10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32576

ITC HOLDINGS CORP.

(Exact Name of Registrant as Specified in Its Charter)

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

27175 Energy Way

Novi, Michigan 48377

(Address Of Principal Executive Offices, Including Zip Code)

(248) 946-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common stock, without par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information, statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates on June 30, 2008 was approximately $2.5 billion, based on the closing sale price as reported on the New York Stock Exchange. For purposes of this computation, all executive officers, directors and 10% beneficial owners of the registrant are assumed to be affiliates. Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates of the registrant.

The number of shares of the Registrant’s Common Stock, without par value, outstanding as of February 18, 2009 was 49,711,001.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the Registrant’s 2009 Annual Meeting of Shareholders (the “Proxy Statement”) filed pursuant to Regulation 14A are incorporated by reference in Part III of this Form 10-K.

ITC Holdings Corp.

Form 10-K for the Fiscal Year Ended December 31, 2008

INDEX

		Page
Part I			4
Item 1.	Business		4
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		25
Item 3.	Legal Proceedings		26
Item 4.	Submission of Matters to a Vote of Security Holders		27
Part II			27
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		27
Item 6.	Selected Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		57
Item 8.	Financial Statements and Supplementary Data		58
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		111
Item 9A.	Controls and Procedures		112
Item 9B.	Other Information		112
Part III			112
Item 10.	Directors, Executive Officers, and Corporate Governance		112
Item 11.	Executive Compensation		113
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		113
Item 13.	Certain Relationships and Related Transactions, and Director Independence		113
Item 14.	Principal Accounting Fees and Services		113
Part IV			114
Item 15.	Exhibits and Financial Statement Schedules		114
Signatures			119
Exhibits			120
EX-3.2
EX-10.79
EX-10.80
EX-10.81
EX-10.82
EX-10.83
EX-10.84
EX-21
EX-23.1
EX-31.1
EX-31.2
EX-32

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DEFINITIONS

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

ITC Holdings Corp. and its subsidiaries

•  “ITC Great Plains” are references to ITC Great Plains, LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;

•  “ITC Grid Development” are references to ITC Grid Development, LLC, a wholly-owned subsidiary of ITC Holdings;

•  “Green Power Express” are references to Green Power Express, LP, an indirect wholly-owned subsidiary of ITC Holdings;

•  “ITC Holdings” are references to ITC Holdings Corp. and not any of its subsidiaries;

•  “ITC Midwest” are references to ITC Midwest LLC, a wholly-owned subsidiary of ITC Holdings;

•  “ITCTransmission” are references to International Transmission Company, a wholly-owned subsidiary of ITC Holdings;

•  “METC” are references to Michigan Electric Transmission Company, LLC, a wholly-owned subsidiary of MTH;

•  “MTH” are references to Michigan Transco Holdings, Limited Partnership, the sole member of METC and a wholly owned subsidiary of ITC Holdings;

•  “Regulated Operating Subsidiaries” are references to ITCTransmission, METC, and ITC Midwest together; and

•  “We,” “our” and “us” are references to ITC Holdings together with all of its subsidiaries.

Other definitions

•  “ATC” are references to American Transmission Company, LLC, an affiliate of IP&L;

•  “Consumers Energy” are references to Consumers Energy Company, a wholly-owned subsidiary of CMS Energy Corporation;

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

•  “DTE Energy” are references to DTE Energy Company;

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

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

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

•  “ISO” are references to Independent System Operators;

•  “IUB” are references to the Iowa Utilities Board;

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

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

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

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•  “MPUC” are references to the Minnesota Public Utilities Commission;

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

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

•  “NOLs” are references to net operating loss carryforwards for income taxes;

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

•  “SPP” are references to Southwest Power Pool, Inc., a FERC-approved RTO.

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PART I

ITEM 1.   BUSINESS.

Overview

Our business consists primarily of the operations of our Regulated Operating Subsidiaries, ITCTransmission, METC and ITC Midwest. In 2002, ITC Holdings was incorporated in the State of Michigan for the purpose of acquiring ITCTransmission. ITCTransmission was originally formed in 2001 as a subsidiary of Detroit Edison, an electric utility subsidiary of DTE Energy, and was acquired in 2003 by ITC Holdings. METC was originally formed in 2001 as a subsidiary of Consumers Energy, an electric and gas utility subsidiary of CMS Energy Corporation, and was acquired in 2006 by ITC Holdings. ITC Midwest was formed in 2007 by ITC Holdings to acquire the transmission assets of IP&L in December 2007.

Through our Regulated Operating Subsidiaries, we are engaged in the transmission of electricity in the United States. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability and to reduce transmission constraints. By pursuing this strategy, we strive for high reliability of our systems and to improve accessibility to generation sources of choice, including renewable sources. We operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois and Missouri that transmit electricity from generating stations to local distribution facilities connected to our systems.

As electric transmission utilities with rates regulated by the FERC, our Regulated Operating Subsidiaries earn revenues through tariff rates charged for the use of their electric transmission systems by our customers, which include investor-owned utilities, municipalities, co-operatives, power marketers and alternative energy suppliers. As independent transmission companies, our Regulated Operating Subsidiaries are subject to rate regulation only by the FERC. The rates charged by our Regulated Operating Subsidiaries are established using Attachment O, as discussed in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Rate Setting and Attachment O.”

Development of Business

We are pursuing strategic development opportunities for transmission construction related to building super-regional 765 kV transmission facilities to facilitate interconnections for wind generation and other renewable resources. For example, we are pursuing the opportunity to invest in the Green Power Express project, a transmission project that will traverse portions of North Dakota, South Dakota, Minnesota, Iowa, Wisconsin, Illinois and Indiana and would ultimately include approximately 3,000 miles of extra high-voltage (765kV) transmission. The entire project is currently estimated to cost approximately $10 to $12 billion. Portions of the Green Power Express project fall within the service territory of ITC Midwest. ITC Holdings expects to partner with other affected utilities within the Green Power Express project regions and would therefore only invest in a portion of the total project cost. In addition to the Green Power Express project, based on proposals by RTOs, including MISO and the SPP, we are exploring additional strategic opportunities to upgrade the transmission grid within the MISO and SPP regions and surrounding regions with a backbone 765 kV transmission network. Based on the anticipated growth of wind generation resources, we also foresee the need to construct additional transmission facilities that will provide interconnection opportunities for those wind facilities. The backbone 765 kV transmission network, transmission for wind interconnection and for interconnection of other renewable generating facilities may provide additional investment opportunities. The total investment opportunities estimated for our investment in the Green Power Express project, other backbone 765kV transmission networks, wind interconnection and other transmission for other renewable facilities are estimated to be up to $10 billion. Further, we are pursuing the opportunity to invest in two projects in Kansas, known as the Spearville-Knoll-Axtell transmission project (the “KETA Project”) and the Kansas V-Plan transmission project running from Spearville substation near Dodge City to Wichita through subsidiaries of ITC Grid Development. The capital investment for these two projects is anticipated to be between approximately $500 million and $1 billion. In January 2009, we filed an application with the FERC to establish a formula rate for these two

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projects and other projects within the SPP region. Additionally, we believe we may have the opportunity to invest approximately $1 billion to $2 billion in other Extra High Voltage Overlay projects that have been identified by the SPP. We are also exploring opportunities to invest up to approximately $1.3 billion to build a new 765 kV transmission facility across the southern portion of Michigan’s Lower Peninsula. We cannot predict if or when these investment opportunities will begin, or their duration. Refer to the discussion of risks associated with our strategic development opportunities in “Item 1A Risk Factors — Our Regulated Operating Subsidiaries’ actual capital expenditures may be lower than planned, which would decrease expected rate base and therefore our revenues. In addition, we expect to pursue strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot assure you that we will be able to initiate or complete any of these investments.”

Segments

We have one reportable segment consisting of our Regulated Operating Subsidiaries. Additionally, we have other subsidiaries focused primarily on business development activities and a holding company whose activities include corporate debt and equity financings and general corporate activities. A more detailed discussion of our reportable segment including financial information about the segment is included in Note 16 to the consolidated financial statements.

Operations

As transmission-only companies, our Regulated Operating Subsidiaries function as conduits, allowing for power from generators to be transmitted to local distribution systems either entirely through their own systems or in conjunction with neighboring transmission systems. Third parties then transmit power through these local distribution systems to end-use consumers. The transmission of electricity by our Regulated Operating Subsidiaries is a central function to the provision of electricity to residential, commercial and industrial end-use consumers. The operations performed by our Regulated Operating Subsidiaries fall into the following categories:

•  asset planning;

•  engineering, design and construction;

•  maintenance; and

•  real time operations.

Asset Planning

Our Asset Planning group uses detailed system models and long-term load forecasts to develop our system expansion capital plans. The expansion plans identify projects that would address potential future reliability issues and/or produce economic savings for customers by eliminating constraints.

Asset Planning works closely with MISO in the development of our annual system expansion capital plans by performing technical evaluations and detailed studies. As the regional planning authority, MISO reviews regional system improvement projects by its members, including our Regulated Operating Subsidiaries.

Engineering, Design and Construction

Our Engineering, Design and Construction group is responsible for design, equipment specifications, maintenance plans and project engineering for capital, operation and maintenance work. We work with outside contractors to perform some of our engineering and design and all of our construction, but retain internal technical experts that have experience with respect to the key elements of the transmission system such as substations, lines, equipment and protective relaying systems. This internal expertise allows us to effectively manage outside contractors.

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Maintenance

We develop and track the preventive maintenance plan to promote a safe and reliable system. By performing preventive maintenance on our assets, we can minimize the need for reactive maintenance, resulting in improved reliability. Our Regulated Operating Subsidiaries contract with Utility Lines Construction, which is a division of Asplundh Tree Expert Co., to perform the bulk of their maintenance. The agreements provide us with access to an experienced and scalable workforce with knowledge of our system at an established rate. The agreements are scheduled to terminate on August 29, 2013 and automatically renew for additional five year terms unless terminated by either party.

Real Time Operations

ITCTransmission and METC

System Operations.  From our operations control room facility in Novi, Michigan, transmission system coordinators continuously monitor the performance of the ITCTransmission and METC transmission systems, using state of the art computer and communication systems to perform analysis to plan for contingencies and maintain security and reliability following any unplanned events on the system. Transmission system coordinators are also responsible for the switching and protective tagging function, taking equipment in and out of service to ensure capital construction projects and maintenance programs can be completed safely and reliably.

Local Balancing Authority Operator.  Under the functional control of MISO, ITCTransmission and METC operate their electric transmission systems as a combined Local Balancing Authority (“LBA”) area, known as the Michigan Electric Coordinated Systems (“MECS”). From the operations control room facility in Novi, Michigan, our employees perform the LBA functions as outlined in MISO’s Balancing Authority Agreement. These functions include actual interchange data administration and verification and MECS LBA area emergency procedure implementation and coordination.

ITC Midwest

We had entered into certain operating contracts with IP&L and ATC that govern operations of the transmission system for a period of at least twelve months from the closing of the ITC Midwest acquisition in December 2007. These contracts include the IP&L Transition Services Agreement for operations services related to the 34.5 kV transmission system and the ATC Operating Agreement for operations services related to the 69 kV and above transmission system. Transmission system operations services include switching and protective tagging to facilitate capital construction projects and maintenance programs, system monitoring, contingency and security analysis, and responding to unplanned incidents on the system. In December 2008, ITC Midwest terminated the ATC Operating Agreement and currently performs these functions in the operations control room facility in Novi, Michigan.

Operating Contracts

ITCTransmission

Detroit Edison operates the electric distribution system to which ITCTransmission’s transmission system connects. A set of three operating contracts sets forth the terms and conditions related to Detroit Edison’s and ITCTransmission’s ongoing working relationship. These contracts include the following:

Master Operating Agreement.  The Master Operating Agreement (the “MOA”), dated as of February 28, 2003, governs the primary day-to-day operational responsibilities of ITCTransmission and Detroit Edison and will remain in effect until terminated by mutual agreement of the parties (subject to any required FERC approvals) unless earlier terminated pursuant to its terms. The MOA identifies the control area coordination services that ITCTransmission is obligated to provide to Detroit Edison. The MOA also requires Detroit Edison to provide certain generation-based support services to ITCTransmission.

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Generator Interconnection and Operation Agreement.  Detroit Edison and ITCTransmission entered into the Generator Interconnection and Operation Agreement (the “GIOA”), dated as of February 28, 2003, in order to establish, re-establish and maintain the direct electricity interconnection of Detroit Edison’s electricity generating assets with ITCTransmission’s transmission system for the purposes of transmitting electric power from and to the electricity generating facilities. Unless otherwise terminated by mutual agreement of the parties (subject to any required FERC approvals), the GIOA will remain in effect until Detroit Edison elects to terminate the agreement with respect to a particular unit or until a particular unit ceases commercial operation.

Coordination and Interconnection Agreement.  The Coordination and Interconnection Agreement (the “CIA”), dated as of February 28, 2003, governs the rights, obligations and responsibilities of ITCTransmission and Detroit Edison regarding, among other things, the operation and interconnection of Detroit Edison’s distribution system and ITCTransmission’s transmission system, and the construction of new facilities or modification of existing facilities. Additionally, the CIA allocates costs for operation of supervisory, communications and metering equipment. The CIA will remain in effect until terminated by mutual agreement of the parties (subject to any required FERC approvals).

METC

Consumers Energy operates the electric distribution system to which METC’s transmission system connects. METC is a party to a number of operating contracts with Consumers Energy that govern the operations and maintenance of its transmission system. These contracts include the following:

Amended and Restated Easement Agreement.  Under the Amended and Restated Easement Agreement (the “Easement Agreement”), dated as of April 29, 2002 and as further supplemented, Consumers Energy provides METC with an easement to the land, which we refer to as premises, on which a majority of METC’s transmission towers, poles, lines and other transmission facilities used to transmit electricity at voltages of at least 120 kV are located, which we refer to collectively as the facilities. Consumers Energy retained for itself the rights to, and the value of activities associated with, all other uses of the premises and the facilities covered by the Easement Agreement, such as for distribution of electricity, fiber optics, telecommunications, gas pipelines and agricultural uses. Accordingly, METC is not permitted to use the premises or the facilities covered by the Easement Agreement for any purposes other than to provide electric transmission and related services, to inspect, maintain, repair, replace and remove electric transmission facilities and to alter, improve, relocate and construct additional electric transmission facilities. The easement is further subject to the rights of any third parties that had rights to use or occupy the premises or the facilities prior to April 1, 2001 in a manner not inconsistent with METC’s permitted uses.

METC pays Consumers Energy annual rent of $10.0 million, in equal quarterly installments, for the easement and related rights under the Easement Agreement. Although METC and Consumers Energy share the use of the premises and the facilities covered by the Easement Agreement, METC pays the entire amount of any rentals, property taxes, inspection fees and other amounts required to be paid to third parties with respect to any use, occupancy, operations or other activities on the premises or the facilities and is generally responsible for the maintenance of the premises and the facilities used for electric transmission at its expense. METC also must maintain commercial general liability insurance protecting METC and Consumers Energy against claims for personal injury, death or property damage occurring on the premises or the facilities and pay for all insurance premiums. METC is also responsible for patrolling the premises and the facilities by air at its expense at least annually and to notify Consumers Energy of any unauthorized uses or encroachments discovered. METC must indemnify Consumers Energy for all liabilities arising from the facilities covered by the Easement Agreement.

METC must notify Consumers Energy before altering, improving, relocating or constructing additional transmission facilities covered by the Easement Agreement. Consumers Energy may respond by notifying METC of reasonable work and design restrictions and precautions that are

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needed to avoid endangering existing distribution facilities, pipelines or communications lines, in which case METC must comply with these restrictions and precautions. METC has the right at its own expense to require Consumers Energy to remove and relocate these facilities, but Consumers Energy may require payment in advance or the provision of reasonable security for payment by METC prior to removing or relocating these facilities, and Consumers Energy need not commence any relocation work until an alternative right-of-way satisfactory to Consumers Energy is obtained at METC’s expense.

The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals after that time unless METC provides one year’s notice of its election not to renew the term. Consumers Energy may terminate the Easement Agreement 30 days after giving notice of a failure by METC to pay its quarterly installment if METC does not cure the non-payment within the 30-day notice period. At the end of the term or upon any earlier termination of the Easement Agreement, the easement and related rights terminate and the transmission facilities revert to Consumers Energy.

Amended and Restated Operating Agreement.  Under the Amended and Restated Operating Agreement (the “Operating Agreement”), dated as of April 29, 2002, METC agrees to operate its transmission system to provide all transmission customers with safe, efficient, reliable and non-discriminatory transmission service pursuant to its tariff. Among other things, METC is responsible under the Operating Agreement for maintaining and operating its transmission system, providing Consumers Energy with information and access to its transmission system and related books and records, administering and performing the duties of control area operator (that is, the entity exercising operational control over the transmission system) and, if requested by Consumers Energy, building connection facilities necessary to permit interaction with new distribution facilities built by Consumers Energy. Consumers Energy has corresponding obligations to provide METC with access to its books and records and to build distribution facilities necessary to provide adequate and reliable transmission services to wholesale customers. Consumers Energy must cooperate with METC as METC performs its duties as control area operator, including by providing reactive supply and voltage control from generation sources or other ancillary services and reducing load. The Operating Agreement is effective through 2050 and is subject to 10 automatic 50-year renewals after that time, unless METC provides one year’s notice of its election not to renew.

Amended and Restated Purchase and Sale Agreement for Ancillary Services.   The Amended and Restated Purchase and Sale Agreement for Ancillary Services (the “Ancillary Services Agreement”) is dated as of April 29, 2002. Since METC does not own any generating facilities, it must procure ancillary services from third party suppliers, such as Consumers Energy. Currently, under the Ancillary Services Agreement, METC pays Consumers Energy for providing certain generation-based services necessary to support the reliable operation of the bulk power grid, such as voltage support and generation capability and capacity to balance loads and generation. METC is not precluded from procuring these ancillary services from third party suppliers when available. The Ancillary Services Agreement is subject to rolling one-year renewals starting May 1, 2003, unless terminated by either METC or Consumers Energy with six months prior written notice.

Amended and Restated Distribution-Transmission Interconnection Agreement.   The Amended and Restated Distribution-Transmission Interconnection Agreement (the “DT Interconnection Agreement”), dated April 29, 2002, provides for the interconnection of Consumers Energy’s distribution system with METC’s transmission system and defines the continuing rights, responsibilities and obligations of the parties with respect to the use of certain of their own and the other party’s properties, assets and facilities. METC agrees to provide Consumers Energy interconnection service at agreed-upon interconnection points, and the parties have mutual responsibility for maintaining voltage and compensating for reactive power losses resulting from their respective services. The DT Interconnection Agreement is effective so long as any interconnection point is connected to METC, unless it is terminated earlier by mutual agreement of METC and Consumers Energy.

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Amended and Restated Generator Interconnection Agreement.  The Amended and Restated Generator Interconnection Agreement (the “Generator Interconnection Agreement”), dated as of April 29, 2002, specifies the terms and conditions under which Consumers Energy and METC maintain the interconnection of Consumers Energy’s generation resources and METC’s transmission assets. The Generator Interconnection Agreement is effective either until it is replaced by any MISO-required contract, or until mutually agreed by METC and Consumers Energy to terminate, but not later than the date that all listed generators cease commercial operation.

ITC Midwest

IP&L operates the electric distribution system to which ITC Midwest’s transmission system connects. ITC Midwest is a party to a number of operating contracts with IP&L that govern the operations and maintenance of its transmission system. These contracts include the following:

Distribution-Transmission Interconnection Agreement.  The Distribution-Transmission Interconnection Agreement (the “DTIA”), dated as of December 17, 2007, governs the rights, responsibilities and obligations of ITC Midwest and IP&L, with respect to the use of certain of their own and the other parties’ property, assets and facilities, and the construction of new facilities or modification of existing facilities. Additionally, the DTIA sets forth the terms pursuant to which the equipment and facilities and the interconnection equipment of IP&L will continue to connect ITC Midwest’s facilities through which ITC Midwest provides transmission service under the MISO Transmission and Energy Markets Tariff. The DTIA will remain in effect until terminated by mutual agreement by the parties (subject to any required FERC approvals) or as long as any interconnection point of IP&L is connected to ITC Midwest’s facilities, unless modified by written agreement of the parties.

Large Generator Interconnection Agreement.  ITC Midwest, IP&L and MISO entered into the Large Generator Interconnection Agreement (the “LGIA”), dated as of December 20, 2007, in order to establish, re-establish and maintain the direct electricity interconnection of IP&L’s electricity generating assets with ITC Midwest’s transmission system for the purposes of transmitting electric power from and to the electricity generating facilities. The LGIA will remain in effect until terminated by ITC Midwest or until IP&L elects to terminate the agreement if a particular unit ceases commercial operation for three consecutive years.

Transition Services Agreement.  The Transition Services Agreement (the “TSA”), dated as of December 20, 2007, identifies the transmission corporate administration services, the construction and maintenance services, the engineering services and the system operations services related to the 34.5 kV transmission system that IP&L agreed to provide to ITC Midwest. The TSA also requires IP&L to provide the transition design, planning and implementation relating to those services. In addition to the system operations services related to the 34.5 kV transmission system, IP&L will provide a limited number of corporate administration services and construction and maintenance services, to ITC Midwest. The initial term of the TSA expired, and ITC Midwest exercised the first of its four options to extend the agreement an additional six months. The first extension will terminate June 30, 2009; however, ITC Midwest has given notice to IP&L that it will require the system operations services related to the 34.5 kV transmission system and its associated detailed billing service to be extended through December 31, 2009. The agreement can also be terminated by mutual agreement of the parties. Subsequent to the termination of the TSA, ITC Midwest expects to perform the activities covered under the TSA.

Operating Agreement.  The Operating Agreement, dated as of December 17, 2007, between ITC Midwest and ATC obligated ATC to provide control, operation and emergency response services as well as providing assistance in the transition of those services to ITC Midwest. The services contemplated by this agreement were only for ITC Midwest’s transmission facilities operating at 69 kV and above. The Operating Agreement was terminated in December 2008 in accordance with its terms, at which time ITC Midwest began performing the activities covered under the Operating Agreement.

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Regulatory Environment

Regulators and public policy makers have seen the need for further investment in the transmission grid. The growth in electricity generation, wholesale power sales and consumption combined with historically inadequate transmission investment have resulted in significant transmission constraints across the United States and increased stress on aging equipment. These problems will continue without increased investment in transmission infrastructure. Transmission system investments can also increase system reliability and reduce the frequency of power outages. Such investments can reduce transmission constraints and improve access to lower cost generation resources, resulting in a lower overall cost of delivered electricity for end-use consumers. After the 2003 blackout that affected sections of the Northeastern and Midwestern United States and Ontario, Canada, the Department of Energy (the “DOE”) established the Office of Electric Transmission and Distribution, focused on working with reliability experts from the power industry, state governments, and their Canadian counterparts to improve grid reliability and increase investment in the country’s electric infrastructure. In addition, the FERC has signaled its desire for substantial new investment in the transmission sector by implementing financial incentives, such as increasing the return on equity for transmission-only companies to a level that is greater than that of traditional utilities.

The FERC has issued orders to promote non-discriminatory transmission access for all transmission customers. In the United States, electric transmission assets are predominantly owned, operated and maintained by utilities that also own electricity generation and distribution assets, known as vertically integrated utilities. The FERC has recognized that the vertically integrated utility model inhibits the provision of non-discriminatory transmission access and, in order to alleviate this potential discrimination, the FERC has mandated that all transmission systems over which it has jurisdiction must be operated in a comparable, non-discriminatory manner such that any seller of electricity affiliated with a transmission owner or operator is not provided with preferential treatment. The FERC has also indicated that independent transmission companies can play a prominent role in furthering its policy goals and has encouraged the legal and functional separation of transmission operations from generation and distribution operations.

On August 8, 2005, the Energy Policy Act was enacted, which requires the FERC to implement mandatory electric transmission reliability standards to be enforced by an Electric Reliability Organization. Effective June 2007, the FERC approved mandatory adoption of certain reliability standards and approved enforcement actions for violators, including fines of up to $1.0 million per day. The NERC was assigned the responsibility of developing and enforcing these mandatory reliability standards. We continually assess our transmission systems against these reliability standards established by the NERC, as well as ReliabilityFirst Corporation (for ITCTransmission and METC) and Midwest Reliability Organization (for ITC Midwest), which are regional entities under the NERC that have been delegated certain authority for the purpose of proposing and enforcing reliability standards. In addition, the FERC has finalized rules under which our Regulated Operating Subsidiaries may qualify for rate incentives to invest in transmission infrastructure. Our Regulated Operating Subsidiaries may also be eligible for federal assistance in the siting of such infrastructure. Finally, the Energy Policy Act repealed the Public Utility Holding Company Act of 1935, which was replaced by the Public Utility Holding Company Act of 2005. It also subjected utility holding companies to regulations of the FERC related to access to books and records, and amended Section 203 of the FPA to provide explicit authority for the FERC to review mergers and consolidations involving utility holding companies in certain circumstances.

Federal Regulation

As electric transmission companies, our Regulated Operating Subsidiaries are regulated by the FERC. The FERC is an independent regulatory commission within the DOE that regulates the interstate transmission and certain wholesale sales of natural gas, the transmission of oil and oil products by pipeline, and the transmission and wholesale sale of electricity in interstate commerce. The FERC also administers accounting and financial reporting regulations and standards of conduct for the companies it regulates. In 1996, in order to facilitate open access transmission for participants in wholesale power

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markets, the FERC issued Order No. 888. The open access policy promulgated by the FERC in Order No. 888 was upheld in a United States Supreme Court decision State of New York vs. FERC, issued on March 4, 2002. To facilitate open access, among other things, FERC Order No. 888 encouraged investor owned utilities to cede operational control over their transmission systems to ISOs, which are not-for-profit entities.

As an alternative to ceding operating control of their transmission assets to ISOs, certain investor-owned utilities began to promote the formation of for-profit transmission companies, which would assume control of the operation of the grid. In December 1999, the FERC issued Order No. 2000, which strongly encouraged utilities to voluntarily transfer operational control of their transmission systems to RTOs. RTOs, as envisioned in Order No. 2000, would assume many of the functions of an ISO, but the FERC permitted greater flexibility with regard to the organization and structure of RTOs than it had for ISOs. RTOs could accommodate the inclusion of independently owned, for-profit companies that own transmission assets within their operating structure. Independent ownership would facilitate not only the independent operation of the transmission systems but also the formation of companies with a greater financial interest in maintaining and augmenting the capacity and reliability of those systems.

MISO was formed in 1996 as a voluntary association of electric transmission owners consistent with the principles in FERC Order No. 888. Later, in response to FERC Order No. 2000, MISO evolved into a FERC-approved RTO with an open architecture framework capable of accommodating a variety of business models including independently owned, for-profit transmission companies. MISO, in its role as an RTO, monitors electric reliability throughout much of the Midwest. MISO is responsible for coordinating the operation of the wholesale electric transmission system and ensuring fair, non-discriminatory access to the transmission grid.

State Regulation

The regulatory agencies in the states where our Regulated Operating Subsidiaries’ assets are located do not have jurisdiction over rates or terms and conditions of service. However, they do have jurisdiction over siting of transmission facilities and related matters as described below. Additionally, we are subject to the regulatory oversight of various state environmental quality departments for compliance with any state environmental standards and regulations.

ITCTransmission and METC

Michigan

The Michigan Public Service Commission has jurisdiction over the siting of transmission facilities. Additionally, pursuant to Michigan Public Acts 197 and 198 of 2004, ITCTransmission and METC have the right as independent transmission companies to condemn property in the state of Michigan for the purposes of building or maintaining transmission facilities.

ITCTransmission and METC are also subject to the regulatory oversight of the Michigan Department of Environmental Quality, the Michigan Department of Natural Resources and certain local authorities for compliance with all environmental standards and regulations.

ITC Midwest

Iowa

ITC Midwest is not a public utility subject to the IUB’s statutory jurisdiction to regulate a public utility’s rates and services pursuant to Iowa Code ch. 476. Iowa Code ch. 478, however, provides that the IUB has the power of supervision over the construction, operation, and maintenance of transmission facilities in Iowa by any entity, which includes the power to issue franchises. Iowa Code ch. 478 further provides that any entity granted a franchise by the IUB is vested with the power of condemnation in Iowa to the extent the IUB approves and deems necessary for public use.

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ITC Midwest also is subject to the regulatory oversight of the Iowa Department of Natural Resources and certain local authorities for compliance with all environmental standards and regulations.

Minnesota

The MPUC does not have jurisdiction to regulate ITC Midwest’s rates or terms and conditions of service. However, the MPUC has jurisdiction over the siting and routing of new transmission lines through Minnesota’s Certificate of Need Process. Transmission companies are also required to participate in the State’s Biennial Transmission Planning Process and are subject to the state’s preventative maintenance requirements. Pursuant to Minnesota law, ITC Midwest has the right as an independent transmission company to condemn property in the State of Minnesota for the purpose of building new transmission facilities.

ITC Midwest is also subject to the regulatory oversight of the Minnesota Pollution Control Agency, the Minnesota Department of Natural Resources, the MPUC in conjunction with the Department of Commerce, and certain local authorities for compliance with applicable environmental standards and regulations.

Illinois

The Illinois Commerce Commission (“ICC”) does not have jurisdiction to regulate ITC Midwest’s rates or terms and conditions of service, but the ICC does exercise jurisdiction over siting of new transmission lines.

ITC Midwest also is subject to the regulatory oversight of the Illinois Environmental Protection Agency, the Illinois Department of Natural Resources, the Illinois Pollution Control Board and certain local authorities for compliance with all environmental standards and regulations.

Missouri

The Missouri Public Service Commission (the “MOPSC”) does not have jurisdiction to regulate the Company’s rates, terms or conditions of service. However, because ITC Midwest is a “public utility” and an “electrical corporation” under Missouri law, the MOPSC has jurisdiction to determine whether ITC Midwest may operate in such capacity. In this regard, on August 30, 2007, the MOPSC granted ITC Midwest a certificate of public convenience and necessity to own, operate and maintain a 161 kV transmission line of approximately 9.5 miles located in Clark County, Missouri which connects the former IP&L’s transmission substation in Keokuk, Iowa with Ameren Energy Generating Company’s transmission substation near Wayland, Missouri. The MOPSC also exercises jurisdiction with regard to other non-rate matters affecting this Missouri asset such as transmission substation construction, general safety and the transfer of the franchise or property.

ITC Midwest is also subject to the regulatory oversight of the Missouri Department of Natural Resources for compliance with all environmental standards and regulations relating to this transmission line.

Sources of Revenue

See “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Operating Revenues” for a discussion of our principal sources of revenue.

Seasonality

Prior to the implementation of forward-looking Attachment O, effective January 1, 2007 for ITCTransmission and METC, the revenues recognized by these subsidiaries were dependent on monthly peak loads. Revenues and net income varied between periods based on monthly peak loads, among other factors. To the extent that actual conditions during an annual period varied from the data on which the

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Attachment O rate was based, our Regulated Operating Subsidiaries earned more or less revenue during that annual period and therefore recovered more or less than their respective net revenue requirements. The calculation of net revenue requirement is described in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Rate Setting and Attachment O — Net Revenue Requirement Calculation.”

Under forward-looking Attachment O, as discussed in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Rate Setting and Attachment O — Forward-Looking Attachment O,” monthly peak loads continue to be used for billing network revenues and continue to affect operating cash flows. However, our Regulated Operating Subsidiaries accrue or defer revenues to the extent that their actual net revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. This results in more consistent net income for each quarterly period within a given year, compared to the historical Attachment O method that previously applied to ITCTransmission and METC.

Principal Customers

Our principal transmission service customers are Detroit Edison, Consumers Energy and IP&L, which accounted for approximately 41.6%, 25.6% and 19.8%, respectively, of our total operating revenues for the year ended December 31, 2008. One or more of these customers together have consistently represented a significant percentage of our operating revenue. These percentages of total operating revenues of Detroit Edison, Consumers Energy and IP&L include an estimate for the 2008 Attachment O revenue accruals that were included in our 2008 operating revenues, but will not be billed to our customers until 2010. We have assumed that the Attachment O revenues billed to these customers in 2010 would be in the same proportion of the respective percentages of network revenues billed to them in 2008. Our remaining revenues were generated from providing service to other entities such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers and from transaction-based capacity reservations. Nearly all of our revenues are from transmission customers in the United States. Although we may have allocated revenues from time to time from Canadian entities reserving transmission over the Ontario or Manitoba interface, these revenues have not been and are not expected to be material to us.

Billing

MISO is responsible for billing and collection for transmission services and administers the transmission tariff in the MISO service territory. As the billing agent for our Regulated Operating Subsidiaries, MISO bills Detroit Edison, Consumers Energy, IP&L and other customers on a monthly basis and collects fees for the use of our transmission systems. MISO has implemented strict credit policies for its members, which include customers using our transmission systems. In general, if these customers do not maintain their investment grade credit rating or have a history of late payments, MISO may require them to provide MISO with a letter of credit or a cash deposit equal to the highest monthly invoiced amount over the previous 12 months.

Competition

Each of our Regulated Operating Subsidiaries is the only transmission system in its respective service area and, therefore, effectively has no competitors. For our subsidiaries focused on development opportunities for capital projects in other service areas, the incumbent utilities or other entities with transmission development initiatives may compete with us by deciding to pursue capital projects that we are pursuing. Because our subsidiaries are the only transmission companies that are independent from electricity market participants, we believe we are best able to develop these projects in a non-discriminatory manner. However, there are no assurances we will be selected to develop projects that other entities are also pursuing. None of our existing operating revenues relate to these development initiatives, and our development expenses are recorded to operating expenses unless and until the FERC allows us recovery of such expenses and they are probable of recovery.

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Employees

As of December 31, 2008, we had 392 employees. We consider our relations with our employees to be good.

The certifications of the Chief Executive Officer and Chief Financial Officer required by Securities and Exchange Commission (“SEC”) rules have been filed as exhibits to this report. The unqualified certification of the Chief Executive Officer as to compliance with New York Stock Exchange (“NYSE”) corporate governance requirements was filed with the NYSE on June 19, 2008.

Environmental Matters

Our operations are subject to federal, state, and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of hazardous materials and of solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities to investigate or remediate contamination, as well as other liabilities concerning hazardous materials or contamination, such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as at properties currently owned or operated by us. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under a number of environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. 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 our Regulated Operating Subsidiaries own or operate have been used for many years, and include older facilities and equipment that may be more likely than newer ones to contain or be made from such materials. Some of these properties include aboveground or underground storage tanks and associated piping. Some of them also include large electrical equipment filled with mineral oil, which may contain or previously have contained polychlorinated biphenyls (commonly known as PCBs). Our facilities and equipment are often situated close to or on property owned by others so that, if they are the source of contamination, the property of others may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that we do not own, and, at some of our transmission stations, transmission assets (owned or operated by us) and distribution assets (owned or operated by our transmission customers) are commingled.

Some properties in which we have an ownership interest or at which we operate are, and others are suspected of being, affected by environmental contamination. We are not aware of any claims pending or threatened against us with respect to environmental contamination, or of any investigation or remediation of contamination at any 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, if such a relationship is established or accepted, the liabilities and costs imposed on our business could be significant. We are not aware of any claims pending or threatened 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.

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Filings Under the Securities Exchange Act of 1934

Our internet address is www.itc-holdings.com. You can access free of charge on our web site all of our reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports. These reports are available as soon as practicable after they are electronically filed with the SEC. Also on our web site are our:

•  Corporate Governance Guidelines;

•  Code of Business Conduct and Ethics; and

•  Committee Charters for the Audit and Finance Committee, Compensation Committee and Nominating/Corporate Governance Committee.

Our Code of Business Conduct and Ethics applies to all directors, officers and employees, including our Chairman, President, Chief Executive Officer and Treasurer and our Senior Vice President — Finance and Chief Financial Officer. We will post any amendments to the Code of Business Conduct and Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE, on our web site within the required periods. The information on our web site is not incorporated by reference into this report.

We will also provide this information in print to any shareholder who requests it.

To learn more about us, please visit our web site at www.itc-holdings.com. We use our website as a channel of distribution of material company information. Financial and other material information regarding us is routinely posted on our web site and is readily accessible.

You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC, 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address is http://www.sec.gov.

ITEM 1A.  RISK FACTORS.

Risks Related to Our Business

Certain elements of our Regulated Operating Subsidiaries’ cost recovery through rates can be challenged, which could result in lowered rates and/or refunds of amounts previously collected and thus have an adverse effect on our business, financial condition, results of operations and cash flows. We have also made certain commitments to federal and state regulators with respect to, among other things, our rates in connection with recent acquisitions (including ITC Midwest’s asset acquisition) that could have an adverse effect on our business, financial condition, results of operations and cash flows.

Our Regulated Operating Subsidiaries provide transmission service under rates regulated by the FERC. The FERC has approved our Regulated Operating Subsidiaries’ use of the rate setting formula under Attachment O, but it has not expressly approved the amount of actual capital and operating expenditures to be used in that formula. In addition, all aspects of our Regulated Operating Subsidiaries’ rates approved by the FERC, including the Attachment O rate mechanism, ITCTransmission’s, METC’s and ITC Midwest’s respective allowed 13.88%, 13.38% and 12.38% rates of return on the actual equity portion of their respective capital structures, and the data inputs provided by our Regulated Operating Subsidiaries for calculation of each year’s rate, are subject to challenge by interested parties at the FERC in a proceeding under Section 206 of the FPA. If a challenger can establish that any of these aspects are unjust, unreasonable, unduly discriminatory or preferential, then the FERC will make appropriate prospective adjustments to them and/or disallow any of our Regulated Operating Subsidiaries’ inclusion of

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those aspects in the rate setting formula. This could result in lowered rates and/or refunds of amounts collected after the date that a Section 206 challenge is filed.

On November 18, 2008, IP&L filed a complaint against ITC Midwest before the FERC under Section 206 of the Federal Power Act. The complaint alleges that: (1) the operations and maintenance expenses and administrative and general expenses projected in the 2009 ITC Midwest rate appear excessive; (2) the true-up amount related to ITC Midwest’s posted network rate for the period through December 31, 2008 will cause ITC Midwest to charge an excessive rate in future years; and (3) the methodology of allocating administrative and general expenses among ITC Holdings’ operating companies was changed, resulting in such additional expenses being allocated to ITC Midwest. The complaint states that it does not challenge ITC Midwest’s Attachment O formula or its planned capital investments. ITC Midwest’s network rate is based on its forward-looking Attachment O rate formula, as approved by FERC, which incorporates ITC Midwest’s projected net revenue requirement and load. Among other things, IP&L’s complaint seeks investigative action by the FERC relating to ITC Midwest’s transmission service charges reflected in its 2009 rate, as well as hearings regarding the justness and reasonableness of the 2009 rate (with the ultimate goal of reducing such rate). The resolution of this proceeding and its ultimate impact on ITC Midwest’s network rate and transmission revenues cannot be determined at this time. Various other parties, including Detroit Edison and Consumers Energy have filed with the FERC as interveners in the matter, such that the outcome of the case could also have an impact on the rates of ITCTransmission and METC. If the FERC issues a decision in this matter which inhibits our ability to recover costs and expenses through our rates or is otherwise adverse to our interests, then our results of operations, financial condition and liquidity may be materially and adversely affected.

The FERC’s order approving our acquisition of METC was conditioned upon ITCTransmission and METC not recovering “merger-related costs” in their rates, as described in the order, unless a separate informational filing is submitted to the FERC. The informational filing, which could be challenged by interested parties, would need to identify those costs and show that such costs are outweighed by the benefits of the acquisition. Determinations by ITCTransmission or METC that expenses included in Attachment O for recovery are not acquisition related costs are also subject to challenge by interested parties at the FERC. If challenged at the FERC and ITCTransmission or METC fail to show that costs included for recovery are not merger-related, this also could result in lowered rates and/or refunds of amounts collected.

Under the FERC’s order approving ITC Midwest’s asset acquisition, ITC Midwest has agreed to a hold harmless commitment in which no acquisition premium will be recovered in rates, nor will ITC Midwest recover through transmission rates any transaction-related costs that exceed demonstrated transaction-related savings for a period of five years. If during the five year period ITC Midwest seeks to recover transaction-related costs through Attachment O, ITC Midwest must make an informational filing at the FERC that identifies the transaction-related costs sought to be recovered and demonstrates that those costs are exceeded by transaction-related savings. If challenged at the FERC and ITC Midwest fails to show that transaction-related costs included for recovery do not exceed transaction-related savings, ITC Midwest could be subject to lowered rates and/or refunds of amounts previously collected. Additionally, in Iowa and Minnesota, as part of the regulatory approval process, ITC Midwest committed not to recover the first $15.0 million in transaction-related costs under any circumstances.

In the Minnesota regulatory proceeding, ITC Midwest also agreed to build two construction projects intended to improve the reliability and efficiency of our electric transmission system. ITC Midwest agreed to use commercially reasonable efforts to complete these projects prior to December 2009 and 2011, respectively. In the event ITC Midwest fails to meet these commitments, the allowed 12.38% rate of return on the actual equity portion of ITC Midwest’s capital structure will be reduced to 10.39% under Attachment O until such time as it completes these projects. Any of the events described above could have an adverse effect on our business, financial condition, results of operations and cash flows.

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Approval of ITC Midwest’s asset acquisition by state regulatory authorities in Iowa may be subject to further challenge. If such proceedings are decided in a manner that is unfavorable to us, all or part of the orders approving ITC Midwest’s asset acquisition in Iowa could be reversed, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In September 2007, the IUB issued an order declining to disapprove ITC Midwest’s asset acquisition and terminating the review docket, and ITC Midwest’s asset acquisition was accordingly deemed to be approved by operation of law upon the subsequent expiration in September 2007 of the prescribed statutory period. The IUB order recognized that regulatory approvals in other jurisdictions were required, and stated that material changes in ITC Midwest’s asset acquisition imposed by such approvals could require the submission of a new proposal for IUB review if such changes materially altered the basis for the IUB order. On October 19, 2007, the Iowa Office of Consumer Advocate (the “IOCA”) filed in the Iowa District Court for Polk County a petition for judicial review asking the court to reverse, vacate, and remand to the IUB the IUB’s decision declining to disapprove ITC Midwest’s asset acquisition. A final hearing on the IOCA’s petition for judicial review occurred on August 8, 2008. On September 25, 2008, the IOCA filed an application with the District Court for leave to present additional evidence. On October 3, 2008, the District Court issued a ruling that affirmed the IUB’s decision in all respects and rejected the IOCA’s claimed relief, but failed to address or acknowledge the IOCA’s motion for leave to present additional evidence. Subsequently, on December 11, 2008 the District Court denied the IOCA’s application for leave to present additional evidence and reaffirmed its prior ruling affirming the IUB’s decision and rejecting the IOCA’s claimed relief. On February 13, 2009, the IOCA filed a notice of appeal with the Iowa Supreme Court. If the IOCA’s appeal is ultimately decided in a manner that is unfavorable to us, all or part of the orders approving ITC Midwest’s asset acquisition in Iowa could be reversed, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our Regulated Operating Subsidiaries’ actual capital expenditures may be lower than planned, which would decrease expected rate base and therefore our revenues. In addition, we expect to pursue strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot assure you that we will be able to initiate or complete any of these investments.

Each of our Regulated Operating Subsidiaries’ rate base, revenues and earnings are determined in part by additions to property, plant and equipment when placed in service. We expect ITCTransmission, METC and ITC Midwest to invest approximately $700 million, $1,150 million and $1,050 million, respectively, in their respective systems over the period beginning January 1, 2008 through December 31, 2017. The expected amounts of capital investment over the period beginning January 1, 2008 through December 31, 2017 do not include a total of $150 million for ITCTransmission and METC combined and $250 million at ITC Midwest for estimated transmission network upgrades for generator interconnections due to a high degree of uncertainty on whether these projects will ultimately be built and because they could replace other transmission projects currently being planned. This estimate for transmission network upgrades for generator interconnections could change significantly due to factors beyond our control, such as changes in the MISO queue for generation projects and whether the generator meets the various criteria of Attachment FF of the MISO Transmission and Energy Market Tariff for the project to qualify as a refundable network upgrade, among other factors. For the year ended December 31, 2009, we expect ITCTransmission, METC and ITC Midwest to invest approximately $70 million to $85 million, $110 million to $130 million and $90 million to $110 million, respectively, in their respective systems, which includes estimated capital investments for transmission network upgrades. Additionally, we also expect to spend approximately $30 million at ITC Midwest to purchase and complete construction on a substation and to purchase a transmission line. Our expected capital investments at our Regulated Operating Subsidiaries for the year ended December 31, 2009 could change significantly due to the uncertainty around capital investments for transmission network upgrades for generator interconnections as described above. If our Regulated Operating Subsidiaries’ capital expenditures and the resulting in-service property, plant and equipment are lower than anticipated for any reason, our Regulated Operating Subsidiaries will have a

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lower than anticipated rate base thus causing their revenue requirements and future earnings to be potentially lower than anticipated.

In addition, we are pursuing broader strategic development investment opportunities for transmission construction related to building super-regional 765 kV transmission facilities, interconnections for wind generation and other renewable resources, and investment opportunities. The incumbent utilities or other entities with transmission development initiatives may compete with us by deciding to pursue capital projects that we are pursuing. These estimates of potential investment opportunities are based primarily on foreseeable transmission needs and general transmission construction costs, not necessarily on particular project cost estimates.

Any capital investment at our Regulated Operating Subsidiaries or as a result of our broader strategic development initiatives may be lower than expected due to, among other factors, the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment prices and availability, our ability to obtain financing for such expenditures, if necessary, limitations on the amount of construction that can be undertaken on our system or transmission systems owned by others at any one time or regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery and other issues or as a result of legal proceedings and variances between estimated and actual costs of construction contracts awarded. Our ability to engage in construction projects resulting from pursuing these initiatives is subject to significant uncertainties, including the factors discussed above, and will depend on obtaining any necessary regulatory and other approvals for the project and for us to initiate construction, our achieving status as the builder of the project in some circumstances and other factors. Therefore, we can provide no assurance as to the actual level of investment we may achieve at our Regulated Operating Subsidiaries or as a result of the broader strategic development initiatives.

