þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2016 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Michigan (State or Other Jurisdiction of Incorporation or Organization) | 32-0058047 (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Page | |
Exhibit Index | |
• | “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 Interconnection” are references to ITC Interconnection LLC, a wholly-owned subsidiary of ITC Grid Development, LLC; |
• | “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. |
• | “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; |
• | “FERC” are references to the Federal Energy Regulatory Commission; |
• | “Fortis” are references to Fortis Inc.; |
• | “FortisUS” are references to FortisUS Inc., an indirect subsidiary of Fortis; |
• | “FPA” are references to the Federal Power Act; |
• | “GIC” are references to GIC Private Limited; |
• | “IP&L” are references to Interstate Power and Light Company, an Alliant Energy Corporation subsidiary; |
• | “kV” are references to kilovolts (one kilovolt equaling 1,000 volts); |
• | “kW” are references to kilowatts (one kilowatt equaling 1,000 watts); |
• | “LIBOR” are references to the London Interbank Offered Rate; |
• | “Merger” are references to the merger with Fortis, whereby ITC Holdings merged with Merger Sub and subsequently became an indirect subsidiary of FortisUS; |
• | “Merger Agreement” are references to the agreement between Fortis, FortisUS, Merger Sub and ITC Holdings for the Merger; |
• | “Merger Sub” are references to Element Acquisition Sub, Inc., an indirect subsidiary of Fortis that merged into ITC Holdings in the Merger; |
• | “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; |
• | “NERC” are references to the North American Electric Reliability Corporation; |
• | “NYSE” are references to the New York Stock Exchange; |
• | “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. |
September 30, | December 31, | ||||||
(in thousands, except share data) | 2016 | 2015 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 8,938 | $ | 13,859 | |||
Accounts receivable | 137,942 | 104,262 | |||||
Inventory | 28,564 | 25,777 | |||||
Regulatory assets | 22,262 | 14,736 | |||||
Prepaid and other current assets | 13,403 | 10,608 | |||||
Total current assets | 211,109 | 169,242 | |||||
Property, plant and equipment (net of accumulated depreciation and amortization of $1,562,532 and $1,487,713, respectively) | 6,555,627 | 6,109,639 | |||||
Other assets | |||||||
Goodwill | 950,163 | 950,163 | |||||
Intangible assets (net of accumulated amortization of $30,736 and $28,242, respectively) | 43,525 | 45,602 | |||||
Regulatory assets | 238,213 | 233,376 | |||||
Deferred financing fees (net of accumulated amortization of $1,853 and $1,277, respectively) | 1,885 | 2,498 | |||||
Other | 51,165 | 44,802 | |||||
Total other assets | 1,284,951 | 1,276,441 | |||||
TOTAL ASSETS | $ | 8,051,687 | $ | 7,555,322 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | 139,045 | $ | 124,331 | |||
Accrued compensation | 26,788 | 24,123 | |||||
Accrued interest | 45,656 | 52,577 | |||||
Accrued taxes | 28,748 | 44,256 | |||||
Regulatory liabilities | 137,014 | 44,964 | |||||
Refundable deposits from generators for transmission network upgrades | 6,295 | 2,534 | |||||
Debt maturing within one year | 185,825 | 395,105 | |||||
Other | 24,030 | 31,034 | |||||
Total current liabilities | 593,401 | 718,924 | |||||
Accrued pension and postretirement liabilities | 65,353 | 61,609 | |||||
Deferred income taxes | 964,588 | 735,426 | |||||
Regulatory liabilities | 251,187 | 254,788 | |||||
Refundable deposits from generators for transmission network upgrades | 32,975 | 18,077 | |||||
Other | 29,738 | 23,075 | |||||
Long-term debt | 4,298,329 | 4,034,352 | |||||
Commitments and contingent liabilities (Notes 4 and 11) | |||||||
STOCKHOLDERS’ EQUITY | |||||||
Common stock, without par value, 300,000,000 shares authorized, 153,432,671 and 152,699,077 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | 849,210 | 829,211 | |||||
Retained earnings | 969,761 | 875,595 | |||||
Accumulated other comprehensive (loss) income | (2,855 | ) | 4,265 | ||||
Total stockholders’ equity | 1,816,116 | 1,709,071 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 8,051,687 | $ | 7,555,322 |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
OPERATING REVENUES | $ | 253,451 | $ | 273,189 | $ | 831,628 | $ | 820,734 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and maintenance | 30,326 | 32,721 | 82,533 | 88,309 | ||||||||||||
General and administrative | 35,752 | 33,677 | 130,922 | 107,064 | ||||||||||||
Depreciation and amortization | 39,599 | 36,890 | 117,840 | 106,903 | ||||||||||||
Taxes other than income taxes | 22,645 | 20,463 | 68,444 | 61,629 | ||||||||||||
Other operating (income) and expenses — net | (293 | ) | (206 | ) | (839 | ) | (675 | ) | ||||||||
Total operating expenses | 128,029 | 123,545 | 398,900 | 363,230 | ||||||||||||
OPERATING INCOME | 125,422 | 149,644 | 432,728 | 457,504 | ||||||||||||
OTHER EXPENSES (INCOME) | ||||||||||||||||
Interest expense — net | 55,843 | 51,398 | 158,064 | 150,070 | ||||||||||||
Allowance for equity funds used during construction | (10,002 | ) | (6,421 | ) | (26,442 | ) | (21,434 | ) | ||||||||
Other income | (408 | ) | (384 | ) | (1,149 | ) | (804 | ) | ||||||||
Other expense | 1,254 | 1,372 | 3,635 | 2,969 | ||||||||||||
Total other expenses (income) | 46,687 | 45,965 | 134,108 | 130,801 | ||||||||||||
INCOME BEFORE INCOME TAXES | 78,735 | 103,679 | 298,620 | 326,703 | ||||||||||||
INCOME TAX PROVISION | 29,097 | 38,106 | 114,019 | 121,662 | ||||||||||||
NET INCOME | $ | 49,638 | $ | 65,573 | $ | 184,601 | $ | 205,041 | ||||||||
Basic earnings per common share | $ | 0.32 | $ | 0.42 | $ | 1.21 | $ | 1.32 | ||||||||
Diluted earnings per common share | $ | 0.32 | $ | 0.42 | $ | 1.20 | $ | 1.31 | ||||||||
Dividends declared per common share | $ | 0.2155 | $ | 0.1875 | $ | 0.5905 | $ | 0.5125 |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
NET INCOME | $ | 49,638 | $ | 65,573 | $ | 184,601 | $ | 205,041 | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
Derivative instruments, net of tax (Note 7) | 239 | (2,169 | ) | (7,532 | ) | (910 | ) | |||||||||
Available-for-sale securities, net of tax (Note 7) | (18 | ) | 18 | 412 | 21 | |||||||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 221 | (2,151 | ) | (7,120 | ) | (889 | ) | |||||||||
TOTAL COMPREHENSIVE INCOME | $ | 49,859 | $ | 63,422 | $ | 177,481 | $ | 204,152 |
Nine months ended | |||||||
September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 184,601 | $ | 205,041 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 117,840 | 106,903 | |||||
Recognition, refund and collection of revenue accruals and deferrals — including accrued interest | 8,450 | 1,164 | |||||
Deferred income tax expense | 220,309 | 76,103 | |||||
Allowance for equity funds used during construction | (26,442 | ) | (21,434 | ) | |||
Other | 22,872 | 14,950 | |||||
Changes in assets and liabilities, exclusive of changes shown separately: | |||||||
Accounts receivable | (34,449 | ) | (24,523 | ) | |||
Inventory | (2,746 | ) | 1,401 | ||||
Prepaid and other current assets | (2,902 | ) | (4,317 | ) | |||
Accounts payable | 33,230 | (1,120 | ) | ||||
Accrued compensation | 3,202 | (1,520 | ) | ||||
Accrued interest | (6,921 | ) | (8,896 | ) | |||
Accrued taxes | (15,508 | ) | (15,566 | ) | |||
Other current liabilities | (2,048 | ) | 132 | ||||
Estimated refund related to return on equity complaints | 87,734 | 40,269 | |||||
Other non-current assets and liabilities, net | (145 | ) | 17,701 | ||||
Net cash provided by operating activities | 587,077 | 386,288 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Expenditures for property, plant and equipment | (560,607 | ) | (460,110 | ) | |||
Other | 3,898 | (14,969 | ) | ||||
Net cash used in investing activities | (556,709 | ) | (475,079 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Issuance of long-term debt | 599,460 | 225,000 | |||||
Borrowings under revolving credit agreements | 790,000 | 909,400 | |||||
Net issuance of commercial paper, net of discount | 39,487 | 218,983 | |||||
Retirement of long-term debt | (139,344 | ) | — | ||||
Repayments of revolving credit agreements | (872,500 | ) | (1,053,200 | ) | |||
Repayment of term loan credit agreements | (361,000 | ) | — | ||||
Issuance of common stock | 12,604 | 12,322 | |||||
Dividends on common and restricted stock | (90,277 | ) | (79,697 | ) | |||
Refundable deposits from generators for transmission network upgrades | 28,798 | 3,458 | |||||
Repayment of refundable deposits from generators for transmission network upgrades | (10,140 | ) | (11,442 | ) | |||
Repurchase and retirement of common stock | (9,449 | ) | (21,931 | ) | |||
Forward contracts of accelerated share repurchase program | — | (115,000 | ) | ||||
Other | (22,928 | ) | (2,676 | ) | |||
Net cash (used in) provided by financing activities | (35,289 | ) | 85,217 | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (4,921 | ) | (3,574 | ) | |||
CASH AND CASH EQUIVALENTS — Beginning of period | 13,859 | 27,741 | |||||
CASH AND CASH EQUIVALENTS — End of period | $ | 8,938 | $ | 24,167 |
Nine months ended | |||||||
September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Supplementary cash flows information: | |||||||
Interest paid (net of interest capitalized) | $ | 155,848 | $ | 153,350 | |||
Income taxes paid (a) | 22,743 | 49,599 | |||||
Supplementary non-cash investing and financing activities: | |||||||
Additions to property, plant and equipment and other long-lived assets (b) | $ | 99,754 | $ | 85,386 | |||
Allowance for equity funds used during construction | 26,442 | 21,434 |
(a) | Amount for the nine months ended September 30, 2016 does not include the income tax refund of $128.2 million received from the Internal Revenue Service (“IRS”) in August 2016, which resulted from the election of bonus depreciation as described in Note 4. |
(b) | Amounts consist of accrued liabilities for construction, labor, materials and other costs that have not been included in investing activities. These amounts have not been paid for as of September 30, 2016 or 2015, respectively, but will be or have been included as a cash outflow from investing activities when paid. |
(in thousands) | Reported | Adjustment | Adjusted | ||||||||
Deferred financing fees (net of accumulated amortization) | $ | 29,298 | $ | (26,800 | ) | $ | 2,498 | ||||
Debt maturing within one year | 395,334 | (229 | ) | 395,105 | |||||||
Long-term debt | 4,060,923 | (26,571 | ) | 4,034,352 |
(in thousands) | Total | |||
Net regulatory liability as of December 31, 2015 | $ | (2,564 | ) | |
Net refund of 2014 revenue deferrals and accruals, including accrued interest | 16,785 | |||
Net revenue deferral for the nine months ended September 30, 2016 | (24,503 | ) | ||
Net accrued interest payable for the nine months ended September 30, 2016 | (732 | ) | ||
Net regulatory liability as of September 30, 2016 | $ | (11,014 | ) |
(in thousands) | Total | |||
Current assets | $ | 22,262 | ||
Non-current assets | 18,678 | |||
Current liabilities | (15,714 | ) | ||
Non-current liabilities | (36,240 | ) | ||
Net regulatory liability as of September 30, 2016 | $ | (11,014 | ) |
Interest Rate Swaps (in millions, except percentages) | Notional Amount | Weighted Average Fixed Rate | Original Term | Effective Date | ||||||
July 2016 swaps | $ | 75.0 | 1.616% | 10 years | January 2018 | |||||
August 2016 swap | 25.0 | 1.599% | 10 years | January 2018 | ||||||
Total | $ | 100.0 |
Interest Rate Swaps (in millions, except percentages) | Amount | Weighted Average Fixed Rate of Interest Rate Swaps | Comparable Reference Rate of Notes | Loss on Derivatives | Settlement Date | |||||||||
10-year interest rate swaps | $ | 300.0 | 1.99% | 1.37% | $ | 17.2 | June 2016 |
(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 | $ | 7.0 | $ | 393.0 | (c) | 1.8% | (d) | 0.175 | % | ||||||
ITCTransmission | 100.0 | 41.6 | 58.4 | 1.4% | (e) | 0.10 | % | ||||||||||
METC | 100.0 | 25.8 | 74.2 | 1.4% | (e) | 0.10 | % | ||||||||||
ITC Midwest | 250.0 | 104.3 | 145.7 | 1.4% | (e) | 0.10 | % | ||||||||||
ITC Great Plains | 150.0 | 58.7 | 91.3 | 1.4% | (e) | 0.10 | % | ||||||||||
Total | $ | 1,000.0 | $ | 237.4 | $ | 762.6 |
(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) | ITC Holdings’ revolving credit agreement may be used for general corporate purposes, including to repay commercial paper issued pursuant to the commercial paper program described above, if necessary. While outstanding commercial paper does not reduce available capacity under ITC Holdings’ revolving credit agreement, the unused capacity under this agreement adjusted for the commercial paper outstanding was $257.1 million as of September 30, 2016. |
(d) | Loan bears 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 1.00% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating. |
(e) | 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 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating. |
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, 2015 | 152,699,077 | $ | 829,211 | $ | 875,595 | $ | 4,265 | $ | 1,709,071 | |||||||||
Net income | — | — | 184,601 | — | 184,601 | |||||||||||||
Repurchase and retirement of common stock | (215,791 | ) | (9,449 | ) | — | — | (9,449 | ) | ||||||||||
Dividends declared ($0.5905 per share) | — | — | (90,435 | ) | — | (90,435 | ) | |||||||||||
Stock option exercises | 473,519 | 11,376 | — | — | 11,376 | |||||||||||||
Shares issued under the Employee Stock Purchase Plan | 40,219 | 1,228 | — | — | 1,228 | |||||||||||||
Issuance of restricted stock (a) | 464,395 | — | — | — | — | |||||||||||||
Forfeiture of restricted stock | (22,750 | ) | — | — | — | — | ||||||||||||
Forfeiture of performance shares | (5,998 | ) | — | — | — | — | ||||||||||||
Share-based compensation, net of forfeitures | — | 16,685 | — | — | 16,685 | |||||||||||||
Other comprehensive loss, net of tax | — | — | — | (7,120 | ) | (7,120 | ) | |||||||||||
Other | — | 159 | — | — | 159 | |||||||||||||
BALANCE, SEPTEMBER 30, 2016 | 153,432,671 | $ | 849,210 | $ | 969,761 | $ | (2,855 | ) | $ | 1,816,116 |
