ITC Holdings Corp. Investor Meetings January 2015
Safe Harbor Language & Legal Disclosure This presentation contains certain statements that describe our management s beliefs concerning future business conditions and prospects, growth opportunities and the outlook for our business and the electricity transmission industry based upon information currently available. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as anticipates, believes, intends, estimates, expects, projects and similar phrases. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among other things, the risks and uncertainties disclosed in our annual report on Form 10-K and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission from time to time. Because our forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong. They speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this presentation and in our annual and quarterly reports will be important in determining future results. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Actual future results may vary materially. Except as required by law, we undertake no obligation to publicly update any of our forwardlooking or other statements, whether as a result of new information, future events, or otherwise. 2
Overview of ITC ITC s business model creates a unique, structurally advantaged infrastructure portfolio Rate construct supports efficient capitalization of needed investment and timely return of capital Forward looking rates Supportive rate structure Actively developing electrical infrastructure required for increasing system demands through: Investing in Existing Systems Regional Projects Development Statistics reflect September 30, 2014. Assets ~$6.8 billion Annual Capital Investments: ~$800 million Line Miles ~15,400 Stations / Substations: ~540 States: Seven 3
Consistent and Supportive Regulatory Policy 1992 1999 2003 2005 2006 2007 2011 2012 2014 Energy Policy Act of 1992 mandated open access transmission tariffs Order 2000 provided for voluntary RTO formation and regional wholesale energy markets FERC adoption of independence incentives Energy Policy Act directed FERC to provide financial incentives for transmission Order 679 established incentives for transmission investment Order 890 expanded regional planning mandate and subsumed Order 888 that established regional planning and open transmission access Order 1000 required improvements to regional planning and cost allocation, will facilitate inter-regional project development, and introduce competition Policy Statement on Promoting Transmission Investment Through Pricing Reform Opinion 531 Modified methodology for calculating transmission returns to support continued investment Annual Transmission Investment sourced from The Brattle Group, Trends and Benefits of Transmission Investments: Identifying and Analyzing Value, January 2014. 4
Significant Future System Requirements In Infancy of Multi-Decade Investment Cycle Projected System Needs Require $120 - $160 billion of Investment per Decade Through 2030 Historical Underinvestment Aged infrastructure remains prevalent Regional Infrastructure Intra and interregional connectivity Reliability NERC requirements, FERC enforcement activities and storm hardening Changing Generation Fleet EPA and coal plant implications, nuclear closures and plant outages RPS Mandates & Intermittent Resource Integration Individual state needs Transmission investment needs sourced from The Brattle Group, Trends and Benefits of Transmission Investments: Identifying and Analyzing Value, January 2014. 5
ITC s Approach to Development Development opportunities remain a key driver of future growth More predictable and cost-effective than M&A Expanded development efforts to a national presence from existing regional focus Broadens investment landscape and prospective partner opportunities Development portfolio is large yet focused, diversified and economically-attractive Premised on Order 1000 and nontraditional transmission opportunities 2006 Historical development successes primarily greenfield-oriented. Road ahead entails thinking unconventionally about new opportunities Formed ITC Grid Development & ITC Great Plains 2008 Authorized to build KETA Project & awarded portion of Kansas V-Plan Project 2009 Launched concept of Green Power Express & awarded Hugo to Valliant Project 2011 Received MISO approval of MVP Projects 2013 Received SPP approval of Elm Creek to Summit Project 2014 Transmission facilities connecting New Covert plant to PJM 6
