The estimated fair values of the indemnity asset and guarantee liability are reflected in deferred charges and other assets - other and deferred credits and other liabilities - other, respectively, on the Consolidated Balance Sheets. Continuation of the guarantee was required as a condition to the sale of Dakota Prairie Refining. In March 2016, a sale agreement was signed to sell Fidelity's assets in the Paradox Basin. In connection with the sale, Centennial agreed to guarantee Fidelity's indemnity obligations associated with the Paradox Basin assets. The guarantee was required by the buyer as a condition to the sale of the Paradox Basin assets. In 2009, multiple sale agreements were signed to sell the Company's ownership interests in the Brazilian Transmission Lines. In connection with the sale, Centennial has agreed to guarantee payment of any indemnity obligations of certain of the Company's indirect wholly owned subsidiaries who are the sellers in three purchase and sale agreements for periods ranging up to 10 years from the date of sale. The guarantees were required by the buyers as a condition to the sale of the Brazilian Transmission Lines. Certain subsidiaries of the Company have outstanding guarantees to third parties that guarantee the performance of other subsidiaries of the Company. These guarantees are related to construction contracts, insurance deductibles and loss limits, and certain other guarantees. At December 31, 2017, the fixed maximum amounts guaranteed under these agreements aggregated $108.0 million. The amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $6.4 million in 2018; $25.9 million in 2019; $68.7 million in 2020; $500,000 in 2021; $500,000 in 2022; $2.0 million thereafter; and $4.0 million, which has no scheduled maturity date. There were no amounts outstanding under the above guarantees at December 31, 2017. In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee. Certain subsidiaries have outstanding letters of credit to third parties related to insurance policies and other agreements, some of which are guaranteed by other subsidiaries of the Company. At December 31, 2017, the fixed maximum amounts guaranteed under these letters of credit aggregated $34.0 million, all of which expire in 2018. There were no amounts outstanding under the above letters of credit at December 31, 2017. In the event of default under these letter of credit obligations, the subsidiary issuing the letter of credit for that particular obligation would be required to make payments under its letter of credit. In addition, Centennial, Knife River and MDU Construction Services have issued guarantees to third parties related to the routine purchase of maintenance items, materials and lease obligations for which no fixed maximum amounts have been specified. These guarantees have no scheduled maturity date. In the event a subsidiary of the Company defaults under these obligations, Centennial, Knife River and MDU Construction Services would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the Company for these guarantees were reflected on the Consolidated Balance Sheet at December 31, 2017. In the normal course of business, Centennial has surety bonds related to construction contracts and reclamation obligations of its subsidiaries. In the event a subsidiary of Centennial does not fulfill a bonded obligation, Centennial would be responsible to the surety bond company for completion of the bonded contract or obligation. A large portion of the surety bonds is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. As of December 31, 2017, approximately $616.5 million of surety bonds were outstanding, which were not reflected on the Consolidated Balance Sheet. Part II MDU Resources Group, Inc. Form 10-K 99 Variable interest entities The Company evaluates its arrangements and contracts with other entities to determine if they are VIEs and if so, if the Company is the primary beneficiary. For more information, see Note 1. Fuel Contract Coyote Station entered into a coal supply agreement with Coyote Creek that provides for the purchase of coal necessary to supply the coal requirements of the Coyote Station for the period May 2016 through December 2040. Coal purchased under the coal supply agreement is reflected in inventories on the Company's Consolidated Balance Sheets and is recovered from customers as a component of electric fuel and purchased power. The coal supply agreement creates a variable interest in Coyote Creek due to the transfer of all operating and economic risk to the Coyote Station owners, as the agreement is structured so that the price of the coal will cover all costs of operations as well as future reclamation costs. The Coyote Station owners are also providing a guarantee of the value of the assets of Coyote Creek as they would be required to buy the assets at book value should they terminate the contract prior to the end of the contract term and are providing a guarantee of the value of the equity of Coyote Creek in that they are required to buy the entity at the end of the contract term at equity value. Although the Company has determined that Coyote Creek is a VIE, the Company has concluded that it is not the primary beneficiary of Coyote Creek because the authority to direct the activities of the entity is shared by the four unrelated owners of the Coyote Station, with no primary beneficiary existing. As a result, Coyote Creek is not required to be consolidated in the Company's financial statements. At December 31, 2017, the Company's exposure to loss as a result of the Company's involvement with the VIE, based on the Company's ownership percentage was $40.8 million. Part II 100 MDU Resources Group, Inc. Form 10-K Supplementary Financial Information Quarterly Data (Unaudited) The following unaudited information shows selected items by quarter for the years 2017 and 2016: FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except per share amounts) 2017 Operating revenues $ 937,925 $ 1,067,639 $ 1,272,548 $ 1,165,239 Operating expenses 870,813 987,960 1,116,171 1,039,695 Operating income 67,112 79,679 156,377 125,544 Income from continuing operations 35,638 44,405 89,549 115,394 Income (loss) from discontinued operations attributable to the Company,net of tax 1,687 (3,190)(2,198)(82) Net income attributable to the Company 37,325 41,215 87,351 115,312 Earnings per common share - basic: Earnings before discontinued operations .18 .22 .46 .59 Discontinued operations attributable to the Company, net of tax .01 (.01)(.01)— Earnings per common share - basic .19 .21 .45 .59 Earnings per common share - diluted: Earnings before discontinued operations .18 .22 .46 .59 Discontinued operations attributable to the Company, net of tax .01 (.01)(.01)— Earnings per common share - diluted .19 .21 .45 .59 Weighted average common shares outstanding: Basic 195,304 195,304 195,304 195,304 Diluted 196,023 195,973 195,783 195,617 2016 Operating revenues $ 860,214 $ 1,043,948 $ 1,208,567 $ 1,016,099 Operating expenses 798,229 954,983 1,061,883 904,613 Operating income 61,985 88,965 146,684 111,486 Income from continuing operations 31,865 46,298 88,386 66,547 Loss from discontinued operations attributable to the Company, net of tax (6,996) (155,451)(5,400)(816) Net income (loss) attributable to the Company 24,869 (109,153)82,986 65,731 Earnings (loss) per common share - basic: Earnings before discontinued operations .16 .24 .45 .34 Discontinued operations attributable to the Company, net of tax (.03)(.80)(.03)— Earnings (loss) per common share - basic .13 (.56).42 .34 Earnings (loss) per common share - diluted: Earnings before discontinued operations .16 .24 .45 .33 Discontinued operations attributable to the Company, net of tax (.03)(.80)(.03)— Earnings (loss) per common share - diluted .13 (.56).42 .33 Weighted average common shares outstanding: Basic 195,284 195,304 195,304 195,304 Diluted 195,284 195,699 195,811 195,889 Notes: • Fourth quarter 2016 reflects a reduction to a previously recorded MEPP withdrawal liability of $11.1 million (before tax). For more information, see Note 14. • First quarter 2016 has been recast to present the results of operations of Dakota Prairie Refining as discontinued operations, other than certain general and administrative costs and interest expense which were previously allocated to the former refining segment and do not meet the criteria for income (loss) from discontinued operations. • Fourth quarter 2017 reflects an income tax benefit of $39.5 million related to the TCJA. For more information, see Note 11. Certain Company operations are highly seasonal and revenues from and certain expenses for such operations may fluctuate significantly among quarterly periods. Accordingly, quarterly financial information may not be indicative of results for a full year. Part II MDU Resources Group, Inc. Form 10-K 101 Exploration and Production Activities (Unaudited) In the second quarter of 2015, the Company began the marketing and sale process of Fidelity with an anticipated sale to occur within one year. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell substantially all of Fidelity's oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. Prior to the asset sales, Fidelity was significantly involved in the development and production of oil and natural gas resources. Upon the completion of the asset sales, the Company had no remaining proved oil, NGL or natural gas reserves. At the time the Company committed to a plan to sell Fidelity, the Company stopped the use of the full-cost method of accounting for its oil and natural gas production activities. The assets and liabilities were classified as held for sale and the results of operations included in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. For more information, see Note 2. Part II 102 MDU Resources Group, Inc. Form 10-K Definitions The following abbreviations and acronyms used in Notes to Consolidated Financial Statements are defined below: AFUDC Allowance for funds used during construction Andeavor Field Services LLC Formerly QEP Field Services, LLC doing business as Tesoro Logistics Rockies LLC ASC FASB Accounting Standards Codification ATBs Atmospheric tower bottoms Big Stone Station 475-MW coal-fired electric generating facility near Big Stone City, South Dakota (22.7 percentownership) Brazilian Transmission Lines Calumet Capital Electric Capital Electric Construction Company, Inc., a direct wholly owned subsidiary of MDUConstruction Services Cascade Centennial Centennial Capital Centennial's Consolidated EBITDA Centennial's consolidated net income from continuing operations plus the related interestexpense, taxes, depreciation, depletion, amortization of intangibles and any non-cash chargerelating to asset impairment for the preceding 12-month period Centennial Energy Resources LLC, a direct wholly owned subsidiary of Centennial MDU Resources Group, Inc. Coyote Creek Mining Company, LLC, a subsidiary of The North American Coal Corporation 427-MW coal-fired electric generating facility near Beulah, North Dakota (25 percent ownership) Dakota Prairie Refinery 20,000-barrel-per-day diesel topping plant built by Dakota Prairie Refining in southwestern North Dakota Dakota Prairie Refining Dakota Prairie Refining, LLC, a limited liability company previously owned by WBI Energy and Calumet (previously included in the Company's refining segment) Earnings before interest, taxes, depreciation, depletion and amortization Employer Identification Number United States Environmental Protection Agency Financial Accounting Standards Board Federal Energy Regulatory Commission Fidelity Fidelity Exploration & Production Company, a direct wholly owned subsidiary of WBI Holdings(previously referred to as the Company's exploration and production segment) Funding improvement plan Accounting principles generally accepted in the United States of America Great Plains Natural Gas Co., a public utility division of the Company International Brotherhood of Electrical Workers International Financial Reporting Standards Intermountain Gas Company, an indirect wholly owned subsidiary of MDU Energy Capital Idaho Public Utilities Commission Knife River Corporation, a direct wholly owned subsidiary of Centennial Knife River Corporation - Northwest, an indirect wholly owned subsidiary of Knife River Company's 401(k) Retirement Plan Lower Willamette Group MDU Construction Services Group, Inc., a direct wholly owned subsidiary of Centennial MDU Energy Capital, LLC, a direct wholly owned subsidiary of the Company Multiemployer pension plan Midcontinent Independent System Operator, Inc. Minnesota Public Utilities Commission Montana-Dakota Utilities Co., a public utility division of the Company Montana Public Service Commission Megawatt Part II MDU Resources Group, Inc. Form 10-K 103 NDPSC North Dakota Public Service Commission NGL Natural gas liquids Oil Includes crude oil and condensate OPUC Oregon Public Utility Commission Oregon DEQ Oregon State Department of Environmental Quality Pronghorn Natural gas processing plant located near Belfield, North Dakota (WBI Energy Midstream's 50 percent ownership interests were sold effective January 1, 2017) Potentially Responsible Party Record of Decision Rehabilitation plan South Dakota Public Utilities Commission United States Securities and Exchange Commission SEC Defined Prices The average price of oil and natural gas during the applicable 12-month period, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions SSIP Stock Purchase Plan Company's Dividend Reinvestment and Direct Stock Purchase Plan which was terminatedeffective December 5, 2016 TCJA Tesoro VIE Washington DOE WBI Energy WBI Energy Midstream WBI Energy Transmission WBI Holdings WUTC Wygen III WYPSC Part II 104 MDU Resources Group, Inc. Form 10-K Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Part II MDU Resources Group, Inc. Form 10-K 105 Item 9A. Controls and Procedures The following information includes the evaluation of disclosure controls and procedures by the Company's chief executive officer and the chief financial officer, along with any significant changes in internal controls of the Company. Evaluation of Disclosure Controls and Procedures The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The Company's disclosure controls and other procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company's disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to management, including the Company's chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures. Based upon that evaluation, the chief executive officer and the chief financial officer have concluded that, as of the end of the period covered by this report, such controls and procedures were effective at a reasonable assurance level. Changes in Internal Controls No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2017, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Management's Annual Report on Internal Control Over Financial Reporting The information required by this item is included in this Form 10-K at Item 8 - Management's Report on Internal Control Over Financial Reporting. Attestation Report of the Registered Public Accounting Firm The information required by this item is included in this Form 10-K at Item 8 - Report of Independent Registered Public Accounting Firm. Item 9B. Other Information None. Part III 106 MDU Resources Group, Inc. Form 10-K Item 10. Directors, Executive Officers and Corporate Governance Information required by this item is included in the Company's Proxy Statement, which is incorporated herein by reference. Item 11. Executive Compensation Information required by this item is included in the Company's Proxy Statement, which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity Compensation Plan Information The following table includes information as of December 31, 2017, with respect to the Company's equity compensation plans: Plan Category (a)Number of securities tobe issued upon exerciseof outstanding options,warrants and rights (b)Weighted averageexercise price ofoutstanding options,warrants and rights (c)Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a)) Equity compensation plans approved by stockholders (1)692,761 (2)$— (3)4,662,030 (4)(5) Equity compensation plans not approved by stockholders N/A N/A N/A Total 692,761 $—4,662,030 (1) Consists of the Non-Employee Director Long-Term Incentive Compensation Plan and the Long-Term Performance-Based Incentive Plan. (2) Consists of performance shares. (3) No weighted average exercise price is shown for the performance shares. (4) This amount includes 4,307,574 shares available for future issuance under the Long-Term Performance-Based Incentive Plan in connection with grants of restricted stock, performance units, performance shares or other equity-based awards. (5) This amount includes 354,456 shares available for future issuance under the Non-Employee Director Long-Term Incentive Compensation Plan. Under this plan, in addition to a cash retainer, non-employee directors, excluding the Chair of the Board, are awarded shares equal in value to $110,000 annually and the Chair of the Board is awarded shares equal in value to $145,000 annually. A non-employee director may acquire additional shares under the plan in lieu of receiving the cash portion of the director's retainer or fees. The remaining information required by this item is included in the Company's Proxy Statement, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item is included in the Company's Proxy Statement, which is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information required by this item is included in the Company's Proxy Statement, which is incorporated herein by reference. Part IV MDU Resources Group, Inc. Form 10-K 107 Item 15. Exhibits, Financial Statement Schedules (a) Financial Statements, Financial Statement Schedules and Exhibits Index to Financial Statements and Financial Statement Schedules 1. Financial Statements The following consolidated financial statements required under this item areincluded under Item 8 - Financial Statements and Supplementary Data.Page Consolidated Statements of Income for each of the three years in the period endedDecember 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Consolidated Statements of Comprehensive Income for each of the three years inthe period ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Consolidated Statements of Equity for each of the three years in the period endedDecember 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Consolidated Statements of Cash Flows for each of the three years in the periodended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 2. Financial Statement Schedules Condensed Statements of Income and Comprehensive Income for each of the threeyears in the period ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .108 Condensed Statements of Cash Flows for each of the three years in the period endedDecember 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110 MDU RESOURCES GROUP, INC. Schedule I - Condensed Financial Information of Registrant (Unconsolidated) Condensed Statements of Income and Comprehensive Income Years ended December 31,2017 2016 2015 (In thousands) Operating revenues $ 623,693 $ 561,266 $ 556,112 Operating expenses 516,524 469,062 478,198 Operating income 107,169 92,204 77,914 Other income 1,331 1,491 8,318 Interest expense 31,997 31,519 23,562 Income before income taxes 76,503 62,176 62,670 Income taxes 13,800 6,355 15,882 Equity in earnings of subsidiaries from continuing operations 222,283 177,275 129,601 Net income from continuing operations 284,986 233,096 176,389 (3,783)(168,663)(798,824) Loss on redemption of preferred stocks 600 —— Dividends declared on preferred stocks 171 685 685 Earnings (loss) on common stock $ 280,432 $63,748 $(623,120) Comprehensive income (loss)$ 279,602 $65,848 $(617,480) The accompanying notes are an integral part of these condensed financial statements. Part IV 108 MDU Resources Group, Inc. Form 10-K MDU RESOURCES GROUP, INC. Schedule I - Condensed Financial Information of Registrant (Unconsolidated) Condensed Balance Sheets December 31,2017 2016 (In thousands, except shares and per share amounts) Assets Current assets: Cash and cash equivalents $843 $ 4,159 Receivables, net 83,453 80,467 Accounts receivable from subsidiaries 34,029 34,424 Inventories 13,864 17,352 Prepayments and other current assets 34,400 24,531 Total current assets 166,589 160,933 Investments 76,779 70,370 Investment in subsidiaries 1,704,908 1,603,874 Property, plant and equipment 2,631,161 2,502,264 Less accumulated depreciation, depletion and amortization 797,130 756,191 Net property, plant and equipment 1,834,031 1,746,073 Deferred charges and other assets: Goodwill 4,812 4,812 Other 175,599 183,654 Total deferred charges and other assets 180,411 188,466 Total assets $ 3,962,718 $ 3,769,716 Liabilities and Stockholders' Equity Current liabilities: Long-term debt due within one year $ 100,011 $110 Accounts payable 47,000 37,697 Accounts payable to subsidiaries 7,234 5,592 Taxes payable 13,717 14,992 Dividends payable 38,573 37,767 Accrued compensation 20,017 16,086 Other accrued liabilities 36,881 34,929 Total current liabilities 263,433 147,173 Long-term debt 612,493 679,667 Deferred credits and other liabilities: Deferred income taxes 147,847 270,126 Other 509,902 356,506 Total deferred credits and other liabilities 657,749 626,632 Commitments and contingencies Stockholders' equity: Preferred stocks —15,000 Common stockholders' equity: Common stock Authorized - 500,000,000 shares, $1.00 par value Issued - 195,843,297 shares in 2017 and 2016 195,843 195,843 Other paid-in capital 1,233,412 1,232,478 Retained earnings 1,040,748 912,282 Accumulated other comprehensive loss (37,334)(35,733) Treasury stock at cost - 538,921 shares (3,626)(3,626) Total common stockholders' equity 2,429,043 2,301,244 Total stockholders' equity 2,429,043 2,316,244 Total liabilities and stockholders' equity $ 3,962,718 $ 3,769,716 The accompanying notes are an integral part of these condensed financial statements. Part IV MDU Resources Group, Inc. Form 10-K 109 MDU RESOURCES GROUP, INC. Schedule I - Condensed Financial Information of Registrant (Unconsolidated) Condensed Statements of Cash Flows Years ended December 31,2017 2016 2015 (In thousands) Net cash provided by operating activities $ 284,075 $238,125 $255,273 Investing activities: Capital expenditures (146,370)(159,570) (349,985) Net proceeds from sale or disposition of property and other (5,665)3,784 3,268 Investments in and advances to subsidiaries (40,000)(5,000)(7,000) Advances from subsidiaries 40,000 15,000 100,000 Investments (468)(129)5 Net cash used in investing activities (152,503)(145,915)(253,712) Financing activities: Issuance of long-term debt 70,080 106,420 224,185 Repayment of long-term debt (37,569)(50,010) (108,008) Proceeds from issuance of common stock ——21,898 Dividends paid (150,727)(147,156) (142,835) Redemption of preferred stock (15,600)—— Repurchase of common stock (564)—— Tax withholding on stock-based compensation (508)(226)— Net cash used in financing activities (134,888)(90,972)(4,760) Increase (decrease) in cash and cash equivalents (3,316)1,238 (3,199) Cash and cash equivalents - beginning of year 4,159 2,921 6,120 Cash and cash equivalents - end of year $843 $4,159 $2,921 The accompanying notes are an integral part of these condensed financial statements. Part IV 110 MDU Resources Group, Inc. Form 10-K Notes to Condensed Financial Statements Note 1 - Summary of Significant Accounting Policies Basis of presentation The condensed financial information reported in Schedule I is being presented to comply with Rule 12-04 of Regulation S-X. The information is unconsolidated and is presented for the parent company only, which is comprised of MDU Resources Group, Inc. (the Company) and Montana-Dakota and Great Plains, public utility divisions of the Company. In Schedule I, investments in subsidiaries are presented under the equity method of accounting where the assets and liabilities of the subsidiaries are not consolidated. The investments in net assets of the subsidiaries are recorded on the Condensed Balance Sheets. The income from subsidiaries is reported as equity in earnings of subsidiaries on the Condensed Statements of Income. The consolidated financial statements of MDU Resources Group, Inc. reflect certain businesses as discontinued operations. These statements should be read in conjunction with the consolidated financial statements and notes thereto of MDU Resources Group, Inc. Earnings (loss) per common share Please refer to the Consolidated Statements of Income of the registrant for earnings (loss) per common share. In addition, see Item 8 - Note 1 for information on the computation of earnings (loss) per common share. Note 2 - Debt At December 31, 2017, the Company had long-term debt maturities, excluding unamortized debt issuance costs, of $100.0 million in 2018, $74.5 million in 2019, $700,000 in 2020, $700,000 in 2021, $700,000 in 2022 and $538.1 million scheduled to mature in years after 2022. For more information on debt, see Item 8 - Note 6. Note 3 - Dividends The Company depends on earnings from its divisions and dividends from its subsidiaries to pay dividends on common stock. Cash dividends paid to the Company by subsidiaries were $116.1 million, $115.8 million and $110.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. MDU RESOURCES GROUP, INC. Schedule II - Consolidated Valuation and Qualifying Accounts For the years ended December 31, 2017, 2016 and 2015 Additions Description Balance atBeginning of Year Charged to Costsand Expenses Other * Deductions **Balance atEnd of Year (In thousands) Allowance for doubtful accounts: 2017 $ 10,479 $ 7,024 $ 989 $ 10,423 $ 8,069 2016 9,835 8,302 851 8,509 10,479 2015 9,511 11,343 1,012 12,031 9,835 * Recoveries. ** Uncollectible accounts written off. All other schedules are omitted because of the absence of the conditions under which they are required, or because the information required is included in the Company's Consolidated Financial Statements and Notes thereto. Part IV MDU Resources Group, Inc. Form 10-K 111 Item 16. Form 10-K Summary None. Incorporated by Reference ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number 2(a) Membership Interest Purchase Agreement, dated as ofJune 24, 2016, between WBI Energy, Inc. and TesoroRefining & Marketing Company LLC 8-K/A 2.1 7/21/16 1-03480 2(b) Purchase and Sale Agreement, dated as of June 9, 2016, byand among Calumet North Dakota, LLC, WBI Energy, Inc.,and as applicable, MDU Resources Group, Inc., CentennialEnergy Holdings, Inc., and Calumet Specialty ProductsPartners, L.P. 8-K/A 2.2 7/21/16 1-03480 2(c) Amendment No. 1 to Purchase and Sale Agreement, dated asof June 9, 2016, by and among Calumet North Dakota, LLC,WBI Energy, Inc., and as applicable, MDU Resources Group,Inc., Centennial Energy Holdings, Inc., and Calumet SpecialtyProducts Partners, L.P. 8-K/A 2.3 7/21/16 1-03480 3(a) Restated Certificate of Incorporation of MDU ResourcesGroup, Inc., as amended, dated May 13, 2010 10-Q 9/30/10 3(a) 11/3/10 1-03480 3(b) Bylaws of MDU Resources Group, Inc., as amended andrestated on February 16, 2017 8-K 3.1 2/21/17 1-03480 4(a) Indenture, dated as of December 15, 2003, between MDUResources Group, Inc. and The Bank of New York, as trustee S-8 4(f) 1/21/04 333-112035 4(b) First Supplemental Indenture, dated as of November 17,2009, between MDU Resources Group, Inc. and the Bank ofNew York Mellon, as trustee 10-K 12/31/09 4(c) 2/17/10 1-03480 4(c) Centennial Energy Holdings, Inc. Amended and RestatedMaster Shelf Agreement, effective as of April 29, 2005,among Centennial Energy Holdings, Inc., the PrudentialInsurance Company of America and certain investorsdescribed therein 10-Q 6/30/05 4(a) 8/3/05 1-03480 4(d) Letter Amendment No. 1 to Amended and Restated MasterShelf Agreement, dated May 17, 2006, among CentennialEnergy Holdings, Inc., the Prudential Insurance Company ofAmerica, and certain investors described in the LetterAmendment 10-Q 6/30/06 4(a) 8/4/06 1-03480 Incorporated by Reference ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number 4(e) Letter Amendment No. 2 to Amended and Restated MasterShelf Agreement, dated December 19, 2007, amongCentennial Energy Holdings, Inc., the Prudential InsuranceCompany of America, and certain investors described in theLetter Amendment 10-K 12/31/15 4(e) 2/19/16 1-03480 4(f) Letter Amendment No. 3 to Amended and Restated MasterShelf Agreement, dated December 18, 2015, amongCentennial Energy Holdings, Inc., the Prudential InsuranceCompany of America, and certain investors described in theLetter Amendment 10-K 12/31/15 4(f) 2/19/16 1-03480 4(g) MDU Resources Group, Inc. Credit Agreement, dated May 26,2011, among MDU Resources Group, Inc., Various Lenders,and Wells Fargo Bank, National Association, as AdministrativeAgent 10-K 12/31/11 4(e) 2/24/12 1-03480 4(h) First Amendment to Credit Agreement, dated October 4,2012, among MDU Resources Group, Inc., Various Lenders,and Wells Fargo Bank, National Association, as AdministrativeAgent 10-Q 9/30/12 4 11/7/12 1-03480 4(i) Second Amendment to Credit Agreement, dated May 8, 2014among MDU Resources Group Inc., Various Lenders, andWells Fargo Bank, National Association, as AdministrativeAgent 10-Q 6/30/14 4(a) 8/8/14 1-03480 4(j) Third Amended and Restated Credit Agreement, dated May 8,2014, among Centennial Energy Holdings Inc., U.S. BankNational Association, as Administrative Agent, and TheSeveral Financial Institutions party thereto 10-Q 6/30/14 4(b) 8/8/14 1-03480 4(k) Fourth Amended and Restated Credit Agreement, dated as ofSeptember 23, 2016, among Centennial Energy Holdings,Inc., U.S. Bank National Association, as Administrative Agent,and The Several Financial Institutions party thereto 10-Q 9/30/16 4 11/7/16 1-03480 4(l) MDU Energy Capital, LLC Master Shelf Agreement, dated asof August 9, 2007, among MDU Energy Capital, LLC,Prudential Investment Management, Inc., the PrudentialInsurance Company of America and the holders of the notesthereunder 8-K 4 8/16/07 1-03480 4(m) Amendment No. 1 to Master Shelf Agreement, datedOctober 1, 2008, among MDU Energy Capital, LLC,Prudential Investment Management, Inc., the PrudentialInsurance Company of America, and the holders of the notesthereunder 10-Q 9/30/08 4(b) 11/5/08 1-03480 4(n) Indenture dated as of August 1, 1992, between CascadeNatural Gas Corporation and The Bank of New York relating toMedium-Term Notes, filed by Cascade Natural GasCorporation 8-K 4 8/12/92 1-07196 4(o) First Supplemental Indenture dated as of October 25, 1993,between Cascade Natural Gas Corporation and The Bank ofNew York relating to Medium-Term Notes and the 7.5% Notesdue November 15, 2031, filed by Cascade Natural GasCorporation 10-Q 6/30/93 4 1-07196 4(p) Second Supplemental Indenture, dated January 25, 2005,between Cascade Natural Gas Corporation and The Bank ofNew York, as trustee, filed by Cascade Natural GasCorporation 8-K 4.1 1/26/05 1-07196 4(q) Third Supplemental Indenture dated as of March 8, 2007,between Cascade Natural Gas Corporation and The Bank ofNew York Trust Company, N.A., as Successor Trustee, filed byCascade Natural Gas Corporation 8-K 4.1 3/8/07 1-07196 +10(a) MDU Resources Group, Inc. Supplemental Income SecurityPlan, as amended and restated May 10, 2017 10-Q 6/30/17 10(d) 8/4/17 1-03480 +10(b) MDU Resource Group, Inc. Director Compensation Policy, asamended May 10, 2017 10-Q 6/30/17 10(a) 8/4/17 1-03480 Part IV 112 MDU Resources