UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-32576
 ITC HOLDINGS CORP.
  Michigan
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    32-0058047
(I.R.S. Employer Identification No.)
 27175 Energy Way
Novi, MI 48377
 (248) 946-3000
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




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ITC Holdings Corp.
Form 10-Q for the Quarterly Period Ended March 31, 2010
 INDEX
 PagePart I. Financial Information
    
    
    4Item 1. Financial Statements
    
    
    4Condensed Consolidated Statements of Financial Position (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26Part II. Other Information
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27SignaturesExhibit Index
  2




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##### 



DEFINITIONS
  ITC Holdings Corp. and its subsidiaries
 
    
    ITC Great Plains are references to ITC Great Plains, LLC, a wholly-owned subsidiary of
ITC Grid Development, LLC;
    
    ITC Grid Development are references to ITC Grid Development, LLC, a wholly-owned
subsidiary of ITC Holdings;
    
    Green Power Express are references to Green Power Express LP, an indirect wholly-owned
subsidiary of ITC Holdings;
    
    ITC Holdings are references to ITC Holdings Corp. and not any of its subsidiaries;
    
    ITC Midwest are references to ITC Midwest LLC, a wholly-owned subsidiary of ITC
Holdings;
    
    ITCTransmission are references to International Transmission Company, a wholly-owned
subsidiary of ITC Holdings;
    
    METC are references to Michigan Electric Transmission Company, LLC, a wholly-owned
subsidiary of MTH;
    
    MISO Regulated Operating Subsidiaries are references to ITCTransmission, METC and ITC
Midwest together;
    
    MTH are references to Michigan Transco Holdings, Limited Partnership, the sole member
of METC and a wholly owned subsidiary of ITC Holdings;
    
    Regulated Operating Subsidiaries are references to ITCTransmission, METC, ITC Midwest
and ITC Great Plains together; and
    
    We, our and us are references to ITC Holdings together with all of its
subsidiaries.
 Other definitions
 
    
    Consumers Energy are references to Consumers Energy Company, a wholly-owned subsidiary
of CMS Energy Corporation;
    
    Detroit Edison are references to The Detroit Edison Company, a wholly-owned subsidiary
of DTE Energy;
    
    DTE Energy are references to DTE Energy Company;
    
    FERC are references to the Federal Energy Regulatory Commission;
    
    IP&L are references to Interstate Power and Light Company, an Alliant Energy
Corporation subsidiary;
    
    kV are references to kilovolts (one kilovolt equaling 1,000 volts);
    
    kW are references to kilowatts (one kilowatt equaling 1,000 watts);
    
    MISO are references to the Midwest Independent Transmission System Operator, Inc., a
FERC-approved RTO, which oversees the operation of the bulk power transmission system for a
substantial portion of the Midwestern United States and Manitoba, Canada, and of which
ITCTransmission, METC and ITC Midwest are members;
    
    MW are references to megawatts (one megawatt equaling 1,000,000 watts);
    
    NERC are references to the North American Electric Reliability Corporation;
    
    RTO are references to Regional Transmission Organizations; and
    
    SPP are references to Southwest Power Pool, Inc., a FERC-approved RTO which oversees
the operation of the bulk power transmission system for a substantial portion of the South
Central United States, and of which ITC Great Plains is a member.
 3




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
 March 31,
    
    
    December 31,(in thousands, except share data)
    
    2010
    
    
    2009ASSETSCurrent assetsCash and cash equivalents
    
    $
    67,069
    
    
    $
    74,853Accounts receivable
    
    
    67,577
    
    
    
    72,352Inventory
    
    
    38,054
    
    
    
    36,834Deferred income taxes
    
    
    26,261
    
    
    
    23,859Regulatory assets  revenue accrual (including accrued interest of $2,238 and $2,652,
respectively)
    
    
    68,533
    
    
    
    82,871Other
    
    
    5,176
    
    
    
    3,244Total current assets
    
    
    272,670
    
    
    
    294,013Property, plant and equipment(net of accumulated depreciation and amortization of $1,070,403
and $1,051,045, respectively)
    
    
    2,608,977
    
    
    
    2,542,064Other assetsGoodwill
    
    
    950,163
    
    
    
    950,163Intangible assets (net of accumulated amortization of $9,865 and $9,095, respectively)
    
    
    51,296
    
    
    
    51,987Regulatory assets  revenue accrual (including accrued interest of $84 and $75, respectively)
    
    
    24,550
    
    
    
    20,406Other regulatory assets
    
    
    134,853
    
    
    
    134,924Deferred financing fees (net of accumulated amortization of $9,759 and $9,616, respectively)
    
    
    21,230
    
    
    
    21,672Other
    
    
    13,854
    
    
    
    14,487Total other assets
    
    
    1,195,946
    
    
    
    1,193,639TOTAL ASSETS
    
    $
    4,077,593
    
    
    $
    4,029,716LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    47,571
    
    
    $
    43,508Accrued payroll
    
    
    6,327
    
    
    