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.

Each of our Regulated Operating Subsidiaries is a “public utility” under the FPA and, accordingly, is subject to regulation by the FERC. Approval of the FERC is required under Section 203 of the FPA for a disposition or acquisition of regulated public utility facilities, either directly or indirectly through a holding company. Such approval may also be required to acquire securities in a public utility. Section 203 of the FPA also provides the FERC with explicit authority over utility holding companies’ purchases or acquisitions of, and mergers or consolidations with, a public utility. Finally, each of our Regulated Operating Subsidiaries must also seek approval by the FERC under Section 204 of the FPA for issuances of its securities (including debt securities).

We are also pursuing strategic development opportunities for construction of transmission facilities and interconnections with wind generation and other renewable resources. These projects require regulatory approval by the FERC, applicable RTOs and state regulatory agencies. Failure to secure such regulatory approval for new strategic development projects could adversely affect our ability to grow our business and increase our revenues.

In addition, we are subject to state and/or local regulations relating to, among other things, facility siting. If we fail to comply with these local regulations, we may incur liabilities for such failure.

Changes in federal energy laws, regulations or policies could impact cash flows and could reduce the dividends we may be able to pay our stockholders.

Attachment O, the rate formula mechanism used by our Regulated Operating Subsidiaries to calculate their respective annual revenue requirements, will be used by our Regulated Operating Subsidiaries for that purpose until and unless the FERC determines that such rate formula is unjust and unreasonable or that another mechanism is more appropriate. Such determinations could result from challenges initiated at the FERC by interested parties, by the FERC on its own initiative in a proceeding

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under Section 206 of the FPA or by a successful application initiated by any of our Regulated Operating Subsidiaries under Section 205 of the FPA. End-use consumers and entities supplying electricity to end-use consumers may attempt to influence government and/or regulators to change the rate setting methodologies that apply to our Regulated Operating Subsidiaries, particularly if rates for delivered electricity increase substantially.

Each of our Regulated Operating Subsidiaries is regulated by the FERC as a “public utility” under the FPA and is a transmission owner in MISO. We cannot predict whether the approved rate methodologies for any of our Regulated Operating Subsidiaries will be changed. In addition, the U.S. Congress periodically considers enacting energy legislation that could shift new responsibilities to the FERC, modify provisions of the FPA or provide the FERC or another entity with increased authority to regulate transmission matters. We cannot predict whether, and to what extent, our Regulated Operating Subsidiaries may be affected by any such changes in federal energy laws, regulations or policies in the future.

If the network load or point-to-point transmission service on our Regulated Operating Subsidiaries’ transmission systems is lower than expected, the timing of collection of our revenues would be delayed.

If the network load or point-to-point transmission service on our Regulated Operating Subsidiaries’ transmission systems is lower than expected due to weather, a weak economy, changes in the nature or composition of the transmission grids of our Regulated Operating Subsidiaries and surrounding areas, poor transmission quality of neighboring transmission systems, or for any other reason, the timing of the collection of our revenue requirement would likely be delayed until such circumstances are adjusted through the true-up mechanism in our Regulated Operating Subsidiaries’ formula rate mechanism.

Each of our Regulated Operating Subsidiaries depends on its primary customer for a substantial portion of its revenues, and any material failure by those primary customers to make payments for transmission services would adversely affect our revenues and our ability to service our debt obligations and affect our ability to pay dividends.

ITCTransmission derives a substantial portion of its revenues from the transmission of electricity to Detroit Edison’s local distribution facilities. Detroit Edison accounted for 87.3% of ITCTransmission’s total operating revenues for the year ended December 31, 2008 and is expected to constitute the majority of ITCTransmission’s revenues for the foreseeable future. Detroit Edison is rated BBB/stable and A3/stable by Standard & Poor’s Ratings Services and Moody’s Investors Services, Inc., respectively. Similarly, Consumers Energy accounted for 82.8% of METC’s total operating revenues for the year ended December 31, 2008, and is expected to constitute the majority of METC’s revenues for the foreseeable future. Consumers Energy is rated BBB-/stable and Baa1/stable by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., respectively. Further, IP&L accounted for 85.5% of ITC Midwest’s total operating revenues for the year ended December 31, 2008 and is expected to constitute the majority of ITC Midwest’s revenues for the foreseeable future. IP&L is rated BBB+/stable and A3/stable by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., respectively. These percentages of total operating revenues of Detroit Edison, Consumers Energy and IP&L include an estimate for the 2008 Attachment O revenue accruals that were included in our 2008 operating revenues, but will not be billed to our customers until 2010. We have assumed that the Attachment O revenues billed to these customers in 2010 would be in the same proportion of the respective percentages of network revenues billed to them in 2008.

Any material failure by Detroit Edison, Consumers Energy or IP&L to make payments for transmission services would adversely affect our financial condition and results of operations and our ability to service our debt obligations, and could impact the amount of dividends we pay our stockholders.

METC does not own the majority of the land on which its transmission assets are located. Additionally, a significant amount of the land on which ITCTransmission’s and ITC Midwest’s

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assets are located is subject to easements, mineral rights and other similar encumbrances and a significant amount of ITCTransmission’s and ITC Midwest’s other property consists of easements. As a result, our Regulated Operating Subsidiaries must comply with the provisions of various easements, mineral rights and other similar encumbrances, which may adversely impact their ability to complete construction projects in a timely manner.

METC does not own the majority of the land on which its electric transmission assets are located. Instead, under the provisions of an Easement Agreement with Consumers Energy, METC pays annual rent of $10.0 million to Consumers Energy in exchange for rights-of-way, leases, fee interests and licenses which allow METC to use the land on which its transmission lines are located. Under the terms of the Easement Agreement, METC’s easement rights could be eliminated if METC fails to meet certain requirements, such as paying contractual rent to Consumers Energy in a timely manner. Additionally, a significant amount of the land on which ITCTransmission’s and ITC Midwest’s assets are located is subject to easements, mineral rights and other similar encumbrances and a significant amount of ITCTransmission’s and ITC Midwest’s other property consists of easements. As a result, they must comply with the provisions of various easements, mineral rights and other similar encumbrances, which may adversely impact their ability to complete their construction projects in a timely manner.

If ITC Midwest’s operating agreement with IP&L is terminated early, ITC Midwest may face a shortage of labor or replacement contractors to provide the services formerly provided by IP&L.

ITC Midwest has an operating service agreement with IP&L, the TSA, which governs the operation of ITC Midwest’s 34.5 kV transmission system. In addition to the system operations services related to the 34.5 kV transmission system, IP&L provides a limited number of corporate administration, construction and maintenance services to ITC Midwest. The initial term of the TSA expired, and ITC Midwest exercised the first of its four options to extend the agreement an additional six months. The first extension will terminate June 30, 2009; however, ITC Midwest has given notice to IP&L that it will require the system operations services related to the 34.5 kV transmission system and its associated detailed billing service to be extended through December 31, 2009. In May 2009, ITC Midwest plans to issue an official notice to confirm the six month extension of those services and any others that need to be extended. The agreement can also be terminated by mutual agreement of the parties. While this agreement is in place, ITC Midwest will continue to hire and train its own employees and continue to contract with other non-utility owning vendors to provide these services with the eventual goal of replacing IP&L entirely. If the FERC were to terminate this agreement prematurely, or prohibit its renewal, or if this agreement is terminated or fails to be renewed for any other reason at any time when ITC Midwest is unprepared for such termination, ITC Midwest may face difficulty finding a qualified replacement work force to provide such services, which could have a material adverse effect on its ability to carry on its business and on its results of operations.

Hazards associated with high-voltage electricity transmission may result in suspension of our Regulated Operating Subsidiaries’ operations or the imposition of civil or criminal penalties.

The operations of our Regulated Operating Subsidiaries are subject to the usual hazards associated with high-voltage electricity transmission, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, equipment interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks. The hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. We maintain property and casualty insurance, but we are not fully insured against all potential hazards incident to our business, such as damage to poles, towers and lines or losses caused by outages.

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Our Regulated Operating Subsidiaries are subject to environmental regulations and to laws that can give rise to substantial liabilities from environmental contamination.

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

Our Regulated Operating Subsidiaries have incurred expenses in connection with environmental compliance, and we anticipate that each will continue to do so in the future. Failure to comply with the extensive environmental laws and regulations applicable to each could result in significant civil or criminal penalties and remediation costs. Our Regulated Operating Subsidiaries’ assets and operations also involve the use of materials classified as hazardous, toxic, or otherwise dangerous. Some of our Regulated Operating Subsidiaries’ facilities and properties are located near environmentally sensitive areas such as wetlands and habitats of endangered or threatened species. In addition, certain properties in which our Regulated Operating Subsidiaries operate are suspected of being, affected by environmental contamination. Compliance with these laws and regulations, and liabilities concerning contamination or hazardous materials, may adversely affect our costs and, therefore, our business, financial condition and results of operations.

In addition, 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. We cannot assure you that such claims will not be asserted against us or that, if determined in a manner adverse to our interests, would not have a material adverse effect on our business, financial condition and results of operations.

Our Regulated Operating Subsidiaries are subject to various regulatory requirements. Violations of these requirements, whether intentional or unintentional, may result in penalties that, under some circumstances, could have a material adverse effect on our results of operations, financial condition and cash flows.

Our Regulated Operating Subsidiaries are required to comply with various regulations, including reliability standards established by the NERC, which acts as the nation’s Electric Reliability Organization approved by the FERC in accordance with Section 215 of the FPA. These standards address operation, planning and security of the bulk power system, including requirements in respect of real-time transmission operations, emergency operations, vegetation management, critical infrastructure protection and personnel training. Failure to comply with these requirements can result in monetary penalties as well as non-monetary sanctions. Monetary penalties vary based on an assigned risk factor for each potential violation, the severity of the violation and various other circumstances, such as whether the violation was intentional or concealed, whether there are repeated violations, the degree of the violator’s cooperation in investigating and remediating the violation and the presence of a compliance program. Penalty amounts range from $1,000 to a maximum of $1.0 million per day, depending on the severity of the violation. Non-monetary sanctions include potential limitations on the violator’s activities or operation and placing the violator on a watchlist for major violators. Despite our best efforts to comply and the implementation of a compliance program intended to ensure reliability, there can be no assurance that violations will not occur that would result in material penalties or sanctions. If any of our operating subsidiaries were to violate the NERC

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reliability standards, even unintentionally, in any material way, any penalties or sanctions imposed against us could have a material adverse effect on our results of operations, financial condition and cash flows.

Acts of war, terrorist attacks and threats or the escalation of military activity in response to such attacks or otherwise may negatively affect our business, financial condition and results of operations.

Acts of war, terrorist attacks and threats or the escalation of military activity in response to such attacks or otherwise may negatively affect our business, financial condition and results of operations in unpredictable ways, such as increased security measures and disruptions of markets. Strategic targets, such as energy related assets, including, for example, our Regulated Operating Subsidiaries’ transmission facilities and Detroit Edison’s, Consumers Energy’s and IP&L’s generation and distribution facilities, may be at risk of future terrorist attacks. In addition to the increased costs associated with heightened security requirements, such events may have an adverse effect on the economy in general. A lower level of economic activity could result in a decline in energy consumption, which may adversely affect our business, financial condition and results of operations.

Risks Related to Our Structure and Financial Leverage

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

As a holding company with no business operations, ITC Holdings’ assets consist primarily of the stock and membership interests in our Regulated Operating Subsidiaries and any other subsidiaries ITC Holdings may have, deferred tax assets relating primarily to federal income tax NOLs and cash on hand. Our only sources of cash to pay dividends to our stockholders are dividends and other payments received by us from time to time from our Regulated Operating Subsidiaries and any other subsidiaries we may have and the proceeds raised from the sale of our debt and equity securities. Each of our Regulated Operating Subsidiaries, however, is legally distinct from us and has no obligation, contingent or otherwise, to make funds available to us for the payment of dividends to ITC Holdings’ stockholders or otherwise. The ability of each of our Regulated Operating Subsidiaries and any other subsidiaries we may have to pay dividends and make other payments to us is subject to, among other things, the availability of funds, after taking into account capital expenditure requirements, the terms of its indebtedness, applicable state laws and regulations of the FERC and the FPA. While we currently intend to continue to pay quarterly dividends on our common stock, we have no obligation to do so. The payment of dividends is within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, anticipated cash needs and other factors that our board deems relevant.

We are highly leveraged and our dependence on debt may limit our ability to fulfill our debt obligations and/or to obtain additional financing.

We are highly leveraged. As of December 31, 2008, we had approximately $2.2 billion of consolidated indebtedness, consisting of various outstanding debt securities and borrowings under various credit facilities. In addition, we had a total of $340.0 million in revolving credit agreement commitments at December 31, 2008. This capital structure can have several important consequences, including, but not limited to, the following:

•  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.

•  If future cash flows are insufficient, we may need to incur further indebtedness in order to make the capital expenditures and other expenses or investments planned by us.

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•  Our indebtedness will have the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition and, therefore, may pose substantial risk to our shareholders. A substantial portion of the dividends and payments in lieu of taxes we receive from our Regulated Operating Subsidiaries will be dedicated to the payment of interest on our indebtedness, thereby reducing the funds available for the payment of dividends on our common stock.

•  In the event that we are liquidated, our senior or subordinated creditors and the senior or subordinated creditors of our subsidiaries will be entitled to payment in full prior to any distributions to the holders of shares of our common stock.

•  Our revolving credit facilities mature in March 2012 for ITC Holdings, ITCTransmission and METC and in January 2013 for ITC Midwest. Our ability to secure additional financing prior to or after that time, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments.

•  Lehman Brothers Bank, FSB (“Lehman”), a member of our revolving credit agreement syndication, was included in a bankruptcy filing made by its parent, Lehman Brothers Holdings Inc., on September 14, 2008. We are attempting to identify a replacement bank to fulfill Lehman’s commitment but given the favorable terms of our existing agreement compared to current market conditions, it is unlikely that will be able to find a replacement bank. If we are unable to identify a replacement bank to fulfill Lehman’s commitment, our capacity to borrow under our the currently outstanding revolving credit facilities would continue to be reduced.

•  Current market conditions could affect our access to capital markets, restrict our ability to secure financing to make the capital expenditures and other expenses or investments planned by us and could adversely affect our business, financial condition, cash flows and results of operations.

We may incur substantial indebtedness in the future. The incurrence of additional indebtedness would increase the leverage-related risks described here.

Certain provisions in our debt instruments limit our financial flexibility.

Our debt instruments include senior notes, secured notes, first mortgage bonds and revolving credit agreements containing numerous financial and operating covenants that place significant restrictions on, among other things, our ability to:

•  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 and ITCTransmission’s capital stock and METC’s and ITC Midwest’s member capital.

The revolving credit agreements, METC’s senior secured notes and ITC Holdings’ senior notes require us to meet certain financial ratios. Our ability to comply with these and other requirements and restrictions may be affected by changes in economic or business conditions, results of operations or other events beyond our control. A failure to comply with the obligations contained in any of our debt instruments could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions.

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Adverse changes in our credit ratings may negatively affect us.

Our ability to access capital markets is important to our ability to operate our business. Increased scrutiny of the energy industry and the impact of regulation, as well as changes in our financial performance and the prevailing unfavorable conditions in the capital markets could result in credit agencies reexamining our credit ratings. A downgrade in our credit ratings could restrict or discontinue our ability to access capital markets at attractive rates and increase our borrowing costs. A rating downgrade could also increase the interest we pay under our revolving credit agreements.

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

As of December 31, 2008, we had estimated federal income tax NOLs of $253.4 million, resulting in part from accelerated depreciation methods for property, plant and equipment for income tax reporting purposes. These federal income tax NOLs may be used to offset future taxable income and thereby reduce our U.S. federal income taxes otherwise payable. Section 382 of the Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its federal income tax NOLs to reduce its tax liability. As a result of the ownership change in October 2006, we are not able to use our pre-ownership change federal income tax NOLs in excess of the limitation imposed by Section 382 for each annual period. Included in the total federal income tax NOLs above are approximately $38.5 million of federal income tax NOLs included in our 2006 consolidated tax return for the entities acquired in the METC acquisition. We will be subject to annual limitations on the use of such federal income tax NOLs as a result of the acquisition of all of the indirect ownership interests in METC by us, as well as limitations resulting from prior transactions by the acquired entities. We have not recorded a valuation allowance relating to our federal income tax NOLs. In the event it becomes more likely than not that any portion of the federal income tax NOLs will expire unused, we would be required to recognize an expense to establish a valuation allowance in the period in which the determination is made. If the expense is significant, it could have a material adverse effect on our results of operations.

Provisions in our Articles of Incorporation and bylaws, Michigan corporate law and our debt agreements may impede efforts by our shareholders to change the direction or management of our company.

Our Articles of Incorporation and bylaws contain provisions that might enable our management to resist a proposed takeover. These provisions could discourage, delay or prevent a change of control or an acquisition at a price that our shareholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for our shareholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions include:

•  a requirement that special meetings of our shareholders may be called only by our board of directors, the chairman of our board of directors, our president or the holders of a majority of the shares of our outstanding common stock;

•  advance notice requirements for shareholder proposals and nominations; and

•  the authority of our board to issue, without shareholder approval, common or preferred stock, including in connection with our implementation of any shareholders rights plan, or “poison pill.”

In addition, our revolving credit agreements provide that a change in a majority of ITC Holdings’ board of directors that is not approved by the current ITC Holdings directors or acquiring beneficial ownership of 35% or more of ITC Holdings outstanding common shares will constitute a default under those agreements.

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Provisions in our Articles of Incorporation restrict market participants from voting or owning 5% or more of the outstanding shares of our capital stock.

Certain of our Regulated Operating Subsidiaries have been granted favorable rate treatment by the FERC based on their independence from market participants. The FERC defines a “market participant” to include any person or entity that, either directly or through an affiliate, sells or brokers electricity, or provides ancillary services to MISO. An affiliate, for these purposes, includes any person or entity that directly or indirectly owns, controls or holds with the power to vote 5% or more of the outstanding voting securities of a market participant. To help ensure that we and our subsidiaries will remain independent of market participants, our Articles of Incorporation impose certain restrictions on the ownership and voting of shares of our capital stock by market participants. In particular, the Articles of Incorporation provide that we are restricted from issuing any shares of capital stock or recording any transfer of shares if the issuance or transfer would cause any market participant, either individually or together with members of its “group” (as defined in SEC beneficial ownership rules), to beneficially own 5% or more of any class or series of our capital stock. Additionally, if a market participant, together with its group members, acquires beneficial ownership of 5% or more of any series of the outstanding shares of our capital stock, such market participant or any shareholder who is a member of a group including a market participant will not be able to vote or direct or control the votes of shares representing 5% or more of any series of our outstanding capital stock. Finally, to the extent a market participant, together with its group members, acquires beneficial ownership of 5% or more of the outstanding shares of any series of our capital stock, our Articles of Incorporation allow our board of directors to redeem any shares of our capital stock so that, after giving effect to the redemption, the market participant, together with its group members, will cease to beneficially own 5% or more of that series of our outstanding capital stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

Our Regulated Operating Subsidiaries’ transmission facilities are located in the lower peninsula of Michigan and portions of Iowa, Minnesota, Illinois and Missouri, and have agreements with other utilities for the joint ownership of specific substations and transmission lines. See Note 14 to the consolidated financial statements.

ITCTransmission owns the assets of a transmission system and related assets, including:

•  approximately 2,800 circuit miles of overhead and underground transmission lines rated at voltages of 120 kV to 345 kV;

•  approximately 18,200 transmission towers and poles;

•  station assets, such as transformers and circuit breakers, at 163 stations and substations which either interconnect our transmission facilities or connect ITCTransmission’s facilities with generation or distribution facilities owned by others;

•  other transmission equipment necessary to safely operate the system (e.g., switching stations, breakers and metering equipment);

•  associated land held in fee, rights of way and easements;

•  an approximately 188,000 square-foot corporate headquarters facility and operations control room, including furniture, fixtures and office equipment; and

•  an approximately 40,000 square-foot facility in Ann Arbor, Michigan that includes a back-up operations control room.

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ITCTransmission’s First Mortgage Bonds are issued under ITCTransmission’s First Mortgage and Deed of Trust. As a result, the bondholders have the benefit of a first mortgage lien on substantially all of ITCTransmission’s property.

METC owns the assets of a transmission system and related assets, including:

•  approximately 5,500 circuit miles of overhead transmission lines rated at voltages of 138 kV to 345 kV;

•  approximately 36,200 transmission towers and poles;

•  station assets, such as transformers and circuit breakers, at 93 stations and substations which either interconnect our transmission facilities or connect METC’s facilities with generation or distribution facilities owned by others; and

•  other transmission equipment necessary to safely operate the system (e.g., switching stations, breakers and metering equipment).

Amounts borrowed under METC’s revolving credit agreement are secured by a first priority security interest on all of METC’s assets through the issuance of senior secured bonds, collateral series, under METC’s first mortgage indenture and the second supplemental indenture thereto.

METC does not own the majority of the land on which its assets are located, but under the provisions of its Easement Agreement with Consumers Energy, METC has an easement to use the land, rights-of-way, leases and licenses in the land on which its transmission lines are located that are held or controlled by Consumers Energy. See “Item 1 Business — Operating Contracts — METC — Amended and Restated Easement Agreement.”

ITC Midwest owns the assets of a transmission system and related assets, including:

•  approximately 6,800 miles of transmission lines rated at voltages of 34.5kV to 345kV;

•  transmission towers and poles;

•  station assets, such as transformers and circuit breakers, at approximately 254 stations and substations which either interconnect ITC Midwest’s transmission facilities or connect ITC Midwest’s facilities with generation or distribution facilities owned by others;

•  other transmission equipment necessary to safely operate the system (e.g., switching stations, breakers and metering equipment); and

•  associated land held in fee, rights of way and easements.

ITC Midwest’s First Mortgage Bonds were initially issued in January 2008 under ITC Midwest’s First Mortgage and Deed of Trust. As a result, the bondholders have the benefit of a first mortgage lien on substantially all of ITC Midwest’s property.

The assets of our Regulated Operating Subsidiaries are suitable for electric transmission and adequate for the electricity demand in our service territory. We prioritize capital spending based in part on meeting reliability standards within the industry. This includes replacing and upgrading existing assets as needed.

ITEM 3.   LEGAL PROCEEDINGS.

We are involved in certain legal proceedings from time to time before various courts, governmental agencies, and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, regulatory matters, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or financial statements in the period they are resolved.

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On November 18, 2008, IP&L filed a complaint against ITC Midwest before the FERC under Section 206 of the Federal Power Act. The complaint alleges that: (1) the operations and maintenance expenses and administrative and general expenses projected in the 2009 ITC Midwest rate appear excessive; (2) the true-up amount related to ITC Midwest’s posted network rate for the period through December 31, 2008 will cause ITC Midwest to charge an excessive rate in future years; and (3) the methodology of allocating administrative and general expenses among ITC Holdings’ operating companies was changed, resulting in such additional expenses being allocated to ITC Midwest. The complaint states that it does not challenge ITC Midwest’s Attachment O formula or its planned capital investments. ITC Midwest’s network rate is based on its forward-looking Attachment O rate formula, as approved by FERC, which incorporates ITC Midwest’s projected net revenue requirement and load. Among other things, IP&L’s complaint seeks investigative action by the FERC relating to ITC Midwest’s transmission service charges reflected in its 2009 rate, as well as hearings regarding the justness and reasonableness of the 2009 rate (with the ultimate goal of reducing such rate). The resolution of this proceeding and its ultimate impact on ITC Midwest’s network rate and transmission revenues cannot be determined at this time. We believe that ITC Midwest’s 2009 rate is just and reasonable, that IP&L has not proffered sufficient arguments or reasons for the complaint to be sustained, and that ITC Midwest’s 2009 rate appropriately reflects the commitment of ITC Midwest to improve the performance and reliability of its transmission system. Accordingly, ITC Holdings and ITC Midwest believe that IP&L’s action is without merit and currently intend to contest it vigorously. However, various other parties, including Detroit Edison and Consumers Energy have filed with the FERC as interveners in the matter, such that the outcome of the case could also have an impact on the rates of ITCTransmission and METC. If the FERC issues a decision in this matter which inhibits our ability to recover costs and expenses through our rates or is otherwise adverse to our interests, then our results of operations, financial condition and liquidity may be materially and adversely affected.

Refer to Notes 5 and 15 to the consolidated financial statements for a description of other pending litigation.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Stock Price and Dividends

Our common stock has traded on the NYSE since July 26, 2005 under the symbol “ITC”. Prior to that time, there was no public market for our stock. As of February 20, 2009, there were approximately 496 shareholders of record of our common stock.

The following tables set forth the high and low sales price per share of the common stock for each full quarterly period in 2008 and 2007, as reported on the NYSE and the cash dividends per share paid during the periods indicated.

Year Ended December 31, 2008	High		Low		Dividends
Quarter ended December 31, 2008	$	56.00	$	32.35	$	0.305
Quarter ended September 30, 2008	$	59.99	$	49.35	$	0.305
Quarter ended June 30, 2008	$	57.13	$	50.42	$	0.290
Quarter ended March 31, 2008	$	58.14	$	49.16	$	0.290

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Year Ended December 31, 2007	High		Low		Dividends
Quarter ended December 31, 2007	$	58.58	$	46.24	$	0.290
Quarter ended September 30, 2007	$	51.39	$	40.40	$	0.290
Quarter ended June 30, 2007	$	46.42	$	39.38	$	0.275
Quarter ended March 31, 2007	$	45.12	$	37.90	$	0.275

The declaration and payment of dividends is subject to the discretion of ITC Holdings’ board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors. As a holding company with no business operations, ITC Holdings’ assets consist primarily of the common stock of ITCTransmission, ownership interests in METC and ITC Midwest, ownership interests of our other subsidiaries, deferred tax assets relating primarily to federal income tax NOLs and cash. ITC Holdings’ material cash inflows are only from dividends and other payments received from time to time from its subsidiaries and the proceeds raised from the sale of debt and equity securities. ITC Holdings may not be able to access cash generated by its subsidiaries in order to pay dividends to shareholders. The ability of ITC Holdings’ subsidiaries to make dividend and other payments to ITC Holdings is subject to the availability of funds after taking into account the subsidiaries’ funding requirements, the terms of the subsidiaries’ indebtedness, the regulations of the FERC under FPA, and applicable state laws. The debt agreements to which we are parties contain numerous financial covenants that could limit ITC Holdings’ ability to pay dividends, as well as covenants that prohibit ITC Holdings from paying dividends if we are in default under our revolving credit facilities. Further, our Regulated Operating Subsidiaries and each other subsidiary is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us.

If and when ITC Holdings pays a dividend on its common stock, pursuant to our special bonus plans for executives and certain non-executive employees, amounts equivalent to the dividend may be paid to the special bonus plan participants, if approved by the compensation committee. We currently expect these amounts to be paid upon the declaration of dividends on ITC Holdings’ common stock.

The board of directors intends to increase the dividend rate from time to time as necessary for the yield to remain competitive, subject to prevailing business conditions, applicable restrictions on dividend payments and the availability of capital resources.

The transfer agent for the common stock is Computershare Trust Company, N.A., P.O. Box 43078 Providence, RI 02940-3078.

In addition, the information contained in the Equity Compensation table under “Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this report is incorporated herein by reference.

Stock Repurchases

There were no stock repurchases for the quarter ended December 31, 2008.

ITEM 6.   SELECTED FINANCIAL DATA.

The following table sets forth our selected historical financial data for the periods indicated. On July 19, 2005, ITC Holdings affected an approximately 3.34-for-one stock split. All amounts and values of common shares and options and per share data in the accompanying financial information have been retroactively adjusted to give effect to the stock split.

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The selected financial data presented below should be read together with our consolidated financial statements and the notes to those statements and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Form 10-K.

	ITC Holdings and Subsidiaries (a)
	Year Ended December 31,
(In thousands, except share and per share data)	2008			2007			2006			2005			2004
OPERATING REVENUES(b)	$	617,877		$	426,249		$	223,622		$	205,274		$	126,449
OPERATING EXPENSES
Operation and maintenance		113,818			81,406			35,441			48,310			24,552
General and administrative		81,296			62,089			40,632			25,198			24,412
Depreciation and amortization		94,769			67,928			40,156			33,197			29,480
Taxes other than income taxes		41,180			33,340			22,156			13,982			20,840
Termination of management agreements		—			—			—			6,725			—
Other operating income and expense — net		(809	)		(688	)		(842	)		—			—
Total operating expenses		330,254			244,075			137,543			127,412			99,284
OPERATING INCOME		287,623			182,174			86,079			77,862			27,165
OTHER EXPENSES (INCOME)
Interest expense		122,234			81,863			42,049			28,128			25,585
Allowance for equity funds used during construction		(11,610	)		(8,145	)		(3,977	)		(2,790	)		(1,691	)
Loss on extinguishment of debt		—			349			1,874			—			—
Other income		(3,415	)		(3,457	)		(2,348	)		(1,700	)		(1,289	)
Other expense		3,944			1,618			1,629			615			283
Total other expenses (income)		111,153			72,228			39,227			24,253			22,888
INCOME BEFORE INCOME TAXES		176,470			109,946			46,852			53,609			4,277
INCOME TAX PROVISION		67,262			36,650			13,658			18,938			1,669
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		109,208			73,296			33,194			34,671			2,608
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX OF $16)		—			—			29			—			—
NET INCOME	$	109,208		$	73,296		$	33,223		$	34,671		$	2,608
Basic earnings per share	$	2.25		$	1.73		$	0.95		$	1.10		$	0.09
Diluted earnings per share	$	2.19		$	1.68		$	0.92		$	1.06		$	0.08
Weighted-average basic shares		48,605,951			42,298,478			35,048,049			31,455,065			30,183,886
Weighted-average diluted shares		49,770,681			43,541,306			36,236,944			32,729,842			30,899,548
Dividends declared per share	$	1.190		$	1.130		$	1.075		$	0.525		$	—

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	ITC Holdings and Subsidiaries (a)
	As of December 31,
(In thousands)	2008		2007			2006		2005		2004
BALANCE SHEET DATA:
Cash and cash equivalents	$	58,110	$	2,616		$	13,426	$	24,591	$	14,074
Working capital (deficit)		1,095		(30,370	)		10,107		19,945		(27,117	)
Property, plant and equipment — net		2,304,386		1,960,433			1,197,862		603,609		513,684
Total assets		3,714,565		3,213,297			2,128,797		916,639		808,847
Long Term Debt:
ITC Holdings		1,327,741		1,687,193			775,963		266,104		273,485
Regulated Operating Subsidiaries		920,512		556,231			486,315		251,211		209,938
Total Long Term Debt		2,248,253		2,243,424			1,262,278		517,315		483,423
Total Stockholders’ Equity		929,063		563,075			532,244		263,301		196,602

	ITC Holdings and Subsidiaries (a)
	Year Ended December 31,
(In thousands)	2008		2007		2006		2005		2004
CASH FLOWS DATA:
Capital expenditures	$	401,840	$	287,170	$	167,496	$	118,586	$	76,779

(a)

METC’s results of operations, cash flows and balances are included for the periods presented subsequent to its acquisition on October 10, 2006. In addition, ITC Midwest’s results of operations, cash flows and balances are included for the periods presented subsequent to its asset acquisition of the electric transmission assets of IP&L on December 20, 2007.

(b)

The ITCTransmission rate freeze ended December 31, 2004 resulted in an increase in operating revenues for the years presented subsequent to December 31, 2004. Refer to discussion of the ITCTransmission rate freeze in Note 5 to the consolidated financial statements. Additionally, ITCTransmission’s and METC’s implementation of forward-looking Attachment O for rates beginning January 1, 2007 resulted in increases in operating revenues for the years presented subsequent to December 31, 2006. Refer to the discussion of forward-looking Attachment O in Note 5 to the consolidated financial statements.

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995

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

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

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

Overview

Through our Regulated Operating Subsidiaries, we are engaged in the transmission of electricity in the United States. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability and to reduce transmission constraints. By pursuing this strategy, we strive for high reliability of our systems and to improve accessibility to generation sources of choice, including renewable sources. We operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois and Missouri that transmit electricity from generating stations to local distribution facilities connected to our systems.

As electric transmission utilities with rates regulated by the FERC, our Regulated Operating Subsidiaries earn revenues through tariff rates charged for the use of their electric transmission systems by our customers, which include investor-owned utilities, municipalities, co-operatives, power marketers and alternative energy suppliers. As independent transmission companies, our Regulated Operating Subsidiaries are subject to rate regulation only by the FERC. The rates charged by our Regulated Operating Subsidiaries are established using Attachment O, as discussed in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Rate Setting and Attachment O.”

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

We derive nearly all of our revenues from providing network transmission service, point-to-point transmission service and other related services over our Regulated Operating Subsidiaries’ transmission systems to investor owned utilities such as Detroit Edison, Consumers Energy, IP&L and to other entities such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers and from transaction-based capacity reservations on our transmission systems. Substantially all of our operating expenses and assets support our transmission operations.

Significant recent events that influenced our financial position and results of operations and cash flows for the year ended December 31, 2008 or may affect future results include:

•  Capital investment of $399.4 million at our Regulated Operating Subsidiaries ($121.8 million, $121.1 million and $156.5 million at ITCTransmission, METC and ITC Midwest, respectively) for the year ended December 31, 2008, resulting primarily from our focus on improving system reliability;

•  ITC Midwest’s acquisition of the transmission assets of IP&L on December 20, 2007 and the related financing activities (described in Notes 4 and 8 to the consolidated financial statements);

•  Lower actual monthly peak loads as compared to what had been forecasted in developing the transmission network rates applicable for 2008 at ITCTransmission and METC, resulting in a reduction in operating cash flows of $22.8 million and $13.6 million, respectively, from what had been projected;

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•  Debt issuances and borrowings under our revolving credit agreements in 2008 and 2007 to fund capital investment at our Regulated Operating Subsidiaries, resulting in higher interest expense; and

•  ITC Great Plains and Green Power Express each filed an application with the FERC for the approval of rates that would apply to their potential investment in transmission projects in Kansas and elsewhere in the SPP region.

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

Recent Developments

Development Activities

On January 15, 2009, ITC Great Plains filed an application with the FERC for the approval of a forward-looking formula rate that would apply to ITC Great Plains’ transmission facilities in the SPP region, including Kansas. The approval of the application would provide ITC Great Plains with the regulatory certainty required to make significant transmission investments in the SPP region generally and Kansas in particular. The application seeks approval of a formula transmission rate for ITC Great Plains as an independent transmission company in SPP. The application also seeks incentives for major transmission projects that ITC Great Plains has committed to construct in Kansas, including the KETA Project, which would run from Spearville to a point near Hays, Kansas and then northward to Axtell, Nebraska, and the Kansas V-Plan, which would run from Spearville southward to Comanche County and then on a northeastern track to Wichita. The total capital investment for these two projects is anticipated to be between approximately $500 million and $1 billion. Additionally, the application seeks approval of the recovery of start-up and development expenses of ITC Great Plains and other development expenses relating to the KETA Project and Kansas V-Plan through the recognition of regulatory assets. The total of these expenses for which we have requested regulatory asset treatment is $6.5 million through December 31, 2008. In the event the FERC approves our application and in the period it becomes probable that future revenues will result from the approval, we would record a reduction to operating expenses and recognize the regulatory assets. Federal approval is an essential prerequisite to establishing ITC Great Plains as a new, independent transmission company dedicated to investing in transmission within the SPP region. Although the receipt of approval from the FERC for a rate would be a significant milestone for ITC Great Plains, additional regulatory approvals will be required before ITC Great Plains can commence construction of the projects it has committed to build, including cost allocation for the KETA Project and the Kansas V-Plan. Additionally, we believe we may have the opportunity to invest approximately $1 billion to $2 billion in other extra high voltage overlay projects that have been identified by the SPP other than the KETA Project and the Kansas V-Plan.

On February 9, 2009, Green Power Express filed an application with the FERC for approval of a forward-looking formula rate and incentives for the construction of the Green Power Express project, including the approval of a regulatory asset for recovery of development expenses which will enable us to defer recovery of the costs associated with continued development efforts for the project. Over the past year we have worked to identify a network of transmission lines that would facilitate the movement of 12,000 megawatts of power from the wind-abundant areas in the Dakotas, Minnesota and Iowa to Midwest load centers, such as Chicago, southeastern Wisconsin, Minneapolis and other states that demand clean, renewable energy. The Green Power Express project would traverse portions of North Dakota, South Dakota, Minnesota, Iowa, Wisconsin, Illinois and Indiana and is ultimately expected to include approximately 3,000 miles of extra high-voltage (765kV) transmission. The entire project is currently estimated to cost approximately $10 to $12 billion. Portions of the Green Power Express project fall within the service territory of ITC Midwest. ITC Holdings expects to partner with other affected utilities within the Green Power Express project regions and would therefore only invest in a portion of the total project cost. The Green Power Express filing with FERC will be the first of many steps in the process to bring this project to completion to facilitate the delivery of the vast Upper Great Plains renewable wind resources to demand

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centers and markets in the industrial Midwest and further east. The Green Power Express project is a portion of our larger vision of a super regional high-voltage transmission backbone.

We are also exploring opportunities to invest up to approximately $1.3 billion to build a new 765 kV transmission facility across the southern portion of Michigan’s Lower Peninsula.

Complaint of IP&L

On November 18, 2008, IP&L filed a complaint against ITC Midwest before the FERC under Section 206 of the Federal Power Act. The complaint alleges that: (1) the operations and maintenance expenses and administrative and general expenses projected in the 2009 ITC Midwest rate appear excessive; (2) the true-up amount related to ITC Midwest’s posted network rate for the period through December 31, 2008 will cause ITC Midwest to charge an excessive rate in future years; and (3) the methodology of allocating administrative and general expenses among ITC Holdings’ operating companies was changed, resulting in such additional expenses being allocated to ITC Midwest. The complaint states that it does not challenge ITC Midwest’s Attachment O formula or its planned capital investments. ITC Midwest’s network rate is based on its forward-looking Attachment O rate formula, as approved by FERC, which incorporates ITC Midwest’s projected net revenue requirement and load. Among other things, IP&L’s complaint seeks investigative action by the FERC relating to ITC Midwest’s transmission service charges reflected in its 2009 rate, as well as hearings regarding the justness and reasonableness of the 2009 rate (with the ultimate goal of reducing such rate). The resolution of this proceeding and its ultimate impact on ITC Midwest’s network rate and transmission revenues cannot be determined at this time. We believe that ITC Midwest’s 2009 rate is just and reasonable, that IP&L has not proffered sufficient arguments or reasons for the complaint to be sustained, and that ITC Midwest’s 2009 rate appropriately reflects the commitment of ITC Midwest to improve the performance and reliability of its transmission system. Accordingly, ITC Holdings and ITC Midwest believe that IP&L’s action is without merit and currently intend to contest it vigorously. However, various other parties, including Detroit Edison and Consumers Energy have filed with the FERC as interveners in the matter, such that the outcome of the case could also have an impact on the rates of ITCTransmission and METC. If the FERC issues a decision in this matter which inhibits our ability to recover costs and expenses through our rates or is otherwise adverse to our interests, then our results of operations, financial condition and liquidity may be materially and adversely affected.

Michigan Sales and Use Tax Audit

The Michigan Department of Treasury (the “Department”) currently is conducting a sales and use tax audit of ITCTransmission for the audit period April 1, 2005 through June 30, 2008. The auditor has raised an issue regarding whether ITCTransmission qualifies for the industrial processing exemption from sales and use tax it has taken beginning January 1, 2007. The industrial processing exemption at issue generally provides an exemption from sales and use tax for an industrial processor or a person performing industrial processing activities for or on behalf of an industrial processor for purchases made by such a business of tangible personal property if the property is used or consumed in the conduct of industrial processing activities.

Based on an analysis of the industrial processing statutes and ITCTransmission’s business activities, ITCTransmission claims the industrial processing exemption for purchases of tangible personal property that it uses in its electricity transmission activities. The purchases for which ITCTransmission claimed exemption include all purchases of tangible property used in its integrated transmission process, including purchases of property to perform inspection, quality control and testing activities, and to perform planning, scheduling, supervision, or control of transmission and transformation of the high voltage electricity that ITCTransmission receives from Detroit Edison.

ITCTransmission has received no formal written or verbal communication indicating that its industrial processing exemption will be denied. However, based on preliminary and informal communications with the Department, it appears likely that the Department will deny the exemption claims and assess additional

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sales and use tax against ITCTransmission. If an assessment is issued, ITCTransmission will have administrative appeal rights and, if an administrative appeal is unsuccessful, will have a right to litigate any assessment, assuming certain jurisdictional requirements are satisfied, in either the Michigan Tax Tribunal or the Michigan Court of Claims.

ITCTransmission believes that it has a strong position supporting the validity of its industrial processing exemption under the Michigan industrial processing exemption statutes and intends to vigorously defend against any potential denial of such exemption. However, if the Department makes an assessment of sales and use tax based on a denial of ITCTransmission’s industrial processing exemption and an appeal is required, it is reasonably possible that the assessment of additional sales and use tax could be sustained after all administrative appeals and litigation.

The amount of sales and use tax liability associated with the exemptions taken by ITCTransmission totals several million dollars. In the event it becomes appropriate to record additional sales and use tax expense relating to this matter, ITCTransmission would record the additional sales and use tax expense primarily as an increase to the cost of property, plant and equipment. These higher sales and use tax expenses would be passed on to ITCTransmission’s customers through higher net revenue requirements and resulting rates.

Any penalties and interest relating to this matter would potentially not be passed on through rates. METC has also taken the industrial processing exemption totaling several million dollars for periods still subject to audit since 2005.

Iowa Flood Damage

As a result of the flooding in Iowa in June of 2008, ITC Midwest suffered damage at three substations located in Cedar Rapids and Mason City, Iowa and was forced to relocate its headquarters in Cedar Rapids to temporary office facilities. The damage caused ITC Midwest to make capital investments of approximately $4.5 million to replace certain property, plant and equipment and perform various maintenance and other expense activities of $1.1 million. We have an insurance policy that covers ITC Holdings and its subsidiaries (including ITC Midwest) for such damages that includes a $1.0 million deductible. In the fourth quarter of 2008, we filed an initial claim under our insurance policy for the flood damage and expect to file additional insurance claims in 2009. As a result of the expected outcome of these claims, we recorded an insurance receivable amount of $2.3 million, net of the deductible, consisting of a $1.7 million reduction in property, plant and equipment and a $0.6 million reduction in operations and maintenance expense. As of December 31, 2008, we had not received any proceeds from this insurance claim. We do not anticipate that any difficulties in collecting the insurance claim would have a material impact on our results of operations, financial position or liquidity, as the capital investment and operations and maintenance expense would be recoverable through the rates of ITC Midwest.

Financial Markets

We continue to evaluate the impact on us of the recent volatility of the financial markets and the credit crisis affecting the capital markets. We are not able to predict whether we will experience any material adverse impact to our earnings or liquidity if current conditions continue to exist. Refer to the discussion under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for our short- and long-term financing expectations.

Rate Setting and Attachment O

Network Transmission Rates

Our Regulated Operating Subsidiaries operate in different rate zones, in each of which a different transmission service rate is charged. The rates within such joint rate zones are determined using a FERC-approved formulaic rate setting mechanism known as Attachment O. Attachment O is a rate template used by our Regulated Operating Subsidiaries as well as most transmission owning members of MISO. Our

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Regulated Operating Subsidiaries’ component of their respective joint zone rate are set annually under Attachment O and are in effect for the one year period beginning January 1. Under Attachment O, our Regulated Operating Subsidiaries’ component of their respective joint zone rate allows for the recovery of their respective net revenue requirements. Our Regulated Operating Subsidiaries’ net revenue requirements utilized in developing each respective joint zone rate are derived using Attachment O, posted on the MISO Open Access Same-Time Information System each year and are effective without the need to file a rate case with the FERC, although the rate is subject to legal challenge at the FERC.

The following table presents our component of joint zone network transmission rates (per kW/month) that are relevant to our results of operations and cash flows since January 1, 2006:

Network Transmission Rate	ITCTransmission		METC(a)		ITC Midwest(b)
January 1, 2006 to May 31, 2006	$	1.594
June 1, 2006 to December 31, 2006	$	1.744	$	1.524
January 1, 2007 to December 31, 2007	$	2.099	$	1.524	$	2.373
January 1, 2008 to December 31, 2008	$	2.350	$	1.985	$	2.446
January 1, 2009 to December 31, 2009	$	2.520	$	2.522	$	4.162

(a)	METC’s results of operations and cash flows are included for the periods subsequent to its acquisition on October 10, 2006.
(b)	ITC Midwest’s results of operations and cash flows are included for the periods subsequent to its asset acquisition of the electric transmission assets of IP&L on December 20, 2007.

Forward-Looking Attachment O

On July 14, 2006 and December 21, 2006, the FERC authorized ITCTransmission and METC, respectively, to modify the implementation of its Attachment O formula rate so that, beginning January 1, 2007, ITCTransmission and METC recover expenses and earn a return on and recover investments in property, plant and equipment on a current rather than a lagging basis. As part of the FERC order dated December 3, 2007 approving ITC Midwest’s asset acquisition, the FERC approved ITC Midwest’s request for the use of a forward-looking Attachment O effective January 1, 2008. In periods of capital expansion and increasing rate base, our Regulated Operating Subsidiaries will recover the costs of these capital investments on a more timely basis than under the previous Attachment O method used by ITCTransmission and METC.

Under the forward-looking Attachment O formula, by September 1st of each year, our Regulated Operating Subsidiaries use forecasted expenses, additions to in-service property, plant and equipment, point-to-point revenues, network load and other items for the upcoming calendar year to establish their projected net revenue requirements and their component of the billed network rates for service on their systems from January 1 to December 31 of that year. The forward-looking Attachment O formula includes a true-up mechanism, whereby each of our Regulated Operating Subsidiaries will compare its actual net revenue requirements to its billed network revenues for each year after the end of that year. Under forward-looking Attachment O, in the event billed network revenues in a given year are more or less than actual net revenue requirements, which are calculated primarily using information from that year’s FERC Form No. 1, our Regulated Operating Subsidiaries will refund or collect additional revenues, with interest, within a two-year period such that customers pay only the amounts that correspond to actual net revenue requirements. This annual true-up ensures that our Regulated Operating Subsidiaries recover their allowed costs and earn their allowed returns. For example, the true-up adjustment relating to 2008 is finalized in 2009 upon completion of the 2008 FERC Form No. 1 and will be included in the projected net revenue requirement that is used to establish the rate that will be effective commencing January 1, 2010.