(a) | On May 19, 2016, pursuant to the 2015 Long-Term Incentive Plan, we granted 453,219 shares of restricted stock, which vested as part of the closing of the Merger on October 14, 2016 as described in Note 2. |
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, 2014 | 155,140,967 | $ | 923,191 | $ | 741,550 | $ | 4,816 | $ | 1,669,557 | |||||||||
Net income | — | — | 205,041 | — | 205,041 | |||||||||||||
Repurchase and retirement of common stock | (667,487 | ) | (21,931 | ) | — | — | (21,931 | ) | ||||||||||
Dividends declared ($0.5125 per share) | — | — | (79,691 | ) | — | (79,691 | ) | |||||||||||
Stock option exercises (a) | 1,165,435 | 10,599 | — | — | 10,599 | |||||||||||||
Shares issued under the Employee Stock Purchase Plan | 55,905 | 1,723 | — | — | 1,723 | |||||||||||||
Issuance of restricted stock | 254,711 | — | — | — | — | |||||||||||||
Forfeiture of restricted stock | (53,197 | ) | — | — | — | — | ||||||||||||
Issuance of performance shares | 287,464 | — | — | — | — | |||||||||||||
Forfeiture of performance shares | (6,713 | ) | — | — | — | — | ||||||||||||
Share-based compensation, net of forfeitures | — | 12,461 | — | — | 12,461 | |||||||||||||
Forward contracts of accelerated share repurchase program | — | (115,000 | ) | — | — | (115,000 | ) | |||||||||||
Other comprehensive loss, net of tax | — | — | — | (889 | ) | (889 | ) | |||||||||||
Other | — | (6 | ) | — | — | (6 | ) | |||||||||||
BALANCE, SEPTEMBER 30, 2015 | 156,177,085 | $ | 811,037 | $ | 866,900 | $ | 3,927 | $ | 1,681,864 |
(a) | An additional 37,941 shares of our common stock were issued during the three months ended December 31, 2015 for stock option exercises. Total shares of 1,203,376 were issued during the year ended December 31, 2015 due to the exercise of stock options. |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Balance at the beginning of period | $ | (3,076 | ) | $ | 6,078 | $ | 4,265 | $ | 4,816 | ||||||
Derivative instruments | |||||||||||||||
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $266 and $100 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $458 and $261 for the nine months ended September 30, 2016 and 2015, respectively) | 375 | 111 | 605 | 372 | |||||||||||
Loss on interest rate swaps relating to interest rate cash flow hedges (net of tax of $98 and $1,639 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $5,865 and $920 for the nine months ended September 30, 2016 and 2015, respectively) | (136 | ) | (2,280 | ) | (8,137 | ) | (1,282 | ) | |||||||
Derivative instruments, net of tax | 239 | (2,169 | ) | (7,532 | ) | (910 | ) | ||||||||
Available-for-sale securities | |||||||||||||||
Unrealized net (loss) gain on available-for-sale securities (net of tax of $13 for the three months ended September 30, 2016 and 2015, and net of tax of $296 and $15 for the nine months ended September 30, 2016 and 2015, respectively) | (18 | ) | 18 | 412 | 21 | ||||||||||
Available-for-sale securities, net of tax | (18 | ) | 18 | 412 | 21 | ||||||||||
Total other comprehensive income (loss), net of tax | 221 | (2,151 | ) | (7,120 | ) | (889 | ) | ||||||||
Balance at the end of period | $ | (2,855 | ) | $ | 3,927 | $ | (2,855 | ) | $ | 3,927 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in thousands, except share, per share data and percentages) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Numerator: | |||||||||||||||
Net income | $ | 49,638 | $ | 65,573 | $ | 184,601 | $ | 205,041 | |||||||
Less: dividends declared and paid — common and restricted shares | (32,999 | ) | (29,230 | ) | (90,277 | ) | (79,697 | ) | |||||||
Undistributed earnings | 16,639 | 36,343 | 94,324 | 125,344 | |||||||||||
Percentage allocated to common shares (a) | 99.3 | % | 99.3 | % | 99.3 | % | 99.3 | % | |||||||
Undistributed earnings — common shares | 16,523 | 36,089 | 93,664 | 124,467 | |||||||||||
Add: dividends declared and paid — common shares | 32,766 | 29,036 | 89,656 | 79,136 | |||||||||||
Numerator for basic and diluted earnings per common share | $ | 49,289 | $ | 65,125 | $ | 183,320 | $ | 203,603 | |||||||
Denominator: | |||||||||||||||
Basic earnings per common share — weighted average common shares outstanding | 152,028,595 | 154,836,673 | 151,754,084 | 154,348,478 | |||||||||||
Incremental shares for stock options, employee stock purchase plan shares and performance shares — weighted average assumed conversion | 1,189,049 | 687,035 | 1,126,616 | 1,104,516 | |||||||||||
Diluted earnings per common share — adjusted weighted average shares and assumed conversion | 153,217,644 | 155,523,708 | 152,880,700 | 155,452,994 | |||||||||||
Per common share net income: | |||||||||||||||
Basic | $ | 0.32 | $ | 0.42 | $ | 1.21 | $ | 1.32 | |||||||
Diluted | $ | 0.32 | $ | 0.42 | $ | 1.20 | $ | 1.31 | |||||||
(a) | Weighted average common shares outstanding | 152,028,595 | 154,836,673 | 151,754,084 | 154,348,478 | |||||||
Weighted average restricted shares (participating securities) | 1,088,340 | 1,040,212 | 1,025,033 | 1,127,490 | ||||||||
Total | 153,116,935 | 155,876,885 | 152,779,117 | 155,475,968 | ||||||||
Percentage allocated to common shares | 99.3 | % | 99.3 | % | 99.3 | % | 99.3 | % |
2016 | 2015 | ||||
Outstanding stock options, ESPP shares and performance shares (as of September 30) | 3,613,464 | 4,138,180 | |||
Anti-dilutive stock options and ESPP shares (for the three and nine months ended September 30) | — | 1,059,106 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Service cost | $ | 1,602 | $ | 1,624 | $ | 4,810 | $ | 4,872 | |||||||
Interest cost | 872 | 924 | 2,616 | 2,772 | |||||||||||
Expected return on plan assets | (931 | ) | (960 | ) | (2,795 | ) | (2,879 | ) | |||||||
Amortization of prior service credit | (5 | ) | (10 | ) | (13 | ) | (31 | ) | |||||||
Amortization of unrecognized loss | 877 | 1,061 | 2,629 | 3,182 | |||||||||||
Net pension cost | $ | 2,415 | $ | 2,639 | $ | 7,247 | $ | 7,916 |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Service cost | $ | 1,855 | $ | 2,121 | $ | 5,565 | $ | 6,364 | |||||||
Interest cost | 631 | 620 | 1,891 | 1,858 | |||||||||||
Expected return on plan assets | (531 | ) | (463 | ) | (1,592 | ) | (1,389 | ) | |||||||
Amortization of unrecognized loss | — | 125 | — | 375 | |||||||||||
Net postretirement cost | $ | 1,955 | $ | 2,403 | $ | 5,864 | $ | 7,208 |
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: | |||||||||||
Mutual funds — fixed income securities | $ | 42,231 | $ | — | $ | — | |||||
Mutual funds — equity securities | 1,049 | — | — | ||||||||
Interest rate swap derivative | — | 7 | — | ||||||||
Financial liabilities measured on a recurring basis: | |||||||||||
Interest rate swap derivatives | — | (240 | ) | — | |||||||
Total | $ | 43,280 | $ | (233 | ) | $ | — |
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 | $ | 49 | $ | — | $ | — | |||||
Mutual funds — fixed income securities | 35,813 | — | — | ||||||||
Mutual funds — equity securities | 976 | — | — | ||||||||
Interest rate swap derivative | — | 112 | — | ||||||||
Financial liabilities measured on a recurring basis: | |||||||||||
Interest rate swap derivatives | — | (3,548 | ) | — | |||||||
Total | $ | 36,838 | $ | (3,436 | ) | $ | — |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Increase (decrease) in: | |||||||||||||||
Operating revenues | $ | (55.0 | ) | $ | (18.0 | ) | $ | (80.7 | ) | $ | (38.8 | ) | |||
Interest expense | 3.9 | 0.5 | 7.0 | 1.4 | |||||||||||
Estimated net income (a) | (35.7 | ) | (11.2 | ) | (53.4 | ) | (24.5 | ) |
(a) | Includes an effect on net income of $27.1 million for the three and nine months ended September 30, 2016 for revenue initially recognized in 2015, 2014 and 2013. There was no effect on net income for the three and nine months ended September 30, 2015 for revenue initially recognized in a prior period. |
Three months ended | Nine months ended | ||||||||||||||
OPERATING REVENUES: | September 30, | September 30, | |||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Regulated operations (a) | $ | 261,156 | $ | 273,012 | $ | 839,126 | $ | 820,452 | |||||||
ITC Holdings and other | 93 | 334 | 688 | 720 | |||||||||||
Intercompany eliminations | (7,798 | ) | (157 | ) | (8,186 | ) | (438 | ) | |||||||
Total Operating Revenues | $ | 253,451 | $ | 273,189 | $ | 831,628 | $ | 820,734 |
Three months ended | Nine months ended | ||||||||||||||
INCOME BEFORE INCOME TAXES: | September 30, | September 30, | |||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Regulated operations (a) | $ | 119,862 | $ | 138,532 | $ | 439,288 | $ | 436,990 | |||||||
ITC Holdings and other | (41,127 | ) | (34,853 | ) | (140,668 | ) | (110,287 | ) | |||||||
Total Income Before Income Taxes | $ | 78,735 | $ | 103,679 | $ | 298,620 | $ | 326,703 |
Three months ended | Nine months ended | ||||||||||||||
NET INCOME: | September 30, | September 30, | |||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Regulated operations (a) | $ | 74,965 | $ | 85,971 | $ | 272,085 | $ | 269,491 | |||||||
ITC Holdings and other | 49,638 | 65,573 | 184,601 | 205,041 | |||||||||||
Intercompany eliminations | (74,965 | ) | (85,971 | ) | (272,085 | ) | (269,491 | ) | |||||||
Total Net Income | $ | 49,638 | $ | 65,573 | $ | 184,601 | $ | 205,041 |
TOTAL ASSETS: | September 30, | December 31, | |||||
(in thousands) | 2016 | 2015 | |||||
Regulated operations | $ | 7,969,771 | $ | 7,463,557 | |||
ITC Holdings and other | 4,253,150 | 4,147,915 | |||||
Reconciliations / Intercompany eliminations (b) | (4,171,234 | ) | (4,056,150 | ) | |||
Total Assets | $ | 8,051,687 | $ | 7,555,322 |
(a) | Amount includes the results of operations from ITC Interconnection for the period June 1, 2016 through September 30, 2016. |
(b) | Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our subsidiaries in the regulated operations segment as compared to the classification in our condensed consolidated statements of financial position. |
• | 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. |
• | Our actual capital investment may be lower than planned, which would cause a lower than anticipated rate base and would therefore result in lower 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 provide assurance that we will be able to initiate or complete any of these investments. In addition, we expect to incur expenses related to the pursuit of development opportunities, which may be higher than forecasted. |
• | 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 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 assets are located is subject to easements, mineral rights and other similar encumbrances. As a result, we 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. |
• | We contract with third parties to provide services for certain aspects of our business. If any of these agreements are terminated, we 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 operations or the imposition of civil or criminal penalties. |
• | We are subject to environmental regulations and to laws that can give rise to substantial liabilities from environmental contamination. |
• | We 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. |
• | 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 fulfill our 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. |
• | ITC Holdings and its subsidiaries are subject to business uncertainties during the period of integration with Fortis that could adversely affect ITC Holdings’ financial results. |
• | We will continue to incur substantial transaction-related costs in connection with the Merger. |
• | We are the target of securities class action and derivative lawsuits, which could result in substantial costs and diversion of management’s time and resources. |
• | Our capital expenditures of $560.6 million at our Regulated Operating Subsidiaries and ITC Interconnection during the nine months ended September 30, 2016 as described below under “— Capital Investment and Operating Results Trends,” resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources; |
• | Debt issuances as described in Note 6 to the condensed consolidated financial statements and borrowings under our revolving credit agreements in 2016 and 2015 to fund capital investment at our Regulated Operating Subsidiaries and ITC Interconnection as well as for general corporate purposes; |
• | Debt maturing within one year of $185.8 million as of September 30, 2016 and the potentially higher interest rates associated with the additional financing required to repay this debt; |
• | Recognition of the liability for the refund and potential refund relating to the rate of return on equity (“ROE”) complaints, as described in Note 11 to the condensed consolidated financial statements, which resulted in a total estimated pre-tax reduction of revenue and additional interest of $58.9 million and $87.7 million and an estimated after-tax reduction to net income of $35.7 million and $53.4 million for the three and nine months ended September 30, 2016, respectively; |
• | Election of bonus depreciation for tax years 2015 and 2016 as well as the simulation of ITC Midwest’s 2015 revenue requirement with the election of bonus depreciation. The total impact from these matters was lower revenues of approximately $4.2 million and $13.2 million and lower net income of approximately $2.5 million and $7.9 million, for the three and nine months ended September 30, 2016, respectively. These matters also resulted in additional net deferred income tax liabilities of approximately $145.4 million as of September 30, 2016, and a corresponding income tax refund of $128.2 million, which was received from the Internal Revenue Service (“IRS”) in August 2016; |
• | Recognition of the refund liability, including interest, associated with regional cost allocation as described in Note 4 to the condensed consolidated financial statements, which resulted in a reduction to regional cost sharing revenues and an offsetting increase to network revenues for the three and nine months ended September 30, 2016. This refund, including interest, was provided to New York Independent System Operator and PJM Interconnection (“other RTOs”) in October 2016. The timing for collection from our network customers of the amount refunded to the other RTOs has not yet been determined, but is expected to occur no later than 2018; and |