    13,648Accrued interest
    
    
    23,979
    
    
    
    39,099Accrued taxes
    
    
    16,012
    
    
    
    21,188Refundable deposits from generators for transmission network upgrades
    
    
    37,667
    
    
    
    25,891Other
    
    
    6,518
    
    
    
    3,344Total current liabilities
    
    
    138,074
    
    
    
    146,678Accrued pension and postretirement liabilities
    
    
    32,835
    
    
    
    31,158Deferred income taxes
    
    
    277,457
    
    
    
    255,516Regulatory liabilities  revenue deferral(including accrued interest of $215 and $186,
respectively)
    
    
    10,238
    
    
    
    10,238Regulatory liabilities  accrued asset removal costs
    
    
    112,096
    
    
    
    112,430Refundable deposits from generators for transmission network upgrades
    
    
    6,978
    
    
    
    17,664Other
    
    
    11,470
    
    
    
    10,111Long-term debt
    
    
    2,455,578
    
    
    
    2,434,398Commitments and contingent liabilities(Notes 3 and 10)STOCKHOLDERS EQUITYCommon stock, without par value, 100,000,000 shares authorized, 50,140,266 and 50,084,061
shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively
    
    
    865,672
    
    
    
    862,512Retained earnings
    
    
    167,944
    
    
    
    149,776Accumulated other comprehensive loss
    
    
    (749
    )
    
    
    (765
    )Total stockholders equity
    
    
    1,032,867
    
    
    
    1,011,523TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,077,593
    
    
    $
    4,029,716
  4




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ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months endedMarch 31,(in thousands, except per share data)
    
    2010
    
    
    2009OPERATING REVENUES
    
    $
    161,288
    
    
    $
    155,941OPERATING EXPENSESOperation and maintenance
    
    
    23,729
    
    
    
    23,741General and administrative
    
    
    17,781
    
    
    
    19,893Depreciation and amortization
    
    
    22,115
    
    
    
    26,548Taxes other than income taxes
    
    
    12,308
    
    
    
    11,098Other operating income and expense  net
    
    
    7
    
    
    
    Total operating expenses
    
    
    75,940
    
    
    
    81,280OPERATING INCOME
    
    
    85,348
    
    
    
    74,661OTHER EXPENSES (INCOME)Interest expense
    
    
    35,029
    
    
    
    31,593Allowance for equity funds used during construction
    
    
    (3,143
    )
    
    
    (2,766
    )Other income
    
    
    (626
    )
    
    
    (683
    )Other expense
    
    
    384
    
    
    
    864Total other expenses (income)
    
    
    31,644
    
    
    
    29,008INCOME BEFORE INCOME TAXES
    
    
    53,704
    
    
    
    45,653INCOME TAX PROVISION
    
    
    19,500
    
    
    
    16,928NET INCOME
    
    $
    34,204
    
    
    $
    28,725Basic earnings per common share (Note 6)
    
    $
    0.68
    
    
    $
    0.58Diluted earnings per common share (Note 6)
    
    $
    0.67
    
    
    $
    0.57Dividends declared per common share
    
    $
    0.320
    
    
    $
    0.305
  5




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##### 



ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three months endedMarch 31,(in thousands)
    
    2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    34,204
    
    
    $
    28,725Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    22,115
    
    
    
    26,548Revenue accrual and deferral  including accrued interest
    
    
    13,577
    
    
    
    (6,376
    )Deferred income tax expense
    
    
    17,808
    
    
    
    16,245Allowance for equity funds used during construction
    
    
    (3,143
    )
    
    
    (2,766
    )Other
    
    
    2,503
    
    
    
    2,333Changes in assets and liabilities, exclusive of changes shown separately:Accounts receivable
    
    
    4,775
    
    
    
    (2,314
    )Inventory
    
    
    (1,220
    )
    
    
    (4,345
    )Other current assets
    
    
    (1,932
    )
    
    
    (2,447
    )Accounts payable
    
    
    (7,093
    )
    
    
    (941
    )Accrued payroll
    
    
    (5,086
    )
    
    
    (4,588
    )Accrued interest
    
    
    (15,120
    )
    
    
    (22,118
    )Accrued taxes
    
    
    (4,971
    )
    
    
    (1,642
    )Other current liabilities
    
    
    (208
    )
    
    
    (2,537
    )Other non-current assets and liabilities, net
    
    
    1,545
    
    
    
    1,699Net cash provided by operating activities
    
    
    57,754
    
    
    
    25,476CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for property, plant and equipment
    
    
    (71,816
    )
    
    
    (104,687
    )Other
    
    
    (89
    )
    
    
    Net cash used in investing activities
    
    
    (71,905
    )
    
    
    (104,687
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    40,000
    
    
    
    Borrowings under revolving credit agreements
    
    
    142,104
    
    
    
    142,771Repayments of revolving credit agreements
    
    
    (161,041
    )
    
    
    (99,792
    )Issuance of common stock
    
    
    574
    
    
    