Monthly peak loads continue to be used for billing network revenues for our Regulated Operating Subsidiaries. Therefore, network load continues to have an impact on cash flows from transmission service, but did not impact operating revenues recognized. Refer to “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Revenue

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Recognition under Forward-Looking Attachment O” for a discussion of revenue recognition relating to network revenues.

Net Revenue Requirement Calculation

Each of our Regulated Operating Subsidiaries separately calculates a net revenue requirement under Attachment O based on its forecasted financial information specific to each company. The following steps illustrate the rate-setting methodology under forward-looking Attachment O:

Step One — Establish Projected Rate Base and Calculate Projected Allowed Return

Rate base is projected using the average of the 13 projected month-end balances for the months beginning with December 31 of the current year and ending with December 31 of the upcoming year and consists primarily of projected in-service property, plant and equipment, net of accumulated depreciation, as well as other items.

Projected rate base is multiplied by the projected weighted average cost of capital to determine the projected allowed return on rate base. The weighted average cost of capital is calculated using a projected 13 month average capital structure, the forecasted pre-tax cost of the debt portion of the capital structure and a FERC-approved return of 13.88%, 13.38% and 12.38% for ITCTransmission, METC and ITC Midwest, respectively, on the common equity portion of the forecasted capital structure.

Step Two — Calculate Projected Gross Revenue Requirement

The projected gross revenue requirement is calculated beginning with the projected allowed return on rate base, as calculated in Step One above, and adding projected recoverable operating expenses and an allowance for income taxes.

Step Three — Calculate Projected Net Revenue Requirement

After calculating the projected gross revenue requirement in Step Two above, the projected gross revenue requirement is adjusted for any prior year true-up adjustment discussed in Step Four and is reduced for certain revenues, other than network revenues, such as projected point-to-point, regional cost sharing revenues and rental revenues. This net amount represents our projected net revenue requirement and is used to calculate our component of the joint zone network transmission rate to be billed to customers for network transmission service.

Step Four — Calculate True-up Adjustment

The actual transmission revenues billed for the previous year will be compared to actual net revenue requirement which is based primarily on amounts from the completed FERC Form No. 1. The true-up adjustment that results from the difference between the actual revenue billed and actual net revenue requirement will be added to the upcoming year’s projected net revenue requirement used to determine the upcoming year’s joint zone network transmission rate. For example, the true-up adjustment relating to 2007 was calculated in 2008 upon completion of the 2007 FERC Form No. 1 and was included in the projected net revenue requirement that is used to establish the joint zone network transmission rate that became effective January 1, 2009. Interest is also applied to the true-up adjustment.

Illustration of Attachment O Rate Setting.  Set forth below is a simplified illustration of the calculation of ITCTransmission’s component of the joint zone network transmission rate for billing purposes under the Attachment O rate setting mechanism for the period from January 1, 2009 through December 31, 2009, that was based primarily upon projections of ITCTransmission’s 2009 FERC Form No. 1 data. Amounts below are approximations of the amounts used to establish our projected net revenue requirement in the 2009 ITCTransmission Attachment O filing. ITCTransmission’s component of the joint zone network

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transmission rate is calculated by dividing the projected net revenue requirement by the sum of the projected 12 coincident peak network loads divided by 12 months.

Line	Attachment O Items	Instructions	Amount
1	Projected rate base (the average of the 13 months ended December 31, 2008 through December 31, 2009)		$	922,700,000
2	Multiply by projected 13 month weighted average cost of capital(a)			10.59%
3	Projected allowed return on rate base	(Line 1 × Line 2)	$	97,713,930
4	Projected recoverable operating expenses for 2009		$	66,400,000
5	Projected taxes and depreciation and amortization for 2009		$	144,350,000
6	Projected gross revenue requirements for 2009	(Line 3 + Line 4 + Line 5)	$	308,463,930
7	Less projected revenue credits for 2009		$	(42,500,000	)
8	Plus/(less) 2007 true-up adjustment(b)		$	(236,017	)
9	Projected net revenue requirement for 2009	(Line 6 -Line 7 + Line 8)	$	265,727,913
10	Projected 2009 network load (in kW)			8,787,000
11	Annual component of the joint zone network transmission rate	(Line 9 divided by Line 10)	$	30.241
12	Monthly component of the joint zone network transmission rate ($/kW per month)	(Line 11 divided by 12 months)	$	2.520

(a) The weighted average cost of capital for purposes of this illustration is calculated as follows:

					Weighted
	Percentage of				Average
	ITC Transmission’s				Cost of
	Total Capitalization			Cost of Capital	Capital
Debt		40.00	%	5.64%(Pre-tax) =		2.26	%
Equity		60.00	%	13.88% (After tax) =		8.33	%
		100.00	%			10.59	%

(b)  The 2007 true-up adjustment is included in ITC Transmission’s component of the 2009 billed joint zone network transmission rate. The 2008 true-up adjustment will not impact ITC Transmission’s component of the 2009 billed joint zone network transmission rate, but it will be included as a component of the projected net revenue requirement in the Attachment O rate calculation for 2010.

Trends and Seasonality

Network Revenues

We expect a general trend of increases in network transmission rates and revenues for our Regulated Operating Subsidiaries, although we cannot predict a specific year-to-year trend due to the variability of factors beyond our control. The primary factor that is expected to continue to increase our rates and our actual net revenue requirements in future years is our anticipated capital investment in excess of depreciation as a result of our Regulated Operating Subsidiaries long-term capital investment programs. Investments in property, plant and equipment, when placed in service upon completion of a capital project, are added to the rate base of our Regulated Operating Subsidiaries. Our Regulated Operating

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Subsidiaries strive for high reliability of their systems and to improve accessibility to generation sources of choice, including renewable sources. The Energy Policy Act was enacted, which requires the FERC to implement mandatory electric transmission reliability standards to be enforced by an Electric Reliability Organization. Effective June 2007, the FERC approved mandatory adoption of certain reliability standards and approved enforcement actions for violators, including fines of up to $1.0 million per day. The NERC was assigned the responsibility of developing and enforcing these mandatory reliability standards. We continually assess our transmission systems against standards established by the NERC, as well as ReliabilityFirst Corporation (for ITCTransmission and METC) and Midwest Reliability Organization (for ITC Midwest), which are regional entities under the NERC that have been delegated certain authority for the purpose of proposing and enforcing reliability standards. We believe we meet the applicable standards in all material respects, although further investment in our transmission systems is needed to maintain compliance and improve reliability.

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

	Ten-Year Capital		Capital Investment
(In millions)	Investment Program					Actual For The Year Ended
Regulated Operating Subsidiary	2008-2017(a)		Expected in 2009			December 31, 2008(b)
ITCTransmission	$	700	$	70 - $85		$	121.8
METC	$	1,150	$	110 - $130		$	121.1
ITC Midwest	$	1,050	$	90 - $110	(c)	$	156.5	(d)

(a)	The expected amounts for our ten-year program do not include $150 million for ITCTransmission and METC combined and $250 million at ITC Midwest for estimated transmission network upgrades for generator interconnections due to a high degree of uncertainty on whether these projects will ultimately be built and because they could replace other transmission projects currently being planned. This estimate for network upgrades could change significantly due to factors beyond our control, such as changes in the MISO queue for generation projects and whether the generator meets the various criteria of Attachment FF of the MISO Transmission and Energy Market Tariff for the project to qualify as a refundable network upgrade, among other factors. In addition, these amounts do not include any possible capital investment associated with the projects discussed under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — Development Activities.”
(b)	Capital investment amounts differ from cash expenditures for property, plant and equipment included in our consolidated statements of cash flows due in part to differences in construction costs incurred compared to cash paid during that period, as well as payments for major equipment inventory that are included in cash expenditures but not included in capital investment until transferred to construction work in progress, among other factors.
(c)	Amounts do not include an estimated additional $30 million that we expect to incur at ITC Midwest to purchase and complete construction on a substation and to purchase a transmission line.
(d)	In December 2008, refundable advances from a generator received by ITC Midwest for transmission network upgrades were reclassified to a contribution in aid of construction, effectively reducing the property, plant and equipment recorded for these network upgrades to $0. The generator did not meet the various criteria of Attachment FF of the MISO Transmission and Energy Market Tariff at its commercial operation date for the project to qualify for refund. Consequently, $6.7 million of contributions in aid of construction for network upgrades reduced the amount of ITC Midwest’s capital

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investments in 2008, all of which had previously been reported as capital investment in Form 10Q for the period ended September 30, 2008. Additionally, upon reclassifying the refundable advances to a contribution in aid of construction, the cash receipts from the generator become taxable income for income tax reporting purposes. We are permitted to charge a tax gross-up to the generator for the difference between the total taxable income to be reported compared to the present value of tax depreciation of the property constructed using the contribution in aid of construction. This tax-gross up is anticipated to be approximately $2.3 million and will be recorded as other operating income when collectability from the generator is reasonably assured.

Investments in property, plant and equipment could vary due to, among other things, the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment prices and availability, our ability to obtain financing for such expenditures, if necessary, limitations on the amount of construction that can be undertaken on our systems at any one time, regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery or other issues or as a result of legal proceedings and variances between estimated and actual costs of construction contracts awarded.

Seasonality and Attachment O Revenue Accrual

Prior to the implementation of forward-looking Attachment O effective January 1, 2007 for ITCTransmission and METC, the revenues recognized by these subsidiaries were dependent on monthly peak loads. Revenues and net income varied between periods based on monthly peak loads, among other factors. To the extent that actual conditions during an annual period varied from the data on which the Attachment O rate was based, our Regulated Operating Subsidiaries earned more or less revenue during that annual period and therefore recovered more or less than their respective net revenue requirements.

Under forward-looking Attachment O, although the monthly peak loads continue to be used for billing network revenues and continue to affect operating cash flows, our Regulated Operating Subsidiaries accrue or defer revenues to the extent that their actual net revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. This results in more consistent net income for each quarterly period within a given year, compared to the historical Attachment O method that previously applied to ITCTransmission and METC.

The monthly peak load of our Regulated Operating Subsidiaries is affected by many factors, but is generally higher in the summer months when cooling demand is higher. ITCTransmission’s monthly peak loads for the year ended December 31, 2008 were down 10.5% and 5.4% compared to the corresponding totals for 2007 and 2006, respectively. METC’s monthly peak loads for the year ended December 31, 2008 were down 9.0% compared to the corresponding total for 2007. In 2008, ITCTransmission and METC monthly peak loads were lower than what had been forecasted in developing the transmission network rates applicable for 2008 due to cooler than normal weather as well as unfavorable economic factors in Michigan. An unfavorable economy in Michigan that results in lower network loads than what had been forecasted in developing the transmission network rates applicable for 2009 would continue to negatively impact our operating cash flows from network revenues in 2009. Transmission network rates in 2010 at each of our Regulated Operating Subsidiaries will include the Attachment O revenue accrual for the under-recovered amounts relating to 2008, including interest.

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Monthly Peak Load (in MW) (a)

	2008						2007						2006
	ITCTransmission		METC		ITC Midwest		ITCTransmission		METC		ITC Midwest(b)		ITCTransmission		METC(c)
January		7,890		6,215		2,974		7,876		6,051				7,754
February		7,715		6,159		2,890		8,170		6,227				7,667
March		7,532		5,797		2,733		7,739		6,006				7,554
April		6,926		5,223		2,455		7,141		5,473				7,035
May		7,051		5,328		2,431		9,927		6,981				10,902
June		10,624		7,241		2,888		11,761		8,511				9,752
July		11,016		8,042		3,376		11,706		8,672				12,392
August		10,890		7,818		3,259		12,087		8,955				12,745
September		10,311		7,667		3,191		11,033		7,908				8,415
October		6,893		5,519		2,786		10,365		7,524				7,302		5,642
November		7,205		5,820		2,944		7,812		6,200				7,724		6,103
December		7,636		6,280		3,003		8,022		6,215		2,706		8,257		6,527
Total		101,689		77,109		34,930		113,639		84,723		2,706		107,499		18,272

(a)	Each of our Regulated Operating Subsidiaries is part of a joint rate zone. The load data presented is for all transmission owners in the respective joint rate zone and is used for billing network revenues. Each of our Regulated Operating Subsidiaries makes up the significant portion of network load within their respective joint rate zone.
(b)	ITC Midwest’s results of operations and cash flows are included for the periods subsequent to its acquisition of the electric transmission assets of IP&L on December 20, 2007.
(c)	METC’s results of operations and cash flows are included for the periods subsequent to its acquisition on October 10, 2006.

Significant Components of Results of Operations

Revenues

We derive nearly all of our revenues from providing network transmission service, point-to-point transmission service and other related services over our Regulated Operating Subsidiaries’ transmission systems to Detroit Edison, Consumers Energy, IP&L and to other entities such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers and from transaction-based capacity reservations on our transmission systems. MISO is responsible for billing and collection of transmission services in the MISO service territory. MISO, as the billing agent for our Regulated Operating Subsidiaries, collects fees for the use of our transmission systems, invoicing Detroit Edison, Consumers Energy, IP&L and other customers on a monthly basis. MISO has implemented credit policies for its members’ customers.

Network Revenues are generated from network customers for their use of our electric transmission systems during the one hour of monthly peak usage and consist of both billed network revenues and accrued or deferred network revenues as a result of our accounting under forward-looking Attachment O. Refer to “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Revenue Recognition under Forward-Looking Attachment O” for a discussion of revenue recognition relating to network revenues. The monthly network revenues billed to customers using our transmission facilities are the result of a calculation which can be simplified into the following:

(1) multiply the network load measured in kWs achieved during the one hour of monthly peak usage for our transmission systems by the appropriate monthly tariff rate as calculated under Attachment O by 12 by the number of days in that month; and

(2) divide the result by 365.

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Point-to-Point Revenues consist of revenues generated from a type of transmission service for which the customer pays for transmission capacity reserved along a specified path between two points on an hourly, daily, weekly or monthly basis. Point-to-point revenues also include other components pursuant to schedules under the MISO transmission tariff.

Regional Cost Sharing Revenues consist of revenues received from transmission customers associated with network upgrades to our transmission systems that are eligible for regional cost sharing under Attachment FF of the MISO Transmission and Energy Market Tariff (Docket No. ER06-18). Regional cost sharing revenues became applicable for us during 2008.

Scheduling, Control and Dispatch Revenues are allocated to our Regulated Operating Subsidiaries by MISO as compensation for the services performed in operating the control area. Such services include processing energy schedule requests, monitoring of reliability data, implementation of emergency procedures, and coordination of the control area operation. Revenues that are allocated by MISO to our Regulated Operating Subsidiaries relating to these services are not determined based on actual expenses incurred by our Regulated Operating Subsidiaries. In any given year, our Regulated Operating Subsidiaries may earn more or less scheduling, control and dispatch revenues than our actual expenses incurred.

Other Revenues consist of rental revenues, easement revenues, and amounts from providing ancillary services to customers.

Operating Expenses

Operation and Maintenance Expenses consist primarily of the costs of contractors to operate and maintain our transmission systems and costs for our personnel involved in operation and maintenance activities.

Operation expenses include activities related to control area operations, which involve balancing loads and generation and transmission system operations activities, including monitoring the status of our transmission lines and stations. The expenses relating to METC’s Easement Agreement are also recorded within operation expenses.

Maintenance expenses include preventive or planned maintenance, such as vegetation management, tower painting and equipment inspections, as well as reactive maintenance for equipment failures.

General and Administrative Expenses consist primarily of costs for personnel in our finance, human resources, regulatory, information technology and legal organizations, general office expenses and fees for professional services. Professional services are principally composed of outside legal, audit and information technology services.

We capitalize to property, plant and equipment certain general and administrative expenses such as compensation, office rent, utilities, and information technology. These expenses are included in property, plant and equipment on our consolidated statements of financial position.

Depreciation and Amortization Expenses consist primarily of depreciation of property, plant and equipment using the straight-line method of accounting. Additionally, this consists of amortization of various regulatory and intangible assets.

Taxes other than Income Taxes consist primarily of property taxes and payroll taxes. Additionally, Michigan Single Business Taxes were recorded here through December 31, 2007, prior to the January 1, 2008 effective date of the new Michigan Business Tax that is accounted for as an income tax.

Other Operating Income and Expense — Net consists primarily of gains and losses associated with the sale of assets and gains associated with the sale of permanent land easements. Additionally, this item consists of any income recognized for tax gross-ups for taxable contributions in aid of construction received representing the difference between the total taxable income to be reported compared to the present value of tax depreciation of the property constructed using the contribution in aid of construction.

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Other items of income or expense

Interest Expense consists primarily of interest on long term debt at ITC Holdings and our Regulated Operating Subsidiaries. Additionally, the amortization of debt financing expenses is recorded to interest expense. An allowance for borrowed funds used during construction is included in property, plant and equipment accounts and is a reduction to interest expense.

Allowance for Equity Funds Used During Construction (“AFUDC Equity”) is recorded as an item of other income and is included in property, plant and equipment accounts. The allowance represents a return on stockholders’ equity used for construction purposes in accordance with FERC regulations. Assuming all other factors are constant, if construction work in progress balances increase, AFUDC Equity will also increase. The capitalization rate applied to the construction work in progress balance is based on the proportion of equity to total capital (which currently includes equity and long-term debt) and the allowed return on equity for our Regulated Operating Subsidiaries.

Income tax provision

Income tax provision consists primarily of federal income taxes. Additionally, we record income tax provisions for the various state income taxes we are subject to, including the Michigan Business Tax that became effective for us on January 1, 2008.

Results of Operations

The following table summarizes historical operating results for the periods indicated:

	Year Ended									Percentage			Year Ended						Percentage
	December 31,						Increase			increase			December 31,			Increase			increase
	2008			2007			(decrease)			(decrease)			2006			(decrease)			(decrease)
(In thousands)
OPERATING REVENUES	$	617,877		$	426,249		$	191,628			45.0	%	$	223,622		$	202,627			90.6	%
OPERATING EXPENSES
Operation and maintenance		113,818			81,406			32,412			39.8	%		35,441			45,965			129.7	%
General and administrative		81,296			62,089			19,207			30.9	%		40,632			21,457			52.8	%
Depreciation and amortization		94,769			67,928			26,841			39.5	%		40,156			27,772			69.2	%
Taxes other than income taxes		41,180			33,340			7,840			23.5	%		22,156			11,184			50.5	%
Other operating income and expense- net		(809	)		(688	)		(121	)		17.6	%		(842	)		154			(18.3	)%
Total operating expenses		330,254			244,075			86,179			35.3	%		137,543			106,532			77.5	%
OPERATING INCOME		287,623			182,174			105,449			57.9	%		86,079			96,095			111.6	%
OTHER EXPENSES (INCOME)
Interest expense		122,234			81,863			40,371			49.3	%		42,049			39,814			94.7	%
Allowance for equity funds used during construction		(11,610	)		(8,145	)		(3,465	)		42.5	%		(3,977	)		(4,168	)		104.8	%
Loss on extinguishment of debt		—			349			(349	)		(100.0	)%		1,874			(1,525	)		(81.4	)%
Other income		(3,415	)		(3,457	)		42			(1.2	)%		(2,348	)		(1,109	)		47.2	%
Other expense		3,944			1,618			2,326			143.8	%		1,629			(11	)		(0.7	)%
Total other expenses (income)		111,153			72,228			38,925			53.9	%		39,227			33,001			84.1	%
INCOME BEFORE INCOME TAXES		176,470			109,946			66,524			60.5	%		46,852			63,094			134.7	%
INCOME TAX PROVISION		67,262			36,650			30,612			83.5	%		13,658			22,992			168.3	%
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		109,208			73,296			35,912			49.0	%		33,194			40,102			120.8	%
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX OF $16)		—			—			—			n/a			29			(29	)		(100.0	)%
NET INCOME	$	109,208		$	73,296		$	35,912			49.0	%	$	33,223		$	40,073			120.6	%

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Operating Revenues

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

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

	2008					2007							Percentage
	Amount		Percentage			Amount		Percentage			Increase		Increase
(In thousands)
Network revenues	$	558,896		90.5	%	$	390,331		91.6	%	$	168,565		43.2	%
Point-to-point		23,417		3.8	%		19,321		4.5	%		4,096		21.2	%
Scheduling, control and dispatch		16,972		2.7	%		14,674		3.4	%		2,298		15.7	%
Regional cost sharing revenues		15,534		2.5	%		—		0.0	%		15,534		100.0	%
Other		3,058		0.5	%		1,923		0.5	%		1,135		59.0	%
Total	$	617,877		100.0	%	$	426,249		100.0	%	$	191,628		45.0	%

Network revenues increased $133.5 million due to ITC Midwest’s asset acquisition in December of 2007. Additionally, ITCTransmission and METC recognized additional network revenues of $18.6 million and $16.5 million, respectively, due to higher net revenue requirement as a result of higher rate base, operating expenses and taxes, among other items during 2008 as compared to 2007.

The table below represents the calculation of the estimated Attachment O revenue accrual for the year ended December 31, 2008.

									Total Revenue
Line		Item	ITCTransmission(c)		METC(c)		ITC Midwest(d)		Accrual
(In thousands)
	1	Estimated net revenue requirement (network revenues)(a)	$	257,156	$	165,803	$	135,937
	2	Network revenues billed(b)		239,473		153,530		85,085
	3	Attachment O revenue accrual (line 1 — line 2)	$	17,683	$	12,273	$	50,852	$	80,808

(a)	The calculation of net revenue requirement is described in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Rate Setting and Attachment O — Net Revenue Requirement Calculation.” The amount is estimated until such time FERC Form No. 1’s are completed for our Regulated Operating Subsidiaries and the calculations are filed with and reviewed by MISO each year.
(b)	Network revenues billed at our Regulated Operating Subsidiaries are calculated based on the joint zone monthly network peak load multiplied by our effective monthly network rates of $2.350 per kW/month, $1.985 per kW/month and $2.446 per kW/month applicable to ITCTransmission, METC and ITC Midwest, respectively, adjusted for the actual number of days in the month.
(c)	The amount of revenue accrual at ITCTransmission and METC were primarily the result of lower peak loads compared to what had been forecasted in developing the transmission network rates applicable for 2008.
(d)	ITC Midwest’s billed network rate was frozen during 2008, which was the primary reason for the revenue accrual.

Point-to-point revenues increased due primarily to ITC Midwest’s asset acquisition resulting in $3.9 million of additional revenues.

Scheduling, control and dispatch revenues increased due primarily to ITC Midwest’s asset acquisition resulting in $2.4 million of additional revenues.

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Regional cost sharing revenues became applicable for us during 2008. We expect to continue to receive regional cost sharing revenues and the amounts could become more significant in the near future.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

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

													Percentage
	2007					2006					Increase		increase
	Amount		Percentage			Amount		Percentage			(decrease)		(decrease)
(In thousands)
Network revenues	$	390,331		91.6	%	$	206,514		92.4	%	$	183,817		89.0	%
Point-to-point		19,321		4.5	%		7,012		3.1	%		12,309		175.5	%
Scheduling, control and dispatch		14,674		3.4	%		8,274		3.7	%		6,400		77.4	%
Other		1,923		0.5	%		1,822		0.8	%		101		5.5	%
Total	$	426,249		100.0	%	$	223,622		100.0	%	$	202,627		90.6	%

Network revenues increased by $124.4 million due to the inclusion of amounts for METC for the year ended December 31, 2007 as compared to the period of October 10, 2006 through December 31, 2006 and $2.5 million due to ITC Midwest’s asset acquisition in December of 2007. In addition, network revenues increased by $46.4 million due to increases in the rate used for network revenues at ITCTransmission from $1.594 per kW/month for the period from January through May of 2006 and $1.744 kW/month from June through December of 2006 to $2.099 per kW/month for the year ended December 31, 2007. Network revenues also increased by $10.6 million due to an increase of 5.7% in the network load at ITCTransmission for the year ended December 31, 2007 compared to the same period in 2006.

The estimated Attachment O revenue accrual (deferral)-net at ITCTransmission and METC resulted from actual net revenue requirement for the year ended December 31, 2007 that exceeded network revenues billed for the year ended December 31, 2007. The table below represents the calculation of the total Attachment O revenue accrual (deferral)-net for the year ended December 31, 2007.

								Total Revenue
Line		Item	ITCTransmission			METC(b)		Accrual-net
(In thousands)
	1	Estimated net revenue requirement (network revenues)	$	238,599		$	149,262
	2	Network revenues billed(a)		238,803			129,276
	3	Attachment O revenue accrual (deferral)-net (line 1 — line 2)	$	(204	)	$	19,986	$	19,782

(a)	Network revenues billed at our Regulated Operating Subsidiaries are calculated based on the joint zone monthly network peak load multiplied by our effective monthly network rates of $2.099 per kW/month and $1.524 per kW/month applicable to ITCTransmission and METC, respectively, adjusted for the actual number of days in the month.
(b)	METC’s billed network rate was frozen during 2007, which was the primary reason for the revenue accrual.

Point-to-point revenues increased due primarily to $7.2 million of additional METC revenues included for the year ended December 31, 2007 as compared to the period of October 10, 2006 through December 31, 2006. Also, ITCTransmission recognized $4.0 million of additional point-to-point revenues for transmission capacity reservations in 2007 compared to 2006.

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Scheduling, control and dispatch revenues increased due primarily to $5.0 million of additional METC revenues included for the year ended December 31, 2007 as compared to the period of October 10, 2006 through December 31, 2006.

Operating Expenses

Operation and maintenance expenses

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Operation and maintenance expenses increased due primarily to amounts incurred by ITC Midwest of $27.6 million. ITC Midwest incurred $21.5 million of expenses for transmission structure maintenance, inspections and other maintenance activities. ITC Midwest also incurred transmission system monitoring and control expenses of $4.7 million, primarily under its services agreement with IP&L and operating agreement with ATC and incurred $1.2 million for incentive bonuses for ITC Midwest integration activities. In addition to the increases in operation and maintenance expenses relating to ITC Midwest, METC incurred additional vegetation management expenses of $6.9 million.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Operation and maintenance expenses increased due primarily to the acquisition of METC in October 2006. METC incurred additional expenses of $24.2 million for contractor expenses for substation operations, transmission structure maintenance, vegetation management, inspections, general site maintenance, and maintenance support costs such as tools, equipment rentals and supplies. METC also incurred additional expenses of $7.9 million for easement payments to Consumers Energy, $1.4 million for ancillary services and $0.5 million for asset mapping activities. Operation and maintenance expenses at ITCTransmission increased by $10.3 million primarily due to additional tower painting, vegetation management, transmission structure maintenance, inspections, general site maintenance, and maintenance support costs. We also incurred $1.9 million of additional expenses for transmission system monitoring and control due to the increased activity at our operations facility needed to operate both ITCTransmission’s and METC’s transmission systems during the year ended December 31, 2007 as compared to only operating ITCTransmission’s transmission system until METC was acquired in October 2006. Finally, we incurred operation and maintenance expenses of $0.3 million at ITC Midwest during 2007.

General and administrative expenses

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

General and administrative expenses increased by $6.4 million due to higher professional advisory and consulting services, $6.3 million due to higher business expenses primarily for information technology support and $1.3 million due to higher compensation and benefits expenses primarily resulting from personnel additions and incentive bonuses for ITC Midwest integration activities, all of which include incremental costs incurred by ITC Midwest. Additionally, we awarded an executive bonus in the form of a deferred stock unit grant resulting in $0.9 million of expense. General and administrative expenses also increased by $4.2 million at ITC Grid Development and its subsidiaries for salaries, benefits and general business expenses due to increased development activities, which are not included in the increases explained above.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

The increase in general and administrative expenses consisted of $9.4 million due to higher compensation and benefits expenses primarily resulting from personnel additions for administrative functions needed to support our increased level of activities, $2.2 million due to higher professional advisory and consulting services, $4.9 million due to higher business expenses including information technology support and contract labor and $0.5 million due to higher insurance premiums, all of which include incremental costs incurred as a result of the METC acquisition. In addition, general and administrative

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expenses increased by $2.6 million due to expenses under the special bonus plans as described in Note 12 to the consolidated financial statements, and due to offering costs of $0.6 million associated with a securities offering by International Transmission Holdings Limited Partnership, formerly our largest shareholder. Expenses also increased by $1.4 million at ITC Grid Development and its subsidiaries for salaries, benefits and general business expenses not included in the increases explained above.

Depreciation and amortization expenses

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Depreciation and amortization expenses increased by $18.6 million as a result of ITC Midwest’s asset acquisition in December 2007. Additionally we recognized additional depreciation expense of $5.4 million and $2.8 million at ITCTransmission and METC, respectively, due primarily to a higher depreciable asset base resulting from property, plant and equipment additions.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Depreciation and amortization expenses increased due primarily to the acquisition of METC in 2006 resulting in $17.7 million of depreciation expense associated with property, plant and equipment and amortization expense associated with the METC Regulatory Deferral and the METC ADIT Deferral of $6.2 million in 2007. Additionally, we recognized additional depreciation expense of $6.4 million at ITCTransmission due primarily to a higher depreciable asset base resulting from property, plant and equipment additions. Finally, we recognized $0.5 million of deprecation and amortization expenses at ITC Midwest in 2007.

Taxes other than income taxes

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Taxes other than income taxes increased due to additional property tax expenses at ITC Midwest of $6.2 million as a result of ITC Midwest’s asset acquisition in December 2007. Additionally, property tax expenses at ITCTransmission and METC increased by $3.1 million and $0.8 million due primarily to ITCTransmission’s and METC’s capital additions, which are included in the assessments for 2008 personal property taxes. Partially offsetting these increases was a decrease of $2.7 million as a result of the replacement of the Michigan Single Business Tax discussed in Note 10 to the consolidated financial statements.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Taxes other than income taxes increased due to property tax expenses of $8.0 million at METC during the year ended December 31, 2007, as compared to $1.5 million for the period October 10, 2006 through December 31, 2006. Additionally, property tax expenses at ITCTransmission increased by $3.4 million primarily due to ITCTransmission’s 2006 capital additions, which are included in the assessments for 2007 personal property taxes. Taxes other than income taxes also increased by $0.8 million due to higher payroll taxes.

Other operating income and expense — net

During the year ended December 31, 2008, METC sold a building resulting in a loss of $0.5 million and ITCTransmission sold a permanent easement of land for a gain of $1.4 million.

During the year ended December 31, 2007, ITCTransmission sold a permanent easement of land for a gain of $0.7 million.

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Other expenses (income)

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Interest expense increased due primarily to higher borrowing levels to finance capital expenditures and ITC Midwest’s asset acquisition.

AFUDC Equity increased due to increased property, plant and equipment expenditures and the resulting higher construction work in progress balances during 2008 compared to 2007.

Other expenses increased due primarily to realized and unrealized losses on our trading securities recognized during 2008 from the recent financial market conditions that have caused a decrease in our investment values.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Interest expense increased due primarily to higher borrowing levels to finance capital expenditures and to finance the METC acquisition. Additionally, METC recognized interest expense of $10.2 million during the year ended December 31, 2007 as compared to $2.8 million for the period October 10, 2006 through December 31, 2006.

AFUDC Equity increased due to increased property, plant and equipment expenditures and the resulting higher construction work in progress balances during 2007 compared to 2006. Additionally, METC recognized AFUDC Equity of $1.7 million during the year ended December 31, 2007 as compared $0.1 million for the period October 10, 2006 through December 31, 2006.

Income Tax Provision

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Our effective tax rate for the year ended December 31, 2008 of 38.1% differed from our 35% statutory federal income tax rate due primarily to the state income tax provision of $9.0 million recorded during the year ended December 31, 2008, partially offset by the tax effects of AFUDC Equity. The state income tax provision is primarily a result of the new Michigan Single Business Tax as discussed in Note 10 to the consolidated financial statements. The amount of income tax expense relating to AFUDC Equity is recognized as a regulatory asset and not included in the income tax provision. Our Regulated Operating Subsidiaries include taxes payable relating to AFUDC Equity in their actual net revenue requirements. Our effective tax rate for the year ended December 31, 2007 of 33.3% differed from our 35% statutory federal income tax rate due primarily to our accounting for the tax effects of AFUDC Equity.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Our effective tax rate for the years ended December 31, 2007 and 2006 of 33.3% and 29.2%, respectively, differed from our 35% statutory federal income tax rate primarily due to our accounting for the tax effects of AFUDC Equity. This accounting treatment became applicable for ITCTransmission and METC during 2006 upon receiving approval to use forward-looking Attachment O. We recognized a $2.7 million and $2.9 million reduction in income tax expense during 2007 and 2006, respectively, due to the recognition of a regulatory asset for AFUDC Equity.

Liquidity and Capital Resources

We expect to fund our future capital requirements with cash from operations, our existing cash and cash equivalents, amounts available under our revolving credit agreements (the terms of which are described in Note 8 to the consolidated financial statements) and issuances under our Sales Agency Financing Agreement (the “SAFE Agreement”) entered into in June 2008. The SAFE Agreement allows us to issue and sell up to $150 million of our common shares in the market from time to time through June 2011, subject to continued approval from the FERC authorizing ITC Holdings to issue equity, as described in Note 13 to the consolidated financial statements. In addition, we may secure additional funding in the

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financial markets, although we can provide no assurance that we will be able to obtain financing on favorable terms or at all. We expect that our capital requirements will arise principally from our need to:

•  Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard to property, plant and equipment investments are described in detail above under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Trends and Seasonality.”

•  Fund working capital requirements.

•  Fund our debt service requirements, which are described in detail below under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations.” We expect our interest payments to increase during 2009 compared to 2008 as a result of additional debt incurred in 2008 and 2009 to fund our capital expenditures.

•  Fund dividends to holders of our common stock.

•  Fund contributions to our retirement plans, as described in Note 11 to the consolidated financial statements. The impact of the growth in the number of participants in our retirement benefit plans, the recent financial market conditions that have caused a decrease in the value of our retirement plan assets and changes in the requirements of the Pension Protection Act may require contributions to our retirement plans to be higher than we have experienced in the past.

•  Fund business development expenses and related capital expenditures. We are pursuing other development activities described above under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — Development Activities” that result in development expense and could result in significant capital expenditures.

We believe that we have sufficient capital resources to meet our currently anticipated short-term needs. We rely on both internal and external sources of liquidity to provide working capital and to fund capital investments. We expect to continue to utilize our revolving credit agreements and our cash and cash equivalents as needed to meet our other short-term cash requirements. As of December 31, 2008, we had consolidated indebtedness under our revolving credit agreements of $129.2 million, with unused capacity under the agreements of $210.8 million, or $161.1 million of unused capacity if reduced by the undrawn portion of Lehman’s commitment of $49.7 million described below. In addition, as of December 31, 2008, we had $58.1 million of cash and cash equivalents on hand which exceeds the amounts that we would typically maintain for operating purposes, in the event conditions in the credit market worsen.

We do not expect the recent events in the capital markets to have a significant impact on our short-term liquidity, due to the diverse bank group within our revolving credit agreement syndication. However, Lehman, a member of our revolving credit agreement syndication, was included in a bankruptcy filing made by its parent, Lehman Brothers Holdings Inc., on September 14, 2008. Lehman’s commitment of $55.0 million was 16.2% of our total revolving credit agreement capacity of $340.0 million and we had $5.3 million outstanding under the agreements at December 31, 2008 relating to Lehman’s participation. We are attempting to identify a replacement bank to fulfill Lehman’s commitment, but given the favorable terms of our existing agreement compared to current market conditions, it is unlikely we will be able to find a replacement bank. We believe we have sufficient unused capacity under our revolving credit agreements, without the Lehman capacity, to meet our short-term capital requirements.

For our long-term capital requirements, we expect that we will need to obtain additional debt and equity financing. We expect to be able to obtain such additional financing as needed in amounts and upon terms that will be reasonably satisfactory to us.

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Credit Ratings

		Standard and Poor’s	Moody’s Investor
Issuer	Issuance	Ratings Services(a)	Service, Inc.(b)
ITC Holdings	Senior Notes	BBB−	Baa3
ITCTransmission	First Mortgage Bonds	A−	A3
METC	Senior Secured Notes	A−	A3
ITC Midwest	First Mortgage Bonds	A−	A3

(a)	Our Standard and Poor’s Rating Services credit ratings have a stable outlook.
(b)	Our Moody’s Investor Service, Inc. credit ratings have a positive outlook.

We believe our investment-grade credit ratings should provide a significant degree of flexibility in obtaining funds on competitive terms. However, these credit ratings reflect the views of the rating agencies only. An explanation of the significance of these ratings may be obtained from each rating agency. Such ratings are not a recommendation to buy, sell, or hold debt securities, but rather an indication of creditworthiness. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. Each rating should be evaluated independently of any other rating.

Covenants

Our debt instruments include senior notes, secured notes, first mortgage bonds and revolving credit agreements containing numerous financial and operating covenants that place significant restrictions on, among other things, our ability to:

•  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 or acquire subsidiaries; and

•  pay dividends or make distributions on ITC Holdings and ITCTransmission’s capital stock or METC’s and ITC Midwest’s member’s capital.

We are currently in compliance with all debt covenants.

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Cash Flows

The following table summarizes cash flows for the periods indicated:

	Year Ended December 31,
	2008			2007			2006
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	109,208		$	73,296		$	33,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		94,769			67,928			40,156
Attachment O revenue accrual — including accrued interest		(83,390	)		(20,325	)		—
Deferred income tax expense		65,054			36,650			13,230
Other		(1,240	)		(1,523	)		3,309
Changes in assets and liabilities, exclusive of changes shown separately		11,020			(20,242	)		(28,050	)
Net cash provided by operating activities		195,421			135,784			61,868
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(401,840	)		(287,170	)		(167,496	)
ITC Midwest’s asset acquisition, including acquisition direct fees		(5,722	)		(794,490	)		—
METC acquisition, including acquisition direct fees and net of cash acquired		—			(254	)		(495,645	)
Other		6,242			6,384			1,697
Net cash used in investing activities		(401,320	)		(1,075,530	)		(661,444	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net issuance/repayment of long-term debt (including revolving credit agreements)		4,516			981,000			436,286
Issuance of common stock		310,543			3,402			202,253
Dividends on common stock		(58,935	)		(48,168	)		(38,307	)
Other		5,269			(7,298	)		(11,821	)
Net cash provided by financing activities		261,393			928,936			588,411
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		55,494			(10,810	)		(11,165	)
CASH AND CASH EQUIVALENTS — Beginning of period		2,616			13,426			24,591
CASH AND CASH EQUIVALENTS — End of period	$	58,110		$	2,616		$	13,426

Cash Flows From Operating Activities

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Net cash provided by operating activities increased $59.6 million in 2008 over 2007. The increase in cash provided by operating activities was due primarily to higher network revenues billed, the recognition of regional cost sharing revenues, higher point-to-point revenues and scheduling control and dispatch revenues of $110.0 million, $15.5 million, $4.1 million and $2.3 million, respectively. Additionally, cash provided by operating activities increased in 2008 due to 2007 payments of $20.0 million to various transmission customers pursuant to the METC rate case settlement discussed in Note 5 to the consolidated financial statements. These increases were partially offset by higher operating and maintenance

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expenses, general and administrative expenses and taxes other than income tax expenses in 2008 of $32.4 million, $19.2 million and $7.8 million, respectively. Additionally, we made $28.7 million of additional interest payments (net of interest capitalized) during the year ended December 31, 2008 compared to the same period in 2007 due primarily to higher outstanding balances of long-term debt.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Net cash provided by operating activities increased $73.9 million in 2007 over 2006. The increase in cash provided by operating activities was due primarily to higher network revenues billed, point-to-point revenues and scheduling control and dispatch revenues of $164.0 million, $12.3 million and $6.4 million, respectively. These increases were partially offset by higher operating and maintenance expenses, general and administrative expenses and taxes other than income tax expenses in 2007 of $46.0 million, $21.5 million and $11.2 million, respectively, primarily as a result of the acquisition of METC. Additionally, we made $33.5 million of additional interest payments (net of interest capitalized) during the year ended December 31, 2007 compared to the same period in 2006 due primarily to higher outstanding balances of long-term debt.

Cash Flows From Investing Activities

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Net cash used in investing activities decreased $674.2 million in 2008 compared to 2007. The decrease in cash used in investing activities was due primarily to payments of ITC Midwest’s asset acquisition purchase price and related direct acquisition fees in 2007. The decrease in cash used in investing activities was partially offset by higher levels of capital investment in property, plant and equipment in 2008 due primarily to activities at ITC Midwest.

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Net cash used in investment activities increased $414.1 million in 2007 over 2006. The increase in cash used in investing activities was due primarily to payments of ITC Midwest’s asset acquisition purchase price and related direct acquisition fees in 2007 and higher levels in investment in property, plant and equipment in 2007. The increase in cash used in investing activities was partially offset by payments made in 2006 for the purchase price and related direct acquisition fees associated with the indirect acquisition of METC.

Cash Flows From Financing Activities

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Net cash provided by financing activities decreased $667.5 million in 2008 compared to 2007. The decrease in cash provided by financing activities was due primarily to the 2007 issuance of the $765.0 million ITC Holdings Bridge Facility used to temporarily finance ITC Midwest’s asset acquisition, a net decrease in borrowings under our revolving credit facilities of $129.3 million during 2008 as compared to 2007, the 2007 issuance by ITCTransmission of its $100.0 million First Mortgage Bonds, Series C and an additional $10.8 million of dividend payments during 2008 as compared to 2007. These decreases in cash provided by financing activities were partially offset by $101.2 million of additional permanent financing in excess of the amounts redeemed in full under the ITC Holdings Bridge Facility in January 2008, $13.3 million of additional net proceeds associated with refundable deposits for transmission network upgrades and $224.9 million of proceeds from the 2008 issuances of ITCTransmission’s First Mortgage Bonds, Series D, METC’s Senior Secured Notes and ITC Midwest’s First Mortgage Bonds, Series B and Series C.

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Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Net cash provided by financing activities increased $340.5 million in 2007 over 2006, due primarily to the 2007 issuances of $100.0 million of ITC Holdings’ Senior Notes, Series A and Series B, and the $765.0 million ITC Holdings Bridge Facility. Cash from financing activities also increased due to the net increase in borrowings of $165.8 million under our revolving credit facilities in 2007 compared to 2006 and the redemption or repayment of $123.5 million of long-term debt in 2006. These increases were partially offset by proceeds from the financings in 2006 associated with the METC acquisition, including the issuance of $510.0 million of ITC Holdings’ Senior Notes and the offering of common shares of $200.5 million (net of underwriters discount and other offering fees). Additionally in 2006, ITCTransmission issued $100.0 million of First Mortgage Bonds to finance investments in property, plant and equipment.

Contractual Obligations

The following table details our contractual obligations as of December 31, 2008:

			Less Than						More Than
(In thousands)	Total		1 Year		1-3 Years		4-5 Years		5 Years
Long-term debt:
ITC Holdings Senior Notes	$	1,262,000	$	—	$	—	$	317,000	$	945,000
ITC Holdings revolving credit agreement		67,953		—		67,953		—		—
ITCTransmission First Mortgage Bonds		385,000		—		—		185,000		200,000
ITCTransmission/METC revolving credit agreement		42,064		—		42,064		—		—
METC Senior Secured Notes		225,000		—		—		50,000		175,000
ITC Midwest First Mortgage Bonds		250,000		—		—		—		250,000
ITC Midwest revolving credit agreement		19,218		—		—		19,218		—
Interest payments:
ITC Holdings Senior Notes		938,645		74,683		200,756		142,980		520,226
ITCTransmission First Mortgage Bonds		277,630		20,108		60,323		36,465		160,734
METC Senior Secured Notes		103,185		13,378		40,133		26,755		22,919
ITC Midwest First Mortgage Bonds		385,472		16,176		48,526		32,350		288,420
Operating leases		530		326		166		38		—
Deferred payables		1,222		1,222		—		—		—
Purchase obligations		42,795		30,540		9,426		2,829		—
METC Easement Agreement		420,000		10,000		30,000		20,000		360,000
Total obligations	$	4,420,714	$	166,433	$	499,347	$	832,635	$	2,922,299

Interest payments included above relate only to our fixed-rate long-term debt outstanding at December 31, 2008. We also expect to pay interest and commitment fees under our variable-rate revolving credit agreements that have not been included above due to varying amounts of borrowings and interest rates under the facilities. In 2008, we paid $4.7 million of interest and commitment fees under our revolving credit agreements.

Purchase obligations represent commitments for materials, services and equipment that had not been received as of December 31, 2008, primarily for construction and maintenance projects for which we have an executed contract. The majority of the items relate to materials and equipment that have long production lead times.

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The Easement Agreement provides METC with an easement for transmission purposes and rights-of-way, leasehold interests, fee interests and licenses associated with the land over which the transmission lines cross. The cost for use of the rights-of-way is $10.0 million per year. The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals thereafter. Payments to Consumers Energy under the Easement Agreement are charged to operation and maintenance expense.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the consolidated financial statements and disclosures based on varying assumptions, as future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.

The following is a list of accounting policies that are most significant to the portrayal of our financial condition and results of operations and/or that require management’s most difficult, subjective or complex judgments.

Regulation

Nearly all of our Regulated Operating Subsidiaries’ business is subject to regulation by the FERC. As a result, we apply accounting principles in accordance with Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (“SFAS 71”). Use of SFAS 71 results in differences in the application of GAAP between regulated and non-regulated businesses. SFAS 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as expense or revenue in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in discontinuing the application of SFAS 71. If we were to discontinue the application of SFAS 71 on our Regulated Operating Subsidiaries’ operations, we may be required to record losses of $224.5 million relating to the regulatory assets at December 31, 2008 that are described in Note 6 to the consolidated financial statements. We also may be required to record losses of $52.4 million relating to intangible assets at December 31, 2008 that are described in Note 4 to the consolidated financial statements. Additionally, we may be required to record gains of $196.9 million relating to regulatory liabilities at December 31, 2008, primarily for asset removal costs that have been accrued in advance of incurring these costs.