• | As a result of the Merger with Fortis consummated on October 14, 2016, ITC Holdings became an indirect subsidiary of Fortis as described below under “— Capital Project Updates and Other Recent Developments — The Merger.” For the three and nine months ended September 30, 2016, we expensed external legal, advisory and financial services fees of $2.0 million and $24.3 million, respectively, and certain internal labor and associated costs of approximately $3.1 million and $9.4 million, respectively, related to the Merger, recorded within general and administrative expenses. In addition, subsequent to September 30, 2016 through the date of this filing, we have incurred external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately $75 million, including approximately $41 million of expense recognized due to the accelerated vesting of the share-based compensation awards described in Note 2 to the condensed consolidated financial statements. Certain amounts of the external costs are not expected to be deductible for income tax purposes. The external and internal costs related to the Merger are not included as components of revenue requirement as they were incurred at ITC Holdings. |
Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Increase (decrease) in: | |||||||||||||||
Operating revenues | $ | (55.0 | ) | $ | (18.0 | ) | $ | (80.7 | ) | $ | (38.8 | ) | |||
Interest expense | 3.9 | 0.5 | 7.0 | 1.4 | |||||||||||
Estimated net income | (35.7 | ) | (11.2 | ) | (53.4 | ) | (24.5 | ) |
Actual Capital | Forecasted | |||||||
Expenditures for the | Capital | |||||||
nine months ended | Expenditures | |||||||
(in millions) | September 30, 2016 | 2017 — 2021 | ||||||
Expenditures for property, plant and equipment (a) | $ | 560.6 | $ | 2,811 |
(a) | Amounts represent the cash payments to acquire or construct property, plant and equipment, as presented in the condensed consolidated statements of cash flows. These amounts exclude non-cash additions to property, plant and equipment for the allowance for equity funds used during construction as well as accrued liabilities for construction, labor and materials that have not yet been paid. |
Three months ended | Percentage | Nine months ended | Percentage | ||||||||||||||||||||||||||
September 30, | Increase | increase | September 30, | Increase | increase | ||||||||||||||||||||||||
(in thousands) | 2016 | 2015 | (decrease) | (decrease) | 2016 | 2015 | (decrease) | (decrease) | |||||||||||||||||||||
OPERATING REVENUES | $ | 253,451 | $ | 273,189 | $ | (19,738 | ) | (7.2 | )% | $ | 831,628 | $ | 820,734 | $ | 10,894 | 1.3 | % | ||||||||||||
OPERATING EXPENSES | |||||||||||||||||||||||||||||
Operation and maintenance | 30,326 | 32,721 | (2,395 | ) | (7.3 | )% | 82,533 | 88,309 | (5,776 | ) | (6.5 | )% | |||||||||||||||||
General and administrative | 35,752 | 33,677 | 2,075 | 6.2 | % | 130,922 | 107,064 | 23,858 | 22.3 | % | |||||||||||||||||||
Depreciation and amortization | 39,599 | 36,890 | 2,709 | 7.3 | % | 117,840 | 106,903 | 10,937 | 10.2 | % | |||||||||||||||||||
Taxes other than income taxes | 22,645 | 20,463 | 2,182 | 10.7 | % | 68,444 | 61,629 | 6,815 | 11.1 | % | |||||||||||||||||||
Other operating (income) and expenses — net | (293 | ) | (206 | ) | (87 | ) | 42.2 | % | (839 | ) | (675 | ) | (164 | ) | 24.3 | % | |||||||||||||
Total operating expenses | 128,029 | 123,545 | 4,484 | 3.6 | % | 398,900 | 363,230 | 35,670 | 9.8 | % | |||||||||||||||||||
OPERATING INCOME | 125,422 | 149,644 | (24,222 | ) | (16.2 | )% | 432,728 | 457,504 | (24,776 | ) | (5.4 | )% | |||||||||||||||||
OTHER EXPENSES (INCOME) | |||||||||||||||||||||||||||||
Interest expense — net | 55,843 | 51,398 | 4,445 | 8.6 | % | 158,064 | 150,070 | 7,994 | 5.3 | % | |||||||||||||||||||
Allowance for equity funds used during construction | (10,002 | ) | (6,421 | ) | (3,581 | ) | 55.8 | % | (26,442 | ) | (21,434 | ) | (5,008 | ) | 23.4 | % | |||||||||||||
Other income | (408 | ) | (384 | ) | (24 | ) | 6.3 | % | (1,149 | ) | (804 | ) | (345 | ) | 42.9 | % | |||||||||||||
Other expense | 1,254 | 1,372 | (118 | ) | (8.6 | )% | 3,635 | 2,969 | 666 | 22.4 | % | ||||||||||||||||||
Total other expenses (income) | 46,687 | 45,965 | 722 | 1.6 | % | 134,108 | 130,801 | 3,307 | 2.5 | % | |||||||||||||||||||
INCOME BEFORE INCOME TAXES | 78,735 | 103,679 | (24,944 | ) | (24.1 | )% | 298,620 | 326,703 | (28,083 | ) | (8.6 | )% | |||||||||||||||||
INCOME TAX PROVISION | 29,097 | 38,106 | (9,009 | ) | (23.6 | )% | 114,019 | 121,662 | (7,643 | ) | (6.3 | )% | |||||||||||||||||
NET INCOME | $ | 49,638 | $ | 65,573 | $ | (15,935 | ) | (24.3 | )% | $ | 184,601 | $ | 205,041 | $ | (20,440 | ) | (10.0 | )% |
Percentage | ||||||||||||||||||||
2016 | 2015 | Increase | increase | |||||||||||||||||
(in thousands) | Amount | Percentage | Amount | Percentage | (decrease) | (decrease) | ||||||||||||||
Network revenues | $ | 240,215 | 94.8 | % | $ | 205,527 | 75.2 | % | $ | 34,688 | 16.9 | % | ||||||||
Regional cost sharing revenues | 55,867 | 22.0 | % | 85,616 | 31.3 | % | (29,749 | ) | (34.7 | )% | ||||||||||
Point-to-point | 5,637 | 2.2 | % | 3,922 | 1.4 | % | 1,715 | 43.7 | % | |||||||||||
Scheduling, control and dispatch | 3,540 | 1.4 | % | 3,328 | 1.2 | % | 212 | 6.4 | % | |||||||||||
Other | 3,168 | 1.3 | % | 1,383 | 0.5 | % | 1,785 | 129.1 | % | |||||||||||
Recognition of rate refund liability | (54,976 | ) | (21.7 | )% | (26,587 | ) | (9.6 | )% | (28,389 | ) | 106.8 | % | ||||||||
Total | $ | 253,451 | 100.0 | % | $ | 273,189 | 100.0 | % | $ | (19,738 | ) | (7.2 | )% |
Percentage | ||||||||||||||||||||
2016 | 2015 | Increase | increase | |||||||||||||||||
(in thousands) | Amount | Percentage | Amount | Percentage | (decrease) | (decrease) | ||||||||||||||
Network revenues | $ | 647,660 | 77.9 | % | $ | 595,782 | 72.6 | % | $ | 51,878 | 8.7 | % | ||||||||
Regional cost sharing revenues | 225,891 | 27.2 | % | 240,949 | 29.4 | % | (15,058 | ) | (6.2 | )% | ||||||||||
Point-to-point | 13,609 | 1.6 | % | 11,972 | 1.5 | % | 1,637 | 13.7 | % | |||||||||||
Scheduling, control and dispatch | 10,432 | 1.3 | % | 9,691 | 1.2 | % | 741 | 7.6 | % | |||||||||||
Other | 14,729 | 1.7 | % | 9,763 | 1.2 | % | 4,966 | 50.9 | % | |||||||||||
Recognition of rate refund liability | (80,693 | ) | (9.7 | )% | (47,423 | ) | (5.9 | )% | (33,270 | ) | 70.2 | % | ||||||||
Total | $ | 831,628 | 100.0 | % | $ | 820,734 | 100.0 | % | $ | 10,894 | 1.3 | % |
• | 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 that will continue to result in the incurrence of development expenses and could result in significant capital expenditures. |
• | Fund working capital requirements. |
• | Fund our debt service requirements, including principal repayments and periodic interest payments. We expect our interest payments to increase each year as a result of additional debt expected to be incurred to fund our capital expenditures and for general corporate purposes. |
• | Fund contributions to our retirement benefit plans, as described in Note 9 to the condensed consolidated financial statements. We expect to make additional contributions of approximately $1.7 million to these plans in 2016. |
Issuer | Issuance | Standard and Poor’s Ratings Services (a) | Moody’s Investor Service, Inc. (b) | |||
ITC Holdings | Senior Unsecured Notes | BBB+ | Baa2 | |||
ITC Holdings | Commercial Paper | A-2 | Prime-2 | |||
ITCTransmission | First Mortgage Bonds | A | Al | |||
METC | Senior Secured Notes | A | A1 | |||
ITC Midwest | First Mortgage Bonds | A | A1 | |||
ITC Great Plains | First Mortgage Bonds | A | A1 |
(a) | On June 8, 2015, Standard and Poor’s Ratings Services (“Standard and Poor’s”) assigned a short-term issuer credit rating to ITC Holdings, which applies to the commercial paper program discussed in Note 6 to the condensed consolidated financial statements. Additionally, on October 18, 2016, Standard and Poor’s reaffirmed the senior unsecured credit rating of ITC Holdings and the secured credit ratings of the Regulated Operating Subsidiaries as well as revised the outlook of the issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries to stable from negative, subsequent to the completion of the Merger. Refer to Note 2 to the condensed consolidated financial statements for details on the Merger. |
(b) | On June 9, 2015, Moody’s Investor Service, Inc. (“Moody’s”) assigned a short-term commercial paper rating to ITC Holdings, which applies to the commercial paper program discussed in Note 6 to the condensed consolidated financial statements. Additionally, on April 15, 2016, Moody’s reaffirmed the credit ratings for the associated debt for ITC Holdings, ITCTransmission, ITC Midwest and ITC Great Plains. On April 26, 2016, Moody’s assigned a senior secured rating to |
• | Changes in amounts borrowed under our unsecured, unguaranteed revolving credit agreements; |
• | Changes in commercial paper issued under the commercial paper program for ITC Holdings; |
• | The issuance of $200.0 million of secured 3.90% Senior Notes, due April 26, 2046, by METC, which repaid the $200.0 million borrowed under METC’s term loan credit agreement; |
• | The issuance of $400.0 million of unsecured 3.25% Notes, due June 30, 2026, by ITC Holdings, which repaid the $161.0 million outstanding under ITC Holdings’ term loan credit agreement and indebtedness under ITC Holdings’ commercial paper program; |
• | The repayment and retirement in September 2016 of $139.3 million of 5.875% ITC Holdings Senior Notes, due September 30, 2016, with the proceeds from the issuance of commercial paper under ITC Holdings’ commercial paper program; |
• | The refund of $28.7 million required by the FERC order issued on September 22, 2016 associated with regional cost allocation, which was provided to the other RTOs in October 2016. See “Regional Cost Allocation” in Note 4 to the condensed consolidated financial statements for discussion on this matter; and |
• | The refund of $117.4 million required by the FERC order issued on September 28, 2016 for the Initial Complaint. See “Rate of Return on Equity Complaints” in Note 11 to the condensed consolidated financial statements for a discussion of the complaint. |
• | If future cash flows are insufficient, we may not be able to make principal or interest payments on our debt obligations, which could result in the occurrence of an event of default under one or more of those debt instruments. |
• | We may need to increase our indebtedness in order to make the capital expenditures and other expenses or investments planned by us. |
• | Our indebtedness has the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition. A substantial portion of the dividends and payments in lieu of taxes we receive from our subsidiaries will be dedicated to the payment of interest on our indebtedness, thereby, reducing the funds available for working capital and capital expenditures. |
• | We currently have debt instruments outstanding with short-term maturities or relatively short remaining maturities. Our ability to secure additional financing prior to or after these facilities mature, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments. Additionally, the interest rates at which we might secure additional financings may be higher than our currently outstanding debt instruments or higher than forecasted at any point in time, which could adversely affect our business, financial condition, results of operations and cash flows. |
• | Market conditions could affect our access to capital markets, restrict our ability to secure financing to make the capital expenditures and investments and pay other expenses planned by us which could adversely affect our business, financial condition, cash flows and results of operations. |
• | incur additional indebtedness; |
• | engage in sale and lease-back transactions; |
• | create liens or other encumbrances; |
• | enter into mergers, consolidations, liquidations or dissolutions, or sell or otherwise dispose of all or substantially all of our assets; |
• | create and acquire subsidiaries; and |
• | pay dividends or make distributions on our stock or on the stock or member capital of our subsidiaries. |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | |||||||||||
July (a) | 1,365 | $ | 46.51 | — | $ | — | |||||||||
August (a) | 2,710 | 46.29 | — | — | |||||||||||
September (a) | 1,818 | 45.69 | — | — | |||||||||||
Total (b) | 5,893 | $ | 46.16 | — |
(a) | Shares acquired were delivered to us by employees as payment of tax withholding obligations due to us upon the vesting of restricted stock. |
(b) | Amount does not include 18,683 shares deemed issued and repurchased for accounting purposes in connection with the payment of the exercise price and tax withholding obligations relating to net option exercises. |
Exhibit No. | Description of Document | ||
3.1 | Restated Articles of Incorporation of ITC Holdings Corp., as corrected | ||
3.2 | Sixth Amended and Restated Bylaws of ITC Holdings Corp (filed with Registrant’s Form 8-K filed on October 12, 2016) | ||
4.45 | Third Supplemental Indenture, dated as of July 5, 2016, between the Company and Wells Fargo Bank, National Association, as trustee, together with form of 3.25% Note due 2026 (filed with Registrant’s Form 8-K filed on July 5, 2016) | ||
10.167 | Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Joseph L. Welch (filed with Registrant’s Form 8-K filed on October 12, 2016) | ||
10.168 | Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Linda H. Blair (filed with Registrant’s Form 8-K filed on October 12, 2016) | ||
10.169 | Amended Employment Agreement, dated as of October 12, 2016, between ITC Holdings Corp. and Rejji P. Hayes (filed with Registrant’s Form 8-K filed on October 12, 2016) | ||
10.170 | Amended and Restated Generator Interconnection Agreement by and among Michigan Electric Transmission Company, LLC, Consumers Energy Company and the Midcontinent Independent System Operator, Inc., dated as of October 24, 2016 | ||
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 |
ITC HOLDINGS CORP. | |||
By: | /s/ Linda H. Blair | ||
Linda H. Blair | |||
President and Chief Executive Officer (duly authorized officer) | |||