    1,031Dividends on common stock
    
    
    (16,034
    )
    
    
    (15,169
    )Refundable deposits from generators for transmission network upgrades
    
    
    3,957
    
    
    
    21,516Repayment of refundable deposits from generators for transmission network upgrades
    
    
    (2,866
    )
    
    
    (2,291
    )Other
    
    
    (327
    )
    
    
    (142
    )Net cash provided by financing activities
    
    
    6,367
    
    
    
    47,924NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7,784
    )
    
    
    (31,287
    )CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    74,853
    
    
    
    58,110CASH AND CASH EQUIVALENTS  End of period
    
    $
    67,069
    
    
    $
    26,823
  6




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. GENERAL
    Supplementary Cash Flows Information
 Three months endedMarch 31,(in thousands)
    
    2010
    
    
    2009Supplementary cash flows information:Interest paid (net of interest capitalized)
    
    $
    49,379
    
    
    $
    52,653Income taxes paid
    
    
    1,527
    
    
    
    Supplementary non-cash investing and financing activities:Additions to property, plant and equipment (a)
    
    $
    32,190
    
    
    $
    38,893Allowance for equity funds used during construction
    
    
    3,143
    
    
    
    2,766
 
 (a)
    
    Amounts consist of current liabilities for construction labor and materials that have not
been included in investing activities. These amounts have not been paid for as of March 31,
2010 or 2009, respectively, but have been or will be included as a cash outflow from investing
activities for expenditures for property, plant and equipment when paid. 2. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
  Consolidation of Variable Interest Entities
  7




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3. REGULATORY MATTERS
 ITC Great Plains
     Green Power Express
    Depreciation Studies
  8




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Cost-Based Formula Rates with True-Up Mechanism
    (in thousands)
    

ITC Transmission
    
    
    METC
    
    
    ITC Midwest
    
    
    ITC Great Plains
    
    
    TotalBalance as of December 31, 2009
    
    $
    15,267
    
    
    $
    4,848
    
    
    $
    72,395
    
    
    $
    529
    
    
    $
    93,039Collection of 2008 revenue accruals including interest
    
    
    (4,623
    )
    
    
    (3,049
    )
    
    
    (13,267
    )
    
    
    
    
    
    
    (20,939
    )Revenue accrual for the quarter ended March 31, 2010
    
    
    3,633
    
    
    
    138
    
    
    
    3,210
    
    
    
    3
    
    
    
    6,984Interest accrued for the quarter ended March 31, 2010
    
    
    68
    
    
    
    37
    
    
    
    274
    
    
    
    (1
    )
    
    
    378Balance as of March 31, 2010
    
    $
    14,345
    
    
    $
    1,974
    
    
    $
    62,612
    
    
    $
    531
    
    
    $
    79,462
  (in thousands)
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    ITC Great Plains
    
    
    TotalCurrent assets
    
    $
    13,926
    
    
    $
    9,081
    
    
    $
    45,371
    
    
    $
    155
    
    
    $
    68,533Non-current assets
    
    
    4,899
    
    
    
    274
    
    
    
    18,913
    
    
    
    464
    
    
    
    24,550Other current liabilities
    
    
    (1,120
    )
    
    
    (1,845
    )
    
    
    (418
    )
    
    
    
    
    
    
    (3,383
    )Non-current liabilities
    
    
    (3,360
    )
    
    
    (5,536
    )
    
    
    (1,254
    )
    
    
    (88
    )
    
    
    (10,238
    )Balance as of March 31, 2010
    
    $
    14,345
    
    
    $
    1,974
    
    
    $
    62,612
    
    
    $
    531
    
    
    $
    79,462
 Complaint of IP&L
   9




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4. INTANGIBLE ASSETS
    5. LONG TERM DEBT
 ITC Midwest
  Revolving Credit Agreements
 ITC Holdings Revolving Credit Agreement
  ITCTransmission/METC Revolving Credit Agreement
  ITC Midwest Revolving Credit Agreement
  6. EARNINGS PER SHARE
  10




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Three months endedMarch 31,(in thousands, except share, per share data and percentages)
    
    2010
    
    
    2009Numerator:Net income
    
    $
    34,204
    
    
    $
    28,725Less: dividends declared  common shares, restricted shares and deferred stock units
    
    
    (16,036
    )
    
    
    (15,172
    )Undistributed earnings
    
    
    18,168
    
    
    
    13,553Percentage allocated to common shares (a)
    
    
    98.5
    %
    
    
    98.8
    %Undistributed earnings  common shares
    
    
    17,895
    
    
    
    13,390Add: dividends declared  common shares
    
    
    15,793
    
    
    
    14,988Numerator for basic and diluted earnings per common share
    
    $
    33,688
    
    
    $
    28,378Denominator:Denominator for basic earnings per common share  weighted-average common shares
    
    
    49,352,632
    
    
    
    49,127,337Incremental shares for stock options and employee stock purchase plan
    
    
    902,780
    
    
    
    892,487Denominator for diluted earnings per common share  adjusted weighted-average
shares and assumed conversion
    