Expanding & Diversifying Development Portfolio Tiered Order 1000 Strategy Non-Traditional Development Projects Lake Erie Connector Tier One SPP & MISO Tier Two PJM & CAISO Tier Three ERCOT, NYISO & ISO-NE North In June 2014, ITC acquired rights to the 60 mile, 1,000 MW bi-directional, submarine HVDC line that will connect Ontario and PJM Granted negotiated rate authority from FERC in September, enables ITC to commence open solicitation process Open solicitation is next key milestone and expected to be complete in first half of 2015 If key milestones are met, expected in-service date in 2018-2019 timeframe New Covert Project Bilateral agreement where ITC will construct, own and operate network transmission facilities connecting the New Covert power plant to PJM Represents first foray into PJM Offers framework and foundation for similar opportunities going forward Provides future growth opportunities, especially in light of EPA regulations affecting coal generations 7
2014 2018 Financial Highlights Five-Year Plan Highlights Robust Capital Investment Plan $4.5 billion of capital investments; ~75% from base capital and approved regional projects $7.6 billion of rate base plus CWIP in 2018 from $4.5 billion in 2013 EPS CAGR of 11% - 13% with potential upside Industry Leading Growth Rate base and CWIP balances increase ~70% Cash from operations (CFO) CAGR of ~10% Dividend growth of 10% - 15% per annum Substantial Cash Flow Generation Strong Balance Sheet Average CFO of ~$650 million per annum ~$3.3 billion in aggregate CFO, funds ~55% of cash requirements A- rated balance sheets for all debt issuing entities* Stable to improving credit metrics over the plan period *Corporate credit rating. Evolution of ITC and historical investment trajectory have created substantial levels of financial flexibility 8
Long-Term EPS Growth Drivers Base Capital and Regional Infrastructure Investments Drive Significant Share of EPS Growth $4.5 billion of Capital Investments Highly Probable Capital Investments ~$3.4 billion Base Capital $2.2 billion ~8% Regional Infrastructure $1.2 billion ~2% Development $1.1 billion ~2% 11-13% EPS CAGR 2013 EPS 2018 EPS 9
Improving Credit Metrics Over Plan Strong cash flow generation over plan leads to stable and improving credit metrics which are well within our historical targets Strong CFO Generation Debt/Capitalization $3.3 billion in aggregate ~69% 70% ~$770 ~$710 ~63% ~$630 ~$660 ~$500 2011-2013 A V E R A G E FFO/Debt 2018E ~14% ~12% 10% 2014E 2015E 2016E 2017E 2018E Based on $4.5 billion of capital investments for 2014 2018. CFO CAGR based on five-year CAGR off 2013 CFO. Excludes impact of share repurchase announced June 20, 2014. 2011-2013 A V E R A G E Management Guidelines 2018E 10
Excess Funding Capacity An estimated ~$1 billion of excess funding capacity will be allocated based on our capital allocation strategy Development spending is negatively correlated with amount of excess funding capacity in the near-term $4.5 billion $1.1 billion of Development Projects $3.4 billion Base/Regional $3.3 billion in Aggregate CFO + Improving Credit Metrics Every ~$275M of deferred development provides ~$75M of incremental capacity ~$1 billion of Excess Funding Capacity * (Base Case) 2014 2018 Capital Plan (Base Case) Potential Uses of Excess Funding Capacity Organic Growth/Development Balance Sheet Management M&A Value Return *Excludes impact of share repurchase announced June 20, 2014 11
Five-Year Plan Status Update Capital Investments Operating EPS Credit Quality Value Return Capital investments of $599 million for the nine months ended September 30, 2014 Narrowed 2014 capital investment guidance range toward higher end of range at $785 million to $835 million Operating EPS for nine months ended September 30, 2014 was $1.36 per share, reflects an increase of ~14% vs. 2013; reported EPS for nine months ended September 30, 2014 was $1.25 per share* Reiterated 2014 operating EPS guidance of $1.83 to $1.90 on October 30, 2014, reflects double digit increase vs. 2013 (split-adjusted) Operating cash flow of ~$361 million for the nine months ended September 30, 2014 with total liquidity position of ~$662 million ITC Great Plains received credit ratings of A1 and A from Moody s and S&P, respectively, in anticipation of a $150 million inaugural first mortgage bond issuance Increased dividend ~14% in August 2014, consist with dividend policy of 10 to 15% annual increases projected over plan period Commenced accelerated share repurchase of up to $150 million in June 2014; 2.9 million shares repurchased through September 30, 2014 *Reconciliation from Reported EPS to Operating EPS is in the Appendix. 12
2015 Guidance 2015 guidance* builds on strong start to five-year plan Operating EPS guidance of $2.00 to $2.15 Capital investment guidance of $710 million to $810 million $ s in millions Capital Investments 2015 ITCTransmission $170 $200 METC 150 170 ITC Midwest 380 405 ITC Great Plains 10 25 Development 0 10 Total Capital Investments $710 $810 Guidance results in double digit operating EPS growth based on midpoint of 2014 and 2015 guidance ranges *Initiated on November 12, 2014. 13
Appendix 14
Reconciliation from Reported EPS to Operating EPS Nine Months Ended September 30, 2014 2014 2013 Reported Diluted EPS $ 1.25 $ 0.99 After-tax Entergy transaction related expenses 0.20 After-tax liability for audit related refunds After-tax debt extinguishment & consent solicitation fees 0.11 Operating Diluted EPS $ 1.36 $ 1.19 15