##### Table of Contents



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 September 30, 2009.
 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
    
    32-0058047(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (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
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



ITC Holdings Corp.
Form 10-Q for the Quarterly Period Ended September 30, 2009
 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
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    32Item 4. Controls and Procedures
    
    33Part II. Other Information
    
    34Item 1. Legal Proceedings
    
    34Item 1A. Risk Factors
    
    34Item 6. Exhibits
    
    34Signatures
    
    35Exhibit IndexEX-31.1EX-31.2EX-32
  2




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##### Table of Contents



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;
 
    
    NOLs are references to net operating loss carryforwards for income taxes;
 
    
    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)
 September 30,
    
    
    December 31,(in thousands, except share data)
    
    2009
    
    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    54,181
    
    
    $
    58,110Accounts receivable
    
    
    64,055
    
    
    
    57,638Inventory
    
    
    32,365
    
    
    
    25,077Deferred income taxes
    
    
    19,749
    
    
    
    Regulatory assets revenue accrual (including accrued interest of $2,203 and $1,637,
respectively)
    
    
    67,533
    
    
    
    22,301Other
    
    
    4,946
    
    
    
    4,147Total current assets
    
    
    242,829
    
    
    
    167,273Property, plant and equipment(net of accumulated depreciation and amortization of $992,888 and
$925,890, respectively)
    
    
    2,541,415
    
    
    
    2,304,386Other assetsGoodwill
    
    
    951,319
    
    
    
    951,319Intangible assets (net of accumulated amortization of $8,319 and $6,050, respectively)
    
    
    52,668
    
    
    
    52,357Regulatory assets revenue accrual (including accrued interest of $577 and $1,512, respectively)
    
    
    31,894
    
    
    
    81,643Regulatory assets acquisition adjustments (net of accumulated amortization of $26,435 and
$22,393, respectively)
    
    
    76,623
    
    
    
    80,665Other regulatory assets
    
    
    51,329
    
    
    
    39,848Deferred financing fees (net of accumulated amortization of $8,840 and $8,048, respectively)
    
    
    21,136
    
    
    
    21,410Other
    
    
    11,014
    
    
    
    15,664Total other assets
    
    
    1,195,983
    
    
    
    1,242,906TOTAL ASSETS
    
    $
    3,980,227
    
    
    $
    3,714,565LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    55,053
    
    
    $
    79,403Accrued payroll
    
    
    11,058
    
    
    
    10,331Accrued interest
    
    
    18,962
    
    
    
    37,779Accrued taxes
    
    
    10,032
    
    
    
    18,104Deferred income taxes
    
    
    
    
    
    
    6,476Refundable deposits from generators for transmission network upgrades
    
    
    28,649
    
    
    
    8,701Other
    
    
    2,680
    
    
    
    5,384Total current liabilities
    
    
    126,434
    
    
    
    166,178Accrued pension and postretirement liabilities
    
    
    24,938
    
    
    
    24,295Deferred income taxes
    
    
    233,689
    
    
    
    144,889Regulatory liabilities revenue deferral
    
    
    12,336
    
    
    
    Regulatory liabilities accrued asset removal costs
    
    
    170,699
    
    
    
    196,656Other
    
    
    17,939
    
    
    
    5,231Long-term debt
    
    
    2,404,439
    
    
    
    2,248,253Commitments and contingent liabilities(Note 9)STOCKHOLDERS EQUITYCommon stock, without par value, 100,000,000 shares authorized, 49,992,163 and 49,654,518 shares
issued and outstanding at September 30, 2009 and December 31, 2008, respectively
    
    
    858,328
    
    
    
    848,624Retained earnings
    
    
    132,205
    
    
    
    81,268Accumulated other comprehensive loss
    
    
    (780
    )
    
    
    (829
    )Total stockholders equity
    
    
    989,753
    
    
    
    929,063TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,980,227
    
    
    $
    3,714,565
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ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008OPERATING REVENUES
    
    $
    151,328
    
    
    $
    163,279
    
    
    $
    464,507
    
    
    $
    465,809OPERATING EXPENSESOperation and maintenance
    
    
    22,132
    
    
    
    33,271
    
    
    
    67,792
    
    
    
    87,628General and administrative
    
    
    9,507
    
    
    
    20,640
    
    
    
    49,653
    
    
    
    59,983Depreciation and amortization
    
    
    19,590
    
    
    
    23,869
    
    
    
    72,325
    
    
    
    69,639Taxes other than income taxes
    
    
    11,049
    
    
    
    10,552
    
    
    
    32,759
    
    
    
    31,750Other operating income and expense  net
    
    
    (7
    )
    
    
    515
    
    
    
    (7
    )
    
    
    (930
    )Total operating expenses
    
    
    62,271
    
    
    
    88,847
    
    
    
    222,522
    
    
    
    248,070OPERATING INCOME
    
    
    89,057
    
    
    