By: | /s/ Gretchen L. Holloway | ||
Gretchen L. Holloway | |||
Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) |
1. | The name of the corporation submitting this Certificate of Correction is ITC Holdings Corp. (the “Corporation”), identification number 40595C. |
2. | The Corporation is a corporation formed under the laws of the State of Michigan. |
3. | That a Certificate of Merger of Element Acquisition Sub Inc. and ITC Holdings Corp. (the “Merger Certificate”) was filed by the Michigan Department of Licensing and Regulatory Affairs Corporations, Securities & Commercial Licensing Bureau (the “Bureau”) on October 14, 2016 (the “Filing Date”) and the Merger Certificate requires correction. |
4. | That Restated Articles of Incorporation of the Corporation (the “Restated Articles”) were attached to the Merger Certificate and were filed with the Bureau in connection therewith on the Filing Date and the Restated Articles require correction. |
5. | The inaccuracy or defect contained in the Merger Certificate is that Section 6 of the Merger Certificate erroneously set forth that the number of common shares of the Corporation outstanding on the Filing Date is 153,432,671. |
6. | The inaccuracy or defect contained in the Restated Articles is that Article III of the Restated Articles erroneously set forth that the number of shares of common stock of the Corporation issued on the Filing Date is 226,607,715. |
7. | Therefore, Section 6 of the Merger Certificate is hereby corrected to read as follows: |
8. | Therefore, Article III of the Restated Articles is hereby corrected to read as follows: |
9. | This Certificate of Correction is hereby executed in the same manner as the Act requires the document being corrected to be executed. |
1. | Whenever used in this Agreement, appendices, and attachments hereto, the following terms shall have the following meanings: |
1. | Transmission Provider and Transmission Owner Obligations |
1. | Black Start Participation |
2. | Reactive Power |
3. | System Security |
(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. |
(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. |
1. | Termination of Predecessor Interconnection Agreement |
Generating Unit | Nameplate Rated 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 | 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 | Returned to Service in February of 2015. |
Gaylord 1 | 18.8 | 14.0 | 17.0 | 13.8 | 3,600 | Air | No | — | No | 116 | Returned to Service February 2016. |
Gaylord 2 | 18.8 | 14.0 | 17.0 | 13.8 | 3,600 | Air | No | — | No | 216 | Returned to Service February 2016. |
Gaylord 3 | 18.8 | 14.0 | 17.0 | 13.8 | 3,600 | Air | No | — | No | 316 | Returned to Service February 2016. |
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 | Returned to Service February 2016. |
Thetford 2 | 39.5 | 29.0 | 37.0 | 13.8 | 3,600 | Air | No | — | No | 216 | Blackstart capable. |
Thetford 3 | 39.5 | 30.0 | 37.0 | 13.8 | 3,600 | Air | No | — | Yes | 316 | Blackstart Resource until May 2015. |
Thetford 4 | 39.5 | 30.0 | 37.0 | 13.8 | 3,600 | Air | No | — | Yes | 416 | Blackstart Resource until May 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 |
Generating Unit | Nameplate Rated 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 | Comments |
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. |
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. |
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 |
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 |
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 |
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 |
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 |
Capacitor Bank | No. 3 |
Circuit Breakers | Nos. 356, 377 and 477 |
Switches | Nos. 352, 371, 373, 382, 384, 471 and 473 |
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 |
Transformer Banks | Nos. 1 and 2 (located outside the substation; not included in JOA calc) |
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 |
Auxiliary Power | All 480 Volt and 4160 Volt station power assets shown in the attached Wiring Diagram #695, Sheet 31 |
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 |
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, 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 |
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 |
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, 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 |
Transformer Banks | Nos. 5, 6-1, 6-2 and 7 |
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 |
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 |
1. | I have reviewed this report on Form 10-Q for the quarterly period ended September 30, 2016 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. |
/s/ Linda H. Blair |
Linda H. Blair President and Chief Executive Officer |
1. | I have reviewed this report on Form 10-Q for the quarterly period ended September 30, 2016 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. |
/s/ Gretchen L. Holloway |
Gretchen L. Holloway Vice President, Chief Financial Officer and Treasurer |
(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. |
/s/ Linda H. Blair |
Linda H. Blair President and Chief Executive Officer |
/s/ Gretchen L. Holloway |
Gretchen L. Holloway Vice President, Chief Financial Officer and Treasurer |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Nov. 03, 2016 |
|
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 | Sep. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 224,203,112 |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (Parentheticals) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Property, plant and equipment, accumulated depreciation and amortization | $ 1,562,532 | $ 1,487,713 |
Intangible assets, accumulated amortization | 30,736 | 28,242 |
Deferred financing fees, accumulated amortization | $ 1,853 | $ 1,277 |
Common stock, par value | $ 0 | $ 0 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, shares issued | 153,432,671 | 152,699,077 |
Common stock, shares outstanding | 153,432,671 | 152,699,077 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
OPERATING REVENUES | $ 253,451 | $ 273,189 | $ 831,628 | $ 820,734 |
OPERATING EXPENSES | ||||
Operation and maintenance | 30,326 | 32,721 | 82,533 | 88,309 |
General and administrative | 35,752 | 33,677 | 130,922 | 107,064 |
Depreciation and amortization | 39,599 | 36,890 | 117,840 | 106,903 |
Taxes other than income taxes | 22,645 | 20,463 | 68,444 | 61,629 |
Other operating (income) and expenses — net | (293) | (206) | (839) | (675) |
Total operating expenses | 128,029 | 123,545 | 398,900 | 363,230 |
OPERATING INCOME | 125,422 | 149,644 | 432,728 | 457,504 |
OTHER EXPENSES (INCOME) | ||||
Interest expense — net | 55,843 | 51,398 | 158,064 | 150,070 |
Allowance for equity funds used during construction | (10,002) | (6,421) | (26,442) | (21,434) |
Other income | (408) | (384) | (1,149) | (804) |
Other expense | 1,254 | 1,372 | 3,635 | 2,969 |
Total other expenses (income) | 46,687 | 45,965 | 134,108 | 130,801 |
INCOME BEFORE INCOME TAXES | 78,735 | 103,679 | 298,620 | 326,703 |
INCOME TAX PROVISION | 29,097 | 38,106 | 114,019 | 121,662 |
NET INCOME | $ 49,638 | $ 65,573 | $ 184,601 | $ 205,041 |
Basic earnings per common share | $ 0.32 | $ 0.42 | $ 1.21 | $ 1.32 |
Diluted earnings per common share | 0.32 | 0.42 | 1.20 | 1.31 |
Dividends declared per common share | $ 0.2155 | $ 0.1875 | $ 0.5905 | $ 0.5125 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
NET INCOME | $ 49,638 | $ 65,573 | $ 184,601 | $ 205,041 |
OTHER COMPREHENSIVE INCOME (LOSS) | ||||
Derivative instruments, net of tax (Note 7) | 239 | (2,169) | (7,532) | (910) |
Available-for-sale securities, net of tax (Note 7) | (18) | 18 | 412 | 21 |
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | 221 | (2,151) | (7,120) | (889) |
TOTAL COMPREHENSIVE INCOME | $ 49,859 | $ 63,422 | $ 177,481 | $ 204,152 |
GENERAL |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [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, 2015 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
____________________________
|
THE MERGER |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Business Combinations [Abstract] | |
THE MERGER | THE MERGER On February 9, 2016, Fortis Inc. (“Fortis”), FortisUS Inc. (“FortisUS”), Element Acquisition Sub Inc. (“Merger Sub”) and ITC Holdings entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Merger Sub would merge with and into ITC Holdings with ITC Holdings continuing as a surviving corporation and becoming a majority owned indirect subsidiary of FortisUS (the “Merger”). On April 20, 2016, FortisUS assigned its rights, interest, duties and obligations under the Merger Agreement to ITC Investment Holdings Inc. (“Investment Holdings”), a subsidiary of FortisUS formed to complete the Merger. On the same date, Fortis reached a definitive agreement with GIC Private Limited (“GIC”) for GIC to acquire an indirect 19.9% equity interest in ITC Holdings and debt securities to be issued by Investment Holdings for aggregate consideration of $1.228 billion in cash upon completion of the Merger. On October 14, 2016, ITC Holdings and Fortis completed the Merger contemplated by the Merger Agreement consistent with the terms described above. On the same date, the common shares of ITC Holdings were delisted from the New York Stock Exchange (“NYSE”) and the common shares of Fortis were listed and began trading on the NYSE. Fortis continues to have its shares listed on the Toronto Stock Exchange. In the Merger, ITC Holdings shareholders received $22.57 in cash and 0.7520 Fortis common shares for each share of common stock of ITC Holdings (the “Merger consideration”). Upon completion of the Merger, ITC Holdings shareholders held approximately 27% of the common shares of Fortis. Under the Merger Agreement, outstanding options to acquire common stock of ITC Holdings vested immediately prior to closing and were converted into the right to receive the difference between the Merger consideration and the exercise price of each option in cash, restricted stock vested immediately prior to closing and was converted into the right to receive the Merger consideration in cash and performance shares vested immediately prior to closing at the higher of target or actual performance through the effective time of the Merger and were converted into the right to receive the Merger consideration in cash. The Merger consideration for purposes of settling the share-based compensation awards was $45.72. For the three and nine months ended September 30, 2016, we expensed external legal, advisory and financial services fees related to the Merger of $2.0 million and $24.3 million, respectively, and certain internal labor and associated costs related to the Merger of approximately $3.1 million and $9.4 million, respectively, recorded within general and administrative expenses on the condensed consolidated statement of operations. In addition, subsequent to September 30, 2016 through the date of this filing, we have incurred external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately $75 million, including approximately $41 million of expense recognized due to the accelerated vesting of the share-based compensation awards described above. The external and internal costs related to the Merger will not be included as components of revenue requirement at our Regulated Operating Subsidiaries as they were incurred by ITC Holdings. See Note 11 for legal matters associated with the Merger with Fortis. |
RECENT ACCOUNTING PRONOUNCEMENTS |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RECENT ACCOUNTING PRONOUNCEMENTS | RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Pronouncements Amendment to the Balance Sheet Presentation of Debt Issuance Costs In April 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the balance sheet presentation of debt issuance costs. This new standard requires debt issuance costs to be shown as a direct deduction from the carrying amount of the related debt, consistent with debt discounts. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. On January 1, 2016, we adopted this guidance retrospectively and have applied this change to all amounts presented in our condensed consolidated statements of financial position. The following shows the impact of this adoption on our previously reported consolidated statement of financial position as of December 31, 2015:
We have accounted for this adoption as a change in accounting principle that is required due to a change in the authoritative accounting guidance. In connection with implementing this guidance, we adopted an accounting policy to present unamortized debt issuance costs associated with revolving credit agreements, commercial paper and other similar arrangements as an asset that is amortized over the life of the particular arrangement. In addition, we present debt issuance costs incurred prior to the associated debt funding as an asset for all other debt arrangements. This standard did not impact our consolidated statements of operations or cash flows. Recently Issued Pronouncements We have considered all new accounting pronouncements issued by the FASB and concluded the following accounting guidance, which has not yet been adopted by us, may have a material impact on our consolidated financial statements. Revenue Recognition In May 2014, the 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, 2017 and may be adopted using a full or modified retrospective approach. We do not expect the guidance to have a material impact on our consolidated results of operations, cash flows or financial position. However, we are still evaluating the disclosure requirements, the impacts of the recent clarifying amendments that have been issued by the FASB and the transition method we will elect to adopt the guidance. Classification and Measurement of Financial Instruments In January 2016, the FASB issued authoritative guidance amending the classification and measurement of financial instruments. The guidance requires entities to carry most investments in equity securities at fair value and recognize changes in fair value in net income, unless the investment results in consolidation or equity method accounting. Additionally, the new guidance amends certain disclosure requirements associated with the fair value of financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance is required to be adopted using a modified retrospective approach, with limited exceptions. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures. Accounting for Leases In February 2016, the FASB issued authoritative guidance on accounting for leases, which impacts accounting by lessees as well as lessors. The new guidance creates a dual approach for lessee accounting, with lease classification determined in accordance with principles in existing lease guidance. Income statement presentation differs depending on the lease classification; however, both types of leases result in lessees recognizing a right-of-use asset and a lease liability, with limited exceptions. Under existing accounting guidance, operating leases are not recorded on the balance sheet of lessees. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and will be applied using a modified retrospective approach, with possible optional practical expedients. Early adoption is permitted. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures. Simplification of Employee Share-Based Payment Accounting In March 2016, the FASB issued authoritative guidance that simplifies several aspects of the accounting for employee share-based payment transactions. The new guidance (1) requires that an entity recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement, (2) allows an entity to elect as an accounting policy either to estimate forfeitures (as currently required) or account for forfeitures when they occur, (3) modifies the current exception to liability classification of an award when an employer uses a net-settlement feature to withhold shares to meet the employer’s minimum statutory tax withholding requirement to apply if the withholding amount does not exceed the maximum statutory tax rate and (4) specifies the statement of cash flow presentation for excess tax benefits and cash payments to taxing authorities when shares are withheld to meet tax withholding requirements. Though the new guidance is not effective until January 1, 2017, we expect to early adopt the guidance in the fourth quarter of 2016. The various amendments require different transition methods including modified retrospective approach through a cumulative effect adjustment to retained earnings, prospective adoption and retrospective adoption. Assuming we adopt the guidance in the fourth quarter of 2016, we expect to record an adjustment to beginning retained earnings for excess tax benefits generated in years prior to adoption that were previously unrecognized. In addition, we expect to record an income tax benefit related to stock-based compensation that vested during 2016. Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows In August 2016, the FASB issued authoritative guidance on the classification of certain cash receipts and cash payments in the statement of cash flows to address diversity in practice. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied retrospectively but may be applied prospectively if retrospective application would be impracticable. We are currently assessing the impacts this guidance will have on our classification of activity in our statement of cash flows. |
REGULATORY MATTERS |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulated Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REGULATORY MATTERS | REGULATORY MATTERS Regional Cost Allocation Refund In October 2010, MISO and ITCTransmission made a filing with the Federal Energy Regulatory Commission (“FERC”) under Section 205 of the FPA to revise the MISO tariff to establish a methodology to allocate and recover costs of ITCTransmission’s Phase Angle Regulating Transformers (“PARs”) among MISO and other FERC-approved Regional Transmission Organizations (“RTOs”), New York Independent System Operator and PJM Interconnection (“other RTOs”). In December 2010, the FERC accepted the proposed revisions, subject to refund, while setting them for hearing and settlement procedures. On September 22, 2016, the FERC issued an order largely affirming the presiding administrative law judge’s initial decision issued in December 2012, which stated, among other things, that MISO and ITCTransmission failed to show that the other RTOs will benefit from the operation of ITCTransmission’s PARs. The FERC order requires ITCTransmission to provide refunds within 30 days for excess amounts collected from customers at the other RTOs. As a result of the FERC order, ITCTransmission will collect these revenues from network customers instead, resulting in an increase in network revenues and a decrease in regional cost sharing revenues and no material impact on total operating revenue or net income for the three and nine months ended September 30, 2016. ITCTransmission has recorded $28.7 million for this refund, including interest, in current liabilities on the condensed consolidated statements of financial position as of September 30, 2016, which resulted in a reduction to regional cost sharing revenues and an offsetting increase to network revenues for the three and nine months ended September 30, 2016. This refund, including interest, was provided to the other RTOs in October 2016. The timing for collection from our network customers of the amount refunded to the other RTOs has not yet been determined, but is expected to occur no later than 2018. ITC Interconnection ITC Interconnection was formed in 2014 by ITC Holdings to pursue transmission investment opportunities. On June 1, 2016, ITC Interconnection acquired certain transmission assets from a merchant generating company and placed a newly constructed 345 kV transmission line in service. As a result, ITC Interconnection became a transmission owner in PJM Interconnection, and is subject to rate-regulation by the FERC. The revenues earned by ITC Interconnection are based on its facilities reimbursement agreement with the merchant generating company. The financial results of ITC Interconnection are currently not material to our consolidated financial statements. MISO Funding Policy for Generator Interconnections On June 18, 2015, the FERC issued an order initiating a proceeding, pursuant to Section 206 of the Federal Power Act (“FPA”), to examine MISO’s funding policy for generator interconnections, which allows a transmission owner to unilaterally elect to fund network upgrades and recover such costs from the interconnection customer. In this order, the FERC suggested the MISO funding policy be revised to require mutual agreement between the interconnection customer and transmission owner to utilize the election to fund network upgrades. On January 8, 2016, MISO made a compliance filing to revise its funding policy to adopt the FERC suggestion to require mutual agreement between the customer and transmission owner (“TO”), with an effective date of June 24, 2015. ITCTransmission, METC and ITC Midwest (“MISO Regulated Operating Subsidiaries”), along with another MISO TO, are currently appealing the FERC’s orders on this issue. We do not expect the resolution of this proceeding to have a material impact on our consolidated results of operations, cash flows or financial condition. MISO Formula Rate Template Modifications Filing On October 30, 2015, our MISO Regulated Operating Subsidiaries requested modifications, pursuant to Section 205 of the FPA, to certain aspects of their respective FERC-approved formula rate templates (“formula rate templates”) which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. Our MISO Regulated Operating Subsidiaries requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which was made on February 8, 2016. On April 14, 2016, the FERC issued an order accepting the February 8, 2016 compliance filing, effective January 1, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. As of September 30, 2016 and December 31, 2015, our MISO Regulated Operating Subsidiaries had recorded an aggregate refund liability of $4.4 million and $10.4 million, respectively. Challenges Regarding Bonus Depreciation On December 18, 2015, Interstate Power and Light Company (“IP&L”) filed a formal challenge (“IP&L challenge”) with the FERC against ITC Midwest on certain inputs to ITC Midwest’s formula rates. The IP&L challenge alleged that ITC Midwest has unreasonably and imprudently opted out of using bonus depreciation in the calculation of its federal income tax expense and thereby unduly increased the transmission charges for transmission service to customers. On March 11, 2016, the FERC granted the IP&L challenge in part by requiring ITC Midwest to recalculate its revenue requirements, effective January 1, 2015, to simulate the election of bonus depreciation for 2015. The FERC denied IP&L’s request that ITC Midwest be required to elect bonus depreciation in any past or future years; however, stakeholders will be able to challenge any decision by ITC Midwest not to take bonus depreciation in future years. On June 8, 2016, the FERC denied ITC Midwest’s request for rehearing of the March 11, 2016 order. On August 3, 2016, ITC Midwest filed a petition for review of the FERC’s March 11, 2016 and June 8, 2016 orders in the United States Court of Appeals, District of Columbia Circuit. On September 8, 2016, ITC Midwest filed a motion to defer the petition pending the issuance of a private letter ruling from the IRS. In a separate but related matter, on April 15, 2016, Consumers Energy Company filed a formal challenge, or in the alternative, a complaint under Section 206 of the FPA, with the FERC against METC relating to METC’s historical practice of opting out of using bonus depreciation. On July 8, 2016, the FERC denied Consumers Energy Company’s formal challenge and dismissed the complaint without prejudice. These condensed consolidated financial statements reflect the election of bonus depreciation for tax years 2015 and 2016 and the corresponding effects on 2016 revenue requirements for our Regulated Operating Subsidiaries. Additionally, as required by the March 11, 2016 FERC order, we have simulated the election of bonus depreciation for ITC Midwest’s 2015 revenue requirement and included the impact of the corresponding refund obligation in these condensed consolidated financial statements. The total impact from reflecting the election of bonus depreciation as described above was lower revenues of $4.2 million and $13.2 million and lower net income of approximately $2.5 million and $7.9 million for the three and nine months ended September 30, 2016, respectively, as compared to the same period if bonus depreciation was not reflected. These matters also resulted in additional net deferred income tax liabilities of approximately $145.4 million as of September 30, 2016, and a corresponding income tax refund of $128.2 million, which was received from the IRS in August 2016. We are unable to predict the final outcome of this matter; however, the election of bonus depreciation will result in higher cash flows in the year of the election and reduce our rate base and therefore decrease our revenues and net income over the tax lives of the eligible assets. Rate of Return on Equity Complaints See “Rate of Return on Equity Complaints” in Note 11 for a discussion of the complaints. Cost-Based Formula Rate Templates with True-Up Mechanism The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually, using formula rate templates, and 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 make adjustments 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 formula rate templates do not require further action or FERC filings each year, although the template inputs remain subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rate templates to calculate their respective annual revenue requirements unless the FERC determines any template to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable. See “Rate of Return on Equity Complaints” in Note 11 for detail on return on equity (“ROE”) matters including incentive adders approved by the FERC in 2015. Our 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. 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 future revenue requirements and thus flows through to customer bills within two years under the provisions of the formula rate templates. 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 nine months ended September 30, 2016:
Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, are recorded in the condensed consolidated statements of financial position at September 30, 2016 as follows:
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GOODWILL AND INTANGIBLE ASSETS |
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Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS Goodwill At September 30, 2016 and December 31, 2015, 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 $28.9 million and $31.2 million (net of accumulated amortization of $29.5 million and $27.2 million) as of September 30, 2016 and December 31, 2015, respectively. We have also recorded intangible assets for payments made by and obligations of 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 $14.6 million and $14.4 million (net of accumulated amortization of $1.2 million and $1.0 million) as of September 30, 2016 and December 31, 2015, respectively. During each of the three month periods ended September 30, 2016 and 2015, we recognized $0.8 million of amortization expense of our intangible assets, and we recognized $2.5 million during each of the nine month periods ended September 30, 2016 and 2015. For each of the next five years, we expect the annual amortization of our intangible assets that have been recorded as of September 30, 2016 to be $3.3 million per year. |
DEBT |
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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. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 6.05% Senior Notes, due January 31, 2018. As of September 30, 2016, ITC Holdings had $384.3 million outstanding under the 6.05% Senior Notes.
