10-Q

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, 2014

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.

(Exact Name of Registrant as Specified in Its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization) 32-0058047 (I.R.S. Employer Identification No.)

27175 Energy Way

Novi, MI 48377

(Address Of Principal Executive Offices, Including Zip Code)

(248) 946-3000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the Registrant’s Common Stock, without par value, outstanding as of August 1, 2014 was 155,585,300.

ITC Holdings Corp.

Form 10-Q for the Quarterly Period Ended June 30, 2014

INDEX

	Page
Part I. Financial Information	4
Item 1. Financial Statements	4
Condensed Consolidated Statements of Financial Position (Unaudited)	4
Condensed Consolidated Statements of Operations (Unaudited)	5
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	35
Part II. Other Information	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds	36
Item 5. Other Information	37
Item 6. Exhibits	37
Signatures	38
Exhibit Index

2

DEFINITIONS

Unless otherwise noted or the context requires, all references in this report to:

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;

• “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, LLC, the sole member of METC and an indirect 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;

• “DTE Electric” are references to DTE Electric Company, a wholly-owned subsidiary of DTE Energy Company;

• “Entergy Transaction” are references to the transaction whereby the electric transmission business of Entergy Corporation was to be separated and subsequently merged with a wholly-owned subsidiary of ITC Holdings. The proposed transaction was terminated in December 2013;

• “FERC” are references to the Federal Energy Regulatory Commission;

• “FPA” are references to the Federal Power Act;

• “IP&L” are references to Interstate Power and Light Company, an Alliant Energy Corporation subsidiary;

• “ITC Holdings’ annual report on Form 10-K” are references to the annual report on Form 10-K filed on February 27, 2014;

• “kV” are references to kilovolts (one kilovolt equaling 1,000 volts);

• “kW” are references to kilowatts (one kilowatt equaling 1,000 watts);

• “LIBOR” are references to the London Interbank Offered Rate;

• “MISO” are references to the Midcontinent Independent System Operator, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the Midwestern United States and Manitoba, Canada, and of which ITCTransmission, METC and ITC Midwest are members;

• “MW” are references to megawatts (one megawatt equaling 1,000,000 watts);

• “NERC” are references to the North American Electric Reliability Corporation;

• “RTO” are references to Regional Transmission Organizations; and

• “SPP” are references to Southwest Power Pool, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the South Central United States, and of which ITC Great Plains is a member.

EXPLANATORY NOTE

Unless otherwise noted, the share and per share data in this Form 10-Q reflects the three-for-one stock split effective February 28, 2014.

3

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)	2014		2013
ASSETS
Current assets
Cash and cash equivalents	$	9,017	$	34,275
Accounts receivable	123,483		89,348
Inventory	29,375		31,986
Deferred income taxes	18,806		17,225
Regulatory assets — revenue accruals, including accrued interest	4,728		6,334
Prepaid and other current assets	21,994		12,370
Total current assets	207,403		191,538
Property, plant and equipment (net of accumulated depreciation and amortization of $1,340,464 and $1,330,094, respectively)	5,203,707		4,846,526
Other assets
Goodwill	950,163		950,163
Intangible assets (net of accumulated amortization of $23,259 and $21,616, respectively)	49,614		49,328
Other regulatory assets	184,310		179,068
Deferred financing fees (net of accumulated amortization of $14,027 and $15,261, respectively)	29,516		25,585
Other	56,212		40,035
Total other assets	1,269,815		1,244,179
TOTAL ASSETS	$	6,680,925	$	6,282,243
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	126,859	$	111,145
Accrued payroll	16,562		21,930
Accrued interest	51,098		53,049
Accrued taxes	40,674		29,805
Regulatory liabilities — revenue deferrals, including accrued interest	35,336		33,120
Refundable deposits from generators for transmission network upgrades	20,780		23,283
Debt maturing within one year	250,000		200,000
Other	19,606		27,047
Total current liabilities	560,915		499,379
Accrued pension and postretirement liabilities	56,913		53,704
Deferred income taxes	624,549		562,938
Regulatory liabilities — revenue deferrals, including accrued interest	29,951		36,447
Regulatory liabilities — accrued asset removal costs	67,192		67,571
Refundable deposits from generators for transmission network upgrades	4,884		19,328
Other	20,867		17,032
Long-term debt	3,755,495		3,412,112
Commitments and contingent liabilities (Note 11)
STOCKHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 155,512,734 and 157,500,795 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	882,845		1,014,435
Retained earnings	671,459		592,970
Accumulated other comprehensive income	5,855		6,327
Total stockholders’ equity	1,560,159		1,613,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,680,925	$	6,282,243

See notes to condensed consolidated financial statements (unaudited).

4

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except per share data)	2014			2013			2014			2013
OPERATING REVENUES	$	263,214		$	229,817		$	521,817		$	447,121
OPERATING EXPENSES
Operation and maintenance	25,836			29,668			50,697			54,181
General and administrative	30,308			43,939			58,270			78,865
Depreciation and amortization	31,295			29,295			62,673			57,781
Taxes other than income taxes	17,076			16,094			38,269			32,764
Other operating (income) and expenses — net	(229		)	(173		)	(461		)	(345		)
Total operating expenses	104,286			118,823			209,448			223,246
OPERATING INCOME	158,928			110,994			312,369			223,875
OTHER EXPENSES (INCOME)
Interest expense — net	45,854			40,402			91,163			79,465
Allowance for equity funds used during construction	(4,932		)	(8,292		)	(9,944		)	(17,025		)
Loss on extinguishment of debt	29,074			—			29,074			—
Other income	(236		)	(286		)	(397		)	(495		)
Other expense	1,625			2,671			2,958			3,681
Total other expenses (income)	71,385			34,495			112,854			65,626
INCOME BEFORE INCOME TAXES	87,543			76,499			199,515			158,249
INCOME TAX PROVISION	33,207			29,104			76,043			60,664
NET INCOME	$	54,336		$	47,395		$	123,472		$	97,585
Basic earnings per common share	$	0.34		$	0.30		$	0.78		$	0.62
Diluted earnings per common share	$	0.34		$	0.30		$	0.78		$	0.62
Dividends declared per common share	$	0.1425		$	0.1258		$	0.2850		$	0.2516

See notes to condensed consolidated financial statements (unaudited).

5

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three months ended					Six months ended
	June 30,					June 30,
(in thousands)	2014			2013		2014			2013
NET INCOME	$	54,336		$	47,395	$	123,472		$	97,585
OTHER COMPREHENSIVE INCOME
Derivative instruments, net of tax (Note 6)	(688		)	22,252		(582		)	24,358
Available-for-sale securities, net of tax (Note 6)	60			—		110			—
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX	(628		)	22,252		(472		)	24,358
TOTAL COMPREHENSIVE INCOME	$	53,708		$	69,647	$	123,000		$	121,943

See notes to condensed consolidated financial statements (unaudited).

6

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended
	June 30,
(in thousands)	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	123,472		$	97,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	62,673			57,781
Recognition, refund and collection of revenue accruals and deferrals — including accrued interest	(7,248		)	(14,074		)
Deferred income tax expense	56,978			50,537
Allowance for equity funds used during construction	(9,944		)	(17,025		)
Loss on extinguishment of debt	29,074			—
Other	8,142			7,287
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable	(28,890		)	(28,368		)
Inventory	2,611			157
Prepaid and other current assets	(9,623		)	(3,630		)
Accounts payable	(21,394		)	14,944
Accrued payroll	(3,524		)	(2,989		)
Accrued interest	(1,951		)	15,049
Accrued taxes	10,869			7,444
Other current liabilities	(9,370		)	4,403
Other non-current assets and liabilities, net	(5,903		)	(4,269		)
Net cash provided by operating activities	195,972			184,832
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(375,650		)	(422,295		)
Other	235			(3,839		)
Net cash used in investing activities	(375,415		)	(426,134		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	473,664			100,000
Borrowings under revolving credit agreements	1,054,100			638,900
Borrowings under term loan credit agreements	110,000			350,000
Retirement of long-term debt — including debt retirement costs	(198,494		)	—
Repayments of revolving credit agreements	(1,035,300		)	(767,400		)
Repayments under term loan credit agreements	(39,000		)	—
Issuance of common stock	14,177			6,073
Dividends on common and restricted stock	(44,983		)	(39,522		)
Refundable deposits from generators for transmission network upgrades	5,208			16,770
Repayment of refundable deposits from generators for transmission network upgrades	(22,155		)	(24,125		)
Repurchase and retirement of common stock	(107,952		)	(4,040		)
Forward contract of accelerated share repurchase program	(46,000		)	—
Other	(9,080		)	2,304
Net cash provided by financing activities	154,185			278,960
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(25,258		)	37,658
CASH AND CASH EQUIVALENTS — Beginning of period	34,275			26,187
CASH AND CASH EQUIVALENTS — End of period	$	9,017		$	63,845

See notes to condensed consolidated financial statements (unaudited).

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.GENERAL

These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, 2013 included in ITC Holdings’ annual report on Form 10-K for such period.

The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (“SEC”) Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

The condensed consolidated financial statements are unaudited, but in our opinion include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

Supplementary Cash Flows Information

	Six months ended
	June 30,
(in thousands)	2014		2013
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	90,248	$	62,692
Income taxes paid — net	25,416		11,593
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment (a)	$	105,246	$	99,485
Allowance for equity funds used during construction	9,944		17,025

____________________________

(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, 2014 or 2013, 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

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five step model to determine when a customer obtains control of a transferred good or service. The guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted using a full or modified retrospective application. We are currently in the process of evaluating our revenue arrangements under the issued guidance and have not yet determined its impact to our results of operations, cash flows and financial position.

3.    REGULATORY MATTERS

Start-Up, Development and Pre-Construction Regulatory Assets

As of June 30, 2014, we have recorded a total of $14.0 million of regulatory assets for start-up, development and pre-construction expenses, including associated carrying charges, incurred by ITC Great Plains, which include certain costs incurred for the Kansas Electric Transmission Authority (“KETA”) Project and the Kansas V-Plan Project prior to construction. ITC Great Plains made a filing with the FERC under Section 205 of the FPA in May 2013 to recover these start-up, development and pre-construction expenses, including associated carrying charges, in future rates. If FERC authorization is received, ITC Great Plains will include the unamortized balance of the regulatory assets in its rate base and will amortize them over a 10-year period beginning at the later of the project in-service date or the FERC authorization date. The amortization expense will be recovered through ITC Great Plains’ cost-based formula rate template beginning in the period in which amortization begins.

8

Order on Formula Rate Protocols

In 2012, the FERC issued an order initiating a proceeding pursuant to Section 206 of the FPA to determine whether the formula rate protocols under the MISO Tariff are sufficient to ensure just and reasonable rates. Our MISO Regulated Operating Subsidiaries were named in the order. In May 2013, the FERC issued an order that determined the formula rate protocols are insufficient to ensure just and reasonable rates and directed MISO and its member transmission owners (“TOs”) to file revised formula rate protocols. In September 2013, MISO and its TOs, including our MISO Regulated Operating Subsidiaries, filed revised formula rate protocols which will require our MISO Regulated Operating Subsidiaries to provide additional information for certain aspects of the formula rates used to calculate their respective annual revenue requirements. On March 20, 2014, FERC issued an order conditionally accepting MISO and its TOs’ September 2013 filing and required a further compliance filing, which MISO and its TOs made on May 19, 2014. We do not expect the revised formula rate protocols to impact our results of operations, cash flows or financial condition.

FERC Audit Refund

See “FERC Audit Refund” in Note 11 for a discussion of the FERC audit refund.

Rate of Return on Equity and Capital Structure Complaint

See “Rate of Return on Equity and Capital Structure Complaint” in Note 11 for a discussion of the complaint.

Cost-Based Formula Rates with True-Up Mechanism

The transmission rates at our Regulated Operating Subsidiaries are set annually, using the FERC-approved formula rates, and the rates remain in effect for a one-year period. By completing their formula rate templates on an annual basis, our Regulated Operating Subsidiaries are able to adjust their transmission rates to reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The FERC-approved formula rates do not require further action or FERC filings for the calculated joint zone rates to go into effect, although the rates are subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rates to calculate their respective annual revenue requirements unless the FERC determines the rates to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable.

Our cost-based formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue requirements. The over- or under-collection typically results from differences between the projected revenue requirement used to establish the billing rate and actual revenue requirement at each of our Regulated Operating Subsidiaries, or from differences between actual and projected monthly peak loads at our MISO Regulated Operating Subsidiaries. Revenue is recognized for services provided during each reporting period based on actual revenue requirements calculated using the formula rate templates. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The amount of accrued or deferred revenues is reflected in customer bills within two years under the provisions of the formula rate templates.

The current and non-current regulatory assets are recorded in the condensed consolidated statements of financial position in regulatory assets — revenue accruals, including accrued interest and other non-current assets, respectively. The current and non-current regulatory liabilities are recorded in regulatory liabilities — revenue deferrals, including accrued interest. The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, were as follows during the six months ended June 30, 2014:

(in thousands)	Total
Balance as of December 31, 2013	$	(60,196	)
Net refund of 2012 revenue deferrals and accruals, including accrued interest	13,629
Net revenue deferral for the six months ended June 30, 2014	(5,348		)
Net accrued interest payable for the six months ended June 30, 2014	(1,033		)
Balance as of June 30, 2014	$	(52,948	)

9

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals are recorded in the condensed consolidated statements of financial position as follows:

(in thousands)	Total
Current assets	$	4,728
Non-current assets — other	7,611
Current liabilities	(35,336		)
Non-current liabilities	(29,951		)
Balance as of June 30, 2014	$	(52,948	)

4.    GOODWILL AND INTANGIBLE ASSETS

Goodwill

At June 30, 2014 and December 31, 2013, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $453.8 million and $323.0 million, respectively, which resulted from the ITCTransmission acquisition, the METC acquisition and ITC Midwest’s asset acquisition, respectively.

Intangible Assets

We have recorded intangible assets as a result of the METC acquisition in 2006. The carrying value of these assets was $35.7 million and $37.2 million (net of accumulated amortization of $22.7 million and $21.2 million) as of June 30, 2014 and December 31, 2013, respectively.

We have also recorded intangible assets for payments and obligations made by ITC Great Plains to certain TOs to acquire rights which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including the KETA Project and the Kansas V-Plan Project. The carrying amount of these intangible assets was $13.9 million and $12.1 million (net of accumulated amortization of $0.6 million and $0.4 million) as of June 30, 2014 and December 31, 2013, respectively.

During the three months ended June 30, 2014 and 2013, we recognized $0.8 million of amortization expense of our intangible assets and $1.6 million for the six months ended June 30, 2014 and 2013. For each of the next five years, we expect the annual amortization of our intangible assets that have been recorded as of June 30, 2014 to be $3.3 million per year.

5.    DEBT

Derivative Instruments and Hedging Activities

We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. In May 2014, we executed, settled and terminated $150.0 million of 10-year interest rate swaps in conjunction with the Senior Notes issued at ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:

Interest Rate Swaps	Amount		Weighted Average Fixed Rate of Interest Rate Swaps	Comparable Reference Rate of Senior Notes	Loss on Derivative		Settlement Date
(amounts in millions)
10-year interest rate swaps	$	150.0	2.65%	2.53%	$	1.6	May 2014

The interest rate swaps qualified for hedge accounting treatment and the loss of $1.6 million was recognized as of June 30, 2014 for the effective portion of the hedges and recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be amortized as a component of interest expense over the lives of the related debt. As of June 30, 2014 and December 31, 2013, we had no outstanding derivative financial instruments.

ITC Holdings

On December 20, 2013, ITC Holdings entered into an unsecured, unguaranteed term loan credit agreement, due September 30, 2016, with an initial borrowing capacity of $200.0 million. As of June 30, 2014 and December 31, 2013, ITC Holdings

10

had $161.0 million and $140.0 million outstanding under this agreement, respectively. The proceeds were used for general corporate purposes, including the repayment of borrowings under the ITC Holdings’ revolving credit agreement. The weighted-average interest rate on the borrowing outstanding under this agreement was 1.3% at June 30, 2014.

On May 2, 2014, ITC Holdings commenced a cash tender offer for any and all of the outstanding $255.0 million ITC Holdings 5.875% Senior Notes due September 30, 2016 and $255.0 million ITC Holdings 6.375% Senior Notes due September 30, 2036, under which $115.6 million of the 5.875% Senior Notes and $54.7 million of the 6.375% Senior Notes were validly tendered on May 30, 2014. All of the Senior Notes validly tendered were subsequently retired with the proceeds from the $400.0 million3.65% Senior Notes described below. ITC Holdings incurred a loss on extinguishment of debt of $29.1 million related to the tender premium and the write-off of deferred debt issuance costs and other expenses.

On May 28, 2014, ITC Holdings issued $400.0 million aggregate principal amount of its 3.65% Senior Notes, due June 15, 2024. The proceeds from the issuance were used for the cash tender offer described above and for general corporate purposes, primarily the repayment of borrowings under the ITC Holdings revolving credit agreement. The ITC Holdings Senior Notes are issued under its indenture. All issuances of ITC Holdings Senior Notes are unsecured.

ITCTransmission

On June 10, 2014, ITCTransmission issued $75.0 million of 4.27% First Mortgage Bonds, Series F, due June 10, 2044 (“First Mortgage Bonds”). ITCTransmission also agreed to issue an additional $25.0 million of First Mortgage Bonds in August 2014 with terms and conditions identical to those of the First Mortgage Bonds. The proceeds from the June issuance were used for general corporate purposes, primarily the repayment of borrowings under the ITCTransmission revolving credit agreement. All of ITCTransmission’s First Mortgage Bonds are issued under its First Mortgage and Deed of Trust and secured by a first mortgage lien on substantially all of its property.

METC

On January 31, 2014, METC entered into an unsecured, unguaranteed term loan credit agreement, under which METC borrowed the maximum of $50.0 million available under the agreement. The proceeds were used for general corporate purposes, primarily the repayment of borrowings under the METC revolving credit agreement. The term loan is scheduled to mature on February 2, 2015. The weighted average interest rate on the borrowings outstanding under the term loan was 1.2% at June 30, 2014.

Revolving Credit Agreements

On March 28, 2014, ITC Holdings and its Regulated Operating Subsidiaries entered into new unsecured, unguaranteed revolving credit agreements maturing in March 2019, which replaced their existing revolving credit agreements. At June 30, 2014, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:

(amounts in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity		Weighted Average Interest Rate on Outstanding Balance		Commitment Fee Rate (b)
ITC Holdings	$	400.0	$	—	$	400.0	n/a	(c)	0.175	%
ITCTransmission	100.0		16.1		83.9		1.1%	(d)	0.10	%
METC	100.0		42.3		57.7		1.1%	(d)	0.10	%
ITC Midwest	250.0		146.1		103.9		1.2%	(d)	0.10	%
ITC Great Plains	150.0		85.5		64.5		1.3%	(e)	0.125	%
Total	$	1,000.0	$	290.0	$	710.0

____________________________

(a) Included within long-term debt.

(b) Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

(c) Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

(d) Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

11

(e) Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.125% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.125%, subject to adjustments based on the borrower’s credit rating.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and maintaining certain interest coverage ratios. As of June 30, 2014, we were in compliance with all debt covenants.

6.     STOCKHOLDERS’ EQUITY

The changes in stockholders’ equity for the six months endedJune 30, 2014 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income			Equity
BALANCE, DECEMBER 31, 2013	157,500,795		$	1,014,435		$	592,970		$	6,327		$	1,613,732
Net income	—		—			123,472			—			123,472
Repurchase and retirement of common stock	(3,013,176	)	(107,952		)	—			—			(107,952		)
Dividends declared on common stock ($0.2850 per share)	—		—			(44,983		)	—			(44,983		)
Stock option exercises	761,321		13,172			—			—			13,172
Shares issued under the Employee Stock Purchase Plan	34,594		1,004			—			—			1,004
Issuance of restricted stock	289,793		—			—			—			—
Forfeiture of restricted stock	(60,593	)	—			—			—			—
Share-based compensation, net of forfeitures	—		8,186			—			—			8,186
Forward contract of accelerated share repurchase program	—		(46,000		)	—			—			(46,000		)
Other comprehensive income, net of tax	—		—			—			(472		)	(472		)
BALANCE, JUNE 30, 2014	155,512,734		$	882,845		$	671,459		$	5,855		$	1,560,159

The changes in stockholders’ equity for the six months endedJune 30, 2013 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2012	156,745,542		$	989,334		$	443,569		$	(18,048	)	$	1,414,855
Net income	—		—			97,585			—			97,585
Repurchase and retirement of common stock	(136,317	)	(4,040		)	—			—			(4,040		)
Dividends declared on common stock ($0.2516 per share)	—		—			(39,522		)	—			(39,522		)
Stock option exercises	346,653		5,164			—			—			5,164
Shares issued under the Employee Stock Purchase Plan	39,858		909			—			—			909
Issuance of restricted stock	348,138		—			—			—			—
Forfeiture of restricted stock	(17,007	)	—			—			—			—
Share-based compensation, net of forfeitures	—		7,517			—			—			7,517
Other comprehensive income, net of tax	—		—			—			24,358			24,358
BALANCE, JUNE 30, 2013	157,326,867		$	998,884		$	501,632		$	6,310		$	1,506,826

12

Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI for the three and six months ended June 30, 2014 and 2013:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Balance at the beginning of period	$	6,483		$	(15,942	)	$	6,327		$	(18,048	)
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $79 and $9 for the three months ended June 30, 2014 and 2013, respectively, and net of tax of $155 and $19 for the six months ended June 30, 2014 and 2013, respectively)	112			15			218			29
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt (net of tax of $83 for the three and six months ended June 30, 2014)	117			—			117			—
Gain (loss) on interest rate swaps relating to interest rate cash flow hedges (net of tax of $14,287 and $15,652 for the three and six months ended June 30, 2013, respectively, and $655 for the three and six months ended June 30, 2014)	(917		)	22,237			(917		)	24,329
Derivative instruments, net of tax	(688		)	22,252			(582		)	24,358
Available-for-sale securities
Unrealized net gain on available-for-sale securities (net of tax of $43 and $79 for the three and six months ended June 30, 2014, respectively)	60			—			110			—
Available-for-sale securities, net of tax	60			—			110			—
Total other comprehensive income, net of tax	(628		)	22,252			(472		)	24,358
Balance at the end of period	$	5,855		$	6,310		$	5,855		$	6,310

Stock Split

In January 2014, we filed an amendment to our Articles of Incorporation, as previously approved by our shareholders, to increase the number of authorized shares of common stock to 300 million shares. On February 6, 2014, our board of directors declared a three-for-one split of our common stock to be accomplished by means of a stock distribution on February 28, 2014 to shareholders of record on February 18, 2014. As a result of the stock split and other issuances and retirements during the six months ended June 30, 2014, our outstanding shares increased from approximately 52.5 million shares as of December 31, 2013 to 155.5 million shares as of June 30, 2014. In addition, all unvested restricted stock awards, outstanding stock option awards and share reserves under our share-based compensation plans as discussed in Note 7 were adjusted under the terms of the respective agreements for this three-for-one split. The share and per share data in this Form 10-Q reflects the three-for-one stock split effective February 28, 2014, unless otherwise noted.

Accelerated Share Repurchase Program

On June 19, 2014, ITC Holdings entered into an accelerated share repurchase agreement of up to $150.0 million (minimum of $130.0 million) with JP Morgan Chase (“JP Morgan”) (the “ASR program”), which is part of the Board of Directors authorized share repurchase program for up to $250.0 million approved in April 2014 and expiring in December 2015. Under the ASR program, ITC Holdings paid $150.0 million to JP Morgan and received an initial delivery of 2.9 million shares with a fair market value of $104.0 million, based on the closing market price of $35.80 per share at the commencement of the ASR program. The final number of shares delivered under the ASR program will be based on the volume-weighted average share price of our common stock during the term of the transaction, less an agreed upon discount and adjusted for the initial share delivery. The ASR program is expected to be completed by the end of 2014.

The $46.0 million unsettled portion of the ASR program meets the criteria to be accounted for as a forward contract indexed to our stock and qualifies as an equity instrument. ITC Holdings recorded the $150.0 million payment as a reduction to common stock, which included the $104.0 million of initial shares repurchased and the unsettled forward contract of $46.0 million as

13

of June 30, 2014. The initial delivery of shares resulted in an immediate reduction to our common stock outstanding used to calculate our earnings per share disclosed in Note 8.

ITC Holdings Sales Agency Financing Agreement

On July 27, 2011, ITC Holdings entered into a Sales Agency Financing Agreement with Deutsche Bank Securities Inc. as sales agent (the “SAFA”). Under the terms of the SAFA, ITC Holdings was able to issue and sell shares of common stock, without par value, from time to time, up to an aggregate sales proceeds amount of $250.0 million. No shares were issued under the SAFA prior to its expiration on July 27, 2014.

7.     SHARE-BASED COMPENSATION

Long-Term Incentive Plan Grants

On May 20, 2014, pursuant to the Second Amended and Restated 2006 Long-Term Incentive Plan (“LTIP”), we granted 652,900 options to purchase shares of our common stock with an exercise price of $36.73 per share, which was the closing price of our common stock on the date of grant. The options vest in three equal annual installments with the first installment vesting on May 20, 2015. In addition, on May 20, 2014, pursuant to the LTIP, we granted 259,014 shares of restricted stock at a fair value of $36.73 per share. Holders of restricted stock have all the rights of a holder of common stock of ITC Holdings, including dividend and voting rights. The restricted stock vests three years after the grant date. The holder of the restricted stock may not sell, transfer or pledge their shares of restricted stock until vesting occurs.

Stock Option Exercises

We issued 761,321 and 499,014 shares of our common stock during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively, due to the exercise of stock options.

14

8.    EARNINGS PER SHARE

We report both basic and diluted earnings per share. Our restricted stock and deferred stock units contain rights to receive nonforfeitable dividends and thus, are participating securities requiring the two-class method of computing earnings per share. A reconciliation of both calculations for the three and six months ended June 30, 2014 and 2013 is presented in the following table (see additional information below under “Stock Split” for the recast share and per share data for the three and six months ended June 30, 2013 as a result of the three-for-one stock split):

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except share, per share data and percentages)	2014			2013			2014			2013
Numerator:
Net income	$	54,336		$	47,395		$	123,472		$	97,585
Less: dividends declared and paid — common and restricted shares	(22,530		)	(19,789		)	(44,983		)	(39,522		)
Undistributed earnings	31,806			27,606			78,489			58,063
Percentage allocated to common shares (a)	99.2		%	99.0		%	99.2		%	99.0		%
Undistributed earnings — common shares	31,552			27,331			77,861			57,482
Add: dividends declared and paid — common shares	22,347			19,605			44,609			39,143
Numerator for basic and diluted earnings per common share	$	53,899		$	46,936		$	122,470		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares outstanding	156,427,493			155,645,337			156,309,340			155,458,851
Incremental shares for stock options and employee stock purchase plan — weighted average assumed conversion	1,541,565			1,288,170			1,523,485			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	157,969,058			156,933,507			157,832,825			156,681,840
Per common share net income:
Basic	$	0.34		$	0.30		$	0.78		$	0.62
Diluted	$	0.34		$	0.30		$	0.78		$	0.62

____________________________

(a)	Weighted average common shares outstanding	156,427,493		155,645,337		156,309,340		155,458,851
	Weighted average restricted shares (participating securities)	1,297,578		1,509,081		1,329,136		1,534,395
	Total	157,725,071		157,154,418		157,638,476		156,993,246
	Percentage allocated to common shares	99.2	%	99.0	%	99.2	%	99.0	%

The incremental shares for stock options and employee stock purchase plan (“ESPP”) shares are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. The outstanding stock options and ESPP shares and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations were as follows:

	2014	2013
Outstanding stock options and ESPP shares (as of June 30)	4,891,913	5,374,689
Anti-dilutive stock options and ESPP shares (for the three and six months ended June 30)	654,231	942,333

15

Stock Split

Below are the effects of the stock split on earnings per share for the three and six months ended June 30, 2013:

(in thousands, except per share and share data)	Reported		Adjustment			Adjusted
For the three months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	46,936	$	—		$	46,936
Denominator:
Basic earnings per common share — weighted average common shares	51,881,779		103,763,558			155,645,337
Incremental shares for stock options and employee stock purchase plan	429,390		858,780			1,288,170
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,311,169		104,622,338			156,933,507
Per common share net income:
Basic	$	0.90	$	(0.60	)	$	0.30
Diluted	$	0.90	$	(0.60	)	$	0.30
For the six months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	96,625	$	—		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares	51,819,617		103,639,234			155,458,851
Incremental shares for stock options and employee stock purchase plan	407,663		815,326			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,227,280		104,454,560			156,681,840
Per common share net income:
Basic	$	1.86	$	(1.24	)	$	0.62
Diluted	$	1.85	$	(1.23	)	$	0.62

Below are the effects of the stock split on other disclosures included for earnings per share for the three and six months ended June 30, 2013:

Percentage Allocated to Common Shares

	Reported		Adjustment		Adjusted
For the three months ended June 30, 2013
Weighted-average common shares outstanding	51,881,779		103,763,558		155,645,337
Weighted-average restricted shares (participating securities)	503,027		1,006,054		1,509,081
Total	52,384,806		104,769,612		157,154,418
Percentage allocated to common shares	99.0	%	—	%	99.0	%
For the six months ended June 30, 2013
Weighted-average common shares outstanding	51,819,617		103,639,234		155,458,851
Weighted-average restricted shares (participating securities)	511,465		1,022,930		1,534,395
Total	52,331,082		104,662,164		156,993,246
Percentage allocated to common shares	99.0	%	—	%	99.0	%

Outstanding and Anti-dilutive Stock Options and ESPP Shares

The outstanding stock options and the ESPP shares as of June 30, 2013 and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations for the three and six months ended June 30, 2013 were as follows:

	Reported		Adjusted
	June 30, 2013	Adjustment	June 30, 2013
Outstanding stock options and ESPP shares	1,791,563	3,583,126	5,374,689
Anti-dilutive stock options and ESPP shares	314,111	628,222	942,333

16

Impacts of the Accelerated Share Repurchase Program

The basic shares outstanding as of June 30, 2014 include the impacts of the initial delivery of 2.9 million shares received under the ASR, as described in Note 6. The forward contract component of the ASR of $46.0 million is excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2014 based on the volume-weighted average price calculated as of June 30, 2014, which results in an anti-dilutive impact on earnings per share. The final settlement amount may increase or decrease earnings per share at the settlement date depending upon the volume-weighted average share price of our common stock during the term of the transaction.

9.    RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Retirement Plan Benefits

We have a qualified retirement plan for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees, and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees, and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the qualified retirement plan is to contribute amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as we determine appropriate. During the second quarter of 2014, we contributed $3.8 million to the defined benefit retirement plan. We do not expect to make any additional contributions to this plan in 2014.

We also have two supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. The plans provide for benefits that supplement those provided by our other retirement plans. We contributed $5.1 million to these supplemental nonqualified, noncontributory, retirement benefit plans during the second quarter of 2014. We do not expect to make any additional contributions to these plans in 2014.

Net pension cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,267		$	1,316		$	2,533		$	2,631
Interest cost	901			633			1,802			1,396
Expected return on plan assets	(885		)	(717		)	(1,770		)	(1,434		)
Amortization of prior service credit	(11		)	(11		)	(21		)	(21		)
Amortization of unrecognized loss	386			678			772			1,357
Net pension cost	$	1,658		$	1,899		$	3,316		$	3,929

Other Postretirement Benefits

We provide certain postretirement health care, dental, and life insurance benefits for eligible employees. During the second quarter of 2014, we contributed $1.2 million to the postretirement benefit plan. We expect to make an estimated additional contribution of $5.0 million to the postretirement benefit plan during the second half of 2014.

Net postretirement cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,462		$	1,444		$	2,923		$	2,887
Interest cost	498			391			996			781
Expected return on plan assets	(341		)	(355		)	(681		)	(708		)
Amortization of unrecognized loss	—			55			—			110
Net postretirement cost	$	1,619		$	1,535		$	3,238		$	3,070

17

Defined Contribution Plan

We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was $0.8 million and $0.7 million for the three months ended June 30, 2014 and 2013, respectively, and $2.1 million and $2.4 million for the six months ended June 30, 2014 and 2013, respectively.

10.    FAIR VALUE MEASUREMENTS

The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the six months ended June 30, 2014 and the year ended December 31, 2013, there were no transfers between levels.

Our assets measured at fair value subject to the three-tier hierarchy at June 30, 2014, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	3,625	$	—	$	—
Mutual funds — fixed income securities	26,657		—		—
Mutual funds — equity securities	636		—		—
Total	$	30,918	$	—	$	—

Our assets measured at fair value subject to the three-tier hierarchy at December 31, 2013, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	19,000	$	—	$	—
Mutual funds — fixed income securities	21,318		—		—
Mutual funds — equity securities	516		—		—
Total	$	40,834	$	—	$	—

As of June 30, 2014 and December 31, 2013, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. Our cash and cash equivalents consist of money market mutual funds that are administered similar to money market funds recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist primarily of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value, and losses are recorded in earnings for investment classified as trading securities and other comprehensive income for investments classified as available for sale if fair value falls below recorded cost.

We also held non-financial assets that are required to be measured at fair value on a non-recurring basis. These consist of goodwill and intangible assets. We did not record any impairment charges on long-lived assets and no other significant events occurred requiring non-financial assets and liabilities to be measured at fair value (subsequent to initial recognition) during the six months ended June 30, 2014. For additional information on our goodwill and intangible assets, please refer to the notes to the consolidated financial statements as of and for the year ended December 31, 2013 included in our Form 10-K for such period and to Note 4 of this Form 10-Q.

18

Fair Value of Financial Assets and Liabilities

Fixed Rate Debt

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,709.7 million and $3,299.0 million at June 30, 2014 and December 31, 2013, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,404.5 million and $3,100.9 million at June 30, 2014 and December 31, 2013, respectively.

Revolving and Term Loan Credit Agreements

At June 30, 2014 and December 31, 2013, we had a consolidated total of $601.0 million and $511.2 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.

Other Financial Instruments

The carrying value of other financial instruments included in current assets and current liabilities, including cash and cash equivalents and special deposits, approximates their fair value due to the short-term nature of these instruments.

11.    COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

Our Regulated Operating Subsidiaries’ operations are subject to federal, state, and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of hazardous materials and of solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities to investigate or remediate contamination, as well as other liabilities concerning hazardous materials or contamination, such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as at properties currently owned or operated by our Regulated Operating Subsidiaries. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under a number of environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. Although environmental requirements generally have become more stringent and compliance with those requirements more expensive, we are not aware of any specific developments that would increase our Regulated Operating Subsidiaries’ costs for such compliance in a manner that would be expected to have a material adverse effect on our results of operations, financial position or liquidity.

Our Regulated Operating Subsidiaries’ assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Many of the properties our Regulated Operating Subsidiaries own or operate have been used for many years, and include older facilities and equipment that may be more likely than newer ones to contain or be made from such materials. Some of these properties include aboveground or underground storage tanks and associated piping. Some of them also include large electrical equipment filled with mineral oil, which may contain or previously have contained polychlorinated biphenyls, or PCBs. Our Regulated Operating Subsidiaries’ facilities and equipment are often situated close to or on property owned by others so that, if they are the source of contamination, other’s property may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that our Regulated Operating Subsidiaries do not own, and, at some of our Regulated Operating Subsidiaries’ transmission stations, transmission assets (owned or operated by our Regulated Operating Subsidiaries) and distribution assets (owned or operated by our Regulated Operating Subsidiaries’ transmission customer) are commingled.

Some properties in which our Regulated Operating Subsidiaries have an ownership interest or at which they operate are, and others are suspected of being, affected by environmental contamination. Our Regulated Operating Subsidiaries are not aware of any pending or threatened claims against them with respect to environmental contamination, or of any investigation or remediation of contamination at any properties, that entail costs likely to materially affect them. Some facilities and properties are located near environmentally sensitive areas such as wetlands.

19

Claims have been made or threatened against electric utilities for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields associated with electric transmission and distribution lines. While our Regulated Operating Subsidiaries do not believe that a causal link between electromagnetic field exposure and injury has been generally established and accepted in the scientific community, if such a relationship is established or accepted, the liabilities and costs imposed on our business could be significant. We are not aware of any pending or threatened claims against our Regulated Operating Subsidiaries for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields and electric transmission and distribution lines that entail costs likely to have a material adverse effect on our results of operations, financial position or liquidity.

Litigation

We are involved in certain legal proceedings before various courts, governmental agencies and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, regulatory matters and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss.

Michigan Sales and Use Tax Audit

The Michigan Department of Treasury conducted a sales and use tax audit of ITCTransmission for the audit period April 1, 2005 through June 30, 2008 and has denied ITCTransmission’s use of the industrial processing exemption from use tax it has taken beginning January 1, 2007. ITCTransmission has certain administrative and judicial appeal rights.

ITCTransmission believes that its utilization of the industrial processing exemption is appropriate and intends to defend itself against the denial of such exemption. However, it is reasonably possible that the assessment of additional use tax could be sustained after all administrative appeals and litigation have been exhausted.

The amount of the potential use tax liability associated with the exemptions taken by ITCTransmission through June 30, 2014 is estimated to be approximately $19.7 million for periods still subject to audit, which includes approximately $3.9 million assessed for the audit period April 1, 2005 through June 30, 2008, including interest. ITCTransmission has not recorded this contingent liability as of June 30, 2014. However, in the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission would record the additional use tax primarily as an increase to the cost of property, plant and equipment, as the majority of purchases for which the exemption was taken relate to equipment purchases associated with capital projects. METC has also taken the industrial processing exemption, estimated to be approximately $10.9 million for periods still subject to audit; however, METC has not recorded any contingent liabilities as of June 30, 2014 associated with this matter. These higher use tax expenses would be included as components of net revenue requirements and resulting rates.

FERC Audit Refund

The FERC issued an order that identified certain findings and recommendations of certain staff of the FERC relating to specific aspects of the accounting treatment for the acquisition of the transmission assets of IP&L by ITC Midwest that requires adjustments to the MISO Regulated Operating Subsidiaries’ respective annual revenue requirement calculations and corresponding refunds. The amounts are being refunded through the cost-based formula rates in 2014. ITC Midwest, ITCTransmission and METC have recorded an aggregate regulatory liability for the refund and related interest of $6.6 million and $13.1 million as of June 30, 2014 and December 31, 2013, respectively, in the condensed consolidated statements of financial position.