    
    50,255,412
    
    
    
    50,019,824Per common share net income:Basic
    
    $
    0.68
    
    
    $
    0.58Diluted
    
    $
    0.67
    
    
    $
    0.57
 
 (a)  Weighted-average common shares outstanding
    
    
    49,352,632
    
    
    
    49,127,337Weighted-average restricted shares and deferred stock units (participating securities)
    
    
    763,040
    
    
    
    604,898Total
    
    
    50,115,672
    
    
    
    49,732,235Percentage allocated to common shares
    
    
    98.5
    %
    
    
    98.8
    %
   7. INCOME TAXES
 METC Uncertain Tax Position
  8. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST
 Retirement Plan Benefits
   11




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##### 



Three months endedMarch 31,(in thousands)
    
    2010
    
    
    2009Service cost
    
    $
    710
    
    
    $
    494Interest cost
    
    
    508
    
    
    
    291Expected return on plan assets
    
    
    (355
    )
    
    
    (260
    )Amortization of prior service cost
    
    
    (11
    )
    
    
    (229
    )Amortization of unrecognized loss
    
    
    267
    
    
    
    450Net pension cost
    
    $
    1,119
    
    
    $
    746
 Other Postretirement Benefits
   Three months endedMarch 31,(in thousands)
    
    2010
    
    
    2009Service cost
    
    $
    757
    
    
    $
    408Interest cost
    
    
    255
    
    
    
    168Expected return on plan assets
    
    
    (118
    )
    
    
    (54
    )Amortization of prior service cost
    
    
    79
    
    
    
    145Net postretirement cost
    
    $
    973
    
    
    $
    667
 Defined Contribution Plan
  9. FAIR VALUE MEASUREMENTS
   Fair Value Measurements at Reporting Date UsingQuoted prices in
    
    
    
    
    
    
    Significantactive markets for
    
    
    Significant other
    
    
    unobservableidentical assets
    
    
    observable inputs
    
    
    inputs(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Financial assets measured on a recurring basis:Cash and cash equivalents  cash equivalents
    
    $
    59,108
    
    
    $
    
    
    
    $
    Mutual funds   fixed income securities
    
    
    9,112
    
    
    
    
    
    
    
    Mutual funds  equity securities
    
    
    794
    
    
    
    
    
    
    
    Total
    
    $
    69,104
    
    
    $
    
    
    
    $
    
  12




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##### 



Fair Value of Financial Assets and Liabilities
 Fixed Rate Long-Term Debt
  Revolving Credit Agreements
  Trade Accounts Receivables and Payables
  10. COMMITMENTS AND CONTINGENCIES
 Litigation
  Michigan Sales and Use Tax Audit
    13




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ITC Midwest Project Commitment
  11. SEGMENT INFORMATION
  Three months endedOPERATING REVENUES:
    
    March 31,(in thousands)
    
    2010
    
    
    2009Regulated Operating Subsidiaries
    
    $
    161,298
    
    
    $
    155,955ITC Holdings and other
    
    
    107
    
    
    
    69Intercompany eliminations
    
    
    (117
    )
    
    
    (83
    )Total Operating Revenues
    
    $
    161,288
    
    
    $
    155,941
 Three months endedINCOME BEFORE INCOME TAXES:
    
    March 31,(in thousands)
    
    2010
    
    
    2009Regulated Operating Subsidiaries
    
    $
    77,392
    
    
    $
    69,355ITC Holdings and other
    
    
    (23,688
    )
    
    
    (23,702
    )Total Income Before Income Taxes
    
    $
    53,704
    
    
    $
    45,653
 Three months endedNET INCOME:
    
    March 31,(in thousands)
    
    2010
    
    
    2009Regulated Operating Subsidiaries (a)
    
    $
    53,459
    
    
    $
    47,614ITC Holdings and other
    
    
    34,204
    
    
    
    28,725Intercompany eliminations
    
    
    (53,459
    )
    
    
    (47,614
    )Total Net Income
    
    $
    34,204
    
    
    $
    28,725
 TOTAL ASSETS:
    
    March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Regulated Operating Subsidiaries
    
    $
    3,982,171
    
    
    $
    3,890,874ITC Holdings and other
    
    
    2,623,748
    
    
    
    2,614,394Reconciliations (b)
    
    
    10
    
    
    
    (1,940
    )Intercompany eliminations
    
    
    (2,528,336
    )
    
    
    (2,473,612
    )Total Assets
    
    $
    4,077,593
    
    
    $
    4,029,716
 
 (a)
    
    Income tax provision and net income for our Regulated Operating Subsidiaries do not include
any allocation of taxes for METC. METC is organized as a single-member limited liability
company that is a disregarded entity for federal income tax purposes. METC is treated as a
branch of MTH, which is taxed as a multiple-partner limited partnership for federal income tax
purposes. Since METC and MTH, its immediate parent, file as a partnership for federal income
tax purposes, they are exempt from federal income taxes. As a result, METC does not record a
provision for federal income taxes in its statements of operations or record 14