    74,432
    
    
    
    241,985
    
    
    
    217,739OTHER EXPENSES (INCOME)Interest expense
    
    
    32,412
    
    
    
    30,547
    
    
    
    96,666
    
    
    
    91,263Allowance for equity funds used during construction
    
    
    (3,764
    )
    
    
    (2,672
    )
    
    
    (9,762
    )
    
    
    (8,052
    )Other income
    
    
    (738
    )
    
    
    (847
    )
    
    
    (2,125
    )
    
    
    (1,909
    )Other expense
    
    
    521
    
    
    
    1,494
    
    
    
    1,487
    
    
    
    2,928Total other expenses (income)
    
    
    28,431
    
    
    
    28,522
    
    
    
    86,266
    
    
    
    84,230INCOME BEFORE INCOME TAXES
    
    
    60,626
    
    
    
    45,910
    
    
    
    155,719
    
    
    
    133,509INCOME TAX PROVISION
    
    
    22,808
    
    
    
    17,865
    
    
    
    58,383
    
    
    
    51,282NET INCOME
    
    $
    37,818
    
    
    $
    28,045
    
    
    $
    97,336
    
    
    $
    82,227Basic earnings per common share (Note 6)
    
    $
    0.76
    
    
    $
    0.57
    
    
    $
    1.95
    
    
    $
    1.68Diluted earnings per common share (Note 6)
    
    $
    0.74
    
    
    $
    0.55
    
    
    $
    1.92
    
    
    $
    1.64Dividends declared per common share
    
    $
    0.320
    
    
    $
    0.305
    
    
    $
    0.930
    
    
    $
    0.885
  5




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ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine months endedSeptember 30,(in thousands)
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    97,336
    
    
    $
    82,227Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    72,325
    
    
    
    69,639Revenue accrual and deferral  including accrued interest
    
    
    (275
    )
    
    
    (51,619
    )Deferred income tax expense
    
    
    57,330
    
    
    
    49,644Allowance for equity funds used during construction
    
    
    (9,762
    )
    
    
    (8,052
    )Recognition of ITC Great Plains regulatory assets
    
    
    (8,191
    )
    
    
    Other
    
    
    8,260
    
    
    
    8,012Changes in assets and liabilities, exclusive of changes shown separately:Accounts receivable
    
    
    (4,717
    )
    
    
    (15,353
    )Inventory
    
    
    (10,130
    )
    
    
    (3,375
    )Regulatory assets revenue accrual including accrued interest
    
    
    17,136
    
    
    
    Other current assets
    
    
    (799
    )
    
    
    (1,474
    )Accounts payable
    
    
    (5,360
    )
    
    
    11,844Accrued payroll
    
    
    234
    
    
    
    1,986Accrued interest
    
    
    (18,817
    )
    
    
    (9,445
    )Accrued taxes
    
    
    (8,038
    )
    
    
    (4,456
    )Other current liabilities
    
    
    (2,713
    )
    
    
    1,659Other non-current assets and liabilities, net
    
    
    2,896
    
    
    
    (1,207
    )Net cash provided by operating activities
    
    
    186,715
    
    
    
    130,030CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for property, plant and equipment
    
    
    (327,611
    )
    
    
    (288,974
    )Other
    
    
    (2,920
    )
    
    
    472Net cash used in investing activities
    
    
    (330,531
    )
    
    
    (288,502
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    100,000
    
    
    
    657,782Repayment of long-term debt
    
    
    
    
    
    
    (765,000
    )Borrowings under revolving credit agreements
    
    
    482,466
    
    
    
    480,511Repayments of revolving credit agreements
    
    
    (426,529
    )
    
    
    (453,500
    )Issuance of common stock
    
    
    2,324
    
    
    
    310,237Common stock issuance costs
    
    
    
    
    
    
    (797
    )Dividends on common stock
    
    
    (46,389
    )
    
    
    (43,793
    )Refundable deposits from generators for transmission network upgrades
    
    
    35,188
    
    
    
    14,189Repayment of refundable deposits from generators for transmission network upgrades
    
    
    (5,228
    )
    
    
    (2,352
    )Debt issuance costs
    
    
    (1,945
    )
    
    
    (5,409
    )Net cash provided by financing activities
    
    
    139,887
    
    
    
    191,868NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (3,929
    )
    
    
    33,396CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    58,110
    
    
    
    2,616CASH AND CASH EQUIVALENTS  End of period
    
    $
    54,181
    
    
    $
    36,012
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. GENERAL
    Supplementary Cash Flows Information
 Nine months endedSeptember 30,(in thousands)
    
    2009
    
    2008Supplementary cash flows information:Interest paid (net of interest capitalized)
    
    $
    112,704
    
    
    $
    96,475Income taxes paid
    
    
    1,300
    
    
    
    1,312Supplementary non-cash investing and financing activities:Additions to property, plant and equipment (a)
    