ITC Midwest Project Commitment

In the Minnesota regulatory proceeding to approve ITC Midwest’s December 2007 acquisition of the transmission assets of IP&L, ITC Midwest agreed to build a certain project in Iowa, the 345 kV Salem-Hazelton line, and made a commitment to use commercially reasonable best efforts to complete the project prior to December 31, 2011. In the event ITC Midwest is found to have failed to meet this commitment, the allowed 12.38% rate of return on the actual equity portion of its capital structure would be reduced to 10.39% until such time as ITC Midwest completes the project, and ITC Midwest would refund with interest any amounts collected since the close date of the transaction that exceeded what would have been collected if the 10.39% return on equity had been used. Certain regulatory approvals were needed from the Iowa Utilities Board (“IUB”) before construction of the project could commence, but due to the IUB’s case schedule, these approvals were not received until the second quarter of 2011. As a result of the delay in the receipt of the necessary regulatory approvals, the project was not completed by December 31, 2011. We have notified the Minnesota Public Utilities Commission that the Salem-Hazleton

20

line was placed into service on April 25, 2013, and requested confirmation from the commission that ITC Midwest has satisfied its commitment and that no refund is due as a result of the project not being completed by December 31, 2011. We believe we used commercially reasonable best efforts to meet the December 31, 2011 deadline, and therefore, we believe the likelihood of any material effect on the financial statements from this matter is remote.

Rate of Return on Equity and Capital Structure Complaint

On November 12, 2013, Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group, and Wisconsin Industrial Energy Group (the “joint complainants”) filed a complaint with the FERC under Section 206 of the FPA, requesting that the FERC find the regional base rate of return on equity (“ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest (currently set at 12.38%) to be unjust and unreasonable. The joint complainants are seeking a FERC order reducing the base regional ROE used in our formula transmission rate to 9.15%. The complaint also alleges that the rates of any MISO TO using a capital structure with greater than 50% for the equity component are likewise not just and reasonable (ITCTransmission, METC and ITC Midwest use their actual capital structures, which FERC has approved at a target of 60% equity). The complaint asks FERC to institute a uniform capital structure for MISO TOs in which the assumed equity component does not exceed 50%. The complaint also alleges the ROE adders currently approved for certain ITC operating companies, including adders currently utilized by ITCTransmission for being a member of an RTO and adders utilized by ITCTransmission and METC for being an independent transmission owner, are no longer just and reasonable, and seeks to have them eliminated. In the event a refund is required upon resolution of the complaint, the joint complainants are seeking a refund effective date of November 12, 2013.

On January 6, 2014, ITCTransmission, METC and ITC Midwest filed responses with the FERC to the Section 206 complaint (jointly with other MISO TOs and through a separate supplemental response), defending the use of the current regional base ROE, the use of current capital structures, and the approved ROE adders for RTO membership and independence. The responses seek dismissal of the complaint, or a denial of it on merits, with prejudice, as the joint complainants failed to meet their burden under Section 206 of the FPA to show that the current regional base ROE, approved capital structures and ROE adders approved for ITCTransmission and METC are no longer just and reasonable. Further, the responses argue that the current ROE, approved capital structures and adders encourage transmission investment, are especially appropriate given the benefits of the independent transmission company model and RTO membership and provide testimony to demonstrate that they remain just and reasonable.

On June 19, 2014, in a separate but related Section 206 complaint against certain ISO New England TOs, FERC adopted a new method for establishing ROEs for electric transmission utilities. The new method is based on a two-step process and uses both short-term and long-term growth projections in establishing ROEs, whereas the previous method used only short-term growth projections. Under this new method, FERC also reiterated its policy of capping the overall ROE, including adders, at the high end of the zone of reasonableness set by the two-step discounted cash flow (“DCF”) methodology. We expect the new method presented in the ISO New England ROE case will also be used in resolving the MISO ROE case.

It is reasonably possible that the refund exposure for a potential reduction to the ROEs of our MISO Regulated Operating Subsidiaries could result in a material impact on our results of operations, cash flows and financial condition. The range of potential impact of this matter to our consolidated results of operations, cash flows and financial condition is not estimable due to the uncertainty of the calculation of an authorized ROE along with the zone of reasonableness, which is directly affected by the newly adopted two-step DCF methodology. The ROEs to be established would be dependent on the appropriate proxy group and assumptions for short and long-term growth rates at the time the ROE is ultimately determined. There is additional uncertainty as to the effective date of any potential refund period. As of June 30, 2014, our MISO Regulated Operating Subsidiaries had a total of approximately $2.5 billion of equity in their capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately $2.5 million. We continue to believe the likelihood of an unfavorable outcome of the complaint as it relates to the request to modify our existing capital structures is remote.

21

12.    SEGMENT INFORMATION

We identify reportable segments based on the criteria set forth by the FASB regarding disclosures about segments of an enterprise, including the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses. The following tables show our financial information by reportable segment:

	Three months ended						Six months ended
OPERATING REVENUES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	263,303		$	229,891		$	521,996		$	447,271
ITC Holdings and other	92			152			184			304
Intercompany eliminations	(181		)	(226		)	(363		)	(454		)
Total Operating Revenues	$	263,214		$	229,817		$	521,817		$	447,121

	Three months ended						Six months ended
INCOME BEFORE INCOME TAXES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	147,187		$	125,199		$	288,779		$	244,459
ITC Holdings and other	(59,644		)	(48,700		)	(89,264		)	(86,210		)
Total Income Before Income Taxes	$	87,543		$	76,499		$	199,515		$	158,249

	Three months ended						Six months ended
NET INCOME:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	90,296		$	78,121		$	176,849		$	151,877
ITC Holdings and other	54,336			47,395			123,472			97,585
Intercompany eliminations	(90,296		)	(78,121		)	(176,849		)	(151,877		)
Total Net Income	$	54,336		$	47,395		$	123,472		$	97,585

TOTAL ASSETS:	June 30,			December 31,
(in thousands)	2014			2013
Regulated Operating Subsidiaries	$	6,577,523		$	6,174,888
ITC Holdings and other	3,810,270			3,619,759
Reconciliations / Intercompany eliminations (a)	(3,706,868		)	(3,512,404		)
Total Assets	$	6,680,925		$	6,282,243

____________________________

(a) Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our Regulated Operating Subsidiaries as compared to the classification in our condensed consolidated statements of financial position.

22

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

Our reports, filings and other public announcements contain certain statements that describe our management’s beliefs concerning future business conditions, plans and prospects, growth opportunities and the outlook for our business and the electric transmission industry based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “projects,” “likely” and similar phrases. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among others, the risks and uncertainties listed in Item 1A Risk Factors of our Form 10-K for the fiscal year ended December 31, 2013, and the following:

• Certain elements of our Regulated Operating Subsidiaries’ formula rates can be and have been 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 acquisitions that could have a material 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 rate base and therefore our revenues and earnings compared to our current expectations. In addition, we expect to invest in strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot assure you that we will be able to initiate or complete any of these investments.

• The regulations to which we are subject may limit our ability to raise capital and/or pursue acquisitions, development opportunities or other transactions or may subject us to liabilities.

• Changes in federal energy laws, regulations or policies could impact our business, financial condition, results of operations and cash flows.

• If amounts billed for transmission service for our Regulated Operating Subsidiaries’ transmission systems are lower than expected, or our actual revenue requirements are higher than expected, the timing of collection of our revenues would be delayed.

• Each of our MISO Regulated Operating Subsidiaries depends on its primary customer for a substantial portion of its revenues, and any material failure by those primary customers to make payments for transmission services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

• A significant amount of the land on which our Regulated Operating Subsidiaries’ assets are located is subject to easements, mineral rights and other similar encumbrances. 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.

• Our Regulated Operating Subsidiaries contract with third parties to provide services for certain aspects of their businesses. If any of these agreements are terminated, our Regulated Operating Subsidiaries may face a shortage of labor or replacement contractors to provide the services formerly provided by these third parties.

• 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, including reliability standards; contract filing requirements; reporting, recordkeeping and accounting requirements; and transaction approval 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 business, financial condition, results of operations and cash flows.

23

• Acts of war, terrorist attacks, cyber attacks, natural disasters, severe weather and other catastrophic events may have a material adverse effect on our business, financial condition, results of operations and cash flows.

• ITC Holdings is a holding company with no operations, and unless we receive dividends or other payments from our subsidiaries, we may be unable to pay dividends and fulfill our other cash obligations.

• We have a considerable amount of debt and our reliance on debt financing may limit our ability to fulfill our debt obligations and/or to obtain additional financing.

• Certain provisions in our debt instruments limit our financial and operating flexibility.

• Adverse changes in our credit ratings may negatively affect us.

• 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.

Because our forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong. Forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Except as required by law, we undertake no obligation to publicly update any of our forward-looking or other statements, whether as a result of new information, future events, or otherwise.

OVERVIEW

Through our Regulated Operating Subsidiaries, we operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our systems. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, to reduce transmission constraints and to upgrade the transmission networks to support new generating resources interconnecting to our transmission systems. We are also pursuing development projects not within our existing systems, which likewise are intended to improve overall grid reliability, reduce transmission constraints and facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

As electric transmission utilities with rates regulated by the FERC, our Regulated Operating Subsidiaries earn revenues through tariff rates charged for the use of their electric transmission systems by our customers, which include investor-owned utilities, municipalities, cooperatives, power marketers and alternative energy suppliers. As independent transmission companies, our Regulated Operating Subsidiaries are subject to rate regulation only by the FERC. The rates charged by our Regulated Operating Subsidiaries are established using cost-based formula rate templates as discussed in Note 3 to the condensed consolidated financial statements under “— Cost-Based Formula Rates with True-Up Mechanism.”

Our Regulated Operating Subsidiaries’ primary operating responsibilities include maintaining, improving and expanding their transmission systems to meet their customers’ ongoing needs, scheduling outages on system elements to allow for maintenance and construction, maintaining appropriate system voltages and monitoring flows over transmission lines and other facilities to ensure physical limits are not exceeded.

We derive nearly all of our revenues from providing electric transmission service over our Regulated Operating Subsidiaries’ transmission systems to investor-owned utilities such as DTE Electric, Consumers Energy and IP&L, and to other entities such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers and from transaction-based capacity reservations on our transmission systems.

Significant recent matters that influenced our financial position and results of operations and cash flows for the six months ended June 30, 2014 or may affect future results include:

• Our capital investment of $430.1 million at our Regulated Operating Subsidiaries for the six months ended June 30, 2014, resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources;

24

• Debt issuances as described in Note 5 to the condensed consolidated financial statements and borrowings under our revolving and term loan credit agreements in 2014 and 2013 to fund capital investment at our Regulated Operating Subsidiaries and for general corporate purposes, resulting in higher interest expense;

• Loss on extinguishment of debt of $29.1 million related to the tender of $115.6 million of the 5.875% ITC Holdings Senior Notes and $54.7 million of the 6.375% ITC Holdings Senior Notes as described in Note 5 to the condensed consolidated financial statements;

• Debt maturing within one year of $250.0 million as of June 30, 2014 and the interest rates associated with the additional financing required;

• The rate of return on equity (“ROE”) and capital structure complaint filed against all MISO Transmission Owners (“TOs”) including our MISO Regulated Operating Subsidiaries as described in Note 11 to the condensed consolidated financial statements; and

• The accelerated share repurchase program (“ASR program”) entered in June 2014 for up to $150.0 million which is part of the Board of Directors authorized share repurchase program of up to $250.0 million authorized in April 2014 and expiring in December 2015 as described in Note 6 to the condensed consolidated financial statements.

These items are discussed in more detail throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Capital Project Updates and Other Recent Developments

ITC Great Plains

Kansas V-Plan Project

The Kansas V-Plan Project is a 200-mile long transmission line that will run between Spearville and Wichita, Kansas. ITC Great Plains is responsible for constructing an approximately 120-mile portion of the project from Spearville to Medicine Lodge, Kansas. ITC Great Plains commenced construction during 2012, and through June 30, 2014, ITC Great Plains has invested $274.6 million in the Kansas V-Plan Project. We estimate that ITC Great Plains will invest a total of approximately $300 million in its portion of the project, which is currently anticipated to be completed by the end of 2014.

Regulatory Assets

As of June 30, 2014, we have recorded a total of $14.0 million of regulatory assets for start-up, development and pre-construction expenses, including associated carrying charges, incurred by ITC Great Plains, which include certain costs incurred for the Kansas Electric Transmission Authority (“KETA”) and the Kansas V-Plan Projects prior to construction. Based on ITC Great Plains’ FERC application under which authority to recognize these regulatory assets was sought and the related FERC order granting such authority, ITC Great Plains made a filing with the FERC under Section 205 of the FPA in May 2013 to recover these start-up, development and pre-construction expenses, including associated carrying charges, in future rates as discussed in Note 3 of the condensed consolidated financial statements.

Development Bonuses

We recognized general and administrative expenses of $0.7 million and $2.2 million during the three and six months ended June 30, 2014, respectively, and $0.7 million and $2.1 million during the three and six months ended June 30, 2013, respectively, for bonuses for certain development projects, including the successful completion of certain milestones relating to projects at ITC Great Plains. It is reasonably possible that future development-related bonuses may be authorized and awarded for these or other development projects.

Multi-Value Projects

2011 MISO Multi-Value Projects

In 2011, MISO implemented its Multi-Value Project (“MVP”) cost allocation methodology. In December 2011, MISO approved a portfolio of MVPs which includes portions of four MVPs that we will construct, own and operate. The four MVPs are located in south central Minnesota, northern and southeast Iowa, southwest Wisconsin, and northeast Missouri and will be constructed by ITC Midwest. We currently estimate we will invest approximately $800 million in our portions of the MVPs from 2014 through 2018.

25

Thumb Loop Project

The Thumb Loop Project, an additional MVP, is located in ITCTransmission’s region and consists of a 140-mile, double-circuit 345 kV transmission line and related substations that will serve as the backbone of the transmission system needed to accommodate future wind development projects in the Michigan counties of Tuscola, Huron, Sanilac and St. Clair. In September 2013, Phase 1 of the Thumb Loop project, consisting of approximately 62 miles, was placed into service. Phase 2, consisting of approximately 20 miles, was placed into service in May 2014. Through June 30, 2014, ITCTransmission has invested $410.2 million in the Thumb Loop Project. We estimate ITCTransmission will invest a total of approximately $510 million in the project, which is currently anticipated to be completed in 2015.

Rate of Return on Equity and Capital Structure Complaint

In November 2013, certain parties filed a joint complaint with the FERC under Section 206 of the FPA, requesting that the FERC find the regional base rate of return on equity for all MISO TOs, including ITCTransmission, METC and ITC Midwest to be unjust and unreasonable. The joint complainants are seeking a FERC order reducing the regional base ROE rate used in our formula transmission rate from 12.38% to 9.15%, reducing the equity component of our capital structure from the FERC approved 60% to 50% and terminating the ROE adders currently approved for certain ITC operating companies, including adders currently utilized by ITCTransmission and METC. In the event a refund is required upon resolution of the complaint, the joint complainants are seeking a refund effective date as of November 12, 2013.

We believe that the ROE along with the ROE adders and approved capital structure encourage transmission investment and offset the burdens associated with maintaining the independent transmission business model and RTO membership. ITCTransmission, METC and ITC Midwest filed responses during the first quarter of 2014, separately and together with other MISO TOs, that seek dismissal of the complaint for its failure to satisfy the requirements of FPA Section 206 and the FERC’s accompanying Rules, or denial of the complaint on the merits, with prejudice.

It is reasonably possible that the refund exposure for a potential reduction to the ROEs of our MISO Regulated Operating Subsidiaries could result in a material impact on our results of operations, cash flows, and financial condition. The range of potential impact of this matter is not estimable due to the uncertainty of the calculation of an authorized ROE along with the zone of reasonableness, which is directly affected by the newly adopted two-step discounted cash flow methodology. The ROE to be established would be dependent on the appropriate proxy group and assumptions for short and long-term growth rates at the time the ROE is ultimately determined. There is additional uncertainty as to the effective date of any potential refund period. As of June 30, 2014, our MISO Regulated Operating Subsidiaries had a total of approximately $2.5 billion of equity in their capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately $2.5 million. We continue to believe the likelihood of an unfavorable outcome of the complaint as it relates to the request to modify our existing capital structures is remote. See further discussion in Note 11 to the condensed consolidated financial statements.

Stock Split

On February 6, 2014, our board of directors declared a three-for-one split of our common stock to be accomplished by means of a stock distribution. The additional shares were distributed on February 28, 2014, to the shareholders of record on February 18, 2014. See further discussion in Note 6 to the condensed consolidated financial statements.

Accelerated Share Repurchase Program

On June 19, 2014, ITC Holdings entered into an accelerated share repurchase agreement of up to $150.0 million (minimum of $130.0 million) with JP Morgan Chase (“JP Morgan”), which is part of the Board of Directors authorized share repurchase program for up to $250.0 million approved in April 2014 and expiring in December 2015. Under the ASR program, ITC Holdings paid $150.0 million to JP Morgan and received an initial delivery of 2.9 million shares with a fair market value of $104.0 million based on the closing market price of $35.80 per share at the commencement of the ASR program. The final number of shares delivered under the ASR program will be based on the volume-weighted average share price of our common stock during the term of the transaction. The ASR program is expected to be completed by the end of 2014.

See further discussion in Note 6 and Note 8 to the condensed consolidated financial statements.

Cost-Based Formula Rates with True-Up Mechanism

Our Regulated Operating Subsidiaries calculate their revenue requirements using cost-based formula rate templates and are effective without the need to file rate cases with the FERC, although the rates are subject to legal challenge at the FERC. Under these formula rate templates, our Regulated Operating Subsidiaries recover expenses and earn a return on and recover

26

investments in property, plant and equipment on a current rather than a lagging basis. The formula rate templates utilize forecasted expenses, property, plant and equipment, point-to-point revenues, network load at our MISO Regulated Operating Subsidiaries and other items for the upcoming calendar year to establish projected revenue requirements for each of our Regulated Operating Subsidiaries that are used as the basis for billing for service on their systems from January 1 to December 31 of that year. Our cost-based formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue. The over- or under-collection typically results from differences between the projected revenue requirement used as the basis for billing and actual revenue requirement at each of our Regulated Operating Subsidiaries, or from differences between actual and projected monthly peak loads at our MISO Regulated Operating Subsidiaries. In the event billed revenues in a given year are more or less than actual revenue requirements, which are calculated primarily using information from that year’s FERC Form No. 1, our Regulated Operating Subsidiaries will refund or collect additional revenues, with interest, within a two-year period such that customers pay only the amounts that correspond to actual revenue requirements for that given period. This annual true-up ensures that our Regulated Operating Subsidiaries recover their allowed costs and earn their allowed returns.

Revenue Accruals and Deferrals — Effects of Monthly Peak Loads

For our MISO Regulated Operating Subsidiaries, monthly peak loads are used for billing network revenues, which currently is the largest component of our operating revenues. One of the primary factors that impacts the revenue accruals and deferrals at our MISO Regulated Operating Subsidiaries is actual monthly peak loads experienced as compared to those forecasted in establishing the annual network transmission rate. Under their cost-based formula rates that contain a true-up mechanism, our Regulated Operating Subsidiaries accrue or defer revenues to the extent that their actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. For example, to the extent that amounts billed are less than the revenue requirement for a reporting period, a revenue accrual is recorded for the difference. To the extent that amounts billed are more than the revenue requirement for a reporting period, a revenue deferral is recorded for the difference. Although monthly peak loads do not impact operating revenues recognized, network load affects the timing of our cash flows from transmission service. The monthly peak load of our MISO Regulated Operating Subsidiaries is affected by many variables, but is generally impacted by weather and economic conditions and is seasonally shaped with higher load in the summer months when cooling demand is higher.

The following table sets forth the monthly peak loads during the last three calendar years.

Monthly Peak Load (in MW) (a)

	2014			2013			2012
	ITCTransmission	METC	ITC Midwest	ITCTransmission	METC	ITC Midwest	ITCTransmission	METC	ITC Midwest
January	7,730	6,310	2,998	7,593	6,215	2,801	7,264	6,145	2,789
February	7,367	6,230	2,822	7,141	5,846	2,693	6,919	5,754	2,592
March	7,221	6,067	2,763	6,817	5,552	2,587	6,941	5,708	2,443
April	6,439	5,528	2,410	6,566	5,321	2,451	6,403	5,259	2,296
May	8,200	6,131	2,828	8,956	6,490	2,646	8,947	6,459	2,700
June	10,069	7,463	3,015	10,335	7,643	3,099	11,652	8,738	3,388
July				11,694	8,987	3,573	12,180	9,354	3,636
August				10,158	7,809	3,509	11,081	8,508	3,445
September				11,046	8,171	3,447	9,094	7,349	3,443
October				7,562	5,485	2,675	6,566	5,429	2,539
November				7,017	5,947	2,702	7,022	5,829	2,631
December				7,651	6,206	2,920	7,230	5,928	2,645
Total	47,026	37,729	16,836	102,536	79,672	35,103	101,299	80,460	34,547

____________________________

(a) Our MISO Regulated Operating Subsidiaries are each part of a joint rate zone. The load data presented is for all TOs in the respective joint rate zone and is used for billing network revenues. Each of our MISO Regulated Operating Subsidiaries makes up the most significant portion of the rates or revenue requirement billed to network load within their respective joint rate zone.

27

Capital Investment and Operating Results Trends

We expect a general trend of increases in revenues and earnings for our Regulated Operating Subsidiaries over the long term. The primary factor that is expected to continue to increase our actual revenue requirements in future years is our anticipated capital investment in excess of depreciation as a result of our Regulated Operating Subsidiaries’ long-term capital investment programs to improve reliability, increase system capacity and upgrade the transmission network to support new generating resources. In addition, our capital investment efforts relating to development initiatives are based on establishing an ongoing pipeline of projects that will position us for long-term growth. Investments in property, plant and equipment, when placed in service upon completion of a capital project, are added to the rate base of our Regulated Operating Subsidiaries.

Our Regulated Operating Subsidiaries strive for high reliability of their systems and to improve system accessibility for all generation resources. The FERC requires adoption of certain reliability standards and may take enforcement actions against violators, including fines of up to $1.0 million per day. The NERC was assigned the responsibility of developing and enforcing these mandatory reliability standards. We continually assess our transmission systems against standards established by the NERC, as well as the standards of applicable regional entities under the NERC that have been delegated certain authority for the purpose of proposing and enforcing reliability standards. We believe we meet the applicable standards in all material respects, although further investment in our transmission systems and an increase in maintenance activities will likely be needed to maintain compliance, improve reliability and address any new standards that may be promulgated.

We also assess our transmission systems against our own planning criteria that are filed annually with the FERC. Based on our planning studies, we see needs to make capital investments to (1) rebuild existing property, plant and equipment; (2) upgrade the system to address demographic changes that have impacted transmission load and the changing role that transmission plays in meeting the needs of the wholesale market, including accommodating the siting of new generation or to increase import capacity to meet changes in peak electrical demand; (3) relieve congestion in the transmission systems; and (4) achieve state and federal policy goals, such as renewable generation portfolio standards. The following table shows our expected and actual capital investment for each of the Regulated Operating Subsidiaries and our development initiatives:

			Actual Capital		Forecasted Capital
	Long-term Capital		Investment for the		Investment for the
(in millions)	Investment Program		six months ended		year ending
Source of Investment	2014-2018		June 30, 2014 (a)		December 31, 2014
ITCTransmission (b)	$	647	$	140.8	$250 — 285
METC	546		73.9		130 — 150
ITC Midwest (c)	1,991		119.6		255 — 290
ITC Great Plains	194		95.8		95 — 115
Development	1,122		—		—
Total	$	4,500	$	430.1	$730 — 840

____________________________

(a) Capital investment amounts differ from cash expenditures for property, plant and equipment included in our condensed consolidated statements of cash flows due in part to differences in construction costs incurred compared to cash paid during that period, as well as payments for major equipment inventory that are included in cash expenditures but not included in capital investment until transferred to construction work in progress, among other factors.

(b) ITCTransmission’s investment program includes the Thumb Loop Project that is under construction.

(c) ITC Midwest’s investment program includes the 2011 MISO MVPs as discussed above under “Capital Project Updates and Other Recent Developments”.

Investments in property, plant and equipment could vary due to, among other things, the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment prices and availability, our ability to obtain any necessary financing for such expenditures, limitations on the amount of construction that can be undertaken on our systems at any one time, regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery or other issues and variances between estimated and actual costs of construction contracts awarded. In addition, investments in transmission network upgrades for generator interconnection projects could change from prior estimates significantly due to changes in the MISO queue for generation projects, the generator’s potential failure to meet the various criteria of Attachment FF of the MISO tariff for the project to qualify as a refundable network upgrade, and other factors beyond our control.

28

RESULTS OF OPERATIONS

Results of Operations and Variances

	Three months ended									Percentage		Six months ended									Percentage
	June 30,						Increase			increase		June 30,						Increase			increase
(in thousands)	2014			2013			(decrease)			(decrease)		2014			2013			(decrease)			(decrease)
OPERATING REVENUES	$	263,214		$	229,817		$	33,397		14.5	%	$	521,817		$	447,121		$	74,696		16.7	%
OPERATING EXPENSES
Operation and maintenance	25,836			29,668			(3,832		)	(12.9	)%	50,697			54,181			(3,484		)	(6.4	)%
General and administrative	30,308			43,939			(13,631		)	(31.0	)%	58,270			78,865			(20,595		)	(26.1	)%
Depreciation and amortization	31,295			29,295			2,000			6.8	%	62,673			57,781			4,892			8.5	%
Taxes other than income taxes	17,076			16,094			982			6.1	%	38,269			32,764			5,505			16.8	%
Other operating (income) and expenses — net	(229		)	(173		)	(56		)	32.4	%	(461		)	(345		)	(116		)	33.6	%
Total operating expenses	104,286			118,823			(14,537		)	(12.2	)%	209,448			223,246			(13,798		)	(6.2	)%
OPERATING INCOME	158,928			110,994			47,934			43.2	%	312,369			223,875			88,494			39.5	%
OTHER EXPENSES (INCOME)
Interest expense	45,854			40,402			5,452			13.5	%	91,163			79,465			11,698			14.7	%
Allowance for equity funds used during construction	(4,932		)	(8,292		)	3,360			(40.5	)%	(9,944		)	(17,025		)	7,081			(41.6	)%
Loss on extinguishment of debt	29,074			—			29,074			n/a		29,074			—			29,074			n/a
Other income	(236		)	(286		)	50			(17.5	)%	(397		)	(495		)	98			(19.8	)%
Other expense	1,625			2,671			(1,046		)	(39.2	)%	2,958			3,681			(723		)	(19.6	)%
Total other expenses (income)	71,385			34,495			36,890			106.9	%	112,854			65,626			47,228			72.0	%
INCOME BEFORE INCOME TAXES	87,543			76,499			11,044			14.4	%	199,515			158,249			41,266			26.1	%
INCOME TAX PROVISION	33,207			29,104			4,103			14.1	%	76,043			60,664			15,379			25.4	%
NET INCOME	$	54,336		$	47,395		$	6,941		14.6	%	$	123,472		$	97,585		$	25,887		26.5	%

Operating Revenues

Three months ended June 30, 2014 compared to three months ended June 30, 2013

The following table sets forth the components of and changes in operating revenues:

												Percentage
	2014				2013				Increase			increase
(in thousands)	Amount		Percentage		Amount		Percentage		(decrease)			(decrease)
Network revenues	$	186,300	70.8	%	$	177,880	77.4	%	$	8,420		4.7	%
Regional cost sharing revenues	63,934		24.3	%	40,325		17.5	%	23,609			58.5	%
Point-to-point	3,952		1.5	%	4,055		1.8	%	(103		)	(2.5	)%
Scheduling, control and dispatch	3,231		1.2	%	3,133		1.4	%	98			3.1	%
Other	5,797		2.2	%	4,424		1.9	%	1,373			31.0	%
Total	$	263,214	100.0	%	$	229,817	100.0	%	$	33,397		14.5	%

Network revenues increased due primarily to higher net revenue requirements at our Regulated Operating Subsidiaries during the three months ended June 30, 2014 as compared to the same period in 2013. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and equipment in-service.

Regional cost sharing revenues increased due primarily to additional capital projects that have been identified by MISO as eligible for regional cost sharing and these projects being placed in-service. We expect to continue to receive regional cost sharing revenues and the amounts could increase in the near future, including revenues associated with projects that have been or are expected to be approved for regional cost sharing.

29

Six months ended June 30, 2014 compared to six months ended June 30, 2013

The following table sets forth the components of and changes in operating revenues:

											Percentage
	2014				2013				Increase		increase
(in thousands)	Amount		Percentage		Amount		Percentage		(decrease)		(decrease)
Network revenues	$	375,076	71.9	%	$	349,165	78.1	%	$	25,911	7.4	%
Regional cost sharing revenues	123,253		23.6	%	77,794		17.4	%	45,459		58.4	%
Point-to-point	9,637		1.8	%	8,424		1.9	%	1,213		14.4	%
Scheduling, control and dispatch	6,393		1.2	%	6,122		1.4	%	271		4.4	%
Other	7,458		1.5	%	5,616		1.2	%	1,842		32.8	%
Total	$	521,817	100.0	%	$	447,121	100.0	%	$	74,696	16.7	%

Network revenues increased due primarily to higher net revenue requirements at our Regulated Operating Subsidiaries during the six months ended June 30, 2014 as compared to the same period in 2013. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and equipment in-service.

Regional cost sharing revenues increased due primarily to additional capital projects that have been identified by MISO as eligible for regional cost sharing and these projects being placed in-service.

Operating revenues for the six months ended June 30, 2014 include the network, regional cost sharing and scheduling, control and dispatch revenue accruals and deferrals as calculated below:

							ITC			ITC Great			Total net revenue
Line	Item	ITCTransmission		METC			Midwest			Plains			deferral
	(in thousands)
1	Estimated net revenue requirement (network revenues recognized) (a)	$	119,079	$	99,978		$	153,240		$	2,779
2	Network revenues billed (b)	118,391		103,879			149,958			2,959
3	Network revenue accruals (deferrals) (line 1 — line 2)	688		(3,901		)	3,282			(180		)
4	Regional cost sharing revenue accruals (deferrals) (c)	1,750		(4,134		)	(125		)	(2,602		)
5	Scheduling, control and dispatch revenue accruals (deferrals) (c)	229		(7		)	(348		)	—
6	Total net revenue accrual (deferral) (line 3 + line 4)	$	2,667	$	(8,042	)	$	2,809		$	(2,782	)	$	(5,348	)

____________________________

(a) The calculation of net revenue requirement for our Regulated Operating Subsidiaries is described in our Form 10-K for the year ended December 31, 2013 under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cost-Based Formula Rates with True-Up Mechanism — Revenue Requirement Calculation.” The amount is estimated for each reporting period until such time as FERC Form No. 1’s are completed for our Regulated Operating Subsidiaries.

(b) Network revenues billed at our MISO Regulated Operating Subsidiaries are calculated based on the joint zone monthly network peak load multiplied by their effective monthly network rates for 2014 of $2.305 per kW/month, $2.781 per kW/month and $8.795 per kW/month applicable to ITCTransmission, METC and ITC Midwest, respectively, adjusted for the actual number of days in the month less amounts recovered or refunded associated with our MISO Regulated Operating Subsidiaries 2012 true-up adjustments. The rates for 2014 include amounts for the collection and refund of the 2012 revenue accruals and deferrals and related accrued interest as well as the FERC audit refund and related interest, as discussed in Note 11 to the condensed consolidated financial statements under “FERC Audit Refund.” The revenues billed in 2014 associated with the 2012 revenue accruals, deferrals and the amounts associated with the FERC audit refund are not included in the revenues billed. Our rates at ITC Great Plains are billed ratably each month based on its annual projected net revenue requirement of $58.1 million for 2014 and include amounts for the collection and refund of the 2012 revenue accruals and deferrals and related accrued interest.

(c) These revenues are subject to a separate true-up mechanism whereby our Regulated Operating Subsidiaries accrue or defer revenues for any over- or under-recovery. The revenue accruals and deferrals and related accrued interest are included in these revenue amounts.

30

Operating Expenses

Operation and maintenance expenses

Three and six months ended June 30, 2014 compared to three and six months ended June 30, 2013

Operation and maintenance expenses decreased primarily due to lower vegetation management requirements and a decrease in substation maintenance activities.

General and administrative expenses

Three months ended June 30, 2014 compared to three months ended June 30, 2013

General and administrative expenses decreased $18.7 million due to legal, advisory and financial services fees incurred in the prior period relating to the terminated Entergy Transaction. The decrease was partially offset by higher professional services such as legal, advisory and financial services fees of $2.8 million unrelated to the Entergy Transaction in addition to $1.1 million of higher compensation expenses primarily due to personnel additions.

Six months ended June 30, 2014 compared to six months ended June 30, 2013

General and administrative expenses decreased $27.4 million due to legal, advisory and financial services fees incurred in the prior period relating to the terminated Entergy Transaction. The decrease was partially offset by higher professional services such as legal, advisory and financial services fees of $3.7 million unrelated to the Entergy Transaction in addition to $1.9 million of higher compensation expenses primarily due to personnel additions.

Depreciation and amortization expenses

Three and six months ended June 30, 2014compared to three and six months ended June 30, 2013

Depreciation and amortization expenses increased due primarily to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes

Three and six months ended June 30, 2014compared to three and six months ended June 30, 2013

Taxes other than income taxes increased due to higher property tax expenses due primarily to our Regulated Operating Subsidiaries’ 2013 capital additions, which are included in the assessments for 2014 personal property taxes.

Other Expenses (Income)

Three and six months ended June 30, 2014compared to three and six months ended June 30, 2013

Interest Expense

Interest expense increased primarily due to interest associated with the long-term debt issuances at ITC Holdings and the Regulated Operating Subsidiaries which were used for refinancing of current debt maturities and general corporate purposes as described in Note 5 to the condensed consolidated financial statements.

Allowance for Equity Funds Used During Construction

Allowance for Equity Funds Used During Construction (“AFUDC equity”) decreased due primarily to lower balances of construction work in progress during the period.

Loss on Extinguishment of Debt

The loss on extinguishment of debt related to the tender of $115.6 million of the 5.875% ITC Holdings Senior Notes and $54.7 million of the 6.375% ITC Holdings Senior Notes as described in Note 5 to the condensed consolidated financial statements.

31

Income Tax Provision

Three months ended June 30, 2014 compared to three months ended June 30, 2013

Our effective tax rates for the three months ended June 30, 2014 and 2013 were 37.9% and 38.0%, respectively. Our effective tax rate in both periods exceeded our 35% statutory federal income tax rate due primarily to state income taxes, partially offset by the tax effects of AFUDC equity which reduced the effective tax rate. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision. We recorded a state income tax provision of $3.4 million (net of federal deductibility) during the three months ended June 30, 2014, compared to a state income tax provision of $2.5 million (net of federal deductibility) for the three months ended June 30, 2013.

Six months ended June 30, 2014 compared to six months ended June 30, 2013

Our effective tax rates for the six months ended June 30, 2014 and 2013 were 38.1% and 38.3%, respectively. Our effective tax rate in both periods exceeded our 35% statutory federal income tax rate due primarily to state income taxes, partially offset by the tax effects of AFUDC equity which reduced the effective tax rate. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision. We recorded a state income tax provision of $7.9 million (net of federal deductibility) during the six months ended June 30, 2014, compared to a state income tax provision of $5.4 million (net of federal deductibility) for the six months ended June 30, 2013.

In addition to the items noted above, our effective tax rate exceeded our 35% statutory federal income tax rate for the six months ended June 30, 2014 due to the previously assumed non-deductibility of certain costs incurred to facilitate the now canceled Entergy Transaction.

LIQUIDITY AND CAPITAL RESOURCES

We expect to fund our future capital requirements with cash from operations, our existing cash and cash equivalents and amounts available under our revolving credit agreements (described in Note 5 to the condensed consolidated financial statements). In addition, we may from time to time secure debt and equity funding in the capital markets, although we can provide no assurance that we will be able to obtain financing on favorable terms or at all. As market conditions warrant, we may also from time to time repurchase debt or equity securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. We expect that our capital requirements will arise principally from our need to:

• Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard to property, plant and equipment investments are described in detail above under “— Capital Investment and Operating Results Trends.”

• Fund business development expenses and related capital expenditures. We are pursuing development activities for transmission projects which will continue to result in the incurrence of development expenses and could result in significant capital expenditures.

• Fund working capital requirements.

• Fund our debt service requirements, including principal repayments and periodic interest payments. We expect our interest payments to increase each year as a result of additional debt we expect to incur to fund our capital expenditures and for general corporate purposes.

• Fund contributions to our retirement plans, as described in Note 9 to the condensed consolidated financial statements. We expect to make an estimated additional contribution of approximately $5.0 million to these plans in 2014. The impact of the growth in the number of participants in our retirement benefit plans 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.

• Fund our authorized share repurchase program as described in Note 6 to the condensed consolidated financial statements.

In addition to the expected capital requirements above, any adverse determinations relating to the contingencies described in Note 11 to the condensed consolidated financial statements would result in additional capital requirements.

We believe that we have sufficient capital resources to meet our currently anticipated short-term needs. We rely on both internal and external sources of liquidity to provide working capital and to fund capital investments. ITC Holdings’ sources of cash are dividends and other payments received by us from our Regulated Operating Subsidiaries and any other subsidiaries

32

we may have in addition to the proceeds raised from the sale of our debt and equity securities. Each of our Regulated Operating Subsidiaries, however, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us. We expect to continue to utilize our revolving and term loan credit agreements and our cash and cash equivalents as needed to meet our short-term cash requirements. As described in Note 5 to the condensed consolidated financial statements, we entered into new revolving credit agreements in March 2014 at ITC Holdings and its Regulated Operating Subsidiaries totaling $1.0 billion, an increase of $275.0 million from the prior revolving credit agreements. As of June 30, 2014, we had consolidated indebtedness under our revolving and term loan credit agreements of $601.0 million, with unused capacity under the revolving credit agreements of $710.0 million. See Note 5 to the condensed consolidated financial statements for a detailed discussion of these agreements. During the three months ended June 30, 2014, we completed financings as described below.

On May 28, 2014, ITC Holdings issued $400.0 million aggregate principal amount of its 3.65% Senior Notes, due June 15, 2024. The proceeds from the issuance were used to repay the senior notes validly tendered in the tender offer described in Note 5 to the condensed consolidated financial statements and for general corporate purposes, primarily the repayment of borrowings under the ITC Holdings revolving credit agreement.