We believe that currently available facts support the continued applicability of SFAS 71 and that all regulatory assets and liabilities are recoverable or refundable under our current rate environment.

Revenue Recognition under Forward-Looking Attachment O

Beginning January 1, 2007 for ITCTransmission and METC and January 1, 2008 for ITC Midwest, our Regulated Operating Subsidiaries recover expenses and earn a return on and recover investments in property, plant and equipment on a current rather than a lagging basis under forward-looking Attachment O.

Under the forward-looking Attachment O formula, our Regulated Operating Subsidiaries use forecasted expenses, additions to in-service property, plant and equipment, point-to-point revenues, network load and other items for the upcoming calendar year to establish their projected net revenue requirements and their component of the billed network rates for service on their systems from January 1 to December 31 of that year. The forward-looking Attachment O formula includes a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual net revenue requirements to their billed revenues for each year.

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The true-up mechanism under forward-looking Attachment O meets the requirements of Emerging Issues Task Force No. 92-7, Accounting by Rate-Regulated Utilities for the Effects of Certain Alternative Revenue Programs (“EITF 92-7”). Accordingly, revenue is recognized for services provided during each reporting period based on our Regulated Operating Subsidiaries’ actual net revenue requirements calculated using forward-looking Attachment O. Each of our Regulated Operating Subsidiaries accrues or defers revenues to the extent that their actual net revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The true-up amount is automatically reflected in customer bills within two years under the provisions of forward-looking Attachment O.

ITCTransmission’s Attachment O Rate Freeze Revenue Deferral

ITCTransmission’s rate freeze revenue deferral resulted from the difference between the revenue ITCTransmission would have collected under Attachment O and the actual revenue ITCTransmission received based on the frozen rate of $1.075 kw/month for the period from February 28, 2003 through December 31, 2004. The cumulative revenue deferral at the end of the rate freeze was $59.7 million ($38.8 million net of tax). The revenue deferral and related taxes are not reflected as an asset or as revenue in our consolidated financial statements because they do not meet the criteria to be recorded as regulatory assets in accordance with SFAS 71 or EITF 92-7. SFAS 71 provides that an enterprise shall capitalize all or part of an incurred cost that would otherwise be charged to expense if certain criteria are met, including whether it is probable that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for ratemaking purposes. Although the amortization of the revenue deferral is an allowable component of rates based on the FERC’s approval obtained for this item, the revenue deferral does not represent an incurred cost. Rather, it is a delayed recovery of revenue based on many components of our tariff rate, including incurred costs, rate base, capital structure, network load and other components of Attachment O. Additionally, EITF 92-7 provides that a regulated enterprise should recognize revenue for other than incurred costs if the revenue program meets certain criteria. The revenue deferral did not satisfy the criteria of EITF 92-7 to record the revenue deferral in the year it was determined, as the amounts will not be collected within two years following the end of the year in which the amount was established. We will recognize revenues from June 2006 through December 2011 as the revenue deferral amount is amortized for ratemaking on a straight-line basis and included in Attachment O.

Purchase Accounting

ITC Holdings’ acquisitions of ITCTransmission and METC and ITC Midwest’s acquisition of the IP&L transmission assets were accounted for using the purchase method, prescribed by Statement of Financial Accounting Standards No. 141, Business Combinations, (“SFAS 141”). The provisions of ITC Holdings’ acquisition of ITCTransmission from DTE Energy required an adjustment to the original $610.0 million acquisition price based on the closing balance sheet at February 28, 2003 prepared by DTE Energy. Subsequent to February 28, 2003 and through 2007, ITC Holdings and DTE Energy negotiated adjustments to the purchase price relating to the acquisition for various property, plant and equipment, inventory, and other closing balance sheet items related to the acquisition of ITCTransmission which are reflected in our financial statements for those periods. ITCTransmission’s, METC’s and ITC Midwest’s purchase price allocations are finalized and we do not expect any further adjustments to the purchase price. Statement of Financial Accounting Standards No. 141(R) Business Combinations replaces SFAS 141 for business combinations occurring beginning January 1, 2009 and dictates the accounting treatment of any further adjustments of the estimates recorded in purchase accounting, such as adjustments to an acquired entity’s deferred tax asset and liability balances, see Note 3 to the consolidated financial statements.

Each of our Regulated Operating Subsidiaries is a regulated utility; therefore, in accordance with SFAS 71, the fair value of the majority of the assets acquired and liabilities assumed did not change significantly as a result of applying purchase accounting. As discussed below under “Valuation of Goodwill,” a significant amount of goodwill resulted from these acquisitions, which will require impairment testing on at least an annual basis.

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Valuation of Goodwill

We have goodwill resulting from our acquisitions of ITCTransmission, METC and the assets at ITC Midwest. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we are required to perform an impairment test annually or whenever events or circumstances indicate that the value of goodwill may be impaired. In order to perform these impairment tests, we determined fair value using quoted market prices in active markets, and valuation techniques based on discounted future cash flows under various scenarios. We also considered estimates of market-based valuation multiples for companies within our Regulated Operating Subsidiaries’ peer group. The market-based multiples involve judgment regarding the appropriate peer group and the appropriate multiple to apply in the valuation and the cash flow estimates involve judgments based on a broad range of assumptions, information and historical results. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, we may be required to write down all or a portion of goodwill, which would adversely impact earnings. As of December 31, 2008, consolidated goodwill totaled $951.3 million and we determined that no impairment existed at ITCTransmission, METC or ITC Midwest as of our goodwill impairment testing date of October 1, 2008.

Contingent Obligations

We are subject to a number of federal and state laws and regulations, as well as other factors and conditions that potentially subject us to environmental, litigation, income tax, and other risks. We periodically evaluate our exposure to such risks and record reserves for those matters where a loss is considered probable and reasonably estimable in accordance with GAAP. The adequacy of reserves can be significantly affected by external events or conditions that can be unpredictable; thus, the ultimate outcome of such matters could materially affect our financial statements. These events or conditions include the following:

•  Changes in existing state or federal regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances, hazardous and solid wastes, and other environmental matters.

•  Changes in existing federal income tax laws or Internal Revenue Service regulations.

•  Identification and evaluation of potential lawsuits or complaints in which we may be or have been named as a defendant.

•  Resolution or progression of existing matters through the legislative process, the courts, the Internal Revenue Service, or the Environmental Protection Agency.

Valuation of Share-Based Payment

Our accounting for share-based payments requires us to determine the fair value of awards of ITC Holdings’ common stock. We use the value of ITC Holdings’ common stock at the date of grant in the calculation of the fair value of our share-based awards. The fair value of stock options held by our employees is determined using a Black-Scholes option valuation method, which is a valuation technique that is acceptable for share-based payment accounting. Key assumptions in determining fair value include volatility, risk-free interest rate, dividend yield and expected lives. In the event different assumptions were used, a different fair value would be derived that could cause the related expense to be materially higher or lower.

Pension and Postretirement Costs

We sponsor certain post employment benefits to our employees, which include retirement plans and certain postretirement health care, dental and life insurance benefits. Our periodic costs and obligations associated with these post employment plans are developed from actuarial valuations derived from a number of assumptions including rates of return on plan assets, the discount rate, the rate of increase in health care costs, the amount and timing of plan sponsor contributions, demographic factors such as

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retirements, mortality and turnover among others. We evaluate these assumptions annually and they are updated periodically to reflect our actual experience. Three critical assumptions in determining our periodic costs and obligations are discount rate, expected long-term return on plan assets and the rate of increases in health care costs. The discount rate represents the market rate for synthesized double-A zero coupon bonds with durations corresponding to the expected durations of the benefit obligations and is used to calculate the present value of the expected future cash flows for benefit obligations under our post employment plans. For our rate of return on plan assets we consider the current and expected asset allocations, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term return on plan assets. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans as described in Note 11 to the consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition.

Recent Accounting Pronouncements

See Note 3 to the consolidated financial statements.

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We have commodity price risk at our Regulated Operating Subsidiaries arising from market price fluctuations for materials such as copper, aluminum, steel, oil and gas and other goods used in construction and maintenance activities. Higher costs of these materials are passed on to us by the contractors for these activities. These items affect only cash flows, as the amounts are included as components of net revenue requirement and any higher costs are included in rates under Attachment O.

Interest Rate Risk

Fixed Rate Long Term Debt

Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of our consolidated long-term debt, excluding revolving credit agreements, was $1,986.2 million at December 31, 2008. The total book value of our consolidated long-term debt, excluding revolving credit agreements, was $2,119.0 million at December 31, 2008. We performed an analysis calculating the impact of changes in interest rates on the fair value of long-term debt, excluding revolving credit agreements, at December 31, 2008. An increase in interest rates of 10% (from 7.0% to 7.7%, for example) at December 31, 2008 would decrease the fair value of debt by $96.5 million, and a decrease in interest rates of 10% at December 31, 2008 would increase the fair value of debt by $106.1 million at that date.

Revolving Credit Agreements

At December 31, 2008, we had a consolidated total of $129.2 million outstanding under our revolving credit agreements, which are variable rate loans and therefore fair value approximates book value. A 10% increase or decrease in borrowing rates under the revolving credit agreements compared to the weighted average rates in effect at December 31, 2008 would increase or decrease the total interest expense by $0.2 million, respectively, for an annual period on a constant borrowing level of $129.2 million.

Credit Risk

Our credit risk is primarily with Detroit Edison, Consumers Energy and IP&L, which were responsible for 41.6%, 25.6% and 19.8%, respectively, of our consolidated operating revenues for 2008. These percentages assume a portion of the 2008 Attachment O revenue accruals included in our 2008 operating revenues, which will be billed to our customers in 2010, would be paid by Detroit Edison, Consumers Energy and IP&L in the future based on the respective percentage of network revenues billed to them in 2008. Under Detroit Edison’s and Consumers Energy’s current rate structure, Detroit Edison and Consumers Energy include in their retail rates the actual cost of transmission services provided by ITCTransmission and METC, respectively, in their billings to their customers, effectively passing through to end-use consumers the total cost of transmission service. IP&L currently includes in their retail rates an allowance for transmission services provided by ITC Midwest in their billings to their customers. However, any financial difficulties experienced by Detroit Edison, Consumers Energy or IP&L may affect their ability to make payments for transmission service to ITCTransmission, METC and ITC Midwest, which could negatively impact our business. MISO, as our Regulated Operating Subsidiaries’ billing agent, bills Detroit Edison, Consumers Energy, IP&L and other customers on a monthly basis and collects fees for the use of our transmission systems. MISO has implemented strict credit policies for its members’ customers, which include customers using our transmission systems. In general, if these customers do not maintain their investment grade credit rating or have a history of late payments, MISO may require them to provide MISO with a letter of credit or cash deposit equal to the highest monthly invoiced amount over the previous twelve months.

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ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and schedules are included herein:

	Page
Management’s Report on Internal Control over Financial Reporting		59
Report of Independent Registered Public Accounting Firm		60
Report of Independent Registered Public Accounting Firm		61
Consolidated Statements of Financial Position as of December 31, 2008 and 2007		62
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006		63
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2008, 2007 and 2006		64
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006		65
Notes to Consolidated Financial Statements		66
Schedule I — Condensed Financial Information of Registrant		115

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable, not absolute, assurance as to the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.

Under management’s supervision, an evaluation of the design and effectiveness of our internal control over financial reporting was conducted based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our assessment included extensive documenting, evaluating and testing of the design and operating effectiveness of our internal control over financial reporting. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008.

Deloitte & Touche LLP, an independent registered public accounting firm, as auditors of our consolidated financial statements, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2008. Deloitte & Touche LLP’s report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting, is included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ITC Holdings Corp.:

We have audited the accompanying consolidated statements of financial position of ITC Holdings Corp. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ITC Holdings Corp. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/  DELOITTE & TOUCHE LLP

Detroit, Michigan

February 26, 2009

60

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ITC Holdings Corp.:

We have audited the internal control over financial reporting of ITC Holdings Corp. and subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2008 of the Company and our report dated February 26, 2009 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/  DELOITTE & TOUCHE LLP

Detroit, Michigan

February 26, 2009

61

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	December 31,
(In thousands, except share data)	2008			2007
ASSETS
Current assets
Cash and cash equivalents	$	58,110		$	2,616
Accounts receivable		57,638			40,919
Inventory		25,077			26,315
Deferred income taxes		—			2,689
Regulatory assets- Attachment O revenue accrual (including accrued interest of $1,637)		22,301			—
Other		4,147			3,518
Total current assets		167,273			76,057
Property, plant and equipment (net of accumulated depreciation and amortization of $925,890 and $879,843, respectively)		2,304,386			1,960,433
Other assets
Goodwill		951,319			959,042
Intangible assets (net of accumulated amortization of $6,050 and $3,025, respectively)		52,357			55,382
Regulatory assets- Attachment O revenue accrual (including accrued interest of $1,512 and $552, respectively)		81,643			20,537
Regulatory assets- Acquisition adjustments (net of accumulated amortization of $22,393 and $17,004, respectively)		80,665			86,054
Other regulatory assets		39,848			29,449
Deferred financing fees (net of accumulated amortization of $8,048 and $5,138, respectively)		21,410			14,201
Other		15,664			12,142
Total other assets		1,242,906			1,176,807
TOTAL ASSETS	$	3,714,565		$	3,213,297
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	79,403		$	47,627
Accrued payroll		10,331			8,928
Accrued interest		37,779			23,088
Accrued taxes		18,104			15,065
Deferred income taxes		6,476			—
ITC Midwest’s asset acquisition additional purchase price accrual		—			5,402
Refundable deposits from generators for transmission network upgrades		8,701			2,352
Other		5,384			3,965
Total current liabilities		166,178			106,427
Accrued pension and postretirement liabilities		24,295			13,934
Deferred income taxes		144,889			90,617
Regulatory liabilities		196,656			189,727
Other		5,231			6,093
Long-term debt		2,248,253			2,243,424
Commitments and contingent liabilities (Notes 5 and 15)
STOCKHOLDERS’ EQUITY
Common stock, without par value, 100,000,000 shares authorized, 49,654,518 and 42,916,852 shares issued and outstanding at December 31, 2008 and 2007, respectively		848,624			532,103
Retained earnings		81,268			31,864
Accumulated other comprehensive loss		(829	)		(892	)
Total stockholders’ equity		929,063			563,075
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,714,565		$	3,213,297

See notes to consolidated financial statements.

62

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
(In thousands, except share and per share data)	2008			2007			2006
OPERATING REVENUES	$	617,877		$	426,249		$	223,622
OPERATING EXPENSES
Operation and maintenance		113,818			81,406			35,441
General and administrative		81,296			62,089			40,632
Depreciation and amortization		94,769			67,928			40,156
Taxes other than income taxes		41,180			33,340			22,156
Other operating income and expense — net		(809	)		(688	)		(842	)
Total operating expenses		330,254			244,075			137,543
OPERATING INCOME		287,623			182,174			86,079
OTHER EXPENSES (INCOME)
Interest expense		122,234			81,863			42,049
Allowance for equity funds used during construction		(11,610	)		(8,145	)		(3,977	)
Loss on extinguishment of debt		—			349			1,874
Other income		(3,415	)		(3,457	)		(2,348	)
Other expense		3,944			1,618			1,629
Total other expenses (income)		111,153			72,228			39,227
INCOME BEFORE INCOME TAXES		176,470			109,946			46,852
INCOME TAX PROVISION		67,262			36,650			13,658
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		109,208			73,296			33,194
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX OF $16)		—			—			29
NET INCOME	$	109,208		$	73,296		$	33,223
Basic earnings per share	$	2.25		$	1.73		$	0.95
Diluted earnings per share	$	2.19		$	1.68		$	0.92
Weighted-average basic shares		48,605,951			42,298,478			35,048,049
Weighted-average diluted shares		49,770,681			43,541,306			36,236,944
Dividends declared per common share	$	1.190		$	1.130		$	1.075

See notes to consolidated financial statements.

63

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

										Accumulated
										Other			Total
	Common Stock						Retained			Comprehensive			Stockholders’			Comprehensive
	Shares			Amount			Earnings			Loss			Equity			Income
(In thousands, except share data)
BALANCE, DECEMBER 31, 2005		33,228,638		$	251,681		$	11,792		$	(172	)	$	263,301
Net income		—			—			33,223			—			33,223		$	33,223
Issuance of common stock		6,580,987			200,549			—			—			200,549			—
Issuance of common stock in MTH and METC Acquisition		2,195,045			72,458			—			—			72,458			—
Repurchase and retirement of common stock		(30,605	)		(1,040	)		—			—			(1,040	)		—
Common stock issuance costs		—			(2,364	)		—			—			(2,364	)		—
Dividends declared on common stock		—			—			(38,307	)		—			(38,307	)		—
Stock option exercises		191,685			1,704			—			—			1,704			—
Issuance of restricted stock		236,160			—			—			—			—			—
Forfeiture of restricted stock		(6,150	)		—			6			—			6			—
Amortization of share-based compensation, net of forfeitures		—			3,497			—			—			3,497			—
Settlement of interest rate lock cash flow hedges, net of tax $522		—			—			—			(969	)		(969	)		(969	)
Amortization of interest rate lock cash flow hedges, net of tax $8		—			—			—			14			14			14
Minimum pension liability adjustment, net of tax $174		—			—			—			(322	)		(322	)		(322	)
Comprehensive income																$	31,946
Reclassify the accumulated minimum pension liability adjustment to other regulatory assets, net of tax $266		—			—			—			494			494
BALANCE, DECEMBER 31, 2006		42,395,760		$	526,485		$	6,714		$	(955	)	$	532,244
Net income		—			—			73,296			—			73,296		$	73,296
Repurchase and retirement of common stock		(41,867	)		(1,841	)		—			—			(1,841	)		—
Common stock issuance costs		—			(5	)		—			—			(5	)		—
Dividends declared on common stock		—			—			(48,168	)		—			(48,168	)		—
Stock option exercises		351,172			3,081			—			—			3,081			—
Shares issued under the Employee Stock Purchase Plan		8,922			321			—			—			321			—
Issuance of restricted stock		228,644			—			—			—			—			—
Forfeiture of restricted stock		(25,779	)		—			22			—			22			—
Amortization of share-based compensation, net of forfeitures		—			4,062			—			—			4,062			—
Amortization of interest rate lock cash flow hedges, net of tax $34		—			—			—			63			63			63
Comprehensive income																$	73,359
BALANCE, DECEMBER 31, 2007		42,916,852		$	532,103		$	31,864		$	(892	)	$	563,075
Net income		—			—			109,208			—			109,208		$	109,208
Common stock issuance costs		—			(755	)		—			—			(755	)		—
Dividends declared on common stock		—			—			(58,953	)		—			(58,953	)		—
Issuance of common stock		6,420,737			308,317			—			—			308,317			—
Stock option exercises		141,883			1,460			—			—			1,460			—
Shares issued under the Employee Stock Purchase Plan		18,593			766			—			—			766			—
Issuance of restricted stock		172,261			—			—			—			—			—
Forfeiture of restricted stock		(15,808	)		—			21			—			21			—
Amortization of share-based compensation, net of forfeitures		—			7,251			—			—			7,251			—
Amortization of interest rate lock cash flow hedges, net of tax $34		—			—			—			63			63			63
Other		—			(518	)		—			—			(518	)		—
Comprehensive income																$	109,271
Statement of Financial Accounting Standards No. 158 change in measurement date provisions, Note 11:
Service cost, interest cost, and expected return on plan assets for October 1 — December 31, 2007, net of tax of $400		—			—			(647	)		—			(647	)
Amortization of prior service cost and losses for October 1 — December 31, 2007, net of tax of $140		—			—			(225	)		—			(225	)
BALANCE, DECEMBER 31, 2008		49,654,518		$	848,624		$	81,268		$	(829	)	$	929,063

See notes to consolidated financial statements.

64

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(In thousands)	2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	109,208		$	73,296		$	33,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		94,769			67,928			40,156
Attachment O revenue accrual — including accrued interest		(83,390	)		(20,325	)		—
Deferred income tax expense		65,054			36,650			13,230
Allowance for equity funds used during construction		(11,610	)		(8,145	)		(3,977	)
Other		10,370			6,622			7,286
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable		(14,455	)		(3,023	)		996
Inventory		(10,237	)		(18,016	)		(3,431	)
Other current assets		(629	)		6,469			(4,834	)
Accounts payable		14,948			9,533			(17,938	)
Accrued payroll		778			3,401			(818	)
Accrued interest		14,693			4,172			4,112
Accrued taxes		3,600			779			2,130
METC rate case accrued liability		—			(20,000	)		—
Other current liabilities		1,191			(2,952	)		(7,327	)
Non-current assets and liabilities, net		1,131			(605	)		(940	)
Net cash provided by operating activities		195,421			135,784			61,868
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(401,840	)		(287,170	)		(167,496	)
ITC Midwest’s asset acquisition purchase price		(4,714	)		(783,113	)		—
ITC Midwest’s asset acquisition direct fees		(1,008	)		(11,377	)		—
Acquisition of MTH and METC, net of cash acquired		—			—			(484,189	)
MTH and METC asset acquisition direct fees		—			(254	)		(11,456	)
Other		6,242			6,384			1,697
Net cash used in investing activities		(401,320	)		(1,075,530	)		(661,444	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt		782,782			865,000			609,627
Repayment of long-term debt		(765,000	)		—			(123,541	)
Borrowings under ITC Holdings’ Term Loan agreement		—			25,000			—
Repayment of ITC Holdings’ Term Loan agreement		—			(25,000	)		—
Borrowings under revolving credit agreements		657,733			678,200			128,400
Repayments of revolving credit agreements		(670,999	)		(562,200	)		(178,200	)
Issuance of common stock		310,543			3,402			202,253
Dividends on common stock		(58,935	)		(48,168	)		(38,307	)
Refundable deposits from generators for transmission network upgrades		15,661			—			—
Repayment of refundable deposits from generators for transmission network upgrades		(2,352	)		—			—
Debt issuance costs		(7,159	)		(5,409	)		(6,969	)
Other		(881	)		(1,889	)		(4,852	)
Net cash provided by financing activities		261,393			928,936			588,411
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		55,494			(10,810	)		(11,165	)
CASH AND CASH EQUIVALENTS — Beginning of period		2,616			13,426			24,591
CASH AND CASH EQUIVALENTS — End of period	$	58,110		$	2,616		$	13,426

See notes to consolidated financial statements.

65

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   GENERAL

ITC Holdings Corp. (“ITC Holdings,” and together with its subsidiaries, “we,” “our” or “us”) was incorporated for the purpose of acquiring International Transmission Company (“ITCTransmission”) from DTE Energy Company (“DTE Energy”). Following the approval of the transaction by the Federal Energy Regulatory Commission (the “FERC”), ITC Holdings acquired the outstanding ownership interests of ITCTransmission on February 28, 2003.

On October 10, 2006, ITC Holdings acquired an indirect ownership (through various intermediate entities) of all the partnership interests in Michigan Transco Holdings, Limited Partnership (“MTH”), the sole member of Michigan Electric Transmission Company, LLC (“METC”).

On December 20, 2007, ITC Midwest LLC (“ITC Midwest”), a wholly owned subsidiary of ITC Holdings, completed the acquisition of the transmission assets of Interstate Power and Light Company (“IP&L”), an Alliant Energy Corporation subsidiary.

ITCTransmission, METC and ITC Midwest (together, our “Regulated Operating Subsidiaries”) are independent electric transmission utilities, with rates regulated by the FERC and established on a cost-of service model. ITCTransmission’s service area is located in southeastern Michigan and METC’s service area covers approximately two-thirds of Michigan’s Lower Peninsula and is contiguous with ITCTransmission’s service area with nine interconnection points. ITC Midwest’s service area is located in portions of Iowa, Minnesota, Illinois and Missouri. The Midwest Independent Transmission System Operator, Inc. (“MISO”) bills and collects revenues from our Regulated Operating Subsidiaries’ customers at FERC-approved rates.

2.   SIGNIFICANT ACCOUNTING POLICIES

A summary of the major accounting policies followed in the preparation of the accompanying consolidated financial statements, which conform to accounting principles generally accepted in the United States of America (“GAAP”), is presented below:

Principles of Consolidation — ITC Holdings consolidates its majority owned subsidiaries. We eliminate all intercompany balances and transactions.

Use of Estimates — The preparation of the consolidated financial statements in accordance with GAAP requires us to make 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 these estimates.

Regulation — Our Regulated Operating Subsidiaries are subject to the regulatory jurisdiction of the FERC, which issues orders pertaining to rates, recovery of certain costs, including the costs of transmission assets and regulatory assets, conditions of service, accounting, financing authorization and operating-related matters. The electric transmission operations of our Regulated Operating Subsidiaries meet the criteria of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (“SFAS 71”). This accounting standard recognizes the cost-based rate setting process, which results in differences in the application of GAAP between regulated and non-regulated businesses. SFAS 71 requires the recording of regulatory assets and liabilities for transactions that would have been recorded as revenue and expense in non-regulated businesses. Regulatory assets represent costs that will be included as a component of future tariff rates and regulatory liabilities represent amounts provided in the current tariff rates that are intended to recover costs expected to be incurred in the future or amounts to be refunded to customers.

Cash and Cash Equivalents — We consider all unrestricted highly-liquid temporary investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

66

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidated Statements of Cash Flows — The following table presents certain supplementary cash flows information for the years ended December 31, 2008, 2007 and 2006:

	Year Ended December 31,
	2008		2007		2006
(In thousands)
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	102,149	$	73,489	$	40,038
Federal and state income taxes paid		2,012		2,058		561
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment(a)		54,689		33,998		33,282
Allowance for equity funds used during construction		11,610		8,145		3,977
ITC Holdings common stock issued in the METC acquisition		—		—		72,458
Assumption of MTH and METC debt and other long term interest bearing obligations		—		—		307,749

(a) Amounts consist of current liabilities for construction labor and materials that have not been included in investing activities. These amounts have not been paid for as of December 31, 2008, 2007 or 2006, respectively, but have been or will be included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

Accounts Receivable — We recognize losses for uncollectible accounts based on specific identification of any such items. As of December 31, 2008 and 2007, we did not have an accounts receivable reserve.

Inventories — Materials and supplies inventories are valued at average cost.

Property, Plant and Equipment — Depreciation and amortization expense on property, plant and equipment was $85.6 million, $58.7 million and $37.1 million for 2008, 2007 and 2006, respectively.

Property, plant and equipment in service at our Regulated Operating Subsidiaries is stated at its original cost when first devoted to utility service. The gross book value of assets retired less salvage proceeds is charged to accumulated depreciation. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes. The composite depreciation rate for our Regulated Operating Subsidiaries included in our consolidated statements of operations was 3.0%, 3.2% and 3.1% for 2008, 2007 and 2006, respectively. The composite depreciation rates include depreciation primarily on transmission station equipment, towers, poles and overhead and underground lines that have a useful life ranging from 36 to 75 years. The portion of depreciation expense related to asset removal costs is added to regulatory liabilities and removal costs incurred are deducted from regulatory liabilities. Our Regulated Operating Subsidiaries capitalize an allowance for the cost of equity and borrowings used during construction in accordance with FERC regulations. The allowance for the cost of borrowed funds used during construction of $3.5 million, $2.6 million and $1.0 million for 2008, 2007 and 2006, respectively, was a reduction to interest expense. The allowance for the cost of equity funds used during construction (“AFUDC Equity”) was $11.6 million, $8.1 million and $4.0 million for 2008, 2007 and 2006, respectively.

Property, plant and equipment includes capital equipment inventory stated at original cost consisting of items that are expected to be used exclusively for capital projects.

67

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, plant and equipment at ITC Holdings and non-regulated subsidiaries is stated at its acquired cost. Proceeds from salvage less the net book value of assets disposed of is recognized as a gain or loss on disposal. Depreciation is computed based on the acquired cost less expected residual value over the estimated useful lives of the assets on a straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes.

Software Costs — We capitalize the costs associated with computer software we develop or obtain for use in our business, which is included in property, plant and equipment. We amortize computer software costs on a straight-line basis over the expected period of benefit once the installed software is ready for its intended use.

Impairment of Long-Lived Assets — Other than for goodwill, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted future cash flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value.

Goodwill and Intangible Assets — We comply with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which addresses the financial accounting and reporting standards for goodwill and other intangible assets. Under SFAS 142, goodwill and other intangibles with indefinite lives are not subject to amortization. However, goodwill and other intangibles are subject to fair value-based rules for measuring impairment, and resulting write-downs, if any, are to be reflected in operating expense. In order to perform these impairment tests, we determined fair value using valuation techniques based on discounted future cash flows under various scenarios and we also considered estimates of market-based valuation multiples for companies within the peer group of the reporting unit that has goodwill recorded. This accounting standard requires that goodwill be reviewed at least annually for impairment and whenever facts or circumstances indicate that the carrying amounts may not be recoverable. We completed our annual goodwill impairment test for each of our Regulated Operating Subsidiaries as of October 1, 2008 and determined that no impairment exists. There were no events subsequent to October 1, 2008 that indicated impairment of our goodwill. Our intangible assets have finite lives and are amortized over their useful lives, refer to Note 4.

Deferred Financing Fees — The costs related to the issuance of long-term debt are deferred and amortized over the life of the debt issue. The debt discount or premium related to the issuance of long-term debt is recorded to long-term debt and amortized over the life of the debt issue. We recorded to interest expense the amortization of deferred financing fees and the amortization of our debt discounts for 2008, 2007 and 2006 of $3.2 million, $2.1 million and $1.4 million, respectively.

Asset Retirement Obligations — We comply with Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”), an interpretation of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). FIN 47 defines the term conditional asset retirement obligation as used in SFAS 143. As defined in FIN 47, a conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. We have identified conditional asset retirement obligations primarily associated with the removal of equipment containing polychlorinated biphenyls (“PCBs”) and asbestos. We record a liability at fair value for a legal asset retirement obligation in the period in which it is incurred. When a new legal obligation is recorded, we capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. We accrete the liability to its present value each period and depreciate the capitalized cost over the useful life of the related asset. At the end of the asset’s useful life, we settle the obligation for its recorded amount or

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incur a gain or loss. We apply the standards of SFAS 71 to our Regulated Operating Subsidiaries and recognize regulatory assets or liabilities for the timing differences between when we recover legal asset retirement obligations in rates and when we would recognize these costs under FIN 47. There were no significant changes to our asset retirement obligations during 2008.

Contingent Obligations — We are subject to a number of federal and state laws and regulations, as well as other factors and conditions that potentially subject us to environmental, litigation and other risks. We periodically evaluate our exposure to such risks and record reserves for those matters where a loss is considered probable and reasonably estimable in accordance with GAAP. The adequacy of reserves can be significantly affected by external events or conditions that can be unpredictable; thus, the ultimate outcome of such matters could materially affect our consolidated financial statements.

Revenues — Revenues from the transmission of electricity are recognized as services are provided. Our Regulated Operating Subsidiaries’ revenues consist primarily of billed network revenues, which are calculated monthly by multiplying:

1) the peak network load achieved during any one hour each month by

2) the appropriate monthly tariff rate as calculated under the MISO rate setting mechanism (“Attachment O”) by

3) the number of days in that month divided by the number of days in the year by

4) twelve.

We record a reserve for revenue subject to refund when such refund is probable and can be reasonably estimated. The reserve is recorded as a reduction to operating revenues.

Beginning January 1, 2007, for ITCTransmission and METC, and January 1, 2008 for ITC Midwest, under forward-looking Attachment O, our Regulated Operating Subsidiaries recover expenses and earn a return on and recover investments in transmission on a current rather than a lagging basis. Refer to Note 5 under “Attachment O Network Transmission Rates — Forward-Looking Attachment O” for a discussion of forward-looking Attachment O. The forward-looking Attachment O formula includes a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual net revenue requirements to their billed revenues for each year and record a revenue accrual or deferral.

Property Taxes — We use a calendar year method of accounting for property taxes. Property tax expense is accrued on a straight-line basis over the calendar year immediately following the tax lien date or assessment date of each year.

Share-Based Payment — We have an Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of ITC Holdings Corp. and its subsidiaries (the “2003 Stock Purchase and Option Plan”) and an Amended and Restated 2006 Long-Term Incentive Plan (“LTIP”) pursuant to which we grant various share-based awards, including options and restricted stock and deferred stock units. Share-based awards are accounted for under the recognition and measurement principles of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”). Compensation expense for employees and directors is recorded for stock options, restricted stock awards and deferred stock units based on their fair value at the grant date, and is amortized over the expected vesting period. We recognize expense for our stock options, which have graded vesting schedules, on a straight-line basis over the entire vesting period and not for each separately vesting portion of the award. The grant date is the date at which our commitment to issue share based awards to the employee or a director arises, which is generally the later of the board approval date, the date of

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hire of the employee or the date of the employee’s compensation agreement which contains the commitment to issue the award.

We also have an Employee Stock Purchase Plan (“ESPP”). The ESPP is a compensatory plan accounted for under the expense recognition provisions of SFAS 123(R). Compensation expense is recorded based on the fair value of the purchase options at the grant date, which corresponds to the first day of each purchase period, and is amortized over the purchase period.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in common stockholders’ equity during a period arising from transactions and events from non-owner sources, including net income.

Income Taxes — Deferred income taxes are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of various assets and liabilities using the tax rates expected to be in effect for the year in which the differences are expected to reverse.

Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), is an interpretation of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, (“SFAS 109”), and clarifies the accounting for uncertainty within the income taxes recognized by an enterprise. FIN 48 prescribes a recognition threshold and a measurement attribute for tax positions taken or expected to be taken in a tax return that may not be sustainable. At the adoption date, no reserves for uncertain income tax positions were recorded pursuant to FIN 48, as we determined that all tax positions taken were highly certain and we did not record a cumulative effect adjustment related to the adoption of FIN 48. Refer to Note 4 under “METC’s Goodwill” for a discussion of an uncertain tax position recorded relating to the METC acquisition.

We file income tax returns with the Internal Revenue Service and with various state and city jurisdictions. We are no longer subject to U.S. federal tax examinations for tax years 2004 and earlier. State and city jurisdictions that remain subject to examination range from tax years 2003 to 2007. Currently, our federal income tax return for tax year 2006 is under examination by the Internal Revenue Service. The State of Michigan completed its examination of the 2004 through 2006 Michigan Single Business Tax returns for ITCTransmission in January 2009. In the event we are assessed interest or penalties by any income tax jurisdictions, interest would be recorded as interest expense and penalties would be recorded as other expense.

3.   RECENT ACCOUNTING PRONOUNCEMENTS

FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

In June 2008, the Financial Accounting Standards Board (the “FASB”) issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are “participating securities” as defined in EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, and therefore should be included in computing earnings per share using the two-class method. According to FSP EITF 03-6-1, a share-based payment award is a participating security when the award includes non-forfeitable rights to dividends or dividend equivalents. The rights result in a non-contingent transfer of value each time an entity declares a dividend or dividend equivalent during the award’s vesting period. FSP EITF 03-6-1 will be effective for us for the first quarter 2009 Form 10-Q. Upon adoption, FSP

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EITF 03-6-1 requires an entity to retroactively adjust all prior period earnings-per-share computations to reflect the FSP EITF 03-6-1 provisions. We have share-based payment awards that include non-forfeitable rights to dividends and we do not expect FSP EITF 03-6-1 to have a significant impact on our earnings-per-share computations.

Statement of Financial Accounting Standards No. 141(R), Business Combinations

Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of SFAS 141(R) will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration), exclude transaction costs from acquisition accounting and require expense recognition for these costs and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS 141(R) was effective for us for business combinations occurring beginning January 1, 2009 and for adjustments to an acquired entity’s deferred tax asset and liability balances occurring beginning January 1, 2009 and we do not expect the adoption of SFAS 141(R) will have a material effect on our consolidated financial statements.

Statement of Financial Accounting Standards No. 157, Fair Value Measurements

Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. We have adopted SFAS 157 and FASB Staff Position FAS No. 157-2: Effective Date of FASB Statement No. 157 effective January 1, 2008. The adoption of SFAS 157 for financial instruments as required at January 1, 2008 did not have a material effect on our consolidated financial statements; however, we are required to provide additional disclosure as part of our consolidated financial statements. As of December 31, 2008, we did not adopted SFAS 157 for non-financial assets and non-financial liabilities, such as goodwill and other intangible assets held by us and measured annually for impairment testing purposes only. However, the provisions associated with non-financial assets and non-financial liabilities will be included in our disclosures in the first quarter 2009 Form 10-Q, as required, and will not have a material effect on our consolidated financial statements.

On October 10, 2008, the FASB issued Staff Position FAS No. 157-3, Fair Value Measurements (“FSP FAS 157-3”), which clarifies the application of SFAS 157 in an inactive market and provides an example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of this standard as of December 31, 2008 did not have a material impact on our consolidated financial statements.

SFAS 157 establishes a three-tier fair value 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.

As of December 31, 2008, we held certain assets that are required to be measured at fair value on a recurring basis. These consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in trust associated with our nonqualified, noncontributory, supplemental retirement benefit plans for selected management and employees that are classified as trading securities under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments

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in Debt and Equity Securities. Our investments consist primarily of mutual funds, debt and equity securities that are publicly traded and for which market prices are readily available and money market funds recorded at cost plus accrued interest to approximate fair value. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value, and losses are recorded in earnings if fair value falls below recorded cost.

Our assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at December 31, 2008, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted prices in				Significant
	active markets for		Significant other		unobservable
	identical assets		observable inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
(In thousands)
Cash equivalents	$	57,310	$	—	$	—
Trading securities		4,980		—		—

Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)

Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”), requires the recognition of the funded status of a defined benefit plan in the statement of financial position as other comprehensive income. Additionally, SFAS 158 requires that changes in the funded status be recognized through comprehensive income, requires the measurement date for defined benefit plan assets and obligations to be the entity’s fiscal year-end and expands disclosures. Upon adoption of SFAS 158 in 2006, we applied the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation and the amounts that otherwise would have been charged and or credited to accumulated other comprehensive income associated with Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (“SFAS 87”), and Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (“SFAS 106”), are recorded as a regulatory asset or liability because as the unrecognized amounts recorded to this regulatory asset are recognized through SFAS 87 and SFAS 106 expenses, under forward-looking Attachment O, they will be recovered from customers in future rates. Under the recognition provisions of SFAS 158, we recognized the funded status of our defined benefit pension and other postretirement plans and provided the required additional disclosures beginning 2006. The adoption of the SFAS 158 funded status recognition and disclosure provisions did not have a material effect on our consolidated results of operations or cash flows.

In addition to the funded status recognition and disclosure provisions, SFAS 158 includes a measurement date provision requiring the employer to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position. Historically, we have measured our plan assets and obligations as of a date three months prior to the fiscal year-end, as allowed under the authoritative accounting literature. Refer to Note 11 for the effect of the adoption of the measurement date provisions of SFAS 158 as of December 31, 2008.

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”) amends and expands the

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disclosure requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the first quarter of 2009. The adoption of this standard did not have a material impact on our consolidated financial statements.

FASB Staff Position FAS 132(R)-1, Employers’ Disclosures About Postretirement Benefit Plan Assets

On December 30, 2008, the FASB issued FSP FAS 132(R)-1, (“FSP FAS 132(R)-1”), which amends Statement of Financial Accounting Standards No. 132(R) Employers’ Disclosures About Pensions and Other Postretirement Benefits — an amendment of FASB Statements No. 87, 88, and 106, (“SFAS 132(R)”), to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 also updates the disclosure examples in SFAS 132(R) to illustrate the required additional disclosures, including those associated with fair value measurement and includes a technical correction. When amendments to SFAS 158 were applied to SFAS 132(R), the requirement that nonpublic entities disclose net periodic benefit costs was inadvertently deleted and FSP 132(R)-1 restores this requirement. The disclosure requirements of FSP FAS 132(R)-1 will be effective for us for the year ended December 31, 2009.

4.   GOODWILL AND INTANGIBLE ASSETS

Goodwill

At December 31, 2008, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $455.3 million and $322.6 million, respectively, which resulted from the ITCTransmission acquisition, the METC acquisition and ITC Midwest’s asset acquisition, respectively. At December 31, 2007, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $455.3 million and $330.3 million, respectively.

The following table summarizes the changes in the carrying amount of goodwill during the years ended December 31, 2008 and 2007:

	2008			2007
(In thousands)
Goodwill balance, beginning of period	$	959,042		$	624,385
Changes to goodwill:
ITC Midwest’s asset acquisition		(7,723	)		330,315
METC acquisition		—			5,188
$ITCTransmission acquisition		—			(846	)
Goodwill balance, end of period	$	951,319		$	959,042

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  ITC Midwest’s Goodwill

On December 20, 2007, ITC Midwest acquired electric transmission assets of IP&L, for $783.1 million, excluding fees, expenses and purchase price adjustments, pursuant to an asset sale agreement dated January 18, 2007 with IP&L. The purchase price was subject to several purchase price adjustment provisions relating to liabilities actually assumed by ITC Midwest and the actual rate base, construction work in progress and other asset or liability balances actually transferred to ITC Midwest by IP&L on December 20, 2007. ITC Midwest results are included in our consolidated statements of operations and cash flows for the year ended December 31, 2008 and the period from December 20, 2007 through December 31, 2007.

ITC Midwest’s asset acquisition was accounted for as an acquisition of a group of assets that constitutes a business under the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations. During 2008, the purchase price and purchase price allocation were finalized. ITC Midwest made a final payment to IP&L of $4.7 million for additional purchase price relating to certain revisions to the original estimated assets acquired and liabilities assumed that had been used to develop the initial acquisition payment. We had recorded an estimate of $5.4 million in current liabilities for additional purchase price to be paid at December 31, 2007.

ITC Midwest incurred $12.4 million for professional services and other direct acquisition costs in connection with the acquisition, resulting in an aggregate purchase price of $800.2 million as of December 31, 2008. ITC Midwest had recorded an estimate of $11.7 million for professional services and other direct acquisition costs at December 31, 2007. The additional $0.7 million of direct acquisition costs recorded during the year ended December 31, 2008 are included in the aggregate purchase price and resulted in an increase in goodwill.

During 2008, a valuation was performed to determine the tax basis of the assets acquired in ITC Midwest’s asset acquisition. This valuation resulted in the recognition of a deferred tax asset and corresponding decrease in goodwill of $8.3 million during 2008.

  METC’s Goodwill

On October 10, 2006, ITC Holdings acquired indirect ownership of all the partnership interests in MTH, the sole member of METC. Under the terms of the purchase agreement, the selling shareholders received $484.4 million in cash and 2,195,045 shares of ITC Holdings’ common stock valued at $72.5 million. MTH and METC are included in our consolidated statements of operations and cash flows for the years ended December 31, 2008 and 2007 and for the period from October 11, 2006 through December 31, 2006.

We have an uncertain tax position resulting from an analysis we performed on various transaction costs incurred in connection with the METC acquisition. In applying the measurement provisions of FIN 48, this tax position resulted in an immaterial reduction to the deferred tax asset recorded in purchase accounting and the interest exposure is also currently immaterial. As a result of SFAS 141(R) becoming effective for us on January 1, 2009, if an event causes management to change its judgment on the amount of benefits expected to be realized from the tax position or when the tax position is effectively settled, we would record additional tax expense or benefit.

During 2007, various purchase accounting assets and liabilities values associated with the METC acquisition were finalized. These values, which included the amount of federal income tax NOLs acquired, the value of certain property, plant and equipment and the amounts established under the METC rate case settlement accounted for as a pre-acquisition contingency at the acquisition date, had no effect on our preliminary purchase price allocation or our consolidated statements of operations. Refer to additional

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discussion of METC rate case settlement, the METC Regulatory Deferral and the METC ADIT Deferral in Note 5 under “METC Rate Case Settlement”.

  ITCTransmission’s Goodwill

On February 28, 2003, ITC Holdings acquired all of DTE Energy’s outstanding ownership interests in ITCTransmission for $610.0 million in cash plus direct transaction costs. Under the terms of the purchase agreement, after the closing of the ITCTransmission acquisition the purchase price may be adjusted based on revisions to the closing balance sheet of ITCTransmission as of February 28, 2003. Various such adjustments were made to the purchase price and goodwill balance during 2007, 2005, 2004 and 2003 primarily resulting from the negotiations of property, plant and equipment balances at the time of the ITCTransmission acquisition. These negotiations are finalized and we expect no further adjustments to the purchase price.

Intangible Assets

Pursuant to the METC acquisition in October 2006, we have identified intangible assets with finite lives derived from the portion of regulatory assets recorded on METC’s historical FERC financial statements that were not recorded on METC’s historical GAAP financial statements associated with the METC Regulatory Deferrals and the METC ADIT Deferrals. The carrying amount of the intangible asset for METC Regulatory Deferrals at December 31, 2008 and 2007 is $35.6 million and $37.6 million, respectively, and is amortized over 20 years beginning January 1, 2007, which corresponds to the amortization period established in the METC rate case settlement. The carrying amount of the intangible asset for METC ADIT Deferrals at December 31, 2008 and 2007 is $16.7 million and $17.8 million, respectively, and is amortized over 18 years beginning January 1, 2007, which also corresponds to the amortization period established in the METC rate case settlement. METC earns an equity return on the remaining unamortized balance of both the intangible asset for METC Regulatory Deferrals and the intangible asset for METC ADIT Deferrals. Refer to the discussion of the METC Regulatory Deferrals and the METC ADIT Deferrals in Note 5 under “METC Rate Case Settlement.”

During each of the years ended December 31, 2008 and 2007, we recognized $3.0 million of amortization expense of our intangible assets. No amortization expense was recognized in 2006. We expect the annual amortization of our intangible assets is as follows:

(In thousands)
2009	$	3,025
2010		3,025
2011		3,025
2012		3,025
2013		3,025
2014 and thereafter		37,232
Total	$	52,357

5.   REGULATORY MATTERS

Attachment O Network Transmission Rates

Attachment O is a FERC-approved cost of service formula rate template that is completed annually by most transmission owning members of MISO, including our Regulated Operating Subsidiaries. Rates are generally set annually under Attachment O and remain in effect for a one-year period. Rates derived using Attachment O are posted on the MISO Open Access Same-Time Information System each year. The

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information used to complete the Attachment O template is subject to verification by MISO. By completing the Attachment O template on an annual basis, our Regulated Operating Subsidiaries are able to adjust their component of the joint zone transmission rates to reflect changing operational data and financial performance, including the amount of network load on their transmission systems, operating expenses and additions to property, plant and equipment when placed in service, among other items.