Group, Inc. Form 10-K Incorporated by Reference ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number +10(c) Deferred Compensation Plan for Directors, as amendedMay 15, 2008 10-Q 6/30/08 10(a) 8/7/08 1-03480 +10(d) Non-Employee Director Stock Compensation Plan, asamended May 12, 2011 10-Q 6/30/11 10(a) 8/5/11 1-03480 +10(e) MDU Resources Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan, as amended May 17,2012 10-Q 6/30/12 10(a) 8/7/12 1-03480 +10(f) MDU Resources Group, Inc. Long-Term Performance-BasedIncentive Plan, as amended February 11, 2016 10-K 12/31/15 10(f) 2/19/16 1-03480 +10(g) MDU Resources Group, Inc. Executive IncentiveCompensation Plan, as amended May 10, 2017, and Rulesand Regulations, as amended May 9, 2017 10-Q 6/30/17 10(b) 8/4/17 1-03480 +10(h) Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 11, 2015 8-K 10.3 2/18/15 1-03480 +10(i) Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 10, 2016 8-K 10.3 2/18/16 1-03480 +10(j) Form of Performance Share Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 16, 2017 8-K 10.1 2/21/17 1-03480 +10(k) Form of Annual Incentive Award Agreement under the Long-Term Performance-Based Incentive Plan, as amendedFebruary 10, 2016 8-K 10.2 2/18/16 1-03480 +10(l) Form of MDU Resources Group, Inc. IndemnificationAgreement for Section 16 Officers and Directors, datedMay 15, 2014 8-K 10.1 5/15/14 1-03480 +10(m) Form of Amendment No. 1 to Indemnification Agreement,dated May 15, 2014 8-K 10.2 5/15/14 1-03480 +10(n) MDU Resources Group, Inc. Section 16 Officers and Directorswith Indemnification Agreements Chart, as of October 10,2017 10-Q 9/30/17 10(b) 11/3/17 1-03480 +10(o) MDU Resources Group, Inc. Nonqualified DefinedContribution Plan, as amended May 10, 2017 10-Q 6/30/17 10(c) 8/4/17 1-03480 +10(p) MDU Resources Group, Inc. 401(k) Retirement Plan, asrestated January 1, 2017 10-Q 3/31/17 10(a) 5/8/17 1-03480 +10(q) Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated March 31, 2017 10-Q 3/31/17 10(b) 5/8/17 1-03480 +10(r) Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated April 10, 2017 10-Q 6/30/17 10(e) 8/4/17 1-03480 +10(s) Instrument of Amendment to the MDU Resources Group, Inc.401(k) Retirement Plan, dated August 30, 2017 10-Q 9/30/17 10(a) 11/3/17 1-03480 +10(t) Employment Letter for Jeffrey S. Thiede, dated May 16, 2013 10-K 12/31/13 10(ab) 2/21/14 1-03480 +10(u) Martin A. Fritz Offer Letter, dated July 1, 2015 8-K 10.2 7/2/15 1-03480 +10(v) Jason L. Vollmer Offer Letter, dated March 7, 2016 8-K 10.2 3/8/16 1-03480 +10(w) Jason L. Vollmer Offer Letter, dated September 20, 2017 8-K 10.1 9/21/17 1-03480 12 Computation of Ratio of Earnings to Fixed Charges andCombined Fixed Charges and Preferred Stock Dividends X 21 Subsidiaries of MDU Resources Group, Inc.X 23 Consent of Independent Registered Public Accounting Firm X 31(a) Certification of Chief Executive Officer filed pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X Part IV MDU Resources Group, Inc. Form 10-K 113 + Management contract, compensatory plan or arrangement. MDU Resources Group, Inc. agrees to furnish to the SEC upon request any instrument with respect to long-term debt that MDU ResourcesGroup, Inc. has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K. Incorporated by Reference ExhibitNumber Exhibit Description FiledHerewith Form PeriodEnded Exhibit FilingDate File Number 31(b) Certification of Chief Financial Officer filed pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 32 Certification of Chief Executive Officer and Chief FinancialOfficer furnished pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 X 95 Mine Safety Disclosures X 101.INS XBRL Instance Document - the instance document does notappear in the Interactive Data File because its XBRL tags areembedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Part IV 114 MDU Resources Group, Inc. Form 10-K Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MDU Resources Group, Inc. Date: February 23, 2018 By: /s/ David L. Goodin Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Date /s/ David L. Goodin Chief Executive Officer and Director February 23, 2018 /s/ Jason L. Vollmer Chief Financial Officer February 23, 2018 /s/ Stephanie A. Barth Chief Accounting Officer February 23, 2018 Stephanie A. Barth (Vice President, Chief Accounting Officer and Controller) /s/ Harry J. Pearce Director February 23, 2018 /s/ Thomas Everist Director February 23, 2018 Thomas Everist /s/ Karen B. Fagg Director February 23, 2018 Karen B. Fagg /s/ Mark A. Hellerstein Director February 23, 2018 Mark A. Hellerstein /s/ A. Bart Holaday Director February 23, 2018 A. Bart Holaday /s/ Dennis W. Johnson Director February 23, 2018 Dennis W. Johnson /s/ William E. McCracken Director February 23, 2018 William E. McCracken /s/ Patricia L. Moss Director February 23, 2018 Patricia L. Moss /s/ John K. Wilson Director February 23, 2018 John K. Wilson Part IV MDU Resources Group, Inc. Form 10-K 115 March 23, 2018 Fellow Stockholders: I invite you to join me, our Board of Directors and members of our senior management team at our annual stockholder meeting at 11 a.m., Central Daylight Saving Time, on May 8, 2018, at 909 Airport Road in Bismarck, North Dakota. In addition to the business we will conduct at the meeting, I will describe the significant drivers of our strong 2017 financial results as well as the growth projects we have underway or soon to be started this year. Absent the benefit we recorded in 2017 from implementing the Tax Cuts and Jobs Act, which was signed into law December 22, our earnings were up about 5 percent over 2016. This shows the strength of our two-pillar approach to our operations, with strong performance from both our regulated energy delivery businesses and our construction materials and services businesses. We remain committed to returning the value to you that you expect from your investment in MDU Resources. In 2017, we marked our 80th consecutive year of paying dividends to our stockholders and we increased our dividend payment for the 27th consecutive year, a feat achieved by fewer than 100 other U.S.-listed companies. As we celebrate our 70th year of being listed on the New York Stock Exchange, we remain committed to Building a Strong America®. We hope you share in our excitement about the momentum we have going into 2018 and the substantial opportunities for growth at all of our businesses. In our Proxy Statement this year, we have included additional summarized information about our environmental and social practices. If you would like greater detail about our sustainability efforts, please refer to our Sustainability Report on our website at www.mdu.com. I look forward to seeing you May 8. Details on how to receive a ticket to attend our annual meeting are included on the Notice of Annual Meeting and page 61 of this Proxy Statement. If you are not able to attend the annual stockholder meeting, your vote is still important to us. Please promptly follow the instructions on your notice or proxy card to vote and make sure your shares are represented. We appreciate your continued investment in MDU Resources. Sincerely yours, David L. Goodin President and Chief Executive Officer MDU Resources Group, Inc. Proxy Statement 1200 West Century Avenue Mailing Address: P.O. Box 5650 Bismarck, North Dakota 58506-5650 (701) 530-1000 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 8, 2018 March 23, 2018 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, May 8, 2018, at 11:00 a.m., Central Daylight Saving Time, for the following purposes: Items of Business 1.Election of directors; 2.Advisory vote to approve the compensation paid to the company’s named executive officers; 3.Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2018; and 4.Transaction of any other business that may properly come before the meeting or any adjournment(s) thereof. Record Date The board of directors has set the close of business on March 9, 2018, as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting and any adjournment(s) thereof. Meeting Attendance All stockholders as of the record date of March 9, 2018, are cordially invited and urged to attend the annual meeting. You must request an admission ticket in order to attend. If you are a stockholder of record and plan to attend the meeting, please contact MDU Resources Group, Inc. by email at CorporateSecretary@mduresources.com or by telephone at 701-530-1010 to request an admission ticket. A ticket will be sent to you by mail. If your shares are held beneficially in the name of a bank, broker, or other holder of record, and you plan to attend the annual meeting, you will need to submit a written request for an admission ticket by mail to: Investor Relations, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506 or by email at CorporateSecretary@mduresources.com. The request must include proof of stock ownership as of March 9, 2018, such as a bank or brokerage firm account statement or a legal proxy from the bank, broker, or other holder of record confirming ownership. A ticket will be sent to you by mail. Requests for admission tickets must be received no later than May 1, 2018. You must present your admission ticket and state-issued photo identification, such as a driver’s license, to gain admittance to the meeting. Proxy Materials Notice of Availability of Proxy Materials will be sent on or about March 23, 2018. The Notice contains basic information about the annual meeting and instructions on how to view our proxy materials and vote electronically on the Internet. Stockholders who do not receive the Notice will receive a paper copy of our proxy materials, which will be sent on or about March 29, 2018. By order of the Board of Directors, Daniel S. Kuntz Secretary Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on May 8, 2018. The 2018 Notice of Annual Meeting and Proxy Statement and 2017 Annual Report to Stockholders are available at www.mdu.com/proxymaterials. Proxy Statement MDU Resources Group, Inc. Proxy Statement TABLE OF CONTENTS Page Page PROXY STATEMENT SUMMARY . . . . . . . . . . . . . . .1 EXECUTIVE COMPENSATION (continued) BOARD OF DIRECTORS Executive Compensation Tables . . . . . . . . . . . . . . . . . . .43 Item 1. Election of Directors . . . . . . . . . . . . . . . . . . . . .8 Summary Compensation Table . . . . . . . . . . . . . . . . .43 Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . .8 Grants of Plan-Based Awards. . . . . . . . . . . . . . . . . .45 CORPORATE GOVERNANCE Outstanding Equity Awards at Fiscal Year-End. . . . . .47 Director Independence . . . . . . . . . . . . . . . . . . . . . .14 Option Exercises and Stock Vested . . . . . . . . . . . . .48 Stockholder Engagement . . . . . . . . . . . . . . . . . . . .14 Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . .48 Board Leadership Structure. . . . . . . . . . . . . . . . . . .14 Nonqualified Deferred Compensation. . . . . . . . . . . .50 Board’s Role in Risk Oversight. . . . . . . . . . . . . . . . .15 Potential Payments Upon Termination or Board Meetings and Committees . . . . . . . . . . . . . . .15 Change of Control. . . . . . . . . . . . . . . . . . . . . . . .51 Compensation Policies and Practices CEO Pay Ratio Disclosure. . . . . . . . . . . . . . . . . . . .55 as They Relate to Risk Management . . . . . . . . . . .18 AUDIT MATTERS Stockholder Communications with the Board . . . . . .19 Item 3. Ratification of the Appointment of Additional Governance Features. . . . . . . . . . . . . . . .19 Deloitte & Touche LLP as the Company’s Independent Corporate Governance Materials. . . . . . . . . . . . . . . .21 Registered Public Accounting Firm for 2018 . . . . . . . .56 Related Person Transaction Disclosure . . . . . . . . . . .21 Annual Evaluation and Selection of Deloitte & COMPENSATION OF NON-EMPLOYEE DIRECTORS Touche LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Director Compensation . . . . . . . . . . . . . . . . . . . . . .22 Audit Fees and Non-Audit Fees . . . . . . . . . . . . . . . .57 SECURITY OWNERSHIP Policy on Audit Committee Pre-Approval of Audit Security Ownership Table . . . . . . . . . . . . . . . . . . . .24 and Permissible Non-Audit Services of the Section 16 Compliance . . . . . . . . . . . . . . . . . . . . .25 Independent Registered Public Accounting Firm . .57 EXECUTIVE COMPENSATION Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . .58 Item 2. Advisory Vote to Approve the Compensation Paid.INFORMATION ABOUT THE ANNUAL MEETING to the Company’s Named Executive Officers . . . . . . . .26 Who Can Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Information Concerning Executive Officers . . . . . . . . . . .27 Notice and Access. . . . . . . . . . . . . . . . . . . . . . . . .59 Compensation Discussion and Analysis . . . . . . . . . . . . . .28 How to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . .28 Revoking Your Proxy . . . . . . . . . . . . . . . . . . . . . . .59 2017 Compensation Framework . . . . . . . . . . . . . . .32 Discretionary Voting Authority. . . . . . . . . . . . . . . . .60 2017 Compensation for Our Named Voting Standards. . . . . . . . . . . . . . . . . . . . . . . . . .60 Executive Officers. . . . . . . . . . . . . . . . . . . . . . . .33 Proxy Solicitation . . . . . . . . . . . . . . . . . . . . . . . . .60 Other Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Electronic Delivery of Proxy Statement . . . . . . . . . .61 Compensation Governance . . . . . . . . . . . . . . . . . . .41 Householding of Proxy Materials . . . . . . . . . . . . . . .61 Compensation Committee Report. . . . . . . . . . . . . . . . . .42 MDU Resources Group, Inc. 401(k) Plan. . . . . . . . .61 Annual Meeting Admission and Guidelines . . . . . . .61 Conduct of the Meeting . . . . . . . . . . . . . . . . . . . . .62 Stockholder Proposals, Director Nominations, and Other Items of Business for 2019 . . . . . . . . . . . .62 Proxy Statement MDU Resources Group, Inc. Proxy Statement PROXY STATEMENT SUMMARY To assist you in reviewing the company’s 2017 performance and voting your shares, we call your attention to key elements of our 2018 Proxy Statement. The following is only a summary and does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting. For more complete information about these topics, please review the complete Proxy Statement and our 2017 Annual Report to Stockholders. Meeting Information Summary of Stockholder Voting Matters Board VoteRecommendationTime and Date:Voting Matters See Page 11:00 a.m. Central Daylight Saving Time Tuesday, May 8, 2018 Item 1 -Election of Directors FOR each nominee 8 Item 2 -Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers FOR 26 Place:Item 3 -Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2018 FOR 56MDU Service Center 909 Airport Road Bismarck, ND Corporate Governance Highlights MDU Resources Group, Inc. is committed to strong corporate governance practices. The following highlights our corporate governance practices and policies. See the sections entitled “Corporate Governance” and “Executive Compensation” for more information on the following: ü Annual Election of All Directors ü All Three Standing Committees Consist Entirely of Independent Directors ü Majority Voting for Directors ü Active Investor Outreach Program ü Succession Planning and Implementation Process ü Stock Ownership Requirements for Directors and Executives ü Separate Chair and CEO ü Anti-Hedging and Anti-Pledging Policies ü Executive Sessions of Independent Directors at Every Regularly Scheduled Board Meeting ü No Related Party Transactions by Our Directors or Executive Officers ü Annual Board and Committee Self-Evaluations ü Compensation Recovery/Clawback Policy ü Risk Oversight by Full Board and Committees ü Code of Business Conduct and Ethics for Directors, Officers, and Employees ü All Directors are Independent Other Than Our CEO ü Annual Advisory Approval on Executive Compensation ü Mandatory Retirement for Directors at Age 76 ü Directors May Not Serve on More Than Three Public Boards Including the Company’s Board Proxy Statement MDU Resources Group, Inc. Proxy Statement 1 Business Performance Highlights Our overall performance in 2017 was consistent with our long-term strategy as we focused on our regulated energy delivery and construction materials and services business segments. In addition to our 2017 financial performance highlighted on the next page, we accomplished: ■The sale of our interest in the Pronghorn natural gas processing plant in January 2017 which reduced the company’s risk by decreasing its exposure to commodity price fluctuations. ■Our construction services segment had record revenues of $1.37 billion and its backlog at December 31, 2017 was $708 million, 49% higher than 2016. ■Our construction materials and contracting segment had higher aggregate sales volumes on strong commercial and residential demand in certain regions. Its backlog at year-end of $486 million, while lower than 2016, is the third largest year-end level for this segment. The segment continues to strategically manage its nearly 1.0 billion tons of aggregate reserves. ■We received advance determination of prudence from the North Dakota Public Service Commission to purchase an expansion of the Thunder Spirit wind farm. ■The pipeline and midstream segment had record transportation volumes in 2017. ■Our pipeline and midstream segment secured sufficient capacity commitments to expand its Line Section 27 natural gas transportation system in the Bakken producing area of northwestern North Dakota. The project will involve the construction of approximately 13 miles of pipeline and associated facilities. The expansion will provide WBI Energy, Inc.’s Line Section 27 pipeline with capacity for over 600,000 dekatherms per day. The targeted in-service date for the project is fall 2018. ■Our pipeline and midstream segment continued permitting, surveying, and acquisition activity for a 38-mile natural gas transmission pipeline to deliver natural gas to eastern North Dakota and far western Minnesota. Following receipt of necessary regulatory approvals and easement acquisition, construction is expected to start and be completed in 2018. ■The board of directors authorized management to evaluate and pursue a holding company reorganization which is intended to provide further separation between the company’s regulated and unregulated businesses and additional financing flexibility as all of the company’s utility operations will be conducted through wholly-owned subsidiaries. The reorganization, which is expected to be effective January 1, 2019, is subject to approval by the Federal Energy Regulatory Commission and various state regulatory commissions. With our accomplishments in 2017, we are optimistic about the company’s future financial performance. The chart below shows our progress over the last five years. Earnings per Share from Continuing Operations $0.89 $0.96 $0.90 $1.19 $1.25 $0.20 $1.45 * MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act, which was signed into law December 22, 2017. The earnings per share absent the federal Tax Cuts and Jobs Act benefit is $1.25. Proxy Statement 2 MDU Resources Group, Inc. Proxy Statement 2017 Financial Performance Highlights ■Strong year-over-year performance from continuing operations, as well as benefits from the federal Tax Cuts and Jobs Act, resulted in an increase in earnings per share from continuing operations to $1.45 per share compared to $1.19 per share in 2016. Excluding the effect of the federal Tax Cuts and Jobs Act, earnings from continuing operations were $1.25 per share. Including discontinued operations, 2017 earnings were $280.4 million, or $1.43 per share, compared to $63.7 million, or 33 cents per share, in 2016. ¨Electric and natural gas distribution segments earned $81.6 million, an increase of 17.8%. ¨Pipeline and midstream segment earned $20.5 million, a decrease of $2.9 million reflecting the sale of the Pronghorn natural gas processing plant in January 2017. ¨Construction materials and contracting segment earned $123.4 million, including adjustments of $41.9 million as a result of the federal Tax Cuts and Jobs Act, compared to 2016 earnings of $102.7 million. ¨Construction services segment earned $53.3 million, including adjustments of $4.3 million as a result of the federal Tax Cuts and Jobs Act, an increase of 44.3% over 2016 earnings of $33.9 million. ■Return of stockholder value through the dividend ¨Increased dividend for 27th straight year ¨Paid uninterrupted dividend for 80th straight year ■Maintained BBB+ stable credit rating from Standard & Poor’s and Fitch Ratings agencies. Closing Stock Price Stock Price $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 St o c k P r i c e 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 27 Years Dividends Paid 80 Years of Consecutive $716 Million of Uninterrupted Dividend Increases Over the Last 5 Years Dividend Payments Proxy Statement MDU Resources Group, Inc. Proxy Statement 3 Compensation Highlights Executive compensation at the company is focused on performance. Our compensation program is structured to strongly align compensation with the company’s performance with a substantial portion of our executive compensation based upon performance incentive awards. ■Over 75% of our chief executive officer’s target compensation and over 60% of our other current named executive officers’ target compensation is performance based. ■100% of our chief executive officer’s annual and long-term incentive compensation is tied to performance against pre-established, specific, measurable financial goals. ■We require all executive officers to own a significant amount of company stock based upon a multiple of their base salary. 2017 Named Executive Officer Target Pay Mix Base Salary: 23.5% Annual Incentive - PerformanceBased: 23.5% Long-Term Incentive -Performance Based: 53.0% Other Current Named Executive Officers Average Target Pay Mix Base Salary: 39.9% Annual Incentive - Performance Based: 27.3% Long-Term Incentive - Performance Based: 32.8% ■Base salary increase for our chief executive officer was 5% for 2017, and base salary increases for all of our other named executive officers averaged 7.8% in 2017 following base salary freezes for most executive officers in 2016. ■Annual incentive award payout to our chief executive officer for 2017, which was based upon the strong performance at all four of our business units, was 173.7% of his annual incentive target. ■Long-term incentive award payout for the 2015-2017 performance cycle was 144% of target based on a combined 61st percentile ranking of total stockholder return among our peer groups. Proxy Statement 4 MDU Resources Group, Inc. Proxy Statement Key Features of our Executive Compensation Program What We Do þ Pay for Performance - Annual and long-term award incentives tied to performance measures set by the compensation committee comprise the largest portion of executive compensation. þ Independent Compensation Committee - All members of the compensation committee meet the independence standards under the New York Stock Exchange listing standards and the Securities and Exchange Commission rules. þ Independent Compensation Consultant - The compensation committee retains an independent compensation consultant to evaluate executive compensation plans and practices. þ Competitive Compensation - Executive compensation reflects the executive’s performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, the business segment’s economic environment, and the actual performance of the overall company or the executive’s business segment. þ Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company achievement against pre-established financial measures. þ Long-Term Equity Incentive - The long-term equity incentive represents 53% of our CEO’s and approximately 33% of our other current named executive officer’s target compensation in the form of performance shares which may be earned based on relative total stockholder return measured over a three-year period. þ Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct an annual broad risk assessment. þ Stock Ownership and Retention Requirements - Executive officers are required to own, within five years of appointment or promotion, company common stock equal to a multiple of their base salary. The executive officers must also retain at least 50% of the net after tax shares of stock vested through the long-term incentive plan for the earlier of two years or until termination of employment. þ Clawback Policy - If the company’s audited financial statements are restated, the compensation committee may, or shall if required, demand repayment of some or all incentives paid to our executive officers within the last three years. þ Performance Share Awards Purchased at Market - Performance share awards are purchased on the market to avoid shareholder dilution through issuance of authorized but unissued shares. What We Don’t Do ý Stock Options - The company does not use stock options as a form of incentive compensation. ý Employment Agreements - Current executives do not have employment agreements entitling them to specific payments upon a change of control of the company. ý Perquisites - Executives do not receive perquisites which materially differ from those available to employees in general. ý Tax Gross-Ups - Executive officers do not receive tax gross-ups on any compensation. ý Hedge Stock - Executives and directors are not allowed to hedge company securities. ý Pledge Stock - Executives and directors are not allowed to pledge company securities in margin accounts or as collateral for loans. ý No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on unvested share awards. Proxy Statement MDU Resources Group, Inc. Proxy Statement 5 Corporate Responsibility, Environmental, and Sustainability MDU Resources Group, Inc. is Building a Strong America® by providing essential products and services to our customers. To ensure we can continue to provide these products and services in the communities where we do business, we recognize that we must preserve the trust our communities place in us to be a good corporate citizen. We remain committed to pursuing responsible corporate governance and environmental practices, and to maintaining the health and safety of the public and our employees. These are some highlights of our recent efforts regarding sustainability: ■As our generation resource capacity has increased, the CO2 emission intensity of our electric generation resource fleet has been reduced by more than 25% since 2003. We expect it to continue to decline. CO2 Emission Intensity 900 800 700 600 500 400 300 200 100 0 El e c t r i c G e n e r a t i o n C a p a c i t y , M W 3,000 2,500 2,000 1,500 1,000 500 0 CO 2 E m i s s i o n I n t e n s i t y , C 0 2 l b / M W h r 2000 2005 2010 2015 2020 2025 2030 Actual CO2 lb/MWhr Projected CO2 lb/MWhr Total Owned and Projected Electric Generation Capacity ■Renewable resources comprised approximately 22% of our electric generation resource nameplate capacity in 2017. ■We received advance determination of prudence for the expansion of the Thunder Spirit wind farm to be completed in 2018. The expansion will bring capacity of the Thunder Spirit wind farm to approximately 155 megawatts which will increase the company’s nameplate electric renewable generation capacity to approximately 27%. Percent of Renewable Generation Resources Pe r c e n t o f R e n e w a b l e s * Projected based upon expansion of the Thunder Spirit wind farm. Proxy Statement 6 MDU Resources Group, Inc. Proxy Statement 24%Grants Awarded 25% of Electricity Generated $1.84 Million Reduction in CO2 from Renewable Resources in 2017 Since 2003 ■Approximately 24% of the electricity delivered to our customers from company-owned generation in 2017 was from renewable resources. ■We invested approximately $3.7 million in environmental emission control equipment and improvements at our coal-fired electric generation plants bringing the total of such investments to approximately $125 million since 2013. The investments have resulted in substantial reductions in mercury, SO2, NOX, and filterable particulate from our coal-fired electric generation resources. ■The company’s utility companies received high scores in customer satisfaction. Intermountain Gas Company ranked first, Cascade Natural Gas Corporation second, and Montana-Dakota Utilities Co. fourth, among West Region mid-sized natural gas utilities in the 2017 J.D. Power Gas Utility Residential Customer Satisfaction Survey. ■We were recognized on the Thomson Reuters 2017 Top 25 Global Multiline Utilities list. The list recognizes companies that have demonstrated a commitment to energy leadership in these areas: financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social sustainability, environmental impact, and reputation. ■We, along with a partner, continued construction of approximately 160 miles of 345-kilowatt electric transmission line which will facilitate delivery of renewable wind energy from North Dakota to eastern markets. ■Montana-Dakota Utilities Co. received approval to expand its Commercial Demand Response Program which will enable further reduction of peak electric demand of approximately 25 megawatts by our commercial and industrial customers. ■Knife River Corporation produces and places warm-mix asphalt in applications where warm-mix asphalt is allowed. Warm-mix asphalt is produced at cooler temperatures than traditional hot-mix asphalt methods, which reduces the amount of fuel needed in the production process and thereby reduces emissions and fumes. Knife River Corporation produced over 653,000 tons in 2014, 640,000 tons in 2015, 831,000 tons in 2016, and 722,000 tons in 2017 of warm-mix asphalt. ■Knife River Corporation continued its practice of recycling and reusing building materials. This conserves natural resources, uses less energy, alleviates waste disposal problems in local landfills, and ultimately costs less for the consumer. Knife River Corporation used over 697,000 tons in 2014, 989,000 tons in 2015, 1,030,000 tons in 2016, and 1,096,000 tons in 2017 of recycled asphalt pavement in asphalt production. ■Our subsidiary, Bombard Renewable Energy, was ranked No. 26 on Solar Power World’s 2017 Top 500 Solar Contractors List. The list ranks companies according to their influence in the U.S. solar industry based on how many kilowatts of solar generation they installed in 2016. ■The MDU Resources Foundation awarded grants of $1.84 million to educational and nonprofit institutions in 2017. Since its incorporation in 1983, the Foundation has contributed more than $32.4 million to worthwhile causes in categories of education, civic and community activities, culture and arts, environmental stewardship, and health and human services. ■We encourage and support community volunteerism by our employees. The MDU Resources Foundation contributes a $500 grant to an eligible nonprofit organization after an employee volunteers a minimum of 25 hours to the organization during non-company hours during a calendar year. In 2017, the Foundation granted $47,200 under this program matching over 5,400 employee volunteer hours. ■We were recognized as a 2020 Women on Boards Winning “W” Company for being a champion on board diversity by having 20% or more of our board seats held by women. ■We received the Missouri Slope Areawide United Way 2017 Spirit Award for showing outstanding commitment to the Bismarck-Mandan community through volunteerism and creative workplace campaigns. Proxy Statement MDU Resources Group, Inc. Proxy Statement 7 BOARD