On June 10, 2014, ITCTransmission issued $75.0 million of 4.27% First Mortgage Bonds, Series F, due June 10, 2044 and agreed to issue an additional $25.0 million of First Mortgage Bonds, Series F on August 22, 2014. The proceeds from the June issuance were used for general corporate purposes, primarily the repayment of borrowings under the ITCTransmission revolving credit agreement. See Note 5 to the condensed consolidated financial statements for further discussion.

As of June 30, 2014, we had approximately $250.0 million of debt maturing within one year, which may be refinanced with long-term debt. To address our long-term capital requirements, we expect that we will need to obtain additional debt financing. Certain of our capital projects could be delayed in the event we experience difficulties in accessing capital. We expect to be able to obtain such additional financing for both our short and long-term requirements as needed, in amounts and upon terms that will be reasonably satisfactory to us due to our strong credit ratings and our historical ability to obtain financing.

Credit Ratings

Credit ratings by nationally recognized statistical rating agencies are an important component of our liquidity profile. Credit ratings relate to our ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. Our current credit ratings are displayed in the following table. An explanation of these ratings may be obtained from the respective rating agency.

Issuer	Issuance	Standard and Poor’s Ratings Services (a)	Moody’s Investor Service, Inc. (b)
ITC Holdings	Senior Unsecured Notes	BBB+	Baa2
ITCTransmission	First Mortgage Bonds	A	A1
METC	Senior Secured Notes	A	A1
ITC Midwest	First Mortgage Bonds	A	A1
ITC Great Plains	Unsecured Credit Facility	A-	Baa1

____________________________

(a) On December 6, 2013, Standard and Poor’s Ratings Services upgraded the senior unsecured credit ratings of ITC Holdings and ITC Great Plains and reaffirmed the secured credit ratings of ITCTransmission, METC and ITC Midwest. All of the ratings have a stable outlook.

(b) On April 15, 2014, Moody’s Investor Service, Inc. reaffirmed the credit ratings for ITC Holdings and the operating subsidiaries. All of the ratings have a stable outlook with the exception of ITC Great Plains which was updated to a positive outlook on May 5, 2014.

Covenants

Our debt instruments include senior notes, secured notes, first mortgage bonds, unsecured revolving and term loan credit agreements containing numerous financial and operating covenants that place significant restrictions, which are described in Note 5 to the condensed consolidated financial statements and in our Form 10-K for the fiscal year ended December 31, 2013. As of June 30, 2014, we were in compliance with all debt covenants. In the event of a downgrade in our credit ratings, none of the covenants would be directly impacted, although the borrowing costs under our revolving credit agreements would increase.

33

Cash Flows From Operating Activities

Net cash provided by operating activities was $196.0 million and $184.8 million for the six months ended June 30, 2014 and 2013, respectively. The increase in cash provided by operating activities was due primarily to an increase in cash received from operating revenues of $77.2 million during the six months ended June 30, 2014 compared to the same period in 2013. The increase was partially offset by higher interest payments (net of interest capitalized) of $27.6 million, an increase in payments for operating expenses of $17.8 million and higher income taxes paid of $13.8 million.

Cash Flows From Investing Activities

Net cash used in investing activities was $375.4 million and $426.1 million for the six months ended June 30, 2014 and 2013, respectively. The decrease in cash used in investing activities was due primarily to the timing of payments for investments in property, plant and equipment during the six months ended June 30, 2014 compared to the same period in 2013.

Cash Flows From Financing Activities

Net cash provided by financing activities was $154.2 million and $279.0 million for the six months ended June 30, 2014 and 2013, respectively. The decrease in cash provided by financing activities was due primarily to the payments of $198.5 million to retire long-term debt at ITC Holdings, the net decrease of $131.7 million in amounts outstanding under our revolving and term loan credit agreements and the payment of $150.0 million for the accelerated share repurchase program during the six months ended June 30, 2014 compared to the same period in 2013. These decreases were partially offset by an increase in proceeds from long-term debt issuances of $373.7 million. See Note 5 to the condensed consolidated financial statements for detail on the issuances and retirements of long-term debt.

CONTRACTUAL OBLIGATIONS

Our contractual obligations are described in our Form 10-K for the year ended December 31, 2013. There have been no material changes to that information since December 31, 2013, other than the items listed below and described in Note 5 to the condensed consolidated financial statements:

• Amounts borrowed under our new unsecured, unguaranteed revolving credit agreements, which replaced the previous unsecured, unguaranteed revolving credit agreements;

• Additional amounts borrowed under the ITC Holdings unsecured, unguaranteed term loan credit agreement, which were primarily used to repay outstanding revolving credit borrowings;

• The $50.0 million borrowed under the METC unsecured, unguaranteed term loan credit agreement entered into in January 2014, due February 2015, which was primarily used to repay outstanding revolving credit borrowings;

• The issuance of $400.0 million aggregate principal amount of ITC Holdings 3.65% Senior Notes, due June 2024, in May 2014, which was primarily used for the cash tender offer (described in Note 5 to the condensed consolidated financial statements) and to repay outstanding revolving credit borrowings;

• The issuance of $75.0 million aggregate principal amount of ITCTransmission 4.27% First Mortgage Bonds, Series F, due 2044, in June 2014, which was primarily used to repay outstanding revolving credit borrowings; and

• The $115.6 million of the 5.875% ITC Holdings Senior Notes and $54.7 million of the 6.375% ITC Holdings Senior Notes validly tendered on May 30, 2014 which were subsequently retired.

CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the condensed consolidated financial statements and disclosures based on varying assumptions, as future events rarely develop exactly as forecasted, and even the best estimates routinely require adjustment. The accounting policies discussed in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Form 10-K for the fiscal year ended December 31, 2013 are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of

34

our financial condition and results of operations or because their application places the most significant demands on management’s judgment and estimates about the effect of matters that are inherently uncertain. There have been no material changes to that information during the six months ended June 30, 2014.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Fixed Rate Debt

Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,709.7 million at June 30, 2014. The total book value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,404.5 million at June 30, 2014. We performed an analysis calculating the impact of changes in interest rates on the fair value of long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, at June 30, 2014. An increase in interest rates of 10% (from 5.0% to 5.5%, for example) at June 30, 2014 would decrease the fair value of debt by $132.6 million, and a decrease in interest rates of 10% at June 30, 2014 would increase the fair value of debt by $143.5 million at that date.

Revolving and Term Loan Credit Agreements

At June 30, 2014, we had a consolidated total of $601.0 million outstanding under our revolving and term loan credit agreements, which are variable rate loans and fair value approximates book value. A 10% increase or decrease in borrowing rates under the revolving and term loan credit agreements compared to the weighted average rates in effect at June 30, 2014 would increase or decrease the total interest expense by $0.7 million, respectively, for an annual period on a constant borrowing level of $601.0 million.

Other

As described in our Form 10-K for the fiscal year ended December 31, 2013, we are subject to commodity price risk from market price fluctuations, and to credit risk primarily with DTE Electric, Consumers Energy and IP&L, our primary customers. There have been no material changes in these risks during the six months ended June 30, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

For information regarding risk factors affecting us, see “Item 1A Risk Factors” of our Form 10-K for the fiscal year ended December 31, 2013. There have been no material changes to the risk factors set forth therein.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth the repurchases of common stock for the quarter ended June 30, 2014:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (a)
April 2014 (b)	18,520	$	36.75	—	$	250.0
May 2014 (b)	77,366	36.76		—	250.0
June 2014 (c)	2,908,164	35.80		2,905,028	146.0
Total	3,004,050	$	35.83	2,905,028

____________________________

(a) In April 2014, our board of directors authorized a share repurchase program for up to $250.0 million of common stock, which expires in December 2015. Pursuant to such authorization, on June 20, 2014, ITC Holdings entered into an accelerated share repurchase agreement with JP Morgan (“ASR program”) of up to $150.0 million (minimum of $130.0 million), under which ITC Holdings was delivered a specified number of shares based on the closing market price of $35.80 per share at the commencement of the ASR program. The final number of shares delivered under the ASR program will be based on the volume-weighted average share price of our common stock during the term of the transaction. On June 19, 2014 ITC Holdings paid $150.0 million to JP Morgan and received an initial delivery of 2,905,028 shares with a fair market value of $104.0 million.

(b) Shares acquired were delivered to us by employees as payment of tax withholding obligations due to us upon the vesting of restricted stock.

(c) Shares acquired were delivered to us by employees as payment of tax withholding obligations due to us upon the vesting of restricted stock in addition to shares delivered under the ASR program in which ITC Holdings received an initial delivery of 2,905,028 shares. See Note 6 to the condensed consolidated financial statements for detailed discussion on the ASR program.

36

ITEM 5. OTHER INFORMATION

On April 4, 2014 the Board of Directors approved an amendment to ITC Holdings’ Employee Stock Purchase Plan (“ESPP”), adding 125,000 shares to the total shares available for issuance under the ESPP. Adoption of the amendment was contingent on approval from ITC Holdings shareholders. On May 21, 2014, the amendment was approved by ITC Holdings’ shareholders. A copy of the ESPP, as amended, is attached to this Form 10-Q as an exhibit.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report (unless otherwise noted to be previously filed, and therefore incorporated herein by reference). Our SEC file number is 001-32576.

Exhibit No.	Description of Document
4.36	Fifth Supplemental Indenture, dated May 16, 2014, between ITC Holdings Corp. and The Bank of New York Mellon Trust Company, N.A. (f.k.a. The Bank of New York Trust Company, N.A., as successor to BNY Midwest Trust Company), as Trustee (filed with Registrant’s Form 8-K on May 16, 2014).
4.37	ITC Holdings Corp. Employee Stock Purchase Plan, as amended May 21, 2014.
4.38	Second Supplemental Indenture, dated as of June 4, 2014 between ITC Holdings Corp. and Wells Fargo Bank, National Association, as trustee (filed with Registrant’s Form 8-K on June 4, 2014).
4.39	Sixth Supplemental Indenture, dated as of May 23, 2014, between International Transmission Company and The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company), as trustee (filed with Registrant’s Form 8-K on June 10, 2014).
10.132	Amended and Restated Generator Interconnection Agreement entered into by and among Midcontinent Independent System Operator, Inc., Michigan Electric Transmission Company, LLC and Consumers Energy Company, effective May 2, 2014
10.133	Form of Notice and Amendment to Stock Option Agreement for Executive Officers under Amended and Restated 2003 Stock Purchase and Option Plan, as amended (May 2014)
10.134	Form of Notice and Amendment to Stock Option Agreement for Executive Officers under Second Amended and Restated 2006 LTIP (May 2014)
10.135	Form of Stock Option Agreement for Executive Officers under Second Amended and Restated 2006 LTIP (May 2014)
10.136	Form of Stock Award Agreement for Executive Officers under Second Amended and Restated 2006 LTIP (May 2014)
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 2002
31.2	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 2002
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Database
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 6, 2014

ITC HOLDINGS CORP.
By:	/s/ Joseph L. Welch
	Joseph L. Welch
	President and Chief Executive Officer (duly authorized officer)
By:	/s/ Rejji P. Hayes
	Rejji P. Hayes
	Vice President, Treasurer and Interim Chief Financial Officer (principal financial officer)

38

EX-4.37

EXHIBIT 4.37

ITC HOLDINGS CORP.

EMPLOYEE STOCK PURCHASE PLAN

(Effective May 21, 2014)

Table of Contents

Page

I.GENERAL PROVISIONS1

1.1Establishment1

1.2Purpose1

1.3Plan Duration1

1.4Definitions1

1.5Stock.3

1.6Administration3

1.7Participants4

II.OFFER TERMS4

2.1Offer and Purchase Period.4

2.2Option Price4

2.3Participation5

2.4Participation Limitations.6

2.5Termination of Employment6

2.6Restrictions on Transfer6

III.MISCELLANEOUS6

3.1Non‑Assignability6

3.2Adjustments6

3.3Change in Control.7

3.4Termination and Amendment8

3.5Rights Prior to Issuance of Shares8

3.6Securities Laws.8

3.7Delivery of Plan8

3.8Effect on Employment8

3.9Certificates9

3.10Use of Proceeds9

3.11Approval of Plan9

3.12Governing Law.9

1

ITC HOLDINGS CORP.

EMPLOYEE STOCK PURCHASE PLAN

I.    GENERAL PROVISIONS

1.1    Establishment. On February 8, 2006, the Board of Directors (“Board”) of ITC Holdings Corp. (“Corporation”) adopted the ITC Holdings Corp. Employee Stock Purchase Plan (“Plan”), subject to approval by the shareholders of the Corporation on May 17, 2006. The Board approved the Amended and Restated Plan on April 6, 2011, subject to approval of shareholders at the Corporation’s annual meeting of shareholders on May 26, 2011. The Board approved the second Amended and Restated Plan on April 4, 2014, subject to approval of the shareholders at the Corporation’s annual meeting of shareholders on May 21, 2014.

1.2    Purpose. The purpose of the Plan is (i) to promote the best interests of the Corporation and its shareholders by encouraging Employees of the Corporation and any Subsidiaries to acquire an ownership interest in the Corporation through the purchase of stock in the Corporation, thus aligning their interests with those of shareholders, and (ii) to enhance the ability of the Corporation and its Subsidiaries to attract, motivate and retain qualified Employees. The Plan is intended to constitute an “employee stock purchase plan” under Section 423 of the Code.

1.3    Plan Duration. Upon receipt of shareholders approval, the Plan shall commence on May 17, 2006 and subject to earlier termination by the Board in accordance with Section 3.4, no new Offers may be made under the Plan after February 7, 2016.

1.4    Definitions. As used in this Plan, the following terms have the meaning described below:

(a)“Board” means the Board of Directors of the Corporation.

(b)“Code” means the Internal Revenue Code of 1986, as amended from time to time.

(c)“Change in Control” means the occurrence of any of the following events:

(i)If any one person, or more than one person acting as a group (as defined in Code Section 409A and IRS guidance issued thereunder), acquires ownership of Common Stock of the Corporation that, together with stock held by such person or group, constitutes more than fifty (50) percent of the total fair market value or total voting power of the Common Stock of the Corporation. However, if any one person or more than one person acting as a group, is considered to own more than fifty (50) percent of the total fair market value or total voting power of the Common Stock of the Corporation, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Control, or to cause a change in the effective control of the Corporation (within the meaning of Code Section 409A and IRS guidance issued thereunder). An increase in the percentage of Common Stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Corporation acquires its stock in exchange for property shall be treated as an acquisition of stock for purposes of this Section. This paragraph applies only when there is a transfer of stock of the Corporation (or issuance of stock of the Corporation) and stock in such Corporation remains outstanding after the transaction.

(ii)If any one person, or more than one person acting as a group (as determined in accordance with Code Section 409A and IRS guidance thereunder), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of Common Stock of the Corporation possessing thirty-five (35) percent or more of the total voting power of the Common Stock of the Corporation; or

(iii)If a majority of members on the Corporation’s Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Corporation’s Board prior to the date of the appointment or election (provided that for purposes of this paragraph, the term Corporation refers solely to the “relevant” Corporation, as defined in Code Section 409A and IRS guidance issued thereunder), for which no other Corporation is a majority shareholder.

(iv)If there is a change in the ownership of a substantial portion of the Corporation’s assets, which shall occur on the date that any one person, or more than one person acting as a group (within the meaning of Code Section 409A and IRS guidance issued thereunder) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Corporation that have a total gross fair market value equal to or more than forty (40) percent of the total gross fair market value of all of the assets of the Corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(d)“Committee” means the Compensation Committee of the Board.

(e)“Common Stock” means shares of the Corporation’s Common Stock, as described in Section 1.5, below.

(f)“Corporation” means ITC Holdings Corp. and, for purposes of this Plan, employment with the Corporation shall be deemed to include employment with any Subsidiary of the Corporation.

(g)“Election Period” means the period of time designated by the Committee when an eligible Employee may elect to participate in one or more Purchase Periods.

(h)“Employee” means an individual who has an “employment relationship” with the Corporation or a Subsidiary, as defined in Treasury Regulation 1.421‑7(h), and the term “employment” means employment with the Corporation or a Subsidiary, as applicable.

(i)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time and any successor rule.

(j)“Fair Market Value” means the value of Common Stock as determined in accordance with Section 2.2.

(k)“Offer” means the Committee’s designation of a Purchase Period available to eligible Employees and the terms on which an option may be exercised during the applicable Purchase Period.

(l)“Option Price” means the price, determined by the Committee, at which Common Stock subject to an option may be purchased during a Purchase Period.

(m)“Plan” means the ITC Holdings Corp. Employee Stock Purchase Plan, the terms of which are set forth herein, and any amendments thereto.

(n)“Purchase Period” means a period established by the Committee during which an eligible Employee may exercise options granted hereunder.

(o)“Stock Exchange” means the principal national securities exchange on which the Common Stock is listed for trading, or, if the Common Stock is not listed for trading on a national securities

exchange, such other recognized trading market or quotation system upon which the largest number of shares of Common Stock has been traded in the aggregate during the last 20 days before the first or last day of a Purchase Period, as applicable.

(p)“Subsidiary” means any subsidiary of the Corporation, as defined in Code Section 424(f).

1.5    Stock. The stock subject to option and purchase under the Plan shall be the Common Stock of the Corporation, and may be either authorized and unissued shares or shares that have been reacquired by the Corporation. The total amount of Common Stock on which options may be granted under the Plan shall not exceed six hundred sixty-five thousand (665,000) shares, subject to adjustment in accordance with Section 3.2. Shares of Common Stock subject to any unexercised portion of a terminated, canceled or expired option granted under the Plan may again be used for options under the Plan.

1.6    Administration. The Plan shall be administered by the Committee. The Committee may prescribe rules and regulations from time to time for the administration of the Plan and may decide questions which may arise with respect to its interpretation or application. The decisions of the Committee in interpreting the Plan shall be final, conclusive and binding on all persons, including the Corporation, its Subsidiaries, Employees, and optionees. The Committee, from time to time, shall grant to eligible Employees on a uniform basis, options to purchase Common Stock pursuant to the terms and conditions of the Plan. In the event of insufficient shares during a Purchase Period, the Committee shall allocate the right to purchase shares to each participant in the same proportion that such participant’s total current base salary paid by the Corporation for the Purchase Period bears to the total of such base salaries paid by the Corporation to all participants during the same period. All excess funds withheld, as a result of insufficient shares, shall be returned to the participating Employees.

1.7    Participants. Except as provided in Section 2.4 below, any Employee who has (a) completed six (6) full months of service with the Corporation, and (b) whose customary employment is more than twenty (20) hours per week and five (5) or more months per calendar year at the time of an Offer, is eligible to participate in such Offer under the Plan, in accordance with the terms of the Plan. An Employee who meets the eligibility requirements in this Section 1.7 shall be entitled to participate in the first Offer commencing after the eligibility requirements have been satisfied.

II.    OFFER TERMS

2.1    Offer and Purchase Period.

(a)The Committee shall determine the date or dates upon which one or more Offers shall be made under the Plan. The Purchase Period pursuant to each Offer shall be three (3) months, or such other term as the Committee shall determine prior to the commencement of an Offer, but which in no event shall exceed twenty-seven (27) months.

(b)To participate in an Offer, an eligible Employee must submit such enrollment forms as shall be prescribed by the Committee (which shall include a payroll deduction authorization form) at such time and in such manner as shall be prescribed by the Committee. The payroll deductions authorized by a participant on a payroll deduction authorization form shall be expressed (i) as a whole number percentage of the participant’s “base compensation” for each pay period during the Purchase Period, or (ii) as a specified dollar amount to be withheld from a participant’s base compensation or bonus on one or more designated payroll dates. For purposes of the Plan, a participant’s “base compensation” for a pay period shall include the participant’s base compensation but shall exclude commissions, bonuses, overtime, disability pay, severance pay, moving expenses, expense reimbursements and allowances and other special payments and

supplemental compensation. A participant may not purchase more than six hundred ninety six (696) shares of Common Stock in any three (3) month Purchase Period (proportionately adjusted upward for Purchase Periods of more than three (3) months).

2.2    Option Price.

(a)The Option Price at which shares of Common Stock may be purchased under the Plan shall be determined by the Committee at the time of the Offer but in no event shall such amount be less than the lesser of:

(i) 85% of the Fair Market Value of a share of Common Stock on the date of grant of the option (first day of a Purchase Period), or

(ii) 85% of the Fair Market Value of a share of Common Stock on the date the option is deemed exercised pursuant to Section 2.4(d) (last day of a Purchase Period).

(b)For purposes of this Plan, the Fair Market Value per share shall be deemed to be the closing price of Common Stock on the Stock Exchange for the first and last days of the Purchase Period. In the event that there are no Common Stock transactions on either date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Common Stock transactions.

2.3    Participation.

(a)An eligible Employee may elect to participate in an Offer by delivering to the Corporation an election to participate and a payroll deduction form within the Election Period designated by the Committee prior to the commencement of a Purchase Period. An eligible Employee’s election to participate and payroll deduction form from the preceding Election Period automatically shall carry over to the next Election Period unless affirmatively revoked in writing by the Employee. An Employee who elects to participate may not authorize payroll deductions which, in the aggregate, are more than ten percent (10%) of the Employee’s pre-tax base salary (not including overtime and bonus payments). Only whole shares of Common Stock may be purchased under the Plan.

(b)All Employees granted options under the Plan shall have the same rights and privileges under the Plan, except that the number of shares each participant may purchase shall depend upon his or her base compensation and the designated payroll deduction he or she authorizes.

(c)Payroll deductions shall commence on the first payroll date in the Purchase Period and shall continue until the last payroll date in the Purchase Period. An Employee may suspend payroll deductions during a Purchase Period only at the discretion of the Corporation in the event of an unforeseen hardship; provided, however, that payroll deductions made prior to approval of the suspension by the Corporation shall still be used to purchase Common Stock for the Employee at the end of the Purchase Period.

(d)A participating Employee’s option shall be deemed to have been exercised on the last business day of the Purchase Period.

(e)As soon as practicable after the end of the Purchase Period, the Corporation shall deliver to each Employee, certificates evidencing the shares of Common Stock that an Employee has purchased (or a book entry representing such shares shall be made and the shares deposited with the appropriate registered book-entry custodian). Any amount that has been deducted representing a fractional share shall be applied toward the purchase of option shares in the next Purchase Period. An Employee who does not

elect to participate in the following Purchase Period shall receive a check from the Corporation for any amount that has been deducted and represents a fractional share. Any payroll deductions that exceed the limits set forth in Sections 2.1(b) and 2.4 shall be returned to the participant in the amount of the excess.

(f)The Corporation retains the right to designate an exclusive broker to handle the Common Stock transactions under the Plan. As soon as practicable after the end of the Purchase Period, the Corporation shall deliver to each Employee or a designated brokerage account, through a certificate or electronic transfer, the shares of Common Stock that such Employee has purchased. Unless otherwise determined by the Committee, any amount that has been deducted and withheld in excess of the option price automatically shall be paid by check to the participating Employee promptly following the end of the Purchase Period in which withheld.

(g)Unless otherwise determined by the Committee, no interest shall accrue or be paid on any amounts paid by payroll deduction by any participating Employee.

2.4    Participation Limitations. Notwithstanding any other provision of the Plan, no Employee shall be eligible to participate in an Offer under the Plan if:

(a)the Employee, immediately after such grant, would, in the aggregate, own and/or hold shares of Common Stock (including all shares which may be purchased under outstanding options, whether or not such options qualify for the special tax treatment afforded by Section 421(a) of the Code) equal to or exceeding five percent (5%) or more of the total combined voting power or value of all classes of capital stock of the Corporation or of its Subsidiaries; for purposes of this limitation, the rules of section 424(d) of the Code and the regulations promulgated thereunder (relating to attribution of stock ownership) shall apply; or

(b)such grant would permit, under the rules set forth in Section 423 of the Code and the regulations promulgated thereunder, the Employee’s right to purchase stock under this Plan and all other Code Section 423 employee stock purchase plans maintained by the Corporation and its Subsidiaries to accrue at a rate in excess of $25,000 in Fair Market Value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

2.5    Termination of Employment. If a participating Employee ceases to be employed by the Corporation or a Subsidiary for any reason, including but not limited to, voluntary or forced resignation, retirement, death, disability or lay-off, the Corporation, within a reasonable time after notice of the termination, shall issue a check to the former Employee (or executor, administrator or legal representative, if applicable) in the aggregate amount of the Employee’s payroll deductions that had not been applied towards the purchase of option shares as of the date of termination.

2.6    Restrictions on Transfer. Unless otherwise permitted by the Committee, no shares of Common Stock purchased under the Plan shall be sold, exchanged, transferred, pledged, assigned or otherwise disposed of for six (6) months following the close of the Purchase Period in which acquired.

III.    MISCELLANEOUS

3.1    Non‑Assignability. No option shall be transferable by a participating Employee, and an option may be exercised during a participating Employee’s lifetime only by the Employee. Upon the death of a participating Employee, his or her executor, administrator or other legal representative shall receive a check from the Corporation representing the aggregate amount of the deceased Employee’s payroll deductions that had not been applied towards the purchase of option shares as of the date of death.

3.2    Adjustments. In the event of a merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Common Stock or the value thereof, such adjustments and other substitutions shall be made to the Plan and Options as the Committee, in its sole discretion, deems equitable or appropriate, including adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan and; in the aggregate or to any one Participant, in the number, class, kind and option price of securities subject to outstanding options under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of another company, as the Committee may determine to be appropriate in its sole discretion). Any of the foregoing adjustments may provide for the elimination of any fractional share which might otherwise become subject to any option.

3.3    Change in Control.

(a)After any merger of one or more corporations into the Corporation in which the Corporation shall be the surviving corporation or any share exchange in which the Corporation is a constituent corporation, each participant shall, at no additional cost, be entitled upon the exercise of an option, to receive (subject to any required action by shareholders), in lieu of the number of shares of Common Stock for which such option shall then be exercisable, the consideration which such participant would have been entitled to receive pursuant to the terms of the agreement of merger or share exchange if at the time of such merger or share exchange such participant had been a holder of record of a number of shares of Common Stock equal to the number of shares then underlying the option.

(b)In addition, in the event of a Change in Control, the Committee shall have the right to terminate the Purchase Period as of such date, and, if so terminated, each participant shall be deemed to have exercised, immediately prior to such merger, share exchange, acquisition or sale of assets, his or her option to the extent payroll deductions were made prior thereto. Comparable rights shall accrue to each participant in the event of successive Changes in Control.

(c)Notwithstanding anything contained herein to the contrary, upon the dissolution or liquidation of the Corporation or upon any merger or share exchange in which the Corporation is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Corporation formed for the purpose of changing the Corporation’s corporate domicile where the Plan is assumed by the survivor), the Purchase Period for any option granted under this Plan shall terminate as of the date of the aforementioned event, and each participant shall be deemed to have exercised, immediately prior to such dissolution, liquidation, merger or share exchange, his or her option to the extent payroll deductions were made prior thereto.

(d)The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an option.

3.4    Termination and Amendment.

(a)The Board may terminate the Plan, or the granting of options under the Plan, at any time. No option shall be granted under the Plan after the tenth (10^th) anniversary of the adoption of the Plan by the Board.

(b)The Board may amend or modify the Plan at any time and from time to time, but no amendment or modification shall disqualify the Plan under Section 423 of the Code or Rule 16b-3 under the Exchange Act without the approval of the shareholders of the Corporation.

(c)No amendment, modification, or termination of the Plan shall adversely affect any option granted under the Plan without the consent of the Employee holding the option.

3.5    Rights Prior to Issuance of Shares. No participating Employee shall have any rights as a shareholder with respect to shares covered by an option until the issuance of a stock certificate or electronic transfer to the Employee (or book entry representing such shares has been made and such shares have been deposited with the appropriate registered book-entry custodian). No adjustment shall be made for dividends or other rights with respect to such shares for which the record date is prior to the date when the certificate is issued or the shares electronically delivered to the Employee’s brokerage account.

3.6    Securities Laws.

(a)Anything to the contrary herein notwithstanding, the Corporation’s obligation to sell and deliver Common Stock pursuant to the exercise of an option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities as the Corporation deems necessary or advisable. The Corporation shall not be required to sell and deliver or issue Common Stock unless and until it receives satisfactory assurance that the issuance or transfer of such shares shall not violate any of the provisions of the Securities Act of 1933 or the Exchange Act, or the rules and regulations of the Securities Exchange Commission promulgated thereunder or those of any stock exchange on which the stock may be listed and the provisions of any state laws governing the sale of securities, or that there has been compliance with the provisions of such acts, rules, regulations and laws.

(b)The Board may impose such restrictions on any shares of Common Stock acquired pursuant to the exercise of an option under the Plan as it may deem advisable, including, without limitation, restrictions (i) under applicable federal securities laws, (ii) under the requirements of a Stock Exchange or other recognized trading market upon which such shares of Common Stock are then listed or traded, and (iii) under any blue sky or state securities laws applicable to such shares. No shares shall be issued until counsel for the Corporation has determined that the Corporation has complied with all requirements under appropriate securities laws.

3.7    Delivery of Plan. Each Employee who is a participant in the Plan shall have delivered to him or her a copy of the Plan.

3.8    Effect on Employment. Neither the adoption of the Plan nor the granting of an option pursuant to it shall be deemed to create any right in any individual to be retained or continued in the employment of the Corporation.

3.9    Certificates. If certificates are issued, the Corporation shall have the right to retain such certificates representing shares of Common Stock issued pursuant to the Plan until such time as all conditions and/or restrictions applicable to such shares of Common Stock have been satisfied.

3.10    Use of Proceeds. The proceeds received from the sale of Common Stock pursuant to the Plan shall be used for general corporate purposes of the Corporation.

3.11    Approval of Plan. The Plan shall be subject to the approval of the holders of at least a majority of the Common Stock of the Company present and entitled to vote at a meeting of shareholders of the Company held within twelve (12) months after adoption of the Plan by the Board. If not approved by shareholders within such 12-month period, the Plan and any options granted hereunder shall become void and of no effect.

3.12    Governing Law. This Plan shall be governed by and construed under the laws of the State of Michigan without regard to its conflict of law provisions.

This ITC Holdings Corp. Employee Stock Purchase Plan, as amended and restated, has been executed on behalf of the Corporation on this the 21^st day of May, 2014.

ITC HOLDINGS CORP.

By:/s/ Daniel J. Oginsky

Its:Senior Vice President and General Counsel

BOARD APPROVAL: 2/8/2006

SHAREHOLDER APPROVAL:5/17/2006

BOARD AMENDMENT: 6/8/2007

BOARD AMENDMENT:4/6/2011

SHAREHOLDER APPROVAL:5/26/2011

BOARD AMENDMENT:4/4/2014

SHAREHOLDER APPROVAL:5/21/2014

EX-10.132

EXHIBIT 10.132

Amended and Restated

GENERATOR INTERCONNECTION AGREEMENT

by and among

Michigan Electric Transmission Company, LLC

and

Consumers Energy Company

and the

Midcontinent Independent System Operator, Inc.

Amended and Restated

GENERATOR INTERCONNECTION AGREEMENT

THIS Amended AND RESTATED GENERATOR INTERCONNECTION AGREEMENT(the "Agreement") is made and entered into as of April 29, 2014 by and among Michigan Electric Transmission Company, LLC, a limited liability company with offices at 27175 Energy Way Novi, Michigan (herein referred to as “METC” or "Transmission Owner”), Consumers Energy Company, a Michigan corporation with offices at One Energy Plaza, Jackson, Michigan (herein referred to as “Consumers” or “Interconnection Customer”), and the Midcontinent Independent System Operator, Inc., formerly known as Midwest Independent Transmission System Operator, Inc., a non-profit, non-stock corporation organized and existing under the laws of the State of Delaware (herein referred to as “MISO” or “Transmission Provider”). Transmission Provider, Consumers and Transmission Owner each may be referred to individually as a "Party," or collectively as the "Parties." This Agreement amends, restates and replaces the June 18, 2013 Amendment and Restatement of the Generator Interconnection Agreement between the Transmission Owner, Transmission Provider and Consumers, effective on the Effective Date provided for below in Section 2.1.

WITNESSETH:

WHEREAS, Consumers owns and operates several electric generating assets (herein referred to as a Unit when discussing one of them, or as Generation Resources when referring to all of them) as described in Article 1. The Unit names and generating capability ratings of the Generation Resources are set forth in Exhibit A to this Agreement. Each Unit in the list is currently in commercial operation; and

WHEREAS, Transmission Provider has functional control of the operation of the Transmission System, as defined in Article 1 of this Agreement, and is responsible for providing transmission and interconnection service on the transmission facilities under its functional control; and

WHEREAS, Transmission Owner owns or operates the Transmission System, whose operations are subject to the functional control of the Transmission Provider, to which the Consumers’ Units are interconnected, as set forth in this Agreement; and

WHEREAS,it is necessary for Consumers’ Units to remain interconnected with the Transmission System (as defined in Article 1), in order for said Units to continue to operate; and

WHEREAS, the revised and restated Agreement is not intended to affect METC’s and Consumer’s obligations to each other with regard to the following agreements:

WHEREAS, Consumers and Transmission Owner have entered into an Operating Agreement, dated as of April 1, 2001, as amended and restated, (herein referred to as the “Operating Agreement”) that defines the operating responsibilities of the Transmission Owner with respect to the Transmission System and the obligations, rights and responsibilities of Consumers to provide ancillary services and to operate its Generation Resources in a manner that will not unduly interfere with the provision of Transmission Services by the Transmission Owner; and

WHEREAS, Consumers, Transmission Owner and Transmission Provider have entered into a Purchase and Sale Agreement for Ancillary Services, dated as of April 1, 2001, as amended and restated, that sets forth the terms and conditions under which Consumers shall use its Generation Resources to provide ancillary services to the Transmission Owner and Transmission Provider; and

WHEREAS, the Parties are willing to maintain the interconnection of Consumers’ Generation Resources with the Transmission System under the terms and conditions contained herein.

NOW, THEREFORE, in consideration of and subject to the mutual covenants contained herein, the Parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1    Whenever used in this Agreement, appendices, and attachments hereto, the following terms shall have the following meanings:

“Black Start Capability” shall mean a generating Unit that is capable of starting without an outside electrical supply. Said Units are specified in Exhibit A.

“Black Start Plan” shall mean a plan utilizing Black Start Capability designed and implemented by the Transmission Provider or Transmission Owner in conjunction with its interconnected generation and distribution customers, Distribution System Control, other electric systems, its Security Coordinator and ECAR, to energize portions of the Transmission System which are de-energized as a result of a widespread system disturbance.

“Black Start Service” shall mean the provision of service needed to energize a defined portion of the Transmission Owner’s Transmission System, including the start up of the Generation Resources and/or other generators, in accordance with the Transmission Provider’s or Transmission Owner’s Black Start Plan when local power from the Transmission System is unavailable or insufficient.

"Commission" shall mean the Federal Energy Regulatory Commission, or any successor agency.

“Connection Point” shall be the point where Consumers’ Interconnection Assets connect to Transmission Owner’s Interconnection Assets, as described in Exhibit B of this Agreement.

“Consumers’ Incremental Cost” shall mean Consumers’ actual hourly replacement cost of energy on Consumers’ Generation Resources, whether that energy is (a) produced by generation owned by or under contract to Consumers or (b) purchased from a third party.

“Consumers’ Interconnection Assets” shall mean the assets identified as belonging to Consumers in Exhibit B of this Agreement and all other assets that are necessary or desirable to interconnect a Unit to the Transmission System reliably and safely, including all connection, switching, transmission, distribution, safety, and communication assets, protective assets, Telemetry and Monitoring Assets that Consumers owns or operates and maintains.

"Consumers’ System" shall mean the assets owned, controlled and operated by Consumers that are used to provide service to its customers.

“ECAR” stands for the East Central Area Reliability council or a successor group.

"Emergency" shall mean any system condition that requires automatic or immediate manual action to prevent or limit the loss of transmission assets or generation supply that could adversely affect the reliability of Transmission System or Consumers’ System or the systems to which either Party is directly or indirectly connected.

“Generation Resources” shall mean the assets used for the production of electric energy, which are owned and operated by Consumers and directly or indirectly connected to the Transmission System pursuant to this Agreement.

"Good Utility Practice" shall mean any of the practices, methods and acts engaged in or approved by a significant proportion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the region.

“Governmental Authority” shall mean any federal, state, local or municipal governmental body; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power; or any court or governmental tribunal.

"Hazardous Substances" shall mean any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "hazardous constituents", "restricted hazardous materials", "extremely hazardous substances", "toxic substances", "contaminants", "pollutants", "toxic pollutants" or words of similar meaning and regulatory effect under any applicable Environmental Law, or any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. For purposes of this Agreement, the term "Environmental Law" shall mean federal, state, and local laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety.

“IEEE” is an acronym, which stands for the Institute of Electrical and Electronic Engineers.

“Interconnection Assets” shall mean, collectively, Transmission Owner’s Interconnection Assets and Consumers’ Interconnection Assets, or the specific Interconnection Assets of either the Transmission Owner or Consumers, as the case may be.

“Jointly Owned Assets” shall mean those assets in which Consumers and Transmission Owner have undivided ownership interests. Due to the nature of substation designs, many of the supporting substation assets (e.g., station batteries, fencing, control houses, ground grid, yard stone, steel structures and some protective relay assets) cannot be separated by ownership and the Parties share in the ownership of such assets. The respective ownership of such assets by substation is shown in Exhibit B hereto.

“Metering Assets” shall mean the assets required to provide acceptably accurate metering of the interconnection power and energy output from the Unit and the standby power and energy usage of the Unit. Said Metering Assets typically includes but is not limited to, metering accuracy potential and current transformers, transducers, primary connections, secondary connections, secondary potential and current circuits and conduit, telephone lines and access to said Metering Assets, if necessary. The transducers used shall be capable of providing Megawatthour and Megavarhour data.

“MISO” shall mean the Midcontinent Independent System Operator, Inc., or its successor.

“MISO Tariff” shall mean the Open Access Transmission, Energy and Operating Reserve Markets Tariff on file with the Commission as it may be amended or superseded from time to time.

“Monitoring Assets” shall mean the assets required to determine (a) the sequence of events for the operation of protective assets during an electrical fault, (b) the location and characteristics of an electrical fault and (c) the quality of power provided at the Point of Receipt.

