Transcript Joseph L. Welch President and CEO, ITC Holdings Corp. July 16, 2007

Joseph L. Welch
President and CEO, ITC Holdings Corp.
July 16, 2007
Who Is ITC?
2

ITC Holdings Corp. (“ITC”), through two of
its operating subsidiaries, ITCTransmission
and Michigan Electric Transmission
Company, LLC (“METC”), operates fullyregulated, high-voltage transmission
systems covering most of Michigan’s Lower
Peninsula.

In January 2007 ITC Midwest LLC signed a
definitive agreement to acquire the
transmission assets of Interstate Power
and Light Company, an Alliant Energy
Corporation subsidiary, in Iowa, Minnesota,
Illinois and Missouri.

ITC Great Plains and ITC Panhandle
Transmission were formed in July 2006 and
June 2007, respectively.

Rate regulation by the Federal Energy
Regulatory Commission (“FERC”).

Operational subsidiaries are members of
the Midwest Independent Transmission
System Operator (“MISO”) and Southwest
Power Pool.
The Independent Transmission Company
 ITC and its subsidiaries are singularly
focused on electric transmission.
 ITC is committed to investing in the
transmission grid to improve reliability,
reduce congestion, enable a competitive,
wholesale energy market, and lower the
overall cost of delivered energy.
 Only publicly traded company engaged
exclusively in the transmission of electricity
in the U.S.
 Largest independent transmission company
and currently 8th largest transmission
company overall in the U.S. in terms of
energy sales. (1)
(1)
Based on annual electric retail sales in the service territory as found in “Edison Electric
Institute Profile: Rankings of Shareholder-Owned Electric Companies”, May 2006.
3
Pure Focus on Transmission
 ITC is not a market participant; its only business is transmission.
— ITC doesn’t care whose electrons travel over its wires.
 Transmission is the backbone of the electric system.
— A reliable transmission system is critical to the success of any renewable
portfolio standard policy or demand response program.
4
WIRES

WIRES is the Working Group for Investment in Reliable and
Economic Electric Systems (www.wiresgroup.com).

Serves as the voice of the electric transmission infrastructure
industry, created in response to the urgent need for
transmission identified by Congress in the Energy Policy Act
and the electric industry.

Member companies include:
— California Independent System Operator
— Great River Energy
— ITC Holdings Corp.
— Infrasource
— Midwest Independent Transmission System Operator, Inc.
— National Grid
— Oncor
— PJM Interconnection
— ScottMadden
— Trans-Elect
— Vinson & Elkins (counsel)
— Wesco.
5
The Facts
 Fact #1: Electric reliability is
driven almost solely by the
condition of the transmission
grid.
 Fact #2: Planning individual
transmission systems without
regard to the region will lead to
negative results.
 Fact #3: The transmission grid is
critical in addressing issues such
as “capacity”, reliability,
competitive markets, demand
response and renewable
resources.
6
World Energy Consumption
 The U.S. remains the largest consumer of energy, but China is gaining by
leaps and bounds.
Total Energy Consumption
(Billion kWh)
4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
1980
1990
2000
Year
Source: Energy Information Administration, International Energy
Annual 2004
7
2004
Former U.S.S.R.
Germany, West
United States
China
Japan
Russia
India
Germany
Canada
France
Brazil
United Kingdom
Italy
U.S. Regular Conventional Retail Gasoline
Prices ($ per Gallon)

With the increasing world-wide demand on oil and petroleum, energy prices will only continue to
increase for this resource that is becoming increasingly scarce.

The industry said that renewable resources were unable to be justified back when the price of
gasoline was $1.00/gallon and later $2.00/gallon; prices have already gone past $3.00/gallon.