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##### 



amounts for federal deferred income tax assets or liabilities on its statements of financial
position. For FERC regulatory reporting, however, METC computes theoretical federal income taxes
as well as the associated deferred income taxes and includes an annual allowance for income taxes
in its net revenue requirement used to determine its rates.(b)
    
    Reconciliation of total assets results primarily from differences in the netting of deferred
tax assets and liabilities at our Regulated Operating Subsidiaries as compared to the
classification in our condensed consolidated statement of financial position. 15




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  
    
    Certain elements of our Regulated Operating Subsidiaries cost recovery through rates can
be challenged, which could result in lowered rates and/or refunds of amounts previously
collected and thus have an adverse effect on our business, financial condition, results of
operations and cash flows. We have also made certain commitments to federal and state
regulators with respect to, among other things, our rates in connection with recent
acquisitions (including ITC Midwests asset acquisition of IP&Ls electric transmission
assets) that could have an adverse effect on our business, financial condition, results of
operations and cash flows.
    
    Our Regulated Operating Subsidiaries actual capital expenditures may be lower than
planned, which would decrease expected rate base and therefore our revenues. In addition, we
expect to invest in strategic development opportunities to improve the efficiency and
reliability of the transmission grid, but we cannot assure you that we will be able to
initiate or complete any of these investments.
    
    The regulations to which we are subject may limit our ability to raise capital and/or
pursue acquisitions, development opportunities or other transactions or may subject us to
liabilities.
    
    Changes in federal energy laws, regulations or policies could impact cash flows and could
reduce the dividends we may be able to pay our stockholders.
    
    If the network load or point-to-point transmission service on our MISO Regulated
Operating Subsidiaries transmission systems is lower than expected, the timing of
collection of our revenues would be delayed.
    
    Each of our MISO Regulated Operating Subsidiaries depends on its primary customer for a
substantial portion of its revenues, and any material failure by those primary customers to
make payments for transmission services would adversely affect our revenues and our ability
to service our debt obligations and affect our ability to pay dividends.
    
    METC does not own the majority of the land on which its transmission assets are located.
Additionally, a significant amount of the land on which ITCTransmission and ITC Midwests
assets are located is subject to easements, mineral rights and other similar encumbrances
and a significant amount of ITCTransmission and ITC Midwests other property consists of
easements. As a result, ITCTransmission, METC and ITC Midwest must comply with the
provisions of various easements, mineral rights and other similar encumbrances, which may
adversely impact their ability to complete construction projects in a timely manner.
    
    If ITC Midwests operating agreement with IP&L is terminated early, ITC Midwest may face
a shortage of labor or replacement contractors to provide the services formerly provided by
IP&L.
    
    Hazards associated with high-voltage electricity transmission may result in suspension of
our Regulated Operating Subsidiaries operations or the imposition of civil or criminal
penalties.
    
    Our Regulated Operating Subsidiaries are subject to environmental regulations and to laws
that can give rise to substantial liabilities from environmental contamination.
 16




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##### 




    
    Our Regulated Operating Subsidiaries are subject to various regulatory requirements.
Violations of these requirements, whether intentional or unintentional, may result in
penalties that, under some circumstances, could have a material adverse effect on our
results of operations, financial condition and cash flows.
    
    Acts of war, terrorist attacks and threats or the escalation of military activity in
response to such attacks or otherwise may negatively affect our business, financial
condition and cash flows.
    
    ITC Holdings is a holding company with no operations, and unless we receive dividends or
other payments from our subsidiaries, we may be unable to pay dividends and fulfill our
other cash obligations.
    
    We are highly leveraged and our dependence on debt may limit our ability to fulfill our
debt obligations and/or to obtain additional financing.
    
    Certain provisions in our debt instruments limit our financial flexibility.
    
    Adverse changes in our credit ratings may negatively affect us.
    
    The amount of our federal net operating loss carryforwards for income taxes that we may
use to reduce our tax liability in any given period is limited.
    
    Provisions in our Articles of Incorporation and bylaws, Michigan corporate law and our
debt agreements may impede efforts by our shareholders to change the direction or management
of our company.
    
    Provisions in our Articles of Incorporation restrict market participants from voting or
owning 5% or more of the outstanding shares of our capital stock.
    