"NERC" is an acronym that stands for the North American Electric Reliability Council, including any successor thereto or any regional reliability council thereof. This reliability council oversees the development and publication of operating policies, engineering planning principles and guides and support information to provide guidance to the regional reliability councils and to promote electric system reliability.

“Point of Receipt” shall be the point at which capacity and energy is provided by Consumers, as described in Exhibit B of this Agreement.

“Reactive Design Limitations” shall mean the reactive power capability designed into the Unit, which were consistent with reactive power capability specifications in place when the Unit was constructed.

"Secondary Systems" shall mean control or power circuits that operate below 600 volts, AC or DC, including, but not limited to, any hardware, control or protective devices, cables, conductors, electric conduits and raceways, secondary assets panels, transducers, batteries, chargers, and voltage and current transformers.

"Switching and Tagging Rules" shall mean the written documents describing the switching and tagging procedures of Transmission Owner and Consumers, as they may be amended.

“System Operator” is a generic term used to describe the individuals responsible for the integrity or the operational control of the Transmission System and any successor thereto.

"System Protection Assets" shall mean the assets required to protect (a) the Transmission System, the systems of others connected to the Transmission System, and Transmission Owner’s customers from faults occurring at the Unit, and (b) the Unit from faults occurring on the Transmission System or on the systems of others to which the Transmission System is directly or indirectly connected.

“Telemetry Equipment” shall mean the assets, identified by Transmission Owner, that are required to provide the necessary, real-time telemetry of Unit operations and status, as required by Transmission Owner, for remote monitoring and control purposes. This typically includes but is not limited to, remote terminal units, distributed terminal units, telemetry signal inputs, fiber optic communication connections, transducers, pulse multipliers, isolation amplifiers, analog inputs, digital inputs, metering pulsed accumulator inputs, power supply, dedicated telephone data line to remote terminal units, telephone modem, telephone switching, interface terminal strips for landing signal inputs/outputs. Telemetry Equipment may be located at Consumers’ Unit and or at Transmission Owner’s assets.

“Transmission Owner” shall mean Michigan Electric Transmission Company, LLC or its successor.

“Transmission Owner’s Interconnection Assets” shall mean the assets identified as belonging to Transmission Owner in Exhibit B of this Agreement and all other assets that are necessary or desirable to interconnect the Generation Resources to the Transmission System reliably and safely, including all connection, switching, transmission, distribution, safety, and communication assets, protective assets, Metering, Telemetry and Monitoring Assets and all improvements, additions or extensions to the Transmission System owned or operated and maintained by the Transmission Owner and that are attributable to or necessitated by the Generation Resources.

“Transmission Provider” shall mean MISO.

"Transmission System" shall mean the facilities owned by the Transmission Owner and controlled or operated by the Transmission Provider or Transmission Owner that are used to provide transmission service under the MISO Tariff.

“Transmission Service” shall include both Point-To-Point Transmission Service and Network Integration Transmission Service provided under the MISO Tariff.

"Unit" shall mean each of Consumers’ electric generating assets, or group of generating assets having common Interconnection Assets, covered by this Agreement and identified generally in the first "Whereas" clause and Exhibit A of this Agreement and more specifically identified in the "as built" drawings provided to Transmission Owner in accordance with Section 4.3 of this Agreement, together with the other property, assets, and assets owned and/or controlled by Consumers on the Consumers' side of the Connection Point.

ARTICLE 2

TERM OF AGREEMENT

2.1Effective Date

This Agreement shall become effective on the date designated by the Commission in its order accepting this Agreement for filing (the “Effective Date”).

2.2Term

This Agreement shall become effective as provided in Section 2.1 above and, unless terminated as provided below, shall continue in full force and effect until a mutually agreed termination date, but no later than the date on which all of the Generation Resources cease commercial operation.

2.3Termination

In the event that Transmission Owner joins a Regional Transmission Organization (“RTO”) which requires use of its own FERC-approved interconnection and operating agreement, this Agreement shall terminate on the effective date of such new interconnection and operating agreement between Consumers and the RTO, except to the extent necessary to resolve billing and other outstanding matters related to service rendered under this Agreement as specified in Section 2.5.

2.4Regulatory Filing

Transmission Provider shall file this Agreement with the Commission as a Service Agreement under the MISO Tariff, within the meaning of 18 C.F.R. Part 35. Consumers and Transmission Owner agree to cooperate with Transmission Provider with respect to such filing and to provide any information, including the rendering of testimony reasonably requested by Transmission Provider, needed to comply with applicable regulatory requirements.

2.5Survival

The applicable provisions of this Agreement shall continue in effect after expiration, cancellation, or termination hereof to the extent necessary to provide for final billings, billing adjustments, and the determination and enforcement of liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect.

ARTICLE 3

INTERCONNECTION SERVICE

3.1Scope of Service

In the event future changes in either (a) design or operation of any Unit, (b) Consumers’ requirements or (c) Transmission Provider’s or Transmission Owner’s requirements resulting from the Unit’s parallel operation with the Transmission System later necessitate additional Interconnection Assets or modifications to the then existing Interconnection Assets herein, the Parties shall undertake such additions and modifications as may be necessary. Before undertaking such future additions or modifications, the Parties shall consult, develop plans and coordinate schedules of activities, including the making of necessary amendments to this Agreement (including its Appendices) and/or entering into new agreements, so as to insure continuous and reliable operation of the Interconnection Assets. The cost of such additions or modifications to the Interconnection Assets shall be borne by Consumers unless otherwise agreed upon at the time. The ownership, operation and maintenance responsibilities for any such future additions or modifications shall be made consistent with the responsibilities allocated in this Agreement.

3.1.1Except as otherwise provided under Sections 5.8 and 5.9 of this Agreement, neither Transmission Provider nor Transmission Owner shall have an obligation under this Agreement to pay Consumers any wheeling or other charges for electric power and/or energy transferred through Consumers’ assets or for power or ancillary services provided by Consumers under this Agreement for the benefit of the Transmission System.

3.1.2Except as otherwise provided under this Agreement, neither Transmission Provider nor Transmission Owner shall have an obligation under this Agreement to make arrangements or pay under applicable tariffs for transmission and ancillary services associated with the delivery of electricity and ancillary electrical products produced by the Unit.

3.1.3Except as otherwise provided under this Agreement, neither Transmission Provider nor Transmission Owner shall have an obligation under this Agreement to procure electricity and ancillary electrical products to satisfy Consumers’ station power needs or other related requirements.

3.1.4Except as otherwise provided under this Agreement, neither Transmission Provider nor Transmission Owner shall have an obligation under this Agreement to make arrangements under applicable tariffs for transmission, losses, and ancillary services associated with the use of the Transmission System for the delivery of electricity and ancillary electrical products to the Unit.

3.1.5Transmission Provider makes no representations to Consumers regarding the availability of Transmission Service on the Transmission System, and Consumers agrees that the availability of Transmission Service on the Transmission System may not be inferred or implied from Transmission Provider’s or Transmission Owner’s execution of this Agreement. Consumers will obtain Transmission Service on the Transmission System under a separate agreement between the Parties and in accordance with the provisions of the MISO Tariff.

3.2Third-Party Actions

Consumers acknowledges and agrees that, from time to time during the term of this Agreement, other persons may develop, construct and operate, or acquire and operate generating assets in the Transmission Provider’s service territory, and construction or acquisition and operation of any such assets, and reservations by any such persons of Transmission Service under the MISO Tariff may adversely affect the Unit and the availability of Transmission Service for the Unit’s electric output. Consumers acknowledges and agrees that Transmission Provider has no obligation under this Agreement to disclose to Consumers any information with respect to third-party developments or circumstances, including the identity or existence of any such person or other assets, beyond what Transmission Provider customarily provides to other similarly situated generators, except as may be required under Article 4 of this Agreement and elsewhere in this Agreement. Consumers and Transmission Provider make no guarantees to the other under this Agreement with respect to Transmission Service that is available under the MISO Tariff.

ARTICLE 4

INTERCONNECTION ASSETS

4.1Reservation of Rights to Interconnection Assets

Except as provided in Section 5.2 hereof, each Party reserves to itself the ownership, operation and maintenance of its Interconnection Assets and all improvements, additions or extensions to its Interconnection Assets under this Agreement which are attributable to or necessitated by the interconnection of the Unit.

4.2Modifications

Either Party may undertake modifications to its assets. In the event a Party plans to undertake a modification that may be expected to impact the other Party's assets, that Party shall provide the other Party with sufficient information regarding such modification, including, without limitation, the notice required in accordance with Article 11 of this Agreement so that the other Party can evaluate the potential impact of such modification prior to commencement of the work. The Party desiring to perform such work shall provide the relevant drawings, plans, and specifications to the other Party at least ninety (90) days in advance of commencement of the work or such shorter period upon which the Parties may agree, which agreement will not unreasonably be withheld or delayed.

4.3As-Built Drawings

Upon execution of this Agreement, Consumers shall provide to Transmission Provider and Transmission Owner current interconnection drawings and system diagrams for each of its Units, unless the Parties agree that such drawings

are not necessary. Subject to the requirements of Article 17 of this Agreement, not later than ninety (90) days after completion of any addition to or modification of the assets of any of said Units that may reasonably be expected to affect the Transmission System, Consumers shall issue revised "as built" drawings to Transmission Provider and Transmission Owner.

ARTICLE 5

OPERATIONS

5.1General

The Parties agree that they shall comply with the Operating Agreement, then-existing (or amended) applicable manuals, standards, and guidelines of Transmission Provider, NERC, ECAR, or any successor agency assuming or charged with similar responsibilities related to the operation and reliability of the North American electric interconnected transmission grid. To the extent that this Agreement does not specifically address or provide the mechanisms necessary to comply with such Operating Agreement, Transmission Provider, NERC or ECAR manuals, standards, or guidelines, the Parties hereby agree that each Party shall provide to the other Parties all such information as may reasonably be required to comply with such Operating Agreement, manuals, standards, or guidelines and shall operate, or cause to be operated, their respective assets in accordance with such Operating Agreement, manuals, standards, or guidelines.

5.2    Transmission Provider and Transmission Owner Obligations

Transmission Provider and Transmission Owner shall operate and control the Transmission System and other Transmission Owner assets in a safe and reliable manner (a) in accordance with Transmission Provider’s and Transmission Owner’s applicable operational and/or reliability criteria, protocols, and directives (which include those of NERC and ECAR), (b) the Operating Agreement and (c) in accordance with the provisions of this Agreement. From time to time, Consumers will control and operate four (4) 345 kV synchronizing circuit breakers (Nos. 28H9, 28R8, 32F7 and 32H9 in the Hampton Substation) to connect or disconnect the Karn 3 or Karn 4 Units, as the case may be, from the Transmission System. The Parties may agree from time to time that Consumers, under the direction of the Transmission Provider or Transmission Owner, will operate certain other Interconnection Assets of the Transmission Owner.

5.3Consumers Obligations

Consumers shall operate and control its Generation Resources in a safe and reliable manner in accordance with (a) Consumers’ applicable operational and/or reliability criteria, protocols, and directives (which shall include those of NERC and ECAR), (b) the Operating Agreement and (c) the provisions of this Agreement.

5.4Jointly Owned Assets

Operation of Jointly Owned Assets at the electric substations where Interconnection Facilities are located will be under the direction and control of the Party with more than fifty percent (50%) of the major equipment at each such location, unless otherwise agreed by the Parties hereto. Said Party shall operate the Jointly Owned Assets in a manner consistent with Good Utility Practice and the provisions of Sections 5.2 and 5.3 above, as appropriate. Each Party’s respective share of responsibility for the costs of operation of Jointly Owned Assets shall be the same percentage as the percentage of major equipment owned by such Party in that substation, as set forth in Exhibit B and its subsequent addendum’s. The respective ownership of substation facilities is shown in the Wiring Diagrams for each of the electrical substations at which Consumers’ Generation Resources are connected to the Transmission System (see Exhibit B), reflecting ownership changes through July 24, 2008. The Wiring Diagrams (WDs) will be updated continuously in each Party’s Drawing Management System (DMS) which is shared between the Parties. For current ownership (reflecting ownership changes since July 24, 2008), see the WDs in the DMS. For purposes of this Agreement, major equipment is defined as (a) main power transformers, (b) 23 kV, 46 kV, 138 kV and 345 kV circuit breakers, (c) power system regulators and reclosers and (d) 46 kV and 138 kV capacitor banks (any three-phase installation of such equipment shall count as one unit of equipment). Exhibit B shall be updated with an addendum at least annually by the Transmission Owner, and approved in writing by all Parties at least annually, to show all changes in equipment and the effects of such changes on the determination of Jointly Owned Asset percentages. For purposes of this Section 5.4, such submission and approval of changes shall be in writing consistent with Section 21.1. In the case where each Party hereto owns exactly fifty percent (50%) of the major equipment at any specific location, the Transmission Owner shall assume the responsibility for direction

and control of the operation activities as such location. In those substations where each Party hereto owns assets, each Party shall be responsible for its appropriate share, as set forth in Exhibit B hereto, of station power energy usage and expense.

5.5Access Rights

The Parties shall provide each other such access rights as may be necessary for either Party's performance of its respective operational obligations under this Agreement; provided that, notwithstanding anything stated herein, a Party performing operational work within the boundaries of the other Party's assets must abide by the rules applicable to that site.

5.6Switching and Tagging Rules

The Parties shall abide by their respective Switching and Tagging Rules for obtaining clearances for work or for switching operations on assets. The Parties will adopt mutually agreeable Switching and Tagging Rules prior to the effective date of this Agreement.

5.7    Black Start Participation

In accordance with Good Utility Practice, Consumers agrees to participate in Transmission Owner’s Black Start Plan, as well as any verification testing. Nothing in this Agreement obligates a particular Unit to provide Black Start Service.

5.8    Reactive Power

The supply and absorption of reactive power is dealt with in the Purchase and Sale Agreement for Ancillary Services among the Parties hereto.

5.9    System Security

During an Emergency on the Transmission System or on an adjacent transmission system, the System Operator has the authority to direct Consumers to increase or decrease real power production (measured in MW) and/or reactive power production (measured in MVAR), within the design and operational limitations of any of Consumers’ Generation Resources in service at the time, in order to maintain security on the Transmission System. In the event of such a declaration of an Emergency, determinations: (a) that the Transmission System security is in jeopardy, and/or (b) that there is a need to increase or decrease reactive power production, even if real power production is adversely affected, will be made solely by the System Operator or his designated representative. Each Unit operator will honor System Operator's orders and directives concerning said Unit’s real power and/or reactive power output within design and operational limitations of the Unit's equipment in service at the time, such that the security of the Transmission System is maintained. Transmission Provider and Transmission Owner shall restore the Transmission System conditions to normal to alleviate any such Emergency, in accordance with Good Utility Practice. Consumers will be compensated by Transmission Provider or Transmission Owner for increasing or decreasing the real power output of any of its Units as directed by the System Operator to support the Transmission System during an Emergency by the payment of (a) Consumers’ Incremental Cost associated with such increase or decrease in real power output or (b) at such other rate filed by a Party and approved by the Commission including any existing tariff or rate schedule which has been filed by the Transmission Provider, Transmission Owner or Consumers. Similarly, if the Transmission Provider or Transmission Owner requests any of Consumers’ Units to provide or absorb reactive power that would be outside of the Unit’s Reactive Design Limitations, requiring the Unit’s real power output to be reduced to obtain the desired reactive power, the Transmission Provider or Transmission Owner shall compensate Consumers at the real power rate discussed in the preceding sentence, to the extent that the Unit had to reduce real power output to operate within its Reactive Design Limitations, unless otherwise provided in another agreement or tariff on file with the Commission.

5.10Consumers Voltage Regulation

Consumers shall have sufficient voltage regulation at each Unit to maintain an acceptable voltage level for the equipment at the Unit during periods of time that the Unit’s generation is off line.

5.11Protection and System Quality

Consumers shall, at its expense, install, maintain, and operate System Protection Assets, including such protective and regulating devices as are identified by order, rule or regulation of any duly constituted regulatory authority having jurisdiction, or as are otherwise necessary to protect personnel and assets and to minimize deleterious effects to Transmission Provider’s or Transmission Owner’s electric service operation arising from the Unit. Transmission Owner shall install any such protective or regulating devices that may be required on Transmission Owner’s assets in connection with the operation of the Unit at Consumers’ expense.

5.11.1Requirements for Protection. In compliance with applicable NERC, ECAR and Transmission Provider’s and Transmission Owner’s requirements, Consumers shall provide, own, and maintain relays, circuit breakers and all other devices necessary to promptly remove any fault contribution of the Unit to any short circuit occurring on the Transmission System not otherwise isolated by Transmission Owner’s assets. Such protective assets shall include, without limitation, a disconnecting device or switch with visible blade disconnect and load interrupting capability to be located between the Unit and the Transmission System at an accessible, protected, and satisfactory site selected upon mutual agreement of the Parties. The present integrated system provides for fault clearing at the generation substations. Unit protection may not be able to detect all short circuits, but the Parties agree that no other arrangements shall be required. Consumers shall be responsible for protection of the Unit and Consumers’ other associated assets from such conditions as negative sequence currents, over- or under-frequency, sudden load rejection, over- or under-voltage, and generator loss-of-field. Consumers shall be solely responsible for provisions to disconnect the Unit and Consumers’ other associated assets when any of the disturbances described above occur on the Transmission System.

5.11.2System Power Quality. Consumers’ facilities and equipment shall not cause excessive voltage flicker nor introduce excessive distortion to the sinusoidal voltage or current waves. Power output from and input to the Unit shall be in accordance with the power quality standards contained in IEEE Standards 141 - Recommended Practice for Electrical Power Distribution for Industrial Plants (voltage flicker) and 519 - Recommended Practices and Requirements for Harmonic Control in Electric Power Systems (harmonics). Consumers’ facilities and equipment have been designed and constructed in accordance with then-existing standards so as not to cause excessive voltage excursions nor cause the voltage to drop below or rise above the range maintained by Transmission Provider or Transmission Owner in the absence of Consumers’ facilities and equipment at the time the Unit first went into service.

5.11.3Inspection. Subject to the confidentiality provisions set forth in Article 17, Transmission Provider and Transmission Owner shall have the right, but shall have no obligation or responsibility to (a) observe Consumers’ tests and/or inspection of any of Consumers’ protective assets directly connected to the Transmission System or interfacing with Transmission Owner’s protective assets, (b) review the settings of any of Consumers’ protective assets; and (c) review Consumers’ maintenance records relative to Consumers’ protective assets. Transmission Provider and Transmission Owner may exercise the foregoing rights from time to time as deemed necessary by Transmission Provider or Transmission Owner upon reasonable notice to Consumers. However, the exercise or non-exercise by Transmission Provider or Transmission Owner of any of the foregoing rights of observation, review or inspection shall be construed neither as an endorsement or confirmation of any aspect, feature, element, or condition of the Unit or Consumers’ protective assets or the operation thereof, nor as a warranty as to the fitness, safety, desirability, or reliability of same.

5.12Outages, Interruptions, and Disconnection

5.12.1Outage Authority and Coordination. In accordance with Good Utility Practice, each Party may, in close cooperation with the other and upon providing notice per Section 20.2, remove from service its assets that may impact the other Party's assets as necessary to perform maintenance or testing or to install or replace assets. Absent the existence or imminence of an Emergency, the Party scheduling a removal of a facility from service will schedule such removal on a date mutually acceptable to both Parties. Further, the Transmission Provider and Transmission Owner shall use their best efforts to coordinate the scheduling of maintenance on Transmission Owner’s Interconnection Assets to coincide with Consumers scheduled maintenance on its Units that may be impacted by maintenance on Transmission Owner’s Interconnection Assets.

5.12.2Outage Restoration.

5.12.2.1Unplanned Outage. In the event of an unplanned outage of a Party's facility that adversely affects the other Party's assets, the Party that owns or controls the facility out of service will use commercially reasonable efforts to promptly restore that facility to service.

5.12.2.2Planned Outage. In the event of a planned outage of a Party's facility that adversely affects the other Party's assets, the Party that owns or controls the facility out of service will use commercially reasonable efforts to promptly restore that facility to service and in accordance with its schedule for the work that necessitated the planned outage.

5.12.3Interruption. If at any time, in Transmission Provider’s or Transmission Owner’s reasonable judgment, the continued operation of the Unit would cause an Emergency, Transmission Provider or Transmission Owner may curtail, interrupt, or reduce energy delivered from the Unit to the Transmission System until the condition which would cause the Emergency is corrected. Transmission Provider or Transmission Owner shall give Consumers as much notice as is reasonably practicable of Transmission Provider’s or Transmission Owner’s intention to curtail, interrupt, or reduce energy delivery from the Unit in response to a condition that would cause an Emergency and, where practicable, allow suitable time for the Parties to remove or remedy such condition before any such curtailment, interruption, or reduction commences. In the event of any curtailment, interruption, or reduction, Transmission Provider or Transmission Owner shall promptly confer with Consumers regarding the conditions that gave rise to the curtailment, interruption, or reduction, and Transmission Provider or Transmission Owner shall give Consumers Transmission Provider’s or Transmission Owner’s recommendation, if any, concerning the timely correction of such conditions. Transmission Provider or Transmission Owner shall promptly cease the curtailment, interruption, or reduction of energy delivery when the condition that would cause the Emergency ceases to exist.

5.12.4Disconnection.

5.12.4.1Disconnection after Agreement Terminates. Upon termination of the Agreement, Transmission Provider or Transmission Owner may disconnect Consumers’ Generation Resources from the Transmission System in accordance with a plan for disconnection upon which the Parties agree.

5.12.4.2Disconnection in Event of Emergency. Subject to the provisions of Subsection 5.12.4.3 of this Agreement, Transmission Provider, Transmission Owner or Consumers shall have the right to disconnect the Unit without notice if, in Transmission Provider’s, Transmission Owner’s or Consumers’ sole opinion, an Emergency exists and immediate disconnection is necessary to protect persons or property from damage or interference caused by Consumers’ interconnection or lack of proper or properly operating protective devices. For purposes of this Subsection 5.12.4.2, protective devices may be deemed by Transmission Provider or Transmission Owner to be not properly operating if Transmission Provider’s or Transmission Owner’s review under Article 6 of this Agreement has disclosed irregular or otherwise insufficient maintenance on such devices or that maintenance records do not exist or are otherwise insufficient to demonstrate that adequate maintenance has been and is being performed.

5.12.4.3Disconnection after Under-frequency Load Shed Event. NERC Planning Criteria require the interconnected transmission system frequency be maintained between 59.95 Hz and 60.05 Hz. In case of an under-frequency system disturbance, the Transmission System is designed to automatically activate a five-tier load shed program. The five load sheds occur at 59.5, 59.3, 59.1, 58.9 and 58.7 Hz, respectively. For those Units that are determined by Transmission Provider to be large

enough to impact the Transmission Provider’s system security, each such Unit shall be capable of under-frequency operation as specified in Appendix 1 “Isolation of Generating Units” contained in ECAR Document No. 3 - Emergency Operations, or a higher under-frequency set point if already in place upon execution of this Agreement. Upon notice from Consumers and if the Transmission Provider or Transmission Owner agrees, Consumers may implement a higher under-frequency relay set point if necessary to protect its assets for a particular Unit or Units.

5.12.5Continuity of Service. Notwithstanding any other provision of this Agreement, Transmission Provider shall not be obligated to accept, and Transmission Provider may require Consumers to curtail, interrupt or reduce deliveries of energy if such delivery of energy impairs Transmission Provider’s or Transmission Owner’s ability to construct, install, repair, replace or remove any of its equipment or any part to its system or if Transmission Provider or Transmission Owner determines that curtailment, interruption or reduction is necessary because of Emergencies, forced outages, operating conditions on its system, or any reason otherwise permitted by applicable rules or regulations promulgated by a regulatory agency having jurisdiction over such matters. The Parties shall coordinate, and if necessary negotiate in good faith, the timing of such curtailments, interruptions, reductions or deliveries with respect to maintenance, investigation or inspection of Transmission Owner’s assets or system. Consumers reserves all rights under the Federal Power Act and applicable other federal and state laws and regulations to commence a complaint proceeding or other action with the Commission or other Governmental Authority with appropriate jurisdiction over the Parties to enforce the provisions of this Subsection 5.12.5.

5.12.6Curtailment Notice. Except in case of Emergency, in order not to interfere unreasonably with the other Party's operations, the curtailing, interrupting or reducing Party shall give the other Party reasonable prior notice of any curtailment, interruption or reduction, the reason for its occurrence, and its probable duration.

5.13Operating Expenses

Consumers shall reimburse Transmission Owner for all direct and indirect costs and expenses (including but not limited to telephone circuit charges, property taxes, insurance and assets testing) incurred by Transmission Owner in operating Transmission Owner’s Interconnection Assets, to the extent that Transmission Owner is not otherwise recovering such costs and expenses under an existing tariff or rate schedule which has been filed by Transmission Provider or Transmission Owner and accepted by FERC. Such costs and expenses shall be determined by Transmission Owner in accordance with the standard practices and policies followed by Transmission Provider or Transmission Owner for the performance of work for others in effect at the time such operation work is performed. Payment by Consumers shall be made in accordance with the provisions of Article 12 hereof.

ARTICLE 6

MAINTENANCE

6.1Transmission Owner’s Obligations

Transmission Owner shall maintain its assets, to the extent they might reasonably be expected to have an impact on the operation of the Unit (a) in a safe and reliable manner in accordance with applicable operational and/or reliability criteria, protocols, and directives (which include those of NERC and ECAR), (b) in accordance with the provisions of the Operating Agreement and (c) in accordance with the provisions of this Agreement.

6.2Consumers’ Obligations

Consumers shall maintain its assets, to the extent they might reasonably be expected to have an impact on the operation of the Transmission System (a) in a safe and reliable manner in accordance with applicable operational and/or reliability criteria, protocols, and directives (which include those of NERC and ECAR), (b) in accordance with the provisions of the Operating Agreement and (c) in accordance with the provisions of this Agreement.

6.3Jointly Owned Assets

Maintenance of Jointly Owned Assets at the electric substations where Interconnection Facilities are located will be under the direction and control of the Party with more than fifty percent (50%) of the major equipment at each such location, unless otherwise agreed by the Parties hereto. Said Party shall maintain the Jointly Owned Assets in

a manner consistent with Good Utility Practice and the provisions of Sections 6.1 and 6.2 above, as appropriate. Each Party’s respective share of responsibility for the costs of maintenance of Jointly Owned Assets shall be the same percentage as the percentage of major equipment owned by such Party in that substation, as set forth in Exhibit B and its subsequent addendum. For purposes of this Agreement, major equipment is defined as set forth in Section 5.4 hereto. Exhibit B shall be updated with an addendum at least annually by the Transmission Owner, and approved in writing by Consumers, to show all changes in equipment and the effects of such changes on the determination of Jointly Owned Asset percentages. In the case where each Party hereto owns exactly fifty percent (50%) of the major equipment at any specific location, the Transmission Owner shall assume the responsibility for direction and control of the maintenance activities at such location.

6.4Access Rights

The Parties shall provide each other such access rights as may be necessary for either Party's performance of their respective maintenance and/or construction obligations under this Agreement; provided that, notwithstanding anything stated herein, a Party performing

maintenance and/or construction work within the boundaries of the other Party's assets must abide by the rules applicable to that site.

6.5Maintenance Expenses

Consumers shall reimburse Transmission Owner for all direct and indirect costs and expenses (including but not limited to inspection, repair and replacement) incurred by Transmission Owner in maintaining Transmission Owner’s Interconnection Assets, to the extent that Transmission Owner is not otherwise recovering such costs and expenses under an existing tariff or rate schedule which has been filed by Transmission Provider or Transmission Owner and accepted by FERC. Such costs and expenses shall be determined by Transmission Owner in accordance with the standard practices and policies followed by Transmission Provider or Transmission Owner for the performance of work for others in effect at the time such operation work is performed. Payment by Consumers shall be made in accordance with the provisions of Article 12 of this Agreement.

6.6Coordination

The Parties agree to confer regularly to coordinate the planning and scheduling of preventative and corrective maintenance. Each Party shall conduct preventive and corrective maintenance activities as planned and scheduled in accordance with this Section 6.5 and the Operating Agreement.

6.7Inspections and Testing

Each Party shall perform routine inspection and testing of its assets in accordance with Good Utility Practice as may be necessary to ensure the continued interconnection of each Unit with the Transmission System in a safe and reliable manner.

6.8Right to Observe Testing

Each Party shall, at its own expense, have the right to observe the testing of any of the other Party's assets whose performance may reasonably be expected to affect the reliability of the observing Party's assets. Each Party shall notify the other Party in advance of its performance of tests of its assets, and the other Party may have a representative attend and be present during such testing.

6.9Secondary Systems

Each Party agrees to cooperate with the other in the inspection, maintenance, and testing of those Secondary Systems directly affecting the operation of a Party's assets which may reasonably be expected to impact the other Party. Each Party will provide advance notice to the other Party before undertaking any work in these areas, especially in electrical circuits involving circuit breaker trip and close contacts, current transformers, or potential transformers.

6.10Observation of Deficiencies

If a Party observes any deficiencies or defects on, or becomes aware of a lack of scheduled maintenance and testing with respect to, the other Party's assets that might reasonably be expected to adversely affect the observing Party's assets, the observing Party shall either (a) provide notice to the other Party that is prompt under the circumstance or (b) deem such observation an Emergency to life or property and immediately disconnect the Unit pursuant to Subsection 5.12.4.2 of this Agreement, and the other Party shall make any corrections required in accordance with Good Utility Practice.

ARTICLE 7

EMERGENCIES

7.1Obligations

Each Party agrees to comply with NERC and ECAR Emergency procedures and Transmission Provider, Transmission Owner and Consumers Emergency procedures, as applicable, with respect to Emergencies.

7.2Notice

Transmission Provider or Transmission Owner shall provide Consumers with oral notification that is prompt under the circumstances of an Emergency that may reasonably be expected to affect Consumers’ operation of any or all of its Generation Resources, to the extent Transmission Provider or Transmission Owner is aware of the Emergency. Consumers shall provide Transmission Provider and Transmission Owner with oral notification that is prompt under the circumstances of an Emergency that may reasonably be expected to affect the Transmission System, to the extent Consumers is aware of the Emergency. In lieu of oral notification described in the preceding two sentences, the Parties may agree in advance to use other electronic notification means. To the extent the Party becoming aware of an Emergency is aware of the facts of the Emergency, such notification shall describe the Emergency, the extent of the damage or deficiency, its anticipated duration, and the corrective action taken and/or to be taken. Any such notification given pursuant to this Section 7.2 shall be followed as soon as practicable with written notice.

7.3Immediate Action

In case of an Emergency, the Party becoming aware of the Emergency may, in accordance with Good Utility Practice, take such action as is reasonable and necessary to prevent, avoid, or mitigate injury, danger, and loss, including disconnection pursuant to Subsection 5.12.4.2 of this Agreement.

7.4Transmission Provider’s and Transmission Owner’s Authority

Transmission Provider or Transmission Owner may, consistent with Good Utility Practice, take whatever actions with regard to the Transmission System as it may deem necessary during an Emergency in order to (a) preserve public health and safety, (b) preserve the reliability of the Transmission System, (c) limit or prevent damage and (d) expedite restoration of service. Transmission Provider or Transmission Owner shall use reasonable efforts to minimize the effect of such actions on the Unit.

7.5Consumers’ Authority

Consumers may, consistent with Good Utility Practice, take whatever actions with regard to the Unit as it may deem necessary during an Emergency in order to (a) preserve public health and safety, (b) preserve the reliability of the Unit, (c) limit or prevent damage and (d) expedite restoration of service. Consumers shall use reasonable efforts to minimize the effect of such actions on the Transmission System.

7.6Audit Rights

Each Party shall keep and maintain records of actions taken during an Emergency that may reasonably be expected to impact the other Party's assets and make such records available for third-party independent audit upon

the request and expense of the party affected by such action. Any such request for an audit will be no later than twelve (12) months following the action taken.

ARTICLE 8

SAFETY

8.1General

The Parties agree that all work performed by a Party that may reasonably be expected to affect another Party shall be performed in accordance with Good Utility Practice and all applicable laws, regulations, and other requirements pertaining to the safety of persons or property. A Party performing work within the boundaries of another Party’s assets must abide by the safety rules applicable to the site.

8.2Environmental Releases

Each Party shall notify the other Parties, first orally and then in writing, of the release of any Hazardous Substances or any type of remedial activities, such as asbestos or lead abatement, which may reasonably be expected to affect another Party, as soon as possible but not later than twenty-four (24) hours after the Party becomes aware of the occurrence, and shall promptly furnish to the other Parties copies of any reports filed with any governmental agencies addressing such events.

ARTICLE 9

METERING

9.1General

Transmission Owner shall provide, install, own and maintain Metering Assets necessary to meet its obligations under this Agreement. Notwithstanding the foregoing sentence, Consumers, if mutually agreed by the Parties, may provide and install some, or all, of said Metering Assets, as per Transmission Owner’s specifications. The Parties agree that, as to all Connection Points in existence as of the effective date of this Agreement, no new Metering Assets or arrangements shall be required. If necessary, Metering Assets shall be either located or adjusted, at Transmission Provider’s or Transmission Owner’s option, in such manner to account for (a) any transformation or interconnection losses between the location of the meter and the Point of Receipt and (b) any station auxiliary power load of the generating unit. Metering quantities, in analog and/or digital form, shall be provided to Consumers upon request. The Parties also agree that Consumers shall continue to maintain records of the Megawatthour and Megavarhour values collected from existing meters on the generating units and provide the information recorded to Transmission Provider or Transmission Owner upon request.

9.2Costs of Administering Metering Assets

All costs associated with the administration of Metering Assets and the provision of metering data to Consumers shall be born by Consumers. The costs of administration and of providing metering data shall be separately itemized on Transmission Owner’s invoices to Consumers pursuant to Article 12 of this Agreement. All costs associated with changes to Metering Assets requested by Consumers, shall be borne by Consumers and shall be invoiced pursuant to Article 12 of this Agreement.

9.3Testing of Metering Assets

Transmission Owner shall, at Consumers’ expense, inspect and test all Metering Assets not less than once every year, unless an extension of the testing cycle is agreed upon by the Parties. If requested to do so by Consumers and at Consumers’ expense, Transmission Owner shall inspect or test Metering Assets more frequently. Transmission Owner shall give reasonable notice of the time when any inspection or test shall take place and Consumers may have representatives present at the test or inspection. If Metering Assets is found to be inaccurate or defective, it shall be adjusted, repaired or replaced at Consumers’ expense, in order to provide accurate metering. If Metering Assets fails to register, or if the measurement made by Metering Assets during a test varies by more than two percent (2%) from the measurement made by the standard Metering Assets used in the test, adjustment shall be made correcting all measurements made by the inaccurate Metering Assets for (a) the actual period during which inaccurate measurements were made, if the period can be determined, or (b) a period equal to one-half of the elapsed time since the last test of the Metering Assets.

9.4Metering Data

9.4.1When the Metering Assets location is not at the Point of Receipt, Metering Assets readings shall be adjusted to account for appropriate transformer and line losses, and when applicable, the station auxiliary power load of the Unit.

9.4.2At Consumers’ expense, all metered data shall be telemetered to one or more locations designated by Transmission Provider and one or more locations designated by Consumers.

9.5Communications

9.5.1At Consumers’ expense, Consumers shall maintain satisfactory operating communications with System Operator or representative, as designated by Transmission Provider or Transmission Owner. Consumers has provided standard voice and facsimile communications in the control room of each of its Units through use of the public telephone system. Consumers has also provided a 4-wire, full duplex data circuit (or circuits) operating at a minimum of 9600 baud, or at other baud rates as reasonably specified by Transmission Provider or Transmission Owner. The data circuit(s) extend from each Consumers’ Unit to a location, or locations, specified by Transmission Provider or Transmission Owner. Any required maintenance of such communications assets shall be performed at Consumers’ expense, and may be performed by Consumers or by Transmission Owner. Operational communications shall be activated and maintained under, but not be limited to, the following events: system paralleling or separation, scheduled and unscheduled shutdowns, equipment clearances, and hourly and daily load data exchanges. To the extent required by applicable rules and regulations, Consumers shall (a) request permission from the System Operator prior to opening or closing circuit breakers that affect the Transmission System, (b) carry out switching orders from the System Operator in a timely manner and (c) keep the System Operator advised of the Unit’s operational capabilities as required for reliable operation of the Transmission System.

9.5.2For all Units 1 MW or larger, a Remote Terminal Unit ("RTU"), or equivalent data collection and transfer equipment acceptable to Consumers and Transmission Owner, has been installed to gather accumulated and instantaneous data to be telemetered to a location, or locations, designated by Transmission Owner through use of dedicated point-to-point data circuits as indicated in Subsection 9.5.1 of this Agreement. Instantaneous bi-directional analog real power and reactive power flow information, circuit breaker status information, instantaneous analog voltage information, metering information, and disturbance monitoring information, as determined by Transmission Provider or Transmission Owner, must be telemetered directly to the location, or locations, specified by Transmission Provider or Transmission Owner.

ARTICLE 10

FORCE MAJEURE

10.1An event of Force Majeure means any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or assets, any curtailment, order, regulation or restriction imposed by governmental military or lawfully established civilian authorities, or any other cause

beyond a Party's reasonable control. A Force Majeure event does not include an act of negligence or intentional wrongdoing.

10.2If either Party is rendered unable, wholly or in part, by Force Majeure, to carry out its obligations under this Agreement, then, during the continuance of such inability, the obligation of such Party shall be suspended except that Consumers’ obligation under Section 5.11 of this Agreement to provide protection while operating in parallel with the Transmission System shall not be suspended. The Party relying on Force Majeure shall give written notice of Force Majeure to the other Party as soon as practicable after such event occurs. Upon the conclusion of Force Majeure, the Party heretofore relying on Force Majeure shall, with all reasonable dispatch, take all necessary steps to resume the obligation previously suspended.

10.3Any Party’s obligation to make payments already owing shall not be suspended by Force Majeure.

ARTICLE 11

INFORMATION REPORTING

Each Party shall, in accordance with Good Utility Practice, promptly provide to the other Parties all relevant information, documents, or data regarding the Party's assets which may reasonably be expected to pertain to the reliability of the other Parties’ assets and/or which has been reasonably requested by the other Parties.