Renewable resources are inevitable; we must start today in order to reduce dependency on
foreign oil and mitigate environmental impacts of fossil fuels.
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
Source: Energy Information Administration (http://www.eia.doe.gov)
8
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
$0.00
Electric Cars
 Electric cars are gaining
momentum.
 For example, Ford and California
Edison recently announced a
partnership to test rechargeable
hybrid cars in order to speed up
mass production.
 Widespread usage of electric
vehicles will lead to an increase in
energy consumption and demand
on the grid.
9
Renewable Resources
 Renewable resources, such as wind,
biomass and solar, make good public policy.
 However, many impediments still exist:
— Cost
— Location – not located at or near load
centers
— Lack of robust transmission
infrastructure
— Size and scale
 Current transmission interconnection
standards do not facilitate the development
of renewable resources; high barrier to entry.
— Barrier to entry puts wind energy at a
competitive disadvantage to incumbent
generation.
 Transmission is the enabler for delivering
wind energy to load.
10
Abundance of Wind in Central/Western U.S.
U.S. Annual Wind
Power Resource and
Wind Power Classes
Source: U.S. Dept. of Energy
11
Limitations of Wind / RPS
 Aside from Chicago (“the Windy City”), wind typically
occurs in abundance in areas with low electric demand.
 Many states have implemented Renewable Portfolio
Standards (“RPS”) within their state.
— For example, Michigan has called for 25% RPS by
2025.
 Peak load for Michigan’s Lower Peninsula is
more than 22,000MW, therefore a 25% RPS
represents 5,500MW.
 Only 600-1,000MW of optimal wind sites in
Michigan.
— Other states have more wind potential than the total
load in the state.
— States will be dependent on the transmission grid to
support renewable resources.
— Some will need to export while others will need to
import renewable resources.
 Similar limitations exist for biomass.
12
U.S. Utilities by Peak Load
 The large majority of U.S. utilities have peak loads of less than 8,000 MW.
— These utilities typically do not have the resources or may choose not to invest in
renewables but rather depend on the grid to import renewable resource-based
energy.
120
100
80
60
40
Peak Load (MW)
Source: Edison Electric Institute research, FERC Form 1
13
e
M
or
0
22
50
0
20
00
0
17
50
0
15
00
0
12
50
0
00
10
00
80
00
60
40
20
00
20
0
00
Number of Utilities
160
140
Biomass Capacity
Source: U.S. Dept. of the Interior
14
Demand Response Programs
 Transmission is the enabler for
demand response programs.
 For example, at a specific point in
time (hour, day, etc.), assume that
Chicago has reduced load due
demand side management but that
Detroit requires additional energy to
support demand.
 The grid must be able to reliably
accommodate the resultant change
in energy flow.
— The grid must be able to
withstand variations across the
region.
15
System in Dire Need of Investment
 Given the lack of investment in
the grid over the last 30 years
coupled with the doubling of
demand over the same period,
now is opportune time.
 As an industry, we must be
focused not only on improving
reliability within our own
respective service territories,
but we must also plan the grid:
— With a regional view;
— In consideration of future
demands; and
— To facilitate the
development of renewables
and demand response.
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Summary
 Policy changes are necessary to
bring the benefits of renewables
and demand response
programs to consumers.
— Interconnection standards
— Cost allocation policies
— Long-term focus and policies
— Plan as a region
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Additional Slides
Illustrative Example:
Independent Transmission Company (13.88% ROE)
Year 1
 Depreciation > $15
million for all five
years
 Additions to rate
Rate Base
Beginning Balance
Additions to Rate Base
Depreciation
Ending Balance
$
Year 2
550 $
50
(100)
500
Year 3
600 $
50
(115)
535
Year 4
650 $
50
(131)
569
Year 5
700 $
50
(148)
602
750
50
(166)
634
Return on Rate Base (@ 10.5%)
53
56
60
63
67
base = $50 million
per year
Expenses
Depreciation
Income Taxes
30
15
22
30
16
24
30
17
26
30
18
27
30
19
28
— Greater than
depreciation
Total Revenue Requirement
$
120
$
126
$
132
$
138
$
144
Revenue
$
120
$
126
$
132
$
138
$
144
 ROE = 13.88%
— Remains steady
Current Year Total Revenues
120
126
132
138
144
Operating Expenses
Depreciation
Interest Expense
Income Taxes
(30)
(15)
(11)
(22)
(30)
(16)
(12)
(24)
(30)
(17)
(12)
(26)
(30)
(18)
(13)
(27)
(30)
(19)
(14)
(28)
Net Income
$
42
$
45
$
47
$
50
$
53
Net Cash Flow
$
1
$
5
$
8
$
12
$
15
Return on Equity
13.88%
19
13.88%
13.88%
13.88%
13.88%
Illustrative Example:
Vertically Integrated Utility Under Frozen Rate
Year 1
Year 2
Year 3
Year 4
Year 5
 Depreciation = $13-15
$
million
550 $
600 $
50
50
(100)
(115)
500
 535
650 $
50
(131)
569
700 $
50
(148)
602
750
50
(166)
634
Additions to rate base
56
60
63
67
= $8 million
per year
53
30
15
22
30
16
24
30
30
30
19
28
17
18
— Less
than
26
27
depreciation
$
120
$
$
120
$
120
(30)
(15)
(11)
(22)
126
$
132
$
138
Frozen
Rate Test
Year
$
144
Rate Base
Beginning Balance
Additions to Rate Base
Depreciation
Ending Balance
$
550
50
(100)
500
Year 1
$
Year 2
600 $
8
(115)
493
Year 3
608 $
8
(130)
486
Year 4
615 $
8
(144)
479
Year 5
623 $
8
(157)
473
630
8
(170)
468
Return on Rate Base (@ 10.5%)
53
n/a
n/a
n/a
n/a
n/a
Expenses
Depreciation
Income Taxes
30
15
22
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Total Revenue Requirement
$
120
$
120
$
120
$
120
$
120
$
120
$
132
$ to
138lack
$
144
grow
due
of
126investment
132
138
144
in system
Revenue
$
120
$
120
$
120
$
120
$
120
$
120
Current Year Total Revenues
120
120
120
120
120
120
(30)
(30)
(30)
(30)
(12)
(24)
(12)
(13)
(27)
(14)
(28)
Operating Expenses
Depreciation
Interest Expense
Income Taxes
(30)
(15)
(11)
(22)
(25)
(15)
(11)
(24)
(26)
(14)
(11)
(24)
(26)
(14)
(10)
(25)
(27)
(13)
(10)
(25)
(27)
(13)
(10)
(25)
 ROE continues to
126
(18)
(19)
 (16)Rate (17)
base steadily
declining
(26)
$
42
$
45
$
47
$
50
$
53
Net Income
$
42
$
45
$
45
$
46
$
46
$
46
$
1
$
5
$
8
$
12
$
15
Net Cash Flow
$
1
$
47
$
47
$
47
$
47
$
46
13.88%
13.88%
13.88%
13.88%
13.88%
Return on Equity
13.88%
20
15.34%
15.59%
15.83%
16.06%
16.27%
Result of Underinvestment Over Time
21