##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 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
(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(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 June 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
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II. Other Information
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit IndexEX-31.1EX-31.2EX-32
  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;
    
    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, and ITC
Midwest 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.
 
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 ITC HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
 June 30,
    
    
    December 31,(in thousands, except share data)
    
    2009
    
    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    61,382
    
    
    $
    58,110Accounts receivable
    
    
    81,848
    
    
    
    57,638Inventory
    
    
    29,057
    
    
    
    25,077Deferred income taxes
    
    
    9,727
    
    
    
    Regulatory
assets Attachment O revenue accrual (including accrued interest of $2,133 and
$1,637, respectively)
    
    
    52,575
    
    
    
    22,301Other
    
    
    5,572
    
    
    
    4,147Total current assets
    
    
    240,161
    
    
    
    167,273Property, plant and equipment(net of accumulated depreciation and amortization of $963,013
and $925,890, respectively)
    
    
    2,464,097
    
    
    
    2,304,386Other assetsGoodwill
    
    
    951,319
    
    
    
    951,319Intangible assets (net of accumulated amortization of $7,562 and $6,050, respectively)
    
    
    50,845
    
    
    
    52,357Regulatory assets Attachment O revenue accrual (including accrued interest of $1,042 and
$1,512, respectively)
    
    
    57,129
    
    
    
    81,643Regulatory assets Acquisition adjustments (net of accumulated amortization of $25,087 and
$22,393, respectively)
    
    
    77,971
    
    
    
    80,665Other regulatory assets
    
    
    41,093
    
    
    
    39,848Deferred financing fees (net of accumulated amortization of $8,038 and $8,048, respectively)
    
    
    21,915
    
    
    
    21,410Other
    
    
    26,393
    
    
    
    15,664Total other assets
    
    
    1,226,665
    
    
    
    1,242,906TOTAL ASSETS
    
    $
    3,930,923
    
    
    $
    3,714,565LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    61,441
    
    
    $
    79,403Accrued payroll
    
    
    8,077
    
    
    
    10,331Accrued interest
    
    
    37,693
    
    
    
    37,779Accrued taxes
    
    
    25,347
    
    
    
    18,104Deferred income taxes
    
    
    
    
    
    
    6,476Refundable deposits from generators for transmission network upgrades
    
    
    24,004
    
    
    
    8,701Other
    
    
    2,037
    
    
    
    5,384Total current liabilities
    
    
    158,599
    
    
    
    166,178Accrued pension and postretirement liabilities
    
    
    27,262
    
    
    
    24,295Deferred income taxes
    
    
    199,364
    
    
    
    144,889Regulatory liabilities
    
    
    200,636
    
    
    
    196,656Other
    
    
    19,778
    
    
    
    5,231Long-term debt
    
    
    2,360,820
    
    
    
    2,248,253Commitments and contingent liabilities(Note 10)STOCKHOLDERS EQUITYCommon stock, without par value, 100,000,000 shares authorized, 49,953,791 and 49,654,518
shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively
    
    
    854,875
    
    
    
    848,624Retained earnings
    
    
    110,385
    
    
    
    81,268Accumulated other comprehensive loss
    
    
    (796
    )
    
    
    (829
    )Total stockholders equity
    
    
    964,464
    
    
    
    929,063TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,930,923
    
    
    $
    3,714,565
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ITC HOLDINGS CORP. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008OPERATING REVENUES
    
    $
    157,238
    
    
    $
    160,616
    
    
    $
    313,179
    
    
    $
    302,530OPERATING EXPENSESOperation and maintenance
    
    
    21,919
    
    
    
    32,902
    
    
    
    45,660
    
    
    
    54,357General and administrative
    
    
    20,253
    
    
    
    21,361
    
    
    
    40,146
    
    
    
    39,343Depreciation and amortization
    
    
    26,187
    
    
    
    23,446
    
    
    
    52,735
    
    
    
    45,770Taxes other than income taxes
    
    
    10,612
    
    
    
    10,313
    
    
    
    21,710
    
    
    
    21,198Other operating income and expense  net
    
    
    
    
    
    
    (1,445
    )
    
    
    
    
    
    
    (1,445
    )Total operating expenses
    
    
    78,971
    
    
    
    86,577
    
    
    
    160,251
    
    
    
    159,223OPERATING INCOME
    
    
    78,267
    
    
    