ARTICLE 12

PAYMENTS AND BILLING PROCEDURES

12.1Invoices

Any invoices for reimbursable services provided to another Party under this Agreement during the preceding month shall be prepared within a reasonable time after the first day of each month. Each invoice shall delineate the month in which services were provided, shall fully describe the services rendered and shall be itemized to reflect the services performed or provided. The invoice shall be paid so that the other Party will receive the funds by the 20^th day following the date of such invoice, or the first business day thereafter if the payment date falls on other than a business day. All payments shall be made in immediately available funds payable to another Party, or by wire transfer to a bank named by the Party being paid, provided that payments expressly required by this Agreement to be mailed shall be mailed in accordance with Section 12.2.

12.2Payments

Any payments to be made by Consumers under this Agreement shall be made to Transmission Owner at the following address:

Michigan Electric Transmission Company, LLC

P.O. Box 673971

Detroit, MI 48267-3971

Attn: Accounting Department

If paying by wire transfer, please see the wiring instructions on the invoice.

Any payments to be made by Transmission Owner under this Agreement shall be made to Consumers at the following address:

Consumers Energy Company

One Energy Plaza

Jackson, Michigan 49201

Attn: Treasurer

The Parties shall provide the names of appropriate contact personnel, as are set forth in this Agreement or otherwise, to each other after this Agreement is executed and shall keep said listing of names and addresses up to date.

12.3Interest Charges

Interest on any unpaid amounts shall be calculated in accordance with the methodology specified for interest on refunds in the Commission’s regulations at 18 CFR. §35.19 (a)(2)(iii). Interest on delinquent amounts shall be calculated from the due date of the invoice to the date of payment. When payments are made by mail, invoices shall be considered as having been paid on the date of receipt by Transmission Owner or Consumers, as the case may be.

12.4Disputes

In the event of a billing dispute between Transmission Owner and Consumers, the Parties shall continue to provide services and pay all invoiced amounts not in dispute. While the dispute is being resolved, the Parties shall continue to provide services and pay all invoiced amounts not in dispute. Following resolution of the dispute, the prevailing Party shall be entitled to receive the disputed amount, as finally determined to be payable, along with interest accrued through the date on which payment is made at the interest rate pursuant to Section 13.3. Payment shall be due within ten (10) days of resolution.

ARTICLE 13

ASSIGNMENT

13.1This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the respective parties hereto. This Agreement shall not be transferred or otherwise alienated by any Party without the other Parties' prior written consent, which consent shall not be unreasonably withheld, provided that any assignee shall expressly assume assignor's obligations hereunder and, unless expressly agreed to by the other Parties, no assignment shall relieve the assignor of its obligations hereunder in the event its assignee fails to perform. Any attempted assignment, transfer or other alienation without such consent shall be void and not merely voidable.

13.2    Notwithstanding the above, the Transmission Provider or Transmission Owner shall be permitted to assign or otherwise transfer this Agreement, or its rights, duties and obligations hereunder, in whole or in part, by operation of law or otherwise, without the prior written consent of Consumers, to any successor to or transferee of the direct or indirect ownership or operation of all or part of the transmission system to which the Generation Resources are connected. Upon the assumption by any such permitted assignee of the assigning Transmission Provider’s or Transmission Owner’s rights, duties and obligations hereunder, the assigning Transmission Provider or Transmission Owner shall be released and discharged therefrom to the extent provided in the assignment agreement.

13.3    Notwithstanding the above, Consumers may assign this Agreement to a bank pursuant to the terms of an Assignment and Security Agreement without the prior written consent of Transmission Provider or Transmission Owner provided that such assignment shall not be effective as to Transmission Provider or Transmission Owner until it receives a fully executed copy thereof.

ARTICLE 14

INDEMNITY AND INSURANCE

14.1Indemnity

The Parties shall at all times assume all liability for, and shall indemnify and save the other Parties harmless from any and all damages, losses, claims, demands, suits, recoveries, costs, legal fees, expenses for injury to or death of any person or persons whomsoever, or for any loss, destruction of or damage to any property of third persons, firms, corporations or other entities that occurs on its own system and that arises out of or results from, either directly or indirectly, its own assets or assets controlled by it, unless caused by the sole negligence, or intentional wrongdoing, of another Party.

14.2Insurance

14.2.1The Parties agree to maintain, at their own cost and expense, the following insurance coverages for the life of this Agreement in the manner and amounts, at a minimum, as set forth below:

(a) Workers’ Compensation Insurance in accordance with all applicable State, Federal, and Maritime Law.

(b) Employer’s Liability insurance in the amount of $1,000,000 per accident.

(c) Commercial General Liability or Excess Liability Insurance in the amount of $25,000,000 per occurrence.

(d) Automobile Liability Insurance for all owned, non-owned, and hired vehicles in the amount of $5,000,000 each accident.

14.2.2A Party may, at its option, [A] be an approved self-insurer for the insurances required in 1.(a) and (d); and [B] maintain such deductibles and/or retentions under the insurance required in 1.(b) and (c) as is maintained by other similarly situated companies engaged in a similar business. The Parties agree that all amounts of self-insurance, retentions and/or deductibles are the responsibility of, and shall be borne by, the Party whom makes such an election.

14.2.3Within fifteen (15) days of the Effective Date and thereafter when requested, in writing, but not more than once every 12 months, during the term of this Agreement (including any extensions) each Party shall provide to the other Parties properly executed and current certificates of insurance or evidence of approved self-insurance status with respect to all insurance required to be maintained by such Party under this Agreement. Certificates of insurance shall provide the following information:

(a) Name of insurance company, policy number and expiration date.

(b) The coverage maintained and the limits on each, including the amount of deductibles or retentions, which shall be for the account of the Party maintaining such policy.

(c) The insurance company shall endeavor to provide thirty (30) days prior written notice of cancellation to the certificate holder.

ARTICLE 15

LIMITATION ON LIABILITY

NO PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER PARTIES FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES SUCH AS, BUT NOT LIMITED TO, LOST PROFITS, REVENUE OR GOOD WILL, INTEREST, LOSS BY REASON OF SHUTDOWN OR NON-OPERATION OF EQUIPMENT OR MACHINERY, INCREASED EXPENSE OF OPERATION OF EQUIPMENT OR MACHINERY, COST OF PURCHASED OR REPLACEMENT POWER OR SERVICES OR CLAIMS BY CUSTOMERS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE.

ARTICLE 16

BREACH, CURE AND DEFAULT

16.1General

A breach of this Agreement ("Breach") shall occur upon the failure by a Party to perform or observe any material term or condition of this Agreement. Default of this Agreement ("Default") shall occur upon the failure of a Party in Breach of this Agreement to cure such Breach in accordance with the provisions of Section 16.4 of this Agreement.

16.2Events of Breach

A Breach of this Agreement shall include:

16.2.1The failure to pay any amount when due;

16.2.2The failure to comply with any material term or condition of this Agreement, including but not limited to any material Breach of a representation, warranty or covenant made in this Agreement;

16.2.3If a Party: (a) becomes insolvent; (b) files a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; (c) makes a general assignment for the benefit of its creditors or (d) consents to the appointment of a receiver, trustee or liquidator;

16.2.4Assignment of this Agreement in a manner inconsistent with the terms of this Agreement;

16.2.5Failure of a Party to provide such access rights, or a Party's attempt to revoke or terminate such access rights, as provided under this Agreement; or

16.2.6Failure of a Party to provide information or data to the other Parties as required under this Agreement, provided the Party entitled to the information or data under this Agreement requires such information or data to satisfy its obligations under this Agreement.

16.3Continued Operation

In the event of a Breach or Default by a Party, the Parties shall continue to operate and maintain, as applicable, such DC power systems, protection and Metering Assets, Telemetering Assets, SCADA equipment, transformers, Secondary Systems, communications assets, building assets, software, documentation, structural components, and other assets and appurtenances that are reasonably necessary for Transmission Provider or Transmission Owner to operate and maintain the Transmission System and for Consumers to operate and maintain the Unit, in a safe and reliable manner.

16.4Cure and Default

Upon the occurrence of an event of Breach, the Party or Parties not in Breach (hereinafter the "Non-Breaching Party"), when it becomes aware of the Breach, shall give written notice of the Breach to the Breaching Party and to any other person the Parties to this Agreement identify in writing to the other Parties in advance. Such notice shall set forth, in reasonable detail, the nature of the Breach, and where known and applicable, the steps necessary to cure such Breach. Upon receiving written notice of the Breach hereunder, the Breaching Party shall have thirty (30) days to cure such Breach. If the Breach is such that it cannot be cured within thirty (30) days, the Breaching Party will commence in good faith all steps as are reasonable and appropriate to cure the Breach within such thirty (30) day time period and thereafter diligently pursue such action to completion. In the event the Breaching Party fails to cure the Breach, or to commence reasonable and appropriate steps to cure the Breach, within thirty (30) days of becoming aware of the Breach; the Breaching Party will be in Default of the Agreement.

16.5Right to Compel Performance

Notwithstanding the foregoing, upon the occurrence of an event of Default, the non-Defaulting Party or Parties shall be entitled to: (a) commence an action to require the Defaulting Party to remedy such Default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (b) exercise such other rights and remedies as it may have in equity or at law.

ARTICLE 17

CONFIDENTIALITY

17.1All information regarding a Party (the “Disclosing Party”) that is furnished directly or indirectly to another Party (the “Recipient”) pursuant to this Agreement and marked “Confidential” shall be deemed “Confidential Information”. Notwithstanding the foregoing, Confidential Information does not include information that (i) is rightfully received by Recipient from a third party having an obligation of confidence to the Disclosing Party, (ii) is or becomes in the public

domain through no action on Recipient’s part in violation of this Agreement, (iii) is already known by Recipient as of the date hereof, or (iv) is developed by Recipient independent of any Confidential Information of the Disclosing Party. Information that is specific as to certain data shall not be deemed to be in the public domain merely because such information is embraced by more general disclosure in the public domain.

17.1.1Recipient shall keep all Confidential Information strictly confidential and not disclose any Confidential Information to any third party for a period of two (2) years from the date the Confidential Information was received by Recipient, except as otherwise provided herein.

17.1.2Recipient may disclose the Confidential Information to its affiliates and its affiliates’ respective directors, officers, employees, consultants, advisors, and agents who need to know the Confidential Information for the purpose of assisting Recipient with respect to its obligations under this Agreement. Recipient shall inform all such parties, in advance, of the confidential nature of the Confidential Information. Recipient shall cause such parties to comply with the requirements of this Agreement and shall be responsible for the actions, uses, and disclosures of all such parties.

17.1.3If Recipient becomes legally compelled or required to disclose any of the Confidential Information (including, without limitation, pursuant to the policies, methods, and procedures of the FERC, including the OASIS Standards of Conduct, or other Regulatory Authority), Recipient will provide the Disclosing Party with prompt written notice thereof so that the Disclosing Party may seek a protective order or other appropriate remedy. Recipient will furnish only that portion of the Confidential Information which its counsel considers legally required, and Recipient will cooperate, at the Disclosing Party’s expense, with the Disclosing Party’s counsel to enable the Disclosing Party to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. It is further agreed that, if, in the absence of a protective order, Recipient is nonetheless required to disclose any Confidential Information, Recipient will furnish only that portion of the Confidential Information which its counsel considers legally required.

ARTICLE 18

AUDIT RIGHTS

Subject to the requirements of confidentiality under Article 17 of this Agreement, each Party shall have the right, during normal business hours, and upon prior reasonable notice to another Party, to audit one another's accounts and records pertaining to the Party's performance and/or satisfaction of obligations arising under this Agreement. Said audit shall be performed at the offices where such accounts and records are maintained and shall be limited to those portions of such accounts and records that relate to obligations under this Agreement.

ARTICLE 19

DISPUTES

The Dispute Resolution Procedures set forth in the MISO Tariff shall apply to all disputes arising under this Agreement.

ARTICLE 20

NOTICES

20.1Any notice, demand or request required or permitted to be given by a Party to another and any instrument required or permitted to be tendered or delivered by a Party to another may be so given, tendered or delivered, as the case may be, by depositing the same in any United States Post Office with postage prepaid, for transmission by certified or registered mail, addressed to the Party, or personally delivered to the Party, at the address set out below:

To Transmission Owner:

Michigan Electric Transmission Company, LLC

27175 Energy Way

Novi, MI 48377

Attn: Legal Department - Contracts

To Consumers:

Consumers Energy Company

1945 W. Parnall Road

Jackson, Michigan 49201

Attn: Director of Staff - Energy Resources Business Services

To Transmission Provider:

Midcontinent Independent System Operator, Inc.

Attn: Manager, Interconnection Planning

701 City Center Drive

Carmel, IN 46032

20.2The Parties shall use standard telephone circuits as the primary communication link for generation dispatch communications, including with respect to dispatching energy in the event of an Emergency and declaring unit capability. The Parties shall provide the names and telephone numbers of appropriate contact personnel, as are set forth in this Agreement or otherwise, to each other after this Agreement is executed and shall keep said listing of names and telephone numbers up to date.

ARTICLE 21

MISCELLANEOUS

21.1Amendments

This Agreement may be amended by and only by a written instrument duly executed by the Parties hereto. No change or modification as to any of the provisions hereof shall be binding on any Party unless approved in writing and approved by the duly authorized officers of the Parties. Notwithstanding the foregoing, nothing contained herein shall be construed as affecting in any way the right of Transmission Provider, Transmission Owner or Consumers to unilaterally make application to the Commission for a change in rates, terms or conditions of service under Sections 205 and 206 of the Federal Power Act and pursuant to the Commission's Rules and Regulations promulgated thereunder. Transmission Provider reserves the right to file rate schedules with the Commission concerning any services Transmission Provider deems necessary for reliable and orderly bulk power system management, including but not limited to any standby or related services that may arise from a failure by Consumers to meet its schedule of deliveries across the assets covered by this Agreement.

21.2Binding Effect

This Agreement and the rights and obligations hereof, shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties hereto.

21.3Counterparts

This Agreement may be executed in any number of counterparts, and each executed counterpart shall have the same force and effect as an original instrument.

21.4Entire Agreement

This Agreement constitutes the entire agreement among the Parties hereto with reference to the subject matter hereof and its execution superseded all previous agreements, discussions, communications and correspondence with respect to said subject matter. The terms and conditions of this Agreement and every Exhibit referred to herein shall be amended, as mutually agreed to by the Parties, to comply with changes or alterations made necessary by a valid applicable order of any governmental regulatory authority, or any court, having jurisdiction hereof.

21.5Governing Law

The validity, interpretation and performance of this Agreement and each of its provisions shall be governed by the applicable laws of the State of Michigan, exclusive of its conflict of laws principles.

21.6Headings Not To Affect Meaning

The descriptive headings of the various Articles and Sections of this Agreement have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms and provisions hereof.

21.7Waivers

Any waiver at any time by a Party of its rights with respect to a default under this Agreement, or with respect to any other matters arising in connection with this Agreement, shall not be deemed a waiver or continuing waiver with respect to any subsequent default or other matter.

21.8    Termination of Predecessor Interconnection Agreement

On the Effective Date, the June 18, 2013 Amendment and Restatement of the Generator Interconnection Agreement between Transmission Provider, Transmission Owner and Consumers shall terminate and be replaced by this Agreement with regard to the Units covered by this Agreement, except insofar as necessary to resolve billing and related matters arising from service rendered and other events occurring before the Effective Date.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their duly authorized officers.

MICHIGAN ELECTRIC TRANSMISSION COMPANY, LLC, a Michigan limited liability company

By: ITC Holdings Corp., its manager

By: /s/ Gregory Ioanidis

Title: Vice President

CONSUMERS ENERGY COMPANY

By: /s/ David B. Kehoe

Title: Director of Staff - Energy Resources Business Services

MIDCONTINENT INDEPENDENT SYSTEM OPERATOR, INC.

By: /s/ Jennifer Curran

Title: Vice President, Reliability & Security Relations

            EXHIBIT A - CONSUMERS GENERATION RESOURCES

Generating Unit	Nameplate Related MVA (1)	Summer Net Demonstrated MW Capability	Winter Net Demonstrated MW Capability	Kilovolts	RPM	Cooling	AGC Capable	AGC Ramp MW/Min	Black Start Capable	Synch Breaker(s)	Comments
Campbell 1	312.0	260.0	260.0	16.0	3,600	Hydrogen	Yes	3	No	199
Campbell 2	492.0	355.0	360.0	20.0	3,600	Water/Hydrogen	Yes	3	No	299

Campbell A	21.9	13.0	17.0	13.8	3,600	Air	No	—	No	C16	Mothballed until February 2015.
Cobb 1	81.2	61.0	61.0	14.4	3,600	Hydrogen	No	—	No	199	Mothballed until October 2015.
Cobb 2	81.2	61.0	61.0	14.4	3,600	Hydrogen	No	—	No	299	.Mothballed until October 2015.
Cobb 3	81.2	61.0	61.0	14.4	3,600	Hydrogen	No	—	No	399	Mothballed until October 2015.
Cobb 4	184.0	158.0	160.0	18.0	3,600	Hydrogen	Yes	1	No	499
Cobb 5	184.0	158.0	160.0	18.0	3,600	Hydrogen	Yes	1	No	599
Gaylord 1	18.8	14.0	17.0	13.8	3,600	Air	No	—	No	116	SSR agreement with MISO expires 9/30/2014.
Gaylord 2	18.8	14.0	17.0	13.8	3,600	Air	No	—	No	216	SSR agreement with MISO expires 9/30/2014.
Gaylord 3	18.8	14.0	17.0	13.8	3,600	Air	No	—	No	316	SSR agreement with MISO expires 9/30/2014.
Karn 1	336.0	255.0	255.0	16.0	3,600	Hydrogen	Yes	3	No	199
Karn 2	320.0	260.0	260.0	16.0	3,600	Hydrogen	Yes	3	No	299
Karn 3	814.7	638.0	638.0	26.0	3,600	Water/Hydrogen	Yes	6	No	28R8/28H9	AGC Ramp Rate: 6 is avg. 9 Mw/min 60 thr. 500 Mw, 3 Mw/min 500 thr. 580 Mw
Karn 4	835.0	638.0	638.0	26.0	3,600	Water/Hydrogen	Yes	6	No	32F7/32H9	AGC Ramp Rate: 6 is avg. 9 Mw/min 70 thr. 500 Mw, 3 Mw/min 500 thr. 580 Mw
Straits 1	25.0	5.0	10.0	13.8	3,600	Air	No	—	No	S16
Thetford 1	39.5	30.0	37.0	13.8	3,600	Air	No	—	No	116	Mothballed until September 2015.
Thetford 2	39.5	29.0	37.0	13.8	3,600	Air	No	—	No	216	Mothballed until September 2015.
Thetford 3	39.5	30.0	37.0	13.8	3,600	Air	No	—	Yes	316	Mothballed until May 2015.
Thetford 4	39.5	30.0	37.0	13.8	3,600	Air	No	—	Yes	416	Mothballed until May 2015.
Weadock 7	202.0	155.0	155.0	18.0	3,600	Hydrogen	Yes	1	No	799
Weadock 8	184.0	155.0	155.0	18.0	3,600	Hydrogen	Yes	1	No	899
Weadock A	21.9	13.0	17.0	13.8	3,600	Air	No	—	No	A16	Mothballed until September 2015.
Whiting 1	125.0	102.0	102.0	14.4	3,600	Hydrogen	Yes	1	No	199
Whiting 2	125.0	102.0	102.0	14.4	3,600	Hydrogen	Yes	1	No	299
Whiting 3	156.3	122.0	124.0	15.5	3,600	Hydrogen	Yes	1	No	399
Whiting A	21.9	13.0	17.0	13.8	3,600	Air	No	—	No	46A	Mothballed until September 2015.
Alcona Hydro 1	4.4	4.0	4.0	5.0	90	Air	NA	NA	No	116/166
Alcona Hydro 2	4.4	4.0	4.0	5.0	90	Air	NA	NA	No	216/166

Calkins Bridge Hydro 1	0.6	0.4	0.4	4.8	180	Air	NA	NA	No	116/166	Also known as Allegan Hydro
Calkins Bridge Hydro 2	1.1	0.9	0.9	4.8	120	Air	NA	NA	No	216/166	Also known as Allegan Hydro
Calkins Bridge Hydro 3	1.5	1.2	1.2	4.8	113	Air	NA	NA	No	316/166	Also known as Allegan Hydro
Cooke Hydro 1	3.3	1.5	1.5	2.5	180	Air	NA	NA	No	116/166
Cooke Hydro 2	3.3	3.0	3.0	2.5	180	Air	NA	NA	No	216/166
Cooke Hydro 3	3.3	3.0	3.0	2.5	180	Air	NA	NA	No	316/166
Croton Hydro 1	3.8	2.9	2.9	7.2	225	Air	NA	NA	No	116/246
Croton Hydro 2	3.8	2.9	2.9	7.2	225	Air	NA	NA	No	216/246
Croton Hydro 3	1.4	1.3	1.3	7.2	150	Air	NA	NA	No	316/246
Croton Hydro 4	1.6	1.3	1.3	7.2	150	Air	NA	NA	No	416/246
Five Channels 1	3.3	3.2	3.2	2.5	150	Air	NA	NA	No	116/166
Five Channels 2	3.3	3.2	3.2	2.5	150	Air	NA	NA	No	216/166
Foote Hydro 1	3.3	3.3	3.3	5.0	90	Air	NA	NA	No	116/366
Foote Hydro 2	3.3	3.3	3.3	5.0	90	Air	NA	NA	No	216/366
Foote Hydro 3	3.3	3.3	3.3	5.0	90	Air	NA	NA	No	316/366
Hodenpyl Hydro 1	8.9	9.2	9.2	7.5	120	Air	NA	NA	No	116/266
Hodenpyl Hydro 2	8.9	9.2	9.2	7.5	120	Air	NA	NA	No	216/266
Loud Hydro 1	2.2	2.2	2.2	2.5	120	Air	NA	NA	No	116/266
Loud Hydro 2	2.2	2.2	2.2	2.5	120	Air	NA	NA	No	216/266
Mio Hydro 1	2.7	2.2	2.2	2.5	80	Air	NA	NA	No	116/166
Mio Hydro 2	2.7	2.2	2.2	2.5	80	Air	NA	NA	No	216/166
Rogers Hydro 1	1.9	1.5	1.5	7.5	150	Air	NA	NA	No	116/166
Rogers Hydro 2	1.9	1.5	1.5	7.5	150	Air	NA	NA	No	216/166
Rogers Hydro 3	1.9	1.5	1.5	7.5	150	Air	NA	NA	No	316/166
Rogers Hydro 4	1.9	1.5	1.5	7.5	150	Air	NA	NA	No	416/166
Tippy Hydro 1	7.1	7.0	7.0	7.5	109	Air	NA	NA	No	116/266/126
Tippy Hydro 2	7.1	7.0	7.0	7.5	109	Air	NA	NA	No	216/266/126
Tippy Hydro 3	7.1	7.0	7.0	7.5	109	Air	NA	NA	No	316/266/126
Webber Hydro 1	3.3	2.3	2.3	7.2	164	Air	NA	NA	No	116/166
Webber Hydro 2	1.3	1.0	1.0	2.5	200	Air	NA	NA	No	216
Notes: (1) Rated MVA represents generator machine capability limits. Turbine or main transformer limits may be more restrictive.

EXHIBIT B - INTERCONNECTION ASSETS

General

The Parties agree that certain assets located at each of the electrical Substations at which Consumers’ Generation Resources are connected to the Transmission System are an integral part of the assets required by the Parties to provide services under their respective charters and that the physical partition would be impossible, impractical and wholly inconsistent with the purposes for which this Agreement is made. Said assets are deemed to be Jointly Owned Assets. In general, said assets include, but in some of the electrical Substations shall not be limited to, the following:

Foundations All foundations not identified as belonging to a specific piece of assets in the Plant Accounting Records.

Structures All steel support structures.

Station wiring All buswork, control cables, batteries, battery chargers and ground grids.

Fencing All chain-link fencing surrounding or used within the specific electrical Substation.

Control house Any building located within the Substation used to house relaying, controls or telemetry equipment beneficial to and used by both Parties.

Stone All stone used in the Substation yards, driveways and drains.

At each of the substations listed in this Exhibit B, an allocated percentage of the Jointly Owned Assets is determined for each Party hereto, in accordance with the provisions of this Agreement

For each of the electrical Substations at which Consumers’ Generation Resources are connected to the Transmission System, the specific assets allocated to and owned by Consumers are identified below as Consumers’ Interconnection Assets. In certain 345 kV Substations, specific breakers and associated assets that have been designated for operation by Consumers are also specifically identified as Transmission Owner’s Interconnection Assets.

Some of the electrical Substations containing Interconnection Assets also contain Distribution System assets owned by Consumers. Unless said Distribution System assets are directly involved in the connection of Consumers’ Generation Resources to the Transmission System, they are not described in the description of assets that follow.

The balance of the assets in each electrical Substation are allocated to and owned by the Transmission Owner and considered a part of the Transmission System.

Wiring Diagrams (WDs) will be updated continuously in each Party’s Drawing Management System (DMS) which is shared between the Parties and approved in writing by the Local Distribution Company to show changes in ownership. For current ownership (reflecting ownership changes since July 24, 2008), see the WDs in the DMS.

Exhibit B - Table 1

Jointly Owned Asset Ownership by Percent of Major Equipment

Addendum 4 - Final 03/03/14

Substations

Jointly Owned Assets

Percentage Split by Major Equipment Count

(Substations with 100% ownership by Major Equipment Count Not Included)

Substation Name	Distribution	Transmission	Generation Owned by Local Distribution Company	Third-Party Assets	Last Revision Date
Campbell 138 kV 1	0.00	64.28	35.24	0.48	08/16/12
Cobb Plant	47.22	25.00	27.78		04/29/02
Gaylord	44.44	44.44	11.12		01/01/10
Karn Plant	0.00	63.64	36.36		01/01/10
Morrow	63.33	30.00	6.67		08/16/12
Thetford	0.00	92.00	8.00		04/29/02
Weadock	35.14	24.32	40.54		01/01/10
Whiting	28.57	28.57	42.86		08/16/12

--________________________

¹ At 120 kV and above, third-party related assets will be included as part of the Transmission assets for purposes of making this calculation. Also, the third party may share in the financial responsibility associated with O&M activities.

Changes, relative to previous revisions (addendums), are shown in bold type.

Major equipment is defined in Section 5.4 of the GIA.

Generator Connections located at Substations in the Transmission System

Campbell 1&2 Plant

The Campbell 1&2 Plant consists of three generating Units, known as Unit 1 (consisting of generators 1A and 1B), Unit 2 and Unit A. (The Campbell 3 Plant is located at the same site, but has separate interconnection facilities and is covered by a separate generator interconnection agreement.)

The Connection Point for Units 1, 2 and A are in the Campbell 138 kV Substation (see Wiring Diagram #93, Sheet 31 attached).

The Points of Receipt for all the Units in the Campbell 1&2 Plant are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers’ owns the following assets at the Campbell 138 kV Substation (Wiring Diagram #93, Sheet 31):

Transformer BankNo. A (located outside of substation; not included in JOA calc)

Circuit Breakers Nos. 199, 299, 799, 899*, 999 and 16A (16A is rated < 23kV and not considered major equipment per GIA definition).

Switches Nos. 99A, 195, 196, 295, 296, 709, 793, 795, 796, 809*, 893*, 895*, 896*, 909, 993, 995 and 996

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above and to the main or transfer buswork

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

FoundationsAll foundations supporting the Circuit Breakers identified above

* Jointly Owned asset with Michigan Public Power Agency (4.8%) and Wolverine Power Supply Cooperative (1.8%)

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the Campbell 138 kV Substation (Wiring Diagram #93, Sheet 31):

Transformer BankNo. 5

Circuit BreakersNos. 148, 188, 288, 388, 488, 500, 566 and 588

Switches Nos. 108, 144, 145, 146, 184, 185, 186, 208, 284, 285, 286, 308, 384, 385, 386, 408, 484, 485, 486, 505, 506, 508, 509, 545, 546, 564, 584, 585, 586, 1020 and 1121

Circuit Connections All wire, cable or bus work electrically connecting the switches identified above to the Circuit Breakers identified above and to the main or transfer bus work

Relay and Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Campbell 138 kV Substation - See Exhibit B - Table 1

CEII MATERIAL

Cobb Generating Plant Complex

The Cobb Generating Plant Complex consists of five generating Units, known as Units 1 through 5, respectively.

The Connection Points for Units 1 through 5 are in the BC Cobb Plant Substation (see Wiring Diagram #240, Sheet 31 attached).

The Points of Receipt for all the Units in the Cobb Generating Plant Complex are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers owns the following assets at the BC Cobb Plant Substation (Wiring Diagram #240, Sheet 31):

Transformer BanksNos. 1, 2, 3, 4, 5, 7 and 8

Capacitor Banks Nos. 1 and 2

Circuit Breakers Nos. 100, 188, 199, 288, 299, 399, 499, 599, 766, 799, 866, 899, 1177, 1188, 1288, 1388, 1488 and 1688

Switches Nos. 102, 104, 152, 156, 184, 185, 186, 193, 195, 196, 200, 252, 256, 284, 285, 286, 293, 295, 296, 393, 395, 396, 493, 495, 496, 593, 595, and 596, 709, 762, 764, 765, 793, 795, 796, 809, 862, 864, 865, 893, 895, 896, 1171, 1173, 1175, 1182, 1184, 1185, 1282, 1284, 1285, 1323, 1382, 1384, 1385, 1482, 1484, 1485, 1588, 1682, 1684, 1685, 1788, 1888, 2333, 7732-1, 7736-1, 8826-2, 8832-2 and 8836-2

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above and to the main buswork.

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformers and Circuit Breakers identified above

Auxiliary Power All 2400 Volt station power assets shown in the attached Wiring Diagram #240

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the BC Cobb Plant Substation (Wiring Diagram #240, Sheet 31):

Circuit Breakers Nos. 148, 377, 488, 500, 588, 688, 788, 888 and 988

Switches Nos. 144, 145, 146, 307, 373, 375, 376, 408, 484, 485, 486, 505, 506, 508, 584, 585, 586, 608, 684, 685, 686, 708, 784, 785, 786, 808, 884, 885, 886, 908, 984, 985, 986, 1020, 1121, 2030 and 2131

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above and to the main buswork.

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Cobb Plant Substation -See Exhibit B - Table 1

CEII MATERIAL

Gaylord Generating Plant Complex

The Gaylord Generating Plant Complex consists of five combustion turbine generating Units, known as Units 1 through 5, respectively.

The Connection Points for Units 1 through 5 are in the Gaylord Generating Substation (see Wiring Diagram #495, Sheet 31 attached).

The Points of Receipt for all the Units in the Gaylord Generating Plant Complex are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers owns the following assets at the Gaylord Generating Substation (Wiring Diagram #495, Sheet 31):

Transformer BanksNos. 1, 2* and 3* (*located outside of substation; not included in JOA calc)

Circuit Breakers Nos. A16*, 116*, 146, 166, 199, 216*, 316*, 416* and 1288 (*located outside of substation; not included in JOA calc)

Switches Nos. 3,142, 144, 145, 162, 164, 165, 191, 193, 195, 299, 399, 1282 and 1284

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformers and Circuit Breakers identified above

Auxiliary Power All station power assets shown in the attached Wiring Diagram #495, Sheet 31

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the Gaylord Generating Substation (Wiring Diagram #495, Sheet 31):

Capacitor Bank No. 3

Circuit Breakers Nos. 356, 377 and 477

Switches Nos. 352, 371, 373, 382, 384, 471, 473 and 475

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Gaylord Generating Substation - See Exhibit B - Table 1

CEII MATERIAL

Karn Generating Plant Complex

The Karn Generating Plant Complex consists of four generating Units, known as Units 1 (consisting of generators 1A and 1B), Unit 2 (consisting of generators 2A and 2B, Unit 3 and Unit 4.

The Connection Point for Units 1 and 2 are in the DE Karn Plant 138 Kv Substation (see Wiring Diagram #695, Sheet 31 attached). The Connection Point for Units 3 and 4 are in the Hampton 345 Kv Substation (see Wiring Diagram #1327, Sheet 31 attached).

The Points of Receipt for all the Units in the DE Karn Generating Plant Complex are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers owns the following assets at the DE Karn 138 Kv Substation (Wiring Diagram #695, Sheet 31):

Transformer Banks Nos. 1 and 2 (located outside the substation; not included in JOA calc)

Circuit BreakersNos. 199, 299, 799 and 899

Switches Nos. 136A, 136B, 195, 196, 236A, 236B, 295, 296, 793, 795, 796, 893, 895, and 896

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above and to the main or transfer buswork

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

FoundationsAll foundations supporting the Circuit Breakers identified above

Auxiliary Power All 480 Volt and 4160 Volt station power assets shown in the attached Wiring Diagram #695, Sheet 31

Transmission Owner’s Interconnection Assets

Transmission Owner owns the following assets at the DE Karn 138 Kv Substation (Wiring Diagram #695, Sheet 31):

Circuit BreakersNos. 148, 188, 388, 488, 500, 588 and 988

Switches Nos. 108, 144, 145, 146, 184, 185, 186, 308, 384, 385, 386, 408, 484, 485, 486, 505, 506, 508, 584, 585, 586, 709, 809, 908, 984, 985, 986, 2030 and 2131

Circuit Connections All wire, cable or buswork electrically connecting the switches identified above to the Circuit Breakers identified above and to adjacent buswork

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

FoundationsAll foundations supporting the Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Karn Plant Substation - See Exhibit B - Table 1

CEII MATERIAL

CEII MATERIAL

Morrow Generating Plant Complex

The Morrow Generating Plant Complex consists of two combustion turbine generating Units, known as Units A and B.

The Connection Points for both Units A and B are in the Morrow Substation (see Wiring Diagram #190, Sheet 31, attached).

The Points of Receipt for the Units in the Morrow Generating Plant Complex are deemed to be the Connection Points.

Consumers’ Interconnection Assets

Consumers’ owns the following assets at the Morrow Substation (Wiring Diagram #190, Sheet 31):

Transformer Banks No. 1, 2, 4 and 5

Circuit Breakers Nos. 100, 156, 166, 199, 256, 266, 299, 566, 499, 16A,16B, 599, 1077, 1188, 1388, 1488, 1588, 1688 and 1788

Switches Nos. 102, 104, 109, 162, 164, 165, 191, 193, 195, 196, 209, 252, 262, 264, 265, 291, 293, 295, 296, 300, 495, 496, 509, 562, 564, 565, 591, 593, 595, 596, 1071, 1073, 1075, 1182, 1184, 1185, 1323, 1382, 1384, 1385, 1482, 1484, 1485, 1582, 1584, 1585, 1682, 1684, 1685, 1782, 1784, 1785 and 2333

CapacitorsNos. 1 and 2

Circuit Connections All wire, cable or buswork electrically connecting the Transformers, Circuit Breakers and Switches identified above

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformers and Circuit Breakers identified above

Auxiliary Power All 480 Volt station power assets shown in the attached Wiring Diagram #190, Sheet 31

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the Morrow Substation (Wiring Diagram #190, Sheet 31):

Circuit BreakersNos. 177, 288, 377, 388, 500, 588, 677, 888 and 988

Switches Nos. 107, 171, 173, 175, 176, 208, 282, 284, 285, 286, 307, 308, 371, 373, 375, 376, 382, 384, 385, 386, 501, 502, 503, 504, 505, 506, 508, 582, 584, 585, 586, 607, 671, 673, 675, 676, 882, 884, 885, 886, 908, 982, 984, 985 and 986

Circuit Connections All wire, cable or buswork electrically connecting the Circuit Breakers and Switches identified above

Relay and Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Circuit Breakers identified above

Third Party Owned Assets

None

Jointly Owned Assets - Percentage Split by Major Equipment Count

Morrow Substation - See Exhibit B - Table 1

CEII MATERIAL

Thetford Generating Plant Complex

The Thetford Generating Plant Complex consists of nine combustion turbine generating Units, known as Units 1 through 9, respectively.

The Connection Points for Units 1 through 9 are in the Thetford Substation (see Wiring Diagram #1000, Sheet 31 attached).

The Points of Receipt for all the Thetford Units are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers owns the following assets at the Thetford Substation (Wiring Diagram #1000, Sheet 31):

Transformer Banks Nos. 5, 6-1, 6-2 and 7

Circuit BreakersNos. 13B7, 13W8, 116, 216, 316, 416, 516, 616, 716, 816 and 916

SwitchesNos. 13B1, 13B3, 13M5, 13W2, 13W4, 591, 691-1, 691-2 and 791

Circuit Connections All wire, cable or buswork electrically connecting the Transformer Banks, Circuit Breakers and Switches identified above

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformers and Circuit Breakers identified above

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the Thetford Substation (Wiring Diagram #1000, Sheet #31):

Transformer Banks Nos. 3 and 4

Circuit Breakers Nos. 6B7, 6M9, 6W8, 7B7, 7M9, 7W8, 9B7, 9M9, 9W8, 11B7, 11M9, 11W8, 27F7, 27H9, 27R8, 31F7, 31H9, 31R8, 33F7, 33H9 and 33R8

Switches Nos. 6B1, 6B3, 6M5, 6M6, 6W2, 6W4, 7B1, 7B3, 7M5, 7M6, 7W2, 7W4, 9B1, 9B3, 9M5, 9M6, 9W2, 9W4, 11B1, 11B3, 11M5, 11M6, 11W2, 399, 499, 11W4, 27F1, 27F3, 27H5, 27H6, 27R2, 27R4, 31F1, 31F3, 31H5, 31H6, 31R2, 31R4, 33F1, 33F3, 33H5, 33H6, 33R2, 33R4 and 35R2

Circuit Connections All wire, cable or buswork electrically connecting the Transformer Banks, Circuit Breakers and Switches identified above

Relay and Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformers and Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Thetford Substation - See Exhibit B - Table 1

CEII MATERIAL

Weadock Generating Plant Complex

The Weadock Generating Plant Complex consists of three generating Units, known as Units 7, 8 and A.

The Connection Points for Units 7, 8 and A1 are in the John C Weadock Substation (see Wiring Diagram #195, Sheet 31 attached). These Units are currently in service. In addition, there are six other units, known as Units 1 through 6, which have been retired from service, but are still in place. Those assets are also described below, should the Units be restored to service in the future.