    Other risk factors discussed herein and listed from time to time in our public filings
with the Securities and Exchange Commission (SEC).
  OVERVIEW
    17




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##### 




    
    Our capital investment of $99.5 million at our Regulated Operating Subsidiaries ($14.2
million, $31.2 million, $52.5 million and $1.6 million at ITCTransmission, METC, ITC Midwest
and ITC Great Plains, respectively) for the three months ended March 31, 2010, resulting
primarily from our focus on improving system reliability and interconnecting new generating
resources;
    
    Debt issuances and borrowings under our revolving credit agreements in 2010 and 2009 to
fund capital investment at our Regulated Operating Subsidiaries, resulting in higher
interest expense; and
    
    Our development activities relating to ITC Great Plains and Green Power Express. Certain
development activities are expensed in the period incurred as they are not yet probable of
recovery and there is no corresponding revenue recognized for these expenses.
  ITC Great Plains
 KETA Project
  Kansas V-Plan Project
  Hugo to Valliant Project
  Development Bonus
  18




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##### 



Trends and Seasonality
 Network Revenues
   Capital InvestmentFive-Year Capital
    
    
    Forecast for the
    
    
    Actual for three(in millions)
    
    Investment Program
    
    
    year ending
    
    
    months endedRegulated Operating Subsidiary
    
    2010-2014
    
    
    December 31, 2010
    
    
    March 31, 2010 (a)ITCTransmission
    
    $
    445
    
    
    $
    5060
    
    
    $
    14.2METC
    
    
    750
    
    
    
    140155
    
    
    
    31.2ITC Midwest
    
    
    1,147
    
    
    
    205225
    
    
    
    52.5ITC Great Plains
    
    
    637
    
    
    
    1020
    
    
    
    1.6Other (b)
    
    
    91
    
    
    
    
    
    
    
    Total
    
    $
    3,070
    
    
    $
    405460
    
    
    $
    99.5
 
 (a)
    
    Capital investment amounts differ from cash expenditures for property, plant and equipment
included in our condensed consolidated statements of cash flows due in part to differences in
construction costs incurred compared to cash paid during that period, as well as payments for major
equipment inventory that are included in cash expenditures but not included in capital investment
until transferred to construction work in progress, among other factors.(b)
    
    Includes Green Power Express and other development initiatives.  19




---



##### 



Revenue Accruals  Effects of Monthly Peak Loads
   Monthly Peak Load (in MW) (a)
 2010

    
    2009

    
    2008ITCTransmission

    
    METC

    
    ITC Midwest

    
    ITCTransmission

    
    METC

    
    ITC Midwest

    
    ITCTransmission

    
    METC

    
    ITC MidwestJanuary
    
    
    7,255
    
    
    
    5,940
    
    
    
    2,865
    
    
    
    7,314
    
    
    
    6,009
    
    
    
    2,950
    
    
    
    7,890
    
    
    
    6,215
    
    
    
    2,952February
    
    
    6,997
    
    
    
    5,798
    
    
    
    2,758
    
    
    
    7,176
    
    
    
    5,818
    
    
    
    2,815
    
    
    
    7,715
    
    
    
    6,159
    
    
    
    2,906March
    
    
    6,620
    
    
    
    5,370
    
    
    
    2,533
    
    
    
    7,070
    
    
    
    5,548
    
    
    
    2,695
    
    
    
    7,532
    
    
    
    5,797
    
    
    
    2,748April
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,761
    
    
    
    5,112
    
    
    
    2,426
    
    
    
    6,926
    
    
    
    5,223
    
    
    
    2,582May
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,801
    
    
    
    5,296
    
    
    
    2,423
    
    
    
    7,051
    
    
    
    5,328
    
    
    
    2,522June
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,392
    
    
    
    8,063
    
    
    
    3,389
    
    
    
    10,624
    
    
    
    7,241
    
    
    
    2,907July
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,720
    
    
    
    6,523
    
    
    
    2,842
    
    
    
    11,016
    
    
    
    8,042
    
    
    
    3,385August
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,846
    
    
    
    7,181
    
    
    
    3,103
    
    
    
    10,890
    
    
    
    7,816
    
    
    
    3,213September
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,043
    
    
    
    5,919
    
    
    
    2,595
    
    
    
    10,311
    
    
    
    7,622
    
    
    
    3,208October
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,446
    
    
    
    5,258
    
    
    
    2,494
    
    
    
    6,893
    
    
    
    5,514
    
    
    
    2,724November
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,996
    
    
    
    5,778
    
    
    
    2,638
    
    
    
    7,205
    
    
    
    5,823
    
    
    
    2,830December
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,661
    
    
    
    6,192
    
    
    
    2,856
    
    
    
    7,636
    
    
    
    6,280
    
    
    
    2,984Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,226
    
    
    
    72,697
    
    
    
    33,226
    
    
    
    101,689
    
    
    
    77,060
    
    
    
    34,961
 
 (a)
    
    Our MISO Regulated Operating Subsidiaries are each part of a joint rate zone. The load data
presented is for all transmission owners in the respective joint rate zone and is used for
billing network revenues. Each of our MISO Regulated Operating Subsidiaries makes up the
significant portion of network load within its respective joint rate zone. 20




---



##### 



RESULTS OF OPERATIONS
 Results of Operations and Variances
 Three months ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Increase
    
    
    increase(in thousands)
    
    2010
    
    
    2009
    
    
    (decrease)
    
    
    (decrease)OPERATING REVENUES
    
    $
    161,288
    
    
    $
    155,941
    
    
    $
    5,347
    
    
    
    3.4
    %OPERATING EXPENSESOperation and maintenance
    
    
    23,729
    
    
    