    74,039
    
    
    
    152,928
    
    
    
    143,307OTHER EXPENSES (INCOME)Interest expense
    
    
    32,661
    
    
    
    29,946
    
    
    
    64,254
    
    
    
    60,716Allowance for equity funds used during construction
    
    
    (3,232
    )
    
    
    (2,284
    )
    
    
    (5,998
    )
    
    
    (5,380
    )Other income
    
    
    (1,065
    )
    
    
    (552
    )
    
    
    (1,391
    )
    
    
    (1,062
    )Other expense
    
    
    463
    
    
    
    597
    
    
    
    970
    
    
    
    1,434Total other expenses (income)
    
    
    28,827
    
    
    
    27,707
    
    
    
    57,835
    
    
    
    55,708INCOME BEFORE INCOME TAXES
    
    
    49,440
    
    
    
    46,332
    
    
    
    95,093
    
    
    
    87,599INCOME TAX PROVISION
    
    
    18,647
    
    
    
    17,671
    
    
    
    35,575
    
    
    
    33,417NET INCOME
    
    $
    30,793
    
    
    $
    28,661
    
    
    $
    59,518
    
    
    $
    54,182Basic earnings per common share (Note 7)
    
    $
    0.62
    
    
    $
    0.58
    
    
    $
    1.19
    
    
    $
    1.11Diluted earnings per common share (Note 7)
    
    $
    0.61
    
    
    $
    0.57
    
    
    $
    1.17
    
    
    $
    1.09Dividends declared per common share
    
    $
    0.305
    
    
    $
    0.290
    
    
    $
    0.610
    
    
    $
    0.580
  5




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ITC HOLDINGS CORP. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six months endedJune 30,(in thousands)
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    59,518
    
    
    $
    54,182Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    52,735
    
    
    
    45,770Attachment O revenue accrual and deferral  including accrued interest
    
    
    (16,240
    )
    
    
    (51,946
    )Deferred income tax expense
    
    
    34,902
    
    
    
    32,564Allowance for equity funds used during construction
    
    
    (5,998
    )
    
    
    (5,380
    )Other
    
    
    4,955
    
    
    
    4,860Changes in assets and liabilities, exclusive of changes shown separately:Accounts receivable
    
    
    (22,510
    )
    
    
    (13,623
    )Inventory
    
    
    (6,822
    )
    
    
    1,783Regulatory
assets Attachment O revenue accrual including accrued interest
    
    
    11,423
    
    
    
    Other current assets
    
    
    (1,425
    )
    
    
    (2,358
    )Accounts payable
    
    
    (10,094
    )
    
    
    15,969Accrued payroll
    
    
    (1,990
    )
    
    
    (1,348
    )Accrued interest
    
    
    (86
    )
    
    
    14,882Accrued taxes
    
    
    7,239
    
    
    
    7,582Other current liabilities
    
    
    (3,353
    )
    
    
    (154
    )Other non-current assets and liabilities, net
    
    
    6,162
    
    
    
    (1,639
    )Net cash provided by operating activities
    
    
    108,416
    
    
    
    101,144CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for property, plant and equipment
    
    
    (213,927
    )
    
    
    (193,793
    )Other
    
    
    (289
    )
    
    
    464Net cash used in investing activities
    
    
    (214,216
    )
    
    
    (193,329
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    100,000
    
    
    
    657,782Repayment of long-term debt
    
    
    
    
    
    
    (765,000
    )Borrowings under revolving credit agreements
    
    
    276,218
    
    
    
    282,500Repayments of revolving credit agreements
    
    
    (263,817
    )
    
    
    (353,200
    )Issuance of common stock
    
    
    1,632
    
    
    
    309,427Common stock issuance costs
    
    
    
    
    
    
    (755
    )Dividends on common stock
    
    
    (30,394
    )
    
    
    (28,662
    )Refundable deposits from generators for transmission network upgrades
    
    
    29,633
    
    
    
    6,286Repayment of refundable deposits from generators for transmission network upgrades
    
    
    (2,291
    )
    
    
    Debt issuance costs
    
    
    (1,909
    )
    
    
    (5,409
    )Net cash provided by financing activities
    
    
    109,072
    
    
    
    102,969NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    3,272
    
    
    
    10,784CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    58,110
    
    
    