The Points of Receipt for all the Units currently in service at the Weadock Generating Plant Complex are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets (for Units In Service)

Consumers owns the following assets at the John C Weadock Substation (Wiring Diagram #195, Sheets 2 and 31):

Transformer Banks Nos. 1, 2, 7, 8, 9 and 10

Circuit Breakers Nos. 66A, 100, 136, 166, 199, 236, 266, 299, 300, 736C, 799, 899, 966, 999, 1066, 1088, 1099, 1188, 1288 and 1388

Switches Nos. 62A, 64A, 102, 104, 105, 106, 132, 134, 135, 152, 156, 162, 164, 165, 195, 196, 200, 232, 234, 235, 252, 256, 262, 264, 265, 295, 296, 302, 304, 306, 400, 732C, 734C, 735C, 736A, 736B, 795, 796, 836A, 836B, 895, 896, 962, 964, 965, 991, 993, 995, 996, 1062, 1064, 1065, 1082, 1084, 1085, 1091, 1093, 1095, 1096, 1182, 1184, 1185, 1282, 1284, 1285, 1382, 1384 and 1385

Capacitors1 and 2

Circuit Connections All wire, cable or buswork electrically connecting the Switches identified above to the Circuit Breakers identified above and to the main buswork.

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformer Banks and Circuit Breakers identified above

Auxiliary Power All 480 Volt and 4160 Volt station power assets shown in the attached Wiring Diagram #195, Sheet 31

Consumers’ Interconnection Assets (for Units Retired in Place)

Consumers owns the following assets at the John C Weadock Substation (Wiring Diagram #195, Sheet 31):

Transformer BanksNos. 5 and 6

Circuit BreakersNos. 99A, 116, 216, 316, 336, 416 and 436

Switches Nos. 93A, 112, 114, 212, 214, 312, 314, 332, 412, 414, 432, 516, 536 and 616

Circuit Connections All wire, cable or buswork electrically connecting the Switches identified above to the Circuit Breakers identified above and to the main buswork.

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformer Banks and Circuit Breakers identified above

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the John C Weadock Substation (Wiring Diagram #195, Sheet 31):

Circuit BreakersNos. 148, 188, 288, 388, 488, 500, 588, 688 and 788

Switches Nos. 108, 142, 144, 145, 146, 182, 184, 185, 186, 208, 282, 284, 285, 286, 308, 382, 284, 385, 386, 408, 482, 484, 485, 486, 505, 506, 508, 582, 584, 585, 586, 608, 682, 684, 685, 686, 708, 782, 784, 785, 786, 900, 1020,1121, 2030, 2131, 3040, 3141, 4050 and 4151

Circuit Connections All wire, cable or buswork electrically connecting the Switches identified above to the Circuit Breakers identified above and to the main buswork

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

John C Weadock Substation - See Exhibit B - Table 1

CEII MATERIAL

Whiting Generating Plant Complex

The Whiting Generating Plant Complex consists of four generating Units, known as Units 1, 2, 3 and A.

The Connection Points for Units 1, 2, 3 and A are in the Whiting Substation (see Wiring Diagram #400, Sheet 31attached). Units 1, 2 and 3 are connected to the 138 Kv buswork and Unit A is connected to the 46 Kv buswork

The Points of Receipt for all the Units in the Whiting Generating Plant Complex are deemed to be the respective Connection Points.

Consumers’ Interconnection Assets

Consumers owns the following assets at the Whiting Substation (Wiring Diagram #400, Sheet 31):

Transformer Banks Nos. 1, 2, 3, 5, 7 and A (TB # A located outside of substation; not included in JOA calc)

Circuit Breakers Nos. 16A (located outside switchyard; not included in JOA calc), 46A, 199, 299, 399, 599, 766, 799, 1188 and 1288

Switches Nos. 42A, 44A, 45A, 99A, 105, 156, 191, 193, 195, 196, 291, 293, 295, 296, 391, 393, 395, 396, 591, 593, 79T1, 762, 764, 765, 795, 796, 1182, 1184, 1185, 1282, 1284, 1285

Capacitor Bank No 1

Circuit Connections All wire, cable or buswork electrically connecting the Transformer Banks, Circuit Breakers and Switches identified above to each other, as appropriate, to the main buswork and to the Auxiliary Power assets

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformer Banks and Circuit Breakers identified above

Auxiliary Power All 480 Volt and 2400 Volt station power assets shown in the attached Wiring Diagram #400, Sheet 31

Transmission Owner Interconnection Assets

Transmission Owner owns the following assets at the Whiting Substation (Wiring Diagram #400, Sheet 31):

Transformer Bank No. 8

Circuit BreakersNos. 500, 688, 788,899 and 988

Switches Nos. 501, 502, 503, 504, 505, 506, 608, 682, 684, 685, 686, 785, 786, 866, 895, 896, 908, 982, 984, 985 and 986

Circuit Connections All wire, cable or buswork electrically connecting the Transformer Banks, Circuit Breakers and Switches identified above to each other, as appropriate, to the main buswork

Relay & Controls All relays and controls associated with the Circuit Breakers identified above

Foundations All foundations supporting the Transformer Bank and Circuit Breakers identified above

Jointly Owned Assets - Percentage Split by Major Equipment Count

Whiting Substation - See Exhibit B - Table 1

CEII MATERIAL

EXHIBIT C

Generator Connections located in Consumers’ Distribution System

The following Units are connected indirectly to the Transmission System and do not have specific connection data listed herein.

Alcona Hydro Generating Plant, Units 1 and 2

Calkins Bridge “Allegan” Hydro Generating Plant, Units 1, 2 and 3

Cooke Hydro Generating Plant, Units 1. 2 and 3

Croton Hydro Generating Plant, Units 1, 2, 3 and 4

Five Channels Generating Plant, Units 1 and 2

Foote Hydro Generating Plant, Units 1, 2 and 3

Hodenpyl Hydro Generating Plant, Units 1 and 2

Loud Hydro Generating Plant, Units 1 and 2

Mio Hydro Generating Plant, Units 1 and 2

Rogers Hydro Generating Plant, Units 1, 2, 3 and 4

Straits Combustion Turbine Generating Unit 1

Tippy Hydro Generating Plant, Units 1, 2 and 3

Webber Hydro Generating Plant, Units 1 and 2

Consumers Energy Generator Connections Covered under Other Interconnection Agreements

The following Units are covered under their own GIAs and do not have specific connection data listed herein.

Campbell Generating Plant, Unit 3.

Hardy Hydro Generating Plant, Units 1, 2 and 3.

Zeeland Power Plant

Ludington Units 1,2,3,4,5 and 6.

EX-10.133

EXHIBIT 10.133

NOTICE TO OPTION HOLDERS UNDER THE

AMENDED AND RESTATED 2003 STOCK PURCHASE AND OPTION PLAN

The Compensation Committee, in accordance with the terms of the Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of ITC Holdings Corp and its Subsidiaries, as amended (the “Plan”), has determined to allow holders of options granted under the Plan to exercise their options and to satisfy their withholding obligations in connection with the exercise through a cashless net exercise methodology. If an option holder gives notice to the Company that an option is being exercised and withholding is being satisfied using this method, no cash payment will be due from the option holder. Instead, shares will be withheld from the amount otherwise issuable upon the exercise with a current value equal to the exercise price and withholding obligation, and the Company will issue the net amount of shares and cancel the remaining exercised portion of the option. Use of this methodology benefits the option holder as it provides an additional way to exercise without paying cash to the Company and without a transaction in the market that might otherwise have insider trading implications.

No signature is necessary to make this amendment effective, because it merely provides an additional right to the option holder. Please retain a copy of this notice and amendment for your records.

AMENDMENT TO STOCK OPTION AGREEMENTS UNDER

AMENDED AND RESTATED 2003 STOCK PURCHASE AND OPTION PLAN

This Amendment, dated as of May 20, 2014, between ITC Holdings Corp. (the “Company”) and the Optionee. Section 4.3 of each of the stock option agreements held by Optionee relating to Options granted under the Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of ITC Holdings Corp and its Subsidiaries, as amended (the “Plan”) is hereby amended adding the following at the end of such Section:

In addition to the forms of payment set forth above, Optionee may elect to make payment by means of a “net exercise” (described below). A “net exercise” shall mean an exercise of the Option pursuant to which, upon delivery to the Company of written notice of exercise, the consideration received in payment for the exercise of the Option shall be the cancellation of a portion of the Option and the Company shall become obligated to issue the “net number” of shares of Common Stock determined according to the following formula:

((A x B) - (A x C))

B

For purposes of the foregoing formula:

A = the total number of shares with respect to which the Option is then being exercised (which, for the avoidance of doubt, shall include both the number of shares to be issued to the Optionee and the number of shares subject to the portion of the Option to be cancelled in payment of the exercise price).

B= the Fair Market Value for the Common Stock on the date of the Company’s receipt of the exercise notice.

C= the exercise price in effect at the time of such exercise.

If the foregoing formula would yield a number of shares to be issued that is not a whole number, any such fraction shall be rounded down and disregarded. The shares underlying the exercised portion of the Option that are not issued pursuant to the foregoing formula, along with the corresponding portion of the Option, shall be considered cancelled and no longer subject to exercise.

If the “net exercise” method is used to satisfy the tax withholding obligations, the number of shares to be otherwise issued upon exercise (regardless of how the exercise price was paid) shall be reduced by an amount equal to (a) the tax withholding obligation, as determined by the Company in good faith, divided by (b) the Fair Market Value for the Common Stock on the date of the Company’s receipt of the exercise notice, and rounded up to the nearest whole share. The corresponding portion of the Option shall be considered cancelled and no longer subject to exercise.

EX-10.134

EXHIBIT 10.134

NOTICE TO OPTION HOLDERS UNDER THE SECOND AMENDED AND RESTATED 2006 LONG TERM INCENTIVE PLAN

The Compensation Committee, in accordance with the terms of the Second Amended and Restated 2006 Long Term Incentive Plan (the “Plan”), has determined to allow holders of options granted under the Plan to exercise their options and to satisfy their withholding obligations in connection with the exercise through a cashless net exercise methodology. If an option holder gives notice to the Company that an option is being exercised and withholding is being satisfied using this method, no cash payment will be due from the option holder. Instead, shares will be withheld from the amount otherwise issuable upon the exercise with a current value equal to the exercise price and withholding obligation, and the Company will issue the net amount of shares and cancel the remaining exercised portion of the option. Use of this methodology benefits the option holder as it provides an additional way to exercise without paying cash to the Company and without a transaction in the market that might otherwise have insider trading implications.

No signature is necessary to make this amendment effective, because it merely provides an additional right to the option holder. Please retain a copy of this notice and amendment for your records.

AMENDMENT TO STOCK OPTION AGREEMENTS UNDER 2006 LTIP

This Amendment, dated as of May 20, 2014, between ITC Holdings Corp. (the “Company”) and the Optionee. Each of the stock option agreements held by Optionee relating to Options granted under the Second Amended and Restated 2006 Long Term Incentive Plan (the “Plan”) is hereby amended as set forth below:

1.Section 4.3 is amended by adding the following at the end of such Section:

In addition to the forms of payment set forth above, and subject to the limitations set forth in Section 2.4 of the Plan, Optionee may elect to make payment by means of a “net exercise” (described below). A “net exercise” shall mean an exercise of the Option pursuant to which, upon delivery to the Company of written notice of exercise, the consideration received in payment for the exercise of the Option shall be the cancelation of a portion of the Option and the Company shall become obligated to issue the “net number” of shares of Common Stock determined according to the following formula:

((A x B) - (A x C))

B

For purposes of the foregoing formula:

A = the total number of shares with respect to which the Option is then being exercised (which, for the avoidance of doubt, shall include both the number of shares to be issued to the Optionee and the number of shares subject to the portion of the Option to be cancelled in payment of the exercise price).

B= the Stock Exchange closing price for the Common Stock on the last date on which there were Common Stock transactions preceding the date of the Company’s receipt of the exercise notice.

C= the exercise price in effect at the time of such exercise.

If the foregoing formula would yield a number of shares to be issued that is not a whole number, any such fraction shall be rounded down and disregarded. The shares underlying the exercised portion of the Option that are not issued pursuant to the foregoing formula, along with the corresponding portion of the Option, shall be considered cancelled and no longer subject to exercise.

2.Section 4.6 is amended by adding the following at the end of such Section:

If the “net exercise” method is used to satisfy the tax withholding obligations, the number of shares to be otherwise issued upon exercise (regardless of how the exercise price was paid) shall be reduced by an amount equal to (a) the tax withholding obligation, as determined by the Company in good faith, divided by (b) the Stock Exchange closing price for the Common Stock on the last date on which there were Common Stock transactions preceding the date of the Company’s receipt

of the exercise notice, and rounded up to the nearest whole share. The corresponding portion of the Option shall be considered cancelled and no longer subject to exercise.

EX-10.135

EXHIBIT 10.135

STOCK OPTION AGREEMENT

THIS AGREEMENT, dated as of ________ (the “Grant Date”), is made by and between ITC Holdings Corp., a Michigan corporation (the “Company”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company or a Subsidiary of the Company (the “Optionee”). Any capitalized terms herein but not otherwise defined shall have the meaning set forth in the Company’s Second Amended and Restated 2006 Long Term Incentive Plan, as may be further amended from time to time (the “Plan”).

WHEREAS, the Company wishes to afford the Optionee the opportunity to purchase shares of its common stock (the “Common Stock”) pursuant to the terms and conditions of this Agreement and the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and

WHEREAS, this Agreement and the grant made pursuant to this Agreement are not subject to and shall not be governed by any Management Stockholder’s Agreement between the Company and Optionee; and

WHEREAS, the Committee has determined that it would be in the best interest of the Company and its shareholders to grant the Option provided for herein to the Optionee as an incentive for increased efforts during his term of office with the Company or its Subsidiaries, has approved the grant of the Option on the Grant Date and has advised the Company thereof and instructed the undersigned officer to issue said Option.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I

OPTION GRANT

1.1. Grant of Options. For good and valuable consideration, on and as of the date hereof, the Company irrevocably grants to the Optionee a Nonqualified Stock Option to purchase ________ shares of Common Stock upon the terms and conditions set forth in this Agreement (the “Option”).

1.2. Exercise Price. Subject to Section 2.1, the exercise price of the shares of Common Stock covered by the Option shall be $_______ per share without commission or other charge (which is the Fair Market Value per share of the Common Stock on the Grant Date).

ARTICLE II

ADJUSTMENTS

2.1.    Adjustments to Option. In the event of a merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Common Stock or the value thereof, such adjustments and other substitutions shall be made to the Option as the Committee, in its sole discretion, deems equitable or appropriate, including adjustments in the number, class, kind and exercise price of securities subject to the Option (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of another company, as the Committee may determine to be appropriate in its sole discretion).

ARTICLE III

PERIOD OF EXERCISABILITY

3.1.    Exercisability of Option.

(a)    So long as the Optionee continues to be employed by the Company or any of its Subsidiaries, or in the event Optionee’s employment terminates due to Retirement, the Option shall become exercisable pursuant to the following schedule:

Date Option Becomes Exercisable	Percentage of Shares As to Which Option Is Exercisable On and After Such Date
On and after the first anniversary of the Grant Date	33 1/3%
On and after the second anniversary of the Grant Date	66 2/3%
On and after the third anniversary of the Grant Date	100%

(b)    Notwithstanding the foregoing, the Option shall become immediately exercisable as to 100% of the shares of Common Stock subject to such Option (but only to the extent such Option has not otherwise terminated or become exercisable) (i) if the Optionee ceases to be employed due to Optionee’s death or Disability, or (ii) upon the occurrence of a Change in Control Termination (as defined below); provided, however, that this Section 3.1(b)(ii) is subject to the Committee’s rights, in the event of a Change in Control, to cash out the Option pursuant to Section 9.2(b) of the Plan. The Committee has irrevocably determined not to, and shall not (and shall not permit the Board to), exercise any right it may have under the Plan, including without limitation under Section 9.2(c) of the Plan, to determine that the Option shall not become immediately exercisable upon a Change in Control.

(c)    A “Change in Control Termination” shall mean a termination of Optionee’s employment (i) by the Company without “Cause” or (ii) if the Optionee is a party to a written employment agreement with the Company, by Optionee for “Good Reason” (as defined in such agreement), which termination in the case of (i) or (ii) occurs after the execution of an agreement to which the Company is a party pursuant to which a Change in Control will occur or has occurred upon consummation of the transactions contemplated by such agreement but, if a Change in Control has occurred pursuant thereto, not more than two years after such Change in Control, and if a Change in Control has not yet occurred pursuant thereto, while such agreement remains executory.

(d)    “Cause” shall mean (i) if the Optionee is a party to a written employment agreement with the Company, “Cause” as defined in such agreement, and (ii) in all other cases, (A) Optionee’s continued failure substantially to perform Optionee’s duties to the Company or affiliates (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Company to Optionee of such failure, (B) dishonesty in the performance of Optionee’s duties hereunder, (C) Optionee’s conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, (D) Optionee’s willful malfeasance or willful misconduct in connection with Optionee’s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Company or affiliates or (E) Optionee’s breach of any non-compete or confidentiality obligations to the Company or affiliates.

3.2    Expiration of Option. The Option may not be exercised after the first to occur of the following events and shall in no event be exercisable after the tenth anniversary of the Grant Date:

(a)    If, prior to the date when the Option first becomes exercisable, Optionee’s employment terminates for any reason other than death, Disability or Retirement, Optionee’s right to exercise the Option shall terminate and all rights thereunder shall cease; or

(b)    If, on or after the date when the Option first becomes exercisable, Optionee’s employment terminates for any reason other than death, Disability or Retirement, Optionee shall have the right, within three months after termination of employment to exercise the Option to the extent that it was exercisable and unexercised on the date of Optionee’s termination of employment, subject to any other limitation on the exercise of the Option in effect on the date of exercise.

If Optionee’s employment terminates due to death, Disability or Retirement, or is a Change in Control Termination occurring, before the tenth anniversary of the Grant Date, Optionee or the person or persons to whom the Option shall have been transferred by will or the laws of descent and distribution shall have the right within the exercise period specified in this Agreement to exercise the Option, subject to any other limitation on exercise in effect on the date of exercise.

3.3.    Committee Discretion. The Committee, at the time of Optionee’s termination of employment, subject to the limitations set forth in the Plan, may accelerate Optionee’s right to exercise the Option or, subject to Code Section 409A, may extend the Option term.

3.4.     Retirement. “Retirement” as used in this Agreement shall mean the termination of the Optionee’s employment, by the Company or by Optionee, on or after Optionee’s 65th birthday, other than due to death or Disability.

ARTICLE IV

EXERCISE OF OPTION

4.1.    Person Eligible to Exercise. During the lifetime of the Optionee, only the Optionee may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable under Section 3.2, be exercised by his personal representative or by any person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.

4.2.    Partial Exercise. Any exercisable portion of an Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.2 of this Agreement; provided, however, that any partial exercise shall be for whole shares of Common Stock only.

4.3.    Manner of Exercise. The exercise price for shares of Common Stock to be acquired upon exercise of the Option shall be paid in full in cash or by personal check, bank draft or money order at the time of exercise upon written notice to the Company of such exercise; provided, however, that in lieu of such form of payment, subject to the limitations set forth in Section 2.4 of the Plan, Optionee may elect to make payment may be made by means of a “net exercise” (described below) or by any other means permitted by the Plan and by the Committee from time to time in the Committee’s sole discretion. A “net exercise” shall mean an exercise of the Option pursuant to which, upon delivery to the Company of written notice of exercise, the consideration received in payment for the exercise of the Option shall be the cancellation of a portion of the Option and the Company shall become obligated to issue the “net number” of shares of Common Stock determined according to the following formula:

((A x B) - (A x C))

B

For purposes of the foregoing formula:

A = the total number of shares with respect to which the Option is then being exercised (which, for the avoidance of doubt, shall include both the number of shares to be issued to the Optionee and the number of shares subject to the portion of the Option to be cancelled in payment of the exercise price).

B= the Stock Exchange closing price for the Common Stock on the last date on which there were Common Stock transactions preceding the date of the Company’s receipt of the exercise notice.

C= the exercise price in effect at the time of such exercise.

If the foregoing formula would yield a number of shares to be issued that is not a whole number, any such fraction shall be rounded down and disregarded. The shares underlying the exercised portion of the Option that are not issued pursuant to the foregoing formula, along with the corresponding portion of the Option, shall be considered cancelled and no longer subject to exercise.

4.4.    Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of an Option or portion thereof (or make or cause to be made any book entry evidencing such issuance) prior to fulfillment of all of the following conditions:

(a)     The obtaining of approval or other clearance from any state or federal governmental agency or stock exchange which the Committee shall, in its reasonable and good faith discretion, determine to be necessary or advisable; and

(b)     The receipt by the Company of such assurance of compliance with federal and state securities laws as it may deem necessary or advisable.

4.5.    Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of the Option or any portion thereof unless and until a certificate or certificates representing such shares shall have been issued by the Company to such holder or a book entry representing such shares has been made and such shares have been deposited with the appropriate registered book-entry custodian. The Company shall not be liable to the Employee for damages relating to any delay in issuing a stock certificate to Optionee, any loss of a certificate, or any mistakes or errors in the issuance of a certificate to Optionee.

4.6.    Withholding. The Company shall have the right to withhold from Optionee’s compensation or to require Optionee to remit sufficient funds to satisfy applicable withholding for income and employment taxes upon the exercise of an Option. Subject to the limitations in Section 10.5 of the Plan, Optionee may, in order to fulfill the withholding obligation, make payment to the Company in any manner permitted for payment of the exercise price under Section 4.3 of this Agreement. If the “net exercise” method is used to satisfy the tax withholding obligations, the number of shares to be otherwise issued upon exercise (whether the exercise price was paid in cash or by “net exercise”) shall be reduced by an amount equal to (a) the tax withholding obligation, as determined by the Company in good faith, divided by (b) the Stock Exchange closing price for the Common Stock on the last date on which there were Common Stock transactions preceding the date of the Company’s receipt of the exercise notice, and rounded up to the nearest whole share. The corresponding portion of the Option shall be considered cancelled and no longer subject to exercise. The Company shall not withhold from the exercise of an Option more shares than are necessary to meet the established tax withholding requirements of federal, state and local obligations and, if the exercise price is paid by means of “net exercise,” to pay the exercise price. The Company shall be authorized to take such action as may be necessary, in the opinion of the Company’s counsel (including, without limitation, withholding vested Common Stock otherwise deliverable to the Optionee and/or withholding amounts from any compensation or other amount owing from the Company to the Optionee), to satisfy the obligations for payment of the minimum amount of any such taxes.

ARTICLE V

MISCELLANEOUS

5.1.    Option Not Transferable. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.1 shall not prevent transfers by will or by the applicable laws of descent and distribution, or transfers to which the Committee has given prior written consent subject to the conditions set forth in Section 10.3(a) of the Plan.

5.2.    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him or her at the address stated in the Company’s employee records. By a notice given pursuant to this Section 5.2, either party may hereafter designate a different address for notices to be given to the party. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.2. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

5.3.    Amendment. Subject to Section 3.3 of this Agreement and Sections 9.1 and 10.6 of the Plan, this Agreement may be amended only by a writing executed by the parties hereto if such amendment would adversely affect Optionee. Any such amendment shall specifically state that it is amending this Agreement.

5.4.    Governing Law. The laws of the State of Michigan shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

5.5. No Guarantee of Employment. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Optionee’s employment agreement with the Company.

5.6    Plan Terms Control. In the event of any conflict between the Plan and this Agreement, the terms of the Plan shall control, it being understood that variations in this Agreement from terms set forth in the Plan shall not be considered to be in conflict if the Plan permits such variations.

5.7    Recoupment Policy. This Agreement, the Option and any economic benefits recognized by Optionee in connection with the Option (including, without limitation, shares received upon exercise of the Option and the proceeds from the sale of such shares) are subject to forfeiture and/or recoupment pursuant to the Company’s Recoupment Policy adopted November 26, 2013, as amended from to time.

[Signatures on next page.]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date.

ITC HOLDINGS CORP.

By: /s/ Daniel J. Oginsky

Name: Daniel J. Oginsky

Title: Senior Vice President and General Counsel

OPTIONEE:

EX-10.136

EXHIBIT 10.136

RESTRICTED STOCK AWARD AGREEMENT

THIS AGREEMENT (the “Agreement”) is made effective as of _________ (the “Grant Date”), between ITC Holdings Corp., a Michigan corporation (hereinafter called the “Company”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company or a Subsidiary of the Company, hereinafter referred to as the “Employee”. Capitalized terms not otherwise defined herein shall have the same meanings as in the Second Amended and Restated 2006 Long Term Incentive Plan, as may be further amended from time to time (the “Plan”).

WHEREAS, Employee is employed by the Company or one of its Subsidiaries and the Company desires to grant the Employee shares of Common Stock, pursuant to the terms and conditions of this Agreement (the “Restricted Stock Award”) and the Plan (the terms of which are hereby incorporated by reference and made a part of this Agreement); and

WHEREAS, this Agreement and the grants made pursuant to this Agreement are not otherwise subject to and shall not be governed by any Management Stockholder’s Agreement between Company and Employee; and

WHEREAS, the Committee has determined that it would be in the best interest of the Company and its shareholders to grant the shares of Common Stock provided for herein to the Employee as an incentive for increased efforts during his or her employment, has approved the grant of the Restricted Stock Award on the Grant Date and has advised the Company thereof and instructed the undersigned officer to grant said Restricted Stock Award.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

1.Grant of the Restricted Stock. Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Employee ________ shares of Common Stock (hereinafter called the “Restricted Stock”). The Restricted Stock shall vest and become nonforfeitable in accordance with Section 2 hereof. In the event of any conflict between the Plan and this Agreement, the terms of the Plan shall control, it being understood that variations in this Agreement from terms set forth in the Plan shall not be considered to be in conflict if the Plan permits such variations.

2.Vesting and Forfeiture.

(a)So long as the Employee continues to be employed by the Company or its Subsidiaries, the Restricted Stock shall become 100% vested and non-forfeitable upon the earliest to occur of (i) the third anniversary of the Grant Date (the “Vesting Date”), (ii) the Employee ceasing to be employed due to Employee’s death or Disability, or (iii) the occurrence of a Change in Control Termination (as defined below). The Committee has irrevocably determined not to, and shall not (and shall not permit the Board to), exercise any right it may have under the Plan, including without limitation under Section 9.2(c) of the Plan, to determine that the Restricted Stock shall not become immediately 100% vested upon a Change in Control.

(b)If Employee’s employment is terminated for any reason other than Employee’s death, Disability or Retirement prior to the Vesting Date or a Change in Control, Employee’s right to shares of Common Stock subject to the Restricted Stock Award that are not yet vested automatically shall terminate and be forfeited by Employee unless the Committee, in the exercise of its authority under the Plan, modifies the Vesting Date in connection with such termination.

(c)The foregoing provisions of this Section 2 notwithstanding, if Employee attains or has attained “Normal Retirement Age” (as defined in the International Transmission Company Retirement Plan) prior to the Vesting Date while continuing to be employed by the Company or its Subsidiaries, the Restricted Stock shall become vested (i) as of the date Employee attains such Normal Retirement Age, in increments of 33-1/3% of such shares in respect of each one year anniversary (if any) of the date of this Agreement that has occurred prior to Employee’s attaining such Normal Retirement Age, and (ii) in increments of 33-1/3% of such shares as of each one year anniversary of the date of this Agreement that occurs after Employee attains such Normal Retirement Age until all shares have fully vested (provided that Employee continues to be employed by the Company or its Subsidiaries as of each such anniversary).

(d)A “Change in Control Termination” shall mean a termination of Employee’s employment (i) by the Company without “Cause” or (ii) if the Employee is a party to a written employment agreement with the Company, by Employee for “Good Reason” (as defined in such agreement), which termination in the case of (i) or (ii) occurs after the execution of an agreement to which the Company is a party pursuant to which a Change in Control will occur or has occurred upon consummation of the transactions contemplated by such agreement but, if a Change in Control has occurred pursuant thereto, not more than two years after such Change in Control, and if a Change in Control has not yet occurred pursuant thereto, while such agreement remains executory.

(e)“Cause” shall mean (i) if the Employee is a party to a written employment agreement with the Company, “Cause” as defined in such agreement, and (ii) in all other cases, (A) Employee’s continued failure substantially to perform Employee’s duties to the Company or affiliates (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Company to Employee of such failure, (B) dishonesty in the performance of Employee’s duties hereunder, (C) Employee conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, (D) Employee’s willful malfeasance or willful misconduct in connection with Employee’s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Company or affiliates or (E) Employee’s breach of any non-compete or confidentiality obligations to the Company or affiliates.

3.Certificates.

(a)Certificates evidencing the Restricted Stock shall be issued by the Company and shall be registered in the Employee’s name on the stock transfer books of the Company promptly after the date hereof, but shall remain in the physical custody of the Company or its designee at all times prior to the vesting of such Restricted Stock pursuant to Section 2. The Employee hereby acknowledges and agrees that the Company shall retain custody of such certificate or certificates until the restrictions imposed by Section 2 on the Common Stock granted hereunder lapse. As a condition to the receipt of this Restricted Stock Award, the Employee shall deliver to the Company a stock power, duly endorsed in blank, relating to the Restricted Stock. Alternatively, instead of issuing a stock certificate, the shares may be issued in book entry form. No certificates shall be issued for fractional shares.

(b)As soon as practicable following the vesting of the Restricted Stock pursuant to Section 2, certificates for the Restricted Stock which shall have vested shall be delivered to the Employee or to the Employee’s legal guardian or representative along with the stock powers relating thereto. If the shares have been issued in book entry form, the restrictive notation made pursuant to Section 5 of this Agreement shall be removed.

4.Rights as a Stockholder. The Employee shall have no rights as a stockholder of the Company until certificates are issued. Once issued, the Employee shall be the record owner of the Restricted Stock unless or until such Restricted Stock is forfeited pursuant to Section 2 hereof or is otherwise sold, and as record owner shall be entitled to all rights of a common stockholder of the Company (including, without limitation, the right to vote and to receive dividends and other distributions on the shares of Restricted Stock).

5.Legend on Certificates. The certificates representing the vested Restricted Stock delivered to the Employee as contemplated by Section 3(b) above shall bear the following legend:

The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the ITC Holdings Corp. Second Amended and Restated 2006 Long Term Incentive Plan (“Plan”), rules and administrative guidelines adopted pursuant to such Plan and an Agreement dated May 22, 2012. A copy of the Plan, such rules and such Agreement may be obtained from the Secretary of ITC Holdings Corp.

Such certificates shall also be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission or any stock exchange upon which such Common Stock is listed, any applicable Federal or state laws and the Company’s Articles of Incorporation and Bylaws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. If issued in book entry form, a notation shall be made therewith to the same restrictive effect as set forth above.

6.Transferability. The Restricted Stock may not, at any time prior to becoming vested pursuant to Section 2 or thereafter, be transferred, sold, assigned, pledged, hypothecated or otherwise alienated.

7.Employee’s Employment by the Company. Nothing contained in this Agreement or in any other agreement entered into by the Company or any of its Subsidiaries and the Employee, other than the applicable provisions of any offer letter from the Company or any of its Subsidiaries to the Employee or any employment agreement entered into by and between the Employee and the Company or any of its Subsidiaries, as applicable,(i) obligates the Company or any Subsidiary to employ the Employee in any capacity whatsoever or (ii) prohibits or restricts the Company or any Subsidiary from terminating the employment, if any, of the Employee at any time or for any reason whatsoever, with or without cause, and the Employee hereby acknowledges and agrees that neither the Company nor any other person or entity has made any representations or promises whatsoever to the Employee concerning the Employee’s employment or continued employment by the Company or any Subsidiary thereof.

8.Change in Capitalization. In the event of a merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Common Stock or the value thereof, prior to the time the restrictions imposed by Section 2 on the Restricted Stock granted hereunder lapse, such adjustments and other substitutions shall be made to the Restricted Stock Awards as the Committee, in its sole discretion, deems equitable or appropriate. Any stock, securities or other property exchangeable

for Restricted Stock pursuant to such transaction shall be deposited with the Company and shall become subject to the restrictions and conditions of this Agreement to the same extent as if it had been the original property granted hereby, all pursuant to the Plan.

9.Withholding. The Company shall have the right to withhold from Employee’s compensation or to require Employee to remit sufficient funds to satisfy applicable withholding for income and employment taxes upon the vesting of Restricted Stock pursuant to Section 2. Subject to limitations in the Plan, Employee may, in order to fulfill the withholding obligation, tender previously-acquired shares of Common Stock that have been held at least six months, provided that the shares have an aggregate Fair Market Value sufficient to satisfy in whole or in part the applicable withholding taxes. The Company shall be authorized to take such action as may be necessary, in the opinion of the Company’s counsel (including, without limitation, withholding vested Common Stock otherwise deliverable to the Employee and/or withholding amounts from any compensation or other amount owing from the Company to the Employee), to satisfy the obligations for payment of the minimum amount of any such taxes.

10.Limitation on Obligations. The Company’s obligation with respect to the Restricted Stock granted hereunder is limited solely to the delivery to the Employee of shares of Common Stock on the date when such shares are due to be delivered hereunder, and in no way shall the Company become obligated to pay cash in respect of such obligation. This Restricted Stock Award shall not be secured by any specific assets of the Company or any of its Subsidiaries, nor shall any assets of the Company or any of its subsidiaries be designated as attributable or allocated to the satisfaction of the Company’s obligations under this Agreement. In addition, the Company shall not be liable to the Employee for damages relating to any delay in issuing the share certificates, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

11.Securities Laws. Upon the vesting of any Restricted Stock, the Company may require the Employee to make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. The granting of the Restricted Stock hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

12.Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him or her at the address stated in the Company’s employee records. By a notice given pursuant to this Section 12, either party may hereafter designate a different address for notices to be given to the party. Any notice that is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 12. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

13.Governing Law. The laws of the State of Michigan shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

14.Amendment. Subject to Section 2(b) of this Agreement and Sections 9.1 and 10.6 of the Plan, this Agreement may be amended only by a writing executed by the parties hereto if such amendment would adversely affect Employee. Any such amendment shall specifically state that it is amending this Agreement.

15.Recoupment Policy. This Agreement, the Restricted Stock Award and any economic benefits recognized by Employee in connection with the Restricted Stock Award (including, without limitation, the proceeds from the sale of shares subject to the Restricted Stock Award) are subject to forfeiture and/or recoupment pursuant to the Company’s Recoupment Policy adopted November 26, 2013, as amended from to time.

16.Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[Signatures on next page]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Grant Date.

EMPLOYEE

ITC HOLDINGS CORP.

By: /s/ Daniel J. Oginsky

Name: Daniel J. Oginsky

Title: Senior Vice President and General Counsel

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph L. Welch, certify that:

1. I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2014 of ITC Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2014

/s/ Joseph L. Welch

Joseph L. Welch

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Rejji P. Hayes, certify that:

1. I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2014 of ITC Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 6, 2014

/s/ Rejji P. Hayes

Rejji P. Hayes

Vice President, Treasurer and Interim Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ITC Holdings Corp. (the “Registrant”) on Form 10-Q for the quarterly period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joseph L. Welch, President and Chief Executive Officer of the Registrant, and Rejji P. Hayes, Vice President, Treasurer and Interim Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: August 6, 2014

/s/ Joseph L. Welch

Joseph L. Welch

President and Chief Executive Officer

/s/ Rejji P. Hayes

Rejji P. Hayes

Vice President, Treasurer and Interim Chief Financial Officer

XML

EARNINGS PER SHARE Schedule of Basic and Diluted Earnings Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Numerator:
NET INCOME	$ 54,336		$ 47,395		$ 123,472		$ 97,585
Dividends declared and paid	(22,530)		(19,789)		(44,983)		(39,522)
Undistributed earnings	31,806		27,606		78,489		58,063
Percentage allocated to common shares	99.20%	[1]	99.00%	[1]	99.20%	[1]	99.00%	[1]
Numerator for basic and diluted earnings per common share	53,899		46,936		122,470		96,625
Denominator:
Basic earnings per common share — weighted average common shares outstanding	156,427,493		155,645,337		156,309,340		155,458,851
Incremental shares for stock options and employee stock purchase plan — weighted average assumed conversion	1,541,565		1,288,170		1,523,485		1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	157,969,058		156,933,507		157,832,825		156,681,840
Per common share net income:
Basic	$ 0.34		$ 0.30		$ 0.78		$ 0.62
Diluted	$ 0.34		$ 0.30		$ 0.78		$ 0.62
Percentage allocated to common shares:
Weighted average restricted shares (participating securities)	1,297,578		1,509,081		1,329,136		1,534,395
Denominator for percentage allocated to common shares - total weighted-average shares outstanding	157,725,071		157,154,418		157,638,476		156,993,246
Common Stock
Numerator:
Dividends declared and paid	22,347		19,605		44,609		39,143
Undistributed earnings	$ 31,552		$ 27,331		$ 77,861		$ 57,482

[1] Weighted average common shares outstanding156,427,493 155,645,337 156,309,340 155,458,851Weighted average restricted shares (participating securities)1,297,578 1,509,081 1,329,136 1,534,395 Total157,725,071 157,154,418 157,638,476 156,993,246 Percentage allocated to common shares99.2% 99.0% 99.2% 99.0%

XML

COMMITMENTS AND CONTINGENT LIABILITIES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
ITCTransmission
Commitments and Contingent Liabilities
Rate of return on equity	12.38%
ITCTransmission | Rate of Return on Equity and Capital Structure Complaint
Commitments and Contingent Liabilities
Reduced rate of return on equity	9.15%
Complaint capital structure, equity percentage	50.00%
FERC approved capital structure, equity percentage	60.00%
ITCTransmission | Sales and Use Tax Audit
Commitments and Contingent Liabilities
Potential liability	$ 19,700,000
ITCTransmission | Sales and Use Tax Audit | Audit Period
Commitments and Contingent Liabilities
Potential liability	3,900,000
METC
Commitments and Contingent Liabilities
Rate of return on equity	12.38%
METC | Rate of Return on Equity and Capital Structure Complaint
Commitments and Contingent Liabilities
Reduced rate of return on equity	9.15%
Complaint capital structure, equity percentage	50.00%
FERC approved capital structure, equity percentage	60.00%
METC | Sales and Use Tax Audit
Commitments and Contingent Liabilities
Potential liability	10,900,000
MISO Operating Subsidiaries
Commitments and Contingent Liabilities
Equity in capital structure for ratemaking purposes	2,500,000,000
Effect on net income from a reduction in the authorized base return on equity	2,500,000
MISO Operating Subsidiaries | FERC Audit Refund and Related Interest
Commitments and Contingent Liabilities
Aggregate regulatory liability	$ 6,600,000	$ 13,100,000
ITC Midwest
Commitments and Contingent Liabilities
Rate of return on equity	12.38%
Reduced rate of return on equity	10.39%
ITC Midwest | Rate of Return on Equity and Capital Structure Complaint
Commitments and Contingent Liabilities
Reduced rate of return on equity	9.15%
Complaint capital structure, equity percentage	50.00%
FERC approved capital structure, equity percentage	60.00%

XML

DEBT Schedule of Revolving Credit Agreements (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Line of Credit Facility
Total available capacity	$ 1,000,000,000
Outstanding balance	290,000,000	[1]
Unused capacity	710,000,000
ITC Holdings
Line of Credit Facility
Total available capacity	400,000,000
Outstanding balance	0	[1]
Unused capacity	400,000,000
Weighted average interest rate		[2]
Commitment fee rate	0.175%	[3]
Interest rate description	Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.
ITCTransmission
Line of Credit Facility
Total available capacity	100,000,000
Outstanding balance	16,100,000	[1]
Unused capacity	83,900,000
Weighted average interest rate	1.10%	[4]
Commitment fee rate	0.10%	[3]
Interest rate description	Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.
METC
Line of Credit Facility
Total available capacity	100,000,000
Outstanding balance	42,300,000	[1]
Unused capacity	57,700,000
Weighted average interest rate	1.10%	[4]
Commitment fee rate	0.10%	[3]
Interest rate description	Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.
ITC Midwest
Line of Credit Facility
Total available capacity	250,000,000
Outstanding balance	146,100,000	[1]
Unused capacity	103,900,000
Weighted average interest rate	1.20%	[4]
Commitment fee rate	0.10%	[3]
Interest rate description	Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.
ITC Great Plains
Line of Credit Facility
Total available capacity	150,000,000
Outstanding balance	85,500,000	[1]
Unused capacity	$ 64,500,000
Weighted average interest rate	1.30%	[5]
Commitment fee rate	0.125%	[3]
Interest rate description	Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.125% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.125%, subject to adjustments based on the borrower’s credit rating.