    23,741
    
    
    
    (12
    )
    
    
    (0.1
    )%General and administrative
    
    
    17,781
    
    
    
    19,893
    
    
    
    (2,112
    )
    
    
    (10.6
    )%Depreciation and amortization
    
    
    22,115
    
    
    
    26,548
    
    
    
    (4,433
    )
    
    
    (16.7
    )%Taxes other than income taxes
    
    
    12,308
    
    
    
    11,098
    
    
    
    1,210
    
    
    
    10.9
    %Other operating income and expense  net
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    n/aTotal operating expenses
    
    
    75,940
    
    
    
    81,280
    
    
    
    (5,340
    )
    
    
    (6.6
    )%OPERATING INCOME
    
    
    85,348
    
    
    
    74,661
    
    
    
    10,687
    
    
    
    14.3
    %OTHER EXPENSES (INCOME)Interest expense
    
    
    35,029
    
    
    
    31,593
    
    
    
    3,436
    
    
    
    10.9
    %Allowance for equity funds used during construction
    
    
    (3,143
    )
    
    
    (2,766
    )
    
    
    (377
    )
    
    
    13.6
    %Other income
    
    
    (626
    )
    
    
    (683
    )
    
    
    57
    
    
    
    (8.3
    )%Other expense
    
    
    384
    
    
    
    864
    
    
    
    (480
    )
    
    
    (55.6
    )%Total other expenses (income)
    
    
    31,644
    
    
    
    29,008
    
    
    
    2,636
    
    
    
    9.1
    %INCOME BEFORE INCOME TAXES
    
    
    53,704
    
    
    
    45,653
    
    
    
    8,051
    
    
    
    17.6
    %INCOME TAX PROVISION
    
    
    19,500
    
    
    
    16,928
    
    
    
    2,572
    
    
    
    15.2
    %NET INCOME
    
    $
    34,204
    
    
    $
    28,725
    
    
    $
    5,479
    
    
    
    19.1
    %
 Operating Revenues
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  Percentage2010
    
    
    2009
    
    
    Increase
    
    
    increase(in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    140,297
    
    
    
    87.0
    %
    
    $
    138,337
    
    
    
    88.7
    %
    
    $
    1,960
    
    
    
    1.4
    %Regional cost sharing revenues
    
    
    11,176
    
    
    
    6.9
    %
    
    
    9,472
    
    
    
    6.1
    %
    
    
    1,704
    
    
    
    18.0
    %Point-to-point
    
    
    4,718
    
    
    
    2.9
    %
    
    
    4,648
    
    
    
    3.0
    %
    
    
    70
    
    
    
    1.5
    %Scheduling, control and dispatch
    
    
    3,239
    
    
    
    2.0
    %
    
    
    3,313
    
    
    
    2.1
    %
    
    
    (74
    )
    
    
    (2.2
    )%Other
    
    
    1,858
    
    
    
    1.2
    %
    
    
    171
    
    
    
    0.1
    %
    
    
    1,687
    
    
    
    986.5
    %Total
    
    $
    161,288
    
    
    
    100.0
    %
    
    $
    155,941
    
    
    
    100.0
    %
    
    $
    5,347
    
    
    
    3.4
    %
    21




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##### 



TotalITC
    
    
    net revenueLine
    
    Item
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    Great Plains
    
    
    accrual(in thousands)1
    
    Estimated net revenue requirement
(network revenues recognized)(a)
    
    $
    56,377
    
    
    $
    38,423
    
    
    $
    45,227
    
    
    $
    2702
    
    Network revenues billed(b)
    
    
    53,377
    
    
    
    36,941
    
    
    
    40,381
    
    
    
    2673
    
    Network revenue accruals (line 1  line 2)
    
    $
    3,000
    
    
    $
    1,482
    
    
    $
    4,846
    
    
    $
    3
    
    
    $
    9,331
 
 (a)
    
    The calculation of net revenue requirement for our MISO Regulated
Operating Subsidiaries is described in our Form 10-K for the year
ended December 31, 2009 under Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations  Cost-Based
Formula Rates with True-Up Mechanism  Net Revenue Requirement
Calculation. The amount is estimated for each reporting period until
such time as FERC Form No. 1s are completed for our MISO Regulated
Operating Subsidiaries.(b)
    
    Network revenues billed at our MISO Regulated Operating Subsidiaries
are calculated based on the joint zone monthly network peak load
multiplied by our effective monthly network rates of $2.818 per
kW/month, $2.370 per kW/month and $6.882 per kW/month applicable to
ITCTransmission, METC and ITC Midwest, respectively, adjusted for the
actual number of days in the month less amounts recovered or refunded
associated with our MISO Regulated Operating Subsidiaries 2008 true-up
adjustment. Amounts billed through our MISO Regulated Operating
Subsidiaries effective transmission rates reduced ITCTransmission,
METC and ITC Midwests regulatory assets associated with the 2008
true-up adjustments and related accrued interest by $4.6 million, $3.0
million and $13.3 million, respectively, during the three months ended
March 31, 2010. ITC Great Plains does not receive revenue based on a
peak load each month. Our rates at ITC Great Plains are billed ratably
each month based on its annual projected net revenue requirement. Operating Expenses
 Operation and maintenance expenses
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  General and administrative expenses
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  Depreciation and amortization expenses
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  22




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##### 



Taxes other than income taxes
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  Other Expenses (Income)
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  Income Tax Provision
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
  LIQUIDITY AND CAPITAL RESOURCES
  
    
    Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard
to property, plant and equipment investments are described in detail above under Trends
and Seasonality.
    