Because Attachment O is a FERC-approved formula rate, no further action or FERC filings are required for the calculated joint zone rates to go into effect, although the rate is subject to legal challenge at the FERC. Attachment O will be used by our Regulated Operating Subsidiaries to calculate their respective annual net revenue requirements until and unless it is determined by the FERC to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable.

Forward-Looking Attachment O

In 2006, the FERC authorized ITCTransmission and METC to modify the implementation of their Attachment O formula rates so that, beginning January 1, 2007, ITCTransmission and METC recover expenses and earn a return on and recover investments in property, plant and equipment on a current rather than a lagging basis. As part of the FERC order dated December 3, 2007 approving ITC Midwest’s asset acquisition, the FERC approved ITC Midwest’s request for the use of a forward-looking Attachment O effective January 1, 2008.

Under the forward-looking Attachment O formula, our Regulated Operating Subsidiaries use forecasted expenses, additions to in-service property, plant and equipment, point-to-point revenues, network load and other items for the upcoming calendar year to establish their projected net revenue requirement and their component of the billed network rates for service on their systems from January 1 to December 31 of that year. The forward-looking Attachment O formula includes a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual net revenue requirements to their billed revenues for each year.

The true-up mechanism, under forward-looking Attachment O, meets the requirements of Emerging Issues Task Force Issue No. 92-7, Accounting by Rate-Regulated Utilities for the Effects of Certain Alternative Revenue Programs (“EITF 92-7”). Accordingly, revenue is recognized for services provided during each reporting period based on actual net revenue requirements calculated using forward-looking Attachment O. Beginning January 1, 2007, ITCTransmission and METC accrue or defer revenues to the extent that the actual net revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The true-up amount is automatically reflected in customer bills within two years under the provisions of forward-looking Attachment O. For the periods presented through December 31, 2006, ITCTransmission’s and METC’s rate-setting method for network transmission rates primarily used historical FERC Form No. 1 data to establish a rate, the Attachment O method in effect did not contain a true-up mechanism, and there was no adjustment recognized for billed amounts that differed from actual net revenue requirement. For the period from December 20, 2007 through December 31, 2007, ITC Midwest’s Attachment O method in effect did not contain a true-up mechanism, and there was no adjustment recognized for billed amounts that differed from actual net revenue requirement.

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Network Transmission Rates

Our Regulated Operating Subsidiaries’ component of the joint zone network transmission rates per kilowatt (“kW”)/month that are relevant to our results of operations and cash flows for the corresponding period are as follows:

Period	ITCTransmission		METC		ITC Midwest
January 1, 2006 to May 31, 2006	$	1.594
June 1, 2006 to December 31, 2006(a)	$	1.744	$	1.524
January 1, 2007 to December 31, 2007(b)	$	2.099	$	1.524	$	2.373
January 1, 2008 to December 31, 2008	$	2.350	$	1.985	$	2.446
January 1, 2009 to December 31, 2009	$	2.520	$	2.522	$	4.162

(a)	Our consolidated results of operations include METC revenues for the periods subsequent to October 10, 2006.
(b)	Our consolidated results of operations include revenues from the assets acquired by ITC Midwest for the periods subsequent to December 20, 2007.

Complaint of IP&L

On November 18, 2008, IP&L filed a complaint against ITC Midwest before the FERC under Section 206 of the Federal Power Act. The complaint alleges that: (1) the operations and maintenance expenses and administrative and general expenses projected in the 2009 ITC Midwest rate appear excessive; (2) the true-up amount related to ITC Midwest’s posted network rate for the period through December 31, 2008, will cause ITC Midwest to charge an excessive rate in future years; and (3) the methodology of allocating administrative and general expenses among ITC Holdings’ operating companies was changed, resulting in such additional expenses being allocated to ITC Midwest. The complaint states that it does not challenge ITC Midwest’s Attachment O formula or its planned capital investments. ITC Midwest’s network rate is based on its forward-looking Attachment O rate formula, as approved by FERC, which incorporates ITC Midwest’s projected net revenue requirement and load. Among other things, IP&L’s complaint seeks investigative action by the FERC relating to ITC Midwest’s transmission service charges reflected in its 2009 rate, as well as hearings regarding the justness and reasonableness of the 2009 rate (with the ultimate goal of reducing such rate). The resolution of this proceeding and its ultimate impact on ITC Midwest’s network rate and transmission revenues cannot be determined at this time. We believe that ITC Midwest’s 2009 rate is just and reasonable, that IP&L has not proffered sufficient arguments or reasons for the complaint to be sustained, and that the 2009 ITC Midwest Rate appropriately reflects the commitment of ITC Midwest to improve the performance and reliability of its transmission system. Accordingly, ITC Holdings and ITC Midwest believe that IP&L’s action is without merit and currently intend to contest it vigorously. However, various other parties, including The Detroit Edison Company (“Detroit Edison”) and Consumers Energy Company (“Consumers”) have filed with the FERC as interveners in the matter, such that the outcome of the case could also have an impact on the rates of ITCTransmission and METC. If the FERC issues a decision in this matter which inhibits our ability to recover costs and expenses through our rates or is otherwise adverse to our interests, then our results of operations and liquidity may be materially and adversely affected.

METC Rate Case Settlement

On January 19, 2007, METC and other parties to the rate case entered into a settlement agreement to resolve all outstanding matters in METC’s pending rate case before the FERC, including those set for hearing in the FERC December 30, 2005 rate order, which authorized METC, beginning on January 1,

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2006, to charge rates for its transmission service using the rate setting formula contained in Attachment O. The terms of this settlement agreement were approved by the FERC on August 29, 2007 and no parties filed for rehearing within the allowed 30-day period subsequent to the approval. Pursuant to the settlement, in October 2007 METC made payments totaling $20.0 million to various transmission customers in lieu of any and all refunds and/or interest payment requirements in this proceeding in connection with METC’s rates in effect on and after January 1, 2006. METC has no other refund obligation or liability beyond this payment in connection with this proceeding.

Additionally, the METC rate case settlement established the balances and respective amortization periods to be used for ratemaking for the METC Regulatory Deferrals and the METC ADIT Deferrals. Pursuant to certain conditions in the December 30, 2005 FERC order, METC made adjustments to its net revenue requirement for depreciation and amortization expense and the related interest expense associated with new transmission assets placed in service from January 1, 2001 to December 31, 2005 (the “METC Regulatory Deferrals”). In addition, METC made adjustments to its net revenue requirement for all the equity return on investment and the carrying costs on new transmission assets placed in service from January 1, 2001 to December 31, 2005 and recorded as a regulatory asset the portion of METC’s purchase price in excess of the fair value of net assets acquired from Consumers Energy approved for inclusion in future rates by the FERC (the “METC ADIT Deferrals”).

The METC rate case settlement established an initial balance of the METC Regulatory Deferrals of $55.0 million with a 20-year amortization beginning January 1, 2007. In addition, the settlement established an initial balance of the METC ADIT Deferrals of $61.3 million with an 18-year amortization beginning January 1, 2007.

Of the METC Regulatory Deferrals and the METC ADIT Deferrals, $39.6 million and $18.8 million, respectively, were recorded as a regulatory asset on METC’s historical FERC financial statements but were not recorded on METC’s historical GAAP financial statements because they did not meet the requirement of an incurred cost eligible for deferral under SFAS 71. These amounts were identified and recorded as intangible assets acquired pursuant to the METC acquisition. Refer to additional discussion in Note 4 under “Intangible Assets.” The remaining portions of the METC Regulatory Deferrals and the METC ADIT Deferrals of $15.4 million and $42.5 million, respectively, were recorded as a regulatory asset acquired pursuant to the METC acquisition. Refer to additional discussion associated with the regulatory assets METC Regulatory Deferrals and METC ADIT Deferrals in Note 6 under “Regulatory Assets.”

ITC Midwest’s Rate Discount

As part of the orders by the Iowa Utility Board (“IUB”) and the Minnesota Public Service Commission (“MPUC”) approving ITC Midwest’s asset acquisition, ITC Midwest agreed to provide a rate discount of $4.1 million per year to its customers for eight years, beginning in the first year customers experience an increase in transmission charges following the consummation of the ITC Midwest’s asset acquisition. Beginning in 2009 and through 2016, ITC Midwest’s net revenue requirement has been or will be reduced by $4.1 million for each year. We believe the proper recognition relating to the rate discount occurs when we provide the service and charge the reduced rate that includes the rate discount.

ITCTransmission Rate Freeze Revenue Deferral

ITCTransmission’s revenue deferral resulted from the difference between the revenue ITCTransmission would have collected under Attachment O and the actual revenue ITCTransmission received based on the frozen rate of $1.075 kW/month for the period from February 28, 2003 through December 31, 2004. The cumulative revenue deferral at the end of the rate freeze was $59.7 million ($38.8 million net of tax). The revenue deferral and related taxes are not reflected as an asset or as revenue in our consolidated financial statements because they do not meet the criteria to be recorded as regulatory assets in

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accordance with SFAS 71 or EITF 92-7. Similarly none of the revenue deferral amortization used in ratemaking is reflected in our consolidated financial statements. SFAS 71 provides that an enterprise shall capitalize all or part of an incurred cost that would otherwise be charged to expense if certain criteria are met, including whether it is probable that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate-making purposes. Although the amortization of the revenue deferral is an allowable component of future rates based on the FERC’s approval obtained for this item, the revenue deferral does not represent an incurred cost. Rather, it is a delayed recovery of revenue based on many components of our tariff rate, including incurred costs, rate base, capital structure, network load and other components of Attachment O. EITF 92-7 provides that a regulated enterprise should recognize revenue for other than incurred costs if the revenue program meets certain criteria. The revenue deferral does not satisfy the criteria of EITF 92-7 to record the revenue deferral in the year it was determined, as the amounts will not be collected within two years following the end of the year in which the amount was established. We believe the proper revenue recognition relating to the revenue deferral occurs when we charge the rate that includes the amortization of the revenue deferral. The revenue deferral is amortized for ratemaking straight-line for five years beginning in June 2006. As of December 31, 2008 and 2007 the balance of ITCTransmission’s revenue deferral was $28.8 million (net of accumulated amortization of $30.9 million) and $40.8 million (net of accumulated amortization of $18.9 million), respectively.

Long Term Pricing

In November 2004, in FERC Docket No. EL02-111 et al., the FERC approved a pricing structure to facilitate seamless trading of electricity between MISO and PJM Interconnection, a Regional Transmission Organization that borders MISO. The order establishes a Seams Elimination Cost Adjustment (“SECA”), as set forth in previous FERC orders, that took effect December 1, 2004, and remained in effect until March 31, 2006 as a transitional pricing mechanism. Prior to December 1, 2004, ITCTransmission and METC earned revenues for transmission of electricity between MISO and PJM Interconnection based on a regional through-and-out rate administered by MISO.

From December 1, 2004 through March 31, 2006, we recorded $2.5 million of gross SECA revenue based on an allocation of these revenues by MISO as a result of the FERC order approving this transitional pricing mechanism. Subsequent to the first quarter of 2006, we no longer earn SECA revenues. The SECA revenues were subject to refund as described in the FERC order and this matter was litigated in a contested hearing before the FERC that concluded on May 18, 2006. An initial decision was issued by the Administrative Law Judge presiding over the hearings on August 10, 2006, which generally indicated that the SECA revenues resulted from unfair, unjust and preferential rates. The judge’s decision is subject to the FERC’s final ruling on the matter, which could differ from the initial decision. Notwithstanding the judge’s initial decision, ITCTransmission, METC and other transmission owners who collected SECA amounts and the counterparties that paid the significant majority of the SECA amounts have filed settlement agreements with the FERC. In the fourth quarter of 2008, all of the settlements were approved by the FERC. As of December 31, 2008, ITCTransmission and METC have reserves recorded of $0.3 million and $0.2 million, respectively, for amounts to be refunded based on the settlement agreements filed and approved by the FERC. For the counterparties who have not filed settlements with the FERC, we are not able to estimate whether any refunds of amounts earned by ITCTransmission or METC will result from this hearing or whether this matter will otherwise be settled, but we do not expect the resolution of this matter to have a material impact on our consolidated financial statements. We have not accrued any refund amounts relating to these counterparties who have not filed settlements with the FERC.

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6.   REGULATORY ASSETS AND LIABILITIES

Regulatory Assets

The following table summarizes the regulatory asset balances at December 31, 2008 and 2007:

	2008		2007
(In thousands)
Regulatory Assets:
Attachment O revenue accrual:
Current (including accrued interest of $1,637 as of December 31, 2008)	$	22,301	$	—
Non-current (including accrued interest of $1,512 and $552 as of December 31, 2008 and 2007, respectively)		81,643		20,537
Acquisition adjustments:
ITCTransmission ADIT Deferral (net of accumulated amortization of 17,676 and $14,645 as of December 31, 2008 and 2007, respectively)		42,926		45,957
METC ADIT Deferral (net of accumulated amortization of $4,717 and $2,359 as of December 31, 2008 and 2007, respectively)		37,739		40,097
Other:
METC Regulatory Deferrals		13,885		14,657
Unamortized loss on reacquired debt		382		2,552
AFUDC Equity		15,329		8,608
Pensions & postretirement		10,252		3,632
Total	$	224,457	$	136,040

Attachment O Revenue Accrual

The forward-looking Attachment O formula includes a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual net revenue requirements to their billed network revenues for each year to determine the true-up amount to be included in future rates. Refer to additional discussion of forward-looking Attachment O in Note 5 under “Attachment O Network Transmission Rates — Forward-Looking Attachment O.” For each reporting period, beginning with the first quarter 2007 for ITCTransmission and METC and the first quarter 2008 for ITC Midwest, revenue is recognized based on actual year-to-date net revenue requirements for that reporting period calculated using forward-looking Attachment O. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual net revenue requirement for the reporting period is higher or lower, respectively, than the network revenue amounts billed relating to that reporting period. The true-up amount, including interest, for each calendar year is automatically reflected in customer bills within two years under the provisions of forward-looking Attachment O. Our Regulated Operating Subsidiaries do not earn an equity return on the balance of the Attachment O revenue accrual or deferral but do accrue interest on the true-up amount.

ITCTransmission ADIT Deferral

The carrying amount of the ITCTransmission ADIT deferral is the remaining unamortized balance of the portion of ITCTransmission’s purchase price in excess of the fair value of net assets acquired approved for inclusion in future rates by the FERC. ITCTransmission earns an equity return on the remaining unamortized balance of the ITCTransmission ADIT deferral. The original amount recorded for this regulatory asset of $60.6 million is being recognized in rates and amortized on a straight-line basis over

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20 years. ITCTransmission recorded amortization expense of $3.0 million annually during 2008, 2007 and, 2006, which is included in depreciation and amortization.

METC ADIT Deferrals

The original amount recorded for the regulatory asset for METC ADIT Deferrals of $42.5 million is recognized in rates and amortized over 18 years beginning January 1, 2007, which corresponds to the amortization period established in the METC rate case settlement. Refer to additional discussion of METC ADIT Deferrals in Note 5 under “METC Rate Case Settlement.” METC earns an equity return on the remaining unamortized balance of the regulatory asset for METC ADIT Deferrals. METC recorded amortization expense of $2.4 million annually during 2008 and 2007, respectively, which is included in depreciation and amortization.

METC Regulatory Deferrals

The original amount recorded for the regulatory asset for METC Regulatory Deferrals of $15.4 million is recognized in rates and amortized over 20 years beginning January 1, 2007, which corresponds to the amortization period established in the METC rate case settlement. Refer to additional discussion of METC Regulatory Deferrals in Note 5 under “METC Rate Case Settlement.” METC earns an equity return on the remaining unamortized balance of the regulatory asset for METC Regulatory Deferrals. METC recorded amortization expense of $0.8 million during 2008 and 2007, respectively, which is included in depreciation and amortization.

Unamortized Loss on Reacquired Debt

In March 2007, ITCTransmission terminated its revolving credit agreement dated as of July 2003 and replaced it with a new facility. In accordance with SFAS 71, the remaining unamortized balance of deferred financing fees of $0.5 million relating to the terminated agreement was reclassified from deferred financing fees to other regulatory assets. This amount is amortized on a straight-line basis through March 2010, which was the maturity date of the revolving credit agreement. In addition, in July 2003, the balance of ITCTransmission’s unamortized debt expense of $10.9 million relating to ITCTransmission’s debt redeemed with the July 2003 refinancing was reclassified from deferred financing fees to other regulatory assets. This amount is amortized on a straight-line basis through February 2009, which was the maturity date of ITCTransmission’s debt redeemed in the July 2003 refinancing. During 2008, 2007 and 2006, ITCTransmission recognized amortization expense of $2.2 million, $2.1 million and $1.9 million, respectively, associated with these regulatory assets, which was recorded to interest expense. ITCTransmission does not earn an equity return on these regulatory assets but they are included as a component of long-term interest used to calculate the cost of long-term debt under forward-looking Attachment O.

AFUDC Equity

SFAS 109 provides that a regulatory asset be recorded if it is probable that a future increase in taxes payable relating to AFUDC Equity will be recovered from customers through future rates, pursuant to the provisions of SFAS 71. Under forward-looking Attachment O, the future taxes payable relating to AFUDC Equity will be recovered from customers in future rates. Forward-looking Attachment O contains a true-up mechanism such that our Regulated Operating Subsidiaries collect their actual net revenue requirement, which includes taxes payable relating to AFUDC Equity. The carrying amount of this regulatory asset is related to the income taxes on AFUDC Equity recognized that is expected to be earned in future revenues. Because AFUDC Equity is a component of property, plant and equipment that is included in rate base when the plant is placed in service, and the related deferred tax liabilities are not a reduction to rate base, we effectively earn a return on this regulatory asset.

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Pensions and Postretirement

Upon adoption of SFAS 158, amounts that otherwise would have been charged and or credited to accumulated other comprehensive income associated with Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (“SFAS 87”) and Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (“SFAS 106”) are recorded as a regulatory asset or liability because as the unrecognized amounts recorded to this regulatory asset are recognized through SFAS 87 and SFAS 106 expenses will be recovered from customers in future rates under forward-looking Attachment O. Our Regulated Operating Subsidiaries do not earn a return on the balance of the Pension and Postretirement regulatory asset.

Regulatory Liabilities

The following table summarizes the regulatory liabilities balances at December 31, 2008 and 2007:

	2008		2007
(In thousands)
Regulatory Liabilities:
Accrued asset removal costs	$	196,656	$	189,515
Attachment O revenue deferral(a)
Current (including accrued interest of $24 as of December 31, 2008)(b)		228		—
Non-current (including accrued interest of $8 as of December 31, 2007)		—		212
Total	$	196,884	$	189,727

(a)	Refer to discussion above under “Attachment O revenue accrual.”
(b)	Current portion of Regulatory Liabilities Attachment O revenue deferral, including accrued interest, is recorded with other current liabilities on our consolidated statement of financial position.

Accrued Asset Removal Costs

The carrying amount of the accrued asset removal costs represents the accrued asset removal costs to remove the asset at retirement. The portion of depreciation expense related to asset removal costs is added to this regulatory liability and removal expenditures incurred are charged to this regulatory liability. Our Regulated Operating Subsidiaries include this item within accumulated depreciation for rate-making purposes, which is a reduction to rate base.

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7.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment-net consisted of the following at December 31, 2008 and 2007:

	2008			2007
(In thousands)
Property, plant and equipment
Regulated Operating Subsidiaries:
Property, plant and equipment in service	$	3,003,312		$	2,637,452
Construction work in progress		163,655			164,622
Capital equipment inventory		45,282			16,157
Other		10,843			14,863
ITC Holdings and other		7,184			7,182
Total		3,230,276			2,840,276
Less accumulated depreciation and amortization		(925,890	)		(879,843	)
Property, plant and equipment-net	$	2,304,386		$	1,960,433

Additions to transmission property, plant and equipment in service and construction work in progress during 2008 and 2007 were primarily for projects to upgrade or replace existing transmission plant to improve the reliability of our transmission systems.

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8.   LONG-TERM DEBT

The following amounts were outstanding at December 31, 2008 and 2007:

	2008		2007
(In thousands)
ITC Holdings Bridge Facility	$	—	$	765,000
ITC Holdings 5.25% Senior Notes due July 15, 2013 (net of discount of $540 and $658, respectively)		266,460		266,342
ITC Holdings 6.04% Senior Notes, Series A, due September 20, 2014		50,000		50,000
ITC Holdings 5.875% Senior Notes due September 30, 2016 (net of discount of $26 and $29, respectively)		254,974		254,971
ITC Holdings 6.23% Senior Notes, Series B, due September 20, 2017		50,000		50,000
ITC Holdings 6.375% Senior Notes due September 30, 2036 (net of discount of $212 and $220, respectively)		254,788		254,780
ITC Holdings 6.050% Senior Notes due January 31, 2018 (net of discount of $1,434)		383,566		—
ITC Holdings Credit Agreement		67,953		46,100
ITCTransmission 4.45% First Mortgage Bonds, Series A, due July 15, 2013 (net of discount of $54 and $66, respectively)		184,946		184,934
ITCTransmission 6.125% First Mortgage Bonds, Series C, due March 31, 2036 (net of discount of $100 and $103, respectively)		99,900		99,897
ITCTransmission 5.75% First Mortgage Bonds, Series D, due April 18, 2018 (net of discount of $106)		99,894		—
ITCTransmission/METC Credit Agreement		42,065		96,400
METC 5.75% Senior Secured Notes due December 10, 2015		175,000		175,000
METC 6.63% Senior Secured Notes due December 18, 2014		50,000		—
ITC Midwest 6.15% First Mortgage Bonds, Series A, due January 31, 2038 (net of discount of $511)		174,489		—
ITC Midwest 7.12% First Mortgage Bonds, Series B, due December 22, 2017		40,000		—
ITC Midwest 7.27% First Mortgage Bonds, Series C, due December 22, 2020		35,000		—
ITC Midwest Credit Agreement		19,218		—
Total long-term debt	$	2,248,253	$	2,243,424

The annual maturities of long-term debt as of December 31, 2008 are as follows:

(In thousands)
2009	$	—
2010		—
2011		—
2012		110,018
2013		471,218
2014 and thereafter		1,670,000
Total	$	2,251,236

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ITC Holdings

Bridge Facility

In connection with ITC Midwest’s asset acquisition, ITC Holdings received a commitment letter, dated January 18, 2007, from a bank (the “Lead Arranger”) to provide to ITC Holdings, subject to the terms and conditions therein, financing in an aggregate amount of up to $765.0 million in the form of a 364-day senior unsecured bridge facility (the “Bridge Facility”). Among other fees paid on the Bridge Facility, ITC Holdings paid a funding fee equal to 0.375% of the aggregate amount of the loans borrowed (the “Funding Fee”) The Funding Fee was rebated in full in January 2008 as a result of the Bridge Facility being refinanced with the Lead Arranger within the specified time period, and was applied as a reduction to the issuance costs of ITC Midwest’s asset acquisition financings. The borrowings under the Bridge Facility accrued interest at 5.56% and total interest expense recognized in 2008 and 2007 were $2.7 million and $1.4 million, respectively. The proceeds from the Bridge Facility were used to finance a significant portion of ITC Midwest’s asset acquisition.

In January 2008, we repaid in full all amounts outstanding under the Bridge Facility using the proceeds of ITC Holdings’ $385.0 million 6.05% Senior Notes due January 31, 2018 (“Senior Notes”), ITC Midwest’s $175.0 million 6.15% First Mortgage Bonds, Series A, due January 31, 2038 (“Series A Bonds”) and the issuance of 6,420,737 shares of ITC Holdings’ common stock for proceeds of $308.3 million (net of underwriting discount of $13.7 million and before issuance costs of $0.8 million). Refer to Note 13 under “ITC Holdings’ Common Stock Offerings” for discussion of the ITC Holdings’ common stock issuance. Terms of the Senior Notes and ITC Midwest Series A Bonds are discussed below.

Senior Notes

On January 24, 2008, ITC Holdings issued $385.0 million aggregate principal amount of its Senior Notes under its first mortgage indenture, dated as of December 10, 2003, in a private placement in reliance on exemptions from registration under the Securities Act of 1933. The Senior Notes were sold to various initial purchasers pursuant to a purchase agreement dated January 15, 2008. The proceeds were used to partially pay off the balance of the Bridge Facility discussed above.

ITCTransmission

First Mortgage Bonds

On April 1, 2008, ITCTransmission issued $100.0 million aggregate principal amount of its 5.75% First Mortgage Bonds, Series D, due April 18, 2018 (the “Series D Bonds”). The Series D Bonds are issued under ITCTransmission’s First Mortgage and Deed of Trust, and therefore have the benefit of a first mortgage lien on substantially all of ITCTransmission’s property. The proceeds were used primarily to pay off amounts outstanding under the ITCTransmission/METC Revolving Credit Agreement and for general corporate purposes.

METC

Senior Secured Notes

On December 18, 2008, METC issued $50.0 million aggregate principal amount of its 6.63% Senior Secured Notes, due December 18, 2014 (the “METC Senior Secured Notes”). The METC Senior Secured Notes are secured by a first priority security interest in all of METC’s assets equally with all other securities under the First Mortgage Indenture. The proceeds were used primarily to pay off amounts outstanding under the ITCTransmission/METC Revolving Credit Agreement and for general corporate purposes.

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ITC Midwest

First Mortgage Bonds

On January 24, 2008, ITC Midwest issued $175.0 million aggregate principal amount of its Series A Bonds. The Series A Bonds are secured by a first mortgage lien on substantially all of ITC Midwest’s real and tangible personal property equally with all other securities issued in the future under its First Mortgage and Deed of Trust, with such exceptions as described in, and such releases as permitted by, the indenture. The proceeds were used to partially pay off the balance of the ITC Holdings Bridge Facility discussed above.

On December 22, 2008, ITC Midwest issued $40.0 million of its 7.12% First Mortgage Bonds, Series B, due December 22, 2017 (the “Series B Bonds”) and $35.0 million of its 7.27% First Mortgage Bonds, Series C, due December 22, 2020 (the “Series C Bonds”). The Series B Bonds and the Series C Bonds are issued under its First Mortgage and Deed of Trust, and therefore have the benefit of a first mortgage lien on substantially all of ITC Midwest’s property. The proceeds were used primarily to pay off amounts outstanding under the ITC Midwest Revolving Credit Agreement and for general corporate purposes.

Revolving Credit Agreements

Lehman Brothers Bank, FSB (“Lehman”), a member of our revolving credit agreement syndication, was included in a bankruptcy filing made by its parent, Lehman Brothers Holdings Inc., on September 14, 2008. Lehman’s commitment of $55.0 million is 16.2% of our total consolidated revolving credit agreement capacity of $340.0 million. Lehman has not funded their share of recent borrowing notices and we are attempting to identify a replacement bank to fulfill Lehman’s commitment but given the favorable terms of our existing agreement compared to current market conditions, it is unlikely we will be able to find a replacement bank.

ITC Holdings Credit Agreement

On March 29, 2007, ITC Holdings entered into a revolving credit agreement, (the “ITC Holdings Credit Agreement”), dated as of March 29, 2007, that establishes an unguaranteed, unsecured revolving credit facility under which ITC Holdings may borrow and issue letters of credit up to $125.0 million (subject to increase to $150.0 million with consent of the lenders). The maturity date of the ITC Holdings Credit Agreement is March 29, 2012. With consent of the lenders holding a majority of the commitments under the ITC Holdings Credit Agreement, ITC Holdings may extend the maturity date of the ITC Holdings Credit Agreement for up to two additional one-year periods. Loans under the ITC Holdings Credit Agreement are variable rate loans, with rates on LIBOR-based loans varying from 20 to 110 basis points over the applicable LIBOR rate, depending on ITC Holdings’ credit rating and the amount of the credit line in use, and rates on other loans at the higher of prime or 50 basis points over the federal funds rate. At December 31, 2008 and 2007, ITC Holdings had $68.0 million and $46.1 million outstanding under the ITC Holdings Credit Agreement, respectively. The weighted-average interest rate of borrowings outstanding under the facility at December 31, 2008 and 2007 was 1.6% and 5.6%, respectively. The ITC Holdings Credit Agreement also provides for the payment to the lenders of a commitment fee on the average daily unused commitments at rates varying from .05% to 0.20% each year, depending on ITC Holdings’ credit rating.

ITCTransmission/METC Credit Agreement

On March 29, 2007, ITCTransmission and METC entered into a revolving credit agreement (the “ITCTransmission/METC Credit Agreement”), dated as of March 29, 2007, that establishes an

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unguaranteed, unsecured revolving credit facility under which ITCTransmission may borrow and issue letters of credit up to $105.0 million (as modified December 27, 2007) and METC may borrow and issue letters of credit up to $60.0 million (subject to increase to $85.0 million with consent of the lenders). The maturity date of the ITCTransmission/METC Credit Agreement is March 29, 2012. With consent of the lenders holding a majority of the commitments under the ITCTransmission/METC Credit Agreement, ITCTransmission and METC may extend the maturity date of the ITCTransmission/METC Credit Agreement for up to two additional one-year periods. Loans made under the ITCTransmission/METC Credit Agreement are variable rate loans, with rates on LIBOR-based loans varying from 20 to 110 basis points over the applicable LIBOR rate, depending on ITCTransmission and METC’s credit ratings and the amount of the credit line in use, and rates on other loans at the higher of prime or 50 basis points over the federal funds rate. At December 31, 2008 and 2007, ITCTransmission had $26.5 million and $78.5 million outstanding under the ITCTransmission/METC Credit Agreement, respectively. At December 31, 2008 and 2007, METC had $15.6 million and $17.9 million outstanding under the ITCTransmission/METC Credit Agreement, respectively. The weighted-average interest rate of borrowings outstanding under the facility at December 31, 2008 and 2007 was 2.1% and 5.4%, respectively, for both ITCTransmission and METC. The ITCTransmission/METC Credit Agreement also provides for the payment to the lenders of a commitment fee on the average daily unused commitments at rates varying from .05% to 0.20% each year, depending on ITCTransmission’s and METC’s credit ratings.

ITC Midwest Credit Agreement

On January 29, 2008, ITC Midwest entered into a Revolving Credit Agreement that establishes an unguaranteed, unsecured $50.0 million (subject to increase to $75.0 million with consent of the lenders) revolving credit agreement under which ITC Midwest may borrow and issue letters of credit. The maturity date of the ITC Midwest Revolving Credit Agreement is January 29, 2013. ITC Midwest’s loans made under the ITC Midwest Revolving Credit Agreement will bear interest at a variable rate, with rates on LIBOR-based loans varying from 20 to 110 basis points over the applicable LIBOR rate, depending on ITC Midwest’s credit rating and the amount of the credit line in use, and rates on other loans at the higher of prime or 50 basis points over the federal funds rate. The ITC Midwest Credit Agreement also provides for the payment to the lenders of a commitment fee on the average daily unused commitments at rates varying from .05% to 0.2% each year, depending on ITC Midwest’s credit rating. At December 31, 2008, ITC Midwest had $19.2 million outstanding under the ITC Midwest Revolving Credit Agreement and the weighted-average interest rate of borrowings outstanding under the facility at December 31, 2008 was 0.9%.

Fair Value of Long Term Debt

Fixed Rate Long Term Debt

Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of our consolidated long-term debt, excluding revolving credit agreements, was $1,986.2 million at December 31, 2008. The total book value of our consolidated long-term debt, excluding revolving credit agreements, was $2,119.0 million at December 31, 2008. We performed an analysis calculating the impact of changes in interest rates on the fair value of long-term debt, excluding revolving credit agreements, at December 31, 2008. An increase in interest rates of 10% at December 31, 2008 would decrease the fair value of debt by $96.5 million, and a decrease in interest rates of 10% at December 31, 2008 would increase the fair value of debt by $106.1 million at that date.

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Revolving Credit Agreements

At December 31, 2008, we had a consolidated total of $129.2 million outstanding under our revolving credit agreements, which are variable rate loans and therefore fair value approximates book value. A 10% increase or decrease in borrowing rates under the revolving credit agreements compared to the weighted average rates in effect at December 31, 2008 would increase or decrease the total interest expense by $0.2 million, respectively for an annual period on a constant borrowing level of $129.2 million.

9.   EARNINGS PER SHARE

We report both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share assumes the issuance of potentially dilutive shares of common stock during the period resulting from the exercise of common stock options and vesting of restricted stock awards. A reconciliation of both calculations for the years ended December 31, 2008, 2007 and 2006 is presented in the following table:

	2008		2007		2006
(In thousands, except share and per share data)
Basic earnings per share:
Net income	$	109,208	$	73,296	$	33,223
Weighted-average shares outstanding		48,605,951		42,298,478		35,048,049
Basic earnings per share	$	2.25	$	1.73	$	0.95
Diluted earnings per share:
Net income	$	109,208	$	73,296	$	33,223
Weighted-average shares outstanding		48,605,951		42,298,478		35,048,049
Incremental shares of share-based awards		1,164,730		1,242,828		1,188,895
Weighted-average dilutive shares outstanding		49,770,681		43,541,306		36,236,944
Diluted earnings per share	$	2.19	$	1.68	$	0.92

Basic earnings per share excludes 591,447, 439,964 and 366,035 shares of restricted common stock at December 31, 2008, 2007 and 2006, respectively, that were issued and outstanding, but had not yet vested as of such dates.

Diluted earnings per share excludes 775,276, 104,720 and 219,673 potential shares of common stock relating to stock options and restricted stock awards at December 31, 2008, 2007 and 2006, respectively, because the effect of including these potential shares was anti-dilutive.

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10.   INCOME TAXES

Our effective tax rate varied from the statutory federal income tax rate due to differences between the book and tax treatment of various transactions as follows:

	2008			2007			2006
(In thousands)
Income tax expense at 35% statutory rate	$	61,765		$	38,481		$	16,398
State income taxes (net of federal benefit)		6,769			(4,047	)		—
Valuation allowance — state income taxes		1,829			4,047			—
AFUDC Equity		(3,601	)		(2,691	)		(2,909	)
Other — net		500			860			169
Income tax provision	$	67,262		$	36,650		$	13,658
Components of the income tax provision were as follows:
	2008			2007			2006
(In thousands)
Current income tax expense	$	2,208		$	—		$	428
Deferred income tax expense		65,054			36,650			13,230
Total income tax provision	$	67,262		$	36,650		$	13,658

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the financial statements. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences.

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Deferred income tax assets (liabilities) consisted of the following at December 31:

	2008			2007
(In thousands)
Property, plant and equipment	$	(132,295	)	$	(81,847	)
Federal income tax NOLs		78,186			32,178
Michigan Business Tax deductions		22,316			24,621
METC regulatory deferral(a)		(19,250	)		(19,213	)
Acquisition adjustments — ADIT deferral(a)		(16,216	)		(13,761	)
Goodwill		(39,298	)		(29,144	)
Attachment O revenue accrual (deferral)-net (including accrued interest)		(41,051	)		(7,730	)
Pension and postretirement liabilities		9,180			5,861
State income tax NOLs		14,874			3,199
Other — net		(14,617	)		1,955
Deferred tax asset valuation allowance(b)		(13,194	)		(4,047	)
Net deferred tax assets (liabilities)	$	(151,365	)	$	(87,928	)
Gross deferred income tax liabilities	$	(280,554	)	$	(165,443	)
Gross deferred income tax assets		142,383			81,562
Deferred tax asset valuation allowance(b)		(13,194	)		(4,047	)
Net deferred tax assets (liabilities)	$	(151,365	)	$	(87,928	)

(a)	Described in Note 6.
(b)	The deferred tax asset valuation allowance relates primarily to state income tax NOLs for which it is more likely than not that a tax benefit will not be realized.

We have estimated federal income tax NOLs of $253.4 million as of December 31, 2008, all of which we expect to use prior to their expiration. These federal income tax NOLs result in part from accelerated depreciation methods for property, plant and equipment for income tax reporting purposes. The federal income tax NOLs of $38.5 million included in the 2006 consolidated tax return for the entities acquired in the METC acquisition would expire beginning in 2019. The remaining estimated federal income tax NOLs of $214.9 million would expire in 2023, 2024 and 2026.

Included in the $253.4 million total estimated federal income tax NOLs is $30.3 million ($10.6 million after tax) of federal income tax NOLs relating to tax deductions for share-based compensation not recognized in the consolidated financial statements. Prior to the adoption of SFAS 123(R), under the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), we recorded tax deductions that exceeded the cumulative compensation cost recognized for options exercised or restricted shares that vested as increases to additional paid-in capital and increases in deferred tax assets for federal income tax NOLs in the consolidated statement of financial position. SFAS 123(R) requires that the excess tax deductions be recognized as additional paid-in capital only if that deduction reduces taxes payable as a result of a realized cash benefit from the deduction. For the year ended December 31, 2008 and 2007, we did not recognize the tax effects of the excess tax deductions as additional paid-in capital or increases to NOL deferred tax assets, as the deductions have not resulted in a reduction of taxes payable due to our federal income tax NOLs.

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Michigan Business Tax

On July 12, 2007, a Michigan law was enacted to replace the Michigan Single Business Tax effective January 1, 2008. Key features of the new tax include a business income tax at a rate of 4.95% and a modified gross receipts tax at a rate of 0.80%, with deductions and credits for certain activities. In December 2007, a 21.99% surcharge was added to the Michigan Business Tax. The surcharge expires no earlier than January 1, 2017. The Michigan Single Business Tax that was in effect through December 31, 2007 was accounted for as a tax other than income tax. The new tax is accounted for as an income tax under the provisions of SFAS 109. The new tax resulted in a state income tax provision recorded for the year ended December 31, 2008 of $8.4 million. For the year ended December 31, 2007, we had recorded $2.0 million in taxes other than income taxes for the Michigan Single Business Tax.

11.   RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Incremental Effect of Applying SFAS 158 Measurement Provisions

In 2008 we adopted the measurement provisions of SFAS 158 and were required to adopt the change in measurement date from September 30 to December 31 by allocating as an adjustment to retained earnings three-fifteenths of net periodic benefit cost as determined for the period from September 30, 2007 to December 31, 2008.

The following table represents the fourth quarter effect of our consolidated statement of financial position as a result of adopting the measurement provision of SFAS 158 at December 31, 2008:

	Before					After
	Application of					Application of
	Measurement					Measurement
	Date Provision					Date Provision
	of SFAS 158		Adjustments			of SFAS 158
(In thousands)
Other regulatory assets	$	40,213	$	(365	)	$	39,848
Total assets		3,714,930		(365	)		3,714,565
Accrued pension and postretirement liabilities		23,248		1,047			24,295
Deferred income taxes (non-current)		145,429		(540	)		144,889
Retained earnings		82,140		(872	)		81,268
Total stockholders’ equity		929,935		(872	)		929,063
Total liabilities and stockholders’ equity		3,714,930		(365	)		3,714,565

Retirement Plan Benefits

We have a retirement plan for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The retirement plan is noncontributory, covers substantially all employees, and provides retirement benefits based on the employees’ years of benefit service, average final compensation and age at retirement. The cash balance plan benefits are based on eligible compensation and interest credits. While we are obligated to fund the retirement plan by contributing the minimum amount required by the Employee Retirement Income Security Act of 1974, it is our practice to contribute the maximum allowable amount as defined by section 404 of the Internal Revenue Code. We made contributions of $2.1 million and $4.0 million to the retirement plan in 2008 and 2007, respectively, although we had no minimum funding requirements. We expect to contribute $3.2 million to the defined benefit retirement plan relating to the 2008 plan year in 2009.

We have also established two supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. The plans provide for benefits that supplement those provided by

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our other retirement plans. For the year ended December 31, 2008, we funded $1.0 million to our supplemental retirement benefit plans. The investments in trust for the supplemental nonqualified retirement plans of $4.6 million and $5.2 million at December 31, 2008 and 2007 are included in other assets. We account for the assets contributed under the supplemental nonqualified retirement plan and held in a trust as trading securities under Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS 115”). Accordingly, realized and unrealized gains or losses on the investments are recorded as investment income or loss. We recognized losses of $1.8 million in other expenses during 2008 and gains of $0.1 million and $0.1 million in other income during 2007 and 2006, respectively, associated with realized and unrealized gains and losses on the investments held in trust associated with our supplemental nonqualified retirement plans.

The investment objective of the retirement benefit plan is to maximize total return with moderate tolerance for risk. Targeted asset allocation is equally weighted between equity and fixed income securities. Management believes that this strategy will provide flexibility for liquidity purposes but also establishes some investment for growth.

The plan assets consisted of the following assets by category:

Asset Category	2008			2007
Fixed income securities		61.9	%		48.4	%
Equity securities		38.1	%		51.6	%
Total		100.0	%		100.0	%

Net pension cost for 2008, 2007 and 2006 includes the following components:

	2008			2007			2006
(In thousands)
Service cost	$	1,977		$	1,493		$	1,165
Interest cost		1,164			996			961
Expected return on plan assets		(1,038	)		(650	)		(426	)
Amortization of prior service cost		(882	)		(1,101	)		(23	)
Amortization of actuarial loss		1,762			1,952			1,835
Net pension cost	$	2,983		$	2,690		$	3,512

The effective date of the annual measurement changed from September 30 to December 31 beginning in 2008 pursuant to the measurement provisions of SFAS 158. The following table reconciles the obligations, assets and funded status of the pension plans as well as the amounts recognized as

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accrued pension liability in the consolidated statement of financial position as of December 31, 2008 and 2007:

	2008			2007
(In thousands)
Change in Benefit Obligation:
Beginning projected benefit obligation	$	(18,869	)	$	(16,161	)
SFAS 158 measurement date adjustment		(785	)		—
Service cost		(1,977	)		(1,493	)
Interest cost		(1,164	)		(996	)
Actuarial net loss		(3,692	)		(101	)
Plan amendments		—			(145	)
Benefits paid		312			27
Ending projected benefit obligation	$	(26,175	)	$	(18,869	)
Change in Plans’ Assets:
Beginning plan assets at fair value	$	13,424		$	8,379
SFAS 158 measurement date adjustment		259			—
Actual (loss) return on plan assets		(3,179	)		1,072
Employer contributions		2,102			4,000
Benefits paid		(312	)		(27	)
Ending plan assets at fair value	$	12,294		$	13,424
Funded status, underfunded	$	(13,881	)	$	(5,445	)
Ending accumulated benefit obligation	$	(22,178	)	$	(16,233	)
Amounts recorded as:
Funded Status:
Other assets	$	—		$	1,560
Accrued pension and postretirement liabilities		(13,881	)		(7,006	)
Total	$	(13,881	)	$	(5,446	)
Unrecognized Amounts in Other Regulatory Assets:
Net actuarial loss	$	8,490		$	2,782
Prior service credit		(226	)		(1,328	)
Total	$	8,264		$	1,454

The unrecognized amounts that otherwise would have been charged and or credited to accumulated other comprehensive income associated with SFAS 87 are recorded as a regulatory asset on our consolidated statements of financial position. We also recorded a deferred income tax liability on the regulatory asset in deferred income tax liabilities on our consolidated statements of financial position. The amounts recorded as a regulatory asset represent a net periodic benefit cost to be recognized in our operating income in future periods.

Actuarial assumptions used to determine the benefit obligation are listed below:

	2008			2007			2006
Discount rate		5.95	%		6.19	%		5.95	%
Annual rate of salary increases		5.00	%		5.00	%		3.50	%

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Actuarial assumptions used to determine the benefit cost for 2008, 2007 and 2006 are listed below:

	2008			2007			2006
Discount rate		6.19	%		5.95	%		5.50	%
Annual rate of salary increases		5.00	%		5.00	%		3.50	%
Expected long-term rate of return on plan assets		7.25	%		7.00	%		7.00	%

The expected long-term rate of return on plan assets was estimated using market benchmarks for equities and bonds applied to the plan’s target asset allocation. The expected return on the plan assets component of net pension cost was determined based on the expected long-term rate of return on plan assets and the fair value of plan assets.

At December 31, 2008, the projected benefit payments for the defined benefit retirement plan calculated using the same assumptions as those used to calculate the benefit obligation described above are listed below:

(In thousands)
2009	555
2010	838
2011	1,663
2012	2,154
2013	2,054
2014 through 2018	12,427

Other Postretirement Benefits

We provide certain postretirement health care, dental, and life insurance benefits for employees who may become eligible for these benefits. Contributions to the plan in 2008 and 2007 totaled $1.3 and $0.4 million, respectively. We expect to contribute $1.3 million to the plan in 2009. In addition, as a condition of the Asset Sale Agreement with IP&L, we assumed $1.7 million of prior service obligations for postretirement benefits for participants who transferred from IP&L to us.

The investment objective for the postretirement benefit plan is to maximize total return with moderate tolerance for risk. Targeted asset allocation is equally weighted between equity and fixed income securities. This strategy will provide flexibility for liquidity purposes but also establishes some investment for growth.

The plan assets consisted of the following assets by category:

Asset Category	2008			2007
Fixed income securities		73.7	%		42.0	%
Equity securities		26.3	%		58.0	%
Total		100.0	%		100.0	%

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. In accordance with FASB Staff Position No. 106-2, our measurement of the accumulated postretirement benefit obligation as of December 31, 2008 and September 30, 2007 reflects amounts associated with the expected subsidies under the Act because we have concluded that the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act.