    $
    36,265
    
    
    $
    53,656Allowance for equity funds used during construction
    
    
    9,762
    
    
    
    8,052
 
 (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 September
30, 2009 or 2008, 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
 The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
  Earnings per Share
  Business Combinations
  7




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Fair Value Measurements
  Derivative Instruments and Hedging Activities
  Employers Disclosures about Postretirement Benefit Plan Assets
  Subsequent Events
  Consolidation of Variable Interest Entities
  8




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3. REGULATORY MATTERS
 ITC Great Plains
   
    
    the establishment of regulatory assets for start-up and development costs of ITC Great
Plains and pre-construction costs specific to the KETA Project and the Kansas V-Plan to be
recovered subsequent to a future FERC filing;
 
    
    an incentive return on common equity of 12.16 percent;
 
    
    inclusion of 100 percent of construction work in progress in rate base;
 
    
    abandoned plant recovery, in the event either the KETA Project or the Kansas V-Plan must
be abandoned for reasons outside of ITC Great Plains control; and
 
    
    a capital structure comprised of 60 percent equity and 40 percent debt.
    9




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Green Power Express
   
    
    the establishment of a regulatory asset for start-up and development costs of Green Power
Express and pre-construction costs for the project to be recovered subsequent to a future
FERC filing;
 
    
    an incentive return on common equity of 12.38 percent;
 
    
    inclusion of 100 percent of construction work in progress in rate base;
 
    
    abandoned plant recovery, in the event the project must be abandoned for reasons outside
of Green Power Express control; and
 
    
    use of a hypothetical capital structure comprised of 60 percent equity and 40 percent
debt until any portion of the Green Power Express project is placed in service, at which
date the actual capital structure, also expected to be 60 percent equity and 40 percent
debt, will apply.
   Complaint of IP&L
   10




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Formula Rate Revenue Accruals and Deferrals
    (in thousands)
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    ITC Great Plains
    
    
    TotalBalance as of December 31, 2008
    
    $
    17,815
    
    
    $
    34,133
    
    
    $
    51,768
    
    
    $
    
    
    
    $
    103,716Refund (collection) of 2007 revenue deferral and accrual including interest
    
    
    177
    
    
    
    (17,136
    )
    
    
    
    
    
    
    
    
    
    
    (16,959
    )Revenue accrual (deferral) for the nine months ended September 30, 2009
    
    
    (7,212
    )
    
    
    (4,939
    )
    
    
    10,689
    
    
    
    591
    
    
    
    (871
    )Net interest accrued for the nine months ended September 30, 2009
    
    
    69
    
    
    
    595
    
    
    
    477
    
    
    
    5
    
    
    
    1,146Balance as of September 30, 2009
    
    $
    10,849
    
    
    $
    12,653
    
    
    $
    62,934
    
    
    $
    596
    
    
    $
    87,032
  (in thousands)
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    ITC Great Plains
    
    
    TotalCurrent assets
    
    $
    13,640
    
    
    $
    14,710
    
    
    $
    39,183
    
    
    $
    
    
    
    $
    67,533Non-current assets
    
    
    4,548
    
    
    
    2,999
    
    
    
    23,751
    
    
    
    596
    
    
    
    31,894Current liabilities
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Non-current liabilities
    
    
    (7,280
    )
    
    
    (5,056
    )
    
    
    
    
    
    
    
    
    
    
    (12,336
    )Balance as of September 30, 2009
    
    $
    10,849
    
    
    $
    12,653
    
    
    $
    62,934
    
    
    $
    596
    
    
    $
    87,032
 ITCTransmission Depreciation Study
    11




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4. INTANGIBLE ASSETS
    (in thousands)2009
    
    $
    3,0442010
    
    
    3,0772011
    
    
    3,0772012
    
    
    3,0772013
    
    
    3,0772014 and thereafter
    
    
    39,592Total
    
    $
    54,944
 5. LONG TERM DEBT
 ITC Holdings Term Loan Agreement
   Revolving Credit Agreements
  12




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ITC Holdings Revolving Credit Agreement
  ITCTransmission/METC Revolving Credit Agreement
  ITC Midwest Revolving Credit Agreement
  Fair Value of Long Term Debt
 Fixed Rate Long-Term Debt
  Revolving Credit Agreements
  6. EARNINGS PER SHARE
  13




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands, except share, per share data and percentages)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    37,818
    
    
    $
    28,045
    
    
    $
    97,336
    
    
    $
    82,227Less: dividends declared  common shares, restricted shares and deferred stock units
    
    
    (15,999
    )
    
    
    (15,136
    )
    
    
    (46,400
    )
    
    
    (43,807
    )Undistributed earnings
    
    
    21,819
    
    
    
    12,909
    
    
    
    50,936
    
    
    
    38,420Percentage allocated to common shares (a)
    
