MDU RESOURCES GROUP, INC.

DIRECTORS' COMPENSATION POLICY

Each Director who is not a full-time employee of the Company shall receive
compensation made up of annual cash retainers, common stock and meeting fees.
Each Director is also eligible for awards under the 1997 Non-Employee Director
Long-Term Incentive Plan.

Annual Retainers and Stock Compensation

The Board service annual cash retainer shall be $30,000. The Lead Director, if
any, shall receive an additional $33,000 of compensation. This is in addition to
the annual Director cash retainer of $30,000. The non-executive Chairman of the
Board, if any, shall receive an additional $100,000 of compensation, consisting
of 50 percent cash and 50 percent equity compensation. This is in addition to
the annual Director cash compensation of $30,000. The annual retainers for
service as Chairman of the Compensation, and Nominating and Governance
Committees shall be $5,000. The annual retainer for service as Chairman of the
Audit Committee shall be $10,000. Such retainers shall be paid in monthly
installments.

The Amended and Restated Deferred Compensation Plan for Directors adopted on
February 13, 1992, and effective January 1, 1992, as amended, permits a Director
to defer all or any portion of the annual cash retainer, as well as meeting fees
and any other cash compensation paid for service as a Director. The amount
deferred is recorded in each participant's deferred compensation account and
credited with income in the manner prescribed in the Plan. For further details,
reference is made to the Plan, a copy of which is attached.

Each Director shall receive 4,050 shares of Common Stock on or about the 15th
business day following the annual meeting of stockholders, pursuant to the
Non-Employee Director Stock Compensation Plan, effective April 25, 1995, as
amended, or the 1997 Non-Employee Director Long-Term Incentive Plan. A Director
may decline a stock payment for any plan year, in writing in advance of the plan
year to which stock payment relates. No cash compensation shall be paid in lieu
thereof. By written election a Director may reduce the cash portion of the
annual retainer and have that amount applied to the purchase of additional
shares. The election must be made on a form provided by the administrative
committee and returned to the committee by the last business day of the year
prior to the year in which the election is to be effective. The election remains
in effect until changed or revoked. No election may be changed or revoked for
the current year, but may be changed for a subsequent year. For further details,
reference is made to the Non-Employee Director Stock Compensation Plan, a copy
of which is attached.

Board and Committee Meeting Fees

The fee for each Board meeting attended shall be $1,500 and for each meeting
attended of each Committee of which the Director is a member, and for attendance
at the Strategic Planning meeting, shall be $1,500, payable only to Directors
who are not full-time employees of the Company.

Travel Expense Reimbursement

All Directors will be reimbursed for reasonable travel expenses including
spouse’s expenses, in connection with attendance at meetings of the Company’s
Board of Directors and its committees. If the travel expense is related to the
reimbursement of commercial airfare, such reimbursement will not exceed
full-coach rate. If the travel expense is related to reimbursement of
non-commercial airfare, such reimbursement will not exceed the rate for
comparable travel by means of commercial airline at the first-class rate.
Spousal travel expenses paid by the Company are treated as taxable income to the
Director.

Directors' Liability

Article Seventeenth of the Company's Restated Certificate of Incorporation
provides that no Director of the Company shall be liable to the Company or its
stockholders for breach of fiduciary duty as a Director, with certain exceptions
stated below. Section 7.07 of the Company's Bylaws requires the Company to
indemnify fully a Director against expenses, attorneys fees, judgments, fines
and amounts paid in settlement of any suit, action or proceeding, whether civil
or criminal, arising from an action of a Director by reason of the fact that the
Director was a Director of MDU Resources Group, Inc.

There are exceptions to these protections: breaches of the Directors' duty of
loyalty to the Company or its stockholders, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law,
violation of Section 174 of the Delaware General Corporation Law (relating to
unlawful declaration of dividends and unlawful purchase of the company's stock),
and transactions from which the Director derived an improper personal benefit
(including short-swing profits under Section 16(b) of the Securities Exchange
Act of 1934).

The Company has and does maintain Directors' and Officers' liability insurance
coverage with a $125 million limit.

Insurance Coverages

The Company maintains the following insurance for protection of its Directors as
they carry out the business of MDU Resources Group, Inc.

 
1.
General liability and automobile liability insurance:

   
The Directors are afforded coverage under the general liability and automobile
liability insurance of the Company. The policy limit is $100 million in excess
of self-insured retentions of $500,000 per occurrence for general liability and
for automobile liability; or $1 million per occurrence/ $2 million aggregate for
general liability and $1 million per occurrence for automobile liability, where
we are carrying primary layer insurance coverage.

 

   2.
Fiduciary and employee benefit liability insurance:

   
The Directors are afforded coverage under the fiduciary and crime liability
insurance of the Company. The fiduciary policy has a limit of $25 million and
the crime policy has a limit of $10 million.

 
3.
Aircraft liability insurance:

   
The Company's existing aircraft liability insurance policy extends coverage
while a non-owned* aircraft is used by a Director in traveling to and from
Director or Board committee meetings. This insurance coverage constitutes excess
liability coverage in the amount of $200 million.

   
*Non-owned aircraft is defined as: 1) any aircraft registered under a “standard”
airworthiness certificate issued by the FAA; 2) aircraft with a seating capacity
not exceeding 40 seats; 3) aircraft that are not owned by MDU Resources Group,
Inc. or any of its subsidiaries; 4) aircraft that are not partly or wholly owned
by or registered in the Director’s name or the name of any Director’s household
member.

 
4.
Travel and sojourn insurance:

   
All Directors are protected by a group insurance policy with coverage of
$250,000 that provides 24-hour accident protection while traveling on Company
business.

   
Coverage in all instances begins at the actual start of a business trip and ends
when the Director returns to his/her home or regular place of employment.

   
The beneficiary of the insurance will be that beneficiary recorded on a
beneficiary designation card provided by the Company.

 
5.
Group life insurance:

   
All outside Directors are protected by a non-contributory group life insurance
policy with coverage of $100,000.

   
The coverage begins the day the Director is elected to the Board of Directors
and terminates when the Director ceases to be an outside Director.

   
A Certificate of Insurance shall be provided to the Director and the beneficiary
of the insurance will be that beneficiary recorded on a beneficiary designation
card provided by the Company.

   
This protection is considered taxable compensation under current tax laws.
Consequently, the Company will provide each Director annually on Form 1099 the
amount of taxable income related to this coverage.

 
Hedging Stock Ownership
 
Directors are not permitted to hedge their ownership of Company common stock.
Hedging strategies include but are not limited to zero-cost collars, equity
swaps, straddles, prepaid variable forward contracts, security futures
contracts, exchange funds, forward sale contracts and other financial
transactions that allow the Director to benefit from devaluation of the
Company's stock. Hedging strategies may allow Directors to own stock technically
but without the full benefits and risks of such ownership. Therefore, Directors
are prohibited from engaging in any such transactions.