    2,616CASH AND CASH EQUIVALENTS  End of period
    
    $
    61,382
    
    
    $
    13,400
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. GENERAL
    Supplementary Cash Flows Information
 Six months endedJune 30,(in thousands)
    
    2009
    
    2008Supplementary cash flows information:Interest paid (net of interest capitalized)
    
    $
    62,459
    
    
    $
    42,758Income taxes paid
    
    
    350
    
    
    
    1,314Supplementary non-cash investing and financing activities:Additions to property, plant and equipment (a)
    
    $
    46,293
    
    
    $
    35,772Allowance for equity funds used during construction
    
    
    5,998
    
    
    
    5,380
 
 (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 June 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
 FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities
 Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities Participating Securities and the Two-Class
Method under FASB Statement No. 128
 Statement of Financial Accounting Standards No. 141(R), Business Combinations
 Business Combinations
 7




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Statement of Financial Accounting Standards No. 157, Fair Value Measurements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 Fair Value Measurements
 Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133 Accounting for
Derivative Instruments and Hedging Activities
 FASB Staff Position FAS 132(R)-1, Employers Disclosures About Postretirement Benefit Plan Assets
 Employers Disclosures About Pensions and
Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106
 Statement of Financial Accounting Standards No. 165, Subsequent Events
 Subsequent Events
 8




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Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R)
 Amendments to FASB Interpretation No.
46(R) Consolidation of Variable Interest
Entities
 Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162
 The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles 
a replacement of FASB Statement No. 162
 3. INTANGIBLE ASSETS
  (in thousands)2009
    
    $
    3,0252010
    
    
    3,0252011
    
    
    3,0252012
    
    
    3,0252013
    
    
    3,0252014 and thereafter
    
    
    37,232Total
    
    $
    52,357
 4. REGULATORY MATTERS
 ITC Great Plains
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
    
    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.
   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.
 
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Complaint of IP&L
   Attachment O Revenue Accruals and Deferrals
  Accounting by Rate-Regulated Utilities for the Effects of Certain
Alternative Revenue Programs
  (in thousands)
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    TotalBalance as of December 31, 2008
    
    $
    17,815
    
    
    $
    34,133
    
    
    $
    51,768
    
    
    $
    103,716Refund (collection) of 2007 Attachment O revenue deferrals and
accruals including interest
    
    
    118
    
    
    
    (11,423
    )
    
    
    
    
    
    
    (11,305
    )Attachment O accrual (deferral) for the six months ended June 30, 2009
    
    
    8,732
    
    
    
    (865
    )
    
    
    7,264
    
    
    
    15,131Net interest accrued for the six months ended June 30, 2009
    
    
    98
    
    
    
    645
    
    
    
    366
    
    
    
    1,109Balance as of June 30, 2009
    
    $
    26,763
    
    
    $
    22,490
    
    
    $
    59,398
    
    
    $
    108,651
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(in thousands)
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    TotalCurrent assets
    
    $
    9,075
    
    
    $
    17,424
    
    
    $
    26,076
    
    
    $
    52,575Non-current assets
    
    
    17,806
    
    
    
    6,001
    
    
    
    33,322
    
    
    
    57,129Current liabilities
    
    
    (118
    )
    
    
    
    
    
    
    
    
    
    
    (118
    )Non-current liabilities
    
    
    
    
    
    
    (935
    )
    
    
    
    
    
    
    (935
    )Balance as of June 30, 2009
    
    $
    26,763
    
    
    $
    22,490
    
    
    $
    59,398
    
    
    $
    108,651
 5. LONG TERM DEBT
 ITC Holdings Term Loan Agreement
   Revolving Credit Agreements
  ITC Holdings Revolving Credit Agreement
  ITCTransmission/METC Revolving Credit Agreement
  12




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ITC Midwest Revolving Credit Agreement
  Fair Value of Long Term Debt
 Fixed Rate Long-Term Debt
  Revolving Credit Agreements
  6. SHARE-BASED COMPENSATION
 Long Term Incentive Plan Grants
  Stock Option Exercises
  13




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7. EARNINGS PER SHARE
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands, except share, per share data and percentages)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    30,793
    
    
    $
    28,661
    
    
    $
    59,518
    
    
    $
    54,182Less: dividends declared  common shares, restricted
shares and deferred stock units
    
    
    (15,229
    )
    