OF DIRECTORS ITEM 1. ELECTION OF DIRECTORS 8 MDU Resources Group, Inc. Proxy Statement The nominating and governance committee of the board, reflecting the criteria for election to the board, identifies and reviews possible candidates for the board and recommends the nominees for directors to the board for approval. The committee considers and evaluates suggestions from many sources, including stockholders, regarding possible candidates for directors. Additional information on our board composition and director nomination process is further discussed in our Proxy Statement under “Nominating and Governance Committee” in the section entitled “Corporate Governance.” Each of the current directors has been nominated for election by the board of directors upon recommendation of the nominating and governance committee and has decided to stand for election, with the exception of A. Bart Holaday who will have attained the mandatory retirement age of 76 years at the time of the annual meeting of stockholders and, therefore, will not stand for re-election. Mr. Holaday has served on the board since 2008, and the company expresses its thanks to Mr. Holaday for his service on the board, the audit committee, and nominating and governance committee. All nominees for director are nominated to serve one-year terms until the annual meeting of stockholders in 2019 and their respective successors are elected and qualified, or until their earlier resignation, removal from office, or death. We have provided information below about our nominees, including their ages, years of service as directors, business experience, and service on other boards of directors, including any other directorships on boards of public companies. We have also included information about each nominee’s specific experience, qualifications, attributes, or skills that led the board to conclude that he or she should serve as a director of MDU Resources Group, Inc. at the time we file our Proxy Statement, in light of our business and structure. Unless we specifically note below, no corporation or organization referred to below is a subsidiary or other affiliate of MDU Resources Group, Inc. Director Nominees Thomas Everist Age 68 Independent Director Since 1995 Compensation Committee Other Current Public Boards: --Raven Industries, Inc. Mr. Everist has more than 44 years of business experience in the construction materials and aggregate mining industry. He has business leadership and management experience serving as president and chair of his companies for over 30 years. Mr. Everist also has experience serving as a director and chair of another public company, which enhances his contributions to our board. Career Highlights •President and chair of The Everist Company, Sioux Falls, South Dakota, an investment and land development company, since April 2002. Prior to January 2017, The Everist Company was engaged in aggregate, concrete, and asphalt production. •Managing member of South Maryland Creek Ranch, LLC, a land development company; president of SMCR, Inc., an investment company, since June 2006; and managing member of MCR Builders, LLC, which provides residential building services to South Maryland Creek Ranch, LLC, since November 2014. •Director and chair of the board of Everist Health, Inc., Ann Arbor, Michigan, which provides solutions for personalized medicines, since 2002, and chief executive officer from August 2012 to December 2012. •President and chair of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 2002. Other Leadership Experience •Director of publicly traded Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films, since 1996, and chair from April 2009 to May 2017. •Director of Showplace Wood Products, Inc., Sioux Falls, South Dakota, a custom cabinets manufacturer, since January 2000. •Director of Bell, Inc., Sioux Falls, South Dakota, a manufacturer of folding cartons and packages, since April 2011. •Director of Angiologix Inc., Mountain View, California, a medical diagnostic device company, from July 2010 through October 2011 when it was acquired by Everist Genomics, Inc. •Member of the South Dakota Investment Council, the state agency responsible for prudently investing state funds, from July 2001 to June 2006. Education •Bachelor’s degree in mechanical engineering and a master’s degree in construction management from Stanford University. Karen B. Fagg Age 64 Independent Director Since 2005 Compensation Committee Nominating and Governance Committee Ms. Fagg brings experience to our board in construction and engineering, energy, and the responsible development of natural resources, which are all important aspects of our business. In addition to her industry experience, Ms. Fagg has over 20 years of business leadership and management experience, including over eight years as president, chief executive officer, and chair of her own company, as well as knowledge and experience acquired through her service on a number of Montana state and community boards. Career Highlights •Vice president of DOWL LLC, d/b/a DOWL HKM, an engineering and design firm, from April 2008 until her retirement on December 31, 2011. •President of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm, from April 1, 1995 to June 2000, and chair, chief executive officer, and majority owner from June 2000 through March 2008. HKM Engineering, Inc. merged with DOWL LLC on April 1, 2008. •Employed with MSE, Inc., Butte, Montana, an energy research and development company, from 1976 through 1988, and vice president of operations and corporate development director from 1993 to April 1995. •Director of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and administering several grant and loan programs, for a four-year term from 1989 through 1992. Other Leadership Experience •Chair of the Billings Catholic Schools Board since September 2017 and member since December 2011; and board member of St. Vincent’s Healthcare since January 2016 and previously from October 2003 until October 2009, including a term as chair. •Former member of several state and community boards, including the First Interstate BancSystem Foundation, from June 2013 to 2016; the Montana Justice Foundation, whose mission is to achieve equal access to justice for all Montanans through effective funding and leadership, from 2013 into 2015; Board of Trustees of Carroll College from 2005 through 2010; Montana Board of Investments, the state agency responsible for prudently investing state funds, from 2002 through 2006; Montana State University’s Advanced Technology Park from 2001 to 2005; and Deaconess Billings Clinic Health System from 1994 to 2002. Education •Bachelor’s degree in mathematics from Carroll College in Helena, Montana. David L. Goodin Age 56 Director Since 2013 President and Chief Executive Officer As chief executive officer of MDU Resources Group, Inc., Mr. Goodin is the only officer of the company that serves on our board. With over 34 years of significant, hands-on experience at our company, Mr. Goodin’s long history and deep knowledge and understanding of MDU Resources Group, Inc., its operating companies, and its lines of business bring continuity to the board. In addition, Mr. Goodin provides the board with valuable insight into management’s views and perspectives, as well as the day-to-day operations of the company. Career Highlights •President and chief executive officer and a director of the company since January 4, 2013. •Prior to January 4, 2013, served as chief executive officer and president of Intermountain Gas Company, Cascade Natural Gas Corporation, Montana-Dakota Utilities Co., and Great Plains Natural Gas Co. •Began his career in 1983 at Montana-Dakota Utilities Co. as a division electrical engineer and served in positions of increasing responsibility until 2007 when he was named president of Cascade Natural Gas Corporation; positions included division electric superintendent, electric systems manager, vice president-operations, and executive vice president-operations and acquisitions. Other Leadership Experience •Member of the U.S. Bancorp Western North Dakota Advisory Board since January 2013. •Director of Sanford Bismarck, an integrated health system dedicated to the work of health and healing, and Sanford Living Center, since January 2011. •Former board member of several industry associations, including the American Gas Association, the Edison Electric Institute, the North Central Electric Association, the Midwest ENERGY Association, and the North Dakota Lignite Energy Council. Education •Bachelor of science degree in electrical and electronics engineering from North Dakota State University. •Masters in business administration from the University of North Dakota. •The Advanced Management Program at Harvard School of Business. •Registered professional engineer in North Dakota. Proxy Statement MDU Resources Group, Inc. Proxy Statement 9 Mark A. Hellerstein Age 65 Independent Director Since 2013 Audit Committee Mr. Hellerstein has extensive business experience in the energy industry as a result of his 17 years of senior management experience and service as board chair of St. Mary Land & Exploration Company (now SM Energy Company). As a certified public accountant, on inactive status, with extensive financial experience as a result of his employment as chief financial officer with several companies, including public companies, Mr. Hellerstein contributes significant finance and accounting knowledge to our board and audit committee. Career Highlights •Chief executive officer of St. Mary Land & Exploration Company (now SM Energy Company), an energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, from 1995 until February 2007; president from 1992 until June 2006; and executive vice president and chief financial officer from 1991 until 1992. He was first elected to the board of St. Mary in 1992 and served as chair from 2002 until May 2009. •Several positions prior to joining St. Mary in 1991, including chief financial officer of CoCa Mines Inc., which mined and extracted minerals from lands previously held by the public through the Bureau of Land Management; American Golf Corporation, which manages and owns golf courses in the United States; and Worldwide Energy Corporation, an oil and gas acquisition, exploration, development, and production company with operations in the United States and Canada. Other Leadership Experience •Director of Transocean Inc., a leading provider of offshore drilling services for oil and gas wells, from December 2006 to November 2007. •Director of the Denver Children’s Advocacy Center, whose mission is to provide a continuum of care for traumatized children and their families, from August 2006 until December 2011, including chair for the last three years. Education and Professional •Bachelor’s degree in accounting from the University of Colorado. •Certified public accountant, on inactive status. Dennis W. Johnson Age 68 Independent Director Since 2001 Vice Chair of the Board Audit Committee Mr. Johnson brings to our board over 43 years of experience in business management, manufacturing, and finance, holding positions as chair, president, and chief executive officer of TMI Corporation for 36 years, as well as through his prior service as a director of the Federal Reserve Bank of Minneapolis. As a result of his service on a number of state and local organizations in North Dakota, Mr. Johnson has significant knowledge of local, state, and regional issues involving North Dakota, a state where we have significant operations and assets. Career Highlights •Vice chair of the board of the company effective February 15, 2018. •Chair, president, and chief executive officer of TMI Corporation, and chair and chief executive officer of TMI Transport Corporation, manufacturers of casework and architectural woodwork in Dickinson, North Dakota; employed since 1974 and serving as president or chief executive officer since 1982. Other Leadership Experience •Member of the Bank of North Dakota Advisory Board of Directors since August 2017. •President of the Dickinson City Commission from July 2000 through October 2015. •Director of the Federal Reserve Bank of Minneapolis from 1993 through 1998. •Served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chair); the Decorative Laminate Products Association; the North Dakota Technology Corporation; and the business advisory council of the Steffes Corporation, a metal manufacturing and engineering firm. •Served on North Dakota Governor Sinner’s Education Action Commission; the North Dakota Job Service Advisory Council; the North Dakota State University President’s Advisory Council; North Dakota Governor Schafer’s Transition Team; and chaired North Dakota Governor Hoeven’s Transition Team. Education •Bachelor of science in electrical and electronics engineering and master of science in industrial engineering from North Dakota State University. Proxy Statement 10 MDU Resources Group, Inc. Proxy Statement William E. McCracken Age 75 Independent Director Since 2013 Compensation Committee Nominating and Governance Committee Mr. McCracken is experienced in information technology and cybersecurity through his tenure at CA, Inc. and International Business Machines Corporation (IBM). This experience coupled with his service as the chair or a member of the board of other public companies and the National Association of Corporate Directors (NACD) enables him to provide insight into the operations, challenges, and complex issues our company is facing in today’s environment and to make significant contributions to the board’s oversight of operational risk management functions and corporate governance. Career Highlights •President of Executive Consulting Group, LLC, a general business consulting firm, from 2002 to present. •Chief executive officer of CA, Inc., one of the world’s largest information technology management software companies, from January 2010 until January 7, 2013, after which he served as executive adviser to the new chief executive officer until March 31, 2013, and as a consultant to the company until December 31, 2013; also as director of CA, Inc. from May 2005 until January 7, 2013, serving as non-executive chair of the board from June 2007 to September 2009, interim executive chair from September 2009 to January 2010, and executive chair from January 2010 to May 2010. •Several executive positions during his 36-year career with IBM, including serving on its Chairman’s Worldwide Management Council, a group of the top 30 executives at IBM, from 1995 to 2001. Other Leadership Experience •Director of the NACD, a nonprofit membership organization for corporate board members, since 2010, and named by the NACD as one of the top 100 most influential people in the boardroom in 2009; served on that organization’s 2009 Blue Ribbon Commission (BRC) on risk governance, co-chaired its 2012 BRC on board diversity, and co-chaired its 2015 BRC on board and long-term value creation. •Director of IKON Office Solutions, Inc., a provider of document management systems and services, from 2003 to 2008, where he served on its audit committee, compensation committee, and strategy committee. •Chair of the advisory board of the Millstein Center for Global Markets and Corporate Ownership at Columbia University from 2014 to 2018 and member since 2013, and the New York chairman of the Chairmen’s Forum since 2011. Education •Bachelor of science in physics and mathematics from Shippensburg University. Patricia L. Moss Age 64 Independent Director Since 2003 Compensation Committee Nominating and Governance Committee --First Interstate BancSystem, Inc. --Aquila Tax Free Trust of Oregon Ms. Moss has business experience and knowledge of the Pacific Northwest economy and state, local, and regional issues where a significant portion of our operations are located. Ms. Moss provides our board with experience in finance and banking, as well as experience in business development through her work at Cascade Bancorp and Bank of the Cascades, and on the Oregon Investment Fund Advisory Council, the Oregon Business Council, and the Oregon Growth Board. Ms. Moss also has experience as a certified senior professional in human resources. Career Highlights •President and chief executive officer of Cascade Bancorp, a financial holding company, Bend, Oregon, from 1998 to January 3, 2012; chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, from 1998 to January 3, 2012, serving also as president from 1998 to 2003; and chief operating officer, chief financial officer and secretary of Cascade Bancorp from 1987 to 1998. Other Leadership Experience •Director of First Interstate BancSystem, Inc., since May 30, 2017. •Director of Cascade Bancorp and Bank of the Cascades from 1993, and vice chair from January 3, 2012 until May 30, 2017 when Cascade Bancorp merged into First Interstate BancSystem, Inc., and became First Interstate Bank. •Chair of the Bank of the Cascades Foundation Inc. since 2014; co-chair of the Oregon Growth Board, a state board created to improve access to capital and create private-public partnerships, since May 2012; and member of the Board of Trustees for the Aquila Tax Free Trust of Oregon, a mutual fund created especially for the benefit of Oregon residents, since June 2015 and January 2002 to May 2005. •Former director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses in Oregon; the Oregon Business Council, with a mission to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial, and hardwood products; Clear Choice Health Plans Inc., a multi-state insurance company; and City of Bend’s Juniper Ridge management advisory board. Education •Bachelor of science in business administration from Linfield College in Oregon and master’s studies at Portland State University. •Commercial banking school certification at the ABA Commercial Banking School at the University of Oklahoma. Proxy Statement MDU Resources Group, Inc. Proxy Statement 11 Harry J. Pearce Age 75 Independent Director Since 1997 Chair of the Board Mr. Pearce provides our board with public company leadership with his multinational business management experience and proven leadership skills through his position as vice chair at General Motors Corporation, as well as through his extensive service on the boards of large public companies, including Marriott International, Inc., Hughes Electronics Corporation, where he was chair, and Nortel Networks Corporation, where he also was chair. He also brings to our board his long experience as a practicing attorney. In addition, Mr. Pearce has focused on corporate governance issues and was the founding chair of Yale University’s Chairmen’s Forum, an organization comprised of non-executive chairmen of publicly traded companies. Career Highlights •Chair of the board of the company effective August 17, 2006; lead director from February 15, 2001 until August 17, 2006; and vice chair of the board from November 16, 2000 until February 15, 2001. •Vice chair and director of General Motors Corporation from January 1, 1996 to May 31, 2001; general counsel from 1987 to 1994. •Senior partner in the Pearce & Durick law firm in Bismarck, North Dakota, prior to joining General Motors in 1987. Other Leadership Experience •Director of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting, from 1992 to December 2003, and retiring as chair in 2003. •Director of Marriott International, Inc., a major hotel chain, from 1995 to May 2015, and served on the audit, finance, compensation, and excellence committees. •Director of Nortel Networks Corporation, a global telecommunications company, from January 2005 to August 2009, also served as chair of the board from June 2005. •Fellow of the American College of Trial Lawyers, and member of the International Society of Barristers. •Founding chair of the Yale University’s Chairmen’s Forum; former member of the President’s Council on Sustainable Development; and co-chair of the President’s Commission on the United States Postal Service. Education •Bachelor’s degree in engineering sciences from the U.S. Air Force Academy. •Juris doctor degree from Northwestern University’s School of Law. John K. Wilson Age 63 Independent Director Since 2003 Audit Committee Mr. Wilson has an extensive background in finance and accounting, as well as experience with mergers and acquisitions, through his education and work experience at a major accounting firm and his later public utility experience in his positions as controller and vice president of Great Plains Natural Gas Co., president of Great Plains Energy Corp., and president, chief financial officer, and treasurer for Durham Resources, LLC, and all Durham Resources entities. Career Highlights •President of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, from 1994 to December 31, 2008; president of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000; and vice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000. •Executive director of the Robert B. Daugherty Foundation in Omaha, Nebraska, since January 2010. •Held positions of audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief financial officer and treasurer for all Durham Resources entities. Other Leadership Experience •Director of HDR, Inc., an international architecture and engineering firm, since December 2008; and director of Tetrad Corporation, a privately held investment company, since April 2010, both located in Omaha, Nebraska. •Former director of Bridges Investment Fund, Inc., a mutual fund, from April 2003 to April 2008; director of the Greater Omaha Chamber of Commerce from January 2001 through December 2008; member of the advisory board of U.S. Bank NA Omaha from January 2000 to July 2010; and the advisory board of Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska, from January 2010 to February 2016. Education and Professional •Bachelor’s degree in business administration, cum laude, from the University of Nebraska – Omaha. •Certified public accountant, on inactive status. Proxy Statement 12 MDU Resources Group, Inc. Proxy Statement The board of directors recommends a vote “for” each nominee. A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality of the votes cast. Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board. Our policy on majority voting for directors contained in our corporate governance guidelines requires any proposed nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon: • receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders; and • acceptance of such resignation by the board of directors. Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting. Brokers may not vote your shares on the election of directors if you have not given your broker specific instructions on how to vote. Please be sure to give specific voting instructions to your broker so your vote can be counted. Proxy Statement MDU Resources Group, Inc. Proxy Statement 13 CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS 14 MDU Resources Group, Inc. Proxy Statement Director Independence The board of directors has adopted guidelines on director independence that are included in our corporate governance guidelines. Our guidelines require that a substantial majority of the board consists of independent directors. In general, the guidelines require that an independent director must have no material relationship with the company directly or indirectly, except as a director. The board determines independence on the basis of the standards specified by the New York Stock Exchange (NYSE), the additional standards referenced in our corporate governance guidelines, and other facts and circumstances the board considers relevant. Based on its review, the board has determined that all directors, except for our chief executive officer Mr. Goodin, have no material relationship with us and are independent. In determining director independence, the board of directors reviewed and considered information about any transactions, relationships, and arrangements between the non-employee directors and their immediate family members and affiliated entities on the one hand, and the company and its affiliates on the other, and in particular the following transactions, relationships, and arrangements: • Charitable contributions by the MDU Resources Foundation (Foundation) to the following nonprofit organizations, where a director, or a director’s spouse, serves or has served as a director, chair, or vice chair of the board of trustees, trustee or member of the organization or related entity: Charitable contributions by the Foundation to Sanford Health Foundation, Billings Catholic Schools Foundation, the University of North Dakota Foundation, the University of North Dakota Formula SAE, and the University of Jamestown and its foundation. None of the contributions made to any of these nonprofit entities during the last three fiscal years exceeded in any single year the greater of $1 million or 2% of the relevant entity’s consolidated gross revenues. •Business relationships with entities with which a director is affiliated: (1) Payment of nominal fees to First Interstate Bank, a subsidiary of First Interstate BancSystem, Inc., where Patricia Moss has been a director since May 30, 2017. The fees were for services related to depository accounts at First Interstate Bank. These services were provided in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable services provided by other bank entities. (2) Mr. Wilson is a member of the board of directors of HDR, Inc., an architectural, engineering, environmental, and consulting firm. The company paid HDR, Inc. or its affiliates for services which were provided in the ordinary course of business and on substantially the same terms prevailing for comparable services from other consulting firms. Mr. Wilson had no role in securing or promoting the HDR, Inc. services. The board has also determined that all members of the audit, compensation, and nominating and governance committees of the board are independent in accordance with our guidelines and applicable NYSE and Securities Exchange Act of 1934 rules. Stockholder Engagement The company has an active stockholder outreach program. We believe in providing transparent and timely information to our investors. Each year we routinely engage directly or indirectly with our stockholders, including our top institutional stockholders. During 2017, the company held meetings, conference calls, and webcasts with a diverse mix of stockholders. Throughout the year, we held meetings with eight of the actively managed institutional investors included in our year-end top 30 stockholders. We engage periodically with our index fund investors; however, no direct meetings were held with this investor class in 2017. In our meetings, we discussed a variety of topics with stockholders including longer-term company strategy and our capital expenditure forecast, shorter-term operational and financial updates, and previously announced strategic initiatives. The company also held a telephone conference with a proxy advisory firm to discuss corporate governance and executive compensation practices. Board Leadership Structure The board separated the positions of chair of the board and chief executive officer in 2006, and our bylaws and corporate governance guidelines currently require that our chair be independent. The board believes this structure provides balance and is currently in the best interest of the company and its stockholders. Separating these positions allows the chief executive officer to focus on the full-time job of running our business, while allowing the chair of the board to lead the board in its fundamental role of providing advice to and independent oversight of management. The chair meets regularly between board meetings with the chief executive officer and consults with the chief executive officer regarding the board meeting agendas, the quality and flow of information provided to the board, and the effectiveness of the board meeting process. The board believes this split structure recognizes the time, effort, and energy the chief executive officer is required to devote to the position in the current business environment, as well as the commitment required to serve as the chair, particularly as the board’s oversight responsibilities continue to grow and demand more time and attention. The fundamental role of the board of directors is to provide oversight of the management of the company in good faith and in the best interests of the company and its stockholders. Having an independent chair is a means to ensure the chief executive officer is accountable for managing the company in close alignment with the interests of stockholders, including with respect to risk management as discussed below. An independent chair is in a position to encourage frank and lively discussions, including during regularly scheduled executive sessions consisting of only independent directors, and to assure that the company has adequately assessed all appropriate business risks before adopting its final business plans and strategies. The board believes that having separate positions and having an independent outside director serve as chair is the appropriate leadership structure for the company at this time and demonstrates our commitment to good corporate governance. Proxy Statement MDU Resources Group, Inc. Proxy Statement 15 Board’s Role in Risk Oversight Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, environmental and regulatory risks, the impact of competition, climate and weather conditions, limitations on our ability to pay dividends, pension plan obligations, cyberattacks or acts of terrorism, and third party liabilities. Management is responsible for identifying material risks, implementing appropriate risk management strategies, and providing information regarding material risks and risk management to the board. The board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate for identifying, assessing, and managing risk. The board believes establishing the right “tone at the top” and full and open communication between management and the board of directors are essential for effective risk management and oversight. Our chair meets regularly with our president and chief executive officer and other senior officers to discuss strategy and risks facing the company. Senior management attends the quarterly board meetings and is available to address any questions or concerns raised by the board on risk management-related and any other matters. Each quarter, the board of directors receives presentations from senior management on strategic matters involving our operations. At least annually, the board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the company. While the board is ultimately responsible for risk oversight at our company, our three standing board committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. • The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in a general manner and specifically in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with NYSE requirements, discusses with the board policies with respect to risk assessment and risk management and their adequacy and effectiveness. Risk assessment reports are regularly provided by management to the audit committee or the full board. This opens the opportunity for discussions about areas where the company may have material risk exposure, steps taken to manage such exposure, and the company’s risk tolerance in relation to company strategy. The audit committee reports regularly to the board of directors on the company’s management