[1] Included within long-term debt.

[2] Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

[3] Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

[4] Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

[5] Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.125% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.125%, subject to adjustments based on the borrower’s credit rating.

XML

FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Assets Measured at Fair Value Subject to Three-Tier Hierarchy

Our assets measured at fair value subject to the three-tier hierarchy at June 30, 2014, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	3,625	$	—	$	—
Mutual funds — fixed income securities	26,657		—		—
Mutual funds — equity securities	636		—		—
Total	$	30,918	$	—	$	—

Our assets measured at fair value subject to the three-tier hierarchy at December 31, 2013, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	19,000	$	—	$	—
Mutual funds — fixed income securities	21,318		—		—
Mutual funds — equity securities	516		—		—
Total	$	40,834	$	—	$	—

XML

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST Schedule of Net Defined Benefit Cost Components (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Defined Benefit Plans
Defined Benefit Plan Disclosure
Service cost	$ 1,267	$ 1,316	$ 2,533	$ 2,631
Interest cost	901	633	1,802	1,396
Expected return on plan assets	(885)	(717)	(1,770)	(1,434)
Amortization of prior service credit	(11)	(11)	(21)	(21)
Amortization of unrecognized loss	386	678	772	1,357
Net cost	1,658	1,899	3,316	3,929
Other Postretirement Benefits Plan
Defined Benefit Plan Disclosure
Service cost	1,462	1,444	2,923	2,887
Interest cost	498	391	996	781
Expected return on plan assets	(341)	(355)	(681)	(708)
Amortization of unrecognized loss	0	55	0	110
Net cost	$ 1,619	$ 1,535	$ 3,238	$ 3,070

XML

STOCKHOLDERS' EQUITY Additional Information (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended
	Jun. 19, 2014	Jun. 30, 2014	Apr. 30, 2014	Dec. 31, 2013	Jul. 27, 2011 Sales Agency Financing Agreement	Jul. 27, 2014 Sales Agency Financing Agreement Subsequent Event	Dec. 31, 2013 Reported
Stock Issuance Arrangements
Common stock, shares authorized		300,000,000		300,000,000
Common stock, shares outstanding		155,512,734		157,500,795			52,500,265
Accelerated share repurchase agreement, maximum amount	$ 150.0
Accelerated share repurchase agreement, minimum amount	130.0
Share repurchase program, authorized amount			250.0
Accelerated share repurchase agreement, cash payment	150.0
Accelerated share repurchase agreement, initial share delivery and retirement	2,900,000
Accelerated share repurchase agreement, fair market value of initial delivery	104.0
Accelerated share repurchase agreement, share price of initial share delivery	$ 35.80
Accelerated share repurchase agreement, unsettled amount	46.0
Common stock, issuable aggregate value					$ 250.0
Common stock, par value					$ 0.0
Shares issued		155,512,734		157,500,795		0

XML

SEGMENT INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013	Jun. 30, 2014		Jun. 30, 2013	Dec. 31, 2013
OPERATING REVENUES:
Operating revenues	$ 263,214		$ 229,817	$ 521,817		$ 447,121
INCOME BEFORE INCOME TAXES:
Income before income taxes	87,543		76,499	199,515		158,249
NET INCOME:
NET INCOME	54,336		47,395	123,472		97,585
TOTAL ASSETS:
Assets	6,680,925			6,680,925			6,282,243
Regulated Operating Subsidiaries
OPERATING REVENUES:
Operating revenues	263,303		229,891	521,996		447,271
INCOME BEFORE INCOME TAXES:
Income before income taxes	147,187		125,199	288,779		244,459
NET INCOME:
NET INCOME	90,296		78,121	176,849		151,877
TOTAL ASSETS:
Assets	6,577,523			6,577,523			6,174,888
ITC Holdings and other
OPERATING REVENUES:
Operating revenues	92		152	184		304
INCOME BEFORE INCOME TAXES:
Income before income taxes	(59,644)		(48,700)	(89,264)		(86,210)
NET INCOME:
NET INCOME	54,336		47,395	123,472		97,585
TOTAL ASSETS:
Assets	3,810,270			3,810,270			3,619,759
Intercompany eliminations
OPERATING REVENUES:
Operating revenues	(181)		(226)	(363)		(454)
NET INCOME:
NET INCOME	(90,296)		(78,121)	(176,849)		(151,877)
Reconciliations / Intercompany Eliminations
TOTAL ASSETS:
Assets	$ (3,706,868)	[1]		$ (3,706,868)	[1]		$ (3,512,404)	[1]

[1] Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our Regulated Operating Subsidiaries as compared to the classification in our condensed consolidated statements of financial position.

XML

REGULATORY MATTERS

6 Months Ended

Jun. 30, 2014

Regulated Operations [Abstract]

REGULATORY MATTERS

REGULATORY MATTERS

Start-Up, Development and Pre-Construction Regulatory Assets

As of June 30, 2014, we have recorded a total of $14.0 million of regulatory assets for start-up, development and pre-construction expenses, including associated carrying charges, incurred by ITC Great Plains, which include certain costs incurred for the Kansas Electric Transmission Authority (“KETA”) Project and the Kansas V-Plan Project prior to construction. ITC Great Plains made a filing with the FERC under Section 205 of the FPA in May 2013 to recover these start-up, development and pre-construction expenses, including associated carrying charges, in future rates. If FERC authorization is received, ITC Great Plains will include the unamortized balance of the regulatory assets in its rate base and will amortize them over a 10-year period beginning at the later of the project in-service date or the FERC authorization date. The amortization expense will be recovered through ITC Great Plains’ cost-based formula rate template beginning in the period in which amortization begins.

Order on Formula Rate Protocols

In 2012, the FERC issued an order initiating a proceeding pursuant to Section 206 of the FPA to determine whether the formula rate protocols under the MISO Tariff are sufficient to ensure just and reasonable rates. Our MISO Regulated Operating Subsidiaries were named in the order. In May 2013, the FERC issued an order that determined the formula rate protocols are insufficient to ensure just and reasonable rates and directed MISO and its member transmission owners (“TOs”) to file revised formula rate protocols. In September 2013, MISO and its TOs, including our MISO Regulated Operating Subsidiaries, filed revised formula rate protocols which will require our MISO Regulated Operating Subsidiaries to provide additional information for certain aspects of the formula rates used to calculate their respective annual revenue requirements. On March 20, 2014, FERC issued an order conditionally accepting MISO and its TOs’ September 2013 filing and required a further compliance filing, which MISO and its TOs made on May 19, 2014. We do not expect the revised formula rate protocols to impact our results of operations, cash flows or financial condition.

FERC Audit Refund

See “FERC Audit Refund” in Note 11 for a discussion of the FERC audit refund.

Rate of Return on Equity and Capital Structure Complaint

See “Rate of Return on Equity and Capital Structure Complaint” in Note 11 for a discussion of the complaint.

Cost-Based Formula Rates with True-Up Mechanism

The transmission rates at our Regulated Operating Subsidiaries are set annually, using the FERC-approved formula rates, and the rates remain in effect for a one-year period. By completing their formula rate templates on an annual basis, our Regulated Operating Subsidiaries are able to adjust their transmission rates to reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The FERC-approved formula rates do not require further action or FERC filings for the calculated joint zone rates to go into effect, although the rates are subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rates to calculate their respective annual revenue requirements unless the FERC determines the rates to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable.

Our cost-based formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue requirements. The over- or under-collection typically results from differences between the projected revenue requirement used to establish the billing rate and actual revenue requirement at each of our Regulated Operating Subsidiaries, or from differences between actual and projected monthly peak loads at our MISO Regulated Operating Subsidiaries. Revenue is recognized for services provided during each reporting period based on actual revenue requirements calculated using the formula rate templates. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The amount of accrued or deferred revenues is reflected in customer bills within two years under the provisions of the formula rate templates.

The current and non-current regulatory assets are recorded in the condensed consolidated statements of financial position in regulatory assets — revenue accruals, including accrued interest and other non-current assets, respectively. The current and non-current regulatory liabilities are recorded in regulatory liabilities — revenue deferrals, including accrued interest. The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, were as follows during the six months ended June 30, 2014:

(in thousands)	Total
Balance as of December 31, 2013	$	(60,196	)
Net refund of 2012 revenue deferrals and accruals, including accrued interest	13,629
Net revenue deferral for the six months ended June 30, 2014	(5,348		)
Net accrued interest payable for the six months ended June 30, 2014	(1,033		)
Balance as of June 30, 2014	$	(52,948	)

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals are recorded in the condensed consolidated statements of financial position as follows:

(in thousands)	Total
Current assets	$	4,728
Non-current assets — other	7,611
Current liabilities	(35,336		)
Non-current liabilities	(29,951		)
Balance as of June 30, 2014	$	(52,948	)

XML

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST Additional Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2014 Retirement Plan	Dec. 31, 2014 Retirement Plan Expectation	Jun. 30, 2014 Supplemental Retirement Benefit Plans	Dec. 31, 2014 Supplemental Retirement Benefit Plans Expectation	Jun. 30, 2014 Other Postretirement Benefits Plan	Dec. 31, 2014 Other Postretirement Benefits Plan Expectation	Jun. 30, 2014 Defined Contribution Plan	Jun. 30, 2013 Defined Contribution Plan	Jun. 30, 2014 Defined Contribution Plan	Jun. 30, 2013 Defined Contribution Plan
Retirement Benefits Disclosure
Employer contributions	$ 3.8		$ 5.1		$ 1.2
Expected current year contribution		0		0		5.0
Employer match contribution							$ 0.8	$ 0.7	$ 2.1	$ 2.4

XML

REGULATORY MATTERS Schedule of Regulatory Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Revenue Accruals and Deferrals
Current assets	$ 4,728	$ 6,334
Non-current assets — other	7,611
Current liabilities	(35,336)	(33,120)
Non-current liabilities	(29,951)	(36,447)
Ending balance	$ (52,948)	$ (60,196)

XML

REGULATORY MATTERS Net Changes in Regulatory Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Revenue Accruals and Deferrals
Beginning balance	$ (60,196)
Net refund of 2012 revenue deferrals and accruals, including accrued interest	13,629
Net revenue deferral for the six months ended June 30, 2014	(5,348)
Net accrued interest payable for the six months ended June 30, 2014	(1,033)
Ending balance	$ (52,948)

XML

FAIR VALUE MEASUREMENTS Assets Measured at Fair Value Subject to Three-Tier Hierarchy (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring Basis
Fair value, level transfers	$ 0	$ 0
Recurring Basis | Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring Basis
Total	30,918	40,834
Recurring Basis | Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Cash Equivalents
Fair Value, Assets and Liabilities Measured on Recurring Basis
Cash and cash equivalents	3,625	19,000
Recurring Basis | Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed Income Securities
Fair Value, Assets and Liabilities Measured on Recurring Basis
Mutual funds	26,657	21,318
Recurring Basis | Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Equity Securities
Fair Value, Assets and Liabilities Measured on Recurring Basis
Mutual funds	$ 636	$ 516

XML

REGULATORY MATTERS Additional Information (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Regulatory Assets
Transmission rate, applicable period	1 year
Revenue true-up amount reflected in customer bill, period of recognition	2 years
ITC Great Plains | Start-up, Development and Pre-construction Expenses, Including Associated Carrying Charges
Regulatory Assets
Regulatory assets	$ 14.0
Amortization period (in years)	10

XML

GOODWILL AND INTANGIBLE ASSETS (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Goodwill and Intangible Assets
Goodwill	$ 950,163,000		$ 950,163,000		$ 950,163,000
Intangible assets	49,614,000		49,614,000		49,328,000
Accumulated amortization	23,259,000		23,259,000		21,616,000
Amortization expense	800,000	800,000	1,600,000	1,600,000
Expected amortization expense, year one	3,300,000		3,300,000
Expected amortization expense, year two	3,300,000		3,300,000
Expected amortization expense, year three	3,300,000		3,300,000
Expected amortization expense, year four	3,300,000		3,300,000
Expected amortization expense, year five	3,300,000		3,300,000
ITCTransmission
Goodwill and Intangible Assets
Goodwill	173,400,000		173,400,000		173,400,000
METC
Goodwill and Intangible Assets
Goodwill	453,800,000		453,800,000		453,800,000
Intangible assets	35,700,000		35,700,000		37,200,000
Accumulated amortization	22,700,000		22,700,000		21,200,000
ITC Midwest
Goodwill and Intangible Assets
Goodwill	323,000,000		323,000,000		323,000,000
ITC Great Plains
Goodwill and Intangible Assets
Intangible assets	13,900,000		13,900,000		12,100,000
Accumulated amortization	$ 600,000		$ 600,000		$ 400,000

XML

RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five step model to determine when a customer obtains control of a transferred good or service. The guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted using a full or modified retrospective application. We are currently in the process of evaluating our revenue arrangements under the issued guidance and have not yet determined its impact to our results of operations, cash flows and financial position.

XML

DEBT DEBT Interest Rate Swap Agreements (Details) (USD $) In Millions, unless otherwise specified		1 Months Ended	6 Months Ended
	Dec. 31, 2013	May 31, 2014 Interest Rate Swap	Jun. 30, 2014 Interest Rate Swap
Derivative [Line Items]
Notional amount		$ 150.0
Term of contract		10 years
Weighted average fixed rate		2.65%
Comparable reference rate		2.53%
Loss on derivative			$ 1.6
Number of derivative instruments held	0		0

XML

EARNINGS PER SHARE Stock Split (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Earnings Per Share, Basic and Diluted, by Common Class
Numerator for basic and diluted earnings per common share	$ 53,899		$ 46,936		$ 122,470		$ 96,625
Denominator:
Basic earnings per common share — weighted average common shares	156,427,493		155,645,337		156,309,340		155,458,851
Incremental shares for stock options and employee stock purchase plan	1,541,565		1,288,170		1,523,485		1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	157,969,058		156,933,507		157,832,825		156,681,840
Per common share net income:
Basic	$ 0.34		$ 0.30		$ 0.78		$ 0.62
Diluted	$ 0.34		$ 0.30		$ 0.78		$ 0.62
Percentage allocated to common shares:
Weighted average restricted shares (participating securities)	1,297,578		1,509,081		1,329,136		1,534,395
Denominator for percentage allocated to common shares - total weighted-average shares outstanding	157,725,071		157,154,418		157,638,476		156,993,246
Percentage allocated to common shares	99.20%	[1]	99.00%	[1]	99.20%	[1]	99.00%	[1]
Outstanding stock options and ESPP shares	4,891,913		5,374,689		4,891,913		5,374,689
Anti-dilutive stock options and ESPP shares	654,231		942,333		654,231		942,333
Reported
Earnings Per Share, Basic and Diluted, by Common Class
Numerator for basic and diluted earnings per common share			46,936				96,625
Denominator:
Basic earnings per common share — weighted average common shares			51,881,779				51,819,617
Incremental shares for stock options and employee stock purchase plan			429,390				407,663
Diluted earnings per common share — adjusted weighted average shares and assumed conversion			52,311,169				52,227,280
Per common share net income:
Basic			$ 0.90				$ 1.86
Diluted			$ 0.90				$ 1.85
Percentage allocated to common shares:
Weighted average restricted shares (participating securities)			503,027				511,465
Denominator for percentage allocated to common shares - total weighted-average shares outstanding			52,384,806				52,331,082
Percentage allocated to common shares			99.00%				99.00%
Outstanding stock options and ESPP shares			1,791,563				1,791,563
Anti-dilutive stock options and ESPP shares			314,111				314,111
Adjustment
Earnings Per Share, Basic and Diluted, by Common Class
Numerator for basic and diluted earnings per common share			$ 0				$ 0
Denominator:
Basic earnings per common share — weighted average common shares			103,763,558				103,639,234
Incremental shares for stock options and employee stock purchase plan			858,780				815,326
Diluted earnings per common share — adjusted weighted average shares and assumed conversion			104,622,338				104,454,560
Per common share net income:
Basic			$ (0.60)				$ (1.24)
Diluted			$ (0.60)				$ (1.23)
Percentage allocated to common shares:
Weighted average restricted shares (participating securities)			1,006,054				1,022,930
Denominator for percentage allocated to common shares - total weighted-average shares outstanding			104,769,612				104,662,164
Percentage allocated to common shares			0.00%				0.00%
Outstanding stock options and ESPP shares			3,583,126				3,583,126
Anti-dilutive stock options and ESPP shares			628,222				628,222

[1] Weighted average common shares outstanding156,427,493 155,645,337 156,309,340 155,458,851Weighted average restricted shares (participating securities)1,297,578 1,509,081 1,329,136 1,534,395 Total157,725,071 157,154,418 157,638,476 156,993,246 Percentage allocated to common shares99.2% 99.0% 99.2% 99.0%

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets
Cash and cash equivalents	$ 9,017	$ 34,275
Accounts receivable	123,483	89,348
Inventory	29,375	31,986
Deferred income taxes	18,806	17,225
Regulatory assets — revenue accruals, including accrued interest	4,728	6,334
Prepaid and other current assets	21,994	12,370
Total current assets	207,403	191,538
Property, plant and equipment (net of accumulated depreciation and amortization of $1,340,464 and $1,330,094, respectively)	5,203,707	4,846,526
Other assets
Goodwill	950,163	950,163
Intangible assets (net of accumulated amortization of $23,259 and $21,616, respectively)	49,614	49,328
Other regulatory assets	184,310	179,068
Deferred financing fees (net of accumulated amortization of $14,027 and $15,261, respectively)	29,516	25,585
Other	56,212	40,035
Total other assets	1,269,815	1,244,179
TOTAL ASSETS	6,680,925	6,282,243
Current liabilities
Accounts payable	126,859	111,145
Accrued payroll	16,562	21,930
Accrued interest	51,098	53,049
Accrued taxes	40,674	29,805
Regulatory liabilities — revenue deferrals, including accrued interest	35,336	33,120
Refundable deposits from generators for transmission network upgrades	20,780	23,283
Debt maturing within one year	250,000	200,000
Other	19,606	27,047
Total current liabilities	560,915	499,379
Accrued pension and postretirement liabilities	56,913	53,704
Deferred income taxes	624,549	562,938
Regulatory liabilities — revenue deferrals, including accrued interest	29,951	36,447
Regulatory liabilities — accrued asset removal costs	67,192	67,571
Refundable deposits from generators for transmission network upgrades	4,884	19,328
Other	20,867	17,032
Long-term debt	3,755,495	3,412,112
Commitments and contingent liabilities (Note 11)
STOCKHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 155,512,734 and 157,500,795 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	882,845	1,014,435
Retained earnings	671,459	592,970
Accumulated other comprehensive income	5,855	6,327
Total stockholders’ equity	1,560,159	1,613,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 6,680,925	$ 6,282,243

XML

FAIR VALUE MEASUREMENTS Additional Information (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value Disclosures [Abstract]
Fair value of long-term debt and debt maturing withing one year, excluding revolving and term loan credit agreements	$ 3,709.7	$ 3,299.0
Book value of long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements	3,404.5	3,100.9
Book value of revolving credit agreements and term loan credit agreements	$ 601.0	$ 511.2

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME	$ 123,472	$ 97,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	62,673	57,781
Recognition, refund and collection of revenue accruals and deferrals — including accrued interest	(7,248)	(14,074)
Deferred income tax expense	56,978	50,537
Allowance for equity funds used during construction	(9,944)	(17,025)
Loss on extinguishment of debt	29,074	0
Other	8,142	7,287
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable	(28,890)	(28,368)
Inventory	2,611	157
Prepaid and other current assets	(9,623)	(3,630)
Accounts payable	(21,394)	14,944
Accrued payroll	(3,524)	(2,989)
Accrued interest	(1,951)	15,049
Accrued taxes	10,869	7,444
Other current liabilities	(9,370)	4,403
Other non-current assets and liabilities, net	(5,903)	(4,269)
Net cash provided by operating activities	195,972	184,832
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(375,650)	(422,295)
Other	235	(3,839)
Net cash used in investing activities	(375,415)	(426,134)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	473,664	100,000
Borrowings under revolving credit agreements	1,054,100	638,900
Borrowings under term loan credit agreements	110,000	350,000
Retirement of long-term debt — including debt retirement costs	(198,494)	0
Repayments of revolving credit agreements	(1,035,300)	(767,400)
Repayments under term loan credit agreements	(39,000)	0
Issuance of common stock	14,177	6,073
Dividends on common and restricted stock	(44,983)	(39,522)
Refundable deposits from generators for transmission network upgrades	5,208	16,770
Repayment of refundable deposits from generators for transmission network upgrades	(22,155)	(24,125)
Repurchase and retirement of common stock	(107,952)	(4,040)
Forward contract of accelerated share repurchase program	(46,000)	0
Other	(9,080)	2,304
Net cash provided by financing activities	154,185	278,960
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(25,258)	37,658
CASH AND CASH EQUIVALENTS — Beginning of period	34,275	26,187
CASH AND CASH EQUIVALENTS — End of period	$ 9,017	$ 63,845

XML

STOCKHOLDERS' EQUITY Changes in Stockholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Beginning balance, shares			157,500,795
Beginning balance			$ 1,613,732
NET INCOME	54,336	47,395	123,472	97,585
Stock option exercises, shares			761,321		499,014
Other comprehensive income, net of tax	(628)	22,252	(472)	24,358
Ending balance, shares	155,512,734		155,512,734		157,500,795
Ending balance	1,560,159		1,560,159		1,613,732
Parenthetical Disclosures
Dividends declared per common share	$ 0.1425	$ 0.1258	$ 0.2850	$ 0.2516
Common Stock
Beginning balance, shares			157,500,795	156,745,542	156,745,542
Beginning balance			1,014,435	989,334	989,334
Repurchase and retirement of common stock, shares			(3,013,176)	(136,317)
Repurchase and retirement of common stock			(107,952)	(4,040)
Stock option exercises, shares			761,321	346,653
Stock option exercises			13,172	5,164
Shares issued under the Employee Stock Purchase Plan, shares			34,594	39,858
Shares issued under the Employee Stock Purchase Plan			1,004	909
Issuance of restricted stock, shares			289,793	348,138
Forfeiture of restricted stock, shares			(60,593)	(17,007)
Share-based compensation, net of forfeitures			8,186	7,517
Forward contract of accelerated share repurchase program			(46,000)
Ending balance, shares	155,512,734	157,326,867	155,512,734	157,326,867
Ending balance	882,845	998,884	882,845	998,884
Retained Earnings
Beginning balance			592,970	443,569	443,569
NET INCOME			123,472	97,585
Dividends declared on common stock			(44,983)	(39,522)
Ending balance	671,459	501,632	671,459	501,632
Accumulated Other Comprehensive Income (Loss)
Beginning balance			6,327	(18,048)	(18,048)
Other comprehensive income, net of tax			(472)	24,358
Ending balance	5,855	6,310	5,855	6,310
Total Stockholders' Equity
Beginning balance			1,613,732	1,414,855	1,414,855
NET INCOME			123,472	97,585
Repurchase and retirement of common stock			(107,952)	(4,040)
Dividends declared on common stock			(44,983)	(39,522)
Stock option exercises			13,172	5,164
Shares issued under the Employee Stock Purchase Plan			1,004	909
Share-based compensation, net of forfeitures			8,186	7,517
Forward contract of accelerated share repurchase program			(46,000)
Other comprehensive income, net of tax			(472)	24,358
Ending balance	$ 1,560,159	$ 1,506,826	$ 1,560,159	$ 1,506,826

XML

STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Changes in Stockholders' Equity

The changes in stockholders’ equity for the six months endedJune 30, 2014 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income			Equity
BALANCE, DECEMBER 31, 2013	157,500,795		$	1,014,435		$	592,970		$	6,327		$	1,613,732
Net income	—		—			123,472			—			123,472
Repurchase and retirement of common stock	(3,013,176	)	(107,952		)	—			—			(107,952		)
Dividends declared on common stock ($0.2850 per share)	—		—			(44,983		)	—			(44,983		)
Stock option exercises	761,321		13,172			—			—			13,172
Shares issued under the Employee Stock Purchase Plan	34,594		1,004			—			—			1,004
Issuance of restricted stock	289,793		—			—			—			—
Forfeiture of restricted stock	(60,593	)	—			—			—			—
Share-based compensation, net of forfeitures	—		8,186			—			—			8,186
Forward contract of accelerated share repurchase program	—		(46,000		)	—			—			(46,000		)
Other comprehensive income, net of tax	—		—			—			(472		)	(472		)
BALANCE, JUNE 30, 2014	155,512,734		$	882,845		$	671,459		$	5,855		$	1,560,159

The changes in stockholders’ equity for the six months endedJune 30, 2013 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2012	156,745,542		$	989,334		$	443,569		$	(18,048	)	$	1,414,855
Net income	—		—			97,585			—			97,585
Repurchase and retirement of common stock	(136,317	)	(4,040		)	—			—			(4,040		)
Dividends declared on common stock ($0.2516 per share)	—		—			(39,522		)	—			(39,522		)
Stock option exercises	346,653		5,164			—			—			5,164
Shares issued under the Employee Stock Purchase Plan	39,858		909			—			—			909
Issuance of restricted stock	348,138		—			—			—			—
Forfeiture of restricted stock	(17,007	)	—			—			—			—
Share-based compensation, net of forfeitures	—		7,517			—			—			7,517
Other comprehensive income, net of tax	—		—			—			24,358			24,358
BALANCE, JUNE 30, 2013	157,326,867		$	998,884		$	501,632		$	6,310		$	1,506,826

Changes in Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI for the three and six months ended June 30, 2014 and 2013:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Balance at the beginning of period	$	6,483		$	(15,942	)	$	6,327		$	(18,048	)
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $79 and $9 for the three months ended June 30, 2014 and 2013, respectively, and net of tax of $155 and $19 for the six months ended June 30, 2014 and 2013, respectively)	112			15			218			29
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt (net of tax of $83 for the three and six months ended June 30, 2014)	117			—			117			—
Gain (loss) on interest rate swaps relating to interest rate cash flow hedges (net of tax of $14,287 and $15,652 for the three and six months ended June 30, 2013, respectively, and $655 for the three and six months ended June 30, 2014)	(917		)	22,237			(917		)	24,329
Derivative instruments, net of tax	(688		)	22,252			(582		)	24,358
Available-for-sale securities
Unrealized net gain on available-for-sale securities (net of tax of $43 and $79 for the three and six months ended June 30, 2014, respectively)	60			—			110			—
Available-for-sale securities, net of tax	60			—			110			—
Total other comprehensive income, net of tax	(628		)	22,252			(472		)	24,358
Balance at the end of period	$	5,855		$	6,310		$	5,855		$	6,310

XML

STOCKHOLDERS' EQUITY Changes in Accumulated Other Compehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Equity [Abstract]
Balance at the beginning of period	$ 6,483	$ (15,942)	$ 6,327	$ (18,048)
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $79 and $9 for the three months ended June 30, 2014 and 2013, respectively, and net of tax of $155 and $19 for the six months ended June 30, 2014 and 2013, respectively)	112	15	218	29
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt (net of tax of $83 for the three and six months ended June 30, 2014)	117	0	117	0
Gain (loss) on interest rate swaps relating to interest rate cash flow hedges (net of tax of $14,287 and $15,652 for the three and six months ended June 30, 2013, respectively, and $655 for the three and six months ended June 30, 2014)	(917)	22,237	(917)	24,329
Derivative instruments, net of tax	(688)	22,252	(582)	24,358
Available-for-sale securities
Unrealized net gain on available-for-sale securities (net of tax of $43 and $79 for the three and six months ended June 30, 2014, respectively)	60	0	110	0
Available-for-sale securities, net of tax	60	0	110	0
Total other comprehensive income, net of tax	(628)	22,252	(472)	24,358
Balance at the end of period	5,855	6,310	5,855	6,310
Parenthetical Disclosures
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense, tax	79	9	155	19
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt, tax	83		83
Gain (loss) on interest rate swaps relating to interest rate cash flow hedges, tax	655	14,287	655	15,652
Unrealized net gain on available-for-sale securities, tax	$ 43		$ 79

XML

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST (Tables)

6 Months Ended

Jun. 30, 2014

Defined Benefit Plans

Defined Benefit Plan Disclosure

Schedule of Net Defined Benefit Cost Components

Net pension cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,267		$	1,316		$	2,533		$	2,631
Interest cost	901			633			1,802			1,396
Expected return on plan assets	(885		)	(717		)	(1,770		)	(1,434		)
Amortization of prior service credit	(11		)	(11		)	(21		)	(21		)
Amortization of unrecognized loss	386			678			772			1,357
Net pension cost	$	1,658		$	1,899		$	3,316		$	3,929

Other Postretirement Benefits Plan

Defined Benefit Plan Disclosure

Schedule of Net Defined Benefit Cost Components

Net postretirement cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,462		$	1,444		$	2,923		$	2,887
Interest cost	498			391			996			781
Expected return on plan assets	(341		)	(355		)	(681		)	(708		)
Amortization of unrecognized loss	—			55			—			110
Net postretirement cost	$	1,619		$	1,535		$	3,238		$	3,070

XML

GENERAL

6 Months Ended

Jun. 30, 2014

GENERAL [Abstract]

GENERAL

GENERAL

These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, 2013 included in ITC Holdings’ annual report on Form 10-K for such period.

The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (“SEC”) Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

The condensed consolidated financial statements are unaudited, but in our opinion include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

Supplementary Cash Flows Information

	Six months ended
	June 30,
(in thousands)	2014		2013
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	90,248	$	62,692
Income taxes paid — net	25,416		11,593
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment (a)	$	105,246	$	99,485
Allowance for equity funds used during construction	9,944		17,025

____________________________

(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, 2014 or 2013, respectively, but have been or will be included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Property, plant and equipment, accumulated depreciation and amortization	$ 1,340,464	$ 1,330,094
Intangible assets, accumulated amortization	23,259	21,616
Deferred financing fees, accumulated amortization	$ 14,027	$ 15,261
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	155,512,734	157,500,795
Common stock, shares outstanding	155,512,734	157,500,795

XML

COMMITMENTS AND CONTINGENT LIABILITIES

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

Our Regulated Operating Subsidiaries’ operations are subject to federal, state, and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of hazardous materials and of solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities to investigate or remediate contamination, as well as other liabilities concerning hazardous materials or contamination, such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as at properties currently owned or operated by our Regulated Operating Subsidiaries. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under a number of environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. Although environmental requirements generally have become more stringent and compliance with those requirements more expensive, we are not aware of any specific developments that would increase our Regulated Operating Subsidiaries’ costs for such compliance in a manner that would be expected to have a material adverse effect on our results of operations, financial position or liquidity.

Our Regulated Operating Subsidiaries’ assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Many of the properties our Regulated Operating Subsidiaries own or operate have been used for many years, and include older facilities and equipment that may be more likely than newer ones to contain or be made from such materials. Some of these properties include aboveground or underground storage tanks and associated piping. Some of them also include large electrical equipment filled with mineral oil, which may contain or previously have contained polychlorinated biphenyls, or PCBs. Our Regulated Operating Subsidiaries’ facilities and equipment are often situated close to or on property owned by others so that, if they are the source of contamination, other’s property may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that our Regulated Operating Subsidiaries do not own, and, at some of our Regulated Operating Subsidiaries’ transmission stations, transmission assets (owned or operated by our Regulated Operating Subsidiaries) and distribution assets (owned or operated by our Regulated Operating Subsidiaries’ transmission customer) are commingled.

Some properties in which our Regulated Operating Subsidiaries have an ownership interest or at which they operate are, and others are suspected of being, affected by environmental contamination. Our Regulated Operating Subsidiaries are not aware of any pending or threatened claims against them with respect to environmental contamination, or of any investigation or remediation of contamination at any properties, that entail costs likely to materially affect them. Some facilities and properties are located near environmentally sensitive areas such as wetlands.

Claims have been made or threatened against electric utilities for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields associated with electric transmission and distribution lines. While our Regulated Operating Subsidiaries do not believe that a causal link between electromagnetic field exposure and injury has been generally established and accepted in the scientific community, if such a relationship is established or accepted, the liabilities and costs imposed on our business could be significant. We are not aware of any pending or threatened claims against our Regulated Operating Subsidiaries for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields and electric transmission and distribution lines that entail costs likely to have a material adverse effect on our results of operations, financial position or liquidity.

Litigation

We are involved in certain legal proceedings before various courts, governmental agencies and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, regulatory matters and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss.

Michigan Sales and Use Tax Audit

The Michigan Department of Treasury conducted a sales and use tax audit of ITCTransmission for the audit period April 1, 2005 through June 30, 2008 and has denied ITCTransmission’s use of the industrial processing exemption from use tax it has taken beginning January 1, 2007. ITCTransmission has certain administrative and judicial appeal rights.

ITCTransmission believes that its utilization of the industrial processing exemption is appropriate and intends to defend itself against the denial of such exemption. However, it is reasonably possible that the assessment of additional use tax could be sustained after all administrative appeals and litigation have been exhausted.

The amount of the potential use tax liability associated with the exemptions taken by ITCTransmission through June 30, 2014 is estimated to be approximately $19.7 million for periods still subject to audit, which includes approximately $3.9 million assessed for the audit period April 1, 2005 through June 30, 2008, including interest. ITCTransmission has not recorded this contingent liability as of June 30, 2014. However, in the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission would record the additional use tax primarily as an increase to the cost of property, plant and equipment, as the majority of purchases for which the exemption was taken relate to equipment purchases associated with capital projects. METC has also taken the industrial processing exemption, estimated to be approximately $10.9 million for periods still subject to audit; however, METC has not recorded any contingent liabilities as of June 30, 2014 associated with this matter. These higher use tax expenses would be included as components of net revenue requirements and resulting rates.

FERC Audit Refund

The FERC issued an order that identified certain findings and recommendations of certain staff of the FERC relating to specific aspects of the accounting treatment for the acquisition of the transmission assets of IP&L by ITC Midwest that requires adjustments to the MISO Regulated Operating Subsidiaries’ respective annual revenue requirement calculations and corresponding refunds. The amounts are being refunded through the cost-based formula rates in 2014. ITC Midwest, ITCTransmission and METC have recorded an aggregate regulatory liability for the refund and related interest of $6.6 million and $13.1 million as of June 30, 2014 and December 31, 2013, respectively, in the condensed consolidated statements of financial position.

ITC Midwest Project Commitment

In the Minnesota regulatory proceeding to approve ITC Midwest’s December 2007 acquisition of the transmission assets of IP&L, ITC Midwest agreed to build a certain project in Iowa, the 345 kV Salem-Hazelton line, and made a commitment to use commercially reasonable best efforts to complete the project prior to December 31, 2011. In the event ITC Midwest is found to have failed to meet this commitment, the allowed 12.38% rate of return on the actual equity portion of its capital structure would be reduced to 10.39% until such time as ITC Midwest completes the project, and ITC Midwest would refund with interest any amounts collected since the close date of the transaction that exceeded what would have been collected if the 10.39% return on equity had been used. Certain regulatory approvals were needed from the Iowa Utilities Board (“IUB”) before construction of the project could commence, but due to the IUB’s case schedule, these approvals were not received until the second quarter of 2011. As a result of the delay in the receipt of the necessary regulatory approvals, the project was not completed by December 31, 2011. We have notified the Minnesota Public Utilities Commission that the Salem-Hazleton line was placed into service on April 25, 2013, and requested confirmation from the commission that ITC Midwest has satisfied its commitment and that no refund is due as a result of the project not being completed by December 31, 2011. We believe we used commercially reasonable best efforts to meet the December 31, 2011 deadline, and therefore, we believe the likelihood of any material effect on the financial statements from this matter is remote.

Rate of Return on Equity and Capital Structure Complaint

On November 12, 2013, Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group, and Wisconsin Industrial Energy Group (the “joint complainants”) filed a complaint with the FERC under Section 206 of the FPA, requesting that the FERC find the regional base rate of return on equity (“ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest (currently set at 12.38%) to be unjust and unreasonable. The joint complainants are seeking a FERC order reducing the base regional ROE used in our formula transmission rate to 9.15%. The complaint also alleges that the rates of any MISO TO using a capital structure with greater than 50% for the equity component are likewise not just and reasonable (ITCTransmission, METC and ITC Midwest use their actual capital structures, which FERC has approved at a target of 60% equity). The complaint asks FERC to institute a uniform capital structure for MISO TOs in which the assumed equity component does not exceed 50%. The complaint also alleges the ROE adders currently approved for certain ITC operating companies, including adders currently utilized by ITCTransmission for being a member of an RTO and adders utilized by ITCTransmission and METC for being an independent transmission owner, are no longer just and reasonable, and seeks to have them eliminated. In the event a refund is required upon resolution of the complaint, the joint complainants are seeking a refund effective date of November 12, 2013.