    
    (14,347
    )
    
    
    (30,401
    )
    
    
    (28,671
    )Undistributed earnings
    
    
    15,564
    
    
    
    14,314
    
    
    
    29,117
    
    
    
    25,511Percentage allocated to common shares (a)
    
    
    98.6
    %
    
    
    99.1
    %
    
    
    98.7
    %
    
    
    99.0
    %Undistributed earnings  common shares
    
    
    15,346
    
    
    
    14,185
    
    
    
    28,738
    
    
    
    25,256Add: dividends declared  common shares
    
    
    14,998
    
    
    
    14,210
    
    
    
    29,986
    
    
    
    28,400Numerator for basic and diluted earnings per common share
    
    $
    30,344
    
    
    $
    28,395
    
    
    $
    58,724
    
    
    $
    53,656Denominator:Denominator for basic earnings per common share 
weighted-average common shares
    
    
    49,167,079
    
    
    
    48,986,987
    
    
    
    49,147,318
    
    
    
    48,141,705Incremental shares for stock options and employee stock
purchase plan
    
    
    909,715
    
    
    
    1,069,947
    
    
    
    901,148
    
    
    
    1,076,929Denominator for diluted earnings per common share 
adjusted weighted-average shares and assumed conversion
    
    
    50,076,794
    
    
    
    50,056,934
    
    
    
    50,048,466
    
    
    
    49,218,634Per common share net income:Basic
    
    $
    0.62
    
    
    $
    0.58
    
    
    $
    1.19
    
    
    $
    1.11Diluted
    
    $
    0.61
    
    
    $
    0.57
    
    
    $
    1.17
    
    
    $
    1.09
 
 (a) Weighted-average common shares outstanding
    
    
    49,167,079
    
    
    
    48,986,987
    
    
    
    49,147,318
    
    
    
    48,141,705Weighted-average restricted shares and
deferred stock units (participating
securities)
    
    
    686,235
    
    
    
    468,892
    
    
    
    645,791
    
    
    
    463,755Total
    
    
    49,853,314
    
    
    
    49,455,879
    
    
    
    49,793,109
    
    
    
    48,605,460Percentage allocated to common shares
    
    
    98.6
    %
    
    
    99.1
    %
    
    
    98.7
    %
    
    
    99.0
    %
    14




---



##### Table of Contents



8. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST
 Retirement Plan Benefits
    Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    851
    
    
    $
    498
    
    
    $
    1,346
    
    
    $
    981Interest cost
    
    
    571
    
    
    
    293
    
    
    
    862
    
    
    
    577Expected return on plan assets
    
    
    (234
    )
    
    
    (261
    )
    
    
    (494
    )
    
    
    (517
    )Amortization of prior service cost
    
    
    209
    
    
    
    (232
    )
    
    
    (20
    )
    
    
    (453
    )Amortization of unrecognized loss
    
    
    676
    
    
    
    455
    
    
    
    1,125
    
    
    
    890Net pension cost
    
    $
    2,073
    
    
    $
    753
    
    
    $
    2,819
    
    
    $
    1,478
 Other Postretirement Benefits
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    502
    
    
    $
    406
    
    
    $
    910
    
    
    $
    819Interest cost
    
    
    287
    
    
    
    167
    
    
    
    455
    
    
    
    337Expected return on plan assets
    
    
    (59
    )
    
    
    (54
    )
    
    
    (113
    )
    
    
    (109
    )Amortization of prior service cost
    
    
    12
    
    
    
    145
    
    
    
    157
    
    
    
    292Amortization of unrecognized loss
    
    
    84
    
    
    
    
    
    
    
    84
    
    
    
    Net postretirement cost
    
    $
    826
    
    
    $
    664
    
    
    $
    1,493
    
    
    $
    1,339
 Defined Contribution Plans
  9. FAIR VALUE MEASUREMENTS
  15




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##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted prices in
    
    
    
    
    
    
    Significantactive markets for
    
    
    Significant other
    
    
    unobservableidentical assets
    
    
    observable inputs
    
    
    inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Financial assets measured on a recurring basis:Cash and cash equivalents  cash equivalents
    
    $
    60,580
    
    
    $
    
    
    
    $
    Other non current assets  trading securities
    
    
    5,154
    
    
    
    
    
    
    
