OVERVIEW
The Company's strategy is to apply its expertise in energy and transportation infrastructure industries to increase market share, increase profitability and enhance shareholder value through:

· Organic growth as well as a continued disciplined approach to the acquisition of well-managed companies and properties

· The elimination of system-wide cost redundancies through increased focus on integration of operations and standardization and consolidation of various support services and functions across companies within the organization

· The development of projects that are accretive to earnings per share and return on invested capital

The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper facilities and the issuance from time to time of debt and equity securities. Although volatility and disruptions in the capital markets have increased significantly, the Company continues to issue commercial paper to meet its current needs. If access to the commercial paper markets were to become unavailable, the Company may need to borrow under its credit agreements. At that time, accessing the long-term debt market may be more challenging and result in higher interest rates. As a result, the Company has increased its focus on the use of operating cash flows to substantially fund capital expenditures. For more information on the Company's net capital expenditures, see Liquidity and Capital Commitments.

The key strategies for each of the Company's business segments and certain related business challenges are summarized below. For a summary of the Company's business segments, see Note 15.

Key Strategies and Challenges
Electric and Natural Gas Distribution
Strategy Provide competitively priced energy to customers while working with them to ensure efficient usage. Both the electric and natural gas distribution segments continually seek opportunities for growth and expansion of their customer base through extensions of existing operations, including electric generation build-out, and through selected acquisitions of companies and properties at prices that will provide stable cash flows and an opportunity for the Company to earn a competitive return on investment.

Challenges Both segments are subject to extensive regulation in the state jurisdictions where they conduct operations with respect to costs and permitted returns on investment as well as subject to certain operational regulations at the federal level. The ability of these segments to grow through acquisitions is subject to significant competition from other energy providers. In addition, the ability of both segments to grow 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 electric generating facilities and transmission lines are subject to increasing cost and lead time, extensive permitting procedures, and federal and state legislative and regulatory initiatives, which may necessitate increases in electric energy prices. Legislative and regulatory initiatives to increase renewable energy resources and reduce GHG emissions could increase the price and decrease the retail demand for electricity and natural gas.

Construction Services
Strategy Provide a competitive return on investment while operating in a competitive industry by: building new and strengthening existing customer relationships; effectively controlling costs; retaining, developing and recruiting talented employees; focusing business development efforts on project areas that will permit higher margins; and properly managing risk. This segment continuously seeks opportunities to expand through strategic acquisitions.

Challenges This segment operates in highly competitive markets with many jobs subject to competitive bidding. Maintenance of effective operational and cost controls, retention of key personnel, managing through downturns in the economy and effective management of working capital are ongoing challenges.

Pipeline and Energy Services
Strategy Utilize the segment's existing expertise in energy infrastructure and related services to increase market share and profitability through optimization of existing operations, internal growth, and acquisitions of energy-related assets and companies. Incremental and new growth opportunities include: access to new sources of natural gas for storage, gathering and transportation services; expansion of existing gathering, transmission and storage facilities; and incremental expansion of pipeline capacity to allow customers access to more liquid and higher-priced markets.

Challenges Challenges for this segment include: energy price volatility; natural gas basis differentials; regulatory requirements; recruitment and retention of a skilled workforce; and competition from other natural gas pipeline and gathering companies.

Natural Gas and Oil Production
Strategy Apply technology and utilize existing exploration and production expertise, with a focus on operated properties, to increase production and reserves from existing leaseholds, and to seek additional reserves and production opportunities in new areas to further expand the segment's asset base. By optimizing existing operations and taking advantage of new and incremental growth opportunities, this segment's goal is to increase both production and reserves over the long term so as to generate competitive returns on investment.

Challenges Volatility in natural gas and oil prices; ongoing environmental litigation and administrative proceedings; timely receipt of necessary permits and approvals; recruitment and retention of a skilled workforce; availability of drilling rigs, materials, auxiliary equipment and industry-related field services, and inflationary pressure on development and operating costs, all primarily in a higher price environment; and competition from other natural gas and oil companies are ongoing challenges for this segment.

Construction Materials and Contracting
Strategy Focus on high-growth strategic markets located near major transportation corridors and desirable mid-sized metropolitan areas; strengthen long-term, strategic aggregate reserve position through purchase and/or lease opportunities; enhance profitability through cost containment, margin discipline and vertical integration of the segment's operations; and continue growth through organic and acquisition opportunities. Ongoing efforts to increase margin are being pursued through the implementation of a variety of continuous improvement programs, including corporate purchasing of equipment, parts and commodities (liquid asphalt, diesel fuel, cement and other materials), and negotiation of contract price escalation provisions. 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 adequate quantities of permitted aggregate reserves being significant. A key element of the Company's long-term strategy for this business is to further expand its presence, through acquisition,

in the higher-margin materials business (rock, sand, gravel, liquid asphalt, ready-mixed concrete and related products), complementing and expanding on the Company's expertise.