    
    98.5
    %
    
    
    98.9
    %
    
    
    98.6
    %
    
    
    99.0
    %Undistributed earnings  common shares
    
    
    21,492
    
    
    
    12,767
    
    
    
    50,223
    
    
    
    38,036Add: dividends declared  common shares
    
    
    15,754
    
    
    
    14,955
    
    
    
    45,740
    
    
    
    43,355Numerator for basic and diluted earnings per common share
    
    $
    37,246
    
    
    $
    27,722
    
    
    $
    95,963
    
    
    $
    81,391Denominator:Denominator for basic earnings per common share  weighted-average common shares
    
    
    49,217,178
    
    
    
    49,019,987
    
    
    
    49,170,861
    
    
    
    48,436,603Incremental shares for stock options and employee stock purchase plan
    
    
    866,059
    
    
    
    1,063,677
    
    
    
    889,063
    
    
    
    1,072,479Denominator for diluted earnings per common share  adjusted weighted-average shares and assumed conversion
    
    
    50,083,237
    
    
    
    50,083,664
    
    
    
    50,059,924
    
    
    
    49,509,082Per common share net income:Basic
    
    $
    0.76
    
    
    $
    0.57
    
    
    $
    1.95
    
    
    $
    1.68Diluted
    
    $
    0.74
    
    
    $
    0.55
    
    
    $
    1.92
    
    
    $
    1.64
 
 (a) Weighted-average common shares outstanding
    
    
    49,217,178
    
    
    
    49,019,987
    
    
    
    49,170,861
    
    
    
    48,436,603Weighted-average restricted shares and deferred stock units (participating securities)
    
    
    764,349
    
    
    
    539,100
    
    
    
    685,745
    
    
    
    489,052Total
    
    
    49,981,527
    
    
    
    49,559,087
    
    
    
    49,856,606
    
    
    
    48,925,655Percentage allocated to common shares
    
    
    98.5
    %
    
    
    98.9
    %
    
    
    98.6
    %
    
    
    99.0
    %
    7. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST
 Retirement Plan Benefits
  14




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    660
    
    
    $
    498
    
    
    $
    2,006
    
    
    $
    1,479Interest cost
    
    
    406
    
    
    
    293
    
    
    
    1,268
    
    
    
    871Expected return on plan assets
    
    
    (247
    )
    
    
    (261
    )
    
    
    (741
    )
    
    
    (777
    )Amortization of prior service cost
    
    
    (10
    )
    
    
    (232
    )
    
    
    (30
    )
    
    
    (686
    )Amortization of unrecognized loss
    
    
    562
    
    
    
    455
    
    
    
    1,687
    
    
    
    1,343Net pension cost
    
    $
    1,371
    
    
    $
    753
    
    
    $
    4,190
    
    
    $
    2,230
 Other Postretirement Benefits
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    471
    
    
    $
    406
    
    
    $
    1,381
    
    
    $
    1,225Interest cost
    
    
    235
    
    
    
    167
    
    
    
    690
    
    
    
    504Expected return on plan assets
    
    
    (58
    )
    
    
    (54
    )
    
    
    (171
    )
    
    
    (163
    )Amortization of prior service cost
    
    
    78
    
    
    
    145
    
    
    
    235
    
    
    
    436Amortization of unrecognized loss
    
    
    41
    
    
    
    
    
    
    
    125
    
    
    
    Net postretirement cost
    
    $
    767
    
    
    $
    664
    
    
    $
    2,260
    
    
    $
    2,002
 Defined Contribution Plans
  8. FAIR VALUE MEASUREMENTS
  15




---



##### Table of Contents



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
    
    $
    53,092
    
    
    $
    
    
    
    $
    Other non current assets  trading securities
    
    
    5,966
    
    
    
    
    
    
    
    Total
    
    $
    59,058
    
    
    $
    
    
    
    $
    
   9. CONTINGENCIES
 Litigation
  Michigan Sales and Use Tax Audit
    16




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##### Table of Contents



10. SEGMENT INFORMATION
  17




---



##### Table of Contents



Three months ended
    
    
    Nine months endedOPERATING REVENUES:
    
    September 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    151,339
    
    
    $
    163,304
    
    
    $
    464,545
    
    
    $
    465,859ITC Holdings and other
    
    
    85
    
    
    
    69
    
    
    
    224
    
    
    
    208Intercompany eliminations
    
    
    (96
    )
    
    
    (94
    )
    
    
    (262
    )
    
    
    (258
    )Total Operating Revenues
    
    $
    151,328
    
    
    $
    163,279
    
    
    $
    464,507
    
    
    $
    465,809
 Three months ended
    
    
    Nine months endedINCOME BEFORE INCOME TAXES:
    
    September 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    75,180
    
    
    $
    68,354
    
    
    $
    218,489
    
    
    $
    200,279ITC Holdings and other
    
    
    (14,554
    )
    