of risks in the audit committee’s areas of responsibility. • The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. • The nominating and governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance. Board Meetings and Committees During 2017, the board of directors held four regular meetings and two special meetings. Each director attended at least 75% of the combined total meetings of the board and the committees on which the director served during 2017. Directors are encouraged to attend our annual meeting of stockholders. All directors attended our 2017 Annual Meeting of Stockholders. Harry J. Pearce was elected non-employee chair of the board on August 17, 2006, and previously served as lead director from February 15, 2001 to August 17, 2006. He presides at the executive session of the non-employee directors held in connection with each regularly scheduled quarterly board of directors meeting. Dennis W. Johnson was elected vice chair of the board on February 15, 2018. The non- employee directors meet in executive session both with and without the chief executive officer at each regularly scheduled quarterly board of directors meeting. All of our non-employee directors are independent, as defined in our corporate governance guidelines and NYSE listing standards. The board has standing audit, compensation, and nominating and governance committees. The table below provides current committee membership. Name Audit Committee Compensation Committee Nominating and Governance Committee Thomas Everist C Karen B. Fagg ●C Mark A. Hellerstein ● A. Bart Holaday ●● Dennis W. Johnson C William E. McCracken ●● Patricia L. Moss ●● John K. Wilson ● C - Chair - Member Below is a description of each standing committee of the board. The board has affirmatively determined that each of these standing committees consists entirely of independent directors pursuant to rules established by the NYSE, rules promulgated under the Securities and Exchange Commission (SEC), and the director independence standards established by the board. The board has also determined that each member of the audit committee and the compensation committee is independent under the criteria established by the NYSE and the SEC for audit committee and compensation committee members, as applicable. Proxy Statement 16 MDU Resources Group, Inc. Proxy Statement Nominating and Governance Committee Met Four Times in 2017 The nominating and governance committee met four times during 2017. The committee members are Karen B. Fagg, chair, A. Bart Holaday, William E. McCracken, and Patricia L. Moss. The nominating and governance committee provides recommendations to the board with respect to: • board organization, membership, and function; • committee structure and membership; • succession planning for our executive management and directors; and • our corporate governance guidelines. The nominating and governance committee assists the board in overseeing the management of risks in the committee’s areas of responsibility. The committee identifies individuals qualified to become directors and recommends to the board the nominees for director for the next annual meeting of stockholders. The committee also identifies and recommends to the board individuals qualified to become our principal officers and the nominees for membership on each board committee. The committee oversees the evaluation of the board and management. In identifying nominees for director, the committee consults with board members, our management, consultants, and other individuals likely to possess an understanding of our business and knowledge concerning suitable director candidates. Our corporate governance guidelines include our policy on consideration of director candidates recommended to us. We will consider candidates that our stockholders recommend in the same manner we consider other nominees. Stockholders who wish to recommend a director candidate may submit recommendations, along with the information set forth in the guidelines, to the nominating and governance committee chair in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. Stockholders who wish to nominate persons for election to our board at an annual meeting of stockholders must follow the procedures set forth in section 2.08 of our bylaws. Our bylaws are available on our website. See “Stockholder Proposals, Director Nominations, and Other Items of Business for 2019 Annual Meeting” in the section entitled “Information about the Annual Meeting” for further details. In evaluating director candidates, the committee, in accordance with our corporate governance guidelines, considers an individual’s: • background, character, and experience, including experience relative to our company’s lines of business; • skills and experience which complement the skills and experience of current board members; • success in the individual’s chosen field of endeavor; • skill in the areas of accounting and financial management, banking, business management, human resources, marketing, operations, public affairs, law, technology, risk management, governance, and operations abroad; • background in publicly traded companies including service on other public company boards of directors; • geographic area of residence; • diversity of business and professional experience, skills, gender, and ethnic background, as appropriate in light of the current composition and needs of the board; • independence, including any affiliation or relationship with other groups, organizations, or entities; and • compliance with applicable law and applicable corporate governance, code of conduct and ethics, conflict of interest, corporate opportunities, confidentiality, stock ownership and trading policies, and other policies and guidelines of the company. In addition, our bylaws contain requirements that a person must meet to qualify for service as a director. The nominating and governance committee assesses the effectiveness of this policy annually in connection with the nomination of directors for election at the annual meeting of stockholders. The composition of the current board reflects diversity in business and professional experience, skills, and gender. Proxy Statement MDU Resources Group, Inc. Proxy Statement 17 Audit Committee Met Eight Times in 2017 The audit committee is a separately-designated committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee met eight times during 2017. The audit committee members are Dennis W. Johnson, chair, Mark A. Hellerstein, A. Bart Holaday, and John K. Wilson. The board of directors has determined that Messrs. Johnson, Hellerstein, Holaday, and Wilson are “audit committee financial experts” as defined by SEC rules and are financially literate within meaning of the listing standards of the NYSE. They also meet the independence standard for audit committee members under our director independence guidelines, the NYSE listing standards, and SEC rules. The audit committee assists the board of directors in fulfilling its oversight responsibilities to the stockholders and serves as a communication link among the board, management, the independent registered public accounting firm, and the internal auditors. The audit committee: • assists the board’s oversight of ◦the integrity of our financial statements and system of internal controls; ◦the company’s compliance with legal and regulatory requirements and the code of conduct; ◦the independent registered public accounting firm’s qualifications and independence; ◦the performance of our internal audit function and independent registered public accounting firm; ◦management of risk in the audit committee’s areas of responsibility; and • arranges for the preparation of and approves the report that SEC rules require we include in our annual proxy statement. See the section entitled “Audit Committee Report” for further information. Compensation Committee Met Seven Times in 2017 During 2017, the compensation committee met seven times. The compensation committee consists entirely of independent directors within the meaning of the company’s corporate governance guidelines and the NYSE listing standards and who meet the definitions of outside or non-employee directors for purposes of Section 162(m) of the Internal Revenue Code and Rule 16-b under the Exchange Act. Members of the compensation committee are Thomas Everist, chair, Karen B. Fagg, William E. McCracken, and Patricia L. Moss. The compensation committee assists the board of directors in fulfilling its responsibilities relating to the company’s compensation policy and programs. It has the direct responsibility for determining compensation for our Section 16 officers and for overseeing the company’s management of risk in its areas of responsibility. In addition, the compensation committee reviews and recommends any changes to director compensation policies to the board of directors. The authority and responsibility of the compensation committee is outlined in the compensation committee’s charter. The compensation committee uses the analysis and recommendations from outside consultants, the chief executive officer, and the human resources department in making its compensation decisions. The chief executive officer, the vice president-human resources, and the general counsel regularly attend compensation committee meetings. The committee meets in executive session as needed. The processes and procedures for consideration and determination of compensation of the Section 16 officers, as well as the role of our executive officers, are discussed in the “Compensation Discussion and Analysis.” The compensation committee has sole authority to retain compensation consultants, legal counsel, or other advisers to assist in consideration of the compensation of the chief executive officer, the other Section 16 officers, and the board of directors, and the committee is directly responsible for the appointment, compensation, and oversight of the work of such advisers. The compensation committee’s practice has been to retain a compensation consultant every other year to conduct a competitive analysis on executive compensation. The competitive analysis is conducted internally by the human resources department in the other years. The compensation committee retained a compensation consultant, Willis Towers Watson, to conduct a competitive analysis on executive compensation in 2016. Prior to retaining an adviser, the compensation committee will consider all factors relevant to ensure the adviser’s independence from management. Annually the compensation committee conducts a potential conflicts of interest assessment raised by the work of any compensation consultant and how such conflicts, if any, should be addressed. The compensation committee requested and received information from Willis Towers Watson to assist in its potential conflicts of interest assessment. Based on its review and analysis, the compensation committee determined in 2016 that Willis Towers Watson was independent from management. The board of directors determines compensation for our non-employee directors based upon recommendations from the compensation committee. The compensation committee’s practice has been to retain a compensation consultant every other year to conduct a competitive analysis on director compensation. The compensation committee employed a compensation consultant for an analysis of director compensation in 2017. Proxy Statement 18 MDU Resources Group, Inc. Proxy Statement Compensation Policies and Practices as They Relate to Risk Management The human resources department has conducted an assessment of the risks arising from our compensation policies and practices for all employees and concluded that none of these risks is reasonably likely to have a material adverse effect on the company. Based on the human resources department’s assessment and taking into account information received from the risk identification process, senior management and our management policy committee concluded that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the company. After review and discussion with senior management, the compensation committee concurred with this assessment. As part of its assessment of the risks arising from our compensation policies and practices, the human resources department identified the principal areas of risk faced by the company that may be affected by our compensation policies and practices, including any risks resulting from our operating businesses’ compensation policies and practices. In assessing the risks arising from our compensation policies and practices, the human resources department identified the following practices designed to prevent excessive risk taking: • Business management and governance practices: ◦risk management is a specific performance competency included in the annual performance assessment of Section 16 officers; ◦board oversight on capital expenditure and operating plans promotes careful consideration of financial assumptions; ◦limitation on business acquisitions without board approval; ◦employee integrity training programs and anonymous reporting systems; ◦quarterly risk assessment reports at audit committee meetings; and ◦prohibitions on holding company stock in an account that is subject to a margin call, pledging company stock as collateral for a loan, and hedging of company stock by Section 16 officers and directors. • Executive compensation practices: ◦active compensation committee review of executive compensation, including comparison of executive compensation to total stockholder return ratio to the ratio for the company’s peer group; ◦the initial determination of a position’s salary grade to be at or near the 50th percentile of base salaries paid to similar positions at peer group companies and/or relevant industry companies; ◦consideration of peer group and/or relevant industry practices to establish appropriate compensation target amounts; ◦a balanced compensation mix of fixed salary and annual and long-term incentives tied to the company’s financial performance; ◦use of interpolation for annual and long-term incentive awards to avoid payout cliffs; ◦negative discretion to adjust any annual or long-term incentive award payment downward; ◦use of caps on annual incentive awards (maximum of 240% of target) and long-term incentive stock grant awards (200% of target); ◦clawback availability on incentive payments in the event of a financial restatement; ◦use of performance shares, rather than stock options or stock appreciation rights, as the equity component of incentive compensation; ◦use of performance shares for long-term incentive awards with a relative total stockholder return performance measure and mandatory reduction in award if total stockholder return over the performance period is negative; ◦use of three-year performance periods for long-term incentive awards to discourage short-term risk-taking; ◦substantive annual incentive goals measured primarily by return on invested capital, earnings, and earnings per share criteria, which encourage balanced performance and are important to stockholders; ◦use of financial performance metrics that are readily monitored and reviewed; ◦regular review of the appropriateness of the companies in the peer group; ◦stock ownership requirements for the board and for executives receiving long-term incentive awards; ◦mandatory holding periods for 50% of any net after-tax shares earned under long-term incentive awards; and ◦use of independent consultants in establishing pay targets at least biennially. Proxy Statement MDU Resources Group, Inc. Proxy Statement 19 Stockholder Communications with the Board Stockholders and other interested parties who wish to contact the board of directors or any individual director, including our non-employee chair or non-employee directors as a group, should address a communication in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. The secretary will forward all communications. Additional Governance Features Board and Committee Evaluations Our corporate governance guidelines provide that the board of directors, in coordination with the nominating and governance committee, will annually review and evaluate the performance and functioning of the board and its committees. The self-evaluations are intended to facilitate a candid assessment and discussion by the board and each committee of its effectiveness as a group in fulfilling its responsibilities, its performance as measured against the corporate governance guidelines, and areas for improvement. The board and committee members are provided with a questionnaire to facilitate discussion. The results of the evaluations are reviewed and discussed in executive sessions of the committees and the board of directors. Director Resignation Upon Change of Job Responsibility Our corporate governance guidelines require a director to tender his or her resignation after a material change in job responsibility. In 2017, Mr. Everist submitted his resignation in connection with the sale by The Everist Company of its aggregate, concrete, and asphalt production interests. After considering his background, experience on the board, skills and character, and contribution to the company in light of the company’s business and structure, the board determined Mr. Everist’s resignation should not be accepted. Majority Voting in Uncontested Director Elections Our corporate governance guidelines require that in uncontested elections (those where the number of nominees does not exceed the number of directors to be elected), director nominees must receive the affirmative vote of a majority of the votes cast to be elected to our board of directors. Contested director elections (those where the number of director nominees exceeds the number of directors to be elected) are governed by a plurality of the vote of shares present in person or represented by proxy at the meeting. The board has adopted a director resignation policy for incumbent directors in uncontested elections. Any proposed nominee for re-election as a director shall, before he or she is nominated to serve on the board, tender to the board his or her irrevocable resignation that will be effective, in an uncontested election of directors only, upon (i) such nominee’s receipt of a greater number of votes “against” election than votes “for” election at our annual meeting of stockholders; and (ii) acceptance of such resignation by the board of directors. Director Overboarding Policy Our bylaws and corporate governance guidelines state that a director may not serve on more than three public company boards, including the company’s board. Currently, all of our directors are in compliance of this policy. Board Refreshment The company regularly evaluates the need for board refreshment. The nominating and governance committee and the board are focused on identifying individuals whose skills and experiences will enable them to make meaningful contributions to shaping the company’s business strategy. As part of its consideration of director succession, the nominating and governance committee from time to time reviews, including when considering potential candidates, the appropriate skills and characteristics required of board members. The board believes it is important to consider diversity of skills, expertise, race, ethnicity, gender, age, education, cultural background, and professional experiences in evaluating board candidates for expected contributions to an effective board. Independent directors may not serve on the board beyond the next annual meeting of stockholders after attaining the age of 76. We believe the current retirement age allows us to benefit from long- serving directors, including their industry expertise, institutional knowledge, historical perspective, stability, and comfort with challenging company management, while maintaining our ability to refresh the board through the addition of new members. In connection with our mandatory retirement for directors, A. Bart Holaday will retire as a director at the completion of his current term at the 2018 annual meeting, and two additional directors will retire in 2019. Prohibitions on Hedging/Pledging Company Stock The director compensation policy prohibits directors from hedging their ownership of common stock, pledging company stock as collateral for a loan, or holding company stock in an account that is subject to a margin call. Proxy Statement 20 MDU Resources Group, Inc. Proxy Statement Code of Conduct We have a code of conduct and ethics, which we refer to as the Leading With Integrity Guide. It applies to all directors, officers, and employees. We intend to satisfy our disclosure obligations regarding amendments to, or waivers of, any provision of the code of conduct that applies to our principal executive officer, principal financial officer, and principal accounting officer and that relates to any element of the code of ethics definition in Regulation S-K, Item 406(b), and waivers of the code of conduct for our directors or executive officers, as required by NYSE listing standards, by posting such information on our website. Corporate Governance Materials Stockholders can see our bylaws, corporate governance guidelines, board committee charters, and Leading With Integrity Guide on our website. Corporate Governance Materials Website •Bylaws http://www.mdu.com/integrity/governance/guidelines-and-bylaws •Corporate Governance Guidelines http://www.mdu.com/integrity/governance/guidelines-and-bylaws •Board Committee Charters for the Audit, Compensation, and Nominating and Governance Committees http://www.mdu.com/integrity/governance/board-charters-and-committees •Leading With Integrity Guide http://www.mdu.com/docs/default-source/governance/leadingwithintegrity.pdf Proxy Statement MDU Resources Group, Inc. Proxy Statement 21 Related Person Transaction Disclosure The board of directors’ policy for the review of related person transactions is contained in our corporate governance guidelines. The policy provides that the audit committee review any transaction, arrangement or relationship, or series thereof: • in which we are or will be a participant; • the amount involved exceeds $120,000; and • a related person has or will have a direct or indirect material interest. The purpose of this review is to determine whether this transaction is in the best interests of the company. Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock, and their immediate family members. Related persons are required promptly to report to our general counsel all proposed or existing related person transactions in which they are involved. If our general counsel determines that the transaction is required to be disclosed under the SEC rules, the general counsel furnishes the information to the chair of the audit committee. After its review, the committee makes a determination or a recommendation to the board and officers of the company with respect to the related person transaction. Upon receipt of the committee’s recommendation, the board of directors or officers, as the case may be, take such action as they deem appropriate in light of their responsibilities under applicable laws and regulations. We had no related person transactions in 2017. COMPENSATION OF NON-EMPLOYEE DIRECTORS Director Compensation for 2017 MDU Resources’ non-employee directors are compensated for their service according to the MDU Resources Group Inc. Director Compensation Policy. Only one employee, David L. Goodin, the company’s president and chief executive officer, serves as a director. Mr. Goodin receives no additional compensation for his service on the board. Director compensation is reviewed annually by the compensation committee with analysis provided by an independent consultant in odd numbered years and analysis prepared by the company’s human resources department in even numbered years. Willis Towers Watson provided the director compensation analysis for 2017. The analysis included research on market trends in director compensation as well as a review of director compensation practices of our peer group companies. Based on the analysis, the compensation committee recommended and the board approved at the May 2017 meeting, an increase to the annual base cash retainer from $65,000 to $70,000 effective June 1, 2017. In addition, the 2017 annual stock grant for the non-executive chair of the board was increased from $110,000 to $145,000. No changes were made to the annual stock grants to other directors or to the additional cash retainers for the non-executive chair of the board or the chairs of the board committees. The following table outlines the compensation paid to our non-employee directors for 2017. Name Fees Earned or Paid in Cash ($) Stock Awards ($)1 All Other Compensation ($)2 Total ($) Thomas Everist 77,917 110,000 83 188,000 Karen B. Fagg 77,917 110,000 83 188,000 Mark A. Hellerstein 67,917 110,000 83 178,000 A. Bart Holaday 67,917 110,000 83 178,000 Dennis W. Johnson 82,917 110,000 1,083 194,000 William E. McCracken 67,917 110,000 83 178,000 Patricia L. Moss 67,917 110,000 1,083 179,000 Harry J. Pearce 157,917 145,000 83 303,000 John K. Wilson 67,917 3 110,000 83 178,000 1 Each director received an annual retainer of $110,000 in company common stock except the non-executive chair who received $145,000 in company common stock pursuant to the MDU Resources Group, Inc. Non-Employee Director Stock Compensation Plan or the Non-Employee Director Long-Term Incentive Compensation Plan. The amount shown for each director, except Mr. Pearce, represents the aggregate grant date fair value of 4,091 shares of MDU Resources Group, Inc. common stock. The amount shown for Mr. Pearce who serves as our non-executive chair of the board represents the aggregate grant date fair value of 5,393 shares of MDU Resources Group, Inc. common stock. All shares are measured in accordance with Financial Accounting Standards Board (FASB) generally accepted accounting principles for stock-based compensation in FASB Accounting Standards Codification Topic 718. The grant date fair value is based on the purchase price of our common stock on the grant date of November 21, 2017, which was $26.88 per share. The amount paid in cash for fractional shares was $21.65 to each director and $19.98 to our non-executive chair of the board and is included in the amount reported in the stock awards column to this table. As of December 31, 2017, there are no outstanding stock awards or options associated with the Non-Employee Director Stock Compensation Plan or the Non-Employee Director Long-Term Incentive Compensation Plan. 2 Includes group life insurance premiums and charitable donations made on behalf of the director as applicable. 3 Mr. Wilson elected to receive shares of our common stock in lieu of his cash retainer pursuant to the Director Compensation Policy and the Non-Employee Director Long-Term Incentive Compensation Plan. The amount shown includes 2,451 shares of our common stock purchased on December 6, 2017, at $27.70 per share. Proxy Statement 22 MDU Resources Group, Inc. Proxy Statement The following table shows the cash and stock retainers payable to our non-employee directors. Effective through May 31, 2017 Effective June 1, 2017 Base Cash Retainer $ 65,000 $ 70,000 Additional Cash Retainers: Non-Executive Chair 90,000 90,000 Audit Committee Chair 15,000 15,000 Compensation Committee Chair 10,000 10,000 Nominating and Governance Committee Chair 10,000 10,000 Annual Stock Grant1 - Directors 110,000 110,000 Annual Stock Grant2 - Non-Executive Chair 145,000 1 The annual stock grant is a grant of shares equal in value to $110,000. 2 The annual stock grant is a grant of shares equal in value to $145,000. There are no meeting fees paid to directors. Other Compensation In addition to liability insurance, we maintain group life insurance in the amount of $100,000 on each non-employee director for the benefit of each director’s beneficiaries during the time each director serves on the board. The annual cost per director is $82.80. Directors who contribute to the company’s Good Government Fund may designate up to two charities to receive a matching donation from the MDU Resources Foundation based on their contributions to the fund. Directors are reimbursed for all reasonable travel expenses, including spousal expenses in connection with attendance at meetings of the board and its committees. Perquisites, if any, were below the disclosure threshold in 2017. Deferral of Compensation Directors may defer all or any portion of the annual cash retainer and any other cash compensation paid for service as a director pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board. Post-Retirement Our post-retirement income plan for directors was terminated in May 2001 for current and future directors. The net present value of each director’s benefit was calculated and converted into phantom stock. Payment is deferred pursuant to the Deferred Compensation Plan for Directors and will be made in cash over a five-year period after the director’s retirement from the board. Stock Ownership Policy Our director stock ownership policy contained in our corporate governance guidelines requires each director to own our common stock equal in value to five times the director’s annual cash base retainer. Shares acquired through purchases on the open market and participation in our director stock plans are considered in ownership calculations as is ownership of our common stock by a spouse. A director is allowed five years commencing January 1 of the year following the year of that director’s initial election to the board to meet the requirements. The level of common stock ownership is monitored with an annual report made to the compensation committee of the board. All directors are in compliance with the stock ownership policy. For further details on our director’s stock ownership, see the section entitled “Security Ownership.” Proxy Statement MDU Resources Group, Inc. Proxy Statement 23 SECURITY OWNERSHIP Security Ownership Table The table below sets forth the number of shares of our common stock that each director and each nominee for director, each current named executive officer, and all directors and executive officers as a group owned beneficially as of February 28, 2018. Unless otherwise indicated, each person has sole investment and voting power (or share such power with his or her spouse) of the shares noted. Name1 Common Shares Beneficially Owned Percent of Class Post-Retirement and/or Deferred Director Fees Held as Phantom Stock2 David C. Barney 24,604 3,4 *— Thomas Everist 857,549 *33,952 Karen B. Fagg 67,086 *— David L. Goodin 176,336 3 *— Mark A. Hellerstein 19,857 *11,485 A. Bart Holaday 65,002 *11,485 Dennis W. Johnson 86,248 5 *— Nicole A. Kivisto 41,196 3,6 *— William E. McCracken 19,857 *— Patricia L. Moss 78,525 *— Harry J. Pearce 241,278 *55,824 Jeffrey S. Thiede 21,719 3 *— Jason L. Vollmer 6,019 3 *— John K. Wilson 125,458 *— All directors and executive officers as a group (19 in number)1,906,649 112,746 *Less than one percent of the class. Percent of class is calculated based on 195,304,376 outstanding shares as of February 28, 2018. 1 The table includes the ownership of all current directors, director nominees, current named executive officers, and other executive officers of the company without naming them. The table does not include stock ownership information for Mr. Martin Fritz who resigned effective May 23, 2017; Mr. Dennis Haider who retired on June 12, 2017; and Mr. Doran Schwartz who resigned effective September 29, 2017. 