EXECUTIVE INCENTIVE COMPENSATION PLAN

MONTANA-DAKOTA UTILITIES CO.

EXECUTIVE INCENTIVE COMPENSATION PLAN

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I.          PURPOSE

           The purpose of the Executive Incentive Compensation Plan (the "Plan") is to provide an incentive for key executives of Montana-Dakota Utilities Co. to focus their efforts on the achievement of challenging and demanding corporate objectives.  The Plan is designed to reward successful corporate performance as measured against specified performance goals as well as exceptional individual performance.  When utility performance reaches or exceeds the performance targets and individual performance is exemplary, incentive compensation awards, in conjunction with salaries, will provide a level of compensation which recognizes the skills and efforts of the key executives.  In this Plan, MDU Resources Group, Inc. is defined as the “Company” while Montana-Dakota Utilities Co. is defined as the “Utility Company.”

II.         DEFINITIONS

           Capitalized terms not otherwise defined herein shall have the meanings given them in the Utility Company’s Executive Incentive Compensation Plan Rules and Regulations.

III.        BASIC PLAN CONCEPT

           The Plan provides an opportunity to earn annual incentive compensation based on the achievement of specified annual performance objectives.  A target incentive award for each individual within the Plan is established based on the position level and actual base salary, provided, however, that the Compensation Committee of the Board of Directors of the Company (the “Committee”) in its sole discretion, may, instead of actual base salary, use the assigned salary grade market value (midpoint) (“Salary”).  The target incentive award represents the amount to be paid, subject to the achievement of the performance

objective targets established each year.  Larger incentive awards than target may be authorized when performance exceeds targets; lesser or no amounts may be paid when performance is below target.

           It is recognized that during a Plan Year major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management may substantially affect the ability of the Plan Participants to achieve the specified performance goals.  Therefore, in its review of corporate performance the Committee, in consultation with the Chief Executive Officer of the Company, may modify the performance targets.  However, it is contemplated that such target modifications will be necessary only in years of unusually adverse or favorable external conditions.

IV.        ADMINISTRATION

           The Plan shall be administered by the Committee with the assistance of the Chief Executive Officer of the Company.  The Committee shall approve annually, prior to the beginning of each Plan Year, the list of eligible Participants, and the target incentive award level for each position within the Plan.  The Plan’s performance targets for the year shall be approved by the Committee no later than its regularly scheduled February meeting during that Plan Year.  The Committee shall have final discretion to determine actual award payment levels, method of payment, and whether or not payments shall be made for any Plan Year.

           The Board of Directors of the Company may, at any time and from time to time, alter, amend, supersede or terminate the Plan in whole or in part, provided that no termination, amendment or modification of the Plan shall adversely affect in any material way an award that has met all requirements for payment without the written consent of the Participant holding such award, unless

such termination, modification or amendment is required by applicable law.

V.         ELIGIBILITY

           Executives who are determined by the Committee to have a key role in both the establishment and achievement of Utility Company objectives shall be eligible to participate in the Plan.

           Nothing in the Plan shall interfere with or limit in any way the right of the Utility Company to terminate any Participant’s employment at any time, for any reason or no reason in the Utility Company’s sole discretion, or confer upon any Participant any right to continue in the employment of the Utility Company.  No executive shall have the right to be selected to receive an award under the Plan, or, having been so selected, to be selected to receive a future award.

           Performance measures shall be established that consider shareholder and customer interests.  These measures shall be evaluated annually based on achievement of specified goals.

           The performance measure reflective of shareholder’s interest will be the percentage attainment of corporate goals, as determined each year by the Committee.  This measure may be applied at the corporate level for individuals whose major or sole impact is Utility Company-wide, or at the business unit level for individuals whose major or sole impact is on business unit results.

           Threshold, target and maximum award levels will be established annually for each performance measure and business unit.  The Committee will retain the right to make all interpretations as to the actual attainment of the desired

VII.      TARGET INCENTIVE AWARDS

           Target incentive awards will be expressed as a percentage of each Participant’s Salary.  These percentages shall vary by position and reflect larger reward opportunity for positions having greater effect on the establishment and accomplishment of the Utility Company’s or business unit’s objectives.  An exhibit showing the target awards as a percentage of Salary for eligible positions will be attached to this Plan at the beginning of each Plan Year.