    
    (22,444
    )
    
    
    (62,770
    )
    
    
    (66,770
    )Total Income Before Income Taxes
    
    $
    60,626
    
    
    $
    45,910
    
    
    $
    155,719
    
    
    $
    133,509
 Three months ended
    
    
    Nine months endedNET INCOME:
    
    September 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries (a)
    
    $
    52,640
    
    
    $
    47,103
    
    
    $
    151,414
    
    
    $
    139,011ITC Holdings and other
    
    
    37,818
    
    
    
    28,045
    
    
    
    97,336
    
    
    
    82,227Intercompany eliminations
    
    
    (52,640
    )
    
    
    (47,103
    )
    
    
    (151,414
    )
    
    
    (139,011
    )Total Net Income
    
    $
    37,818
    
    
    $
    28,045
    
    
    $
    97,336
    
    
    $
    82,227
 TOTAL ASSETS:
    
    September 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    3,880,725
    
    
    $
    3,667,660ITC Holdings and other
    
    
    2,594,326
    
    
    
    2,354,510Reconciliations (b)
    
    
    (45,833
    )
    
    
    (3,154
    )Intercompany eliminations
    
    
    (2,448,991
    )
    
    
    (2,304,451
    )Total Assets
    
    $
    3,980,227
    
    
    $
    3,714,565
 
 (a)
    
    Income tax provision and net income for our Regulated Operating Subsidiaries do not include
any allocation of federal taxes for METC. METC is organized as a single-member limited
liability company that is a disregarded entity for federal income tax purposes. Since METC
files together with MTH 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 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 consolidated statement of financial position. 18




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##### Table of Contents



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) 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 pursue 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 Regulated Operating
Subsidiaries transmission systems is lower than expected, the timing of collection of our
revenues would be delayed.
    
    Each of our 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s and ITC Midwests
assets are located is subject to easements, mineral rights and other similar encumbrances
and a significant amount of ITCTransmissions and ITC Midwests other property consists of
easements. As a result, our Regulated Operating Subsidiaries 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.
 19




---



##### Table of Contents




    
    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 results of operations.
    
    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.
    
    ITC Holdings common stock offering in October 2006 caused us to undergo an ownership
change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended (the
Code) which will limit the amount of our federal income tax NOLs that we may use to reduce
our tax liability in a given period.
    
    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
   20




---



##### Table of Contents




    
    Our capital investment of $300.4 million at our MISO Regulated Operating Subsidiaries
($70.9 million, $110.2 million and $119.3 million at ITCTransmission, METC and ITC Midwest,
respectively) during the nine months ended September 30, 2009, primarily to improve system
reliability and interconnect new generating resources;
    
    our activities at the FERC relating to ITC Great Plains and Green Power Express; and
    
    lower peak loads and the resulting effect on cash flows for the nine months ended
September 30, 2009, partially as a result of the economic conditions in Michigan.
  Recent Developments
 ITC Great Plains
 Formula Rate and Incentives
      21




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##### Table of Contents



Substation Acquisitions
  KETA Project
  Kansas V-Plan Project
  Hugo to Valliant Project
  22




---



##### Table of Contents



Development Bonuses
  Green Power Express
     Complaint of IP&L
   Capitalization of Expenses
  23




---



##### Table of Contents



Trends and Seasonality
 Network Revenues
   24




---



##### Table of Contents



Capital Investment (b)Five-Year Capital
    
    
    Actual for the nine
    
    
    Forecast for the
    
    
    Forecast for the(in millions)
    
    Investment Program
    
    
    months ended
    
    
    year ending
    
    
    year endingRegulated Operating Subsidiary
    
    2010-2014(a)
    
    
    September 30, 2009
    
    
    December 31, 2009
    
    
    December 31, 2010ITCTransmission
    
    $
    445
    
    
    $
    70.9
    
    
    $
    7585
    
    
    $
    5060METC
    
    
    750
    
    
    
    110.2
    
    
    
    120130
    
    
    
    140155ITC Midwest
    
    
    1,147
    
    
    
    119.3
    
    
    
    125130
    
    
    
    205225ITC Great Plains
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    1020Other (c)
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,070
    
    
    $
    300.4
    
    
    $
    320345
    
    
    $
    405460
 
 (a)
    
    The expected amounts for our five-year program include estimates for transmission network
upgrades for generator interconnections. Due to a high degree of uncertainty as to whether
these projects will ultimately be built and because they could replace other transmission
projects currently being planned, these estimates for network upgrades could change
significantly due to factors beyond our control, such as changes in the MISO queue for
generation projects and whether the generator meets the various criteria of Attachment FF of
the MISO Transmission and Energy Market Tariff for the project to qualify as a refundable
network upgrade, among other factors.(b)
    
    Capital investment amounts differ from cash expenditures for property, plant and equipment
included in our 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.(c)
    