The 10-year term interest rate swaps call for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and pay interest semi-annually at various fixed rates effective for the 10-year period beginning January 31, 2018, after the agreements have been terminated. The agreements include a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swaps of January 31, 2018. The interest rate swaps have been determined to be highly effective at offsetting changes in the fair value of the forecasted interest cash flows associated with the expected debt issuance, resulting from changes in benchmark interest rates from the trade date of the interest rate swaps to the issuance date of the debt obligation. The interest rate swaps qualify for cash flow hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date for the effective portion of the hedge is recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be accumulated and amortized as a component of interest expense over the life of the forecasted debt. As of September 30, 2016, the fair value of the derivative instruments was an asset of less than $0.1 million and a liability of $0.2 million. None of the interest rate swaps contain credit-risk-related contingent features. Refer to Note 10 for additional fair value information. In June 2016, we terminated $300.0 million of 10-year interest rate swap contracts that managed the interest rate risk associated with the unsecured Notes issued by ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:
The interest rate swaps qualified for cash flow hedge accounting treatment and the loss of $17.2 million was recognized in June 2016 for the effective portion of the hedges and recorded net of tax in AOCI. This amount is being amortized as a component of interest expense over the life of the related debt. The ineffective portion of the hedges was recognized in the condensed consolidated statement of operations for the nine months ended September 30, 2016 and was not material. METC On April 26, 2016, METC issued $200.0 million of 3.90% Senior Secured Notes, due April 26, 2046. The proceeds were used to repay the $200.0 million borrowed under METC’s term loan credit agreement. The METC Senior Secured Notes were issued under its first mortgage indenture and secured by a first mortgage lien on substantially all of its real property and tangible personal property. ITC Holdings Commercial Paper Program ITC Holdings has an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed $400.0 million outstanding at any one time. As of September 30, 2016, ITC Holdings had approximately $135.9 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 0.8% and weighted average remaining days to maturity of 16 days. The proceeds from issuances under the program during the nine months ended September 30, 2016 were used to repay and retire the $139.3 million of ITC Holdings’ 5.875% Senior Notes, due September 30, 2016, and for general corporate purposes, including the repayment of borrowings under ITC Holdings’ revolving credit agreement. The amount outstanding as of September 30, 2016 was classified as debt maturing within one year in the condensed consolidated statements of financial position. Unsecured Notes On July 5, 2016, ITC Holdings issued $400.0 million aggregate principal amount of unsecured 3.25% Notes, due June 30, 2026. The proceeds from the issuance were used to repay the $161.0 million outstanding under ITC Holdings’ term loan credit agreement and for general corporate purposes, primarily the repayment of indebtedness outstanding under ITC Holdings’ commercial paper program discussed above. These Notes were issued under ITC Holdings’ indenture, dated April 18, 2013. Revolving Credit Agreements At September 30, 2016, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:
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On April 7, 2016, each of ITC Holdings and its Regulated Operating Subsidiaries amended its respective unsecured revolving credit agreement to allow for the consummation of the Merger. 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 September 30, 2016, we were not in violation of any debt covenant. |
STOCKHOLDERS' EQUITY |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | STOCKHOLDERS’ EQUITY The changes in stockholders’ equity for the nine months ended September 30, 2016 were as follows:
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The changes in stockholders’ equity for the nine months ended September 30, 2015 were as follows:
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Accumulated Other Comprehensive Income The following table provides the components of changes in AOCI for the three and nine months ended September 30, 2016 and 2015:
The amount of net loss relating to interest rate cash flow hedges to be reclassified from AOCI to interest expense for the 12-month period ending September 30, 2017 is expected to be approximately $2.5 million. The Merger On October 14, 2016, ITC Holdings became a wholly-owned subsidiary of Investment Holdings, which is an indirect subsidiary of Fortis and GIC, upon the closing of the Merger. On the same date, the common shares of ITC Holdings were delisted from the NYSE. Refer to Note 2 for further details of the Merger. |
EARNINGS PER SHARE |
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | EARNINGS PER SHARE We report both basic and diluted EPS. Our restricted stock contain rights to receive nonforfeitable dividends and thus, are participating securities requiring the two-class method of computing EPS. A reconciliation of both calculations for the three and nine months ended September 30, 2016 and 2015 is presented in the following table:
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The incremental shares for stock options and employee stock purchase plan (“ESPP”) shares are included in the diluted EPS calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. Additionally, performance shares are included in the diluted EPS calculation using the treasury stock method when the performance metric is substantively measurable as of the end of the reporting period and has been met under the assumption the end of the reporting period was the end of the performance period. The outstanding stock options, ESPP shares and performance shares and the anti-dilutive stock options and ESPP shares excluded from the diluted EPS calculations were as follows:
The Merger On October 14, 2016, ITC Holdings became a wholly-owned subsidiary of Investment Holdings, which is an indirect subsidiary of Fortis and GIC, upon the closing of the Merger. On the same date, the common shares of ITC Holdings were delisted from the NYSE. Refer to Note 2 for further details of the Merger. |
RETIREMENT BENEFITS AND ASSETS HELD IN TRUST |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RETIREMENT BENEFITS AND ASSETS HELD IN TRUST | RETIREMENT BENEFITS AND ASSETS HELD IN TRUST Pension Plan Benefits We have a qualified defined benefit pension plan (“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 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 nine months ended September 30, 2016, we contributed $2.8 million to the retirement plan. We do not expect to make any additional contributions to this plan in 2016. We also have two supplemental nonqualified, noncontributory, defined benefit pension plans for selected management employees (the “supplemental benefit plans” and collectively with the retirement plan, the “pension plans”). The supplemental benefit plans provide for benefits that supplement those provided by the retirement plan. We contributed $5.2 million to the supplemental benefit plans during the nine months ended September 30, 2016. We do not expect to make any additional contributions to these plans in 2016. Net periodic benefit cost for the pension plans, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:
Other Postretirement Benefits We provide certain postretirement health care, dental and life insurance benefits for eligible employees. During the nine months ended September 30, 2016, we contributed $5.6 million to the postretirement benefit plan. We expect to make estimated additional contributions of $1.7 million to the postretirement benefit plan in 2016. Net postretirement benefit plan cost, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:
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 $0.9 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively, and $3.4 million and $3.2 million for the nine months ended September 30, 2016 and 2015, respectively. |
FAIR VALUE MEASUREMENTS |
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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 nine months ended September 30, 2016 and the year ended December 31, 2015, there were no transfers between levels. Our assets and liabilities measured at fair value subject to the three-tier hierarchy at September 30, 2016, were as follows:
Our assets and liabilities measured at fair value subject to the three-tier hierarchy at December 31, 2015, were as follows:
As of September 30, 2016 and December 31, 2015, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets included in the table 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 consisted of money market funds that are recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist 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. Gain and losses are recorded in earnings for investments classified as trading securities and other comprehensive income for investments classified as available-for-sale. The asset and liability related to derivatives consist of interest rate swaps discussed in Note 6. The fair value of our interest rate swap derivatives is determined based on a discounted cash flow (“DCF”) method using LIBOR swap rates, which are observable at commonly quoted intervals. 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 nine months ended September 30, 2016. 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, 2015 included in our Form 10-K for such period and to Note 5 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 and commercial paper, was $4,592.1 million and $3,879.7 million at September 30, 2016 and December 31, 2015, respectively. These fair values represent Level 2 measurements under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, net of discount and deferred financing fees and excluding revolving and term loan credit agreements and commercial paper, was $4,110.9 million and $3,653.6 million at September 30, 2016 and December 31, 2015, respectively. Revolving and Term Loan Credit Agreements At September 30, 2016 and December 31, 2015, we had a consolidated total of $237.4 million and $680.9 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, special deposits and commercial paper, approximates their fair value due to the short-term nature of these instruments. |
COMMITMENTS AND CONTINGENT LIABILITIES |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENT LIABILITIES | COMMITMENTS AND CONTINGENT LIABILITIES Environmental Matters We 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 solid and hazardous wastes and hazardous materials, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities relating to investigation and remediation of 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 properties currently owned or operated by us. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under some 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 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 assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Many of the properties that we 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 facilities and equipment are often situated on or near property owned by others so that, if they are the source of contamination, others’ property may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that we do not own and transmission assets that we own or operate are sometimes commingled at our transmission stations with distribution assets owned or operated by our transmission customers. Some properties in which we have an ownership interest or at which we operate are, or are suspected of being, affected by environmental contamination. We are not aware of any pending or threatened claims against us with respect to environmental contamination relating to these properties, or of any investigation or remediation of contamination at these properties, that entail costs likely to materially affect us. 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 we do not believe that a causal link between electromagnetic field exposure and injury has been generally established and accepted in the scientific community, the liabilities and costs imposed on our business could be significant if such a relationship is established or accepted. We are not aware of any pending or threatened claims against us 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, eminent domain and vegetation management activities, 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 has conducted sales and use tax audits of ITCTransmission for the audit periods April 1, 2005 through June 30, 2008 and October 1, 2009 through September 30, 2013. The Michigan Department of Treasury has denied ITCTransmission’s claims of the industrial processing exemption from use tax that it has taken beginning January 1, 2007. The exemption claim denials resulted in use tax assessments against ITCTransmission. ITCTransmission filed administrative appeals to contest these use tax assessments. In a separate, but related case involving a Michigan-based public utility that made similar industrial processing exemption claims, the Michigan Supreme Court ruled in July 2015 that the electric system, which involves altering voltage, constitutes an exempt, industrial processing activity. However, the ruling further held the electric system is also used for other functions that would not be exempt, and remanded the case to the Michigan Court of Claims to determine how the exemption applies to assets that are used in electric distribution activities. On March 30, 2016, ITCTransmission withdrew its administrative appeals, and subsequently filed a civil action in the Michigan Court of Claims seeking to have the use tax assessments at issue canceled. This litigation is currently in the discovery stage. Given the preliminary status of this litigation, ITCTransmission cannot estimate the timing of any potential tax assessments or refunds. The amount of use tax associated with the exemptions taken by ITCTransmission through September 30, 2016 is estimated to be approximately $20.2 million, including interest. This amount includes approximately $10.6 million, including interest, assessed for the audit periods noted above. ITCTransmission believes it is probable that portions of the use tax assessments will be sustained upon resolution of this matter and has recorded $9.5 million and $5.9 million for this contingent liability, including interest, as of September 30, 2016 and December 31, 2015, respectively, primarily as an increase to property, plant and equipment, which is a component of revenue requirement in our cost-based formula rate. METC has also taken the industrial processing exemption, estimated to be approximately $10.4 million for open periods. METC has not been assessed any use tax liability and has not recorded any contingent liability as of September 30, 2016 associated with this matter. In the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission and METC 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. Rate of Return on Equity Complaints On November 12, 2013, the 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 (collectively, the “complainants”) filed a complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current 12.38% MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest, to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in the formula transmission rates for our MISO Regulated Operating Subsidiaries 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 Holdings operating companies, including adders currently utilized by ITCTransmission and METC. On June 19, 2014, in a separate Section 206 complaint against the regional base ROE rate for ISO New England TOs, the FERC adopted a new methodology for establishing base ROE rates for electric transmission utilities. The new methodology is based on a two-step DCF analysis that uses both short-term and long-term growth projections in calculating ROE rates for a proxy group of electric utilities. The previous methodology used only short-term growth projections. The FERC also reiterated that it can apply discretion in determining how ROE rates are established within a zone of reasonableness and reiterated its policy for limiting the overall ROE rate for any company, including the base and all applicable adders, at the high end of the zone of reasonableness set by the two-step DCF methodology. The new method presented in the ISO New England ROE case will be used in resolving the MISO ROE case. On October 16, 2014, the FERC granted the complainants’ request in part by setting the base ROE for hearing and settlement procedures, while denying all other