    Total
    
    $
    65,734
    
    
    $
    
    
    
    $
    
   10. CONTINGENCIES
 Litigation
  Michigan Sales and Use Tax Audit
    16




---



##### Table of Contents



11. SEGMENT INFORMATION
 Disclosures about Segments of an Enterprise and Related Information
 Three months ended
    
    
    Six months endedOPERATING REVENUES:
    
    June 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    157,251
    
    
    $
    160,641
    
    
    $
    313,206
    
    
    $
    302,555ITC Holdings and other
    
    
    70
    
    
    
    69
    
    
    
    139
    
    
    
    139Intercompany eliminations
    
    
    (83
    )
    
    
    (94
    )
    
    
    (166
    )
    
    
    (164
    )Total Operating Revenues
    
    $
    157,238
    
    
    $
    160,616
    
    
    $
    313,179
    
    
    $
    302,530Three months ended
    
    
    Six months endedINCOME BEFORE INCOME TAXES:
    
    June 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    73,954
    
    
    $
    67,587
    
    
    $
    143,309
    
    
    $
    131,925ITC Holdings and other
    
    
    (24,514
    )
    
    
    (21,255
    )
    
    
    (48,216
    )
    
    
    (44,326
    )Total Income Before Income Taxes
    
    $
    49,440
    
    
    $
    46,332
    
    
    $
    95,093
    
    
    $
    87,599Three months ended
    
    
    Six months endedNET INCOME:
    
    June 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Regulated Operating Subsidiaries (a)
    
    $
    51,160
    
    
    $
    46,650
    
    
    $
    98,774
    
    
    $
    91,908ITC Holdings and other
    
    
    30,793
    
    
    
    28,661
    
    
    
    59,518
    
    
    
    54,182Intercompany eliminations
    
    
    (51,160
    )
    
    
    (46,650
    )
    
    
    (98,774
    )
    
    
    (91,908
    )Total Net Income
    
    $
    30,793
    
    
    $
    28,661
    
    
    $
    59,518
    
    
    $
    54,182TOTAL ASSETS:
    
    June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Regulated Operating Subsidiaries
    
    $
    3,828,302
    
    
    $
    3,667,660ITC Holdings and other
    
    
    2,516,382
    
    
    
    2,354,510Reconciliations (b)
    
    
    (14,505
    )
    
    
    (3,154
    )Intercompany eliminations
    
    
    (2,399,256
    )
    
    
    (2,304,451
    )Total Assets
    
    $
    3,930,923
    
    
    $
    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 17




---



##### Table of Contents



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.
    
    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.
 19




---



##### Table of Contents




    
    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 $200.4 million at our Regulated Operating Subsidiaries ($42.1
million, $82.5 million and $75.8 million at ITCTransmission, METC and ITC Midwest,
respectively) during the six months ended June 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, partially as a result of the
economic conditions in Michigan.
  Recent Developments
 ITC Great Plains
 Formula Rate and Incentives
     KETA Project
  21




---



##### Table of Contents



Kansas V-Plan Project
  Hugo to Valliant Project
  Green Power Express
    22




---



##### Table of Contents



Complaint of IP&L
   Capitalization of Expenses
 nd
 Trends and Seasonality
 Network Revenues
  23




---



##### Table of Contents



Capital Investment (b)Ten-Year Capital
    
    
    Actual From
    
    
    Forecast for the(in millions)
    
    Investment Program
    
    
    January 1, 2008 through
    
    
    year ending
    
    
    Actual for the six monthsRegulated Operating Subsidiary
    
    2008-2017(a)
    
    
    June 30, 2009
    
    
    December 31, 2009
    
    
    ended June 30, 2009ITCTransmission
    
    $
    700
    
    
    $
    163.9
    
    
    $
    70 - $85
    
    
    $
    42.1METC
    
    
    1,150
    
    
    
    203.6
    
    
    
    110 - 130
    
    
    
    82.5ITC Midwest
    
    
    1,050
    
    
    
    232.3
    
    
    
    120 - 130
    
    
    
    75.8Total
    
    $
    2,900
    
    
    $
    599.8
    
    
    $
    300 - $345
    
    
    $
    200.4
 
 (a)
    