    Includes Green Power Express and other development initiatives.  Monthly Peak Loads, Revenue Accrual and Expense Mitigation Efforts
    25




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##### Table of Contents



Monthly Peak Load (in MW) (a)(b)
 2009

    
    2008

    
    2007ITCTransmission

    
    METC

    
    ITC Midwest

    
    ITCTransmission

    
    METC

    
    ITC Midwest

    
    ITCTransmission

    
    METC

    
    ITC Midwest (c)January
    
    
    7,314
    
    
    
    6,009
    
    
    
    2,996
    
    
    
    7,890
    
    
    
    6,215
    
    
    
    2,963
    
    
    
    7,876
    
    
    
    6,051February
    
    
    7,176
    
    
    
    5,892
    
    
    
    2,830
    
    
    
    7,715
    
    
    
    6,159
    
    
    
    2,916
    
    
    
    8,170
    
    
    
    6,227March
    
    
    7,070
    
    
    
    5,548
    
    
    
    2,723
    
    
    
    7,532
    
    
    
    5,797
    
    
    
    2,756
    
    
    
    7,739
    
    
    
    6,006April
    
    
    6,761
    
    
    
    5,113
    
    
    
    2,437
    
    
    
    6,926
    
    
    
    5,223
    
    
    
    2,455
    
    
    
    7,141
    
    
    
    5,473May
    
    
    6,801
    
    
    
    5,337
    
    
    
    2,408
    
    
    
    7,051
    
    
    
    5,328
    
    
    
    2,431
    
    
    
    9,927
    
    
    
    6,981June
    
    
    10,392
    
    
    
    8,022
    
    
    
    3,504
    
    
    
    10,624
    
    
    
    7,241
    
    
    
    2,888
    
    
    
    11,761
    
    
    
    8,511July
    
    
    8,720
    
    
    
    6,512
    
    
    
    2,832
    
    
    
    11,016
    
    
    
    8,042
    
    
    
    3,376
    
    
    
    11,706
    
    
    
    8,672August
    
    
    9,846
    
    
    
    7,120
    
    
    
    3,181
    
    
    
    10,890
    
    
    
    7,816
    
    
    
    3,259
    
    
    
    12,087
    
    
    
    8,955September
    
    
    8,043
    
    
    
    6,062
    
    
    
    2,529
    
    
    
    10,311
    
    
    
    7,622
    
    
    
    3,191
    
    
    
    11,033
    
    
    
    7,908October
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,893
    
    
    
    5,514
    
    
    
    2,786
    
    
    
    10,365
    
    
    
    7,524November
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,205
    
    
    
    5,823
    
    
    
    2,944
    
    
    
    7,812
    
    
    
    6,200December
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,636
    
    
    
    6,280
    
    
    
    3,003
    
    
    
    8,022
    
    
    
    6,215
    
    
    
    2,706Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,689
    
    
    
    77,060
    
    
    
    34,968
    
    
    
    113,639
    
    
    
    84,723
    
    
    
    2,706
 
 (a)
    
    Our MISO Regulated Operating Subsidiaries are 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 their respective joint rate zone.(b)
    
    Attachment H of the SPP tariff applicable to ITC Great Plains is billed ratably each month
based on the annual projected net revenue requirement of ITC Great Plains and therefore
economic conditions and weather do not impact the billed network transmission revenues for ITC
Great Plains.(c)
    
    ITC Midwests results of operations and cash flows are included for the periods subsequent to
its acquisition of the electric transmission assets of IP&L on December 20, 2007. 26




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##### Table of Contents



RESULTS OF OPERATIONS
 Results of Operations and Variances
 Three months ended
    
    
    
    
    
    
    Percentage
    
    
    Nine months ended
    
    
    
    
    
    
    PercentageSeptember 30,
    
    
    Increase
    
    
    increase
    
    
    September 30,
    
    
    Increase
    
    
    increase(in thousands)
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)OPERATING REVENUES
    
    $
    151,328
    
    
    $
    163,279
    
    
    $
    (11,951
    )
    
    
    (7.3
    )%
    
    $
    464,507
    
    
    $
    465,809
    
    
    $
    (1,302
    )
    
    
    (0.3
    )%OPERATING EXPENSESOperation and maintenance
    
    
    22,132
    
    
    
    33,271
    
    
    
    (11,139
    )
    
    
    (33.5
    )%
    
    
    67,792
    
    
    
    87,628
    
    
    
    (19,836
    )
    
    
    (22.6
    )%General and administrative
    
    
    9,507
    
    
    
    20,640
    
    
    
    (11,133
    )
    
    
    (53.9
    )%
    
    
    49,653
    
    
    
    59,983
    
    
    
    (10,330
    )
    
    
    (17.2
    )%Depreciation and
amortization
    
    
    19,590
    
    
    
    23,869
    
    
    
    (4,279
    )
    