aspects of the Initial Complaint. The FERC found that the complainants failed to show that the use of actual or FERC-approved capital structures that include more than 50% equity is unjust and unreasonable. The FERC also denied the request to terminate ITCTransmission’s and METC’s ROE incentives. The order reiterated that any TO’s total ROE rate is limited by the top end of a zone of reasonableness and the TO’s ability to implement the full amount of previously granted ROE adders may be affected by the outcome of the hearing. The FERC set the refund effective date for the Initial Complaint as November 12, 2013. On December 22, 2015, the presiding administrative law judge issued an initial decision on the Initial Complaint. On September 28, 2016, the FERC issued an order (the “September 2016 Order”) affirming the presiding administrative law judge’s initial decision and setting the base ROE at 10.32%, with a maximum ROE of 11.35%, effective for the period from November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). Additionally, the rates established by the September 2016 Order will be used prospectively from the date of the order until a new approved rate is established by the Second Complaint described below, which result in an ROE used currently by ITCTransmission, METC and ITC Midwest of 11.35%, 11.35% and 11.32%, respectively. The September 2016 Order requires all MISO TOs, including our MISO Regulated Operating Subsidiaries, to provide refunds within 30 days for the Initial Refund Period. The estimated refund for the Initial Complaint resulting from this FERC order, including interest, is $117.4 million for our MISO Regulated Operating Subsidiaries, recorded in current liabilities on the condensed consolidated statements of financial position. On October 21, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for an extension of nine months to provide refunds until July 28, 2017, which was granted by the FERC on October 28, 2016. Additionally, on October 28, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for rehearing of the September 2016 Order regarding the future exclusion of certain short-term growth projections in the two-step DCF analysis. On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by Arkansas Electric Cooperative Corporation, Mississippi Delta Energy Agency, Clarksdale Public Utilities Commission, Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative, Inc., seeking a FERC order to reduce the base ROE used in the formula transmission rates of our MISO Regulated Operating Subsidiaries to 8.67%, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, the FERC accepted the Second Complaint and set it for hearing and settlement procedures. The FERC also set the refund effective date for the Second Complaint as February 12, 2015. On October 20, 2015, the MISO TOs filed expert witness testimony in the Second Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that the FERC elects to change the base ROE, the testimony included a recommendation of a 10.75% base ROE for the period from February 12, 2015 through May 11, 2016 (the “Second Refund Period”). Updated data to be considered in establishing any new base ROE was filed by the parties to the Second Complaint in January 2016, including a recommendation in the updated MISO TO expert witness testimony to use a 10.96% base ROE. On June 30, 2016, the presiding administrative law judge issued an initial decision on the Second Complaint, which recommended a base ROE of 9.70% for the Second Refund Period, with a maximum ROE of 10.68%. The initial decision is a non-binding recommendation to the FERC on the Second Complaint, and all parties, including the MISO TOs and the complainants, have filed briefs contesting various parts of the proposed findings and recommendations. In resolving the Second Complaint, we expect the FERC to establish a new base ROE and zone of reasonable returns that will be used, along with any ROE adders, to calculate the refund liability for the Second Refund Period. We anticipate a FERC order on the Second Complaint in 2017. In addition to the estimated refund for the Initial Complaint noted above, we believe it is probable that a refund will be required in connection with the Second Complaint. As of September 30, 2016, the estimated range of aggregate refunds for both the Initial Complaint and Second Complaint is expected to be from $219.0 million to $255.7 million on a pre-tax basis for the period from November 12, 2013 through September 30, 2016. As of September 30, 2016, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $255.7 million for the Initial Complaint and Second Complaint, representing the best estimate of the probable aggregate refunds based on the resolution of the Initial Complaint in the September 2016 Order. As of December 31, 2015, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $168.0 million, which represented the low end of the range of potential refunds as of that date, as there was no best estimate within the range of refunds at that time. The recognition of this estimated liability resulted in the following impacts to our condensed consolidated results of operations:
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It is possible the outcome of these matters could differ from the estimated range of losses and materially affect our consolidated results of operations due to the uncertainty of the calculation of an authorized base ROE along with the zone of reasonableness under the newly adopted two-step DCF methodology, which is subject to significant discretion by the FERC. As of September 30, 2016, our MISO Regulated Operating Subsidiaries had a total of approximately $2.9 billion of equity in their collective 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 $2.9 million. In a separate but related matter, in November 2014, METC, ITC Midwest and other MISO TOs filed a request with the FERC, under FPA Section 205, for authority to include a 50 basis point incentive adder for RTO participation in each of the TOs’ formula rates. On January 5, 2015, the FERC approved the use of this incentive adder, effective January 6, 2015. Additionally, ITC Midwest filed a request with the FERC, under FPA Section 205, in January 2015 for authority to include a 100 basis point incentive adder for independent transmission ownership, which is currently authorized for ITCTransmission and METC. On March 31, 2015, the FERC approved the use of a 50 basis point incentive adder for independence, effective April 1, 2015. On April 30, 2015, ITC Midwest filed a request with the FERC for rehearing on the approved incentive adder for independence and this request was subsequently denied by the FERC on January 6, 2016. An appeal of the FERC’s decision has been filed. Beginning September 28, 2016, these incentive adders have been applied to METC’s and ITC Midwest’s base ROEs in establishing their total authorized ROE rates, subject to the maximum ROE limitation in the September 2016 Order of 11.35%. Challenges Regarding Bonus Depreciation See “Challenges Regarding Bonus Depreciation” in Note 4 for discussion of these challenges. Legal Matters Associated with the Merger Following the announcement of the Merger, four putative state class action lawsuits were filed by purported shareholders of ITC Holdings on behalf of a purported class of ITC Holdings shareholders. Initially, the four actions (Paolo Guerra v. Albert Ernst, et al., Harvey Siegelman v. Joseph L. Welch, et al., Alan Poland v. Fortis Inc., et al., Sanjiv Mehrotra v. Joseph L. Welch, et al.) were filed in the Oakland County Circuit Court of the State of Michigan. The complaints name as defendants a combination of ITC Holdings and the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub. The complaints generally allege, among other things, that (1) ITC Holdings’ directors breached their fiduciary duties in connection with the Merger Agreement, (including, but not limited to, various alleged breaches of duties of good faith, loyalty, care and independence), (2) ITC Holdings’ directors failed to take appropriate steps to maximize shareholder value and claims that the Merger Agreement contains several deal protection provisions that are unnecessarily preclusive and (3) a combination of ITC Holdings, Fortis, FortisUS and Merger Sub aided and abetted the purported breaches of fiduciary duties. The complaints seek class action certification and a variety of relief including, among other things, enjoining defendants from completing the Merger, unspecified rescissory and compensatory damages, and costs, including attorneys’ fees and expenses. The Siegelman case was voluntarily dismissed by the plaintiff on March 22, 2016. On March 23, 2016, the state court entered an order directing that the related cases be consolidated under the caption In re ITC Holdings Corporation Shareholder Litigation. On April 8, 2016, Poland filed an amended complaint to add derivative claims on behalf of ITC Holdings. On March 14, 2016, the Guerra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Paolo Guerra v. Albert Ernst, et al. The federal complaint names the same defendants (plus FortisUS), asserts the same general allegations and seeks the same types of relief as in the state court cases. On March 25, 2016, Guerra amended his federal complaint. The amended complaint dropped Fortis US, Fortis and Merger Sub as defendants and added claims alleging that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary proxy statement/prospectus, filed with the SEC in connection with the special meeting of shareholders to approve the Merger Agreement, was allegedly materially misleading and allegedly omitted material facts that were necessary to render it non-misleading. Another lawsuit was filed on April 8, 2016 in the United States District Court, Eastern District of Michigan captioned Harold Severance v. Joseph L. Welch et al. against the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub, asserting the same general allegations and seeking the same type of relief as Guerra. On April 22, 2016, the Mehrotra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Sanjiv Mehrotra v. Joseph L. Welch, et al. With the exception of Fortis, the federal complaint names the same defendants and asserts the same general allegations as the other federal complaints. On June 8, 2016, the state court denied a motion for summary disposition filed by ITC Holdings and the individual members of the ITC Holdings board of directors. ITC Holdings voluntarily made supplemental disclosures related to the Merger in response to certain allegations, which are set forth in a Form 8-K filed with the SEC on June 13, 2016. Nothing in those supplemental disclosures shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth therein. On July 6, 2016, the federal actions were voluntarily dismissed by the federal plaintiffs. The federal plaintiffs reserved the right to make certain other claims, and ITC Holdings and the individual members of the ITC Holdings board of directors reserved the right to oppose any such claim. On July 8, 2016, the plaintiffs in Poland filed a motion for class certification. On July 13, 2016, ITC Holdings and the individual members of the ITC Holdings board of directors filed their respective answers to the amended complaint in Poland. On July 19, 2016, the Poland state court issued a scheduling order, which, among other things, requires the parties to complete discovery by March 10, 2017, and sets a trial date for June 5, 2017. On July 25, 2016, the Poland state court issued an order allowing a new plaintiff, Washtenaw County Employees’ Retirement System, to intervene in the Poland case. We believe the remaining lawsuit is without merit and intend to vigorously defend against it. Additional lawsuits arising out of or relating to the Merger Agreement or the Merger may be filed in the future. See Note 2 for additional discussion on the Merger. |
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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. As discussed in Note 4, during the second quarter of 2016, ITC Interconnection became a transmission owner in the FERC-approved RTO, PJM Interconnection. As a result, the newly regulated transmission business at ITC Interconnection is included, along with our Regulated Operating Subsidiaries, in the regulated operations segment as of June 1, 2016. The following tables show our financial information by reportable segment:
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GENERAL (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplementary Cash Flows Information |
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RECENT ACCOUNTING PRONOUNCEMENTS (Tables) |
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Schedule of New Accounting Pronouncements and Changes in Accounting Principles | The following shows the impact of this adoption on our previously reported consolidated statement of financial position as of December 31, 2015:
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REGULATORY MATTERS (Tables) |
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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 nine months ended September 30, 2016:
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Schedule of Regulatory Assets and Liabilities | Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, are recorded in the condensed consolidated statements of financial position at September 30, 2016 as follows:
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DEBT (Tables) |
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Schedule of Outstanding Interest Rate Swaps | The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 6.05% Senior Notes, due January 31, 2018. As of September 30, 2016, ITC Holdings had $384.3 million outstanding under the 6.05% Senior Notes.
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Schedule of Terminated Interest Rate Swaps | In June 2016, we terminated $300.0 million of 10-year interest rate swap contracts that managed the interest rate risk associated with the unsecured Notes issued by ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:
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Schedule of Revolving Credit Agreements | At September 30, 2016, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:
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STOCKHOLDERS' EQUITY (Tables) |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Stockholders' Equity | The changes in stockholders’ equity for the nine months ended September 30, 2016 were as follows:
____________________________
The changes in stockholders’ equity for the nine months ended September 30, 2015 were as follows:
____________________________
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Changes in Accumulated Other Comprehensive Income | The following table provides the components of changes in AOCI for the three and nine months ended September 30, 2016 and 2015:
|
EARNINGS PER SHARE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic and Diluted Earnings Per Common Share | A reconciliation of both calculations for the three and nine months ended September 30, 2016 and 2015 is presented in the following table:
____________________________
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The outstanding stock options, ESPP shares and performance shares and the anti-dilutive stock options and ESPP shares excluded from the diluted EPS calculations were as follows:
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RETIREMENT BENEFITS AND ASSETS HELD IN TRUST (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined Benefit Plan Disclosure | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Defined Benefit Cost Components | Net periodic benefit cost for the pension plans, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:
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Other Postretirement Benefits Plan | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Defined Benefit Plan Disclosure | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Defined Benefit Cost Components | Net postretirement benefit plan cost, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:
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FAIR VALUE MEASUREMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities at Fair Value Subject to Three-Tier Hierarchy | Our assets and liabilities measured at fair value subject to the three-tier hierarchy at September 30, 2016, were as follows:
Our assets and liabilities measured at fair value subject to the three-tier hierarchy at December 31, 2015, were as follows:
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COMMITMENTS AND CONTINGENT LIABILITIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Impacts from the Initial and Second ROE Complaints | The recognition of this estimated liability resulted in the following impacts to our condensed consolidated results of operations:
____________________________
|