On January 6, 2014, ITCTransmission, METC and ITC Midwest filed responses with the FERC to the Section 206 complaint (jointly with other MISO TOs and through a separate supplemental response), defending the use of the current regional base ROE, the use of current capital structures, and the approved ROE adders for RTO membership and independence. The responses seek dismissal of the complaint, or a denial of it on merits, with prejudice, as the joint complainants failed to meet their burden under Section 206 of the FPA to show that the current regional base ROE, approved capital structures and ROE adders approved for ITCTransmission and METC are no longer just and reasonable. Further, the responses argue that the current ROE, approved capital structures and adders encourage transmission investment, are especially appropriate given the benefits of the independent transmission company model and RTO membership and provide testimony to demonstrate that they remain just and reasonable.

On June 19, 2014, in a separate but related Section 206 complaint against certain ISO New England TOs, FERC adopted a new method for establishing ROEs for electric transmission utilities. The new method is based on a two-step process and uses both short-term and long-term growth projections in establishing ROEs, whereas the previous method used only short-term growth projections. Under this new method, FERC also reiterated its policy of capping the overall ROE, including adders, at the high end of the zone of reasonableness set by the two-step discounted cash flow (“DCF”) methodology. We expect the new method presented in the ISO New England ROE case will also be used in resolving the MISO ROE case.

It is reasonably possible that the refund exposure for a potential reduction to the ROEs of our MISO Regulated Operating Subsidiaries could result in a material impact on our results of operations, cash flows and financial condition. The range of potential impact of this matter to our consolidated results of operations, cash flows and financial condition is not estimable due to the uncertainty of the calculation of an authorized ROE along with the zone of reasonableness, which is directly affected by the newly adopted two-step DCF methodology. The ROEs to be established would be dependent on the appropriate proxy group and assumptions for short and long-term growth rates at the time the ROE is ultimately determined. There is additional uncertainty as to the effective date of any potential refund period. As of June 30, 2014, our MISO Regulated Operating Subsidiaries had a total of approximately $2.5 billion of equity in their capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately $2.5 million. We continue to believe the likelihood of an unfavorable outcome of the complaint as it relates to the request to modify our existing capital structures is remote.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Entity Information [Line Items]
Entity Registrant Name	ITC HOLDINGS CORP.
Entity Central Index Key	0001317630
Trading Symbol	ITC
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		155,585,300

XML

SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

We identify reportable segments based on the criteria set forth by the FASB regarding disclosures about segments of an enterprise, including the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses. The following tables show our financial information by reportable segment:

	Three months ended						Six months ended
OPERATING REVENUES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	263,303		$	229,891		$	521,996		$	447,271
ITC Holdings and other	92			152			184			304
Intercompany eliminations	(181		)	(226		)	(363		)	(454		)
Total Operating Revenues	$	263,214		$	229,817		$	521,817		$	447,121

	Three months ended						Six months ended
INCOME BEFORE INCOME TAXES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	147,187		$	125,199		$	288,779		$	244,459
ITC Holdings and other	(59,644		)	(48,700		)	(89,264		)	(86,210		)
Total Income Before Income Taxes	$	87,543		$	76,499		$	199,515		$	158,249

	Three months ended						Six months ended
NET INCOME:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	90,296		$	78,121		$	176,849		$	151,877
ITC Holdings and other	54,336			47,395			123,472			97,585
Intercompany eliminations	(90,296		)	(78,121		)	(176,849		)	(151,877		)
Total Net Income	$	54,336		$	47,395		$	123,472		$	97,585

TOTAL ASSETS:	June 30,			December 31,
(in thousands)	2014			2013
Regulated Operating Subsidiaries	$	6,577,523		$	6,174,888
ITC Holdings and other	3,810,270			3,619,759
Reconciliations / Intercompany eliminations (a)	(3,706,868		)	(3,512,404		)
Total Assets	$	6,680,925		$	6,282,243

____________________________

(a) Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our Regulated Operating Subsidiaries as compared to the classification in our condensed consolidated statements of financial position.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
OPERATING REVENUES	$ 263,214	$ 229,817	$ 521,817	$ 447,121
OPERATING EXPENSES
Operation and maintenance	25,836	29,668	50,697	54,181
General and administrative	30,308	43,939	58,270	78,865
Depreciation and amortization	31,295	29,295	62,673	57,781
Taxes other than income taxes	17,076	16,094	38,269	32,764
Other operating (income) and expenses — net	(229)	(173)	(461)	(345)
Total operating expenses	104,286	118,823	209,448	223,246
OPERATING INCOME	158,928	110,994	312,369	223,875
OTHER EXPENSES (INCOME)
Interest expense — net	45,854	40,402	91,163	79,465
Allowance for equity funds used during construction	(4,932)	(8,292)	(9,944)	(17,025)
Loss on extinguishment of debt	29,074	0	29,074	0
Other income	(236)	(286)	(397)	(495)
Other expense	1,625	2,671	2,958	3,681
Total other expenses (income)	71,385	34,495	112,854	65,626
INCOME BEFORE INCOME TAXES	87,543	76,499	199,515	158,249
INCOME TAX PROVISION	33,207	29,104	76,043	60,664
NET INCOME	$ 54,336	$ 47,395	$ 123,472	$ 97,585
Basic earnings per common share	$ 0.34	$ 0.30	$ 0.78	$ 0.62
Diluted earnings per common share	$ 0.34	$ 0.30	$ 0.78	$ 0.62
Dividends declared per common share	$ 0.1425	$ 0.1258	$ 0.2850	$ 0.2516

XML

STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

The changes in stockholders’ equity for the six months endedJune 30, 2014 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income			Equity
BALANCE, DECEMBER 31, 2013	157,500,795		$	1,014,435		$	592,970		$	6,327		$	1,613,732
Net income	—		—			123,472			—			123,472
Repurchase and retirement of common stock	(3,013,176	)	(107,952		)	—			—			(107,952		)
Dividends declared on common stock ($0.2850 per share)	—		—			(44,983		)	—			(44,983		)
Stock option exercises	761,321		13,172			—			—			13,172
Shares issued under the Employee Stock Purchase Plan	34,594		1,004			—			—			1,004
Issuance of restricted stock	289,793		—			—			—			—
Forfeiture of restricted stock	(60,593	)	—			—			—			—
Share-based compensation, net of forfeitures	—		8,186			—			—			8,186
Forward contract of accelerated share repurchase program	—		(46,000		)	—			—			(46,000		)
Other comprehensive income, net of tax	—		—			—			(472		)	(472		)
BALANCE, JUNE 30, 2014	155,512,734		$	882,845		$	671,459		$	5,855		$	1,560,159

The changes in stockholders’ equity for the six months endedJune 30, 2013 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2012	156,745,542		$	989,334		$	443,569		$	(18,048	)	$	1,414,855
Net income	—		—			97,585			—			97,585
Repurchase and retirement of common stock	(136,317	)	(4,040		)	—			—			(4,040		)
Dividends declared on common stock ($0.2516 per share)	—		—			(39,522		)	—			(39,522		)
Stock option exercises	346,653		5,164			—			—			5,164
Shares issued under the Employee Stock Purchase Plan	39,858		909			—			—			909
Issuance of restricted stock	348,138		—			—			—			—
Forfeiture of restricted stock	(17,007	)	—			—			—			—
Share-based compensation, net of forfeitures	—		7,517			—			—			7,517
Other comprehensive income, net of tax	—		—			—			24,358			24,358
BALANCE, JUNE 30, 2013	157,326,867		$	998,884		$	501,632		$	6,310		$	1,506,826

Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI for the three and six months ended June 30, 2014 and 2013:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Balance at the beginning of period	$	6,483		$	(15,942	)	$	6,327		$	(18,048	)
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $79 and $9 for the three months ended June 30, 2014 and 2013, respectively, and net of tax of $155 and $19 for the six months ended June 30, 2014 and 2013, respectively)	112			15			218			29
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt (net of tax of $83 for the three and six months ended June 30, 2014)	117			—			117			—
Gain (loss) on interest rate swaps relating to interest rate cash flow hedges (net of tax of $14,287 and $15,652 for the three and six months ended June 30, 2013, respectively, and $655 for the three and six months ended June 30, 2014)	(917		)	22,237			(917		)	24,329
Derivative instruments, net of tax	(688		)	22,252			(582		)	24,358
Available-for-sale securities
Unrealized net gain on available-for-sale securities (net of tax of $43 and $79 for the three and six months ended June 30, 2014, respectively)	60			—			110			—
Available-for-sale securities, net of tax	60			—			110			—
Total other comprehensive income, net of tax	(628		)	22,252			(472		)	24,358
Balance at the end of period	$	5,855		$	6,310		$	5,855		$	6,310

Stock Split

In January 2014, we filed an amendment to our Articles of Incorporation, as previously approved by our shareholders, to increase the number of authorized shares of common stock to 300 million shares. On February 6, 2014, our board of directors declared a three-for-one split of our common stock to be accomplished by means of a stock distribution on February 28, 2014 to shareholders of record on February 18, 2014. As a result of the stock split and other issuances and retirements during the six months ended June 30, 2014, our outstanding shares increased from approximately 52.5 million shares as of December 31, 2013 to 155.5 million shares as of June 30, 2014. In addition, all unvested restricted stock awards, outstanding stock option awards and share reserves under our share-based compensation plans as discussed in Note 7 were adjusted under the terms of the respective agreements for this three-for-one split. The share and per share data in this Form 10-Q reflects the three-for-one stock split effective February 28, 2014, unless otherwise noted.

Accelerated Share Repurchase Program

On June 19, 2014, ITC Holdings entered into an accelerated share repurchase agreement of up to $150.0 million (minimum of $130.0 million) with JP Morgan Chase (“JP Morgan”) (the “ASR program”), which is part of the Board of Directors authorized share repurchase program for up to $250.0 million approved in April 2014 and expiring in December 2015. Under the ASR program, ITC Holdings paid $150.0 million to JP Morgan and received an initial delivery of 2.9 million shares with a fair market value of $104.0 million, based on the closing market price of $35.80 per share at the commencement of the ASR program. The final number of shares delivered under the ASR program will be based on the volume-weighted average share price of our common stock during the term of the transaction, less an agreed upon discount and adjusted for the initial share delivery. The ASR program is expected to be completed by the end of 2014.

The $46.0 million unsettled portion of the ASR program meets the criteria to be accounted for as a forward contract indexed to our stock and qualifies as an equity instrument. ITC Holdings recorded the $150.0 million payment as a reduction to common stock, which included the $104.0 million of initial shares repurchased and the unsettled forward contract of $46.0 million as of June 30, 2014. The initial delivery of shares resulted in an immediate reduction to our common stock outstanding used to calculate our earnings per share disclosed in Note 8.

ITC Holdings Sales Agency Financing Agreement

On July 27, 2011, ITC Holdings entered into a Sales Agency Financing Agreement with Deutsche Bank Securities Inc. as sales agent (the “SAFA”). Under the terms of the SAFA, ITC Holdings was able to issue and sell shares of common stock, without par value, from time to time, up to an aggregate sales proceeds amount of $250.0 million. No shares were issued under the SAFA prior to its expiration on July 27, 2014.

XML

DEBT

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

DEBT

DEBT

Derivative Instruments and Hedging Activities

We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. In May 2014, we executed, settled and terminated $150.0 million of 10-year interest rate swaps in conjunction with the Senior Notes issued at ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:

Interest Rate Swaps	Amount		Weighted Average Fixed Rate of Interest Rate Swaps	Comparable Reference Rate of Senior Notes	Loss on Derivative		Settlement Date
(amounts in millions)
10-year interest rate swaps	$	150.0	2.65%	2.53%	$	1.6	May 2014

The interest rate swaps qualified for hedge accounting treatment and the loss of $1.6 million was recognized as of June 30, 2014 for the effective portion of the hedges and recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be amortized as a component of interest expense over the lives of the related debt. As of June 30, 2014 and December 31, 2013, we had no outstanding derivative financial instruments.

ITC Holdings

On December 20, 2013, ITC Holdings entered into an unsecured, unguaranteed term loan credit agreement, due September 30, 2016, with an initial borrowing capacity of $200.0 million. As of June 30, 2014 and December 31, 2013, ITC Holdings had $161.0 million and $140.0 million outstanding under this agreement, respectively. The proceeds were used for general corporate purposes, including the repayment of borrowings under the ITC Holdings’ revolving credit agreement. The weighted-average interest rate on the borrowing outstanding under this agreement was 1.3% at June 30, 2014.

On May 2, 2014, ITC Holdings commenced a cash tender offer for any and all of the outstanding $255.0 million ITC Holdings 5.875% Senior Notes due September 30, 2016 and $255.0 million ITC Holdings 6.375% Senior Notes due September 30, 2036, under which $115.6 million of the 5.875% Senior Notes and $54.7 million of the 6.375% Senior Notes were validly tendered on May 30, 2014. All of the Senior Notes validly tendered were subsequently retired with the proceeds from the $400.0 million3.65% Senior Notes described below. ITC Holdings incurred a loss on extinguishment of debt of $29.1 million related to the tender premium and the write-off of deferred debt issuance costs and other expenses.

On May 28, 2014, ITC Holdings issued $400.0 million aggregate principal amount of its 3.65% Senior Notes, due June 15, 2024. The proceeds from the issuance were used for the cash tender offer described above and for general corporate purposes, primarily the repayment of borrowings under the ITC Holdings revolving credit agreement. The ITC Holdings Senior Notes are issued under its indenture. All issuances of ITC Holdings Senior Notes are unsecured.

ITCTransmission

On June 10, 2014, ITCTransmission issued $75.0 million of 4.27% First Mortgage Bonds, Series F, due June 10, 2044 (“First Mortgage Bonds”). ITCTransmission also agreed to issue an additional $25.0 million of First Mortgage Bonds in August 2014 with terms and conditions identical to those of the First Mortgage Bonds. The proceeds from the June issuance were used for general corporate purposes, primarily the repayment of borrowings under the ITCTransmission revolving credit agreement. All of ITCTransmission’s First Mortgage Bonds are issued under its First Mortgage and Deed of Trust and secured by a first mortgage lien on substantially all of its property.

METC

On January 31, 2014, METC entered into an unsecured, unguaranteed term loan credit agreement, under which METC borrowed the maximum of $50.0 million available under the agreement. The proceeds were used for general corporate purposes, primarily the repayment of borrowings under the METC revolving credit agreement. The term loan is scheduled to mature on February 2, 2015. The weighted average interest rate on the borrowings outstanding under the term loan was 1.2% at June 30, 2014.

Revolving Credit Agreements

On March 28, 2014, ITC Holdings and its Regulated Operating Subsidiaries entered into new unsecured, unguaranteed revolving credit agreements maturing in March 2019, which replaced their existing revolving credit agreements. At June 30, 2014, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:

(amounts in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity		Weighted Average Interest Rate on Outstanding Balance		Commitment Fee Rate (b)
ITC Holdings	$	400.0	$	—	$	400.0	n/a	(c)	0.175	%
ITCTransmission	100.0		16.1		83.9		1.1%	(d)	0.10	%
METC	100.0		42.3		57.7		1.1%	(d)	0.10	%
ITC Midwest	250.0		146.1		103.9		1.2%	(d)	0.10	%
ITC Great Plains	150.0		85.5		64.5		1.3%	(e)	0.125	%
Total	$	1,000.0	$	290.0	$	710.0

____________________________

(a) Included within long-term debt.

(b) Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

(c) Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

(d) Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

(e) Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.125% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.125%, subject to adjustments based on the borrower’s credit rating.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and maintaining certain interest coverage ratios. As of June 30, 2014, we were in compliance with all debt covenants.

XML

EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share, Basic and Diluted, by Common Class

Schedule of Basic and Diluted Earnings Per Common Share

A reconciliation of both calculations for the three and six months ended June 30, 2014 and 2013 is presented in the following table (see additional information below under “Stock Split” for the recast share and per share data for the three and six months ended June 30, 2013 as a result of the three-for-one stock split):

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except share, per share data and percentages)	2014			2013			2014			2013
Numerator:
Net income	$	54,336		$	47,395		$	123,472		$	97,585
Less: dividends declared and paid — common and restricted shares	(22,530		)	(19,789		)	(44,983		)	(39,522		)
Undistributed earnings	31,806			27,606			78,489			58,063
Percentage allocated to common shares (a)	99.2		%	99.0		%	99.2		%	99.0		%
Undistributed earnings — common shares	31,552			27,331			77,861			57,482
Add: dividends declared and paid — common shares	22,347			19,605			44,609			39,143
Numerator for basic and diluted earnings per common share	$	53,899		$	46,936		$	122,470		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares outstanding	156,427,493			155,645,337			156,309,340			155,458,851
Incremental shares for stock options and employee stock purchase plan — weighted average assumed conversion	1,541,565			1,288,170			1,523,485			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	157,969,058			156,933,507			157,832,825			156,681,840
Per common share net income:
Basic	$	0.34		$	0.30		$	0.78		$	0.62
Diluted	$	0.34		$	0.30		$	0.78		$	0.62

____________________________

(a)	Weighted average common shares outstanding	156,427,493		155,645,337		156,309,340		155,458,851
	Weighted average restricted shares (participating securities)	1,297,578		1,509,081		1,329,136		1,534,395
	Total	157,725,071		157,154,418		157,638,476		156,993,246
	Percentage allocated to common shares	99.2	%	99.0	%	99.2	%	99.0	%

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The outstanding stock options and ESPP shares and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations were as follows:

	2014	2013
Outstanding stock options and ESPP shares (as of June 30)	4,891,913	5,374,689
Anti-dilutive stock options and ESPP shares (for the three and six months ended June 30)	654,231	942,333

Effects of Stock Split

Earnings Per Share, Basic and Diluted, by Common Class

Schedule of Basic and Diluted Earnings Per Common Share

Below are the effects of the stock split on earnings per share for the three and six months ended June 30, 2013:

(in thousands, except per share and share data)	Reported		Adjustment			Adjusted
For the three months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	46,936	$	—		$	46,936
Denominator:
Basic earnings per common share — weighted average common shares	51,881,779		103,763,558			155,645,337
Incremental shares for stock options and employee stock purchase plan	429,390		858,780			1,288,170
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,311,169		104,622,338			156,933,507
Per common share net income:
Basic	$	0.90	$	(0.60	)	$	0.30
Diluted	$	0.90	$	(0.60	)	$	0.30
For the six months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	96,625	$	—		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares	51,819,617		103,639,234			155,458,851
Incremental shares for stock options and employee stock purchase plan	407,663		815,326			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,227,280		104,454,560			156,681,840
Per common share net income:
Basic	$	1.86	$	(1.24	)	$	0.62
Diluted	$	1.85	$	(1.23	)	$	0.62

Below are the effects of the stock split on other disclosures included for earnings per share for the three and six months ended June 30, 2013:

Percentage Allocated to Common Shares

	Reported		Adjustment		Adjusted
For the three months ended June 30, 2013
Weighted-average common shares outstanding	51,881,779		103,763,558		155,645,337
Weighted-average restricted shares (participating securities)	503,027		1,006,054		1,509,081
Total	52,384,806		104,769,612		157,154,418
Percentage allocated to common shares	99.0	%	—	%	99.0	%
For the six months ended June 30, 2013
Weighted-average common shares outstanding	51,819,617		103,639,234		155,458,851
Weighted-average restricted shares (participating securities)	511,465		1,022,930		1,534,395
Total	52,331,082		104,662,164		156,993,246
Percentage allocated to common shares	99.0	%	—	%	99.0	%

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The outstanding stock options and the ESPP shares as of June 30, 2013 and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations for the three and six months ended June 30, 2013 were as follows:

	Reported		Adjusted
	June 30, 2013	Adjustment	June 30, 2013
Outstanding stock options and ESPP shares	1,791,563	3,583,126	5,374,689
Anti-dilutive stock options and ESPP shares	314,111	628,222	942,333

XML

GENERAL (Tables)

6 Months Ended

Jun. 30, 2014

GENERAL [Abstract]

Supplementary Cash Flows Information

	Six months ended
	June 30,
(in thousands)	2014		2013
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	90,248	$	62,692
Income taxes paid — net	25,416		11,593
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment (a)	$	105,246	$	99,485
Allowance for equity funds used during construction	9,944		17,025

____________________________

(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, 2014 or 2013, respectively, but have been or will be included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

XML

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Retirement Plan Benefits

We have a qualified retirement plan for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees, and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees, and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the qualified retirement plan is to contribute amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as we determine appropriate. During the second quarter of 2014, we contributed $3.8 million to the defined benefit retirement plan. We do not expect to make any additional contributions to this plan in 2014.

We also have two supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. The plans provide for benefits that supplement those provided by our other retirement plans. We contributed $5.1 million to these supplemental nonqualified, noncontributory, retirement benefit plans during the second quarter of 2014. We do not expect to make any additional contributions to these plans in 2014.

Net pension cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,267		$	1,316		$	2,533		$	2,631
Interest cost	901			633			1,802			1,396
Expected return on plan assets	(885		)	(717		)	(1,770		)	(1,434		)
Amortization of prior service credit	(11		)	(11		)	(21		)	(21		)
Amortization of unrecognized loss	386			678			772			1,357
Net pension cost	$	1,658		$	1,899		$	3,316		$	3,929

Other Postretirement Benefits

We provide certain postretirement health care, dental, and life insurance benefits for eligible employees. During the second quarter of 2014, we contributed $1.2 million to the postretirement benefit plan. We expect to make an estimated additional contribution of $5.0 million to the postretirement benefit plan during the second half of 2014.

Net postretirement cost, by component, was as follows for the three and six months ended June 30, 2014:

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Service cost	$	1,462		$	1,444		$	2,923		$	2,887
Interest cost	498			391			996			781
Expected return on plan assets	(341		)	(355		)	(681		)	(708		)
Amortization of unrecognized loss	—			55			—			110
Net postretirement cost	$	1,619		$	1,535		$	3,238		$	3,070

Defined Contribution Plan

We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was $0.8 million and $0.7 million for the three months ended June 30, 2014 and 2013, respectively, and $2.1 million and $2.4 million for the six months ended June 30, 2014 and 2013, respectively.

XML

SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Long-Term Incentive Plan Grants

On May 20, 2014, pursuant to the Second Amended and Restated 2006 Long-Term Incentive Plan (“LTIP”), we granted 652,900 options to purchase shares of our common stock with an exercise price of $36.73 per share, which was the closing price of our common stock on the date of grant. The options vest in three equal annual installments with the first installment vesting on May 20, 2015. In addition, on May 20, 2014, pursuant to the LTIP, we granted 259,014 shares of restricted stock at a fair value of $36.73 per share. Holders of restricted stock have all the rights of a holder of common stock of ITC Holdings, including dividend and voting rights. The restricted stock vests three years after the grant date. The holder of the restricted stock may not sell, transfer or pledge their shares of restricted stock until vesting occurs.

Stock Option Exercises

We issued 761,321 and 499,014 shares of our common stock during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively, due to the exercise of stock options.

XML

EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2014

Earnings Per Share, Basic and Diluted [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

We report both basic and diluted earnings per share. Our restricted stock and deferred stock units contain rights to receive nonforfeitable dividends and thus, are participating securities requiring the two-class method of computing earnings per share. A reconciliation of both calculations for the three and six months ended June 30, 2014 and 2013 is presented in the following table (see additional information below under “Stock Split” for the recast share and per share data for the three and six months ended June 30, 2013 as a result of the three-for-one stock split):

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands, except share, per share data and percentages)	2014			2013			2014			2013
Numerator:
Net income	$	54,336		$	47,395		$	123,472		$	97,585
Less: dividends declared and paid — common and restricted shares	(22,530		)	(19,789		)	(44,983		)	(39,522		)
Undistributed earnings	31,806			27,606			78,489			58,063
Percentage allocated to common shares (a)	99.2		%	99.0		%	99.2		%	99.0		%
Undistributed earnings — common shares	31,552			27,331			77,861			57,482
Add: dividends declared and paid — common shares	22,347			19,605			44,609			39,143
Numerator for basic and diluted earnings per common share	$	53,899		$	46,936		$	122,470		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares outstanding	156,427,493			155,645,337			156,309,340			155,458,851
Incremental shares for stock options and employee stock purchase plan — weighted average assumed conversion	1,541,565			1,288,170			1,523,485			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	157,969,058			156,933,507			157,832,825			156,681,840
Per common share net income:
Basic	$	0.34		$	0.30		$	0.78		$	0.62
Diluted	$	0.34		$	0.30		$	0.78		$	0.62

____________________________

(a)	Weighted average common shares outstanding	156,427,493		155,645,337		156,309,340		155,458,851
	Weighted average restricted shares (participating securities)	1,297,578		1,509,081		1,329,136		1,534,395
	Total	157,725,071		157,154,418		157,638,476		156,993,246
	Percentage allocated to common shares	99.2	%	99.0	%	99.2	%	99.0	%

The incremental shares for stock options and employee stock purchase plan (“ESPP”) shares are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. The outstanding stock options and ESPP shares and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations were as follows:

	2014	2013
Outstanding stock options and ESPP shares (as of June 30)	4,891,913	5,374,689
Anti-dilutive stock options and ESPP shares (for the three and six months ended June 30)	654,231	942,333

Stock Split

Below are the effects of the stock split on earnings per share for the three and six months ended June 30, 2013:

(in thousands, except per share and share data)	Reported		Adjustment			Adjusted
For the three months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	46,936	$	—		$	46,936
Denominator:
Basic earnings per common share — weighted average common shares	51,881,779		103,763,558			155,645,337
Incremental shares for stock options and employee stock purchase plan	429,390		858,780			1,288,170
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,311,169		104,622,338			156,933,507
Per common share net income:
Basic	$	0.90	$	(0.60	)	$	0.30
Diluted	$	0.90	$	(0.60	)	$	0.30
For the six months ended June 30, 2013
Numerator for basic and diluted earnings per common share	$	96,625	$	—		$	96,625
Denominator:
Basic earnings per common share — weighted average common shares	51,819,617		103,639,234			155,458,851
Incremental shares for stock options and employee stock purchase plan	407,663		815,326			1,222,989
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,227,280		104,454,560			156,681,840
Per common share net income:
Basic	$	1.86	$	(1.24	)	$	0.62
Diluted	$	1.85	$	(1.23	)	$	0.62

Below are the effects of the stock split on other disclosures included for earnings per share for the three and six months ended June 30, 2013:

Percentage Allocated to Common Shares

	Reported		Adjustment		Adjusted
For the three months ended June 30, 2013
Weighted-average common shares outstanding	51,881,779		103,763,558		155,645,337
Weighted-average restricted shares (participating securities)	503,027		1,006,054		1,509,081
Total	52,384,806		104,769,612		157,154,418
Percentage allocated to common shares	99.0	%	—	%	99.0	%
For the six months ended June 30, 2013
Weighted-average common shares outstanding	51,819,617		103,639,234		155,458,851
Weighted-average restricted shares (participating securities)	511,465		1,022,930		1,534,395
Total	52,331,082		104,662,164		156,993,246
Percentage allocated to common shares	99.0	%	—	%	99.0	%

Outstanding and Anti-dilutive Stock Options and ESPP Shares

The outstanding stock options and the ESPP shares as of June 30, 2013 and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations for the three and six months ended June 30, 2013 were as follows:

	Reported		Adjusted
	June 30, 2013	Adjustment	June 30, 2013
Outstanding stock options and ESPP shares	1,791,563	3,583,126	5,374,689
Anti-dilutive stock options and ESPP shares	314,111	628,222	942,333

Impacts of the Accelerated Share Repurchase Program

The basic shares outstanding as of June 30, 2014 include the impacts of the initial delivery of 2.9 million shares received under the ASR, as described in Note 6. The forward contract component of the ASR of $46.0 million is excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2014 based on the volume-weighted average price calculated as of June 30, 2014, which results in an anti-dilutive impact on earnings per share. The final settlement amount may increase or decrease earnings per share at the settlement date depending upon the volume-weighted average share price of our common stock during the term of the transaction.

XML

FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the six months ended June 30, 2014 and the year ended December 31, 2013, there were no transfers between levels.

Our assets measured at fair value subject to the three-tier hierarchy at June 30, 2014, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	3,625	$	—	$	—
Mutual funds — fixed income securities	26,657		—		—
Mutual funds — equity securities	636		—		—
Total	$	30,918	$	—	$	—

Our assets measured at fair value subject to the three-tier hierarchy at December 31, 2013, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	19,000	$	—	$	—
Mutual funds — fixed income securities	21,318		—		—
Mutual funds — equity securities	516		—		—
Total	$	40,834	$	—	$	—

As of June 30, 2014 and December 31, 2013, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. Our cash and cash equivalents consist of money market mutual funds that are administered similar to money market funds recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist primarily of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value, and losses are recorded in earnings for investment classified as trading securities and other comprehensive income for investments classified as available for sale if fair value falls below recorded cost.

We also held non-financial assets that are required to be measured at fair value on a non-recurring basis. These consist of goodwill and intangible assets. We did not record any impairment charges on long-lived assets and no other significant events occurred requiring non-financial assets and liabilities to be measured at fair value (subsequent to initial recognition) during the six months ended June 30, 2014. For additional information on our goodwill and intangible assets, please refer to the notes to the consolidated financial statements as of and for the year ended December 31, 2013 included in our Form 10-K for such period and to Note 4 of this Form 10-Q.

Fair Value of Financial Assets and Liabilities

Fixed Rate Debt

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,709.7 million and $3,299.0 million at June 30, 2014 and December 31, 2013, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements, was $3,404.5 million and $3,100.9 million at June 30, 2014 and December 31, 2013, respectively.

Revolving and Term Loan Credit Agreements

At June 30, 2014 and December 31, 2013, we had a consolidated total of $601.0 million and $511.2 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.

Other Financial Instruments

The carrying value of other financial instruments included in current assets and current liabilities, including cash and cash equivalents and special deposits, approximates their fair value due to the short-term nature of these instruments.

XML

DEBT Additional Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 ITC Holdings		Jun. 30, 2014 ITC Holdings Term Loan Credit Agreement, Due September 30, 2016 Unsecured Debt	Dec. 31, 2013 ITC Holdings Term Loan Credit Agreement, Due September 30, 2016 Unsecured Debt	May 30, 2014 ITC Holdings Senior Notes, Due September 30, 2016 Unsecured Debt	May 02, 2014 ITC Holdings Senior Notes, Due September 30, 2016 Unsecured Debt	May 30, 2014 ITC Holdings Senior Notes, Due September 30, 2036 Unsecured Debt	May 02, 2014 ITC Holdings Senior Notes, Due September 30, 2036 Unsecured Debt	May 28, 2014 ITC Holdings Senior Notes, Due June 15, 2024 Unsecured Debt	Jun. 30, 2014 ITCTransmission		Jun. 10, 2014 ITCTransmission First Mortgage Bonds, Series F, Due June 10, 2044 Secured Debt	Aug. 31, 2014 ITCTransmission First Mortgage Bonds, Series F, Due June 10, 2044 Secured Debt Scenario, Forecast	Jun. 30, 2014 METC		Jun. 30, 2014 METC Term Loan Credit Agreement, Due February 2, 2015 Unsecured Debt	Jan. 31, 2014 METC Term Loan Credit Agreement, Due February 2, 2015 Unsecured Debt
Debt Instrument
Other long-term debt, initial borrowing capacity							$ 200,000,000
Other long-term debt							161,000,000	140,000,000												50,000,000
Weighted average interest rate						[1]	1.30%							1.10%	[2]			1.10%	[2]	1.20%
Principal amount										255,000,000		255,000,000	400,000,000			75,000,000	25,000,000
Amount of validly tendered debt									115,600,000		54,700,000
Interest rate													3.65%			4.27%
Loss on extinguishment of debt	29,074,000	0	29,074,000	0
Other long-term debt, maximum borrowing capacity																					$ 50,000,000

[1] Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

[2] Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

XML

DEBT (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Interest Rate Swap Arrangements

A summary of the terminated interest rate swaps is provided below:

Interest Rate Swaps	Amount		Weighted Average Fixed Rate of Interest Rate Swaps	Comparable Reference Rate of Senior Notes	Loss on Derivative		Settlement Date
(amounts in millions)
10-year interest rate swaps	$	150.0	2.65%	2.53%	$	1.6	May 2014

Schedule of Revolving Credit Agreements

At June 30, 2014, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:

(amounts in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity		Weighted Average Interest Rate on Outstanding Balance		Commitment Fee Rate (b)
ITC Holdings	$	400.0	$	—	$	400.0	n/a	(c)	0.175	%
ITCTransmission	100.0		16.1		83.9		1.1%	(d)	0.10	%
METC	100.0		42.3		57.7		1.1%	(d)	0.10	%
ITC Midwest	250.0		146.1		103.9		1.2%	(d)	0.10	%
ITC Great Plains	150.0		85.5		64.5		1.3%	(e)	0.125	%
Total	$	1,000.0	$	290.0	$	710.0

____________________________

(a) Included within long-term debt.

(b) Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

(c) Loan would bear interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

(d) Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

(e) Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.125% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.125%, subject to adjustments based on the borrower’s credit rating.

XML

SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Schedule of Financial Information by Reportable Segment

The following tables show our financial information by reportable segment:

	Three months ended						Six months ended
OPERATING REVENUES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	263,303		$	229,891		$	521,996		$	447,271
ITC Holdings and other	92			152			184			304
Intercompany eliminations	(181		)	(226		)	(363		)	(454		)
Total Operating Revenues	$	263,214		$	229,817		$	521,817		$	447,121

	Three months ended						Six months ended
INCOME BEFORE INCOME TAXES:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	147,187		$	125,199		$	288,779		$	244,459
ITC Holdings and other	(59,644		)	(48,700		)	(89,264		)	(86,210		)
Total Income Before Income Taxes	$	87,543		$	76,499		$	199,515		$	158,249

	Three months ended						Six months ended
NET INCOME:	June 30,						June 30,
(in thousands)	2014			2013			2014			2013
Regulated Operating Subsidiaries	$	90,296		$	78,121		$	176,849		$	151,877
ITC Holdings and other	54,336			47,395			123,472			97,585
Intercompany eliminations	(90,296		)	(78,121		)	(176,849		)	(151,877		)
Total Net Income	$	54,336		$	47,395		$	123,472		$	97,585

TOTAL ASSETS:	June 30,			December 31,
(in thousands)	2014			2013
Regulated Operating Subsidiaries	$	6,577,523		$	6,174,888
ITC Holdings and other	3,810,270			3,619,759
Reconciliations / Intercompany eliminations (a)	(3,706,868		)	(3,512,404		)
Total Assets	$	6,680,925		$	6,282,243

____________________________

(a) Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our Regulated Operating Subsidiaries as compared to the classification in our condensed consolidated statements of financial position.

XML

EARNINGS PER SHARE Additional Information (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended	3 Months Ended		6 Months Ended
	Jun. 19, 2014	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share, Basic and Diluted [Abstract]
Outstanding stock options and ESPP shares		4,891,913	5,374,689	4,891,913	5,374,689
Anti-dilutive stock options and ESPP shares		654,231	942,333	654,231	942,333
Accelerated share repurchase agreement, initial share delivery and retirement	2,900,000
Accelerated share repurchase agreement, unsettled amount	$ 46.0

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
NET INCOME	$ 54,336	$ 47,395	$ 123,472	$ 97,585
OTHER COMPREHENSIVE INCOME
Derivative instruments, net of tax (Note 6)	(688)	22,252	(582)	24,358
Available-for-sale securities, net of tax (Note 6)	60	0	110	0
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX	(628)	22,252	(472)	24,358
TOTAL COMPREHENSIVE INCOME	$ 53,708	$ 69,647	$ 123,000	$ 121,943

XML

GOODWILL AND INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

Goodwill

At June 30, 2014 and December 31, 2013, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $453.8 million and $323.0 million, respectively, which resulted from the ITCTransmission acquisition, the METC acquisition and ITC Midwest’s asset acquisition, respectively.

Intangible Assets

We have recorded intangible assets as a result of the METC acquisition in 2006. The carrying value of these assets was $35.7 million and $37.2 million (net of accumulated amortization of $22.7 million and $21.2 million) as of June 30, 2014 and December 31, 2013, respectively.

We have also recorded intangible assets for payments and obligations made by ITC Great Plains to certain TOs to acquire rights which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including the KETA Project and the Kansas V-Plan Project. The carrying amount of these intangible assets was $13.9 million and $12.1 million (net of accumulated amortization of $0.6 million and $0.4 million) as of June 30, 2014 and December 31, 2013, respectively.

During the three months ended June 30, 2014 and 2013, we recognized $0.8 million of amortization expense of our intangible assets and $1.6 million for the six months ended June 30, 2014 and 2013. For each of the next five years, we expect the annual amortization of our intangible assets that have been recorded as of June 30, 2014 to be $3.3 million per year.

XML

GENERAL (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014		Jun. 30, 2013
Supplementary cash flows information:
Interest paid (net of interest capitalized)			$ 90,248		$ 62,692
Income taxes paid — net			25,416		11,593
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment			105,246	[1]	99,485	[1]
Allowance for equity funds used during construction	$ 4,932	$ 8,292	$ 9,944		$ 17,025

[1] 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, 2014 or 2013, respectively, but have been or will be included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

XML

SHARE-BASED COMPENSATION (Details) (USD $)	0 Months Ended	6 Months Ended	12 Months Ended
	May 20, 2014	Jun. 30, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award
Granted options	652,900
Granted options, exercised price	$ 36.73
Exercised options		761,321	499,014
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award
Vesting rights	three equal annual installments
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Vesting rights	three years after the grant date
Granted restricted stock	259,014
Granted restricted stock, fair value	$ 36.73

XML

REGULATORY MATTERS (Tables)

6 Months Ended

Jun. 30, 2014

Regulated Operations [Abstract]

Net Changes in Regulatory Assets and Liabilities

The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, were as follows during the six months ended June 30, 2014:

(in thousands)	Total
Balance as of December 31, 2013	$	(60,196	)
Net refund of 2012 revenue deferrals and accruals, including accrued interest	13,629
Net revenue deferral for the six months ended June 30, 2014	(5,348		)
Net accrued interest payable for the six months ended June 30, 2014	(1,033		)
Balance as of June 30, 2014	$	(52,948	)

Schedule of Regulatory Assets and Liabilities

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals are recorded in the condensed consolidated statements of financial position as follows:

(in thousands)	Total
Current assets	$	4,728
Non-current assets — other	7,611
Current liabilities	(35,336		)
Non-current liabilities	(29,951		)
Balance as of June 30, 2014	$	(52,948	)