2 Reported shares are not included in the “Common Shares Beneficially Owned” column. Phantom stock includes the value of post-retirement benefits for directors on the board prior to May 2001 when the post-retirement income plan for directors was terminated and the value of any cash compensation deferred pursuant to the Deferred Compensation Plan for Directors. Post-retirement and deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board. 3 Includes full shares allocated to the officer’s account in our 401(k) retirement plan. 4 The total includes 687 shares owned by Mr. Barney’s spouse. 5 Mr. Johnson disclaims all beneficial ownership of the 163 shares owned by his spouse. 6 The total includes 531 shares owned by Ms. Kivisto’s spouse. We prohibit our directors and executive officers from hedging their ownership of company common stock. They may not enter into transactions that allow them to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership. Directors, executive officers, and related persons are prohibited from holding our common stock in a margin account, with certain exceptions, or pledging company securities as collateral for a loan. Company common stock may be held in a margin brokerage account only if the stock is explicitly excluded from any margin, pledge, or security provisions of the customer agreement. Company common stock may be held in a cash account, which is a brokerage account that does not allow any extension of credit on securities. “Related person” means an executive officer’s or director’s spouse, minor child, and any person (other than a tenant or domestic employee) sharing the household of a director or executive officer, as well as any entities over which a director or executive officer exercises control. Proxy Statement 24 MDU Resources Group, Inc. Proxy Statement Based on information from company records or filings with the SEC, the table below shows information regarding the beneficial ownership of more than five percent of any class of our voting securities. Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class Common Stock The Vanguard Group 21,720,1061 11.12% 100 Vanguard Blvd. Malvern, PA 19355 Common Stock BlackRock, Inc.16,450,8162 8.40% 55 East 52nd Street New York, NY 10055 Common Stock Parnassus Investments 15,215,3913 7.79% 1 Market Street, Suite 1600 San Francisco, CA 94105 Common Stock State Street Corporation 11,669,3854 5.97% State Street Financial Center One Lincoln Street 1 Based solely on the Schedule 13G, Amendment No. 6, filed on February 9, 2018, The Vanguard Group reported sole dispositive power with respect to 21,608,438 shares, shared dispositive power with respect to 111,668 shares, sole voting power with respect to 102,120 shares, and shared voting power with respect to 22,519 shares. These shares include 87,969 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., as a result of its serving as investment manager of collective trust accounts, and 36,670 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., as a result of its serving as investment manager of Australian investment offerings. 2 Based solely on the Schedule 13G, Amendment No. 8, filed on January 25, 2018, BlackRock, Inc. reported sole voting power with respect to 15,513,498 shares and sole dispositive power with respect to 16,450,816 shares as the parent holding company or control person of BlackRock Life Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, and BlackRock Fund Managers Ltd. 3 Based solely on the Schedule 13G, Amendment No. 3, filed on February 12, 2018, Parnassus Investments reported sole voting and dispositive power with respect to 15,215,391 shares. 4 Based solely on the Schedule 13G, filed on February 14, 2018, State Street Corporation reported shared voting and dispositive power with respect to 11,669,385 shares as the parent holding company or control person of State Street Bank and Trust Company, SSGA Funds Management, Inc., State Street Global Advisors Trust Company, State Street Global Advisors Asia LTD, State Street Global Advisors Singapore LTD., State Street Global Advisors Limited, and State Street Global Advisors GmbH. Proxy Statement MDU Resources Group, Inc. Proxy Statement 25 Section 16(a) Beneficial Ownership Reporting Compliance Section 16 of the Securities Exchange Act of 1934, as amended, requires officers, directors, and holders of more than 10% of our common stock file reports of their trading in our equity securities with the SEC. Based solely on a review of Forms 3, 4, and 5, and any amendments to these forms furnished to us during and with respect to 2017, or written representations that no Forms 5 were required, we believe that all such reports were timely filed. EXECUTIVE COMPENSATION 26 MDU Resources Group, Inc. Proxy Statement ITEM 2. ADVISORY VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS In accordance with Section 14A of the Securities Exchange Act of 1934 and Rule 14a-21(a), we are asking our stockholders to approve, in an advisory vote, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K. As discussed in the Compensation Discussion and Analysis, our compensation committee and board of directors believe that our current executive compensation program directly links compensation of our named executive officers to our financial performance and aligns the interests of our named executive officers with those of our stockholders. Our compensation committee and board of directors also believe that our executive compensation program provides our named executive officers with a balanced compensation package that includes an appropriate base salary along with competitive annual and long-term incentive compensation targets. These incentive programs are designed to reward our named executive officers on both an annual and long-term basis if they attain specified goals. Our overall compensation program and philosophy is built on a foundation of these guiding principles: • we pay for performance, with over 60% of our 2017 total target direct compensation for our current named executive officers in the form of performance-based incentive compensation; • we review competitive compensation data for our named executive officers, to the extent available, and incorporate internal equity in the final determination of target compensation levels; • we align executive compensation and performance by using annual performance incentives based on criteria that are important to stockholder value, including earnings, earnings per share, and return on invested capital; and • we align executive compensation and performance by using long-term performance incentives based on total stockholder return relative to our peer group. We are asking our stockholders to indicate their approval of our named executive officer compensation as disclosed in this Proxy Statement, including the Compensation Discussion and Analysis, the executive compensation tables, and narrative discussion. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers for 2017. Accordingly, the following resolution is submitted for stockholder vote at the 2018 annual meeting: “RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion of this Proxy Statement, is hereby approved.” As this is an advisory vote, the results will not be binding on the company, the board of directors, or the compensation committee and will not require us to take any action. The final decision on the compensation of our named executive officers remains with our compensation committee and our board of directors, although our board and compensation committee will consider the outcome of this vote when making future compensation decisions. We intend to hold this advisory vote every year until at least the next stockholder advisory vote on the frequency of this vote. The board of directors recommends a vote “for” the approval, on a non-binding advisory basis, of the compensation of the company’s named executive officers, as disclosed in this Proxy Statement. Approval of the compensation of our named executive officers requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal. Broker non-vote shares are not entitled to vote on this proposal and, therefore, are not counted in the vote. INFORMATION CONCERNING EXECUTIVE OFFICERS At the first meeting of the board after the annual meeting of stockholders, our board of directors elects our executive officers, who serve until their successors are chosen and qualify. A majority of our board of directors may remove any executive officer at any time. Information concerning our executive officers, including their ages as of December 31, 2017, present corporate positions, and business experience during the past five years, is as follows: Name Age Present Corporate Position and Business Experience David L. Goodin 56 Mr. Goodin was elected president and chief executive officer of the company and a director effective January 4, 2013. For more information about Mr. Goodin, see the section entitled “Item 1. Election of Directors.” David C. Barney 62 Mr. Barney was elected president and chief executive officer of Knife River Corporation effective April 30, 2013, and president effective January 1, 2012. Stephanie A. Barth 45 Ms. Barth was elected vice president, chief accounting officer and controller effective September 30, 2017. Prior to that, she was controller of the company effective May 30, 2016, vice president, treasurer and chief accounting officer of WBI Holdings, Inc. effective January 1, 2015, controller of WBI Holdings, Inc. effective September 30, 2013, and director financial planning & reporting of WBI Holdings, Inc. effective December 22, 2008. Trevor J. Hastings 44 Mr. Hastings was elected president and chief executive officer of WBI Holdings, Inc. effective October 16, 2017. Prior to that, he was vice president-business development and operations support of Knife River Corporation effective January 11, 2012. Anne M. Jones 54 Ms. Jones was elected vice president-human resources effective January 1, 2016. Prior to that, she was vice president-human resources, customer service, and safety at Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company effective July 1, 2013, and director of human resources for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective June 2008. Nicole A. Kivisto 44 Ms. Kivisto was elected president and chief executive officer of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company effective January 9, 2015. Prior to that, she was vice president of operations for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective January 3, 2014, and vice president, controller and chief accounting officer for the company effective February 17, 2010. Daniel S. Kuntz 64 Mr. Kuntz was elected vice president, general counsel and secretary effective January 1, 2017. Prior to that, he was general counsel and secretary effective January 9, 2016, associate general counsel effective April 1, 2007, and assistant secretary effective August 17, 2007. Margaret (Peggy) A. Link 51 Ms. Link was elected vice president and chief information officer effective December 1, 2017. Prior to that, she was chief information officer effective January 1, 2016, assistant vice president-technology and cybersecurity officer effective January 1, 2015, and director shared IT services effective June 2, 2009. Jeffrey S. Thiede 55 Mr. Thiede was elected president and chief executive officer of MDU Construction Services Group, Inc. effective April 30, 2013, and president effective January 1, 2012. Jason L. Vollmer 40 Mr. Vollmer was elected vice president, chief financial officer and treasurer effective September 30, 2017. Prior to that, he was vice president, chief accounting officer and treasurer effective March 19, 2016, treasurer and director of cash and risk management effective November 29, 2014, manager of treasury services and risk management effective June 30, 2014, and manager of treasury services, cash and risk management effective April 11, 2011. Proxy Statement MDU Resources Group, Inc. Proxy Statement 27 COMPENSATION DISCUSSION AND ANALYSIS The Compensation Discussion and Analysis describes how our named executive officers were compensated for 2017 and how their 2017 compensation aligns with our pay for performance philosophy. It also describes the oversight of the compensation committee and the rationale and processes used to determine the 2017 compensation of our named executive officers including the objectives and specific elements of our compensation program. The Compensation Discussion and Analysis may contain statements regarding corporate performance targets and goals. The targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts. Our Named Executive Officers for 2017 were: David L. Goodin President and Chief Executive Officer (CEO) Jason L. Vollmer Vice President, Chief Financial Officer (CFO) and Treasurer David C. Barney President and Chief Executive Officer - Construction Materials and Contracting Segment Jeffrey S. Thiede President and Chief Executive Officer - Construction Services Segment Nicole A. Kivisto President and Chief Executive Officer - Electric and Natural Gas Distribution Segments Doran N. Schwartz Former Vice President and Chief Financial Officer Mr. Schwartz resigned his position effective September 29, 2017. Executive Summary Pay for Performance To ensure management’s interests are aligned with those of our stockholders and the performance of the company, over 75% of the CEO’s target compensation and over 60% of the other current named executive officers’ target compensation is dependent on the achievement of company performance targets. The charts below show the target pay mix for the CEO and average target pay mix of the other current named executive officers, including base salary and the annual and long-term at-risk performance incentives. CEO Target Pay Mix Base Salary: 23.5% Annual Incentive -Performance Based: 23.5% Long-Term Incentive -Performance Based: 53.0% Other Current Named Executive Officers Average Target Pay Mix Base Salary: 39.9% Annual Incentive - Performance Based: 27.3% Long-TermIncentive - Performance Based: 32.8% Proxy Statement 28 MDU Resources Group, Inc. Proxy Statement Annual Base Salary We provide our executive officers with base salary at a sufficient level to attract, recruit, and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job responsibilities. Consistent with our compensation philosophy of linking pay to performance, our executives receive a relative smaller percentage of their overall target compensation in the form of base salary. In establishing base salaries, the compensation committee considers each executive’s individual performance, the scope and complexities of their responsibilities, internal equity, and whether the executive’s base salary is competitive as measured against the base salaries of similarly situated executives in our peer group and market compensation data. Annual Cash Incentive Awards Annual cash incentive awards for our executive officers are linked to performance by rewarding achievement of operational and financial goals and ensuring our executive officers are focused and accountable for our growth and profitability. The design of the annual cash incentive award opportunities for 2017 was the same as the design used in 2016. Each executive is assigned a target annual incentive award based on a percentage of the executive’s base salary. The actual annual cash incentive realized is determined by multiplying the target award by the payout percentage associated with achievement of the executive’s performance measures. The compensation committee selected specific business segment financial performance measures for each business segment executive which represented 80% of their annual award opportunity. The other 20% of the business segment executives’ annual award opportunity was based on the achievement of overall company earnings per share (EPS). These measures incentivize our business segment executives to focus on the success and performance of their business segment while keeping the overall success of the company in mind. The annual cash incentive award for corporate executives (including our CEO and CFO) is based on the achievement of each business segment’s performance measures and weighted by each business segment’s invested capital relative to overall company invested capital. The executive’s target award is multiplied by the sum of the weighted achievement percentages for the business segments to derive the executive’s realized annual award. This incentivizes the corporate executives to assist the business segments in their success while still emphasizing overall company performance. See the “Annual Incentives” section within this Compensation Discussion and Analysis for further details on our company’s annual cash incentive program. The following chart shows the annual incentive payout of target realized by our CEO with a comparison to earnings per share from continuing operations for the last five years and demonstrates the alignment between our financial performance and realized annual cash incentive compensation. CEO Target Payout %EPS (from continuing operations) CEO Annual Incentive Paid 200% 150% 100% 50% 0% % o f T a r g e t P a y o u t $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00 EP S 2013 2014 2015 2016 2017 * 171.8% 90.6% 49.9% 139.8% 173.7% * MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act, which was signed into law December 22, 2017. The earnings per share absent the federal Tax Cuts and Jobs Act benefit is $1.25. Proxy Statement MDU Resources Group, Inc. Proxy Statement 29 Long-Term Equity-Based Incentive Awards Our compensation committee grants long-term incentives to our executives in the form of performance shares which vest into company stock plus dividend equivalents after a three-year period only if certain performance measures are achieved. The performance measure used for our long-term incentives is based on our company’s total stockholder return (TSR) in comparison to that of our peers measured over a three- year period. The following chart depicts the actual vesting percentage for the last five performance cycles and demonstrates the alignment between total return to our stockholders and our realized long-term incentive compensation. % of Target Paid 3 Year TSR (absolute) Long-Term Incentive Vested 200% 150% 100% 50% 0% % o f T a r g e t P a i d 50.0% 30.0% 10.0% -10.0% 3 Y e a r T S R 2011 - 2013 2012 - 2014 2013 - 2015 2014 - 2016 2015 - 2017 Performance Cycle 193% 0% 31% 68% 144% See the “Long-Term Incentives” section within this Compensation Discussion and Analysis for further details on the company’s long-term incentive program. With the majority of our executive officer’s compensation dependent on the achievement of performance measures set by the compensation committee, we believe there is substantial alignment between executive pay and the company’s performance. Stockholder Advisory Vote (“Say on Pay”) At our 2017 Annual Meeting of Stockholders, 95.8% of the votes cast on the “Say on Pay” proposal approved the compensation of our named executive officers. The compensation committee viewed the 2017 vote as an expression of the stockholders general satisfaction with the company’s executive compensation programs. The compensation committee reviewed and considered the 2017 vote on “Say on Pay” in setting compensation for 2018 by continuing to link performance-based annual and long-term incentives to company financial performance and shareholder value. Proxy Statement 30 MDU Resources Group, Inc. Proxy Statement Compensation Practices Our practices and policies ensure alignment between the interests of our stockholders and our executives as well as effective compensation governance. What We Do þ Pay for Performance - Annual and long-term award incentives tied to performance measures set by the compensation committee comprise the largest portion of executive compensation. þ Independent Compensation Committee - All members of the compensation committee meet the independence standards under the New York Stock Exchange listing standards and the Securities and Exchange Commission rules. þ Independent Compensation Consultant - The compensation committee retains an independent compensation consultant to evaluate executive compensation plans and practices. þ Competitive Compensation - Executive compensation reflects the executive’s performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, the business segment’s economic environment, and the actual performance of the overall company or the executive’s business segment. þ Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company achievement against pre-established financial measures. þ Long-Term Equity Incentive - The long-term equity incentive represents 53% of our CEO’s and approximately 33% of our other current named executive officer’s target compensation in the form of performance shares which may be earned based on relative TSR performance measured over a three-year period. þ Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct an annual broad risk assessment. þ Stock Ownership and Retention Requirements - Executive officers are required to own, within five years of appointment or promotion, company common stock equal to a multiple of their base salary. The executive officers must also retain at least 50% of the net after tax shares of stock vested through the long-term incentive plan for the earlier of two years or until termination of employment. þ Clawback Policy - If the company’s audited financial statements are restated, the compensation committee may, or shall if required, demand repayment of some or all incentives paid to our executive officers within the last three years. þ Performance Share Awards Purchased at Market - Performance share awards are purchased on the market to avoid shareholder dilution by issuing authorized but unissued shares. What We Don’t Do ý Stock Options - The company does not use stock options as a form of incentive compensation. ý Employment Agreements - Current executives do not have employment agreements entitling them to specific payments upon a change of control of the company. ý Perquisites - Executives do not receive perquisites which materially differ from those available to employees in general. ý Tax Gross-Ups - Executive officers do not receive tax gross-ups on any compensation. ý Hedge Stock - Executives and directors are not allowed to hedge company securities. ý Pledge Stock - Executives and directors are not allowed to pledge company securities in margin accounts or as collateral for loans. ý No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on unvested share awards. Proxy Statement MDU Resources Group, Inc. Proxy Statement 31 2017 Compensation Framework Objectives of our Compensation Program We have a written executive compensation policy for our executive officers, including all our named executive officers. Our policy’s stated objectives are to: • recruit, motivate, reward, and retain high performing executive talent required to create superior long-term total stockholder return in comparison to our peer group; • reward executives for short-term performance, as well as for growth in enterprise value over the long-term; • provide a competitive compensation package relative to industry-specific and general industry comparisons and internal equity; • ensure effective utilization and development of talent by working in concert with other management processes - for example, performance appraisal, succession planning, and management development; and • ensure that compensation programs do not encourage or reward excessive or imprudent risk taking. Compensation Decision Process for 2017 For 2017, the compensation committee made recommendations to the board of directors regarding compensation of all executive officers, and the board of directors then approved the recommendations. The CEO’s role in the process includes the assessment of executive officer performance and recommending base salaries for the executive officers other than himself. The CEO attended all the compensation committee meetings but was not present during discussions of his compensation. The compensation committee established and approved base salaries and performance measures for the annual and long-term incentive compensation for 2017. They also certified the achievement of performance measures associated with annual and long-term incentive compensation. At least every two years, the compensation committee hires an independent consulting firm to assess and recommend competitive pay levels, including base salaries and incentive compensation associated with executive officer positions. Typically the consulting firm conducts its analysis in even numbered years. In odd numbered years, the assessment is performed by the company’s human resources department using a variety of industry specific sources. In August 2016, Willis Towers Watson prepared the analysis of and provided recommendations for the 2017 compensation structure. Components of Compensation The components of our executive officer’s compensation are selected to drive financial and operational results as well as align the executive officer’s interests with those of our stockholders. The components of our executive compensation include: Component Payments Purpose How Determined How it Links to Performance Base Salary Assured Provides sufficient, regularly paid income to recruit and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job responsibilities. Based on recommendation from the CEO for executives other than himself and analysis of peer company and industry compensation information. Base salary is a means to attract and retain talented executives capable of driving success and performance. Annual Cash Incentive Performance Based At Risk Provides an opportunity to earn annual incentive compensation to ensure focus on annual financial and operating results and to be competitive from a total renumeration standpoint. Annual cash incentives are calculated as a percentage of base salary with payout based on the achievement of multiple performance measures established by the compensation committee. Annual incentive performance measures are tied to the achievement of financial goals aimed to drive the success of the company. Performance Shares Performance Based At Risk Provides an opportunity to earn long-term compensation to ensure focus on stockholder return and to be competitive from a total renumeration standpoint. Performance share award opportunities are calculated as a percentage of base salary with vesting based on the company’s total stockholder return over a three-year period in comparison to the company’s peer group. Fosters ownership in company stock and aligns the executive’s interests with those of the stockholder in increasing stockholder value. Proxy Statement 32 MDU Resources Group, Inc. Proxy Statement Allocation of Total Target Compensation for 2017 Total target compensation consists of base salary plus target annual and long-term incentive compensation. Performance-based compensation accounts for over 75% of our CEO’s and on average approximately 60% of our other current named executive officers’ total target compensation. Incentive compensation, which consists of annual cash incentive and three-year performance share award opportunities, comprises the largest portion of our named executive officers’ total target compensation because: • our named executive officers are in positions to drive, and therefore bear high levels of responsibility for our corporate performance; • incentive compensation is dependent upon our performance; • incentive compensation helps ensure focus on performance measures that are aligned with our overall strategy; and • the interests of the named executive officers are aligned with those of stockholders by making a significant portion of their target compensation contingent upon results beneficial to stockholders. To foster and reward long-term growth, the compensation committee generally allocates a higher percentage of total target compensation to the target long-term incentive than to the target annual incentive for our higher level executives because they are in a better position to influence our long-term performance. The long-term incentive awards, if earned by achieving performance measures, are paid in company common stock. These awards, combined with our stock retention requirements and our stock ownership policy, promote ownership of our stock by the executive officers. The compensation committee believes, as stockholders, the executive officers will be motivated to deliver results that build value for all stockholders over the long term. Peer Group The compensation committee evaluates the company’s compensation plan and its performance relative to a group of peer companies in determining compensation and the vesting of long-term incentive compensation. The companies included in our peer group are evaluated every year and are selected to be representative of the industries in which we operate. Questar was removed from our peer group for 2017 due to its acquisition by Dominion Energy. The following chart depicts the companies included in our 2017 peer group. 