Challenges The economic downturn has adversely impacted operations, particularly in the private market. This business unit expects to continue cost containment efforts and a greater emphasis on industrial, energy and public works projects. Significant volatility in the cost of raw materials such as diesel, gasoline, liquid asphalt, cement and steel continue to be a concern. Increased competition in certain construction markets has also lowered margins.

For further information on the risks and challenges the Company faces as it pursues its growth strategies and other factors that should be considered for a better understanding of the Company's financial condition, see Part II, Item 1A
- Risk Factors, as well as Part I, Item 1A - Risk Factors in the 2008 Annual Report. For further information on each segment's key growth strategies, projections and certain assumptions, see Prospective Information. For information pertinent to various commitments and contingencies, see Notes to Consolidated Financial Statements.

Earnings Overview
The following table summarizes the contribution to consolidated earnings by each
of the Company's businesses.

                                               Three Months Ended              Nine Months Ended
                                                  September 30,                  September 30,
                                                  2009            2008           2009           2008
                                                    (Dollars in millions, where applicable)
Electric                                   $      10.1       $     6.8     $     18.5      $    15.1
Natural gas distribution                          (9.3 )          (3.4 )          9.8           18.5
Construction services                              7.3            16.3           22.9           41.2
Pipeline and energy services                      10.6             5.7           27.9           19.7
Natural gas and oil production                    24.4            57.5         (328.2 )        179.8
Construction materials and contracting            47.5            33.6           47.8           25.2
Other                                              1.8             1.7            4.9            4.9
Earnings (loss) on common stock            $      92.4       $   118.2     $   (196.4 )    $   304.4
Earnings (loss) per common share - basic   $       .50       $     .65     $    (1.07 )    $    1.66
Earnings (loss) per common share -
diluted                                    $       .50       $     .64     $    (1.07 )    $    1.66
Return on average common equity for the
12 months ended                                                                  (8.1 )%        15.5 %

Three Months Ended September 30, 2009 and 2008 Consolidated earnings for the quarter ended September 30, 2009, decreased $25.8 million from the comparable prior period largely due to:

· Lower average realized natural gas prices and oil prices of 34 percent and 47 percent, respectively, as well as decreased natural gas production of 16 percent, partially offset by lower depreciation, depletion and amortization expense, lower production taxes and decreased lease operating expenses at the natural gas and oil production business

· Lower construction workloads, partially offset by lower general and administrative expense at the construction services business

· Seasonal loss of $5.4 million (after tax) at Intermountain, which was acquired in October 2008, at the natural gas distribution business

Partially offsetting these decreases were:

· Increased earnings from liquid asphalt oil, asphalt and aggregate operations at the construction materials and contracting business

· Lower operation and maintenance expense, higher storage services revenue and increased transportation volumes, partially offset by decreased gathering volumes at the pipeline and energy services business

Nine Months Ended September 30, 2009 and 2008 Consolidated earnings for the nine months ended September 30, 2009, decreased $500.8 million primarily due to:

· A noncash write-down of natural gas and oil properties of $384.4 million (after tax), as well as lower average realized natural gas prices and oil prices of 35 percent and 54 percent, respectively, and decreased natural gas production of 12 percent, partially offset by lower production taxes and lower depreciation, depletion and amortization expense at the natural gas and oil production business

· Lower construction workloads, partially offset by lower general and administrative expense at the construction services business

· Decreased retail sales volumes at existing operations and the absence of a $4.4 million (after tax) gain on the sale of Cascade's natural gas management service in June 2008 at the natural gas distribution business

Partially offsetting these decreases were:

· Increased earnings from liquid asphalt oil and asphalt operations, as well as lower selling, general and administrative expense at the construction materials and contracting business

· Increased transportation volumes and lower operation and maintenance expense at the pipeline and energy services business

FINANCIAL AND OPERATING DATA
Below are key financial and operating data for each of the Company's businesses.

Electric
                                               Three Months Ended            Nine Months Ended
                                                 September 30,                 September 30,
                                                  2009           2008          2009          2008
                                                  (Dollars in millions, where applicable)
Operating revenues                         $      51.9      $    56.0     $   147.7     $   154.1
Operating expenses:
Fuel and purchased power                          15.2           19.6          49.1          54.0
Operation and maintenance                         13.8           15.9          45.3          47.4
Depreciation, depletion and amortization           6.1            6.0          18.2          18.1
Taxes, other than income                           2.2            2.2           7.0           6.6
                                                  37.3           43.7         119.6         126.1
Operating income                                  14.6           12.3          28.1          28.0
Earnings                                   $      10.1      $     6.8     $    18.5     $    15.1
Retail sales (million kWh)                       655.0          660.7       1,975.2       1,946.2
Sales for resale (million kWh)                    11.7           58.8          44.1         158.7
Average cost of fuel and purchased power
per kWh                                    $      .022      $    .026     $    .023     $    .024