    
    (17.9
    )%
    
    
    72,325
    
    
    
    69,639
    
    
    
    2,686
    
    
    
    3.9
    %Taxes other than income
taxes
    
    
    11,049
    
    
    
    10,552
    
    
    
    497
    
    
    
    4.7
    %
    
    
    32,759
    
    
    
    31,750
    
    
    
    1,009
    
    
    
    3.2
    %Other operating income and 
expenses  net
    
    
    (7
    )
    
    
    515
    
    
    
    (522
    )
    
    
    (101.4
    )%
    
    
    (7
    )
    
    
    (930
    )
    
    
    923
    
    
    
    (99.2
    )%Total operating expenses
    
    
    62,271
    
    
    
    88,847
    
    
    
    (26,576
    )
    
    
    (29.9
    )%
    
    
    222,522
    
    
    
    248,070
    
    
    
    (25,548
    )
    
    
    (10.3
    )%OPERATING INCOME
    
    
    89,057
    
    
    
    74,432
    
    
    
    14,625
    
    
    
    19.6
    %
    
    
    241,985
    
    
    
    217,739
    
    
    
    24,246
    
    
    
    11.1
    %OTHER EXPENSES (INCOME)Interest expense
    
    
    32,412
    
    
    
    30,547
    
    
    
    1,865
    
    
    
    6.1
    %
    
    
    96,666
    
    
    
    91,263
    
    
    
    5,403
    
    
    
    5.9
    %Allowance for equity funds
used during construction
    
    
    (3,764
    )
    
    
    (2,672
    )
    
    
    (1,092
    )
    
    
    40.9
    %
    
    
    (9,762
    )
    
    
    (8,052
    )
    
    
    (1,710
    )
    
    
    21.2
    %Other income
    
    
    (738
    )
    
    
    (847
    )
    
    
    109
    
    
    
    (12.9
    )%
    
    
    (2,125
    )
    
    
    (1,909
    )
    
    
    (216
    )
    
    
    11.3
    %Other expense
    
    
    521
    
    
    
    1,494
    
    
    
    (973
    )
    
    
    (65.1
    )%
    
    
    1,487
    
    
    
    2,928
    
    
    
    (1,441
    )
    
    
    (49.2
    )%Total other expenses
(income)
    
    
    28,431
    
    
    
    28,522
    
    
    
    (91
    )
    
    
    (0.3
    )%
    
    
    86,266
    
    
    
    84,230
    
    
    
    2,036
    
    
    
    2.4
    %INCOME BEFORE INCOME TAXES
    
    
    60,626
    
    
    
    45,910
    
    
    
    14,716
    
    
    
    32.1
    %
    
    
    155,719
    
    
    
    133,509
    
    
    
    22,210
    
    
    
    16.6
    %INCOME TAX PROVISION
    
    
    22,808
    
    
    
    17,865
    
    
    
    4,943
    
    
    
    27.7
    %
    
    
    58,383
    
    
    
    51,282
    
    
    
    7,101
    
    
    
    13.8
    %NET INCOME
    
    $
    37,818
    
    
    $
    28,045
    
    
    $
    9,773
    
    
    
    34.8
    %
    
    $
    97,336
    
    
    $
    82,227
    
    
    $
    15,109
    
    
    
    18.4
    %
 Operating Revenues
 Three months ended September 30, 2009 compared to three months ended September 30, 2008
  Percentage2009
    
    
    2008
    
    
    Increase
    
    
    increase(in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    131,504
    
    
    
    86.9
    %
    
    $
    146,884
    
    
    
    90.0
    %
    
    $
    (15,380
    )
    
    
    (10.5
    )%Regional cost sharing revenues
    
    
    10,882
    
    
    
    7.2
    %
    
    
    4,606
    
    
    
    2.8
    %
    
    
    6,276
    
    
    
    136.3
    %Point-to-point
    
    
    4,172
    
    
    
    2.8
    %
    
    
    5,845
    
    
    
    3.6
    %
    
    
    (1,673
    )
    
    
    (28.6
    )%Scheduling, control and dispatch
    
    
    4,008
    
    
    
    2.6
    %
    
    
    4,993
    
    
    
    3.0
    %
    
    
    (985
    )
    
    
    (19.7
    )%Other
    
    
    762
    
    
    
    0.5
    %
    
    
    951
    
    
    
    0.6
    %
    
    
    (189
    )
    
    
    (19.9
    )%Total
    
    $
    151,328
    
    
    
    100.0
    %
    
    $
    163,279
    
    
    
    100.0
    %
    
    $
    (11,951
    )
    
    
    (7.3
    )%
   27




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##### Table of Contents



Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
  Percentage2009
    
    
    2008
    
    
    Increase
    
    
    increase(in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    409,066
    
    
    
    88.0
    %
    
    $
    420,500
    
    
    
    90.3
    %
    
    $
    (11,434
    )
    