    The expected amounts for our ten-year program do not include $150 million for ITCTransmission
and METC combined and $250 million at ITC Midwest for estimated 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. This estimate 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. In addition, these amounts do not include any possible capital investment associated
with the projects discussed under Recent Developments  ITC Great Plains and Recent
Developments  Green Power Express.(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.  Monthly Peak Loads, Attachment O Revenue Accrual and Expense Mitigation Efforts
   24




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##### Table of Contents



Monthly Peak Load (in MW) (a)
 2009
    
    2008
    
    2007ITCTransmission
    
    METC
    
    ITC Midwest
    
    ITCTransmission
    
    METC
    
    ITC Midwest
    
    ITCTransmission
    
    METC
    
    ITC Midwest (b)January
    
    
    7,258
    
    
    
    6,009
    
    
    
    2,996
    
    
    
    7,890
    
    
    
    6,215
    
    
    
    2,974
    
    
    
    7,876
    
    
    
    6,051February
    
    
    7,104
    
    
    
    5,892
    
    
    
    2,830
    
    
    
    7,715
    
    
    
    6,159
    
    
    
    2,890
    
    
    
    8,170
    
    
    
    6,227March
    
    
    7,070
    
    
    
    5,548
    
    
    
    2,723
    
    
    
    7,532
    
    
    
    5,797
    
    
    
    2,733
    
    
    
    7,739
    
    
    
    6,006April
    
    
    6,761
    
    
    
    5,113
    
    
    
    2,437
    
    
    
    6,926
    
    
    
    5,223
    
    
    
    2,455
    
    
    
    7,141
    
    
    
    5,473May
    
    
    6,948
    
    
    
    5,337
    
    
    
    2,408
    
    
    
    7,051
    
    
    
    5,328
    
    
    
    2,431
    
    
    
    9,927
    
    
    
    6,981June
    
    
    10,351
    
    
    
    8,022
    
    
    
    3,504
    
    
    
    10,624
    
    
    
    7,241
    
    
    
    2,888
    
    
    
    11,761
    
    
    
    8,511July
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,016
    
    
    
    8,042
    
    
    
    3,376
    
    
    
    11,706
    
    
    
    8,672August
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,890
    
    
    
    7,816
    
    
    
    3,259
    
    
    
    12,087
    
    
    
    8,955September
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    34,930
    
    
    
    113,639
    
    
    
    84,723
    
    
    
    2,706
 
 (a)
    
    Each of our Regulated Operating Subsidiaries is 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 Regulated Operating Subsidiaries makes up the
significant portion of network load within their respective joint rate zone.(b)
    
    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. 25




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##### Table of Contents



RESULTS OF OPERATIONS
 Results of Operations and Variances
 Three months ended
    
    
    
    
    
    
    Percentage
    
    
    Six months ended
    
    
    
    
    
    
    PercentageJune 30,
    
    
    Increase
    
    
    increase
    
    
    June 30,
    
    
    Increase
    
    
    increase(in thousands)
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)
    
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)OPERATING REVENUES
    
    $
    157,238
    
    
    $
    160,616
    
    
    $
    (3,378
    )
    
    
    (2.1
    )%
    
    $
    313,179
    
    
    $
    302,530
    
    
    $
    10,649
    
    
    
    3.5
    %OPERATING EXPENSESOperation and maintenance
    
    
    21,919
    
    
    
    32,902
    
    
    
    (10,983
    )
    
    
    (33.4
    )%
    
    
    45,660
    
    
    
    54,357
    
    
    
    (8,697
    )
    
    
    (16.0
    )%General and administrative
    
    
    20,253
    
    
    
    21,361
    
    
    
    (1,108
    )
    
    
    (5.2
    )%
    
    
    40,146
    
    
    
    39,343
    
    
    
    803
    
    
    
    2.0
    %Depreciation and
amortization
    
    
    26,187
    
    
    
    23,446
    
    
    
    2,741
    
    
    
    11.7
    %
    
    
    52,735
    
    
    
    45,770
    
    
    
    6,965
    
    
    
    15.2
    %Taxes other than income
taxes
    
    
    10,612
    
    
    
    10,313
    
    
    
    299
    
    
    
    2.9
    %
    
    
    21,710
    
    
    
    21,198
    
    
    
    512
    
    
    
    2.4
    %Other operating income
and expenses  net
    
    
    
    
    
    
    (1,445
    )
    
    
    1,445
    
    
    
    (100.0
    )%
    
    
    
    
    