Three Months Ended September 30, 2009 and 2008 Electric earnings increased $3.3 million (48 percent) due to:

· Higher other income, primarily allowance for funds used during construction of $2.0 million (after tax)

· Lower operation and maintenance expense of $1.3 million (after tax), largely payroll and benefit-related costs

Nine Months Ended September 30, 2009 and 2008 Electric earnings increased $3.4 million (22 percent) due to:

· Higher other income, primarily allowance for funds used during construction of $3.5 million (after tax)

· Lower operation and maintenance expense of $1.3 million (after tax), largely payroll and benefit-related costs

Partially offsetting these increases were decreased sales for resale margins due to lower average rates of 39 percent and decreased volumes of 72 percent due to lower market demand and decreased plant generation.

Natural Gas Distribution
                                                Three Months Ended             Nine Months Ended
                                                  September 30,                  September 30,
                                                   2009            2008           2009          2008
                                                    (Dollars in millions, where applicable)
Operating revenues                         $       97.4       $    94.0     $    744.8     $   653.1
Operating expenses:
Purchased natural gas sold                         55.6            55.9          529.0         475.9
Operation and maintenance                          31.6            26.9          105.3          82.6
Depreciation, depletion and amortization           10.8             7.4           32.1          21.7
Taxes, other than income                            7.3             4.7           41.5          30.3
                                                  105.3            94.9          707.9         610.5
Operating income (loss)                            (7.9 )           (.9 )         36.9          42.6
Earnings (loss)                            $       (9.3 )     $    (3.4 )   $      9.8     $    18.5
Volumes (MMdk):
Sales                                               7.5             6.4           65.2          53.0
Transportation                                     38.2            24.9           95.6          70.0
Total throughput                                   45.7            31.3          160.8         123.0
Degree days (% of normal)*
Montana-Dakota                                       30 %            70 %          103 %         103 %
Cascade                                              80 %           111 %          105 %         111 %
Intermountain                                       103 %             -            104 %           -
Average cost of natural gas, including
transportation, per dk**                   $       7.39       $    8.68     $     8.11     $    8.18

Three Months Ended September 30, 2009 and 2008 The natural gas distribution business experienced a seasonal loss of $9.3 million in the third quarter of 2009 compared to a loss of $3.4 million in the third quarter of 2008. The increase in the seasonal loss is due to:

· Seasonal loss of $5.4 million (after tax) at Intermountain, which was acquired in October 2008

· Decreased retail sales volumes at existing operations, largely resulting from 27 percent warmer weather than last year in the Northwest

· Decreased energy-related services of $1.1 million (after tax)

Partially offsetting these decreases was lower operation and maintenance expense at existing operations of $1.3 million (after tax), largely payroll and benefit-related costs.

Nine Months Ended September 30, 2009 and 2008 Earnings at the natural gas distribution business decreased $8.7 million (47 percent) due to:

· Decreased retail sales volumes at existing operations, largely resulting from 6 percent warmer weather than last year in the Northwest

· Absence of a $4.4 million (after tax) gain on the sale of Cascade's natural gas management service in June 2008

Partially offsetting these decreases was lower operation and maintenance expense at existing operations of $1.3 million (after tax), including lower payroll and benefit-related costs.

Construction Services
                                             Three Months Ended          Nine Months Ended
                                                September 30,              September 30,
                                                 2009         2008           2009        2008
                                                             (In millions)
Operating revenues                         $    186.4      $ 328.5     $    651.9     $ 960.6
Operating expenses:
Operation and maintenance                       166.1        288.0          582.5       848.5
Depreciation, depletion and amortization          3.2          3.3           10.0         9.8
Taxes, other than income                          5.2          9.5           21.1        31.9
                                                174.5        300.8          613.6       890.2
Operating income                                 11.9         27.7           38.3        70.4
Earnings                                   $      7.3      $  16.3     $     22.9     $  41.2

Three Months Ended September 30, 2009 and 2008 Construction services earnings decreased $9.0 million (55 percent) due to lower construction workloads, partially offset by lower general and administrative expense of $2.1 million (after tax), largely payroll-related.

Nine Months Ended September 30, 2009 and 2008 Construction services earnings decreased $18.3 million (44 percent) over the comparable prior period due to lower construction workloads, partially offset by lower general and administrative expense of $3.2 million (after tax), largely payroll-related.