    
    (2.7
    )%Regional cost sharing revenues
    
    
    30,211
    
    
    
    6.5
    %
    
    
    11,971
    
    
    
    2.6
    %
    
    
    18,240
    
    
    
    152.4
    %Point-to-point
    
    
    12,493
    
    
    
    2.7
    %
    
    
    17,806
    
    
    
    3.8
    %
    
    
    (5,313
    )
    
    
    (29.8
    )%Scheduling, control and dispatch
    
    
    11,083
    
    
    
    2.4
    %
    
    
    13,270
    
    
    
    2.8
    %
    
    
    (2,187
    )
    
    
    (16.5
    )%Other
    
    
    1,654
    
    
    
    0.4
    %
    
    
    2,262
    
    
    
    0.5
    %
    
    
    (608
    )
    
    
    (26.9
    )%Total
    
    $
    464,507
    
    
    
    100.0
    %
    
    $
    465,809
    
    
    
    100.0
    %
    
    $
    (1,302
    )
    
    
    (0.3
    )%
      Revenue accrual (deferral) summary for the nine months ended September 30, 2009
 Total revenueLine
    
    Item
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    ITC Great Plains
    
    
    deferral(in thousands)1
    
    Estimated net revenue requirement (network revenues) (a)
    
    $
    173,940
    
    
    $
    118,002
    
    
    $
    116,533
    
    
    $
    5912
    
    Network revenues billed (b)(c)
    
    
    181,152
    
    
    
    122,941
    
    
    
    105,844
    
    
    
    3
    
    Revenue accrual (deferral) (line 1  line 2)
    
    $
    (7,212
    )
    
    $
    (4,939
    )
    
    $
    10,689
    
    
    $
    591
    
    
    $
    (871
    )
 
 (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, 2008 under Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations  Rate Setting and
Attachment O  Net Revenue Requirement Calculation. The amount is estimated until such time
as FERC Form No. 1s are completed for our MISO Regulated Operating Subsidiaries and the
calculations are filed with and reviewed by MISO each year and posted on OASIS,
which provides information by electronic means about transmission rates, available
transmission capability for point-to-point service and a process for requesting transmission
service on a non-discriminatory basis. The calculation of net revenue requirement for ITC
Great Plains is also based on a cost-based formula rate and is estimated until FERC Form No. 1
is completed and will be posted on the SPP OASIS each year.(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
$2.520 per kW/month, $2.522 per kW/month and $4.162 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 ITCTransmissions and METCs 2007
Attachment O true-up. ITCTransmissions and METCs effective transmission rates include their
2007 Attachment O true-up adjustment and associated accrued interest. Amounts billed through
ITCTransmissions effective transmission rate reduced ITCTransmissions Attachment O 28




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##### Table of Contents



regulatory liability associated with the 2007 true-up and accrued interest by $0.2 million during
the nine months ended September 30, 2009. Additionally, amounts billed through METCs effective
transmission rate reduced METCs Attachment O regulatory asset associated with the 2007 true-up
and its accrued interest by $17.1 million during the nine months ended September 30, 2009.(c)
    
    We anticipate that SPP will begin to bill ITC Great Plains network revenues in December 2009
or January 2010, retroactive to August 18, 2009, discussed above under Recent Developments 
ITC Great Plains  Formula Rate and Incentives. Operating Expenses
 Operation and maintenance expenses
 Three months ended September 30, 2009 compared to three months ended September 30, 2008
  Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
  General and administrative expenses
 Three months ended September 30, 2009 compared to three months ended September 30, 2008
  Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
  29




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##### Table of Contents



Depreciation and amortization expenses
 Three months ended September 30, 2009 compared to three months ended September 30, 2008
  Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
  Taxes other than income taxes
 Three and nine months ended September 30, 2009 compared to three and nine months ended
September 30, 2008
  Other Expenses (Income)
 Three and nine months ended September 30, 2009 compared to three and nine months ended
September 30, 2008
  Income Tax Provision
 Three and nine months ended September 30, 2009 compared to three and nine months ended
September 30, 2008
  LIQUIDITY AND CAPITAL RESOURCES
  30




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##### Table of Contents




    
    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 described above under - Recent Developments  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 future capital expenditures.
    
    Fund working capital requirements.
    
    Fund our debt service requirements. We expect our interest payments to increase during
2009 compared to 2008 as a result of additional debt incurred in 2008 and 2009 to fund our
capital expenditures.
    
    Fund dividends to holders of our common stock.
    
    Fund contributions to our retirement plans, as described in Note 7 to the condensed
consolidated financial statements. The impact of the growth in the number of participants in
our retirement benefit plans, the recent financial market conditions that have caused 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.
     Cash Flows From Operating Activities
  31




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##### Table of Contents



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
  32




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##### Table of Contents



Revolving Credit Agreements
  Other
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 6.
  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
 34




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##### Table of Contents



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) 35