    Fund business development expenses and related capital expenditures. We are pursuing
development activities at Green Power Express as well as at ITC Grid Development that will
continue to result in the incurrence of development expenses and could result in significant
capital expenditures.
    
    Fund working capital requirements.
    
    Fund our debt service requirements. We expect our interest payments to increase during
2010 compared to 2009 as a result of additional debt incurred in 2009 and 2010 to fund our
capital expenditures.
    
    Fund dividends to holders of our common stock.
    
    Fund contributions to our retirement plans, as described in Note 8 to the condensed
consolidated financial statements. The impact of the growth in the number of participants in
our retirement benefit plans, financial market conditions that may cause a decrease in the
value of our retirement plan assets and changes in the requirements of the Pension
Protection Act may require contributions to our retirement plans to be higher than we have
experienced in the past.
  23




---



##### 



Credit Ratings
  Standard and Poors
    
    Moodys InvestorIssuer
    
    Issuance
    
    Ratings Services(a)
    
    Service, Inc.(b)ITC Holdings
    
    Senior Notes
    
    BBB-
    
    Baa2ITCTransmission
    
    First Mortgage Bonds
    
    A-
    
    A1METC
    
    Senior Secured Notes
    
    A-
    
    A1ITC Midwest
    
    First Mortgage Bonds
    
    A-
    
    A1
 
 (a)
    
    Our Standard and Poors Rating Services credit ratings have a stable outlook.(b)
    
    On April 16, 2010, Moodys Investor Service upgraded the ratings of ITC
Holdings, ITCTransmission, METC and ITC Midwest concluding their review for
possible upgrade that was initiated December 4, 2009. ITC Holdings was
upgraded to Baa2 from Baa3. The First Mortgage Bonds at ITCTransmission and
ITC Midwest and the METC senior secured notes were upgraded to A1 from A2.
ITCTransmission, METC and ITC Midwests issuer ratings were increased to A3
from Baa1. All of the ratings have a stable outlook. Covenants
  Cash Flows From Operating Activities
  24




---



##### 



Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  CONTRACTUAL OBLIGATIONS
  CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Fixed Rate Long-Term Debt
  Revolving Credit Agreements
  25




---



##### 



Other
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
   Certain elements of our Regulated Operating Subsidiaries cost recovery through rates can be
challenged, which could result in lowered rates and/or refunds of amounts previously collected and
thus have an adverse effect on our business, financial condition, results of operations and cash
flows. We have also made certain commitments to federal and state regulators with respect to,
among other things, our rates in connection with recent acquisitions (including ITC Midwests
acquisition of IP&Ls electric transmission assets) that could have an adverse effect on our
business, financial condition, results of operations and cash flows.
   26




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##### 



ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    Maximum Number orShares Purchased as
    
    
    Approximate DollarPart of Publicly
    
    
    Value of Shares that MayTotal Number of
    
    
    Average Price
    
    
    Announced Plan or
    
    
    Yet Be Purchased UnderPeriod
    
    Shares Purchased (1)
    
    
    Paid per Share
    
    
    Program(2)
    
    
    the Plans or Programs(2)January 2010
    
    
    127
    
    
    $
    51.59
    
    
    
    
    
    
    
    February 2010
    
    
    151
    
    
    
    52.22
    
    
    
    
    
    
    
    March 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    278
    
    
    $
    51.93
    
    
    
    
    
    
    
    
 
 (1)
    
    Shares acquired were delivered to us by employees as payment of tax withholding obligations
due to us upon the vesting of restricted stock.(2)
    
    We do not have a publicly announced share repurchase plan. 
 ITEM 5. OTHER INFORMATION
  Named Executive Officer
    
    Bonus AmountJoseph L. Welch
    
    $
    34,072Cameron M. Bready
    
    
    11,126Edward M. Rahill
    
    
    11,126Linda H. Blair
    
    
    12,757Jon E. Jipping
    
    
    12,757Daniel J. Oginsky
    
    
    10,013
 
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description of Document31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 27




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##### 



SIGNATURES
   ITC HOLDINGS CORP.By:
    /s/ Joseph L. WelchJoseph L. WelchPresident and Chief Executive Officer
(principal executive officer)By:
    /s/ Cameron M. BreadyCameron M. BreadySenior Vice President, Treasurer and
 Chief Financial Officer
(principal financial officer and
 principal accounting officer) 28