2017 Peer Companies Regulated Energy Delivery Construction Materials and Services ALLETE, Inc.EMCOR Group, Inc. Alliant Energy Corporation Granite Construction Incorporated Atmos Energy Corporation IES Holdings, Inc. Avista Corporation Martin Marietta Materials, Inc. Black Hills Corporation MYR Group, Inc. IDACORP, Inc.Quanta Services, Inc. National Fuel Gas Company Sterling Construction Company, Inc. Northwest Natural Gas Company U.S. Concrete, Inc. NorthWestern Corporation Vulcan Materials Company Vectren Corporation Proxy Statement MDU Resources Group, Inc. Proxy Statement 33 2017 Compensation for Our Named Executive Officers 2017 Salary and Incentive Targets At its November 2016 meeting, the compensation committee considered the company’s financial performance, return on invested capital for the company and individual business segments, the compensation report prepared and presented by Willis Towers Watson at its August 2016 meeting, executive performance appraisals, each executive’s tenure in position, and input and recommendations from the CEO and human resources department, in approving base salaries for the named executive officers for 2017. Mr. Goodin was not present during the portion of the meeting where the compensation committee discussed and approved the president and CEO base salary for 2017. At its February 2017 meeting, the compensation committee approved the annual and long-term incentive opportunities for our named executive officers. The following information relates to each named executive officer’s base salary, target cash annual incentive, target long-term incentive, and total direct compensation: David L. Goodin 2017($)Compensation Component as a % of Base Salary Base Salary 792,750 n/a Target Annual Incentive Opportunity 792,750 Target Long-Term Incentive Opportunity 1,783,688 Target Total Potential Direct Compensation 3,369,188 The Compensation Committee increased Mr. Goodin’s base salary by 5% for 2017 based on his and the company’s performance in 2016. No changes were made to Mr. Goodin’s annual or long-term incentive targets as a percentage of base salary for 2017. Jason L. Vollmer 2017($)Compensation Component as a % of Base Salary Base Salary 350,000 n/a Target Annual Incentive Opportunity 132,981 Target Long-Term Incentive Opportunity 112,750 Target Total Potential Direct Compensation 595,731 David C. Barney 2017($)Compensation Component as a % of Base Salary Base Salary 427,140 n/a Target Annual Incentive Opportunity 320,355 Target Long-Term Incentive Opportunity 384,426 Target Total Potential Direct Compensation 1,131,921 Mr. Barney received a 5% increase in base salary for 2017 due to his success in management of the construction materials and contracting segment to a record year of earnings in 2016. For 2017, the compensation committee maintained Mr. Barney’s target annual incentive opportunity at 75% of his base salary but increased his long-term incentive opportunity from 80% to 90% to be consistent with the other business unit presidents and to be competitive with construction industry peers. Jeffrey S. Thiede 2017($)Compensation Component as a % of Base Salary Base Salary 437,750 n/a Target Annual Incentive Opportunity 328,313 Target Long-Term Incentive Opportunity 393,975 Target Total Potential Direct Compensation 1,160,038 Mr. Thiede received a 3% increase in his base salary for 2017 in recognition of his successful management of the construction services segment during 2016. For 2017, the compensation committee maintained Mr. Thiede’s target annual cash incentive opportunity at 75% of base salary but increased his long-term incentive opportunity from 80% to 90% to be consistent with the other business unit presidents and to be consistent with construction industry peers. Proxy Statement 34 MDU Resources Group, Inc. Proxy Statement Nicole A. Kivisto 2017($)Compensation Component as a % of Base Salary Base Salary 378,000 n/a Target Annual Incentive Opportunity 245,700 Target Long-Term Incentive Opportunity 340,200 Target Total Potential Direct Compensation 963,900 Ms. Kivisto received a base salary increase of 18% reflecting her success and management of the electric and natural gas distribution segments in 2016, her tenure within her position, and internal equity. No changes were made to her target annual and long-term incentive opportunities as a percentage of base salary for 2017. Doran N. Schwartz 2017($)Compensation Component as a % of Base Salary Base Salary 391,500 n/a Target Annual Incentive Opportunity 254,475 Target Long-Term Incentive Opportunity 352,350 Target Total Potential Direct Compensation 998,325 Mr. Schwartz received a 3% increase in base salary to reflect his successful management of the accounting and finance areas of the company during 2016. No changes were made to his target annual or long-term incentive opportunities as a percentage of base salary for 2017. Mr. Schwartz resigned his position on September 29, 2017, and as a result he was not eligible to receive an annual cash or long-term incentive award payment for 2017. Annual Incentives Annual incentive awards are determined for business segment executives by the achievement of specific performance measures selected by the compensation committee including financial performance measures specific to each business segment and a performance measure based on overall company EPS. For corporate executives, annual incentive awards are determined as the sum of the weighted portion of the percentage award payout of each business segment based upon achievement of its performance measures and weighted by the business segment’s invested capital relative to the overall company invested capital. Through this, our business segment executives are incentivized to primarily focus on the success and performance of their business segment while keeping the overall financial success of the company in mind, whereas our corporate executives are incentivized to assist in the success and performance of all lines of business. The compensation committee considered and selected financial performance measures to ensure that compensation to the executives reflects the success of their respective business segments and the company as well as value provided to our stockholders. Each business segment president’s performance measures include a corporate earnings per share performance measure representing 20% of the target award opportunity and business segment financial performance measures representing 80% of the award opportunity. The following annual incentive performance measures for 2017 were adopted by the compensation committee for the business segment presidents (exclusive of the MDU Resources Group, Inc. corporate executive officers) at the February 2017 meeting: Proxy Statement MDU Resources Group, Inc. Proxy Statement 35 Measure Applies to Purpose Measurement Target Weight How Target was Selected MDU Resources Diluted Adjusted Earnings per Share (EPS) All the Business Segment Presidents EPS is a generally accepted accounting principle (GAAP) measurement and is a key driver of stockholder return. This goal applies to the presidents of all business segments to engage them as members of the company’s Management Policy Committee in the overall success of the company. GAAP EPS (diluted) before discontinued operations plus any operations discontinued after December 31, 2016 and adjusted to remove: - the effect on earnings from losses on asset sales/dispositions pre- approved by the board, - the effect on earnings from withdrawal liabilities relating to multi-employer pension plans, - the effect on earnings from any acquisitions, mergers, or divestitures initiated in 2017, and - the effect on earnings from amendments to the United States tax code adopted in 2017. $1.15 20% Target reflects anticipated EPS performance within the range of guidance for 2017 while also being higher than 2016 target and actual results. Return on Invested Capital (ROIC) Electric and Natural Gas Distribution Segments President Provides a measure of how effective the business segment uses its capital and generates a return from its capital. These segments are primarily regulated entities requiring significant capital investment. ROIC is important in providing a return to our stockholders. Business segment earnings, without regard to after tax interest expense and preferred stock dividends divided by the business segment’s average capitalization for the calendar year. 4.7% 40% Target reflects returns necessary to achieve the segments’ risk adjusted capital costs while also being higher than 2016 target and actual results in expectation of regulatory rate relief for major capital investments made in 2015. Pipeline and Midstream Segment President 6.0% 40% Target reflects returns necessary to achieve the segment’s risk adjusted capital costs while also being higher than the 2016 target but lower than the 2016 actual results in recognition of lower expected revenues in 2017 resulting from the sale of the Pronghorn gas processing plant. Business Segment Earnings Electric and Natural Gas Distribution Segments President Provides a measure of financial performance. GAAP business segment earnings adjusted to exclude: - the effect on earnings from losses on asset sales/dispositions pre- approved by the board, - the effect on earnings from withdrawal liabilities related to multi-employer pension plans, - the effect on earnings from any acquisitions, mergers, or divestitures initiated in 2017, and - the effect on earnings from amendments to the United States tax code adopted in 2017. $77.7 million 40% Target reflects earnings necessary to achieve the segments’ risk adjusted capital costs while also being higher than 2016 target and actual results. Pipeline and Midstream Segment President $18.0 million 40% Target reflects earnings necessary to achieve the segment’s risk adjusted capital costs while lower than 2016 target and actual results in recognition of lower expected earnings in 2017 resulting from the sale of the Pronghorn gas processing plant. Construction Materials and Contracting Segment President $63.6 million 80% Target reflects earnings necessary to achieve the segment’s risk adjusted capital costs and higher than 2016 target but lower than 2016 actual results in recognition that factors contributing to the segment’s record success in 2015 and 2016, such as favorable weather, may not be repeated in 2017. Construction Services Segment President $28.1 million 80% Target reflects earnings above that necessary to achieve the segment’s risk adjusted capital costs but lower than 2016 target and actual earnings in recognition of the segment’s expectation for growth but offset by the loss of earnings from solar generation projects completed in 2016. Proxy Statement 36 MDU Resources Group, Inc. Proxy Statement Actual performance results are compared to target performance measures to arrive at a percent of target achieved. The percent of target achieved is translated into a payout percentage of the target award opportunity with 100% achievement of a performance measure corresponding to a payout equal to the target annual award opportunity. Receipt of a payout requires threshold achievement of a performance measure which varies by business segment. For the company EPS performance measure, as well as the regulated energy delivery companies’ business segment performance measures, threshold payout requires achievement of 85% of the target performance measure which results in a payout of 25% of the award opportunity. For the construction materials and contracting and construction services business segments’ performance measures, threshold payout requires earnings of an amount necessary to achieve a return on invested capital equal to the segment’s risk adjusted capital costs. Maximum payouts also vary by business segment. For the company EPS performance measure, as well as the regulated energy delivery companies’ business segment performance measures, maximum payout of 200% of the award opportunity is received if the percent of target achieved is 115% or greater. For the construction materials and contracting business segment performance measure, payout levels of 200%, and a maximum payout level of 250%, is received if earnings achieve returns on invested capital of 11.9% and 12.9%, respectively. For the construction services business segment performance measure, payout levels of 200%, and a maximum payout level of 250%, is received if earnings achieve returns on invested capital of 11.5% and 14.9%, respectively. Results achieved between the payout levels are calculated using linear interpolation. 2017 Annual Performance Incentive Results The following table shows the 2017 performance measure results, percent of target achieved based on those results, and the associated payout percentages: Business Segment Performance Measure Result Percent of Performance Measure Achieved Percent of Award Opportunity Payout Weight Weighted Award Opportunity Payout % All Business Segments Earnings per Share $1.26 32.8% Electric and Natural Gas Distribution Segments Earnings $88.0 million 75.4% ROIC 68.4% Pipeline and Midstream Segment Earnings $20.6 million 79.1% ROIC 80.0% Construction Materials and Contracting Segment Earnings $81.5 million 118.2% Construction Services Segment Earnings $49.0 million 193.7% For our corporate named executive officers, namely Messrs. Goodin and Vollmer, the compensation committee continued to base the payout of the annual cash incentives on the achievement of performance measures at the business segments weighted by each business segment’s average invested capital relative to the company’s total invested capital. The compensation committee believes this approach provides alignment between our corporate executives and business segment performance. Messrs. Goodin’s and Vollmer’s 2017 annual cash incentives were earned at 173.7% of the target award opportunity based on the following proportional weighted sum of the annual business segment payouts: Business Segment Column A Business Segment Award Opportunity Payout Column B Percentage of Average Invested Capital Column A x Column B Electric and Natural Gas Distribution 106.5% Pipeline and Midstream 16.5% Construction Materials and Contracting 33.2% Construction Services1 192.8%9.1%17.5% Total Payout Percentage 173.7% 1 For purposes of calculating the annual incentive payouts for corporate executives, the award opportunity payout associated with the earnings performance measure for the construction services segment was limited to 200%, which resulted in an unweighted construction services segment award opportunity payout percentage of 192.8% whereas the construction services segment president achieved an award opportunity payout of 226.5%. Proxy Statement MDU Resources Group, Inc. Proxy Statement 37 Based on the achievement of the performance targets, the named executive officers received the following 2017 annual incentive compensation: Name Target AnnualIncentive ($) Annual Incentive Earned Payout as a % of Target (%)Amount($) David L. Goodin 792,750 173.7 1,377,007 Jason L. Vollmer1 132,981 173.7 230,988 David C. Barney 320,355 151.0 483,736 Jeffrey S. Thiede 328,313 226.5 743,629 Nicole A. Kivisto 245,700 176.6 433,906 Doran N. Schwartz2 254,475 —— 1 Mr. Vollmer’s target annual incentive is prorated based on three months in his new position as vice president, CFO and treasurer and nine months in his former position as vice president, chief accounting officer and treasurer. 2 Mr. Schwartz resigned effective September 29, 2017. As a result, he was not eligible for an annual incentive payment. Long-Term Incentives As in the past, the compensation committee used performance shares as the form of long-term incentive compensation for 2017 and established the company’s total stockholder return as a percentile of the total stockholder return for the peer group companies over a three- year period as the performance measure for vesting of long-term incentive compensation. Total stockholder return is the percentage change in the value of an investment in the common stock of a company from the closing price on the last trading day in the calendar year preceding the beginning of the performance period through the last trading day in the final year of the performance period. It is assumed that dividends are reinvested in additional shares of common stock at the frequency paid during the performance period. The compensation committee selected total stockholder return as the performance measure because long-term executive incentive compensation should align with our long-term performance in stockholder return as compared to other public companies in our industries. Depending on our total three-year stockholder return compared to the total three-year stockholder returns of our peer group companies, vesting of performance share award opportunities for our named executive officers can range from 0% to 200% of the target award. Vesting of the performance share opportunities will be a function of our rank over the performance period against our peer group companies as delineated in the following table: The Company’s Peer TSR Percentile Rank Vesting Percentage of Award Target 75th or higher 200% 50th 100% 25th 20% Less than 25th 0% Vesting for percentile ranks falling between the intervals is interpolated. If our total stockholder return over the performance period is negative, the shares and dividend equivalents otherwise earned based on the payout percentages above, if any, are reduced in accordance with the following table: Total Stockholder Return Reduction in Vesting 0% through -5%50% -5.01% through -10%60% -10.01% through -15%70% -15.01% through -20%80% -20.01% through -25%90% -25.01% or below 100% Proxy Statement 38 MDU Resources Group, Inc. Proxy Statement Dividend equivalents are paid at the time of settlement in cash based on the number of shares actually vested for the performance period. No dividend equivalents are paid on unvested performance shares. Actual vesting of performance share awards under the plan over the last five years is shown below: Performance Period Vesting Percentage 2015-2017 144% 2014-2016 68% 2013-2015 31% 2012-2014 0% 2011-2013 193% Results of 2015-2017 Performance Period Our total stockholder return ranking among the peer group companies prior to our exit from the oil and gas exploration business for the period of January 1, 2015 through November 30, 2015 was 21 out of 24, and the ranking among the peer group companies adjusted for our exit from the oil and gas exploration business for the period of December 1, 2015 through December 31, 2017 was 5 out of 20. This produced a combined percentile ranking of 61% for the 2015-2017 performance period which resulted in a 144% vesting of performance shares and dividend equivalents. The named executive officers received the following long-term compensation for the 2015-2017 performance period: Name Target Performance Shares (#) Performance Shares Vested (#) Dividend Equivalents ($) Value of Shares and Dividend Equivalents at 12/29/17 ($)1 David L. Goodin 72,164 103,916 235,370 3,029,151 Jason L. Vollmer 1,911 2,751 6,231 80,192 David C. Barney 11,745 16,912 38,306 492,985 Jeffrey S. Thiede 12,638 18,198 41,218 530,472 Nicole A. Kivisto 12,234 17,616 39,900 513,506 Doran N. Schwartz2 14,528 ——— 1 Based on the average of the high and low share price at December 29, 2017, which was $26.885. 2 Mr. Schwartz resigned his position effective September 29, 2017; as a result he forfeited his performance shares. 2017-2019 Performance Period On February 15, 2017, for the 2017-2019 performance period, the compensation committee determined the target number of performance shares for each named executive officer by multiplying the named executive officer’s 2017 base salary by a target long-term incentive percentage and then dividing by the average of the closing prices of our stock from January 1 through January 22, 2017, which was $28.82 per share. Based on this price, the board of directors, upon recommendation of the compensation committee, awarded the following performance share opportunities to the named executive officers: Name Base Salary to Determine Target ($) Target Long-Term Incentive % (%) Long-Term Incentive Target ($) Performance Share Opportunities (#) David L. Goodin 792,750 225 1,783,688 61,890 Jason L. Vollmer1 225,500 50 112,750 3,912 David C. Barney 427,140 90 384,426 13,338 Jeffrey S. Thiede 437,750 90 393,975 13,670 Nicole A. Kivisto 378,000 90 340,200 11,804 Doran N. Schwartz2 391,500 90 352,350 12,225 1 Based on Mr. Vollmer’s position and salary on the date of grant. 2 Mr. Schwartz’s shares were forfeited upon his resignation effective September 29, 2017. Proxy Statement MDU Resources Group, Inc. Proxy Statement 39 The named executive officers must retain 50% of the net after-tax performance shares vested pursuant to the long-term incentive award until the earlier of two years from the date the vested shares are issued or the executive’s termination of employment. If the executive’s employment is terminated during the performance period for cause at any time, or for any reason other than cause before the executive has reached age 55 and completed ten years of service, all performance shares and related dividend equivalents are forfeited. The compensation committee may also require the executive officer to retain performance shares net of taxes if the executive has not met the stock ownership requirements under the company’s stock ownership policy for executives. Proxy Statement 40 MDU Resources Group, Inc. Proxy Statement Other Benefits The company provides post employment benefit plans and programs in which our named executive officers may be participants. We believe it is important to provide post-employment benefits which approximate retirement benefits paid by other employers to executives in similar positions. The compensation committee periodically reviews the benefits provided to maintain a market-based benefits package. Our named executive officers participated in the following plans during 2017 which are described below: Plans David L. Goodin Jason L. Vollmer David C. Barney Jeffrey S. Thiede Nicole A. Kivisto Doran N. Schwartz 401(k)Yes Yes Yes Yes Yes Yes Pension Yes Yes No No Yes Yes Supplemental Income Security Plan Yes No Yes No Yes Yes Nonqualified Defined Contribution Plan No Yes Yes Yes No No 401(k) Retirement Plan The named executive officers as well as all employees working a minimum of 1,000 hours per year are eligible to participate in the 401(k) plan and defer annual income up to the IRS limit. The company provides a match up to 3% of the employee’s elected deferral rate. Contributions and the company match are invested in various funds based on the employee’s election including company common stock. In 2010, the company began offering increased company contributions to our 401(k) plan in lieu of pension plan contributions. For non- bargaining unit employees hired after 2006 or who were not previously participants in the pension plan, the added retirement contribution is 5% of plan eligible compensation. For non-bargaining unit employees hired prior to 2006 and who were participants in the pension plan, the added retirement contributions are based on the employee’s age as of December 31, 2009. The retirement contribution is 11.5% for Mr. Goodin, 10.5% for Mr. Schwartz, 9.0% for Ms. Kivisto, 7.0% for Mr. Vollmer, and 5.0% for Messrs. Barney and Thiede. These amounts may be reduced in accordance with the provisions of the 401(k) plan to meet IRS limits. Pension Plans Effective in 2006, the defined benefit pension plans were closed to new non-bargaining unit employees and as of December 31, 2009, the defined benefit plans were frozen. For further details regarding the company’s pension plans, please refer to the section entitled “Pension Benefits for 2017.” Supplemental Income Security Plan We offer certain key managers and executives benefits under a nonqualified retirement plan, referred to as the Supplemental Income Security Plan (SISP). The SISP provides participants with additional retirement income and death benefits. Effective February 11, 2016, the SISP was amended to exclude new participants to the plan and freeze current benefit levels for existing participants. For further details regarding the company’s SISP, please refer to the section entitled “Pension Benefits for 2017.” Named executive officers participating in the SISP are Messrs. Goodin, Barney, and Schwartz, and Ms. Kivisto. The following table reflects our named executive officers’ SISP benefits as of December 31, 2017: Name SISP Benefits Annual Death Benefit($)Annual Retirement Benefit($) David L. Goodin 552,960 276,480 Jason L. Vollmer —— David C. Barney 262,464 131,232 Jeffrey S. Thiede —— Nicole A. Kivisto 157,728 78,864 Doran N. Schwartz 262,464 131,232 Nonqualified Defined Contribution Plan The company adopted the Nonqualified Defined Contribution Plan (NQDCP) effective January 1, 2012, to provide retirement and deferred compensation for a select group of management and other highly compensated employees. The compensation committee, upon recommendation from the CEO, determines which employees will participate in the NQDCP and the amount of contributions for any year. After satisfying a vesting requirement for each contribution, distributions will be made in accordance with the terms of the plan. For further details regarding the company’s NQDCP, please refer to the section entitled “Nonqualified Deferred Compensation for 2017.” For 2017, the compensation committee selected and approved contributions of $100,000 to Mr. Thiede, $150,000 to Mr. Barney, and $22,550 to Mr. Vollmer. The contributions awarded to Messrs. Barney, Thiede, and Vollmer represent 35.18%, 22.84%, and 10% of their base salaries, respectively. Employment and Severance Agreements We currently do not have employment or severance agreements with our executives entitling them to specific payments upon termination of employment or a change of control of the company. The compensation committee generally considers providing severance benefits on a case-by-case basis. Any post-employment or change of control benefits available to our executives are addressed within our incentive and retirement plans. Please refer to the section entitled “Potential Payments upon Termination or Change of Control.” Proxy Statement MDU Resources Group, Inc. Proxy Statement 41 Compensation Governance Impact of Tax and Accounting Treatment The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation. Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation to $1 million paid to certain officers as a business expense in any tax year. When the compensation committee made its decisions for 2017 compensation, the tax code provided that compensation that qualified as “performance-based” was excluded from the $1 million deductibility limit if, among other requirements, the compensation was payable only upon attainment of pre-established, objective performance goals under a plan approved by our stockholders. Legislation signed into law in December 2017 (Tax Reform), however, expanded the number of individuals covered by the Section 162(m) deductibility limit and repealed the exception for performance-based compensation, effective for taxable years beginning after December 31, 2017. Incentive compensation approved by the compensation committee prior to the Tax Reform for our CEO and those executive officers whose overall compensation was likely to exceed $1 million was generally structured to meet the requirements for deductibility for purposes of Section 162(m). As a result of the Tax Reform, compensation paid to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. We expense salaries and annual incentive compensation as earned. For our equity awards, we record the accounting expense in accordance with Financial Accounting Standards Board 718, which is generally expensed over the vesting period. Stock Ownership Requirements Executives participating in our Long-Term Performance-Based Incentive Plan are required within five years of appointment or promotion into an executive level to own our common stock equal to a multiple of their base salary as outlined in the stock ownership policy. Stock owned through our 401(k) plan or by a spouse is considered in ownership calculations. The level of stock ownership compared to the ownership requirement is determined based on the closing sale price of our stock on the last trading day of the year and base salary at December 31 of the same year. The table shows the named executive officers’ holdings as a multiple of their base salary. Name Ownership Policy Multiple of Base Salary within 5 Years Actual Holdings as a Multiple of Base Salary1 Ownership requirement must be met by: David L. Goodin 4X 6.0 1/1/2018 Jason L. Vollmer 3X 0.4 1/1/2023 David C. Barney 3X 1.5 1/1/2019 Jeffrey S. Thiede 3X 1.3 1/1/2019 Nicole A. Kivisto 3X 2.9 1/1/2020 Doran N. Schwartz n/a n/a n/a 1 Includes stock awards earned net of taxes for the 2015-2017 performance period. Deferral of Annual Incentive Compensation We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer all or part of an annual incentive, we credit the deferral with interest at a rate determined by the compensation committee. For 2017, the compensation committee chose to use an interest rate of 4.38% based on an average of the Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” and “Baa” rated companies. The compensation committee’s reasons for using this interest rate recognized incentive deferrals are a low-cost source of capital for the company and are unsecured obligations and, therefore, carry a higher risk to the executives. Clawback In February 2016, we amended our Long-Term Incentive Plan and Executive Incentive Compensation Plan sections regarding the repayment of incentive compensation due to accounting restatements, commonly referred to as a clawback policy. The compensation committee may, or shall if required, take action to recover incentive-based compensation from specific executives in the event the company is required to restate its financial statements due to material noncompliance with any financial reporting requirements under the securities laws. Policy Regarding Hedging Stock Ownership Our executive compensation policy prohibits executive officers, which includes our named executive officers, from hedging their ownership of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership. See the section entitled “Security Ownership” for our policy on margin accounts and pledging of our stock. Proxy Statement 42 MDU Resources Group, Inc. Proxy Statement COMPENSATION COMMITTEE REPORT The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Regulation S-K, Item 402(b), with management. Based on the review and discussions referred to in the preceding sentence, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our Proxy Statement on Schedule 14A. Thomas Everist, Chair Karen B. Fagg William E. McCracken Patricia L. Moss EXECUTIVE COMPENSATION TABLES MDU Resources Group, Inc. Proxy Statement 43 Summary Compensation Table for 2017 Name and Principal Position (a)Year(b) Salary ($)(c) Bonus ($)(d) Stock Awards ($)(e)1 Option Awards ($)(f) Non-Equity Incentive Plan Compensation ($)(g) Change in Pension Value andNonqualified Deferred Compensation Earnings ($)(h)2 All Other Compensation ($)(i)3 Total ($)(j) David L. Goodin 2017 792,750 — 1,504,546 — 1,377,007 342,727 40,971 4,058,001 President and CEO 2016 755,000 — 1,441,954 — 1,055,490 218,301 40,246 3,510,991 2015 755,000 — 1,386,992 — 376,745 — 39,411 2,558,148 Jason L. Vollmer4 2017 256,625 — 95,101 — 230,988 3,681 48,156 634,551 Vice President, CFO and Treasurer David C. Barney 2017 427,140 — 324,247 — 483,736 93,786 173,331 1,502,240 President and CEO of 2016 406,800 — 276,232 — 593,114 77,565 22,905 1,376,616 Knife River Corporation 2015 395,000 — 225,739 — 637,588 9,530 22,556 1,290,413 Jeffrey S. Thiede 2017 437,750 — 332,318 — 743,629 — 123,163 1,636,860 President and CEO of 2016 425,000 — 288,598 — 489,600 — 122,708 1,325,906 MDU Construction 2015 425,000 — 242,902 — 161,857 — 172,506 1,002,265 Services Group, Inc. Nicole A. Kivisto5 2017 378,000 — 286,955 — 433,906 96,931 33,049 1,228,841 President and CEO of Montana-Dakota Utilities Co. Doran N. Schwartz6 2017 291,748 — 297,190 —— 118,256 36,665 743,859 Former Vice President 2016 380,000 6,175 290,292 — 345,306 77,084 35,772 1,134,629 and CFO 2015 380,000 — 279,228 — 123,253 — 35,571 818,052 1 Amounts in this column represent the aggregate grant date fair value of performance share award opportunities at target calculated in accordance with Financial Accounting Standards Board (FASB) generally accepted accounting principles for stock-based compensation in FASB Accounting Standards Codification Topic 718. This column was prepared assuming none of the awards were or will be forfeited. The amounts were calculated using the Monte Carlo simulation, as described in Note 10 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017. For 2017, the total aggregate grant date fair value of performance share award opportunities assuming the highest level of payout would be as follows: Name Aggregate grant date fair value at highest payout ($) David L. Goodin 3,009,092 Jason L. Vollmer 190,201 David C. Barney 648,494 Jeffrey S. Thiede 664,635 Nicole A. Kivisto 573,910 Doran N. Schwartza 594,380 a Mr. Schwartz resigned effective September 29, 2017. As a result, he forfeited performance shares reported in column e. 2 Amounts shown for 2017 represent the change in the actuarial present value for the named executive officers’ accumulated benefits under the pension plan, SISP, and Excess SISP, collectively referred to as the “accumulated pension change,” plus above-market earnings on deferred annual incentives as of December 31, 2017. Name Above Market Interest ($) David L. Goodin 330,392 12,335 Jason L. Vollmer 3,681 — David C. Barney 93,786 — Nicole A. Kivisto 96,629 302 Doran N. Schwartz 118,256 — 3 All Other Compensation is comprised of: Name 401(k) ($)a Life Insurance Premium ($) Matching Charitable Contributions ($) Nonqualified Defined Contribution Plan ($) Total ($) David L. Goodin 39,150 621 1,200 — 40,971 Jason L. Vollmer 24,826 280 500 22,550 48,156 David C. Barney 21,600 531 1,200 150,000 173,331 Jeffrey S. Thiede 21,600 543 1,020 100,000 123,163 Nicole A. Kivisto 32,400 469 180 — 33,049 Doran N. Schwartzb 36,000 365 300 — 36,665 a Represents company contributions to the 401(k) plan, which includes matching contributions and retirement contributions made after the pension plans were frozen at December 31, 2009. b Mr. Schwartz resigned effective September 29, 2017. 