VIII.     INCENTIVE FUND DETERMINATION

           The target incentive fund is the sum of the individual target incentive awards for all eligible Participants.  Once the incentive targets have been determined by the Committee, a target incentive fund shall be established and accrued ratably by the Utility Company.  The incentive fund and accruals may be adjusted during the year.

           At the close of each Plan Year, the Chief Executive

Officer of the Company will prepare an analysis showing the Utility Company's and business unit's performance in relation to each of the performance measures employed.  This will be provided to the Committee for review and comparison to threshold, target and maximum performance levels.  In addition, any recommendations of the Chief Executive Officer will be presented at this time.  The Committee will then determine the amount of the target incentive fund earned.

IX.       INDIVIDUAL AWARD DETERMINATION

           Each individual Participant's award will be based first upon the level of performance achieved by the Utility Company or business unit and secondly based upon the individual's performance.  The performance measures applicable for assessing individual performance will be established at the beginning of each Plan Year.  The assessment by the Committee, after consultation with the Chief Executive Officer, of achievement relative to the established performance measures, as determined by a percentage from 0 percent to 200 percent, will be applied to the Participant's target incentive award which has been first adjusted for Utility Company or business unit performance.

X.         PAYMENT OF AWARDS

           Except as provided below or as otherwise determined by the Committee, in order to receive an award under the Plan, the Participant must remain in the employment of the Utility Company or business unit for the entire Service Year.  If a Participant terminates employment with the Utility Company pursuant to a mandatory retirement provision in the Utility Company’s Bylaws that provides for mandatory retirement of certain officers on their 65th birthday (or terminates employment with a subsidiary of the Company pursuant to a similar subsidiary Bylaw provision), and if the Participant’s 65th birthday occurs during the Service Year, determination of whether the performance measures have been met will be made at the end of the Service Year, and to the extent met, payment of the award will be made to the Participant, prorated.  Proration of awards shall be based upon the number of full months elapsed from and including January to and including the month in which the Participant’s 65th birthday occurs.  The prorated award shall be paid as soon as practicable in the year following the Service Year, but in all events between January 1 and March 10.

           An individual Participant who transfers between the Utility Company and the Company or any business unit of the Company may receive a prorated award at the discretion of the Committee.  Payments made under this Plan will not be considered part of compensation for pension purposes.  Payments will be made in cash as soon as practicable in the year following the Service Year, but in all events between January 1 and March 10.

           Incentive awards may be deferred if the appropriate elections have been executed prior to the beginning of the Service Year.  A deferral election will be effective only for the incentive award earned in the Service Year following the Plan Year in which the election is made.  Deferral elections may not be changed or revoked after the Service Year begins.  Deferred amounts shall be subject to the terms of the Plan and the Rules and Regulations, as amended, and, to the extent not inconsistent therewith, the deferral election forms pursuant to which the amounts were deferred.  Deferred amounts will accrue interest at a rate determined annually by the Committee and specified in the Rules and Regulations.

           In the event of a "Change in Control" (as defined by the Committee in its Rules and Regulations) then any award deferred by each Participant shall become immediately payable to the Participant in cash, together with accrued interest thereon to the date of payment.  In the event the Participant files suit to collect the Participant's deferred award then all of the court costs, other expenses of litigation, and attorneys' fees shall be paid by the Utility Company in the event the Participant prevails upon any of the Participant's claims for payment of a deferred award.

XI.           ACCOUNTING RESTATEMENTS

This Section XI shall apply to incentive awards granted to all Participants in the Plan.  Notwithstanding anything in the

Plan or the Plan's Rules and Regulations to the contrary, if the Utility Company's audited financial statements are restated, the Committee may, in accordance with the Company's Guidelines for Repayment of Incentives Due to Accounting Restatements , take such actions as it deems appropriate (in its sole discretion) with respect to

if the calculation of the amounts payable, paid or deferred under such awards are, or would have been, directly impacted by the restatement, including, without limitation, (i) securing (or causing to be secured) repayment of some or all payments made pursuant to (or deferrals relating to) Prior Awards, (ii) making (or causing to be made) additional payments (or crediting additional deferrals), (iii) reducing or otherwise adjusting the amount payable pursuant to Outstanding Awards and/or (iv) causing the forfeiture of Outstanding Awards.  The Committee may, in its sole discretion, take different ac