Pipeline and Energy Services
                                             Three Months Ended          Nine Months Ended
                                                September 30,              September 30,
                                                2009          2008           2009        2008
                                                         (Dollars in millions)
Operating revenues                         $    68.7       $ 134.6     $    221.8     $ 423.5
Operating expenses:
Purchased natural gas sold                      25.7          97.6          100.0       308.3
Operation and maintenance                       14.0          17.2           42.8        51.4
Depreciation, depletion and amortization         6.6           5.9           18.8        17.4
Taxes, other than income                         3.0           2.9            8.9         8.5
                                                49.3         123.6          170.5       385.6
Operating income                                19.4          11.0           51.3        37.9
Earnings                                   $    10.6       $   5.7     $     27.9     $  19.7
Transportation volumes (MMdk):
Montana-Dakota                                  10.4           8.2           28.9        23.7
Other                                           30.8          29.1           93.3        77.3
                                                41.2          37.3          122.2       101.0
Gathering volumes (MMdk)                        22.7          26.8           71.3        76.2

Three Months Ended September 30, 2009 and 2008 Pipeline and energy services earnings increased $4.9 million (87 percent) due to:

· Lower operation and maintenance expense, including lower costs associated with the natural gas storage litigation, which was settled

· Higher storage services revenues of $1.8 million (after tax)

· Increased transportation volumes of $1.0 million (after tax), largely volumes transported to storage

· Higher gathering rates of $600,000 (after tax)

Partially offsetting these increases were decreased gathering volumes of 15 percent. Results also reflect lower operating revenues, as well as lower purchased natural gas sold related to lower natural gas prices.

Nine Months Ended September 30, 2009 and 2008 Pipeline and energy services earnings increased $8.2 million (42 percent) due to:

· Increased transportation volumes of $4.0 million (after tax), largely volumes transported to storage

· Lower operation and maintenance expense of $3.9 million (after tax), largely associated with the natural gas storage litigation, which was settled

· Higher gathering rates of $1.7 million (after tax)

Partially offsetting these increases were decreased gathering volumes of 7 percent. Results also reflect lower operating revenues, as well as lower purchased natural gas sold related to lower natural gas prices. The above table also reflects lower operation and maintenance expense and revenues related to energy-related service projects.

Natural Gas and Oil Production
                                               Three Months Ended            Nine Months Ended
                                                 September 30,                 September 30,
                                                   2009          2008           2009          2008
                                                   (Dollars in millions, where applicable)
Operating revenues:
Natural gas                                $       67.3     $   121.1     $    218.2     $   379.1
Oil                                                42.1          72.0          102.1         198.7
Other                                                 -            .1              -            .1
                                                  109.4         193.2          320.3         577.9
Operating expenses:
Purchased natural gas sold                            -             -              -            .1
Operation and maintenance:
Lease operating costs                              16.3          21.0           54.2          58.5
Gathering and transportation                        6.1           6.6           18.3          18.5
Other                                               7.9          10.5           29.0          33.1
Depreciation, depletion and amortization           29.1          44.5          101.9         125.5
Taxes, other than income:
Production and property taxes                       8.1          15.5           21.2          45.4
Other                                                .1            .2             .6            .7
Write-down of natural gas and oil
properties                                            -             -          620.0             -
                                                   67.6          98.3          845.2         281.8
Operating income (loss)                            41.8          94.9         (524.9 )       296.1
Earnings (loss)                            $       24.4     $    57.5     $   (328.2 )   $   179.8
Production:
Natural gas (MMcf)                               13,657        16,188         43,355        49,280
Oil (MBbls)                                         807           729          2,320         2,067
Total Production (MMcf equivalent)               18,502        20,566         57,277        61,684
Average realized prices (including
hedges):
Natural gas (per Mcf)                      $       4.93     $    7.48     $     5.03     $    7.69
Oil (per barrel)                           $      52.13     $   98.61     $    44.00     $   96.09
Average realized prices (excluding
hedges):
Natural gas (per Mcf)                      $       2.34     $    7.84     $     2.82     $    8.02
Oil (per barrel)                           $      55.00     $   99.60     $    45.42     $   97.01
Average depreciation, depletion and
amortization rate, per equivalent Mcf      $       1.47     $    2.10     $     1.69     $    1.97
Production costs, including taxes, per
equivalent Mcf:
Lease operating costs                      $        .88     $    1.02     $      .95     $     .95
Gathering and transportation                        .33           .32            .32           .30
Production and property taxes                       .43           .75            .37           .73
                                           $       1.64     $    2.09     $     1.64     $    1.98

Three Months Ended September 30, 2009 and 2008 Natural gas and oil production experienced a decrease in earnings of $33.1 million (58 percent) due to:

· Lower average realized natural gas prices and oil prices of 34 percent and 47 percent, respectively

· Decreased natural gas production of 16 percent, largely related to normal production declines at certain properties

Partially offsetting these decreases were:

. . .