    
    (1,445
    )
    
    
    1,445
    
    
    
    (100.0
    )%Total operating expenses
    
    
    78,971
    
    
    
    86,577
    
    
    
    (7,606
    )
    
    
    (8.8
    )%
    
    
    160,251
    
    
    
    159,223
    
    
    
    1,028
    
    
    
    0.6
    %OPERATING INCOME
    
    
    78,267
    
    
    
    74,039
    
    
    
    4,228
    
    
    
    5.7
    %
    
    
    152,928
    
    
    
    143,307
    
    
    
    9,621
    
    
    
    6.7
    %OTHER EXPENSES (INCOME)Interest expense
    
    
    32,661
    
    
    
    29,946
    
    
    
    2,715
    
    
    
    9.1
    %
    
    
    64,254
    
    
    
    60,716
    
    
    
    3,538
    
    
    
    5.8
    %Allowance for equity
funds used during
construction
    
    
    (3,232
    )
    
    
    (2,284
    )
    
    
    (948
    )
    
    
    41.5
    %
    
    
    (5,998
    )
    
    
    (5,380
    )
    
    
    (618
    )
    
    
    11.5
    %Other income
    
    
    (1,065
    )
    
    
    (552
    )
    
    
    (513
    )
    
    
    92.9
    %
    
    
    (1,391
    )
    
    
    (1,062
    )
    
    
    (329
    )
    
    
    31.0
    %Other expense
    
    
    463
    
    
    
    597
    
    
    
    (134
    )
    
    
    (22.4
    )%
    
    
    970
    
    
    
    1,434
    
    
    
    (464
    )
    
    
    (32.4
    )%Total other expenses
(income)
    
    
    28,827
    
    
    
    27,707
    
    
    
    1,120
    
    
    
    4.0
    %
    
    
    57,835
    
    
    
    55,708
    
    
    
    2,127
    
    
    
    3.8
    %INCOME BEFORE INCOME TAXES
    
    
    49,440
    
    
    
    46,332
    
    
    
    3,108
    
    
    
    6.7
    %
    
    
    95,093
    
    
    
    87,599
    
    
    
    7,494
    
    
    
    8.6
    %INCOME TAX PROVISION
    
    
    18,647
    
    
    
    17,671
    
    
    
    976
    
    
    
    5.5
    %
    
    
    35,575
    
    
    
    33,417
    
    
    
    2,158
    
    
    
    6.5
    %NET INCOME
    
    $
    30,793
    
    
    $
    28,661
    
    
    $
    2,132
    
    
    
    7.4
    %
    
    $
    59,518
    
    
    $
    54,182
    
    
    $
    5,336
    
    
    
    9.8
    %
 Operating Revenues
 Three months ended June 30, 2009 compared to three months ended June 30, 2008
  Percentage2009
    
    
    2008
    
    
    Increase
    
    
    increase(in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    139,225
    
    
    
    88.5
    %
    
    $
    145,567
    
    
    
    90.6
    %
    
    $
    (6,342
    )
    
    
    (4.4
    )%Regional cost sharing revenues
    
    
    9,857
    
    
    
    6.3
    %
    
    
    3,693
    
    
    
    2.3
    %
    
    
    6,164
    
    
    
    166.9
    %Point-to-point
    
    
    3,673
    
    
    
    2.3
    %
    
    
    6,587
    
    
    
    4.1
    %
    
    
    (2,914
    )
    
    
    (44.2
    )%Scheduling, control and dispatch
    
    
    3,762
    
    
    
    2.4
    %
    
    
    4,207
    
    
    
    2.6
    %
    
    
    (445
    )
    
    
    (10.6
    )%Other
    
    
    721
    
    
    
    0.5
    %
    
    
    562
    
    
    
    0.4
    %
    
    
    159
    
    
    
    28.3
    %Total
    
    $
    157,238
    
    
    
    100.0
    %
    
    $
    160,616
    
    
    
    100.0
    %
    
    $
    (3,378
    )
    
    
    (2.1
    )%
  26




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##### Table of Contents



Six months ended June 30, 2009 compared to six months ended June 30, 2008
  Percentage2009
    
    
    2008
    
    
    Increase
    
    
    increase(in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    277,562
    
    
    
    88.6
    %
    
    $
    273,616
    
    
    