SEGMENT INFORMATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financial Information by Reportable Segment | As discussed in Note 4, during the second quarter of 2016, ITC Interconnection became a transmission owner in the FERC-approved RTO, PJM Interconnection. As a result, the newly regulated transmission business at ITC Interconnection is included, along with our Regulated Operating Subsidiaries, in the regulated operations segment as of June 1, 2016. The following tables show our financial information by reportable segment:
____________________________
|
GENERAL (Details) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
||||||
Supplementary cash flows information: | ||||||||||
Interest paid (net of interest capitalized) | $ 155,848 | $ 153,350 | ||||||||
Income taxes paid | [1] | 22,743 | 49,599 | |||||||
Supplementary non-cash investing and financing activities: | ||||||||||
Additions to property, plant and equipment and other long-lived assets | [2] | 99,754 | 85,386 | |||||||
Allowance for equity funds used during construction | $ 10,002 | $ 6,421 | $ 26,442 | $ 21,434 | ||||||
Income tax refund | $ 128,200 | |||||||||
|
RECENT ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
New Accounting Pronouncements or Change in Accounting Principle | ||
Deferred financing fees (net of accumulated amortization) | $ 1,885 | $ 2,498 |
Debt maturing within one year | 185,825 | 395,105 |
Long-term debt | $ 4,298,329 | 4,034,352 |
Reported | ||
New Accounting Pronouncements or Change in Accounting Principle | ||
Deferred financing fees (net of accumulated amortization) | 29,298 | |
Debt maturing within one year | 395,334 | |
Long-term debt | 4,060,923 | |
Adjustment | ||
New Accounting Pronouncements or Change in Accounting Principle | ||
Deferred financing fees (net of accumulated amortization) | 26,800 | |
Debt maturing within one year | 229 | |
Long-term debt | $ 26,571 |
REGULATORY MATTERS Net Changes in Regulatory Assets and Liabilities (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Revenue Accruals and Deferrals | |
Beginning balance | $ (2,564) |
Net refund of 2014 revenue deferrals and accruals, including accrued interest | 16,785 |
Net revenue deferral for the nine months ended September 30, 2016 | (24,503) |
Net accrued interest payable for the nine months ended September 30, 2016 | (732) |
Ending balance | $ (11,014) |
REGULATORY MATTERS Schedule of Regulatory Assets and Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Schedule of Regulatory Assets and Liabilities | ||
Current regulatory assets | $ 22,262 | $ 14,736 |
Non-current regulatory assets | 238,213 | 233,376 |
Current regulatory liabilities | (137,014) | (44,964) |
Non-current regulatory liabilities | (251,187) | $ (254,788) |
Revenue Deferrals, Including Accrued Interest | ||
Schedule of Regulatory Assets and Liabilities | ||
Current regulatory liabilities | (15,714) | |
Non-current regulatory liabilities | (36,240) | |
Revenue Accruals, Including Accrued Interest | ||
Schedule of Regulatory Assets and Liabilities | ||
Current regulatory assets | 22,262 | |
Non-current regulatory assets | $ 18,678 |
DEBT Interest Rate Swap Agreements (Details) - USD ($) $ in Thousands |
1 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Aug. 31, 2016 |
Jul. 31, 2016 |
Jun. 30, 2016 |
Jun. 30, 2016 |
Sep. 30, 2016 |
Aug. 01, 2016 |
Jul. 01, 2016 |
Dec. 31, 2015 |
|
Derivative | ||||||||
Long-term debt | $ 4,110,900 | $ 3,653,600 | ||||||
Notional amount | $ 300,000 | $ 300,000 | 100,000 | $ 25,000 | $ 75,000 | |||
Fixed rate | 1.599% | 1.616% | ||||||
Weighted average fixed rate | 1.99% | 1.99% | ||||||
Comparable reference rate | 1.37% | 1.37% | ||||||
Loss on derivative | $ 17,200 | |||||||
Interest Rate Swap | ||||||||
Derivative | ||||||||
Term of contract | 10 years | 10 years | 10 years | |||||
Interest Rate Swap | Fair Value, Inputs, Level 2 | Recurring Basis | ||||||||
Derivative | ||||||||
Interest rate swap fair value, asset | 7 | 112 | ||||||
Interest rate swaps fair value, liability | 240 | $ 3,548 | ||||||
ITC Holdings | Senior Notes, due January 31, 2018 | ||||||||
Derivative | ||||||||
Long-term debt | $ 384,300 |
DEBT Schedule of Revolving Credit Agreements (Details) |
9 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016
USD ($)
| ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Total available capacity | $ 1,000,000,000 | |||||||||||
Outstanding balance | 237,400,000 | [1] | ||||||||||
Unused capacity | 762,600,000 | |||||||||||
ITC Holdings | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Total available capacity | 400,000,000 | |||||||||||
Outstanding balance | 7,000,000 | [1] | ||||||||||
Unused capacity | $ 393,000,000 | [2] | ||||||||||
Weighted average interest rate | 1.80% | [3] | ||||||||||
Commitment fee rate | 0.175% | [4] | ||||||||||
Unused capacity, adjusted for commercial paper outstanding | $ 257,100,000 | |||||||||||
Interest rate description | Loan bears 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 1.00% 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 [Line Items] | ||||||||||||
Total available capacity | $ 100,000,000 | |||||||||||
Outstanding balance | 41,600,000 | [1] | ||||||||||
Unused capacity | $ 58,400,000 | |||||||||||
Weighted average interest rate | 1.40% | [5] | ||||||||||
Commitment fee rate | 0.10% | [4] | ||||||||||
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 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating. | |||||||||||
METC | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Total available capacity | $ 100,000,000 | |||||||||||
Outstanding balance | 25,800,000 | [1] | ||||||||||
Unused capacity | $ 74,200,000 | |||||||||||
Weighted average interest rate | 1.40% | [5] | ||||||||||
Commitment fee rate | 0.10% | [4] | ||||||||||
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 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating. | |||||||||||
ITC Midwest | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Total available capacity | $ 250,000,000 | |||||||||||
Outstanding balance | 104,300,000 | [1] | ||||||||||
Unused capacity | $ 145,700,000 | |||||||||||
Weighted average interest rate | 1.40% | [5] | ||||||||||
Commitment fee rate | 0.10% | [4] | ||||||||||
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 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating. | |||||||||||
ITC Great Plains | ||||||||||||
Line of Credit Facility [Line Items] | ||||||||||||
Total available capacity | $ 150,000,000 | |||||||||||
Outstanding balance | 58,700,000 | [1] | ||||||||||
Unused capacity | $ 91,300,000 | |||||||||||
Weighted average interest rate | 1.40% | [5] | ||||||||||
Commitment fee rate | 0.10% | [4] | ||||||||||
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 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating. | |||||||||||
|
DEBT Additional Information (Details) - USD ($) |
9 Months Ended | ||||
---|---|---|---|---|---|
Sep. 30, 2016 |
Jul. 05, 2016 |
Apr. 26, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Debt Disclosure [Abstract] | |||||
Principal amount | $ 400,000,000 | $ 200,000,000 | |||
Interest rate | 3.25% | 3.90% | |||
Repayment of term loan credit agreement | $ 161,000,000 | $ 200,000,000 | $ 361,000,000 | $ 0 | |
Commercial paper program, maximum authorized amount outstanding | $ 400,000,000 | 400,000,000 | |||
Commercial paper | $ 135,900,000 | $ 135,900,000 | |||
Commercial paper, weighted average interest rate | 0.80% | 0.80% | |||
Commercial paper, weighted average days to maturity | 16 days | ||||
Repayments of long-term debt | $ 139,300,000 | $ 139,344,000 | $ 0 |
STOCKHOLDERS' EQUITY Changes in Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 19, 2016 |
Sep. 30, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|||||||
Beginning balance, shares | 152,699,077 | ||||||||||||
Beginning balance | $ 1,709,071 | ||||||||||||
NET INCOME | $ 49,638 | $ 65,573 | 184,601 | $ 205,041 | |||||||||
Stock option exercises, shares | 37,941 | 1,203,376 | |||||||||||
Other comprehensive loss, net of tax | $ 221 | $ (2,151) | $ (7,120) | $ (889) | |||||||||
Ending balance, shares | 153,432,671 | 152,699,077 | 153,432,671 | 152,699,077 | |||||||||
Ending balance | $ 1,816,116 | $ 1,709,071 | $ 1,816,116 | $ 1,709,071 | |||||||||
Parenthetical Disclosures | |||||||||||||
Dividends declared per common share | $ 0.2155 | $ 0.1875 | $ 0.5905 | $ 0.5125 | |||||||||
Common Stock | |||||||||||||
Beginning balance, shares | 156,177,085 | 152,699,077 | 155,140,967 | 155,140,967 | |||||||||
Beginning balance | $ 811,037 | $ 829,211 | $ 923,191 | $ 923,191 | |||||||||
Repurchase and retirement of common stock, shares | (215,791) | (667,487) | |||||||||||
Repurchase and retirement of common stock | $ (9,449) | $ (21,931) | |||||||||||
Stock option exercises, shares | 473,519 | 1,165,435 | [1] | ||||||||||
Stock option exercises | $ 11,376 | $ 10,599 | [1] | ||||||||||
Shares issued under the employee stock purchase plan, shares | 40,219 | 55,905 | |||||||||||
Shares issued under the employee stock purchase plan | $ 1,228 | $ 1,723 | |||||||||||
Issuance of restricted stock, shares | 464,395 | [2] | 254,711 | ||||||||||
Forfeiture of restricted stock, shares | (22,750) | (53,197) | |||||||||||
Issuance of performance, shares | 287,464 | ||||||||||||
Forfeiture of performance, shares | (5,998) | (6,713) | |||||||||||
Share-based compensation, net of forfeitures | $ 16,685 | $ 12,461 | |||||||||||
Forward contract of accelerated share repurchase program | (115,000) | ||||||||||||
Other | $ 159 | $ (6) | |||||||||||
Ending balance, shares | 153,432,671 | 152,699,077 | 156,177,085 | 153,432,671 | 156,177,085 | 152,699,077 | |||||||
Ending balance | $ 849,210 | $ 829,211 | $ 811,037 | $ 849,210 | $ 811,037 | $ 829,211 | |||||||
Retained Earnings | |||||||||||||
Beginning balance | 866,900 | 875,595 | 741,550 | 741,550 | |||||||||
NET INCOME | 49,638 | 65,573 | 184,601 | 205,041 | |||||||||
Dividends declared | (90,435) | (79,691) | |||||||||||
Ending balance | 969,761 | 875,595 | 866,900 | 969,761 | 866,900 | 875,595 | |||||||
Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Beginning balance | 3,927 | 4,265 | 4,816 | 4,816 | |||||||||
Other comprehensive loss, net of tax | (7,120) | (889) | |||||||||||
Ending balance | (2,855) | 4,265 | 3,927 | (2,855) | 3,927 | 4,265 | |||||||
Total Stockholders' Equity | |||||||||||||
Beginning balance | 1,681,864 | 1,709,071 | 1,669,557 | 1,669,557 | |||||||||
NET INCOME | 184,601 | 205,041 | |||||||||||
Repurchase and retirement of common stock | (9,449) | (21,931) | |||||||||||
Dividends declared | (90,435) | (79,691) | |||||||||||
Stock option exercises | 11,376 | 10,599 | [1] | ||||||||||
Shares issued under the employee stock purchase plan | 1,228 | 1,723 | |||||||||||
Share-based compensation, net of forfeitures | 16,685 | 12,461 | |||||||||||
Forward contract of accelerated share repurchase program | (115,000) | ||||||||||||
Other comprehensive loss, net of tax | (7,120) | (889) | |||||||||||
Other | 159 | (6) | |||||||||||
Ending balance | $ 1,816,116 | $ 1,709,071 | $ 1,681,864 | $ 1,816,116 | $ 1,681,864 | $ 1,709,071 | |||||||
Restricted Stock | |||||||||||||
Granted restricted stock | 453,219 | ||||||||||||
|
EARNINGS PER SHARE Schedule of Basic and Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|||
Numerator: | ||||||
NET INCOME | $ 49,638 | $ 65,573 | $ 184,601 | $ 205,041 | ||
Dividends declared and paid | 32,999 | 29,230 | 90,277 | 79,697 | ||
Undistributed earnings | $ 16,639 | $ 36,343 | $ 94,324 | $ 125,344 | ||
Percentage allocated to common shares | [1] | 99.30% | 99.30% | 99.30% | 99.30% | |
Numerator for basic and diluted earnings per common share | $ 49,289 | $ 65,125 | $ 183,320 | $ 203,603 | ||
Denominator: | ||||||
Basic earnings per common share — weighted average common shares outstanding | 152,028,595 | 154,836,673 | 151,754,084 | 154,348,478 | ||
Incremental shares for stock options, employee stock purchase plan shares and performance shares — weighted average assumed conversion | 1,189,049 | 687,035 | 1,126,616 | 1,104,516 | ||
Diluted earnings per common share — adjusted weighted average shares and assumed conversion | 153,217,644 | 155,523,708 | 152,880,700 | 155,452,994 | ||
Per common share net income: | ||||||
Basic | $ 0.32 | $ 0.42 | $ 1.21 | $ 1.32 | ||
Diluted | $ 0.32 | $ 0.42 | $ 1.20 | $ 1.31 | ||
Percentage allocated to common shares: | ||||||
Weighted average restricted shares (participating securities) | 1,088,340 | 1,040,212 | 1,025,033 | 1,127,490 | ||
Denominator for percentage allocated to common shares - total weighted-average shares outstanding | 153,116,935 | 155,876,885 | 152,779,117 | 155,475,968 | ||
Common Stock | ||||||
Numerator: | ||||||
Dividends declared and paid | $ 32,766 | $ 29,036 | $ 89,656 | $ 79,136 | ||
Undistributed earnings | $ 16,523 | $ 36,089 | $ 93,664 | $ 124,467 | ||
|
EARNINGS PER SHARE Additional Information (Details) - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Earnings Per Share, Basic and Diluted [Abstract] | ||||
Outstanding stock options, ESPP shares and performance shares | 3,613,464 | 4,138,180 | 3,613,464 | 4,138,180 |
Anti-dilutive stock options and ESPP shares | 0 | 1,059,106 | 0 | 1,059,106 |
RETIREMENT BENEFITS AND ASSETS HELD IN TRUST Schedule of Net Defined Benefit Cost Components (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Defined Benefit Plans | ||||
Defined Benefit Plan Disclosure | ||||
Service cost | $ 1,602 | $ 1,624 | $ 4,810 | $ 4,872 |
Interest cost | 872 | 924 | 2,616 | 2,772 |
Expected return on plan assets | (931) | (960) | (2,795) | (2,879) |
Amortization of prior service credit | (5) | (10) | (13) | (31) |
Amortization of unrecognized loss | 877 | 1,061 | 2,629 | 3,182 |
Net cost | 2,415 | 2,639 | 7,247 | 7,916 |
Other Postretirement Benefits Plan | ||||
Defined Benefit Plan Disclosure | ||||
Service cost | 1,855 | 2,121 | 5,565 | 6,364 |
Interest cost | 631 | 620 | 1,891 | 1,858 |
Expected return on plan assets | (531) | (463) | (1,592) | (1,389) |
Amortization of unrecognized loss | 0 | 125 | 0 | 375 |
Net cost | $ 1,955 | $ 2,403 | $ 5,864 | $ 7,208 |
RETIREMENT BENEFITS AND ASSETS HELD IN TRUST Additional Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Defined Contribution Plan | |||||
Retirement Benefits Disclosure | |||||
Plan cost | $ 900,000 | $ 800,000 | $ 3,400,000 | $ 3,200,000 | |
Other Pension Plan | |||||
Retirement Benefits Disclosure | |||||
Employer contributions | 2,800,000 | ||||
Other Pension Plan | Expectation | |||||
Retirement Benefits Disclosure | |||||
Expected additional current year contribution | $ 0 | ||||
Supplemental Retirement Plans | |||||
Retirement Benefits Disclosure | |||||
Employer contributions | 5,200,000 | ||||
Supplemental Retirement Plans | Expectation | |||||
Retirement Benefits Disclosure | |||||
Expected additional current year contribution | 0 | ||||
Other Postretirement Benefits Plan | |||||
Retirement Benefits Disclosure | |||||
Employer contributions | $ 5,600,000 | ||||
Other Postretirement Benefits Plan | Expectation | |||||
Retirement Benefits Disclosure | |||||
Expected additional current year contribution | $ 1,700,000 |
FAIR VALUE MEASUREMENTS Additional Information (Details) - USD ($) $ in Millions |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Fair value of long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper | $ 4,592.1 | $ 3,879.7 |
Book value of long-term debt and debt maturing within one year, net of discount and deferred financing fees and excluding revolving and term loan credit agreements and commercial paper | 4,110.9 | 3,653.6 |
Book value of revolving credit and term loan credit agreements | $ 237.4 | $ 680.9 |
SEGMENT INFORMATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
||||||
OPERATING REVENUES: | ||||||||||
Operating revenues | $ 253,451 | $ 273,189 | $ 831,628 | $ 820,734 | ||||||
INCOME BEFORE INCOME TAXES: | ||||||||||
Income before income taxes | 78,735 | 103,679 | 298,620 | 326,703 | ||||||
NET INCOME: | ||||||||||
NET INCOME | 49,638 | 65,573 | 184,601 | 205,041 | ||||||
TOTAL ASSETS: | ||||||||||
Assets | 8,051,687 | 8,051,687 | $ 7,555,322 | |||||||
Regulated operations | ||||||||||
OPERATING REVENUES: | ||||||||||
Operating revenues | [1] | 261,156 | 273,012 | 839,126 | 820,452 | |||||
INCOME BEFORE INCOME TAXES: | ||||||||||
Income before income taxes | [1] | 119,862 | 138,532 | 439,288 | 436,990 | |||||
NET INCOME: | ||||||||||
NET INCOME | [1] | 74,965 | 85,971 | 272,085 | 269,491 | |||||
TOTAL ASSETS: | ||||||||||
Assets | 7,969,771 | 7,969,771 | 7,463,557 | |||||||
ITC Holdings and other | ||||||||||
OPERATING REVENUES: | ||||||||||
Operating revenues | 93 | 334 | 688 | 720 | ||||||
INCOME BEFORE INCOME TAXES: | ||||||||||
Income before income taxes | (41,127) | (34,853) | (140,668) | (110,287) | ||||||
NET INCOME: | ||||||||||
NET INCOME | 49,638 | 65,573 | 184,601 | 205,041 | ||||||
TOTAL ASSETS: | ||||||||||
Assets | 4,253,150 | 4,253,150 | 4,147,915 | |||||||
Intercompany eliminations | ||||||||||
OPERATING REVENUES: | ||||||||||
Operating revenues | (7,798) | (157) | (8,186) | (438) | ||||||
NET INCOME: | ||||||||||
NET INCOME | (74,965) | $ (85,971) | (272,085) | $ (269,491) | ||||||
TOTAL ASSETS: | ||||||||||
Assets | [2] | $ (4,171,234) | $ (4,171,234) | $ (4,056,150) | ||||||
|
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