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Net postretirement cost for 2008, 2007 and 2006 includes the following components:

	2008			2007			2006
(In thousands)
Service cost	$	1,632		$	982		$	1,181
Interest cost		672			330			272
Expected return on plan assets		(218	)		(93	)		(42	)
Amortization of unrecognized prior service cost		580			235			—
Amortization of actuarial (gain) loss		—			(94	)		76
Net postretirement cost	$	2,666		$	1,360		$	1,487

The effective date of the annual measurement changed from September 30 to December 31 starting on January 1, 2008. The following table reconciles the obligations, assets and funded status of the plans as well as the amounts recognized as accrued postretirement liability in the consolidated statement of financial position as of December 31, 2008 and 2007:

	2008			2007
(In thousands)
Change in Benefit Obligation:
Beginning accumulated postretirement obligation	$	(9,139	)	$	(4,859	)
SFAS 158 measurement date adjustment		(576	)		—
Service cost		(1,632	)		(982	)
Interest cost		(672	)		(330	)
Obligation assumed in ITC Midwest’s asset acquisition		(1,669	)		—
Amendments		—			(2,025	)
Actuarial gain (loss)		239			(943	)
Benefits paid		30			—
Ending accumulated postretirement obligation	$	(13,419	)	$	(9,139	)
Change in Plans’ Assets
Beginning plan assets at fair value	$	2,211		$	1,591
SFAS 158 measurement date adjustment		55			—
Actual (loss) return on plan assets		(558	)		225
Employer contributions		1,297			395
Employer provided retiree premiums		30			—
Benefits paid		(30	)		—
Ending Plan assets at fair value	$	3,005		$	2,211
Funded status, underfunded	$	(10,414	)	$	(6,928	)
Amounts recorded as:
Funded Status:
Accrued pension and postretirement liabilities	$	(10,414	)	$	(6,928	)
Total	$	(10,414	)	$	(6,928	)
Unrecognized Amounts in Other Regulatory Assets:
Net actuarial loss	$	923		$	388
Prior service cost		1,065			1,790
Total	$	1,988		$	2,178

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The unrecognized amounts that otherwise would have been charged and or credited to accumulated other comprehensive income associated with SFAS 106 are recorded as a regulatory asset on our consolidated statements of financial position. We also recorded a deferred income tax liability on the regulatory asset in deferred income tax liabilities on our consolidated statements of financial position. The amounts recorded as a regulatory asset represent a net periodic benefit cost to be recognized in our operating income in future periods.

Actuarial assumptions used to determine the benefit obligation are as follows:

	2008			2007			2006
Discount rate		5.95	%		6.19	%		5.95	%
Annual rate of salary increases		5.00	%		5.00	%		3.50	%
Health care cost trend rate assumed for next year		11.00	%		10.50	%		11.00	%
Rate to which the cost trend rate is assumed to decline		5.00	%		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate		2016			2015			2015
Annual rate of increase in dental benefit costs		5.00	%		5.00	%		5.00	%

Actuarial assumptions used to determine the benefit cost for 2008, 2007 and 2006 are as follows:

	2008			2007			2006
Discount rate		6.19	%		5.95	%		5.50	%
Annual rate of salary increases		5.00	%		5.00	%		3.50	%
Health care cost trend rate assumed for next year		11.00	%		11.00	%		12.00	%
Rate to which the cost trend rate is assumed to decline		5.00	%		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate		2016			2015			2015

At December 31, 2008, the projected benefit payments for the postretirement benefit plan calculated using the same assumptions as those used to calculate the benefit obligations listed above are listed below:

(In thousands)
2009	134
2010	193
2011	256
2012	334
2013	482
2014 through 2018	5,010

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase or decrease in assumed health care cost trend rates would have the following effects on costs for 2008 and the postretirement benefit obligation at December 31, 2008:

	One-Percentage-		One-Percentage-
	Point Increase		Point Decrease
(In thousands)
Effect on total of service and interest cost	$	252	$	(205	)
Effect on postretirement benefit obligation		1,318		(1,081	)

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Defined Contribution Plans

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 $1.8 million, $1.4 million and $1.1 million for 2008, 2007 and 2006, respectively.

12.   OTHER COMPENSATION PLANS

Special Bonus Plans

On June 15, 2005, our board of directors approved two discretionary bonus plans, the ITC Holdings Executive Group Special Bonus Plan and the ITC Holdings Special Bonus Plan, under which plan participants had amounts credited to accounts which were maintained for each participant in respect of each calendar year during which the plans are in place. Under the special bonus plans, in determining the amounts to be credited to the plan participants’ accounts, our board of directors is to give consideration to dividends paid, or expected to be paid, on our common stock during each year. Our board of directors can generally amend or terminate the plans at any time, except that no such amendment or termination can materially and adversely affect accrued and vested rights, unless an amendment is necessary to satisfy applicable laws or new accounting standards. All distributions under these plans are payable only in cash. The special bonus plans are accounted for as compensation plans.

On November 12, 2007, the compensation committee of the board of directors approved amendments to the ITC Holdings Special Bonus Plan and the ITC Holdings Executive Group Special Bonus Plan providing that amounts previously deferred under the plans became vested and immediately payable and that any future special bonus amounts awarded under the plans would be immediately vested. Prior to these amendments awards made under the special bonus plans were amortized to expense over the vesting period of the award if the award vests in the future, or expensed immediately if the participant is vested in the award at the time of the award. In December 2007, $2.0 million previously deferred under the ITC Holdings Special Bonus Plan was paid by us from the funded trust to non-executive employee participants and $1.6 million previously deferred under the ITC Holdings Executive Group Special Bonus Plan was paid by us from cash on hand to executive employee participants.

In 2008, we recognized $2.2 million in general and administrative expenses relating to the special bonus plan. In 2007, we recognized $4.2 million in general and administrative expenses relating to the special bonus plans, consisting of $2.5 million for awards authorized during 2007 and $1.7 million for awards authorized in 2006 and 2005 for which expense had not yet been recognized, as a result of the vesting of these previously deferred awards as discussed above. In 2006, we recognized $1.6 million in general and administrative expenses relating to the special bonus plans.

Deferred Compensation Plan

Certain of our employees participate in our deferred compensation plan. The investments in the deferred compensation plan trust of $0.3 million and $0.5 million at December 31, 2008 and 2007 are included in other assets with the corresponding liability recorded in other liabilities. We account for the assets contributed under the deferred compensation plan and held in a trust as trading securities under SFAS 115. Accordingly, gains or losses on the investments, for which the employees are at risk for the investment returns, are recorded as investment income or loss with an offsetting amount recorded to compensation expense. During 2008, we recognized $0.2 million of investment loss with an offsetting

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$0.2 million reduction in compensation expense recorded in general and administrative expense. Compensation expense as well as investment income was less than $0.1 million for 2007 and 2006.

13.   STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

General — ITC Holdings’ authorized capital stock consists of:

•  100 million shares of common stock, without par value; and

•  10 million shares of preferred stock, without par value.

As of December 31, 2008, there were 49,654,518 shares of our common stock outstanding, no shares of preferred stock outstanding and 502 holders of record of our common stock.

Voting Rights — Each holder of ITC Holdings’ common stock, including holders of our common stock subject to restricted stock awards, is entitled to cast one vote for each share held of record on all matters submitted to a vote of stockholders, including the election of directors. Holders of ITC Holdings’ common stock have no cumulative voting rights.

Dividends — Holders of our common stock, including holders of common stock subject to restricted stock awards, are entitled to receive dividends or other distributions declared by the board of directors. The right of the board of directors to declare dividends is subject to the right of any holders of ITC Holdings’ preferred stock, to the extent that any preferred stock is authorized and issued, and the availability under the Michigan Business Corporation Act of sufficient funds to pay dividends. We have not issued any shares of preferred stock. The declaration and payment of dividends is subject to the discretion of ITC Holdings’ board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by ITC Holdings’ board of directors.

As a holding company with no business operations, ITC Holdings’ assets consist primarily of the stock and membership interests in its subsidiaries, deferred tax assets relating primarily to federal income tax NOLs and cash on hand. ITC Holdings’ only sources of cash to pay dividends to our stockholders are dividends and other payments received by us from time to time from our Regulated Operating Subsidiaries and any other subsidiaries we may have and the proceeds raised from the sale of our debt and equity securities. Each of our Regulated Operating Subsidiaries, however, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us for the payment of dividends to ITC Holdings’ stockholders or otherwise. The ability of each of our Regulated Operating Subsidiaries and any other subsidiaries we may have to pay dividends and make other payments to ITC Holdings is subject to, among other things, the availability of funds, after taking into account capital expenditure requirements, the terms of its indebtedness, applicable state laws and regulations of the FERC and the FPA.

Each of the ITC Holdings Credit Agreement, the ITCTransmission/METC Credit Agreement, the ITC Midwest Credit Agreement and the note purchase agreements governing ITC Holdings’ Senior Notes imposes restrictions on ITC Holdings and its subsidiaries’ respective abilities to pay dividends if an event of default has occurred under the relevant agreement, and thus ITC Holdings’ ability to pay dividends on its common stock will depend upon, among other things, our level of indebtedness at the time of the proposed dividend and whether we are in compliance with the covenants under our revolving credit facilities and our other debt instruments. ITC Holdings’ future dividend policy will also depend on the requirements of any

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future financing agreements to which we may be a party and other factors considered relevant by ITC Holdings’ board of directors.

Liquidation Rights — If ITC Holdings is dissolved, the holders of our common stock will share ratably in the distribution of all assets that remain after we pay all of our liabilities and satisfy our obligations to the holders of any of ITC Holdings’ preferred stock, to the extent that any preferred stock is authorized and issued.

Preemptive and Other Rights — Holders of our common stock have no preemptive rights to purchase or subscribe for any of our stock or other securities of our company and there are no conversion rights or redemption or sinking fund provisions with respect to our common stock.

Repurchases — In 2007 and 2006, we repurchased 41,867 and 30,605 shares of common stock for an aggregate of $1.8 million and $1.0 million, respectively, which represented shares of common stock delivered to us by employees as payment of tax withholdings due to us upon the vesting of restricted stock. No shares of common stock were repurchased during 2008.

ITC Holdings’ Common Stock Offerings

In January 2008, ITC Holdings completed an underwritten public offering of its common stock. ITC Holdings sold 6,420,737 newly-issued common shares in the offering, which resulted in proceeds of $308.3 million (net of underwriting discount of $13.7 million and before issuance costs of $0.8 million). The proceeds from this offering were used to partially finance ITC Midwest’s asset acquisition and for general purposes.

In February 2007, International Transmission Holdings Limited Partnership (“IT Holdings LP”), formerly our largest shareholder, sold or distributed its remaining 11,390,054 common shares through a secondary offering of 8,149,534 common shares and through distributions of 3,240,520 common shares to its general and limited partners. ITC Holdings received no proceeds from these offerings and distributions. ITC Holdings incurred offering costs of $0.6 million relating to this transaction, which was recorded in general and administrative expenses in 2007.

Prior to the February 2007 sale and distribution, the ability of our shareholders other than IT Holdings LP to influence our management and policies was limited, including with respect to our acquisition or disposition of assets, the approval of a merger or similar business combination, the incurrence of indebtedness, the issuance of additional shares of common stock or other equity securities and the payment of dividends or other distributions on our common stock. In addition, we could not take certain actions that would adversely affect the limited partners of IT Holdings LP without their approval. IT Holdings LP has divested itself of all remaining common shares, has dissolved and will not participate further in our management.

On October 10, 2006, ITC Holdings completed an underwritten public offering of its common stock in which it sold 6,580,987 newly-issued common shares, which resulted in proceeds of $200.5 million (net of underwriting discount of $9.5 million and before issuance costs). ITC Holdings incurred $2.4 million for professional services and other costs in connection with the public offering, which were recorded as a reduction in stockholders’ equity. The proceeds from this offering were used to partially finance the METC acquisition. IT Holdings LP sold 6,356,513 shares of common shares through the offering, from which sale ITC Holdings received no proceeds.

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ITC Holdings Sales Agency Financing Agreement

On June 27, 2008, ITC Holdings entered into a Sales Agency Financing Agreement (the “SAFE Agreement”) with BNY Mellon Capital Markets, LLC (“BNYMCM”). Under the terms of the SAFE Agreement, ITC Holdings may issue and sell shares of common stock, without par value, from time to time, up to an aggregate sales price of $150.0 million. The term of the SAFE Agreement is for a period of up to June 2011, subject to continued approval from the FERC authorizing ITC Holdings to issue equity. BNYMCM will act as ITC Holdings’ agent in connection with any offerings of shares under the SAFE Agreement. The shares of common stock may be offered in one or more selling periods, none of which will exceed 20 trading days. Any shares of common stock sold under the SAFE Agreement will be offered at market prices prevailing at the time of sale. Moreover, ITC Holdings will specify to BNYMCM (i) the aggregate selling price of the shares of common stock to be sold during each selling period, which may not exceed $40.0 million without BYNMCM’s prior written consent and (ii) the minimum price below which sales may not be made, which may not be less than $10.00 per share without BNYMCM’s prior written consent. ITC Holdings will pay BNYMCM a commission equal to 1% of the sales price of all shares of common stock sold through it as agent under the SAFE Agreement, plus expenses. The shares we would issue under the SAFE Agreement have been registered under ITC Holdings’ automatic shelf registration statement on Form S-3 (File No. 333-140026) filed on January 17, 2007 with the SEC. As of December 31, 2008, we have not issued shares under the SAFE Agreement.

Share-Based Compensation

Our Long Term Incentive Plan, which was adopted in 2006 and amended and restated in 2008 (the “LTIP”), permits the compensation committee to make grants of a variety of share-based awards (such as options, restricted shares and deferred stock units) for a cumulative amount of up to 4,950,000 shares to employees, directors and consultants. The LTIP provides that no more than 3,250,000 of the shares may be granted as awards to be settled in shares of common stock other than options or stock appreciation rights. No awards would be permitted after February 7, 2012. Prior to the adoption of the LTIP, we made various share-based awards under the 2003 Stock Purchase and Option Plan (the “2003 Plan”), including options and restricted stock. In addition, our board of directors and shareholders approved the implementation of the ESPP. The ESPP allows for the issuance of an aggregate of 180,000 shares of our common stock. Participation in this plan is available to substantially all employees. As of December 31, 2008, 4,189,877 shares were available for future issuance under our 2003 Stock Purchase and Option Plan, Employee Stock Purchase Plan and 2006 Long Term Incentive Plan, including 2,603,115 shares issuable upon the exercise of outstanding stock options, of which 1,792,020 were vested. We implemented the ESPP effective April 1, 2007. ITC Holdings issues new shares to satisfy option exercises, restricted stock grants, employee ESPP purchases and settlement of deferred stock units.

We recorded share-based compensation in 2008, 2007 and 2006 as follows:

	2008		2007		2006
(In thousands)
Operation and maintenance expenses	$	1,152	$	868	$	472
General and administrative expenses		4,674		2,509		2,579
Cumulative effect of a change in accounting principle (before tax effect)		—		—		(45	)
Amounts capitalized to property, plant and equipment		1,446		707		491
Total share-based compensation	$	7,272	$	4,084	$	3,497
Total tax benefit recognized for compensation expense	$	2,328	$	1,147	$	1,052

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Tax deductions that exceed the cumulative compensation cost recognized for options exercised, restricted shares that vested or deferred stock units that are settled are recognized as additional paid-in capital only if the tax deductions reduce taxes payable as a result of a realized cash benefit from the deduction. For the year ended December 31, 2008, 2007 and 2006, we did not recognize excess tax deductions for option exercises and restricted stock vesting of $2.0 million, $5.9 million and $2.4 million, respectively, in additional paid-in capital, as the deductions have not resulted in a cash benefit due to our federal income tax NOLs. We will recognize these excess tax deductions in additional paid-in capital when the tax benefits are realized.

Options

Our option grants vest in equal annual installments over a five or three year period from the date of grant, or as a result of other events such as death or disability of the option holder. The options have a term of 10 years from the grant date. Stock option activity for 2008 was as follows:

				Weighted
	Number of			Average
	Options			Exercise Price
Outstanding at January 1, 2008 (1,364,826 exercisable with a weighted average exercise price of $11.03)		2,503,272		$	16.92
Granted		244,316			56.88
Exercised		(141,883	)		10.28
Forfeited		(2,590	)		40.54
Outstanding at December 31, 2008 (1,792,020 exercisable with a weighted average exercise price of $12.61)		2,603,115		$	21.01

Grant date fair value of the stock options was determined using a Black-Scholes option pricing model. The following assumptions were used in determining the weighted-average fair value per option:

	2008			2007			2006
	Option Grants			Options Grants			Options Grants
Weighted-average grant-date fair value per option	$	13.31		$	9.08		$	6.77
Weighted-average expected volatility(a)		24.7	%		21.3	%		22.2	%
Weighted-average risk-free interest rate		3.4	%		4.5	%		4.8	%
Weighted-average expected term(b)		6 years			6 years			6 years
Weighted-average expected dividend yield		2.14	%		2.71	%		3.33	%
Estimated fair value of underlying shares	$	56.88		$	42.82		$	33.00

(a)

We estimated volatility using the volatility of our stock for the 2008 and 2007 option awards. We estimated volatility using the volatility of the stock of similar companies, as well as our own stock for the 2006 option awards, since we became a publicly traded company in July 2005.

(b)

The expected term represents the period of time that options granted are expected to be outstanding. We have utilized the simplified method permitted under Staff Accounting Bulletin No. 110 in determining the expected term for all option grants as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time our equity shares have been publicly traded.

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At December 31, 2008, the aggregate intrinsic value and the weighted-average remaining contractual term for all outstanding options were approximately $62.2 million and 6.0 years, respectively. At December 31, 2008, the aggregate intrinsic value and the weighted-average remaining contractual term for exercisable options were $55.7 million and 5.1 years, respectively. The aggregate intrinsic value of options exercised during 2008, 2007 and 2006 were $6.2 million, $13.1 million and $4.7 million, respectively. At December 31, 2008, the total unrecognized compensation cost related to the unvested options awards was $5.2 million and the weighted-average period over which it is expected to be recognized was 2.8 years.

We estimate that 2,542,071 of the options outstanding at December 31, 2008 will vest, including those already vested. The weighted-average fair value, aggregate intrinsic value and the weighted-average remaining contractual term for options shares that are vested and expected to vest as of December 31, 2008 was $20.55 per share, $61.8 million and 6.0 years, respectively.

Restricted Stock Awards

Holders of restricted stock awards have all the rights of a holder of common stock of ITC Holdings, including dividend and voting rights. The holder becomes vested as a result of certain events such as death or disability of the holder, but not later than the vesting date of the awards. The weighted average expected remaining vesting period at December 31, 2008 is 3.1 years. Holders of restricted shares may not sell, transfer, or pledge their restricted shares until the shares vest and the restrictions lapse.

Restricted stock awards are recorded at fair value at the date of grant, which is based on the closing share price on the grant date. Awards that were granted for future services are accounted for as unearned compensation, with amounts amortized over the vesting period.

Restricted stock award activity for 2008 was as follows:

	Number of			Weighted-
	Restricted			Average
	Stock			Grant Date
	Awards			Fair Value
Unvested restricted stock awards at January 1, 2008		439,964		$	41.14
Granted		172,261			55.07
Vested		(4,970	)		29.89
Forfeited		(15,808	)		43.07
Unvested restricted stock awards at December 31, 2008		591,447		$	45.52

The weighted-average grant date fair value of restricted stock awarded during 2007 and 2006 was $48.84 and $33.16 per share, respectively. The aggregate fair value of restricted stock awards as of December 31, 2008 was $25.8 million. The aggregate fair value of restricted stock awards that vested during 2008, 2007 and 2006 was $0.1 million, $5.7 million and $4.0 million, respectively. At December 31, 2008, the total unrecognized compensation cost related to the restricted stock awards was $20.8 million and the weighted-average period over which that cost is expected to be recognized was 3.3 years.

As of December 31, 2008, we estimate that 486,281 shares of the restricted shares outstanding at December 31, 2008 will vest. The weighted-average fair value, aggregate intrinsic value and the weighted-average remaining contractual term for restricted shares that are expected to vest was $45.28 per share, $21.2 million and 3.1 years, respectively.

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Employee Stock Purchase Plan

The ESPP is a compensatory plan accounted for under the expense recognition provisions of SFAS 123(R). Compensation expense is recorded based on the fair market value of the purchase options at the grant date, which corresponds to the first day of each purchase period and is amortized over the purchase period. During 2008 and 2007, employees purchased 18,593 and 8,922 shares resulting in proceeds from the sale of our common stock of $0.8 million and $0.3 million under the ESPP, respectively. The total share-based compensation amortization for the ESPP was $0.2 million and $0.1 million in 2008 and 2007, respectively.

Deferred Stock Units

Our deferred stock units will be paid in shares of the our common stock on each of the next three anniversaries of the grant date, in equal installments. The deferred stock units do not contain any vesting provisions; that is, our common stock will be issued at the anniversary dates of the grant dates irrespective of employment status. The deferred stock units do not provide for any voting rights until the deferred stock units are delivered as shares of our common stock. The deferred stock units have dividend equivalent rights, providing the holder with the right to any dividends declared on our common stock subsequent to the grant date, such that the holders receive additional deferred stock units with a fair market value equal to the cash dividends they would have received on the shares underlying the deferred stock units they hold as if such underlying shares of common stock had been outstanding on the record date for the dividend. The additional dividend equivalent units granted will be settled in shares of our common stock at the same time as the deferred stock units on which the dividend equivalents were received. The deferred stock units are not transferable by the holders, but the shares issued upon each settlement date will be immediately transferable.

During 2008, we granted 15,647 deferred stock units, which include 370 deferred stock units granted pursuant to dividend equivalent rights, with a weighted average grant date fair value of $55.49 per deferred stock unit. The aggregate fair value of deferred stock units as of December 31, 2008 was $0.7 million. The weighted-average remaining contractual term for the deferred stock units outstanding as of December 31, 2008 was 1.1 years. During 2008, there were no settlements of the deferred stock units.

14.   JOINTLY OWNED UTILITY PLANT/COORDINATED SERVICES

Our Regulated Operating Subsidiaries have agreements with other utilities for the joint ownership of specific substations and transmission lines. We account for these jointly owned substations and lines by recording property, plant and equipment for our percentage of ownership interest. A Transmission Ownership and Operating Agreement or an Interconnection Facilities Agreement provides the authority for construction of capital improvements and for the operating costs associated with the substations and lines. Each party is responsible for the capital, operation and maintenance, and other costs of these jointly owned facilities based upon each participant’s undivided ownership interest. Our Regulated Operating Subsidiaries’ participating share of expenses associated with these jointly held assets are primarily recorded within operating and maintenance expense on our consolidated statement of operations.

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We have investments in jointly owned utility facilities as shown in the table below as of December 31, 2008:

			Construction
	Net Investment(a)		Work in Progress
(In thousands)
Substations	$	89,835	$	5,068
Lines		87,434		5,683
Total	$	177,269	$	10,751

(a) Amount represents our investment in jointly held plant, which has been reduced by the ownership interest amounts of other parties.

ITCTransmission

The Michigan Public Power Agency (the “MPPA”) has a 50.41% ownership interest in two ITCTransmission 345 kV transmission lines. ITCTransmission’s net investment in these two lines totaled $21.7 million as of December 31, 2008. MPPA’s ownership portion entitles them to approximately 234 MW of network transmission service over the ITCTransmission system. An Ownership and Operating Agreement with the MPPA provides ITCTransmission with authority for construction of capital improvements and for the operation and management of the transmission lines. The MPPA is responsible for the capital and operating and maintenance costs allocable to their ownership interest.

METC

METC has joint sharing of several substations that interconnect with Consumers Energy, other municipal distribution systems and other generators. The rights, responsibilities and obligations for these jointly owned substation facilities are documented in the Amended and Restated Distribution — Transmission Interconnection Agreement with Consumers Energy and in numerous Interconnection Facilities Agreements with various municipals and other generators. As of December 31, 2008, METC had net investments in jointly shared substations including jointly shared substations under construction totaling $88.1 million of which METC’s ownership percentages for these jointly owned substation facilities ranged from 6.3% to 66.7%. In addition, the MPPA, the Wolverine Power Supply Cooperative, Inc, (the “WPSC”), and the Michigan South Central Power Agency, (the “MSCPA”), each have an ownership interest in several METC 345 kV transmission lines. This ownership entitles the MPPA, WPSC and MSCPA to approximately 608 MW of network transmission service over the METC transmission system. As of December 31, 2008, METC’s had net investments in jointly shared transmission lines totaling $41.1 million of which METC’s ownership percentages for these jointly owned lines ranged from 35.6% to 64.8%.

ITC Midwest

ITC Midwest has joint sharing of several substations and transmission lines with various parties As of December 31, 2008, ITC Midwest had net investments in jointly shared substations facilities including jointly shared substations facilities under construction totaling $6.8 million of which ITC Midwest’s ownership percentages for these jointly owned substations facilities ranged from 28.0% to 70.0%. As of December 31, 2008, ITC Midwest had net investments in jointly shares transmission lines including jointly shared transmission lines under construction totaling $30.4 million of which ITC Midwest’s ownership percentage for the jointly owned substation facilities and lines ranged from 48.0% to 70.0%.

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15.   COMMITMENTS AND CONTINGENCIES

Environmental Matters

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

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

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

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

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Litigation

We are involved in certain legal proceedings before various courts, governmental agencies, and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, regulatory matters, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or consolidated financial statements in the period in which they are resolved.

  CSX Transportation, Inc.

On August 2, 2006, CSX Transportation, Inc. (“CSX”) filed a lawsuit in the United States District Court for the Eastern District of Michigan alleging that ITCTransmission caused damage to equipment owned by CSX and further claiming mitigation costs to protect against future damage. In January 2007, ITCTransmission received a notice from its insurance provider that it reserves its rights as to the insurance policy, asserting that damage claims of CSX arising from the contractual liability of ITCTransmission are not covered under insurance. In July 2008, ITCTransmission, by and through its insurer, reached a settlement agreement with CSX and the court entered an order of dismissal. Additionally, ITCTransmission has settled with its insurer the amount to be covered by insurance for this matter. During the year ended December 31, 2007, we recorded an accrual of $0.2 million for this matter in general and administrative expenses which was sufficient to cover our obligations under the settlement.

Michigan Sales and Use Tax Audit

The Michigan Department of Treasury (the “Department”) currently is conducting a sales and use tax audit of ITCTransmission for the audit period April 1, 2005 through June 30, 2008. The auditor has raised an issue regarding whether ITCTransmission qualifies for the industrial processing exemption from sales and use tax it has taken beginning January 1, 2007. The industrial processing exemption at issue generally provides an exemption from sales and use tax for an industrial processor or a person performing industrial processing activities for or on behalf of an industrial processor for purchases made by such a business of tangible personal property if the property is used or consumed in the conduct of industrial processing activities.

Based on an analysis of the industrial processing statutes and ITCTransmission’s business activities, ITCTransmission claims the industrial processing exemption for purchases of tangible personal property that it uses in its electricity transmission activities. The purchases for which ITCTransmission claimed exemption include all purchases of tangible property used in its integrated transmission process, including purchases of property to perform inspection, quality control and testing activities, and to perform planning, scheduling, supervision, or control of transmission and transformation of the high voltage electricity that ITCTransmission receives from Detroit Edison .

ITCTransmission has received no formal written or verbal communication indicating that its industrial processing exemption will be denied. However, based on preliminary and informal communications with the Department, it appears likely that the Department will deny the exemption claims and assess additional sales and use tax against ITCTransmission. If an assessment is issued, ITCTransmission will have administrative appeal rights and, if an administrative appeal is unsuccessful, will have a right to litigate any assessment, assuming certain jurisdictional requirements are satisfied, in either the Michigan Tax Tribunal or the Michigan Court of Claims.

ITCTransmission believes that it has a strong position supporting the validity of its industrial processing exemption under the Michigan industrial processing exemption statutes and is committed to

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vigorously defend against any potential denial of such exemption. However, if the Department makes an assessment of sales and use tax based on a denial of ITCTransmission’s industrial processing exemption and an appeal is required, it is reasonably possible that the assessment of additional sales and use tax could be sustained after all administrative appeals and litigation.

The amount of sales and use tax liability associated with the exemptions taken by ITCTransmission total several million dollars. In the event it becomes appropriate to record additional sales and use tax expense relating to this matter, ITCTransmission would record the additional sales and use tax expense primarily as an increase to the cost of property, plant and equipment. These higher sales and use tax expenses would be passed on to ITCTransmission’s customers through higher net revenue requirements and resulting rates. Any penalties and interest relating to this matter would potentially not be passed on through rates. METC has also taken the industrial processing exemption totaling several million dollars for periods still subject to audit since 2005.

Purchase Obligations and Leases

At December 31, 2008, we had purchase obligations of $42.8 million representing commitments for materials, services and equipment that had not been received as of December 31, 2008, primarily for construction and maintenance projects for which we have an executed contract. The majority of the items relate to materials and equipment that have long production lead times that are expected to be paid for in 2009.

We have operating leases for office space, equipment and storage facilities. We recognize expenses relating to our operating lease obligations on a straight-line basis over the term of the lease. We recognized rent expense of $0.6 million, $1.0 million and $0.8 million for the year ended December 31, 2008, 2007 and 2006, respectively, recorded in general and administrative and operation and maintenance expenses. These amounts and the amounts in the table below do not include any expense or payments to be made under the METC Easement Agreement described below under “Other Commitments — METC — Amended and Restated Easement Agreement with Consumers Energy.”

Future minimum lease payments under the leases at December 31, 2008 were:

(In thousands)
2009	$	326
2010		57
2011		57
2012		52
2013 and thereafter		38
Total minimum lease payments	$	530

Other Commitments

  ITCTransmission

Service Level Agreements (“SLA”) with Detroit Edison.  During 2003 and through April 2004, ITCTransmission and Detroit Edison operated under a construction and maintenance, engineering, and system operations SLA whereby Detroit Edison performed maintenance, asset construction, and certain aspects of transmission operations and administration (the “SLA Activities”) on ITCTransmission’s behalf. Operation and maintenance expenses incurred by ITCTransmission under the SLA that exceeded $15.9 million during 2003 were recognized as expense but are deferred as a long-term payable and will be paid to Detroit Edison in equal annual installments over a five-year period beginning June 1, 2005. As of December 31, 2008, ITCTransmission has deferred the payment of $1.2 million of SLA expenses that

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exceeded the 2003 threshold, and recorded in other current liabilities. There was no payment deferral for construction expenditures.

In August 2003, ITCTransmission entered into an Operation and Maintenance Agreement with its primary maintenance contractor and a Supply Chain Management Agreement with its primary purchasing and inventory management contractor to replace the services that Detroit Edison has provided under the SLA. ITCTransmission is not obligated to take any specified amount of services under the terms of the Operation and Maintenance Agreement or the Supply Chain Management Agreement, which have five-year terms ending August 29, 2013 and automatically renew for additional five year terms unless terminated by either party.

  METC

Amended and Restated Purchase and Sale Agreement for Ancillary Services with Consumers Energy.  Under the Purchase and Sale Agreement for Ancillary Services with Consumers Energy (the “Ancillary Services Agreement”), Consumers Energy provides reactive power, balancing energy, load following and spinning and supplemental reserves that are needed by METC and MISO. These ancillary services are a necessary part of the provision of transmission service. This agreement is necessary because METC does not own any generating facilities and therefore must procure ancillary services from third party suppliers including Consumers Energy. The Ancillary Services Agreement establishes the terms and conditions under which METC obtains ancillary services from Consumers Energy. Consumers Energy will offer all ancillary services as required by FERC Order No. 888 at FERC-approved rates. METC is not precluded from procuring these services from third party suppliers and is free to purchase ancillary services from unaffiliated generators located within its control area or in neighboring jurisdictions on a non-preferential, competitive basis. This one-year agreement became effective on May 1, 2002 and is automatically renewed each year for successive one-year periods. The Ancillary Services Agreement can be terminated by either party with six months prior written notice. Services performed by Consumers Energy under the Ancillary Services Agreement are charged to operation and maintenance expense.

Amended and Restated Easement Agreement with Consumers Energy.  The Easement Agreement with Consumers Energy (the “Easement Agreement”) provides METC with an easement for transmission purposes and rights-of-way, leasehold interests, fee interests and licenses associated with the land over which the transmission lines cross. Consumers Energy has reserved for itself the rights to and the value of activities associated with other uses of the infrastructure (such as for fiber optics, telecommunications and gas pipelines). The cost for use of the rights-of-way is $10.0 million per year. The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals thereafter. Payments to Consumers Energy under the Easement Agreement are charged to operation and maintenance expense.

  ITC Midwest

Transition Services Agreement.  The Transition Services Agreement (the “TSA”) dated as of December 20, 2007, identifies the transmission corporate administration services, the construction and maintenance services, the engineering services and the system operations services related to the 34.5 kV transmission system that IP&L agreed to provide to ITC Midwest. The TSA also requires IP&L to provide the transition design, planning and implementation relating to those services. In addition to the system operations services related to the 34.5 kV transmission system, IP&L will provide a limited number of corporate administration services and construction and maintenance services, to ITC Midwest. The initial term of the TSA expired, and ITC Midwest exercised the first of its four options to extend the agreement an additional six months. The first extension will terminate June 30, 2009; however, ITC Midwest has given notice to IP&L that it will require the system operations services related to the 34.5 kV

108

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

transmission system and its associated detailed billing service to be extended through December 31, 2009. The agreement can also be terminated by mutual agreement of the parties. Subsequent to the termination of the TSA, ITC Midwest expects to perform the activities covered under the TSA.

The Operating Agreement.  The Operating Agreement between ITC Midwest and American Transmission Company, LLC (“ATC”), dated as of December 17, 2007, obligated ATC to provide control, operation and emergency response services as well as providing assistance in the transition of those services to ITC Midwest. The services contemplated by this agreement were only for ITC Midwest’s transmission facilities operating at 69 kV and above. The Operating Agreement was terminated in December 2008 in accordance with its terms, at which time ITC Midwest began performing the activities covered under the Operating Agreement.

Concentration of Credit Risk

Our credit risk is primarily with Detroit Edison, Consumers Energy and IP&L, which were responsible for approximately 41.6%, 25.6% and 19.8%, respectively, or $257.1 million, $158.1 million and $122.4 million, respectively, of our consolidated operating revenues for the year ended December 31, 2008. These percentages and amounts of total operating revenues of Detroit Edison, Consumers Energy and IP&L include an estimate for the 2008 Attachment O revenue accruals that were included in our 2008 operating revenues, but will not be billed to our customers until 2010. We have assumed that the Attachment O revenues billed to these customers in 2010 would be in the same proportion of the respective percentages of network revenues billed to them in 2008. Any financial difficulties experienced by Detroit Edison, Consumers Energy or IP&L could negatively impact our business. MISO, as our Regulated Operating Subsidiaries’ billing agent, bills Detroit Edison, Consumers Energy, IP&L and other customers on a monthly basis and collects fees for the use of our transmission systems. MISO has implemented strict credit policies for its members’ customers, which include customers using our transmission systems. In general, if these customers do not maintain their investment grade credit rating or have a history of late payments, MISO may require them to provide MISO with a letter of credit or cash deposit equal to the highest monthly invoiced amount over the previous twelve months.

16.   SEGMENT INFORMATION

We identify reportable segments based on the criteria of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. We determine our reportable segments based primarily on the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses.

  Regulated Operating Subsidiaries

We aggregate ITCTransmission, METC and ITC Midwest into one reportable operating segment based on their similar regulatory environment and economic characteristics, among other factors. They are engaged in the transmission of electricity within the United States, earn revenues from the same types of customers and are regulated by the FERC. Their tariff rates are established using the same formulaic cost-of-service model, Attachment O.

  ITC Holdings and Other

Information below for ITC Holdings and Other consists of a holding company whose activities include debt and equity financings and general corporate activities and all of ITC Holdings’ other subsidiaries, excluding the Regulated Operating Subsidiaries, which are focused primarily on business development activities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Regulated
	Operating		ITC Holdings
2008	Subsidiaries		and Other			Reconciliations			Eliminations			Total
(In thousands)
Operating revenues	$	617,924	$	254		$	—		$	(301	)	$	617,877
Depreciation and amortization		94,477		292			—			—			94,769
Interest expense		43,579		79,394			—			(739	)		122,234
Income before income taxes		267,530		(91,060	)		—			—			176,470
Income tax provision (benefit)(a)		82,919		(15,657	)		—			—			67,262
Net income(a)		184,611		109,208			—			(184,611	)		109,208
Property, plant and equipment, net		2,297,799		6,587			—			—			2,304,386
Goodwill		951,319		—			—			—			951,319
Total assets(b)		3,667,660		2,354,510			(3,154	)		(2,304,451	)		3,714,565
Capital expenditures		398,618		492			—			2,730			401,840

	Regulated
	Operating		ITC Holdings
2007	Subsidiaries(c)		and Other			Reconciliations			Eliminations			Total
(In thousands)
Operating revenues	$	426,249	$	181		$	—		$	(181	)	$	426,249
Depreciation and amortization		67,637		291			—			—			67,928
Interest expense		28,336		53,830			—			(303	)		81,863
Income before income taxes		175,568		(65,622	)		—			—			109,946
Income tax provision (benefit)(a)		39,202		(2,552	)		—			—			36,650
Net income(a)		136,366		73,296			—			(136,366	)		73,296
Property, plant and equipment, net		1,953,556		6,877			—			—			1,960,433
Goodwill		959,042		—			—			—			959,042
Total assets(b)		3,177,561		2,313,701			(540	)		(2,277,425	)		3,213,297
Capital expenditures		287,069		1,062			—			(961	)		287,170

	Regulated
	Operating		ITC Holdings
2006	Subsidiaries(d)		and Other			Reconciliations			Eliminations			Total
(In thousands)
Operating revenues	$	223,622	$	—		$	—		$	—		$	223,622
Depreciation and amortization		40,142		14			—			—			40,156
Interest expense		18,758		23,378			—			(87	)		42,049
Income before income taxes		76,212		(29,360	)		—			—			46,852
Income tax provision (benefit)(a)		22,186		(8,528	)		—			—			13,658
Cumulative effect of a change in accounting principle		29		—			—			—			29
Net income(a)		54,055		33,223			—			(54,055	)		33,223
Property, plant and equipment, net		1,192,305		5,557			—			—			1,197,862
Goodwill		624,385		—			—			—			624,385
Total assets(b)		2,091,574		1,341,360			(1,245	)		(1,302,892	)		2,128,797
Capital expenditures		161,926		5,570			—			—			167,496

110

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(a)	Income tax provision (benefit) and net income for our Regulated Operating Subsidiaries do not include any allocation of taxes for METC. METC is treated as a branch of MTH, which is taxed as a multiple-partner limited partnership for federal income tax purposes. Since METC and MTH, its immediate parent, file as a partnership for federal income tax purposes, they are exempt from federal income taxes. As a result, METC does not record a provision for federal income taxes in its statements of operations or record amounts for federal deferred income tax assets or liabilities on its statements of financial position. For FERC regulatory reporting, however, METC computes theoretical federal income taxes as well as the associated deferred income taxes and includes an annual allowance for income taxes in its net revenue requirement used to determine its rates.
(b)	Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities under the provisions of SFAS 109 at our Regulated Operating Subsidiaries as compared to the classification in our consolidated statement of financial position.
(c)	Amounts include the results of operations from the electric transmission business acquired by ITC Midwest for the period December 20, 2007 through December 31, 2007.
(d)	Amounts include the results of operations from METC for the period October 11, 2006 through December 31, 2006.

17.   SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly earnings per share amounts may not sum to the totals for each the years, since quarterly computation are based on weighted average common shares outstanding during each quarter.

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter(a)		Year
(In thousands, except per share data)
2008
Operating revenue	$	141,914	$	160,616	$	163,279	$	152,068	$	617,877
Operating income		69,268		74,039		74,432		69,884		287,623
Net income		25,521		28,661		28,045		26,981		109,208
Basic earnings per share	$	0.54	$	0.58	$	0.57	$	0.55	$	2.25
Diluted earnings per share	$	0.53	$	0.57	$	0.56	$	0.54	$	2.19
2007
Operating revenue	$	101,274	$	106,303	$	109,272	$	109,400	$	426,249
Operating income		42,819		47,820		48,132		43,403		182,174
Net income		16,855		19,999		20,800		15,642		73,296
Basic earnings per share	$	0.40	$	0.47	$	0.49	$	0.37	$	1.73
Diluted earnings per share	$	0.39	$	0.46	$	0.48	$	0.36	$	1.68

(a) ITC Midwest’s asset acquisition closed on December 20, 2007. The fourth quarter 2007 amounts include the results of operations from ITC Midwest for the period December 20, 2007 through December 31, 2007.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ITEM 9A.  CONTROLS AND PROCEDURES.

Management’s Report on Internal Control Over Financial Reporting is included in Item 8 of this Form 10-K. The attestation report of Deloitte & Touche LLP, our independent registered public accounting firm, on the effectiveness of our internal control over financial reporting is also included in Item 8 of this Form 10-K.

Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

On December 15, 2008, ITC Midwest terminated the Operating Agreement dated as of December 17, 2007 between ITC Midwest and ATC (the “ATC Operating Agreement”). The ATC Operating Agreement, entered into by ITC Midwest and ATC at the closing of the ITC Midwest acquisition in December 2007, obligated ATC to provide control, operation and emergency response services for ITC Midwest facilities operating at 69 kV and above and to provide assistance in the transition of these services to ITC Midwest. The ATC Operating Agreement was terminated in accordance with its terms and no termination penalties were incurred by either party in connection with the termination. Following the termination of the ATC Operating Agreement, ITC Midwest began performing the activities previously performed by ATC pursuant to the terms of the ATC Operating Agreement.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is contained under the captions “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance”

112

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in the Proxy Statement and (excluding the report of the Audit Committee) is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.

The information required by this Item is contained under the caption “Compensation of Executive Officers and Directors” in the Proxy Statement and is incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this Item is contained under the caption “Security Ownership of Management and Major Shareholders” in the Proxy Statement and is incorporated herein by reference.

Equity Compensation Plans

At December 31, 2008, we had the 2003 Stock Purchase and Option Plan and the LTIP, pursuant to which we grant stock options and restricted stock and other equity based compensation to employees, officers, and directors as well as the ESPP. Each of these plans has been approved by shareholders.

The following table sets forth certain information with respect to our equity compensation plans at December 31, 2008 (shares in thousands):

					Number of Shares
					Remaining Available
	Number of Shares				for Future Issuance
	to be Issued		Weighted-Average		Under Equity
	Upon Exercise of		Exercise Price of		Compensation
Plan Category	Outstanding Options		Outstanding Options		Plans(a)
Equity compensation plans approved by shareholders		2,603	$	21.01		4,190

(a) The number of shares remaining available for future issuance under equity compensation plans has been reduced by 1) the common shares issued through December 31, 2008 upon exercise of stock options; 2) the number of common shares to be issued upon the future exercise of outstanding stock options and 3) the number of restricted stock awards granted that have not been forfeited. The LTIP imposes a separate restriction so that no more than 3,250,000 of the shares may be granted as awards to be settled in shares of common stock other than options or stock appreciation rights.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this Item is contained under the captions “Certain Transactions” and “Corporate Governance — Director Independence” in the Proxy Statement and is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this Item is contained under the caption “Independent Registered Public Accounting Firm” in the Proxy Statement and is incorporated herein by reference.

113

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements:

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Position as of December 31, 2008 and 2007

Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2008, 2007 and 2006

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

Schedule I — Condensed Financial Information of Registrant

All other schedules for which provision is made in Regulation S-X either (i) are not required under the related instructions or are inapplicable and, therefore, have been omitted, or (ii) the information required is included in the consolidated financial statements or the notes thereto that are a part hereof.

(b) The exhibits included as part of this report are listed in the attached Exhibit Index, which is incorporated herein by reference. At the request of any shareholder, ITC Holdings will furnish any exhibit upon the payment of a fee of $.10 per page to cover the costs of furnishing the exhibit.

114

SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.
CONDENSED STATEMENTS OF FINANCIAL POSITION (PARENT COMPANY ONLY)

	December 31,
(In thousands)	2008			2007
ASSETS
Current assets
Cash and cash equivalents	$	19,372		$	1,520
Accounts receivable from subsidiaries		21,716			37,387
Deferred income taxes		3,926			3,370
Other		420			424
Total current assets		45,434			42,701
Other assets
Investment in subsidiaries		2,229,875			2,035,483
Intercompany advance to ITC Midwest		—			175,000
Deferred income taxes		22,554			19,245
Deferred financing fees (net of accumulated amortization of $4,311 and $2,341, respectively)		9,698			8,165
Other		15,368			14,754
Total other assets		2,277,495			2,252,647
TOTAL ASSETS	$	2,322,929		$	2,295,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accrued payable	$	3,684		$	3,950
Accrued payroll		10,329			8,481
Accrued interest		25,835			17,480
Other		294			112
Total current liabilities		40,142			30,023
Accrued pension and other postretirement liabilities		24,295			13,934
Other		1,688			1,123
Long-term debt (net of discounts of $2,212 and $907, respectively)		1,327,741			1,687,193
STOCKHOLDERS’ EQUITY
Common stock, without par value, 100,000,000 shares authorized, 49,654,518 and 42,916,852 shares issued and outstanding at December 31, 2008 and 2007, respectively		848,624			532,103
Retained earnings		81,268			31,864
Accumulated other comprehensive loss		(829	)		(892	)
Total stockholders’ equity		929,063			563,075
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,322,929		$	2,295,348

See notes to condensed financial statements (parent company only).

115

SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.
CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY ONLY)

	Year Ended December 31,
(In thousands)	2008			2007			2006
Other income	$	1,392		$	833		$	1,225
General and administrative expense		(5,232	)		(9,768	)		(3,569	)
Interest expense		(79,394	)		(53,830	)		(22,862	)
Loss on extinguishment of debt		—			(349	)		—
Other expense		(1,965	)		(754	)		(1,151	)
LOSS BEFORE INCOME TAXES		(85,199	)		(63,868	)		(26,357	)
INCOME TAX BENEFIT		(35,881	)		(22,750	)		(9,419	)
LOSS AFTER TAXES		(49,318	)		(41,118	)		(16,938	)
EQUITY IN SUBSIDIARIES’ EARNINGS		158,526			114,414			50,161
NET INCOME	$	109,208		$	73,296		$	33,223

See notes to condensed financial statements (parent company only).