    90.5
    %
    
    $
    3,946
    
    
    
    1.4
    %Regional cost sharing revenues
    
    
    19,329
    
    
    
    6.2
    %
    
    
    7,365
    
    
    
    2.4
    %
    
    
    11,964
    
    
    
    162.4
    %Point-to-point
    
    
    8,321
    
    
    
    2.7
    %
    
    
    11,961
    
    
    
    4.0
    %
    
    
    (3,640
    )
    
    
    (30.4
    )%Scheduling, control and dispatch
    
    
    7,075
    
    
    
    2.2
    %
    
    
    8,277
    
    
    
    2.7
    %
    
    
    (1,202
    )
    
    
    (14.5
    )%Other
    
    
    892
    
    
    
    0.3
    %
    
    
    1,311
    
    
    
    0.4
    %
    
    
    (419
    )
    
    
    (32.0
    )%Total
    
    $
    313,179
    
    
    
    100.0
    %
    
    $
    302,530
    
    
    
    100.0
    %
    
    $
    10,649
    
    
    
    3.5
    %
      Attachment O revenue accrual (deferral) summary for the six months ended June 30, 2009
 Total RevenueLine
    
    Item
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    Accrual(in thousands)1
    
    Estimated net revenue requirement (network revenues) (a)
    
    $
    122,456
    
    
    $
    77,795
    
    
    $
    77,3112
    
    Network revenues billed (b)
    
    
    113,724
    
    
    
    78,660
    
    
    
    70,0473
    
    Attachment O revenue accrual (deferral) (line 1 -- line 2)
    
    $
    8,732
    
    
    $
    (865
    )
    
    $
    7,264
    
    
    $
    15,131
 
 (a)
    
    The calculation of net revenue requirement 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 Regulated Operating Subsidiaries and the calculations are filed with and reviewed by MISO
each year.(b)
    
    Network revenues billed at our 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
regulatory liability associated with the 2007 true-up and accrued interest by $0.1 million
during the six months ended June 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 $11.4 million during the six months ended June 30,
2009. 27




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##### Table of Contents



Operating Expenses
 Operation and maintenance expenses
 Three months ended June 30, 2009 compared to three months ended June 30, 2008
  Six months ended June 30, 2009 compared to six months ended June 30, 2008
  General and administrative expenses
 Three months ended June 30, 2009 compared to three months ended June 30, 2008
  Six months ended June 30, 2009 compared to six months ended June 30, 2008
  Depreciation and amortization expenses
 Three and six months ended June 30, 2009 compared to three and six months ended June 30, 2008
  28




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##### Table of Contents



Taxes other than income taxes
 Three and six months ended June 30, 2009 compared to three and six months ended June 30, 2008
  Other Expenses (Income)
 Three and six months ended June 30, 2009 compared to three and six months ended June 30, 2008
  Income Tax Provision
 Three and six months ended June 30, 2009 compared to three and six months ended June 30, 2008
  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 described above under  Recent Developments  ITC Great Plains
and  Recent Developments  Green Power Express 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.
 29




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##### Table of Contents




    
    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, 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
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  30




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##### Table of Contents



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
  Other
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  31




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  32




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Total votesTotal votes
    
    withheld for eachNominee
    

for each nominee
    
    nomineeEdward G. Jepsen
    
    
    44,069,171
    
    
    
    520,161Richard D. McLellan
    
    
    40,737,274
    
    
    
    3,852,058William J. Museler
    
    
    44,444,119
    
    
    
    145,213Hazel R. OLeary
    
    
    44,459,098
    
    
    
    130,234Gordon Bennett Stewart, III
    
    
    43,895,248
    
    
    
    694,084Lee C. Stewart
    
    
    44,015,393
    
    
    
    573,939Joseph L. Welch
    
    
    43,630,638
    
    
    
    958,694
 Proposal
    
    For
    
    Against
    
    Abstain
    
    Broker Non-VotesRatification of Appointment of Deloitte & Touche LLP
    
    
    44,210,630
    
    
    
    326,105
    
    
    
    52,597
    
    
    
    
 
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description of Document10.83
    
    Form of Employment Agreements between the Registrant and Linda H. Blair, Jon E. Jipping,
Edward M. Rahill and Cameron M. Bready (filed with Registrants Form 10-K filed on February
26, 2009)31.1
    
    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
 33




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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) 34