4 Mr. Vollmer was promoted to vice president, chief financial officer and treasurer effective September 30, 2017. He appears as a named executive officer for the first time in 2017. 5 Ms. Kivisto was promoted to president and chief executive officer of the electric and natural gas distribution segments effective January 9, 2015. She appears as a named executive officer for the first time in 2017. 6 Mr. Schwartz resigned effective September 29, 2017. As a result, he forfeited performance shares reported in column e. Proxy Statement 44 MDU Resources Group, Inc. Proxy Statement Grants of Plan-Based Awards in 2017 Estimated Future Payouts Under Non-EquityIncentive Plan Awards Estimated Future Payouts Under EquityIncentive Plan Awards Grant Date Fair Value ofStock and Option Awards ($) (l)Name (a) Grant Date (b) Threshold ($) (c) Target ($) (d) Maximum ($) (e) Threshold (#) (f) Target (#) (g) Maximum (#) (h) David L. Goodin 2/15/2017 1 198,188 792,750 1,585,500 2/15/2017 2 12,378 61,890 123,780 1,504,546 Jason L. Vollmer4 2/15/2017 3 33,245 132,981 265,962 2/15/2017 2 782 3,912 7,824 95,101 David C. Barney 2/15/2017 1 80,089 320,355 768,852 2/15/2017 2 2,668 13,338 26,676 324,247 Jeffrey S. Thiede 2/15/2017 1 82,078 328,313 787,951 2/15/2017 2 2,734 13,670 27,340 332,318 Nicole A. Kivisto 2/15/2017 3 61,425 245,700 491,400 2/15/2017 2 2,361 11,804 23,608 286,955 Doran N. Schwartz5 2/15/2017 1 63,619 254,475 508,950 2/15/2017 2 2,445 12,225 24,450 297,190 1 Annual incentive for 2017 granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan. 2 Performance shares for the 2017-2019 performance period granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan. 3 Annual incentive for 2017 granted pursuant to the MDU Resources Group, Inc. Executive Incentive Compensation Plan. 4 Mr. Vollmer’s non-equity incentive award shown in columns c, d, and e is prorated based on his promotion effective September 30, 2017. 5 Mr. Schwartz resigned effective September 29, 2017, and forfeited his non-equity and equity incentive plan awards. Narrative Discussion Relating to the Summary Compensation Table and Grants of Plan-Based Awards Table Annual Incentive The compensation committee recommended the 2017 annual incentive award opportunities for our named executive officers and the board approved these opportunities at its meeting on February 15, 2017. The award opportunities at threshold, target, and maximum are reflected in columns (c), (d), and (e), respectively, of the Grants of Plan-Based Awards Table. The actual amount paid with respect to 2017 performance is reflected in column (g) of the Summary Compensation Table. As described in the “Annual Incentives” section of the “Compensation Discussion and Analysis,” payment of annual award opportunities is dependent upon achievement of performance measures; actual payout may range from 0% to 200% of the target except for the construction materials and contracting and construction services segments which may range from 0% to 240%. Messrs. Goodin, Schwartz, Barney, and Thiede received their 2017 annual incentive award opportunities pursuant to the Long-Term Performance-Based Incentive Plan. To be eligible to receive a payment, they must remain employed by the company through December 31, 2017. Mr. Schwartz resigned his position effective September 29, 2017, and therefore was not eligible to receive an annual incentive award. The performance measures associated with the annual incentive may not be adjusted if the adjustment would increase their annual incentive award payment, unless the compensation committee determined and established the adjustment in writing within 90 days of the beginning of the performance period. The compensation committee may at its sole discretion use negative discretion based on subjective or objective measures and adjust any annual incentive award payment downward. Mr. Vollmer and Ms. Kivisto were awarded their annual incentive opportunities pursuant to the MDU Resources Group, Inc. Executive Incentive Compensation Plan. Under the Executive Incentive Compensation Plan, executives who retire during the year at age 65 remain Proxy Statement MDU Resources Group, Inc. Proxy Statement 45 eligible to receive an award, but executives who terminate employment for other reasons are not eligible for an award. The compensation committee generally does not modify the performance measures; however, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected management’s ability to achieve the specified performance measures, the compensation committee, in consultation with the CEO, may modify the performance measures. The compensation committee has full discretion to determine the extent to which goals have been achieved, the payment level, and whether to adjust payment of awards downward based upon individual performance. For further discussion of the specific 2017 incentive plan performance measures and results, see the “Annual Incentives” section in the “Compensation Discussion and Analysis.” Long-Term Incentive The compensation committee recommended long-term incentive award opportunities for the named executive officers in the form of performance shares, and the board approved the award opportunities at its meeting on February 15, 2017. The long-term incentive opportunities are presented as the number of performance shares at threshold, target, and maximum in columns (f), (g), and (h) of the Grants of Plan-Based Awards Table. The value of the long-term performance-based incentive opportunities is based on the aggregate grant date fair value and is reflected in column (e) of the Summary Compensation Table and column (l) of the Grant of Plan-Based Awards Table. Depending on our 2017-2019 total stockholder return compared to the total three-year stockholder returns of our peer group companies, executives will receive from 0% to 200% of the target awards in February 2020. We also will pay dividend equivalents in cash on the number of shares actually vested for the performance period. The dividend equivalents will be paid in 2020 at the same time as the performance share awards are issued. In the event the company’s 2017-2019 total stockholder return is negative, the number of shares that would otherwise vest for the performance period will be reduced from 50% to 100%. For further discussion of the specific long-term incentive plan, see the “Long-Term Incentives” section in the “Compensation Discussion and Analysis.” Nonqualified Defined Contribution Plan The CEO recommends participants and contribution amounts to the Nonqualified Defined Contribution Plan which are approved by the compensation committee of the board of directors. The purpose of the plan is to recognize outstanding performance coupled with enhanced retention as the Nonqualified Defined Contribution Plan requires a vesting period. The amount shown in column (i) - All Other Compensation of the Summary Compensation Table includes contributions of $100,000 for Mr. Thiede, $150,000 for Mr. Barney, and $22,550 for Mr. Vollmer. For further information, see the section entitled “Nonqualified Deferred Compensation for 2017.” Salary and Bonus in Proportion to Total Compensation The following table shows the proportion of salary and bonus to total compensation: Name Salary ($) Bonus ($) Total Compensation ($) Salary and Bonus as a % of Total Compensation David L. Goodin 792,750 —4,058,001 19.5% Jason L. Vollmer 256,625 —634,551 40.4% David C. Barney 427,140 —1,502,240 28.4% Jeffrey S. Thiede 437,750 —1,636,860 26.7% Nicole A. Kivisto 378,000 —1,228,841 30.8% Doran N. Schwartz 291,748 —743,859 39.2% Proxy Statement 46 MDU Resources Group, Inc. Proxy Statement Outstanding Equity Awards at Fiscal Year-End 2017 Stock Awards Name (a) Number of Shares or Units of Stock That Have NotVested (#) (g) Market Value of Shares or Units of StockThat Have Not Vested ($) (h) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights ThatHave Not Vested (#) (i)1 Equity Incentive Plan Awards: Market or Payout Value ofUnearned Shares, Units or Other Rights That Have Not Vested ($) (j)2 David L. Goodin ——354,234 9,521,810 Jason L. Vollmer ——14,138 380,029 David C. Barney ——63,998 1,720,266 Jeffrey S. Thiede ——67,544 1,815,583 Nicole A. Kivisto ——60,317 1,621,321 Doran N. Schwartz3 ——71,267 1,915,657 1 Below is a breakdown by year of the outstanding performance share plan awards: 2015 Award 2016 Award 2017 Award TotalPerformance Period End 12/31/2017 12/31/2018 12/31/2019 David L. Goodin 144,328 197,528 12,378 354,234 Jason L. Vollmer 3,822 9,534 782 14,138 David C. Barney 23,490 37,840 2,668 63,998 Jeffrey S. Thiede 25,276 39,534 2,734 67,544 Nicole A. Kivisto 24,468 33,488 2,361 60,317 Doran N. Schwartz 29,056 39,766 2,445 71,267 Shares for the 2015 award are shown at the maximum level (200%) based on results for the 2015-2017 performance cycle above target. Shares for the 2016 award are shown at the maximum level (200%) based on results for the first two years of the 2016-2018 performance cycle above target. Shares for the 2017 award are shown at the threshold (20%) based on results for the first year of the 2017-2019 performance cycle below threshold. 2 Value based on the number of performance shares reflected in column (i) multiplied by $26.88, the year-end per share closing stock price for 2017. 3 Mr. Schwartz resigned his position effective September 29, 2017. As a result, he forfeited all shares associated with the 2015-2017, 2016-2018, and 2017-2019 performance periods. While for purposes of the Outstanding Equity Awards at Fiscal Year-End 2017 Table, the number of shares and value shown for the 2015-2017 performance cycle is at 200% of target, the actual results for the performance period certified by the compensation committee and settled on February 16, 2018, was 144% of target. For further information, see the “Long-Term Incentives” section of the “Compensation Discussion and Analysis.” Proxy Statement MDU Resources Group, Inc. Proxy Statement 47 Option Exercises and Stock Vested During 2017 Stock Awards Name(a) Number of Shares Acquired on Vesting (#) (d)1 Value Realizedon Vesting($)(e)2 David L. Goodin 22,900 654,368 Jason L. Vollmer —— David C. Barney 5,081 145,190 Jeffrey S. Thiede 5,349 152,848 Nicole A. Kivisto 2,755 78,724 Doran N. Schwartz 6,017 171,936 1 Reflects performance shares for the 2014-2016 performance period ended December 31, 2016, which were approved February 16, 2017. 2 Reflects the value of vested performance shares based on the closing stock price of $26.37 per share on February 16, 2017, and the dividend equivalents paid on the vested shares. Proxy Statement 48 MDU Resources Group, Inc. Proxy Statement Pension Benefits for 2017 Name (a)Plan Name (b) Number of Years Credited Service (#)(c)1 Present Value of Accumulated Benefit ($)(d) Payments During Last Fiscal Year ($)(e) David L. Goodin Pension 26 1,220,459 — Basic SISP 2 10 2,500,218 — Excess SISP 3 26 39,023 — Jason L. Vollmer Pension 4 24,451 — Basic SISP 2 n/a —— Excess SISP 3 n/a —— David C. Barney Pension 3 n/a —— Basic SISP 2 10 1,477,483 — Excess SISP 3 n/a —— Jeffrey S. Thiede Pension 3 n/a —— Basic SISP 3 n/a —— Excess SISP 3 n/a —— Nicole A. Kivisto Pension 14 254,722 — Basic SISP 2 6 489,832 — Excess SISP 3 n/a —— Doran N. Schwartz Pension 4 125,585 — Basic SISP 2 10 923,825 — Excess SISP 3 n/a —— 1 Years of credited service related to the pension plan reflects the years of participation in the plan as of December 31, 2009, when the pension plan was frozen. Years of credited service related to the Basic SISP reflects the years toward full vesting of the benefit which is 10 years. Years of credited service related to Excess SISP reflects the same number of credited years of services as the pension plan. 2 The present value of accumulated benefits for the Basic SISP assumes the named executive officer would be fully vested in the benefit on the benefit commencement date; therefore, no reduction was made to reflect actual vesting levels. 3 Messrs. Barney and Thiede are not eligible to participate in the pension plans. Mr. Thiede does not participate in the SISP. Mr. Goodin is the only named executive officer eligible to participate in the Excess SISP. The amounts shown for the pension plan, Basic SISP, and Excess SISP represent the actuarial present values of the executives’ accumulated benefits accrued as of December 31, 2017, calculated using: • a 3.18% discount rate for the Basic SISP and Excess SISP; • a 3.36% discount rate for the pension plan; • the Society of Actuaries RP-2014 Adjusted to 2006 Total Dataset Mortality with Scale MP-2017 for post-retirement mortality; and • no recognition of future salary increases or pre-retirement mortality. The actuary assumed a retirement age of 60 for the pension, Basic SISP, and Excess SISP benefits and assumed retirement benefits commence at age 60 for the pension and 65 for Basic and Excess SISP benefits. Pension Plan The MDU Resources Group, Inc. Pension Plan for Non-Bargaining Unit Employees (pension plan) applies to employees hired before 2006 and was amended to cease benefit accruals as of December 31, 2009. The benefits under the pension plan are based on a participant’s average annual salary over the 60 consecutive month period where the participant received the highest annual salary between 1999 and 2009. Benefits are paid as straight life annuities for single participants and as actuarially reduced annuities with a survivor benefit for married participants unless they choose otherwise. Supplemental Income Security Plan The Supplemental Income Security Plan (SISP), a defined benefit nonqualified retirement plan, is offered to select key managers and executives. SISP benefits are determined by reference to levels defined within the plan. Our compensation committee, after receiving recommendations from our CEO, determined each participant’s level within the plan. On February 11, 2016, the SISP was amended to exclude new participants to the plan and freeze current benefit levels for existing participants. Basic SISP Benefits Basic SISP is a supplemental retirement benefit intended to augment the retirement income provided under the pension plans. The Basic SISP benefits are subject to the following ten-year vesting schedule: • 0% vesting for less than three years of participation; • 20% vesting for three years of participation; • 40% vesting for four years of participation; and • an additional 10% vesting for each additional year of participation up to 100% vesting for ten years of participation. Participants can elect to receive the Basic SISP as: • monthly retirement benefits only; • monthly death benefits paid to a beneficiary only; or • a combination of retirement and death benefits, where each benefit is reduced proportionately. Regardless of the election, if the participant dies before the SISP retirement benefit commences, only the SISP death benefit is provided. Basic SISP benefits vested as of December 31, 2004, are grandfathered under Section 409A of the Internal Revenue Code (Section 409A) and are subject to the SISP provisions then in effect. Typically, the grandfathered Section 409A SISP benefits are paid over 15 years, with benefits commencing when the participant attains age 65 or when the participant retires if they work beyond age 65. Basic SISP benefits vesting after December 31, 2004, are governed by amended provisions in the plan intended to comply with Section 409A. The SISP benefits for key employees as defined by Section 409A commence six months after the participant attains age 65 or when the participant retires if they work beyond age 65. The benefits are paid over a 173-month period where the first payment includes the equivalent of six months of payments plus interest equal to one-half of the annual prime interest rate on the participant’s last date of employment. The following are Messrs. Goodin and Barney’s benefits under the grandfathered provision and those subject to Section 409A. Grandfathered($)Subject to §409A($)Total($) David L. Goodin 271,291 2,228,927 2,500,218 David C. Barney 362,075 1,115,408 1,477,483 Proxy Statement MDU Resources Group, Inc. Proxy Statement 49 Excess SISP Benefits Excess SISP is an additional retirement benefit relating to Internal Revenue Code limitations on retirement benefits provided under the pension plans. Excess SISP benefits are equal to the difference between the monthly retirement benefits that would have been payable to the participant under the pension plans absent the limitations under the Internal Revenue Code and the actual benefits payable to the participant under the pension plans. Participants are only eligible for the Excess SISP benefits if the participant is fully vested under the pension plan, their employment terminates prior to age 65, and benefits under the pension plan are reduced due to limitations under the Internal Revenue Code on plan compensation. In 2009, the SISP was amended to limit eligibility for the Excess SISP benefit. Mr. Goodin is the only named executive officer eligible for the Excess SISP benefit and must remain employed with the company until age 60 in order to receive the benefit. Benefits generally commence six months after the participant’s employment terminates and continue to age 65 or until the death of the participant, if prior to age 65. Both Basic and Excess SISP benefits are forfeited if the participant’s employment is terminated for cause. Proxy Statement 50 MDU Resources Group, Inc. Proxy Statement Nonqualified Deferred Compensation for 2017 Deferred Annual Incentive Compensation Executives participating in the annual incentive compensation plans may elect to defer up to 100% of their annual incentive awards. Deferred amounts accrue interest at a rate determined annually by the compensation committee. The interest rate in effect for 2017 was 4.38% based on an average of the Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” and “Baa” rated companies. The deferred amount will be paid in accordance with the participant’s election, following termination of employment or beginning in the fifth year following the year the award was earned. The amounts are paid in accordance with the participant’s election in either a lump sum or in monthly installments not to exceed 120 months. In the event of a change of control, all amounts deferred would immediately become payable. For purposes of deferred annual incentive compensation, a change of control is defined as: • an acquisition during a 12-month period of 30% or more of the total voting power of our stock; • an acquisition of our stock that, together with stock already held by the acquirer, constitutes more than 50% of the total fair market value or total voting power of our stock; • replacement of a majority of the members of our board of directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors; or • acquisition of our assets having a gross fair market value at least equal to 40% of the gross fair market value of all of our assets. Nonqualified Defined Contribution Plan The company adopted the Nonqualified Defined Contribution Plan, effective January 1, 2012, to provide deferred compensation for a select group of employees. The compensation committee approves the amount of employer contributions under the Nonqualified Defined Contribution Plan and the obligations under the plan constitute an unsecured promise of the company to make such payments. The company credits contributions to plan accounts which capture the hypothetical investment experience based on the participant’s elections. Contributions made prior to 2017 vest four years after each contribution in accordance with the terms of the plan. Contributions made in 2017 vest rateably over a three-year period with 1/3 vesting after the first year, an additional 1/3 after the second year, and the final 1/3 after the third year. Amounts shown as aggregate earnings in the table below for Messrs. Vollmer, Barney, and Thiede reflect the change in investment value at market rates. Participants may elect to receive their vested contributions and investment earnings either in a lump sum upon separation from service with the company or in annual installments over a period of years upon the later of (i) separation from service and (ii) age 65. Plan benefits become fully vested if the participant dies while actively employed. Benefits are forfeited if the participant’s employment is terminated for cause. The table below includes individual contributions from deferrals of annual incentive compensation and company contributions under the Nonqualified Defined Contribution Plan: Name (a) Executive Contributions in Last FY ($) (b) Registrant Contributions in Last FY($) (c) Aggregate Earnings in Last FY($) (d) Aggregate Withdrawals/ Distributions($) (e) Aggregate Balance at Last FYE($) (f) David L. Goodin 527,745 —28,630 —752,052 1 Jason L. Vollmer —22,550 5,125 —27,675 2 David C. Barney —150,000 23,341 —173,341 3 Jeffrey S. Thiede —100,000 83,052 —579,981 4 Nicole A. Kivisto ——723 —16,945 Doran N. Schwartz ————— 1 Mr. Goodin deferred 50% of his 2016 annual incentive compensation which was $1,055,490 as reported in the Summary Compensation Table for 2016. 2 Mr. Vollmer received $22,550 under the Nonqualified Defined Contribution Plan for 2017. This is reported in column (i) of the Summary Compensation Table for 2017. 3 Mr. Barney received $150,000 under the Nonqualified Defined Contribution Plan for 2017. This is reported in column (i) of the Summary Compensation Table for 2017. 4 Mr. Thiede received $100,000 under the Nonqualified Defined Contribution Plan for 2017. Mr. Thiede’s balance also includes contributions of $100,000 for 2016, $150,000 for 2015, $75,000 for 2014, and $33,000 for 2013. Each of these amounts is reported in column (i) of the Summary Compensation Table in the Proxy Statement for its respective year, where applicable. Proxy Statement MDU Resources Group, Inc. Proxy Statement 51 Potential Payments upon Termination or Change of Control The Potential Payments upon Termination or Change of Control Table shows the payments and benefits our named executive officers would receive in connection with a variety of employment termination scenarios or upon a change of control. For the named executive officers, the information assumes the terminations or the change of control occurred on December 31, 2017. Mr. Schwartz received no actual termination payments upon his resignation effective September 29, 2017. The table excludes compensation and benefits that our named executive officers would have already earned during their employment with us whether or not a termination or change of control event had occurred or provided under plans or arrangements that do not discriminate in favor of the named executive officers and that are generally available to all salaried employees, such as benefits under our qualified defined benefit pension plan (for employees hired before 2006), accrued vacation pay, continuation of health care benefits, and life insurance benefits. The tables also do not include Nonqualified Defined Contribution Plan or deferred annual compensation amounts which are shown and explained in the Nonqualified Deferred Compensation for 2017 Table. Compensation Upon a change of control, annual incentives granted under our Long-Term Performance-Based Incentive Plan (LTIP) would vest at target and be paid in cash. Messrs. Goodin, Barney, and Thiede were awarded their annual incentives for 2017 under the LTIP and would receive the value of their annual incentive compensation at the target amount under the change of control scenarios. Having been employed for the entire year, no amounts are shown for annual incentives in the tables for Messrs. Goodin, Barney, and Thiede under termination scenarios, as they would be eligible to receive their annual incentive award based on the level that performance measures were achieved for the performance period regardless of a termination scenario occurring on December 31, 2017. Mr. Vollmer and Ms. Kivisto were granted their annual incentive award under the Executive Incentive Compensation Plan (EICP) which has no change of control provision in regards to annual incentive compensation other than for deferred compensation. Unless otherwise determined by the compensation committee for named executive officers, or employment termination after age 65, the EICP requires participants to remain employed with the company through the service year to be eligible for a payout. Having been employed for the entire performance period, no amounts are shown for annual incentives in the tables for Mr. Vollmer or Ms. Kivisto, as they would be eligible to receive their annual incentive award based on the level that performance measures were achieved for the performance period regardless of termination or change of control scenarios occurring on December 31, 2017. Upon a change of control, performance share awards under the LTIP would be deemed fully earned and vest at their target levels for the named executive officers. For this purpose, the term “change of control” is defined in the LTIP as: •the acquisition by an individual, entity, or group of 20% or more of our outstanding common stock; • a majority of our board of directors whose election or nomination was not approved by a majority of the incumbent board members; • consummation of a merger or similar transaction or sale of all or substantially all of our assets, unless our stockholders immediately prior to the transaction beneficially own more than 60% of the outstanding common stock and voting power of the resulting corporation in substantially the same proportions as before the merger, no person owns 20% or more of the resulting corporation’s outstanding common stock or voting power except for any such ownership that existed before the merger and at least a majority of the board of the resulting corporation is comprised of our directors; or • stockholder approval of our liquidation or dissolution. For termination scenarios other than a change of control, our award agreements provide that performance share awards are forfeited if the participant’s employment terminates before the participant has reached age 55 and completed 10 years of service. If a participant’s employment is terminated other than for cause after reaching age 55 and completing 10 years of service, performance shares are prorated as follows: • termination of employment during the first year of the performance period = shares are forfeited; • termination of employment during the second year of the performance period = performance shares earned are prorated based on the number of months employed during the performance period; and • termination of employment during the third year of the performance period = full amount of any performance shares earned are received. Under the termination scenarios, Messrs. Goodin, Barney, and Thiede would receive performance shares as they have each reached age 55 and have 10 or more years of service. The number of performance shares received would be based on the following: • 2015-2017 performance shares would vest based on the achievement of the performance measure for the period ended December 31, 2017, which was 144%; • 2016-2018 performance shares would be prorated at 24 out of 36 months (2/3) of the performance period and vest based on the achievement of the performance measure for the period ended December 31, 2018. For purposes of the Potential Payments upon Termination or Change of Control Table, the vesting is shown at 100%; and • 2017-2019 performance shares would be forfeited. For purposes of calculating the performance share value shown in the Potential Payments upon Termination or Change of Control Table, the number of vesting shares was multiplied by the average of the high and low stock price for the last market day of the year, which was December 29, 2017. Dividend equivalents based on the number of vesting shares are also included in the amounts presented. Neither Ms. Kivisto nor Mr. Vollmer have reached age 55; therefore, they are not eligible for vesting of performance shares in the event of their termination. Benefits and Perquisites Supplemental Income Security Plan Basic SISP benefits presented in the Potential Payments upon Termination or Change of Control Table represent the present value of vested Basic SISP as of December 31, 2017 for payments commencing at age 65 and payable for 15 years. Only Messrs. Goodin, Barney, and Ms. Kivisto are eligible for Basic SISP benefits. While Messrs. Goodin and Barney are 100% vested in their SISP benefit, Ms. Kivisto entered the plan in 2011 and is only 70% vested in her SISP benefit at December 31, 2017. In the event of death, Messrs. Goodin, Barney, and Ms. Kivisto’s beneficiaries would receive monthly death benefit payments for 15 years. The present value calculations used a 3.18% discount rate and the following monthly SISP benefit payments: Monthly SISP Retirement Payment($)Monthly SISP Death Payment($) David L. Goodin 23,040 46,080 David C. Barney 10,936 21,872 Nicole A. Kivisto 3,500 13,144 Proxy Statement 52 MDU Resources Group, Inc. Proxy Statement The present value of the SISP benefit under the disability scenario for Ms. Kivisto reflects credit for two additional years of vesting or 90% as provided for in the plan. The terms of the Basic SISP benefit are described following the Pension Benefits for 2017 Table. Disability We provide disability benefits to some of our salaried employees equal to 60% of their base salary, subject to a salary limit of $200,000 for officers and $100,000 for other salaried employees when calculating benefits. For all eligible employees, disability payments continue until age 65 if disability occurs at or before age 60 and for five years if disability occurs between the ages of 60 and 65. Disability benefits are reduced for amounts paid as retirement benefits. The disability amounts in the Potential Payments upon Termination or Change of Control Table reflect the present value of the disability benefits attributable to the additional $100,000 of base salary recognized for executives under our disability program, subject to the 60% limitation, after reduction for amounts that would be paid as retirement benefits. For Messrs. Goodin and Vollmer and Ms. Kivisto, who participate in the pension plan, the amount represents the present value of the disability benefit after reduction for retirement benefits using a discount rate of 3.36%. Because Mr. Goodin’s retirement benefit is greater than the disability benefit, the amount shown is zero. For Messrs. Barney and Thiede, who do not participate in the pension plan, the amount represents the present value of the disability benefit without reduction for retirement benefits using the discount rate of 3.18%, which is considered a reasonable rate for purposes of the