116

SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

	Year Ended December 31,
(In thousands)	2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	109,208		$	73,296		$	33,223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in subsidiaries’ earnings		(158,526	)		(114,414	)		(50,161	)
Dividends from subsidiaries		84,039			82,799			31,313
Deferred income tax expense		(36,109	)		(22,750	)		(9,419	)
Intercompany tax payments from subsidiaries		30,900			33,681			—
Share-based compensation expense		7,272			4,084			644
Amortization of deferred financing fees and debt discount		2,244			1,341			703
Other		97			(61	)		28
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable from subsidiaries		15,376			(37,871	)		—
Other current assets		4			29			(417	)
Accrued payable		622			3,215			141
Accrued payable to subsidiary		—			(4,170	)		3,450
Accrued payroll		1,848			8,481			—
Accrued interest		8,355			4,075			6,942
Other current liabilities		(528	)		(84	)		29
Non-current assets and liabilities, net		4,673			5,561			(1,003	)
Net cash provided by operating activities		69,475			37,212			15,473
CASH FLOWS FROM INVESTING ACTIVITIES
Equity contributions to subsidiaries		(117,050	)		(752,504	)		(186,303	)
Intercompany advance to ITC Midwest		—			(175,000	)		—
Repayment of advance to ITC Midwest		175,000			—			—
Return of capital from subsidiary		—			26,997			—
Acquisition of MTH and METC, net of cash acquired		—			—			(484,189	)
MTH and METC direct acquisition fees		—			(254	)		(11,456	)
Net cash provided by (used in) investing activities		57,950			(900,761	)		(681,948	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt		383,422			865,000			509,737
Repayment of long-term debt		(765,000	)		—			—
Borrowings under ITC Holdings’ Term Loan agreement		—			25,000			—
Repayment of ITC Holdings’ Term Loan agreement		—			(25,000	)		—
Borrowings under revolving credit agreements		153,807			294,700			74,700
Repayments of revolving credit agreements		(131,954	)		(248,600	)		(74,700	)
Issuance of common stock		310,543			3,402			202,253
Dividends on common stock		(58,935	)		(48,168	)		(38,307	)
Common stock issuance costs		(881	)		(48	)		(2,321	)
Debt issuance costs		(575	)		(5,113	)		(5,231	)
Other		—			(1,841	)		(2,531	)
Net cash provided by (used in) financing activities		(109,573	)		859,332			663,600
NET INCREASE IN CASH AND CASH EQUIVALENTS		17,852			(4,217	)		(2,875	)
CASH AND CASH EQUIVALENTS — Beginning of period		1,520			5,737			8,612
CASH AND CASH EQUIVALENTS — End of period	$	19,372		$	1,520		$	5,737
Supplementary cash flows information:
Interest paid	$	68,794		$	48,414		$	15,130
Income taxes paid		1,317			2,058			561
Supplementary noncash investing and financing activities:
Value of shares issued in MTH and METC acquisition		—			—			72,458
Equity transfers to subsidiaries		3,537			545			2,853

See notes to condensed financial statements (parent company only).

117

SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

1.   GENERAL

For ITC Holdings Corp.’s (“ITC Holdings,” “we,” “our” and “us”) presentation (Parent Company only), the investment in subsidiaries is accounted for using the equity method. The condensed parent company financial statements and notes should be read in conjunction with the consolidated financial statements and notes of ITC Holdings appearing in this Annual Report on Form 10-K.

As a holding company with no business operations, ITC Holdings’ assets consist primarily of investments in our subsidiaries, deferred tax assets relating primarily to federal income tax operating loss carryforwards and cash. ITC Holdings’ material cash inflows are only from dividends and other payments received from our subsidiaries and the proceeds raised from the sale of debt and equity securities. ITC Holdings may not be able to access cash generated by our subsidiaries in order to fulfill cash commitments or to pay dividends to shareholders. The ability of our subsidiaries to make dividend and other payments to us is subject to the availability of funds after taking into account their respective funding requirements, the terms of their respective indebtedness, the regulations of the FERC under the FPA, and applicable state laws. Each of our subsidiaries, however, is legally distinct from us and has no obligation, contingent or otherwise, to make funds available to us.

ITC Holdings does not believe that these restrictions will materially affect its operations or limit any dividend payments in the foreseeable future.

2.   LONG-TERM DEBT

As of December 31, 2008, the maturities of our long-term debt outstanding were as follows:

(In thousands)
2009	$	—
2010		—
2011		—
2012		67,953
2013		267,000
2014 and thereafter		995,000
Total	$	1,329,953

Refer to Note 8 to the consolidated financial statements for a description of the ITC Holdings Senior Notes and the ITC Holdings revolving credit agreements and related items.

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of the ITC Holdings Senior Notes is $1,143.9 million at December 31, 2008. The total book value of the ITC Holdings Senior Notes net of discount is $1,259.8 million at December 31, 2008.

At December 31, 2008, we were in compliance with all covenants.

3.   RELATED-PARTY TRANSACTIONS

ITCTransmission, MTH, ITC Midwest and other subsidiaries paid cash dividends to ITC Holdings totaling $84.0 million, $82.8 million and $31.3 million in 2008, 2007 and 2006, respectively. Additionally, ITCTransmission paid amounts of $30.9 million and $38.9 million to ITC Holdings under an intercompany tax sharing arrangement during 2008 and 2007, respectively.

118

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Novi, State of Michigan, on February 26, 2009.

ITC HOLDINGS CORP.

By:  /s/  Joseph L. Welch

Joseph L. Welch

Chairman, President, Chief Executive Officer

and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/  Joseph L. Welch Joseph L. Welch	Chairman, President, Chief Executive Officer and Treasurer (principal executive officer)	February 26, 2009
/s/  Edward M. Rahill Edward M. Rahill	Senior Vice President — Finance and Chief Financial Officer (principal financial officer and principal accounting officer)	February 26, 2009
/s/  Edward G. Jepsen Edward G. Jepsen	Director	February 26, 2009
/s/  Richard D. McLellan Richard D. McLellan	Director	February 26, 2009
/s/  William J. Museler William J. Museler	Director	February 26, 2009
/s/  Hazel R. O’Leary Hazel R. O’Leary	Director	February 26, 2009
/s/  Gordon Bennett Stewart, III Gordon Bennett Stewart, III	Director	February 26, 2009
/s/  Lee C. Stewart Lee C. Stewart	Director	February 26, 2009

119

EXHIBITS

The following exhibits are filed as part of this report or filed previously and incorporated by reference to the filing indicated. Our SEC file number is 001-32576.

Exhibit No.			Description of Exhibit
	2	.1	Stock Purchase Agreement by and between DTE Energy Company and the Registrant, dated December 3, 2002 (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	2	.2	Purchase Agreement among Evercore Co-Investment Partnership II L.P., Evercore METC Capital Partners II L.P., MEAP US Holdings, Ltd., Macquarie Essential Assets Partnership, TE Power Opportunities Investors, L.P., TE Management Shareholders, MICH 1400 LLC, the Registrant, GFI Transmission Opportunities GP, LLC, OCM/GFI Power Opportunities Fund II, L.P., OCM.GFI Power Opportunities Fund II (Cayman) LP, and Macquarie Holdings (USA), Inc., dated as of May 11, 2006 (filed with Registrant’s Form 8-K filed on May 17, 2006)
	2	.3	Asset Sale Agreement by and between Interstate Power and Light Company and ITC Midwest LLC, dated as of January 18, 2007 (filed with Registrant’s Form 8-K filed on January 24, 2007)
	2	.4	Parent Guaranty, by the Registrant in favor of Interstate Power and Light Company, dated as of January 18, 2007 (filed with Registrant’s Form 8-K filed on January 24, 2007)
	3	.1	Amended and Restated Articles of Incorporation of the Registrant (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	3	.2	Amended and Restated Bylaws of Registrant dated as of November 19, 2008
	4	.1	Form of Certificate of Common Stock (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.2	Registration Rights Agreement, dated as of February 28, 2003, among the Registrant and International Transmission Holdings Limited Partnership (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.3	Indenture, dated as of July 16, 2003, between the Registrant and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.4	First Supplemental Indenture, dated as of July 16, 2003, supplemental to the Indenture dated as of July 16, 2003, between the Registrant and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.5	First Mortgage and Deed of Trust, dated as of July 15, 2003, between International Transmission Company and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.6	First Supplemental Indenture, dated as of July 15, 2003, supplementing the First Mortgage and Deed of Trust dated as of July 15, 2003, between International Transmission Company and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.7	Second Supplemental Indenture, dated as of July 15, 2003, supplementing the First Mortgage and Deed of Trust dated as of July 15, 2003, between International Transmission Company and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.8	Amendment to Second Supplemental Indenture, dated as of January 19, 2005, between International Transmission Company and BNY Midwest Trust Company, as trustee (filed with Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	4	.9	Second Amendment to Second Supplemental Indenture, dated as of March 24, 2006, between International Transmission Company and The Bank of New York Trust Company, N.A. (as successor to BNY Midwest Trust Company, as trustee (filed with Registrant’s Form 8-K filed on March 30, 2006)

120

Exhibit No.			Description of Exhibit
	4	.10	Third Supplemental Indenture, dated as of March 28, 2006, supplementing the First Mortgage and Deed of Trust dated as of July 15, 2003, between International Transmission Company and BNY Midwest Trust Company, as trustee (filed with Registrant’s Form 8-K filed on March 30, 2006)
	4	.12	Second Supplemental Indenture, dated as of October 10, 2006, supplemental to the Indenture dated as of July 16, 2003, between the Registrant and The Bank of New York Trust Company, N.A., (as successor to BNY Midwest Trust Company, as trustee) (filed with Registrant’s Form 8-K filed on October 10, 2006)
	4	.13	Shareholders Agreement by and between the Registrant and Macquarie Essential Assets Partnership, dated as of October 10, 2006 (filed with Registrant’s Form 8-K filed on October 16, 2006)
	4	.14	First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, dated as of December 10, 2003 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	4	.15	First Supplemental Indenture, dated as of December 10, 2003, supplemental to the First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, dated as of December 10, 2003 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	4	.16	Second Supplemental Indenture, dated as of December 10, 2003, supplemental to the First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, to the First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, dated as of December 10, 2003 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	4	.17	ITC Holdings Corp. Note Purchase Agreement, dated as of September 20, 2007 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2007)
	4	.18	Third Supplemental Indenture, dated as of January 24, 2008, supplemental to the Indenture dated as of July 16, 2003, between the Registrant and The Bank of New York Trust Company, N.A. (as successor to BNY Midwest Trust Company, as trustee (filed with Registrant’s Form 8-K filed on January 25, 2008)
	4	.19	First Mortgage and Deed of Trust, dated as of January 14, 2008, between ITC Midwest LLC and The Bank of New York Trust Company, N.A., as trustee (filed with Registrant’s Form 8-K filed on February 1, 2008)
	4	.20	First Supplemental Indenture, dated as of January 14, 2008, supplemental to the First Mortgage Indenture between ITC Midwest LLC and The Bank of New York Trust Company, N.A., as trustee, First Mortgage and Deed of Trust, dated as of January 14, 2008 (filed with Registrant’s Form 8-K filed on February 1, 2008)
	4	.21	Fourth Supplemental Indenture, dated as of March 25, 2008, between International Transmission Company and The Bank of New York Trust Company, N.A., as trustee, to the First Mortgage and Deed of Trust dated as of July 15, 2003, (filed with Registrant’s Form 8-K filed on March 27, 2008)
	4	.22	Fourth Supplemental Indenture, dated as of December 11, 2008, between METC and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A.), as trustee, to the First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, dated as of December 10, 2003 (filed with Registrant’s Form 8-K filed on December 23, 2008)

121

Exhibit No.			Description of Exhibit
	4	.23	Second Supplemental Indenture, dated as of December 15, 2008, between ITC Midwest LLC and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York Trust Company, N.A.), as trustee, to the First Mortgage and Deed of Trust, dated as of January 14, 2008, (filed with Registrant’s Form 8-K filed on December 23, 2008)
	4	.24	Third Supplemental Indenture, dated as of November 25, 2008, between METC and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A.), as trustee, to the First Mortgage Indenture between Michigan Electric Transmission Company, LLC and JPMorgan Chase Bank, dated as of December 10, 2003 (filed with Registrant’s Form 8-K filed on December 23, 2008)
	*10	.7	Forms of Management Stockholder’s Agreements (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.8	Form of First Amendment to Management Stockholder’s Agreement (filed as Exhibit 10.8 to Registrant’s 2005 Form 10-K)
	*10	.9	Forms of Waiver and Agreement for Executive Stockholders (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.10	Form of Waiver and Agreement for Non-Executive Stockholders (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.11	Form of Sale Participation Agreement (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.13	Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant and its Subsidiaries (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.15	Form of Short Term Incentive Plan of the Registrant (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.27	Deferred Compensation Plan (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	10	.28	Service Level Agreement — Construction and Maintenance/Engineering/System Operations, dated February 28, 2003, between The Detroit Edison Company and International Transmission Company (filed as an exhibit to Registrant’s Registration Statement on Form S-1, as amended, Reg. No. 333-123657)
	*10	.34	Form of stock option agreement for executive officers under Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant and its subsidiaries (filed as Exhibit 10.34 to Registrant’s Form 10-Q for the quarter ended September 30, 2005)
	*10	.35	Form of restricted stock award agreement for directors and executive officers under Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant and its subsidiaries (filed as Exhibit 10.35 to Registrant’s 2005 Form 10-K)
	*10	.36	Executive Cash Bonus Agreement, dated as of February 8, 2006, between the Registrant and Daniel J. Oginsky (filed as Exhibit 10.36 to Registrant’s Form 8-K filed on February 14, 2006)
	*10	.38	Amendment No. 1 dated as of February 8, 2006, to Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant (filed as Exhibit 10.38 to Registrant’s Form 8-K filed on February 14, 2006)
	*10	.44	Form of Restricted Stock Award Agreement for Non-employee Directors under Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant and its subsidiaries (filed with Registrant’s Form 8-K filed on August 18, 2006)
	*10	.45	Form of Restricted Stock Award Agreement for Employees under the Registrant’s 2006 Long Term Incentive Plan (filed with Registrant’s Form 8-K filed on August 18, 2006)
	*10	.46	Form of Stock Option Agreement for Employees under the Registrant’s 2006 Long Term Incentive Plan (filed with Registrant’s Form 8-K filed on August 18, 2006)
	*10	.47	Form of Amendment to Management Stockholder’s Agreement (filed with Registrant’s Form 8-K filed on August 18, 2006)

122

Exhibit No.			Description of Exhibit
	*10	.48	Summary of Stock Ownership Agreement, effective August 16, 2006, for Registrant’s Directors and Executive Officers (filed with Registrant’s Form 8-K filed on August 18, 2006)
	*10	.49	Form of Waiver and Agreement for Employees pursuant to the Management Stockholder’s Agreement (filed with Registrant’s Form S-1/A filed on September 25, 2006)
	10	.51	Form of Amended and Restated Easement Agreement between Consumers Energy Company and Michigan Electric Transmission Company (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.52	Amendment and Restatement of the April 1, 2001 Operating Agreement by and between Michigan Electric Transmission Company and Consumers Energy Company, effective May 1, 2002 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.53	Amendment and Restatement of the April 1, 2001 Purchase and Sale Agreement for Ancillary Services between Consumers Energy Company and Michigan Electric Transmission Company, effective May 1, 2002 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.54	Amendment and Restatement of the April 1, 2001 Distribution-Transmission Interconnection Agreement by and between Michigan Electric Transmission Company, as Transmission Provider and Consumers Energy Company, as Local Distribution Company, effective May 1, 2002 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.55	Amendment and Restatement of the April 1, 2001 Generator Interconnection Agreement between Michigan Electric Transmission Company and Consumers Energy Company, LLC, dated as of May 1, 2002 (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.56	Non-Competition Agreement, dated as of May 1, 2002, by and between Consumers Energy Company, Michigan Transco Holdings, Limited Partnership and Michigan Electric Transmission Company, LLC (filed with Registrant’s Form 10-Q for the quarter ended September 30, 2006)
	10	.57	Settlement Agreement, dated January 19, 2007, by Michigan Electric Transmission Company, LLC, on behalf of itself, Midwest Independent Transmission System Operator, Inc., Consumers Energy Company, the Michigan Public Power Agency, Michigan South Central Power Agency, Wolverine Power Supply Cooperative, Inc., and International Transmission Company (filed with Registrant’s Form 8-K filed on January 23, 2007)
	10	.58	Revolving Credit Agreement, dated as of March 29, 2007, among the Registrant, as the Borrower, Various Financial Institutions and Other Persons from Time to Time Parties Hereto, as the Lenders, JPMorgan Chase Bank, N.A., as the Administrative Agent, J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner, and Comerica Bank, Credit Suisse (Cayman Islands Branch) and Lehman Brothers Bank, FSB, as Co-Syndication Agents (filed with Registrant’s Form 8-K filed on April 4, 2007)
	10	.59	Revolving Credit Agreement, dated as of March 29, 2007, among International Transmission Company and Michigan Electric Transmission Company, LLC, as the Borrowers, Various Financial Institutions and Other Persons from Time to Time Parties Hereto, as the Lenders, JPMorgan Chase Bank, N.A., as the Administrative Agent, J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner, and Comerica Bank, Credit Suisse (Cayman Islands Branch) and Lehman Brothers Bank, FSB, as Co-Syndication Agents (filed with Registrant’s Form 8-K filed on April 4, 2007)
	10	.60	Bridge Loan Agreement, dated as of September 26, 2007, among the Registrant, as the Borrower, Various Financial Institutions and Other Persons from Time to Time Parties Hereto, as the Lenders, Lehman Commercial Paper Inc., as the Administrative Agent and Lehman Brothers Inc., as Sole Lead Arranger and Sole Bookrunner (filed with Registrant’s Form 8-K filed on December 21, 2007)
	10	.61	Form of Distribution-Transmission Interconnection Agreement, by and between ITC Midwest LLC, as Transmission Owner and Interstate Power and Light Company, as Local Distribution Company, dated as of December 17, 2007 (filed with Registrant’s Form 8-K filed on December 21, 2007)

123

Exhibit No.			Description of Exhibit
	10	.62	Form of Large Generator Interconnection Agreement, entered into by the Midwest Independent Transmission System Operator, Inc., Interstate Power and Light Company and ITC Midwest LLC (filed with Registrant’s Form 8-K filed on December 21, 2007)
	10	.63	Revolving Credit Agreement, dated as of January 29, 2008, among ITC Midwest LLC, as the Borrower, Various Financial Institutions and Other Persons from Time to Time Parties Hereto, as the Lenders, JPMorgan Chase Bank, N.A., as the Administrative Agent, J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner, Credit Suisse (Cayman Islands Branch), as Syndication Agent and Lehman Brothers Bank, FSB, as Documentation Agent (filed with Registrant’s Form 8-K filed on January 31, 2008)
	*10	.64	Form of Amended and Restated Executive Group Special Bonus Plan of the Registrant, dated November 12, 2007 (filed with Registrant’s 2007 Form 10-K
	*10	.65	Form of Amended and Restated Special Bonus Plan of the Registrant, dated November 12, 2007 (filed with Registrant’s 2007 Form 10-K)
	*10	.66	ITC Holdings Corp. Employee Stock Purchase Plan, as amended June 8, 2007 (filed with Registrant’s 2007 Form 10-K)
	10	.67	Commitment Increase Supplements of the Lenders, dated December 27, 2007, related to the Revolving Credit Agreement, dated as of March 29, 2007, among International Transmission Company and Michigan Electric Transmission Company, LLC, as the Borrowers, Various Financial Institutions and Other Persons from Time to Time Parties Hereto, as the Lenders, JPMorgan Chase Bank, N.A., as the Administrative Agent, J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner, and Comerica Bank, Credit Suisse (Cayman Islands Branch) and Lehman Brothers Bank, FSB, as Co-Syndication Agents (filed with Registrant’s 2007 Form 10-K).
	*10	.68	Deferred Stock Unit Award Agreement, dated February 25, 2008, pursuant to the 2006 Long-Term Incentive Plan of Registrant, between the Registrant and Joseph L. Welch (filed with Registrant’s Form 10-Q for the quarter ended March 31, 2008)
	*10	.69	Amended and Restated Registrant 2006 Long Term Incentive Plan effective May 21, 2008 (filed with Registrant’s Form 8-K filed on May 23, 2008)
	10	.70	Sales Agency Financing Agreement, dated June 27, 2008, between Registrant and BNY Mellon Capital Markets, LLC (filed with Registrant’s Form 8-K filed on June 27, 2008)
	*10	.71	Form of Amendment to Stock Option Agreement under 2003 Plan (Initial Option) (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.72	Form of Amendment to Stock Option Agreement under 2003 Plan (IPO Option) (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.73	Form of Amendment to Restricted Stock Agreement under 2003 Plan (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.74	Form of Amendment to Management Stockholder’s Agreement (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.75	Form of Amendment to Stock Option Agreements under 2006 LTIP (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.76	Form of Amendment Restricted Stock Agreements under 2006 LTIP) (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.77	Form of Stock Option Agreement under 2006 LTIP (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.78	Form of Restricted Stock Award Agreement under 2006 LTIP (August 2008) (filed with Registrant’s Form 8-K filed on August 19, 2008)
	*10	.79	Form of Restricted Stock Award Agreement for Non-employee Directors under Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Registrant and its subsidiaries
	*10	.80	Management Supplemental Benefit Plan
	*10	.81	Executive Supplemental Retirement Plan

124

Exhibit No.			Description of Exhibit
	*10	.82	Employment Agreement between the Registrant and Joseph L. Welch
	*10	.83	Form of Employment Agreements between the Registrant and Linda H. Blair, Jon E. Jipping and Edward M. Rahill
	*10	.84	Form of Employment Agreement between the Registrant and Daniel J. Oginsky
	21		List of Subsidiaries
	23	.1	Consent of Deloitte & Touche LLP relating to the Registrant and subsidiaries
	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

* Management contract or compensatory plan or arrangement.

125

EX-3.2

Exhibit 3.2

SECOND AMENDED AND RESTATED BYLAWS
OF
ITC HOLDINGS CORP.
(THE “CORPORATION”)

ARTICLE I

OFFICES

1.01 Principal Office. The principal office of the Corporation shall be at such place as the Board of Directors shall from time to time determine.

1.02 Other Offices. The Corporation also may have offices at such other places as the board of directors from time to time determines or the business of the Corporation requires.

ARTICLE II

SEAL

2.01 Seal. The Corporation may have a seal in the form that the board of directors may from time to time determine. The seal may be used by causing it or a facsimile to be impressed, affixed or otherwise reproduced. Documents otherwise properly executed on behalf of the corporation shall be valid and binding upon the corporation without a seal whether or not one is in fact designated by the Board of Directors.

ARTICLE III

CAPITAL STOCK

3.01 Issuance of Shares. The shares of capital stock of the Corporation shall be issued in the amounts, at the times, for the consideration, and on the terms and conditions that the board of directors shall deem advisable, subject to the articles of incorporation and any requirements of the laws of the state of Michigan.

3.02 Certificates for Shares. The certificated shares of the Corporation shall be represented by certificates signed by the chairperson of the board of directors, the president, or a vice president, and also may be signed by the treasurer, assistant treasurer, secretary, or assistant secretary, and may be sealed with the seal of the Corporation, if any, or a facsimile of it. The signatures of the officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the corporation itself or its employee. In case an officer who has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the date of issuance. A certificate representing shares shall

state on its face that the Corporation is formed under the laws of the state of Michigan and shall also state the name of the person to whom it is issued, the number and class of shares and the designation of the series, if any, that the certificate represents, and any other provisions that may be required by the laws of the state of Michigan. Notwithstanding the foregoing, the Board of Directors may authorize the issuance of some or all of the shares without certificates to the fullest extent permitted by law. Within a reasonable time after the issuance or transfer of shares without certificates, the Corporation shall send the shareholder a written statement of the information required on certificates by applicable law.

3.03 Transfer of Shares. The certificated shares of the capital stock of the Corporation are transferable only on the books of the Corporation upon surrender of the certificate for the shares, properly endorsed for transfer, and the presentation of the evidences of ownership and validity of the assignment that the Corporation may require. Transfers of uncertificated shares shall be made by such written instrument as the board of directors shall from time to time specify, together with such proof of the authenticity of signatures as the Corporation or its agents may require.

3.04 Registered Shareholders. The Corporation shall be entitled to treat the person in whose name any share of stock is registered as the owner of it for the purpose of dividends and other distributions or for any recapitalization, merger, plan of share exchange, reorganization, sale of assets, or liquidation, for the purpose of votes, approvals, and consents by shareholders, for the purpose of notices to shareholders, and for all other purposes whatever, and shall not be bound to recognize any equitable or other claim to or interest in the shares by any other person, whether or not the Corporation shall have notice of it, except as expressly required by the laws of the state of Michigan.

3.05 Lost or Destroyed Certificates. On the presentation to the Corporation of a proper affidavit attesting to the loss, destruction, or mutilation of any certificate or certificates for shares of stock of the Corporation and such other evidence as the Corporation or its transfer agent may require, the board of directors shall direct the issuance of a new certificate or certificates to replace the certificates so alleged to be lost, destroyed, or mutilated. The Corporation may require as a condition precedent to the issuance of new certificates a bond or agreement of indemnity, in the form and amount and with or without sureties, as the board of directors may direct or approve.

3.06 Transfer Agents and Registrars. The board of directors may, in its discretion, appoint one or more banks or trust companies in the State of Michigan and in such other state or states (or countries) as the board of directors may deem advisable, from time to time, to act as transfer agents and registrars of the shares of the Corporation; and upon such appointments being made, no certificate representing shares shall be valid until countersigned by one of such transfer agents and registered by one of such registrars.

ARTICLE IV

SHAREHOLDERS AND MEETINGS OF SHAREHOLDERS

4.01 Place of Meetings. All meetings of shareholders shall be held at the principal office of the Corporation or at any other place that shall be determined by the board of directors and stated in the meeting notice or, at the direction of the board of directors to the extent permitted by applicable law, may be held by remote communication if stated in the meeting notice. The board of directors may allow participation at any meeting of shareholders by remote communication.

4.02 Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held at such time as the board of directors may select. Directors shall be elected at each annual meeting and such other business transacted as may come before the meeting. The board of directors acting by resolution may postpone and reschedule any previously scheduled annual meeting of shareholders. Any annual meeting of shareholders may be adjourned by the person presiding at the meeting or pursuant to a resolution of the board of directors.

4.03 Special Meetings. Special meetings of shareholders may be called by the board of directors, the chairperson of the board of directors (if the office is filled) or the president and shall be called by the president or secretary at the written request of shareholders holding a majority of the outstanding shares of stock of the Corporation entitled to vote. The request shall state the purpose or purposes for which the meeting is to be called.

4.04 Notice of Meetings. Except as otherwise provided by statute, written notice of the time, place, if any, and purposes of a shareholders meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder of record entitled to vote at the meeting, either personally or by mailing the notice to his or her last address as it appears on the books of the Corporation, or by a form of electronic transmission to which the shareholder has consented. The notice shall include notice of proposals from shareholders that are proper subjects for shareholder action and are intended to be presented by shareholders who have so notified the Corporation in accordance with applicable law. If a shareholder may be present and vote at the meeting by remote communication, the means of remote communication allowed shall be included in the notice. No notice need be given of an adjourned meeting of the shareholders provided that the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting the only business to be transacted is business that might have been transacted at the original meeting. However, if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to notice on the new record date as provided in this bylaw.

4.05 Record Dates. The board of directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of the meeting or to express consent to or to dissent from a proposal without a meeting; for the purpose of determining shareholders entitled to receive

payment of a dividend or an allotment of a right; or for the purpose of any other action. The date fixed shall not be more than 60 nor less than 10 days before the date of the meeting, nor more than 60 days before any other action. In such case only the shareholders that shall be shareholders of record on the date so fixed and that are entitled to vote with respect to the matters to be considered at such meeting shall be entitled to notice of and to vote at the meeting or an adjournment of the meeting or to express consent to or to dissent from the proposal; to receive payment of the dividend or the allotment of rights; or to participate in any other action, notwithstanding any transfer of any stock on the books of the Corporation, after any such record date. If a record date is not fixed, (a) the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the date on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held, and (b) the record date for determining shareholders for any purpose other than that specified in item (a) shall be the close of business on the day on which the resolution of the board of directors relating thereto is adopted. Nothing in this bylaw shall affect the rights of a shareholder and his or her transferee or transferor as between themselves.

4.06 List of Shareholders. The secretary or the agent of the Corporation having charge of the stock transfer records for shares of the Corporation shall make and certify a complete list of the shareholders entitled to vote at a shareholders meeting or any adjournment of it. The list shall be arranged alphabetically within each class and series and include the address of, and the number of shares held by, each shareholder; be produced at the time and place of the meeting; be subject to inspection by any shareholder during the whole time of the meeting; and be prima facie evidence of which shareholders are entitled to examine the list or vote at the meeting. If the meeting is held solely by means of remote communication, the list shall be open to the examination of any shareholder during the entire meeting by posting the list on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.

4.07 Quorum; Adjournment; Attendance by Remote Communication.

(a) Unless a greater or lesser quorum is required in the articles of incorporation or by the laws of the state of Michigan, the shareholders present at a meeting in person or by proxy who, as of the record date for the meeting, were holders of a majority of the outstanding shares of the Corporation entitled to vote at the meeting, shall constitute a quorum at the meeting. When the holders of a class or series of shares are entitled to vote separately on an item of business, this bylaw applies in determining the presence of a quorum of the class or series for transacting the item of business. The shareholders present, in person or by proxy, at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to have less than a quorum.

(b) Whether or not a quorum is present, a meeting of shareholders may be adjourned by a vote of the shares present in person or by proxy.

(c) Subject to any guidelines and procedures adopted by the board of directors, shareholders and proxy holders not physically present at a meeting of shareholders may participate in the meeting by means of remote communication, are considered present in

person for all relevant purposes, and may vote at the meeting if all of the following conditions are satisfied: (1) the Corporation implements reasonable measures to verify that each person considered present and permitted to vote at the meeting by means of remote communication is a shareholder or proxy holder, (2) the Corporation implements reasonable measures to provide each shareholder and proxy holder with a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings, and (3) if any shareholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of the vote or other action is maintained by the Corporation.

(d) A shareholder or proxy holder may be present and vote at the adjourned meeting by means of remote communication if he or she was permitted to be present and vote by that means of remote communication in the original meeting notice.

4.08 Proxies. A shareholder entitled to vote at a shareholders meeting or to express consent or to dissent without a meeting may authorize other persons to act for the shareholder by proxy. A proxy shall be in writing and shall be signed by the shareholder or the shareholder’s authorized agent or representative or shall be transmitted electronically to the person who will hold the proxy or to an agent fully authorized by the person who will hold the proxy to receive that transmission and include or be accompanied by information from which it can be determined that the electronic transmission was authorized by the shareholder. A complete copy, fax, or other reliable reproduction of the proxy may be substituted or used in lieu of the original proxy for any purpose for which the original could be used. A proxy shall not be valid after the expiration of three years from its date unless otherwise provided in the proxy. A proxy is revocable at the pleasure of the shareholder executing it except as otherwise provided by the laws of the state of Michigan.

4.09 Voting. Each outstanding share is entitled to one vote on each matter submitted to a vote, unless the articles of incorporation provide otherwise. Votes may be cast orally or in writing, but if more than 25 shareholders of record are entitled to vote, then votes shall be cast in writing signed by the shareholder or the shareholder’s proxy. When an action, other than the election of directors, is to be taken by a vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares entitled to vote on it, unless a greater vote is
required by the articles of incorporation or by the laws of the state of Michigan. Except as otherwise provided by the articles of incorporation, directors shall be elected by a plurality of the votes cast by holders of common stock of the Corporation at any election.

4.10 Conduct of Meeting. At each meeting of shareholders, a chair shall preside. In the absence of a specific selection by the board of directors, the chair shall be the Chairperson of the board of directors as provided in Section 8.01. The chair shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting which are fair to shareholders. The chair of the meeting shall announce at the meeting when the polls close for each matter voted upon. If no announcement is made, the polls shall be deemed to have closed upon the final adjournment of the meeting. After the polls close, no ballots, proxies or votes, nor any revocations or changes thereto may be accepted. If participation is permitted by

remote communication, the names of the participants in the meeting shall be divulged to all participants.

4.11 Advance Notice Provisions for Shareholder Business and Nominations.

(a) Director Nominations.

(1) Only persons who are nominated in accordance with the procedures set forth in this Section 4.11(a) shall be eligible to serve as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at an annual or special meeting of shareholders (i) by or at the direction of the Board of Directors or any duly authorized committee thereof (including, without limitation, by making reference to the nominees in the proxy statement delivered to shareholders on behalf of the Board of Directors), or (ii) by any shareholder of the Corporation who was a shareholder of record both at the time of giving of notice provided for in this Section 4.11(a) and at the time of the shareholders meeting, who is entitled to vote at the meeting, who complies with the notice procedures set forth in this Section 4.11(a) and who attends, or whose duly qualified representative attends, the meeting and makes such nomination(s). Unless otherwise provided in the Corporation’s articles of incorporation, Section 4.11(a)(1)(ii) shall be the exclusive means for a shareholder to propose or make any nomination of a person or persons for election to the Board to be considered by the shareholders at an annual meeting or special meeting.

(2) Without qualification, for nominations to be made by a shareholder at an annual meeting or, if the Board has first determined that directors are to be elected at a special meeting, at a special meeting, the shareholder must (i) provide Timely Notice thereof in writing and in proper form (as provided in Section 4.11(a)(3)) to the secretary of the Corporation at the Corporation’s principal office and (ii) provide any updates or supplements to such notice at the times and in the form required by Section 4.11(c).

(3) To be in proper form for purposes of this Section 4.11(a), a shareholder’s notice must set forth the following information:

(i) as to each person whom the shareholder proposes to nominate for election or reelection as a director (A) all information relating to such proposed nominee that would be required to be set forth in a shareholder’s notice pursuant to this Section 4.11 if such proposed nominee were a Proposing Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 under the Exchange Act and the rules and regulations thereunder (including such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, arrangements or understandings between or among any Proposing Person and each proposed nominee, and his or her respective affiliates and associates, (D) the amount of any equity securities beneficially owned (as defined in Rule 13d-3 (or any successor thereof) under the Exchange Act) in any direct competitor of the Corporation or its operating subsidiaries if such ownership by the nominee(s) and the Proposing

Persons, in the aggregate, beneficially own 5% or more of the class of equity securities, and (E) an undertaking from each such person to be nominated that, if elected to the Board, they will comply with corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation that are generally applicable to directors who are not employees of the Corporation;

(ii) as to each Proposing Person, (A) the name and address of such Proposing Person and, as to the shareholder providing the notice, such name and address as they appear on the Corporation’s books, (B) a statement describing and quantifying in reasonable detail any Material Ownership Interests, (C) the amount of any equity securities beneficially owned (as defined in Rule 13d-3 (or any successor thereof) under the Exchange Act) in any direct competitor of the Corporation or its operating subsidiaries if such ownership by the nominee(s) and the Proposing Persons, in the aggregate, beneficially own 5% or more of the class of equity securities, and (D) whether the Proposing Person intends to solicit proxies from shareholders in support of such nominee(s); and

(iii) a representation that the shareholder providing the notice intends to appear in person or by proxy at the meeting to nominate the person(s) named in its notice.

(4) The shareholder providing the notice shall furnish such other information as may reasonably be requested by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable shareholder’s understanding of the independence or lack of independence of such nominee.

(5) Notwithstanding anything in the Timely Notice requirement in Section 4.11(a)(2) to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or, in the alternative, specifying the size of the increased Board at least 100 days prior to the first anniversary of the preceding year’s annual meeting of shareholders, a shareholder’s notice required by this Section 4.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to or mailed and received by the secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such Public Announcement is first made by the Corporation.

(b) Other Business.

(1) At an annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business (except as provided in the next sentence), must be (A) specified in the notice of meeting given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (B) brought before the meeting by or at the direction of the Board of Directors or (C) otherwise properly brought by any shareholder of the Corporation who was a shareholder of record both at the time of giving of notice provided for in this Section and at the time of the annual meeting, who is entitled to vote at the meeting, who complies with the notice procedures set forth in this Section 4.11(b) and who attends, or whose duly qualified representative attends, the meeting and presents such business to the meeting. Except for (i) proposals made in accordance with the

procedures and conditions set forth in Rule 14a-8 (or any successor thereof) under the Exchange Act and included in the notice of meeting and proxy statement given by or at the direction of the Board of Directors (or any duly authorized committee thereof), and (ii) director nominations (which shall be governed by Section 4.11(a)), clause (C) of the preceding sentence shall be the exclusive means for a shareholder to propose business to be brought before an annual meeting of shareholders. At a special meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting and applicable law.

(2) Without qualification, for business to be properly brought before an annual meeting by a shareholder pursuant to this Section 4.11(b), (i) the business must otherwise be a proper matter for shareholder action under applicable law and (ii) the shareholder must (A) provide Timely Notice thereof in writing and in proper form to the secretary of the Corporation at the Corporation’s principal office and (B) provide any updates or supplements to such notice at the times and in the form required by Section 4.11(c).

(3) To be in proper form for purposes of this Section 4.11(b), a shareholder’s notice shall set forth the following information:

(i) a brief description of the business desired to be brought before the meeting (including the text of any resolutions or bylaw amendments proposed for consideration) and the reasons for conducting such business at the meeting;

(ii) all information relating to such proposed business that is required to be included in a proxy statement or other filings required to be made in connection with solicitations of proxies pursuant to Section 14 under the Exchange Act and the rules and regulations thereunder in connection with the meeting at which such proposed business is to be acted upon;

(iii) a brief description of any material interest in such business of each Proposing Person and a brief description of all agreements, arrangements and understandings between such Proposing Person and any other person or persons (including their names) in connection with the proposal of such business;

(iv) as to each Proposing Person, (A) the name and address of such Proposing Person and, as to the shareholder providing the notice, such name and address as they appear on the Corporation’s books, (B) a statement describing and quantifying in reasonable detail any Material Ownership Interests, and (C) whether the Proposing Person intends to solicit proxies from shareholders in support of such business; and

(v) a representation that the shareholder providing the notice intends to appear in person or by proxy at the meeting to propose the business identified in the shareholder’s notice.

(c) Requirement to Update Information. A shareholder providing any notice as provided in Section 4.11(a) or (b) shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to

Section 4.11(a) or 4.11(b), as applicable, shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting date or any adjournment or postponement thereof, and such update and supplement shall be delivered to or otherwise received by the secretary at the principal executive offices of the Corporation not later than two (2) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

(d) Determination of Improperly Brought Nomination or Business. The chairman of the meeting shall, if the facts so warrant, determine and declare to the meeting that one or more nominations or other business was not properly brought before the meeting in accordance with the provisions of this Section 4.11 and, if the chairman should so determine, the chairman shall so declare to the meeting and any such defective nomination shall be disregarded and any such improperly brought business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

(e) Definitions. As used in this Section 4.11, the following terms have the meanings ascribed to them below.

(1) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(2) “Material Ownership Interests” means (i) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially (as defined in Rule 13d-3 (or any successor thereof) under the Exchange Act) and of record by such Proposing Person, (ii) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation (a “Derivative Instrument”) directly or indirectly owned beneficially by such Proposing Person, (iii) any proxy, contract, arrangement, understanding, or relationship pursuant to which such Proposing Person has a right to vote any shares of any security of the Corporation, (iv) any short interest beneficially owned or held by such Proposing Person in any security of the Corporation, (v) any rights to dividends on the shares of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (vi) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a (A) limited liability company in which the Proposing Person is a member or, directly or indirectly, beneficially owns an interest in a member, or (B) general or limited partnership in which such Proposing Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, and (vii) any performance related fees (other than an asset-based fee) to which such Proposing Person is entitled based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice.

(3) “Proposing Person” means (i) the shareholder providing the notice of the nomination or business proposed to be made or presented at the meeting, (ii) the beneficial owner, if different,

on whose behalf the nomination or business proposed to be made or presented at the meeting is made, (iii) any affiliate or associate of such beneficial owner (as such terms are defined in Rule 12b-2 (or any successor thereof) under the Exchange Act), and (iv) any other person with whom such shareholder or such beneficial owner (or any of their respective affiliates or associates) is acting in concert.

(4) “Public Announcement” means disclosure in a press release reported by the Dow Jones News Service, Associated Press, Prime Newswire, Marketwire, PR Newswire or comparable news service or in a document furnished to or filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and publicly available.

(5) “Timely Notice.”

(i) With respect to an annual meeting, a notice is a Timely Notice if it (A) is delivered to the secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120^th day and not later than the close of business on the 90th day prior to the one-year anniversary of the preceding year’s annual meeting, and (B) contains all of the information required to be contained therein by the applicable provisions of this Section 4.11; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 70 days from such anniversary date or if the Corporation did not hold an annual meeting in the preceding fiscal year, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120^th day prior to such annual meeting and not later than the close of business on the 90th day prior to such annual meeting or, if later, the tenth day following the day on which a Public Announcement of the date of such meeting is first made by the Corporation.

(ii) With respect to a special meeting, a notice is a Timely Notice if it (A) is delivered to the secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or, if later, the tenth day following the day on which a Public Announcement is first made of the date of the special meeting and (B) contains all of the information required to be contained therein by the applicable provisions of this Section 4.11.

(iii) In no event shall the public announcement of a postponement or adjournment of an annual or special meeting to a later date or time commence a new time period for the giving of a shareholder’s notice as described above.

(f) Compliance With Applicable Law. Notwithstanding the foregoing provisions of this Section 4.11, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section. Nothing in this Section shall be deemed to affect any rights of (i) shareholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor thereof) under the Exchange Act, or (ii) the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the articles of incorporation.

4.12 Inspectors of Election. The board of directors, or the chair presiding at any shareholders’ meeting, may appoint one or more inspectors. If appointed, the inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine challenges or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting, the inspectors shall make and execute a written report to the person presiding at the meeting of any of the facts found by them and matters determined by them. The report shall be prima facie evidence of the facts stated and of the vote as certified by the inspectors.

ARTICLE V

DIRECTORS

5.01 Number. The business and affairs of the Corporation shall be managed by or under the direction of a board of not less than two (2) nor more than ten (10) directors as shall be fixed from time to time by the board of directors. The directors need not be residents of Michigan or shareholders of the Corporation.

5.02 Election, Resignation, and Removal. Unless otherwise provided in the articles of incorporation, directors shall be elected at each annual shareholders meeting, each director to hold office until the next annual shareholders meeting and until the director’s successor is elected and qualified, or until the director’s resignation or removal. Unless otherwise provided in the articles of incorporation, a director may resign by written notice to the Corporation. The resignation is effective on its receipt by the Corporation or at a subsequent time as set forth in the notice of resignation. A director or the entire board of directors may be removed, with or without cause and at any time (with or without a meeting), by vote of the holders of a majority of the shares entitled to vote at an election of directors.

5.03 Vacancies. Vacancies in the board of directors occurring by reason of death, resignation, removal, increase in the number of directors, or otherwise shall be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors, unless filled by proper action of the shareholders of the Corporation. Unless otherwise provided in the articles of incorporation or elsewhere in these bylaws, each person so elected shall be a director for a term of office continuing only until the next election of directors by the shareholders. A vacancy that will occur at a specific date, by reason of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the newly elected director may not take office until the vacancy occurs.

5.04 Annual Meeting. The board of directors shall meet each year immediately after the annual meeting of the shareholders, or within three days of such time, excluding Sundays and legal holidays, if the later time is deemed advisable, at the place where the shareholders meeting has been held or any other place that the board of directors may determine or by remote communication, for the purpose of electing officers and considering such business

that may properly be brought before the meeting; provided that, if less than a majority of the directors appear for an annual meeting of the board of directors, the holding of the annual meeting shall not be required and the matters that might have been taken up in it may be taken up at any later regular, special or annual meeting, or by consent resolution.

5.05 Regular and Special Meetings. Regular meetings of the board of directors may be held at the times and places (or by remote communication) that the majority of the directors may from time to time determine at a prior meeting or as shall be directed or approved by the vote or written consent of all the directors; provided that the board of directors shall meet no fewer than once per fiscal quarter. Special meetings of the board of directors may be called by the chairperson of the board of directors (if the office is filled) or the president, and shall be called by the president or secretary on the written request of any two directors.

5.06 Notices. No notice shall be required for annual or regular meetings of the board of directors or for adjourned meetings, whether regular or special. Three days written notice, 24-hour telephonic notice, or 24-hour notice by electronic communication shall be given for special meetings of the board of directors, and the notice shall state the time, place, and purpose or purposes of the meeting.

5.07 Quorum. A majority of the board of directors then in office, or of the members of a board committee, constitutes a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which there is a quorum constitutes the action of the board of directors or of the committee, except when a larger vote may be required by the laws of the state of Michigan. A member of the board of directors or of a committee designated by the board of directors may participate in a meeting by conference telephone or other means of remote communication through which all persons participating in the meeting can communicate with each other. Participation in a meeting in this manner constitutes presence in person at the meeting.

5.08 Dissents. A director who is present at a meeting of the board of directors, or a board committee of which the director is a member, at which action on a corporate matter is taken, is presumed to have concurred in that action unless the director’s dissent is entered in the minutes of the meeting or unless the director files a written dissent to the action with the person acting as secretary of the meeting before the adjournment of it or forwards the dissent by registered mail to the secretary of the Corporation promptly after the adjournment of the meeting. The right to dissent does not apply to a director who voted in favor of the action. A director who is absent from a meeting of the board of directors or a board committee of which the director is a member, at which any such action is taken, is presumed to have concurred in the
action unless he or she files a written dissent with the secretary within a reasonable time after the director has knowledge of the action.

5.09 Compensation. The board of directors, by affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of directors for services to the Corporation as directors, committee members or officers. Nothing herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

5.10 Executive and Other Committees. The board of directors may, by resolution passed by a majority of the whole board of directors, appoint three or more members of the board of directors as an executive committee to exercise all powers and authorities of the board of directors in managing the business and affairs of the Corporation, except that the committee shall not have power or authority to (a) amend the articles of incorporation, except that a committee may prescribe the relative rights and preferences of the shares of a series if the articles of incorporation authorize the board of directors to do so; (b) adopt an agreement of merger or plan of share exchange; (c) recommend to shareholders the sale, lease, or exchange of all or substantially all of the Corporation’s property and assets; (d) recommend to shareholders a dissolution of the Corporation or revocation of a dissolution; (e) amend these bylaws; (f) fill vacancies in the board of directors; or (g) declare a dividend or authorize the issuance of stock, unless expressly authorized by the board of directors.