calculation. Severance None of the current named executive officers have employment or severance agreements with the company. The compensation committee generally considers providing severance benefits on a case-by-case basis. Because severance payments are discretionary, no amounts are presented in the tables. Proxy Statement MDU Resources Group, Inc. Proxy Statement 53 Potential Payments upon Termination or Change of Control Table Executive Benefits and Payments upon Termination or Change of Control Voluntary Termination ($) Not for Cause Termination ($) Death ($) Disability ($) Change of Control (With Termination) ($) Change of Control (Without Termination) ($) David L. Goodin Compensation: Annual Incentive ———— 792,750 792,750 Performance Shares 4,900,080 4,900,080 4,900,080 4,900,080 6,621,837 6,621,837 Benefits and Perquisites: Basic SISP 2,502,092 2,502,092 — 2,502,092 2,502,092 — SISP Death Benefits —— 6,607,177 ——— Disability Benefits —————— Total 7,402,172 7,402,172 11,507,257 7,402,172 9,916,679 7,414,587 Jason L. Vollmer Compensation: Performance Shares ———— 299,366 299,366 Benefits and Perquisites: Disability Benefits ——— 980,108 —— Total ——— 980,108 299,366 299,366 David C. Barney Compensation: Annual Incentive ———— 320,355 320,355 Performance Shares 851,383 851,383 851,383 851,383 1,248,908 1,248,908 Benefits and Perquisites: Basic SISP 1,463,790 1,463,790 — 1,463,790 1,463,790 — SISP Death Benefits —— 3,136,115 ——— Disability Benefits ——— 277,761 —— Total 2,315,173 2,315,173 3,987,498 2,592,934 3,033,053 1,569,263 Jeffrey S. Thiede Compensation: Annual Incentive ———— 328,313 328,313 Performance Shares 904,925 904,925 904,925 904,925 1,308,189 1,308,189 Benefits and Perquisites: Disability Benefits ——— 470,306 —— Total 904,925 904,925 904,925 1,375,231 1,636,502 1,636,502 Nicole A. Kivisto Compensation: Performance Shares ———— 1,158,901 1,158,901 Benefits and Perquisites: Basic SISP 261,024 261,024 — 335,704 261,024 — SISP Death Benefits —— 1,884,651 ——— Disability Benefits ——— 784,536 —— Total 261,024 261,024 1,884,651 1,120,240 1,419,925 1,158,901 Proxy Statement 54 MDU Resources Group, Inc. Proxy Statement CEO Pay Ratio Disclosure As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing information regarding the relationship of the annual total compensation of David L. Goodin, our president and chief executive officer, to the annual total compensation of our median employee. Our employee workforce fluctuates during the year largely depending on the seasonality, number, and size of construction activity conducted by our businesses. Approximately 49.8% of our employee workforce is employed under union bargained labor contracts which define compensation and benefits for participants which may include payments made by the company associated with employee participation in union benefit and pension plans. We identified the median employee by examining the 2017 taxable wage information for all individuals on the company’s payroll records as of December 31, 2017, excluding Mr. Goodin. All of the company’s employees are located in the United States. We made no adjustments to annualize compensation for individuals employed for only part of the year. We selected taxable wages as reported to the Internal Revenue Service on Form W-2 for 2017 to identify the median employee as it includes substantially all of the compensation for our median employee and provided a reasonably efficient and economic manner for the identification of the median employee. Our median employee works for our gas distribution segment. He is a unionized employee with compensation consisting of wages, meal allowances, company matching 401(k) contributions and a years of service award. Our median employee does not participate in the company’s pension plan since he joined the company in 2011, after the plan was frozen. He does receive an additional 5% company match to his 401(k) plan in lieu of pension contributions. Once identified, we categorized the median employee’s compensation to correspond to the compensation components as reported in the Summary Compensation Table. For 2017, the total annual compensation of Mr. Goodin as reported in the Summary Compensation Table included in this Proxy Statement was $4,058,001, and the total annual compensation of our median employee was $84,883. Based on this information, the 2017 ratio of annual total compensation of Mr. Goodin to the median employee was 48 to 1. Proxy Statement MDU Resources Group, Inc. Proxy Statement 55 AUDIT MATTERS 56 MDU Resources Group, Inc. Proxy Statement ITEM 3: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018 The audit committee at its February 2018 meeting appointed Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2018. The board of directors concurred with the audit committee’s decision. Deloitte & Touche LLP has served as our independent registered public accounting firm since fiscal year 2002. Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for 2018, the audit committee will consider your vote in determining its appointment of our independent registered public accounting firm for the next fiscal year. The audit committee, in appointing our independent registered public accounting firm, reserves the right, in its sole discretion, to change an appointment at any time during a fiscal year if it determines that such a change would be in our best interests. A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions. We do not anticipate that the representative will make a prepared statement at the annual meeting; however, he or she will be free to do so if he or she chooses. The board of directors recommends a vote “for” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2018. Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the annual meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal. Annual Evaluation and Selection of Deloitte & Touche LLP The audit committee annually evaluates the performance of its independent registered public accounting firm, including the senior audit engagement team, and determines whether to re-engage the current independent accounting firm or consider other firms. Factors considered by the audit committee in deciding whether to retain the current independent accounting firm include: • Deloitte & Touche LLP’s capabilities considering the complexity of our business and the resulting demands placed on Deloitte & Touche LLP in terms of technical expertise and knowledge of our industry and business; • the quality and candor of Deloitte & Touche LLP’s communications with the audit committee and management; • Deloitte & Touche LLP’s independence; • the quality and efficiency of the services provided by Deloitte & Touche LLP, including input from management on Deloitte & Touche LLP’s performance and how effectively Deloitte & Touche LLP demonstrated its independent judgment, objectivity, and professional skepticism; • external data on audit quality and performance, including recent Public Company Accounting Oversight Board reports on Deloitte & Touche LLP and its peer firms; and • the appropriateness of Deloitte & Touche LLP’s fees, tenure as our independent auditor, including the benefits of a longer tenure, and the controls and processes in place that help ensure Deloitte & Touche LLP’s continued independence. Based on this evaluation, the audit committee and the board believe that retaining Deloitte & Touche LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2018, is in the best interests of our company and its stockholders. The audit committee also oversees the process for, and ultimately approves, the selection of our independent registered public accounting firm’s lead engagement partner at the five-year mandatory rotation period. Prior to the mandatory rotation period in 2017, at the audit committee’s instruction, Deloitte & Touche LLP selected candidates to be considered for the lead engagement partner role, who were then interviewed by members of our company’s senior management. After considering the candidates recommended by Deloitte & Touche LLP, senior management made a recommendation to the audit committee regarding the new engagement partner. After discussing the qualifications of the proposed lead engagement partner with the current lead engagement partner, the audit committee chair interviewed the leading candidate, and the audit committee then considered the appointment and voted as an audit committee on the selection. The change in lead engagement partner after the current five-year rotation period occurred in February 2017. Proxy Statement MDU Resources Group, Inc. Proxy Statement 57 Audit Fees and Non-Audit Fees The following table summarizes the aggregate fees that our independent registered public accounting firm, Deloitte & Touche LLP, billed or is expected to bill us for professional services rendered for 2017 and 2016: 2017 2016 Audit Fees 1 $2,327,450 $2,526,900 Audit-Related Fees 2 46,790 16,710 Tax Fees 3 17,483 — All Other Fees 4 —3,087 Total Fees 5 $2,391,723 $2,546,697 Ratio of Tax and All Other Fees to Audit and Audit-Related Fees 0.7 %0.1 % 1 Audit fees for 2017 and 2016 consisted of fees for services rendered for the audit of our annual financial statements and subsidiaries, statutory and regulatory audits, reviews of quarterly financial statements, a Form S-3 Registration Statement (2017) filing, and a Form S-8 Registration Statement (2016) filing, and audits for discontinued operations for Dakota Prairie Refining, LLC (2016). 2 Audit-related fees for 2017 and 2016 are associated with Intermountain Gas Company Investment Tax Credit procedures (2017), supplemental schedule review for Knife River Corporation’s Northwest Region (2017), and Intermountain Gas Company public utility review (2016). 3 Tax fees for 2017 consisted of fees for tax training for regulated operations. 4 All other fees for 2016 are associated with a pollution control project at Big Stone electric generating facility. 5 Total fees reported above include out-of-pocket expenses related to the services provided of $282,483 for 2017 and $350,000 for 2016. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm The audit committee pre-approved all services Deloitte & Touche LLP performed in 2017 in accordance with the pre-approval policy and procedures the audit committee adopted in 2003. This policy is designed to achieve the continued independence of Deloitte & Touche LLP and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the SEC. The policy defines the permitted services in each of the audit, audit-related, tax, and all other services categories, as well as prohibited services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting. Management may submit requests for additional permitted services before the next scheduled audit committee meeting to the designated member of the audit committee, Dennis W. Johnson, for approval. The designated member updates the audit committee at the next regularly scheduled meeting regarding any services approved during the interim period. At each regular audit committee meeting, management may submit to the audit committee for approval a supplement to the service plan containing any request for additional permitted services. In addition, prior to approving any request for audit-related, tax, or all other services of more than $50,000, Deloitte & Touche LLP will provide a statement setting forth the reasons why rendering of the proposed services does not compromise Deloitte & Touche LLP’s independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or included as an exhibit thereto or may be delivered in a separate written statement. AUDIT COMMITTEE REPORT In connection with our financial statements for the year ended December 31, 2017, the audit committee has (1) reviewed and discussed the audited financial statements with management; (2) discussed with the independent registered public accounting firm (the Auditors) the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301, Communications with Audit Committees; and (3) received the written disclosures and the letter from the Auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the Auditors’ communications with the audit committee concerning independence, and has discussed with the Auditors their independence. Based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the SEC. Dennis W. Johnson, Chair Mark A. Hellerstein A. Bart Holaday John K. Wilson Proxy Statement 58 MDU Resources Group, Inc. Proxy Statement INFORMATION ABOUT THE ANNUAL MEETING MDU Resources Group, Inc. Proxy Statement 59 Who can Vote?Stockholders of record at the close of business on March 9, 2018, are entitled to vote each share they owned on that date on each matter presented at the meeting and any adjournment(s) thereof. As of March 9, 2018, we had 195,304,376 shares of common stock outstanding entitled to one vote per share. Distribution of ourProxy Materials usingNotice and Access We distributed proxy materials to certain of our stockholders via the Internet under the SEC’s “Notice and Access” rules to reduce our costs and decrease the environmental impact of our proxy materials. Using this method of distribution, on or about March 23, 2018, we mailed a Notice Regarding the Availability of Proxy Materials (Notice) that contains basic information about our 2018 annual meeting and instructions on how to view all proxy materials, and vote electronically, on the Internet. If you received the Notice and prefer to receive a paper copy of the proxy materials, follow the instructions in the Notice for making this request and the materials will be sent promptly to you via the preferred method. Stockholders who do not receive the Notice will receive a paper copy of our proxy materials, which will be sent on or about March 29, 2018. How to Vote You are encouraged to vote in advance of the meeting using one of the following voting methods, even if you are planning to attend the 2018 Annual Meeting of Stockholders. Registered Stockholders: Stockholders of record who hold their shares directly with our stock registrar can vote any one of four ways: Via the Internet: Go to the website shown on the Notice or Proxy Card, if you received one, and follow the instructions. By Telephone: Call the telephone number shown on the Notice or Proxy Card, if you received one, and follow the instructions given by the voice prompts. Voting via the Internet or by telephone authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated, and returned a Proxy Card by mail. Your voting instructions may be transmitted up until 11:59 p.m. Eastern Time on May 7, 2018. By Mail: If you received paper copies of the Proxy Statement, Annual Report, and Proxy Card, mark, sign, date, and return the Proxy Card in the postage-paid envelope provided. In Person: Attend the annual meeting, or send a personal representative with an appropriate proxy, to vote by ballot at the meeting. (See “Notice of Annual Meeting” and “Annual Meeting Admission.”) Beneficial Stockholders: Stockholders whose shares are held beneficially in the name of a bank, broker, or other holder of record (sometimes referred to as holding shares “in street name”), will receive voting instructions from said bank, broker, or other holder of record. If you wish to vote in person at the meeting, you must obtain a legal proxy from your bank, broker, or other holder of record of your shares and present it at the meeting. See discussion below in the MDU Resources Group, Inc. 401(k) Plan for voting instructions for shares held under our 401(k) plan. Revoking Your Proxyor Changing YourVote You may change your vote at any time before the proxy is exercised. Registered Stockholders: ●If you voted by mail: you may revoke your proxy by executing and delivering a timely and valid later dated proxy, by voting by ballot at the meeting, or by giving written notice of revocation to the corporate secretary. ●If you voted via the Internet or by telephone: you may change your vote with a timely and valid later Internet or telephone vote, as the case may be, or by voting by ballot at the meeting. ●Attendance at the meeting will not have the effect of revoking a proxy unless (1) you give proper written notice of revocation to the corporate secretary before the proxy is exercised, or (2) you vote by ballot at the meeting. Beneficial Stockholders: Follow the specific directions provided by your bank, broker, or other holder of record to change or revoke any voting instructions you have already provided. Alternatively, you may vote your shares by ballot at the meeting if you obtain a legal proxy from your bank, broker, or other holder of record and present it at the meeting. Discretionary VotingAuthority If you complete and submit your proxy voting instructions, the individuals named as proxies will follow your instructions. If you are a stockholder of record and you submit proxy voting instructions but do not direct how to vote on each item, the individuals named as proxies will vote as the board recommends on each proposal. The individuals named as proxies will vote on any other matters properly presented at the annual meeting in accordance with their discretion. Our bylaws set forth requirements for advance notice of any nominations or agenda items to be brought up for voting at the annual meeting, and we have not received timely notice of any such matters, other than the items from the board of directors described in this Proxy Statement. Voting Standards A majority of outstanding shares of stock entitled to vote must be present in person or represented by proxy to hold the meeting. A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast. Approval of each of the other matters on the agenda requires the affirmative vote of a majority of the shares of common stock present or represented by proxy during the meeting. For each of these proposals, abstentions have the same effect as “against” votes. If you are a beneficial holder and do not provide specific voting instruction to your broker, the organization that holds your shares will not be authorized to vote your shares, which would result in “broker non-votes,” on proposals other than the ratification of the selection of our independent registered public accounting firm for 2018. Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present at the annual meeting. The following chart describes the proposals to be considered at the annual meeting, the vote required to elect directors and to adopt each other proposal, and the manner in which votes will be counted: Item No. Proposal Voting Options Vote Required to Adopt the Proposal Effect ofAbstentions Effect of “BrokerNon-Votes” 1 Election of Directors For, against, or abstain on each nominee A nominee for director will be elected if the votes cast for such nominee exceed the votes cast against such nominee. No effect No effect 2 Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers For, against, or abstain The affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon Same effect as votes against No effect 3 Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2018 For, against, or abstain The affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon Same effect as votes against Brokers have discretion to vote Proxy Solicitation The board of directors is furnishing proxy materials to solicit proxies for use at the Annual Meeting of Stockholders on May 8, 2018, and any adjournment(s) thereof. Proxies are solicited principally by mail, but directors, officers, and employees of MDU Resources Group, Inc. or its subsidiaries may solicit proxies personally, by telephone, or by electronic media, without compensation other than their regular compensation. Okapi Partners, LLC additionally will solicit proxies for approximately $8,000 plus out-of-pocket expenses. We will pay the cost of soliciting proxies and will reimburse brokers and others for forwarding proxy materials to stockholders. Proxy Statement 60 MDU Resources Group, Inc. Proxy Statement Electronic Delivery of Proxy Statementand Annual ReportDocuments For stockholders receiving proxy materials by mail, you can elect to receive an email in the future that will provide electronic links to these documents. Opting to receive your proxy materials online will save the company the cost of producing and mailing documents to your home or business and will also give you an electronic link to the proxy voting site. ●Registered Stockholders: If you vote on the Internet, simply follow the prompts for enrolling in the electronic proxy delivery service. You may also enroll in the electronic proxy delivery service at any time in the future by going directly to http://enroll.icsdelivery.com/mdu to request electronic delivery. You may revoke an electronic delivery election at this site at any time. ●Beneficial Stockholders: If you hold your shares in a brokerage account, you may also have the opportunity to receive copies of the proxy materials electronically. You may enroll in the electronic proxy delivery service at any time by going directly to http://enroll.icsdelivery.com/mdu to request electronic delivery. You may also revoke an electronic delivery election at this site at any time. In addition, you may also check the information provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service or contact your bank or broker to request electronic delivery. Householding ofProxy Materials In accordance with a Notice sent to eligible stockholders who share a single address, we are sending only one Annual Report to Stockholders and one Proxy Statement to that address unless we received instructions to the contrary from any stockholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, if a stockholder of record wishes to receive a separate Annual Report to Stockholders and Proxy Statement in the future, he or she may contact the Office of the Treasurer at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650, Telephone Number: (701) 530-1000. Eligible stockholders of record who receive multiple copies of our Annual Report to Stockholders and Proxy Statement can request householding by contacting us in the same manner. Stockholders who own shares through a bank, broker, or other nominee can request householding by contacting the nominee. We will promptly deliver, upon written or oral request, a separate copy of the Annual Report to Stockholders and Proxy Statement to a stockholder at a shared address to which a single copy of the document was delivered. MDU ResourcesGroup, Inc. 401(k)Plan This Proxy Statement is being used to solicit voting instructions from participants in the MDU Resources Group, Inc. 401(k) Plan with respect to shares of our common stock that are held by the trustee of the plan for the benefit of plan participants. If you are a plan participant and also own other shares as a registered stockholder or beneficial owner, you will separately receive a Notice or proxy materials to vote those other shares you hold outside of the MDU Resources Group, Inc. 401(k) Plan. If you are a plan participant, you must instruct the plan trustee to vote your shares by utilizing one of the methods described on the voting instruction form that you receive in connection with shares held in the plan. If you do not give voting instructions, the trustee generally will vote the shares allocated to your personal account in accordance with the recommendations of the board of directors. Your voting instructions may be transmitted up until 11:59 p.m. Eastern Time on May 3, 2018. Annual MeetingAdmission andGuidelines Admission: All stockholders as of the record date of March 9, 2018, are cordially invited and urged to attend the annual meeting. You must request an admission ticket in order to attend. If you are a stockholder of record and plan to attend the meeting, please contact MDU Resources by email at CorporateSecretary@mduresources.com or by telephone at 701-530-1010 to request an admission ticket. A ticket will be sent to you by mail. If your shares are held beneficially in the name of a bank, broker, or other holder of record, and you plan to attend the annual meeting, you will need to submit a written request for an admission ticket by mail to: Investor Relations, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506 or email at CorporateSecretary@mduresources.com. The request must include proof of stock ownership as of March 9, 2018, such as a bank or brokerage firm account statement or a legal proxy from the bank, broker, or other holder of record confirming ownership. A ticket will be sent to you by mail. Requests for admission tickets must be received no later than May 1, 2018. You must present your admission ticket and state-issued photo identification, such as a driver’s license, to gain admittance to the meeting. Guidelines: The business of the meeting will follow as set forth in the agenda which you will receive at the meeting entrance. The use of cameras or sound recording equipment is prohibited, except by those employed by the company to provide a record of the proceedings. The use of cell phones and other personal communication devices is also prohibited during the meeting. All devices must be turned off or muted. No firearms or weapons, banners, packages, or signs will be allowed in the meeting room. MDU Resources Group, Inc. reserves the right to inspect all items, including handbags and briefcases, that enter the meeting room. Proxy Statement MDU Resources Group, Inc. Proxy Statement 61 Conduct of theMeeting Neither the board of directors nor management intends to bring before the meeting any business other than the matters referred to in the Notice of Annual Meeting and this Proxy Statement. We have not been informed that any other matter will be presented at the meeting by others. However, if any other matters are properly brought before the annual meeting, or any adjournment(s) thereof, your proxies include discretionary authority for the persons named in the proxy to vote or act on such matters in their discretion. StockholderProposals, DirectorNominations, andOther Items ofBusiness for 2019Annual Meeting Stockholder Proposals for Inclusion in Next Year’s Proxy Statement. To be included in the proxy materials for our 2019 annual meeting, a stockholder proposal must be received by the corporate secretary no later than November 23, 2018, unless the date of the 2019 annual meeting is more than 30 days before or after May 8, 2019, in which case the proposal must be received a reasonable time before we begin to print and mail our proxy materials. The proposal must also comply with all applicable requirements of Rule 14a-18 under the Securities and Exchange Act of 1934. Director Nominations and Other Stockholder Proposals Raised From the Floor at the 2019 Annual Meeting of Stockholders. Under our bylaws, if a stockholder intends to nominate a person as a director, or present other items of business at an annual meeting, the stockholder must provide written notice of the director nomination or stockholder proposal at least 90 days prior to the anniversary of the most recent annual meeting. Notice of director nominations or stockholder proposals for our 2019 annual meeting must be received by February 7, 2019, and meet all the requirements and contain all the information, including the completed questionnaire for director nominations, provided by our bylaws. The requirements for such notice can be found in our bylaws, a copy of which is on our website, at http://www.mdu.com/integrity/governance/guidelines-and-bylaws. Proxy Statement 62 MDU Resources Group, Inc. Proxy Statement We will make available to our stockholders to whom we furnish this Proxy Statement a copy of our Annual Report on Form 10-K, excluding exhibits, for the year ended December 31, 2017, which is required to be filed with the SEC. You may obtain a copy, without charge, upon written or oral request to the Office of the Treasurer of MDU Resources Group, Inc., 1200 West Century Avenue, Mailing Address: P.O. Box 5650, Bismarck, North Dakota 58506-5650, Telephone Number: (701) 530-1000. You may also access our Annual Report on Form 10-K through our website at www.mdu.com. By order of the Board of Directors, Corporate Headquarters MDU Resources Group, Inc. Street Address: 1200 W. Century Ave. Bismarck, ND 58503 Mailing Address: P.O. Box 5650 Bismarck, ND 58506-5650 Telephone: 701-530-1000 Toll-Free Telephone: 866-760-4852 www.mdu.com The company has filed as exhibits to its Annual Report on Form 10-K the CEO and CFO certifications as required by Section 302 of the Sarbanes-Oxley Act. The company also submitted the required annual CEO certification to the New York Stock Exchange. Common Stock MDU Resources’ common stock is listed on the NYSE under the symbol MDU. The stock began trading on the NYSE in 1948 and is included in the Standard & Poor’s MidCap 400 index. Average daily trading volume in 2017 was 855,319 shares. Common Stock Prices High Low Close 2017 First Quarter $29.74 $25.83 $27.37 Second Quarter 27.89 25.58 26.20 Third Quarter 27.73 25.14 25.95 Fourth Quarter 28.22 25.89 26.88 2016 First Quarter $19.55 $15.57 $19.46 Second Quarter 24.01 18.70 24.00 Third Quarter 25.79 22.47 25.44 Fourth Quarter 29.92 24.49 28.77 Shareowner Service Plus Plan The Shareowner Service Plus Plan provides interested investors the opportunity to purchase shares of MDU Resources’ common stock and to reinvest all or a percentage of dividends without incurring brokerage commissions or service charges. The plan is sponsored and administered by Equiniti Trust Company, transfer agent and registrar for MDU Resources. For more information, contact Equiniti Trust Company at 877-536-3553 or visit www.shareowneronline.com. 2018 Key Dividend Dates Ex-Dividend Date Record Date Payment Date First Quarter March 7 March 8 April 1 Second Quarter June 13 June 14 July 1 Third Quarter September 12 September 13 October 1 Fourth Quarter December 12 December 13 January 1, 2019 Key dividend dates are subject to the discretion of the Board of Directors. Annual Meeting 11 a.m. CDT May 8, 2018 Montana-Dakota Utilities Co. Service Center 909 Airport Road Bismarck, North Dakota Shareholder Information and Inquiries Registered shareholders have electronic access to their accounts by visiting www.shareowneronline.com. Shareowner Online allows shareholders to view their account balance, dividend information, reinvestment details and more. The stock transfer agent maintains stockholder account information. Communications regarding stock transfer requirements, lost certificates, dividends or change of address should be directed to the stock transfer agent. Company information, including financial reports, is available at www.mdu.com. Shareholder Contact Dustin J. Senger Telephone: 866-866-8919 Email: investor@mduresources.com Analyst Contact Jason L. Vollmer Telephone: 701-530-1755 Email: Jason.Vollmer@mduresources.com Transfer Agent and Registrar for All Classes of Stock Equiniti Trust Company Stock Transfer Department P.O. Box 64874 St. Paul, MN 55164-0874 Telephone: 651-450-4064 Toll-Free Telephone: 877-536-3553 www.shareowneronline.com Independent Registered Public Accounting Firm Deloitte & Touche LLP 50 S. Sixth St., Suite 2800 Minneapolis, MN 55402-1538 Note: This information is not given in connection with any sale or offer for sale or offer to buy any security. De s i g n : M D U R e s o u r c e s Pr i n t i n g : A F P I The paper used in this annual report is certified by the Forest Stewardship Council® and contains a minimum of 10 percent post-consumer recycled paper fibers. Stockholder Information Street Address Mailing Address