The board of directors from time to time may, by like resolution, appoint any other committees of one or more directors to have the authority that shall be specified by the board of directors in the resolution making the appointments. Committees and committee members serve as such at the pleasure of the board of directors. The board of directors may designate one or more directors as alternate members of any committee to replace an absent or disqualified member at any committee meeting.

ARTICLE VI

NOTICES, WAIVERS OF NOTICE, AND MANNER OF ACTING

6.01 Notices. All notices of meetings required to be given to shareholders, directors, or any committee of directors may be given personally or by mail, telecopy, or electronic transmission to any shareholder, director, or committee member at his or her last address as it appears on the books of the Corporation or by electronic transmission, but in the case of shareholders, only in the form consented to by the shareholder. The notice shall be deemed to be given at the time it is mailed or otherwise dispatched or, if given by electronic transmission, when electronically transmitted to the person entitled to the notice, but in the case of shareholders only if sent in a manner authorized by the shareholder. Telephonic notice may be given for special meetings of the board of directors as provided in Section 5.06.

6.02 Waiver of Notice. Notice of the time, place, and purpose of any meeting of shareholders, directors, or committee of directors may be waived by telecopy or other writing, or by electronic transmission, either before or after the meeting, or in any other manner that may be permitted by the laws of the state of Michigan. Attendance of a person at any shareholders meeting, in person or by proxy, or at any meeting of directors or of a committee of directors, constitutes a waiver of notice of the meeting except as follows:

(a) In the case of a shareholder, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, or unless with respect to consideration of a particular matter at the meeting that is not within the purpose or

purposes described in the meeting notice, the shareholder objects to considering the matter when it is presented; or

(b) In the case of a director, unless he or she at the beginning of the meeting, or upon his or her arrival, objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting.

A shareholder’s attendance at a meeting of shareholders, whether in person or by proxy, will constitute (1) waiver of any objection to lack of notice or defective notice, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (2) waiver of any objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

6.03 Action Without a Meeting. Except as the articles of incorporation may otherwise provide for action to be taken by shareholders, any action required or permitted at any meeting of shareholders, directors, or a committee of directors may be taken without a meeting, without prior notice, and without a vote, if all of the shareholders, directors, or committee members entitled to vote on it consent to it in writing or, to the extent permitted by law, by electronic transmission, before or after the action is taken. Such consents shall be filed with the minutes of the proceedings of the shareholders, board, or committee, as applicable.

ARTICLE VII

OFFICERS

7.01 Number. The board of directors shall elect or appoint a president, a secretary, and a treasurer, and may select a chairperson of the board of directors and one or more vice presidents, assistant secretaries, or assistant treasurers, and other officers as it shall deem appropriate. The president and chairperson of the board of directors, if any, shall be members of the board of directors. Any two or more of the preceding offices, except those of president and vice president, may be held by the same person. No officer shall execute, acknowledge, or verify an instrument in more than one capacity if the instrument is required by law, the articles of incorporation, or these bylaws to be executed, acknowledged, or verified by one or more officers.

7.02 Term of Office, Resignation, and Removal. An officer shall hold office for the term for which he or she is elected or appointed and until his or her successor is elected or appointed and qualified, or until his or her resignation or removal. An officer may resign by written notice to the Corporation. The resignation is effective on its receipt by the Corporation or at a subsequent time specified in the notice of resignation. An officer may be removed by the board of directors with or without cause. The removal of an officer shall be without prejudice to his or her contract rights, if any. The election or appointment of an officer does not of itself create contract rights.

7.03 Vacancies. The board of directors may fill any vacancies in any office occurring for whatever reason.

7.04 Authority. All officers, employees, and agents of the Corporation shall have the authority and perform the duties to conduct and manage the business and affairs of the Corporation that may be designated by the board of directors and these bylaws.

ARTICLE VIII

DUTIES OF OFFICERS

8.01 Chairperson of the Board. The chairperson of the board of directors, if the office is filled, shall preside at all meetings of the shareholders and of the board of directors at which the chairperson is present unless otherwise determined by the board of directors pursuant to Section 4.10 of Article 4.

8.02 President. The president shall be the chief executive officer of the Corporation. The president shall see that all orders and resolutions of the board of directors are carried into effect, and the president shall have the general powers of supervision and management usually vested in the chief executive officer of a corporation, including the authority to vote all securities of other corporations and business organizations held by the Corporation. In the absence or disability of the chairperson of the board of directors, or if that office has not been filled, the president also shall perform the duties of the chairperson of the board of directors as set forth in these bylaws.

8.03 Vice Presidents. The vice presidents, in order of their seniority, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform any other duties that the board of directors or the president may from time to time prescribe.

8.04 Secretary. The secretary shall attend all meetings of the board of directors and shareholders and shall record all votes and minutes of all proceedings in a book to be kept for that purpose; shall give or cause to be given notice of all meetings of the shareholders and the board of directors; and shall keep in safe custody the seal of the Corporation, if any, and, when authorized by the board of directors, affix it to any instrument requiring it, and when so affixed it shall be attested to by the signature of the secretary or by the signature of the treasurer or an assistant secretary. The secretary may delegate any of the duties, powers, and authorities of the secretary to one or more assistant secretaries, unless the delegation is disapproved by the board of directors.

8.05 Treasurer. The treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in the books of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in the depositories that may be designated by the board of directors. The treasurer shall render to the president and directors, whenever they may require it, an account of his or her transactions as treasurer and of the financial condition of the Corporation. The treasurer may delegate any of his or her duties, powers, and authorities to one or more assistant treasurers unless the delegation is disapproved by the board of directors.

8.06 Assistant Secretaries and Treasurers. The assistant secretaries, in order of their seniority, shall perform the duties and exercise the powers and authorities of the secretary in case of the secretary’s absence or disability. The assistant treasurers, in the order of their seniority, shall perform the duties and exercise the powers and authorities of the treasurer in case of the treasurer’s absence or disability. The assistant secretaries and assistant treasurers shall also perform the duties that may be delegated to them by the secretary and treasurer, respectively, and also the duties that the board of directors may prescribe.

ARTICLE IX

SPECIAL CORPORATE ACTS

9.01 Orders for Payment of Money. All checks, drafts, notes, bonds, bills of exchange, and orders for payment of money of the Corporation shall be signed by the officer or officers or any other person or persons that the board of directors may from time to time designate.

9.02 Contracts and Conveyances. The board of directors of the Corporation may in any instance designate the officer and/or agent who shall have authority to execute any contract, conveyance, mortgage, or other instrument on behalf of the Corporation, or may ratify or confirm any execution. When the execution of any instrument has been authorized without specification of the executing officers or agents, the chairperson of the board of directors, the president or any vice president, and the secretary, assistant secretary, treasurer, or assistant treasurer may execute the instrument in the name and on behalf of the Corporation and may affix the corporate seal, if any, to it. No officer shall execute, acknowledge or verify an instrument in more than one capacity if the instrument is required by law, by the articles of incorporation or by these bylaws to be executed, acknowledged or verified by two or more officers.

ARTICLE X

BOOKS AND RECORDS

10.01 Maintenance of Books and Records. The proper officers and agents of the Corporation shall keep and maintain the books, records, and accounts of the Corporation’s business and affairs, minutes of the proceedings of its shareholders, board of directors, and committees, if any, and the stock ledgers and lists of shareholders, as the board of directors shall deem advisable and as shall be required by the laws of the state of Michigan and other states or jurisdictions empowered to impose such requirements. Books, records, and minutes may be kept within or without the state of Michigan in a place that the board of directors shall determine.

10.02 Reliance on Books and Records. In discharging his or her duties, a director or an officer of the Corporation, when acting in good faith, may rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by any of the following:

(a) One or more directors, officers, or employees of the Corporation, or of a business organization under joint control or common control, whom the director or officer reasonably believes to be reliable and competent in the matters presented;

(b) Legal counsel, public accountants, engineers, or other persons as to matters the director or officer reasonably believes are within the person’s professional or expert competence; or

(c) A committee of the board of directors of which he or she is not a member if the director or officer reasonably believes the committee merits confidence.

A director or officer is not entitled to rely on the information set forth above if he or she has knowledge concerning the matter in question that makes reliance otherwise permitted unwarranted.

ARTICLE XI

INDEMNIFICATION

11.01 Indemnification. Subject to all of the other provisions of Article XI, the Corporation shall indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, including any appeal, by reason of the fact that the person is or was a director or officer of the Corporation, or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, member, partner, trustee, employee, fiduciary or agent of another foreign or domestic corporation, partnership, limited liability company, joint venture, trust, or other enterprise, including service with respect to employee benefit plans or public service or charitable organizations, against expenses (including actual and reasonable attorney fees and disbursements), judgments (other than an action by or in the right of the Corporation), penalties, fines, excise taxes and amounts paid in settlement actually and incurred by him or her in connection with such action, suit, or proceeding, to the maximum extent permitted by the MBCA. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or on a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that any person otherwise entitled to indemnification hereunder (i) did not act in good faith and in a manner that the person reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, (ii) with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful, or (iii) received a financial benefit to which he or she is not entitled, intentionally inflicted harm on the Corporation or its shareholders, violated Section 551 of the MBCA or intentionally committed a criminal act.

11.02 Expenses of Successful Defense. To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 11.01, or in defense of any claim, issue, or matter in the action, suit, or proceeding, the director or officer shall be indemnified against actual and

reasonable expenses (including attorney fees) incurred by the person in connection with the action, suit, or proceeding and any action, suit, or proceeding brought to enforce the mandatory indemnification provided by this Section 11.02.

11.03 Definition. For the purposes of Sections 11.01, “serving at the request of the Corporation” shall include any service as a director, officer, employee, or agent of the Corporation that imposes duties on, or involves services by, the director or officer with respect to an employee benefit plan, its participants, or its beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be considered to have acted in a manner “not opposed to the best interests of the Corporation or its shareholders” as referred to in Sections 11.01.

11.04 Contract Right; Limitation on Indemnity. The right to indemnification conferred in Article XI shall be a contract right and shall apply to services of a director or officer as an employee or agent of the Corporation as well as in the person’s capacity as a director or officer. Except as otherwise expressly provided in this Article XI, the Corporation shall have no obligations under Article XI to indemnify any person in connection with any proceeding, or part thereof, initiated by the person without authorization by the board of directors.

11.05 Determination That Indemnification Is Proper. Any indemnification under Sections 11.01 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the person is proper in the circumstances because the person has met the applicable standard of conduct set forth in Sections 11.01, whichever is applicable, and upon an evaluation of the reasonableness of expense and amounts paid in settlement. The determination and evaluation shall be made in any of the following ways:

(a) By a majority vote of a quorum of the board of directors consisting of directors who are not parties or threatened to be made parties to the action, suit, or proceeding;

(b) If the quorum described in clause (a) above is not obtainable, then by majority vote of a committee of directors duly designated by the board of directors and consisting solely of two or more directors who are not at the time parties or threatened to be made parties to the action, suit, or proceeding;

(c) By independent legal counsel in a written opinion, which counsel shall be selected in one of the following ways: (i) by the board of directors or its committee in the manner prescribed in subparagraph (a) or (b); or (ii) if a quorum of the board of directors cannot be obtained under subparagraph (a) and a committee cannot be designated under subparagraph (b), by the board of directors; or

(d) By the shareholders, but shares held by directors, officers, employees, or agents who are parties or threatened to be made parties to the action, suit, or proceeding may not be voted.

(e) By all independent directors (as defined by Section 107(3) of the Michigan Business Corporation Act) who are not parties or threatened to be made parties to the action, suit, or proceeding.

If the articles of incorporation of this Corporation include a provision eliminating or limiting the liability of a director pursuant to Section 209 of the MBCA, the Corporation shall indemnify a director for the expenses and liabilities described below in this paragraph without a determination that the director has met the standard of conduct set forth in the MBCA, but no indemnification may be made except to the extent authorized in Section 564c of the MBCA, if the director received a financial benefit to which he or she was not entitled, intentionally inflicted harm on the Corporation or its shareholders, violated Section 551 of the MBCA, or intentionally violated criminal law. In connection with an action or suit by or in the right of the Corporation, indemnification may be for expenses, including attorneys’ fees, actually and reasonably incurred. In connection with an action, suit or proceeding other than one by or in the right of the Corporation, indemnification may be for expenses, including attorneys’ fees, actually and reasonably incurred, and for judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred.

11.06 Authorizations of Payment. Authorizations of payment under Sections 11.01 shall be made in any of the following ways:

(a) by the board of directors:

(i) if there are two or more directors who are not parties or threatened to be made parties to the action, suit or proceeding, by a majority vote of all such directors (a majority of whom shall for this purpose constitute a quorum)or by a majority of the members of a committee of two or more directors who are not parties or threatened to be made parties to the action, suit or proceeding;

(ii) if the Corporation has one or more independent directors who are not parties or threatened to be made parties to the action, suit or proceeding, by a majority vote of all such directors (a majority of whom shall for this purpose constitute a quorum); or

(iii) if there are no independent directors and fewer than two directors who are not parties or threatened to be made parties to the action, suit or proceeding, by the vote necessary for action by the board of directors in accordance with Section 3.07, in which authorization all directors may participate; or

(b) by the shareholders, but shares held by directors, officers, employees, or agents who are parties or threatened to be made parties to the action, suit, or proceeding may not be voted on the authorization.

11.07 Proportionate Indemnity. If a person is entitled to indemnification under Sections 11.01 for a portion of expenses, including attorney fees, judgments, penalties, fines, and

amounts paid in settlement, but not for the total amount, the Corporation shall indemnify the person for the portion of the expenses, judgments, penalties, fines, or amounts paid in settlement for which the person is entitled to be indemnified.

11.08 Expense Advance. The Corporation shall pay or reimburse the reasonable expenses incurred by a person referred to in Sections 11.01 who is a party or threatened to be made a party to an action, suit, or proceeding in advance of final disposition of the proceeding if the person furnishes the Corporation a written undertaking executed personally, or on his or her belief, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct, if any, required by the MBCA for the indemnification of the person under the circumstances. An evaluation of reasonableness under this Section 11.08 shall be made as specified in Section 11.05, and authorizations shall be made in the manner specified in Section 11.06, unless the advance is mandatory. A provision in the articles of incorporation, these bylaws, a resolution by the board of directors or the shareholders, or an agreement making indemnification mandatory shall also make advancement of expenses mandatory unless the provision specifically provides otherwise.

11.09 Non-Exclusivity of Rights. The indemnification or advancement of expenses provided under this article is not exclusive of other rights to which a person seeking indemnification or advancement of expenses may be entitled under a contractual arrangement with the Corporation. However, the total amount of expenses advanced or indemnified from all sources combined shall not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses.

11.10 Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the board of directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of Article XI with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

11.11 Former Directors and Officers. The indemnification provided in Article XI continues for a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of the person.

11.12 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against the person and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have power to indemnify the person against the liability under these bylaws or the laws of the state of Michigan. If the articles of incorporation of this Corporation include a provision eliminating or limiting the liability of a director pursuant to Section 209(1)(c) of the MBCA, such insurance may be purchased from an insurer owned by the Corporation, but such insurance may insure against monetary liability to the Corporation or its shareholders only to the extent to which the Corporation could indemnify the director under Section 11.05.

11.13 Changes in Michigan Law. If there is any change of the Michigan statutory provisions applicable to the Corporation relating to the subject matter of Article XI, then the indemnification to which any person shall be entitled under this article shall be determined by the changed provisions, but only to the extent that the change permits the Corporation to provide broader indemnification rights than the provisions permitted the Corporation to provide before the change. Subject to Section 11.14, the board of directors is authorized to amend these bylaws to conform to any such changed statutory provisions.

11.14 Amendment or Repeal of Article XI. No amendment or repeal of Article XI shall apply to or have any effect on any director or officer of the Corporation for or with respect to any acts or omissions of the director or officer occurring before the amendment or repeal.

11.15 Enforcement Of Rights. Any determination with respect to indemnification or payment in advance of final disposition under this Article XI shall be made promptly, and in any event within 30 days, after written request to the corporation by the person seeking such indemnification or payment. If it is determined that such indemnification or payment is proper and if such indemnification or payment is authorized (to the extent such authorization is required) in accordance with this Article XI, then such indemnification or payment in advance of final disposition under this Article XI shall be made promptly, and in any event within 30 days after such determination has been made, such authorization that may be required has been given and any conditions precedent to such indemnification or payment set forth in this Article XI, the articles of incorporation or applicable law have been satisfied. The rights granted by this Article XI shall be enforceable by such person in any court of competent jurisdiction.

ARTICLE XII

AMENDMENTS

12.01 Amendments. The bylaws of the Corporation may be amended, altered, or repealed, in whole or in part, by the shareholders or by the board of directors at any meeting duly held in accordance with these bylaws, provided that notice of the meeting includes notice of the proposed amendment, alteration, or repeal.

ARTICLE XIII

CONTROL SHARE ACQUISITIONS

13.01 Control Share Acquisitions. Chapter 7B of the MBCA shall not apply to control share acquisitions of shares of the Corporation.

As adopted by the board of directors on November 19, 2008

EX-10.79

Exhibit 10.79

EXECUTION COPY

RESTRICTED STOCK AWARD AGREEMENT

          THIS AGREEMENT (the “Agreement”) is made effective as of                     , 2009 (the “Grant Date”), between ITC Holdings Corp., a Michigan corporation (hereinafter called the “Company”), and                                         , a member of the Board who is not an employee of the Company, hereinafter referred to as the “Grantee.” Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan (as defined below).

          WHEREAS, the Company desires to grant the Grantee shares of Common Stock, pursuant to the terms and conditions of this Agreement (the “Restricted Stock Award”) and the Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of the Company and Its Subsidiaries (the “Plan”) (the terms of which are hereby incorporated by reference and made a part of this Agreement).

          WHEREAS, the Board has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the shares of Common Stock provided for herein to the Grantee in connection with the director compensation policy for members of the Board that are not employees of the Company, and has advised the Company thereof and instructed the undersigned officer to grant said Restricted Stock Award;

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

          1. Grant of the Restricted Stock. Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Grantee [     ]¹ shares of Common Stock (hereinafter called the “Restricted Stock”). The Restricted Stock shall vest and become nonforfeitable in accordance with Section 2 hereof.

          2. Vesting.

          (a) The Restricted Stock shall become 100% vested and nonforfeitable upon the earliest to occur on (i) March 31 of the third year following the Grant Date, (ii) the date the Grantee ceases to be a member of the Board other than due to removal from the Board for cause, or (iii) a Change of Ownership.

          (b) If, prior to the Restricted Stock becoming 100% vested and nonforfeitable pursuant to Section 2(a) hereof, the Grantee is removed as a member of the Board for cause, the Grantee shall forfeit the Restricted Stock without consideration therefor.

          3. Certificates.

          (a) Certificates evidencing the Restricted Stock shall be issued by the Company and shall be registered in the Grantee’s name on the stock transfer books of the Company promptly after the date hereof, but shall remain in the physical custody of the Company or its designee at all times prior to the vesting of such Restricted Stock pursuant to Section 2. The

¹ Number of shares determined by dividing $75,000 by 4 and by $[     ], the closing price per share of Common Stock reported on the New York Stock Exchange for the Grant Date.

Grantee hereby acknowledges and agrees that the Company shall retain custody of such certificate or certificates until the restrictions imposed by Section 2 on the Common Stock granted hereunder lapse. As a condition to the receipt of this Restricted Stock Award, the Grantee shall deliver to the Company a stock power, duly endorsed in blank, relating to the Restricted Stock. No certificates shall be issued for fractional shares.

          (b) As soon as practicable following the vesting of the Restricted Stock pursuant to Section 2, certificates for the Restricted Stock which shall have vested shall be delivered to the Grantee or to the Grantee’s legal guardian or representative along with the stock powers relating thereto.

          4. Rights as a Stockholder. The Grantee shall be the record owner of the Restricted Stock unless or until such Restricted Stock is forfeited pursuant to Section 2 hereof or is otherwise sold or disposed of as permitted under Section 6 of this Agreement, and as record owner shall be entitled to all rights of a common stockholder of the Company (including, without limitation, the payment of any dividends on the shares of Restricted Stock).

          5. Legend on Certificates. The Restricted Shares shall contain a legend stating that they are subject to transfer restrictions and shall be subject to such stop transfer orders and other restrictions as the Board may deem reasonably advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Restricted Shares are listed, any applicable federal or state laws and the Company’s Articles of Incorporation and Bylaws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

          6. Transferability. The Restricted Stock may not, at any time prior to becoming vested pursuant to Section 2 or thereafter, be transferred, sold, assigned, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition complies with the provisions of this Agreement.

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

          8. Grantee’s Continued Service on the Board. Nothing contained in this Agreement or in any other agreement entered into by the Company and the Grantee guarantees that the Grantee will continue to serve as a member of the Board for any specified period of time.

          9. Change in Capitalization. If, prior to the time the restrictions imposed by Section 2 on the Restricted Stock granted hereunder lapse, the Company shall be reorganized, recapitalized or restructured, consolidated or merged with another corporation, or otherwise undergo a significant corporate event, (a) the Restricted Stock may be adjusted or cancelled and (b) any stock, securities or other property exchangeable for Common Stock pursuant to such reorganization, recapitalization, restructuring, consolidation, merger or other corporate event, shall be deposited with the Company and shall become subject to the restrictions and conditions of this Agreement to the same extent as if it had been the original property granted hereby, all pursuant to Sections 8 and 9 of the Plan.

          10. Payment of Taxes. The Grantee shall have full responsibility, and the Company shall have no responsibility, for satisfying any liability for any federal, state or local income or other taxes required by law to be paid with respect to such Restricted Stock, including upon the vesting of the Restricted Stock. In connection with the foregoing, the Grantee may, at his or her option, elect to recognize the fair value of the Restricted Stock upon the Grant Date pursuant to Section 83 of the Internal Revenue Code of 1986, as amended. The Grantee is hereby advised to seek his own tax counsel regarding the taxation of the grant of Restricted Stock made hereunder.

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

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

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

          14. Restricted Stock Award Subject to Plan. The Restricted Stock Award shall be subject to all terms and provisions of the Plan, to the extent applicable to the Restricted Stock. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.

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

[Continued on next page.]

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

	ITC HOLDINGS CORP.
	By:
	Name:	Daniel J. Oginsky
	Title:	Vice President and General Counsel
	GRANTEE
Restricted Stock Agreement (Grant)

EX-10.80

Exhibit 10.80

INTERNATIONAL TRANSMISSION COMPANY
MANAGEMENT SUPPLEMENTAL BENEFIT PLAN

     The International Transmission Company Management Supplemental Benefit Plan (the “Plan”), established by International Transmission Company effective May 10, 2005, is hereby restated in its entirety and sponsored, effective as of December 1, 2008, by ITC Holdings Corp. (“ITC”) as the successor to International Transmission Company.

     1. Purpose.

     The Plan is designed to supplement the pension benefits of Joseph L. Welch (“Executive”), the president and chief executive officer of ITC Holdings Corp. and ITC.

     2. Definitions. Unless otherwise defined herein, all defined terms shall have the same meaning as provided under the ITC Retirement Plan.

          a. Actuarial Equivalent. “Actuarial Equivalent” means an amount calculated as specified under Section 7, Step 2, below using the applicable mortality and interest rate specified in the ITC Retirement Plan from time to time.

          b. Average Final Compensation. “Average Final Compensation” is equal to one-fifth of Executive’s Compensation during the 260 weeks of Service that results in the highest average of Executive’s Compensation.

          c. Board. The Board of Directors of the Company.

          d. Company. Where the context requires in respect of the liability for the payment of any benefit to the Executive or his beneficiary, the term “Company” shall mean ITC or such other affiliate of ITC employing or who employed Executive. All corporate officers and other administrative personnel referred to herein refer to officers and administrative personnel of ITC.

          e. Company Service. Executive’s years of service with the Company. Company Service is calculated to the nearest whole month. As of the effective date of this restated Plan, Executive has 5 years and 9 months of Company Service.

          f. DTE Service. All years of service with The Detroit Edison Company (“DTE”) (or any of its predecessors, affiliates or other members of its controlled group) calculated to the nearest completed calendar month. For purposes of this Plan, Executive is treated as having 32 years and 1 month of DTE Service.

          g. Compensation. “Compensation” as defined in the ITC Retirement Plan; provided, however, that for purposes of this Plan, “Compensation” shall be Executive’s Normal Pay, any bonuses paid to Executive without restrictions, and compensation related to Executive’s service with DTE, and shall be calculated without regard to any limitation imposed by Section 401(a)(17) of the Code. For purposes of compensation related to service with DTE, including all pay from other sources while placed on a suspension of employment, see Exhibit B. The foregoing notwithstanding, the Executive’s “Compensation” shall not include any “Special

Bonus Amounts” awarded, paid, accrued, vested or deferred at any time after May 17, 2006 under the ITC Holdings Corp. Executive Group Special Bonus Plan.

          h. Normal Pay. Executive’s annual base salary received from the Company for a standard forty-hour work week, calculated without regard to any limitation imposed by Section 401(a)(17) of the Code, including amounts deferred by Executive under the Company’s qualified and non-qualified savings plans. “Normal Pay” does not include any bonuses, special pay, or premium for overtime work.

          i. ITC Retirement Plan. The ITC Retirement Plan is a qualified defined benefit pension plan sponsored by ITC for its eligible employees.

          j. Service. Executive’s Company Service and DTE Service, collectively.

     3. Eligibility. Executive is the only individual eligible to participate in this Plan.

     4. Target Percentage of Average Final Compensation. Payments from the Plan are based upon the “Target Percentage” of Executive’s Average Final Compensation as calculated below. The Target Percentage is determined by years of Service, and shall be determined as follows:

Target Percentage
of Average Final	Service
Compensation	Index
60%	25

Notwithstanding the foregoing, the Target Percentage shall be increased by 0.5% for each year that the number of years of Executive’s Service is greater than the Service Index. The Target Percentage is adjusted accordingly if the Service Index results in fractional years. The final determination of Executive’s Target Percentage (e.g., 60% plus any increases) of Executive’s Average Final Compensation shall hereinafter be referred to as the “Final Percentage.”

     5. Payments to Commence only after Termination of Employment. Payments from the Plan are not payable until Executive terminates employment with the Company (by death or otherwise). References in this Section and in the following provisions of the Plan to “terminating employment”, “terminates employment” or “employment termination” or similar provisions shall mean termination of employment with the Company, and shall be synonymous with the meaning given to the term “separation from service” as provided under Section 409A of the Code, and the rules and regulations promulgated thereunder.

          a. Normal Retirement. Executive shall receive an unreduced Final Percentage if Executive terminates employment at age 60 or older.

          b. Early Retirement. Executive shall receive a reduced or adjusted Final Percentage if Executive terminates employment (including due to his death) at or after age 55 but prior to achieving age 60. The early retirement adjustment schedule is as follows:

2

Age At	Early Retirement
Termination	Adjustment Percentage
55		60	%
56		68	%
57		76	%
58		84	%
59		92	%
60 or older		100	%

Age at termination is calculated to the nearest whole calendar month and the Early Retirement Adjustment Percentage is determined accordingly.

     6. Payment of Benefit. The retirement benefit provided for under this Plan shall be paid to the Executive upon the termination of his employment for any reason in the form of a Guaranteed Term Plus Life Benefit. The Guaranteed Term Plus Life Benefit payment option provides for a minimum of 15 years of payments to Executive and, if he lives beyond such 15-year period, the payments shall continue to be made to him for life. Payments shall be made monthly. If Executive dies before the end of the 15-year period, payments will continue to be made to his beneficiary or estate (if no beneficiary election is on file) for the balance of the 15-year period. At the end of this 15-year period, all payments cease, the Company will have no further liability to Executive or his beneficiary or estate, and the Plan shall terminate. In accordance with Section 409A of the Code, and the rules and regulations promulgated thereunder, payments hereunder will be delayed and shall commence on the first business day following the date that is six months after the date of termination of Executive’s employment (or the Executive’s date of death, if earlier); provided that in addition to the regular monthly amounts payable under the Plan commencing at that time, a lump sum amount shall be paid equal to the total of all payments under this Plan that would otherwise have been payable during the period of delay required by Code Section 409A.

     7. Benefit Payment Calculation. Monthly payments made from the Plan pursuant to Section 6 above are determined as follows:

     Step 1. Determine Gross Target Benefit Amount

     The “Gross Target Benefit Amount” is determined by multiplying the Final Percentage by Executive’s Average Final Compensation.

     Step 2. Determine ITC Retirement Plan Benefit

     Executive will be a participant in the ITC Retirement Plan. At the time Executive’s benefits are calculated for this Plan, his total benefits under the ITC Retirement Plan will be determined, including: (i) the value of his cash balance account as of the calculation date, and (ii) any other annuity benefit that is payable to Executive thereunder. The total of such benefit amounts will be converted into an annuity that is equal to the Actuarial Equivalent of the Guaranteed Term Plus Life Benefit (the “ITC Plan Benefit”).

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     Step 3. DTE Retirement Plan & DTE MSBP Offset

     The Plan benefit shall be reduced by the sum of the benefits provided under the DTE Retirement Plan and the DTE Management Supplemental Benefit Plan (“DTE Plans”). Pursuant to that Separation Agreement entered into by and between Executive and DTE dated November 22, 2002, the aggregate amount of such benefits is equal to $98,368.44, payable as a life annuity. For purposes of the Plan, the life annuity amount must be converted to an amount that is equal to the Actuarial Equivalent of the Guaranteed Term Plus Life Benefit. For purposes of such calculation, the Actuarial Equivalent shall be determined as of November 2002. This amount is $95,496 (the “DTE Plans Offset”).

     Step 4. Determine Base Annual Target Benefit Amount

     The “Base Annual Target Benefit Amount” is determined by subtracting the ITC Plan Benefit and the DTE Plans Offset that would be payable at retirement (without regard to whether Executive elects to defer receipt of the benefit) from the Gross Target Benefit Amount.

     Step 5. Determine Adjusted Annual Target Benefit Amount

     The “Adjusted Annual Target Benefit Amount” is determined by multiplying the Base Annual Target Benefit Amount by the Early Retirement Adjustment Percentage.

     Step 6. Determine Monthly Target Benefit Amount Under the Guaranteed Term Plus Life Benefit

     The “Monthly Target Benefit Amount” of the Guaranteed Term Plus Life Benefit is determined by dividing the Adjusted Annual Target Benefit Amount by 12.

     Exhibit A displays examples of the Plan payment calculation procedure as set forth in this Section 7.

     In the event Executive receives an assessment of Federal Insurance Contributions Act taxes from the Internal Revenue Service, or of state or local income taxes, which treats any amount payable to Executive under this Plan as taxable for such purpose prior to the actual payment of such amount to Executive, the Company shall pay an amount equal to such taxes to or on behalf of Executive. Further, in the event Executive receives an assessment of income taxes from the Internal Revenue Service which treats any amount payable to Executive under this Plan as includible in his gross income prior to the actual payment of such amount to Executive due to the failure of this Plan to meet the requirements of Code Section 409A, and the rules and regulations promulgated thereunder, the Company shall pay an amount equal to such taxes to or on behalf of Executive. In either event, such payment will be made within 30 days after receipt of written notice from Executive of such assessment, which notice Executive shall timely give to the Company. Thereafter, the Base Annual Target Benefit Amount (Step 4 above) shall be reduced by an amount equal to all such payments by the Company and the amounts calculated under Steps 5 and 6 shall be reduced accordingly, so long as the Board determines that the reduction of such amount will not result in additional taxes being imposed on Executive under

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Code Section 409A. Notwithstanding the foregoing, in the event the Company decides to challenge the Internal Revenue Service’s assessment, the Company shall promptly notify Executive in writing of such decision and the Company shall have the right to challenge such assessment, on behalf of Executive, at the Company’s cost and expense.

     Each payment under this Plan shall be reduced by any federal, state or local taxes, which ITC determines should be withheld from such payment.

     8. Establishment of Grantor Trust. As soon as practicable after the effective date of this Plan, the Company shall establish a grantor trust (a “Rabbi Trust”), which is intended to be a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), which shall not affect the status of the Plan as an unfunded arrangement for purposes of Title I of ERISA. Assets transferred to the Rabbi Trust shall be in cash or other securities in the discretion of the Company.

     9. Beneficiary Designation. Executive may name any beneficiary to whom payments under the Plan are to be paid in case of Executive’s death. Each designation will revoke all prior designations and shall be on a form prescribed by ITC and will be effective only when filed by Executive with the ITC Human Resource Department. In the absence of any such designation, payments due shall be paid to Executive’s estate.

     10. Taxation. The Company makes no representation as to the tax consequences of the payment option provided under this Plan. Executive is urged to consult his tax advisor for information and advice.

     All payments under this Plan are intended to be in compliance with Section 409A of the Code, but in no event shall the Company be responsible for any tax or penalty owed by Executive or his beneficiary with respect to payments hereunder. Between the original effective date of this Plan (May 10, 2005) and the effective date of this amended and restated Plan, this Plan was administered in good faith compliance under Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A.

     11. Non-Secured Promise; Amendments.

          a. Executive has the status of general unsecured creditor of the Company. This Plan constitutes a promise by the Company to make benefit payments in the future. The Company intends that this Plan be unfunded for tax purposes and for purposes of Title I of ERISA. The Company intends that this Plan be maintained solely for Executive.

          b. Payments as they become due under the Plan shall be paid by the Company from its general assets; provided, however, that no provision of the Plan shall preclude the Company from segregating assets which are intended to be a source for payment of benefits under the Plan in the Company’s sole discretion, including the Rabbi Trust.

          c. ITC reserves the right to amend, modify, or discontinue this Plan at any time; provided, however, that no such amendment, modification or termination shall adversely affect the rights of Executive or his beneficiaries who are receiving or are immediately eligible to

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receive benefits from this Plan at the time of such amendment, modification, or termination, without such person’s prior written consent.

          d. In the event of dissolution, merger, consolidation or reorganization of the Company, the Plan shall terminate as to the Company unless the Plan is continued by a successor thereto (subject to the consent of the Chairman of the Board). In the event the Plan is terminated, Executive shall nevertheless receive payment of his accrued benefit hereunder in accordance with Code Section 409A, and the rules and regulations promulgated thereunder.

          e. Notwithstanding the foregoing provisions of this Section, no amendment, modification, or termination of the Plan may be made after the occurrence of a Change of Ownership (as defined in the Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of ITC Holdings, Inc. and its Subsidiaries), that would adversely affect the rights of Executive, who is receiving or upon termination would thereupon be entitled to receive benefits under the Plan, without his prior written consent.

     12. Administration; Arbitration.

     The Vice President in charge of ITC Human Resources (or the executive officer whose responsibilities include the Company’s Human Resources department) is responsible for the administration of the Plan and for the administration of benefits payable under the Plan. The Board (or its designated representative) has the authority to interpret the provisions of the Plan and prescribe any regulations relating to its administration. The decisions of the Board (or its designated representative) with respect thereto made prior to the occurrence of a Change of Ownership shall be conclusive. The Vice President in charge of ITC Human Resources (or the executive officer whose responsibilities include the Company’s Human Resources department) shall review the Plan from time to time and as part of such review is hereby directed to make any recommendations to amend the Plan he or she in good faith deems necessary for ease of administration and/or to comply with applicable federal, state and local laws.

     Notwithstanding any provision in this Plan to the contrary, in the event of any dispute, claim or controversy (hereinafter referred to as a “Grievance”) between Executive and the Company with respect to the payment of benefits to him under the Plan, the computation of benefits under the Plan, or any of the terms or conditions of the Plan, such Grievance shall be resolved by arbitration. Arbitration shall be the sole exclusive remedy to redress any Grievance. The arbitration decision shall be final and binding, and a judgment on the arbitration award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms. The arbitration shall be conducted by the American Arbitration Association and expenses of the arbitrator(s) and the American Arbitration Association shall be borne by the Company. Neither the Company nor Executive shall be entitled to attorneys’ fees, expert witness fees, or other expenses expended in the course of such arbitration or the enforcement of any award rendered thereunder. The place of the arbitration shall be the offices of the American Arbitration Association in the Detroit metropolitan area, Michigan. The arbitrator(s) shall not have the jurisdiction or authority to change any of the provisions of this Plan by alteration of, addition to, or subtraction from the terms thereof. The arbitrator(s) sole authority shall be to apply any terms and conditions of this Plan. Since arbitration is the exclusive remedy with respect to any Grievance, Executive does not have the right to resort to any federal court, state court, local

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court, or administrative agency concerning breaches of any terms and provisions hereunder, and the decision of the arbitrator(s) shall be a complete defense to any suit, action or proceeding instituted in any federal court, state court, local court, or administrative agency by Executive or the Company with respect to any Grievance which can be subject to arbitration as herein set forth. The arbitration provisions shall, with respect to any Grievance survive the termination of this Plan.

          13. Non-Alienability and Non-Transferability. The right of Executive, his spouse or beneficiary to payment of any benefit hereunder shall not be alienated, assigned, transferred, pledged of encumbered and shall not be subject to execution, attachment or similar process. No account shall be subject in any manner to alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or other levy of any kind, whether voluntary or involuntary, including, but not limited to any liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of Executive. Any attempted assignment, pledge, levy or similar process shall be null and void without effect.

          IN WITNESS WHEREOF, this restated Plan has been adopted this ___ day of                     , 2008, effective as set forth above.

ITC HOLDINGS CORP.

By:

Title:

          CONSENTED TO as of this ___ day of                     , 2008.

EXECUTIVE

Joseph L. Welch

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EXHIBIT A

Example 1

Assumptions:

Date of Termination:	July 31, 2013
Age at Termination:	65 Years, 0 Months
Position:	Chief Executive Officer
MSBP Average Final Compensation:	$2,800,000
Service:	42 Years, 6 Months
ITC Retirement Plan Cash Balance Account:	$200,000
ITC Retirement Plan Annuity Benefit	$100,000
DTE Total Retirement Benefit:	$98,368.44/yr as life annuity
Payment Option:	Guaranteed Term Plus Life (Survivor  benefit — monthly payments)

(Given the above, the target percentage is 69%)

Step 1:	69% x $2,800,000 = $1,932,000
Step 2:	($200,000/11.157) + ($100,000*0.9108) = $109,006
Step 3:	$98,368.44 x .9708 = $95,496
Step 4:	$1,932,000 – $109,006 – $95,496 = $1,727,498
Step 5:	$1,727,498 x 1.00 = $1,727,498
Step 6:	$1,727,498 / 12 = $143,958

Monthly Payments of $143,958 will be made for 15 years, or for the life of the Executive if greater than 15 years.

Exhibit B — Historical Compensation Data

The following schedule of weekly compensation for Mr. Welch’s period of employment at DTE including all pay from other sources while placed on a suspension of employment. This is to be used for calculation of Average Final Compensation.

								Eligible				Number		Comp to Use
		Number		Annual		MSBP		Lump-Sum		Weekly		of Weeks		for Highest
Begin Date	End Date	of Weeks		Salary		Bonus(1)		Awards		Average		to Use in Avg.		260 Weeks		RANK
Actual History
2/12/1990	2/18/1990		1.00		69,600.00		7,048.00				8,386.46		1		8,386.46		24
2/11/1991	2/17/1991		1.00		73,700.00		8,721.00				10,138.31		1		10,138.31		25
2/10/1992	2/16/1992		1.00		77,400.00		6,692.00				8,180.46		1		8,180.46		23
2/15/1993	2/21/1993		1.00		89,300.00		5,819.00				7,536.31		1		7,536.31		22
2/14/1994	2/20/1994		1.00		92,900.00		10,502.38				12,288.92		1		12,288.92		27
3/14/1994	3/20/1994		1.00		92,900.00				5,000.00		6,786.54		1		6,786.54		18
2/13/1995	2/19/1995		1.00		111,000.00		2,774.98				4,909.60		1		4,909.60		15
2/12/1996	2/18/1996		1.00		118,000.00		8,128.13				10,397.36		1		10,397.36		26
4/7/1997	4/13/1997		1.00		139,500.00				1,500.00		4,182.69		1		4,182.69		13
4/14/1997	2/8/1998		43.00		139,500.00						2,682.69		0		0.00		1
2/9/1998	2/15/1998		1.00		139,500.00		20,968.21				23,650.90		1		23,650.90		31
2/16/1998	3/29/1998		6.00		139,500.00						2,682.69		0		0.00		1
3/30/1998	4/5/1998		1.00		145,100.00						2,790.38		1		2,790.38		3
4/6/1998	4/12/1998		1.00		145,100.00				2,000.00		4,790.38		1		4,790.38		14
4/13/1998	2/21/1999		45.00		145,100.00						2,790.38		38		106,034.62		3
2/22/1999	2/28/1999		1.00		145,100.00		19,873.41				22,663.79		1		22,663.79		30
3/1/1999	3/28/1999		4.00		145,100.00						2,790.38		4		11,161.54		3
3/29/1999	4/4/1999		1.00		147,900.00						2,844.23		1		2,844.23		6
4/5/1999	4/11/1999		1.00		147,900.00				3,000.00		5,844.23		1		5,844.23		16
4/12/1999	10/10/1999		26.00		147,900.00						2,844.23		26		73,950.00		6
10/11/1999	2/20/2000		19.00		160,000.00						3,076.92		19		58,461.54		8
2/21/2000	2/27/2000		1.00		160,000.00		15,628.54				18,705.46		1		18,705.46		28
2/28/2000	3/26/2000		4.00		160,000.00						3,076.92		4		12,307.69		8
3/27/2000	2/25/2001		48.00		171,200.00						3,292.31		48		158,030.77		10
2/26/2001	3/4/2001		1.00		171,200.00		17,120.00				20,412.31		1		20,412.31		29
3/5/2001	3/25/2001		3.00		171,200.00						3,292.31		3		9,876.92		10
3/26/2001	7/1/2001		14.00		178,048.00						3,424.00		14		47,936.00		12
7/2/2001	2/24/2002		34.00		356,096.00						6,848.00		34		232,832.00		19
2/25/2002	3/3/2002		1.00		356,096.00		35,609.60				42,457.60		1		42,457.60		32
3/4/2002	8/25/2002		25.00		356,096.00						6,848.00		25		171,200.00		19
8/26/2002	11/24/2002		13.00		365,096.00						7,021.08		13		91,274.00		21
11/25/2002	2/23/2003		13.00		350,000.00						6,730.77		13		87,500.00		17
2/24/2003	3/2/2003		1.00		350,000.00		146,000.00				152,730.77		1		152,730.77		33
													260	$	1,430,261.78
						Average Final Compensation as of March 1, 2003								$	286,052.00

EX-10.81

Exhibit 10.81

INTERNATIONAL TRANSMISSION COMPANY

EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN

PREAMBLE

     Benefits under the International Transmission Company Executive Supplemental Retirement Plan (“Plan”) are available to designated executives and key management employees of ITC Holdings Corp. (“Company”) and its Subsidiaries and Affiliates. The Company has established this Plan to benefit executives of the Company and its Subsidiaries and Affiliates in a manner that will be in the best interest of the Company and its shareholders.

SECTION 1.
TITLE, PURPOSE AND EFFECTIVE DATE

     1.01. Title. The title of this Plan shall be the “International Transmission Company Executive Supplemental Retirement Plan” and shall be referred to in this document as the “Plan”.

     1.02. Purpose. The purpose of the Plan is to promote the success of the Company and its Subsidiaries and Affiliates by providing the ability to attract and retain talented executives by providing such designated executives with additional retirement benefits.

     It is intended that this Plan provide deferred compensation for a “select group of management or highly compensated employees” within the meeting of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as “ERISA”) and, therefore, to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.

     1.03. Effective Date. The Plan was established effective March 1, 2003. The Plan is hereby restated in its entirety, effective as of
December, 1, 2008.

SECTION 2.
DEFINITIONS

     The following words and terms, as used in this Plan, shall have the meanings set forth below, unless a clearly different meaning is required by the context in which the word or phrase is used.

     2.01. “Account” means the hypothetical record or bookkeeping entry maintained by the Company reflecting each Participant’s Compensation Credits, annual Investment Credits and any distributions under the Plan. The term “Account” should not be construed as an actual segregation of assets for the benefit of any particular Participant.

     2.02. “Affiliate” means any entity directly or indirectly controlling, controlled by or under common control with the Company.

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     2.03. “Anniversary Year” means the 12-month period of active service beginning with the date an executive is originally designated a Participant under this Plan.

     2.04. “Annual Cash Bonus” means the compensation payable in the Plan Year under the Company’s Annual Incentive Plan, and any similar annual incentive plan of a Subsidiary or Affiliate, or any successor plans thereto.

     2.05. “Base Salary” means base salary payable prior to reduction for any pre-tax deferrals under Code Sections 125, 129, or 401(k) and prior to reduction for any payroll deduction for taxes or any other purpose. “Base Salary” shall exclude any bonus, long-term awards, fringe benefit or other form of remuneration.

     2.06. “Beneficiary” means the person, persons or entity designated in writing by the Participant, on forms, provided by the Company, to receive distribution of certain death benefits payable under the Plan in the event of the Participant’s death.

     2.07. “Board” means the Board of Directors of the Company.

     2.08. “Code” means the Internal Revenue Code of 1986, as amended, and any regulations issued thereunder. References to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection.

     2.09. “Committee” means the Committee designated by the Board. The Committee is responsible for the administration of the Plan and may delegate such administrative responsibilities under this Plan.

     2.10. “Company” means ITC Holdings Corp. or its successors and assigns.

     2.11. “Compensation” for periods on or after March 1, 2003, means a Participant’s Base Salary, plus Annual Cash Bonus.

     2.12. “Compensation Credit” means an amount equal to 9% of the Participant’s Compensation. Such credit shall be computed and credited to the Participant’s Account on an annual basis as of the last business day of the year. In order to receive a Compensation Credit for a given year, the Participant must be actively employed by the Company or a Subsidiary or Affiliate on the last business day of the year.

     2.13. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any regulations issued thereunder. References to any section or subsection of ERISA includes any references to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection.

     2.14. “Investment Credit” means the hypothetical earnings posted to the Participant’s Account each Plan Year. The Investment Credit will be equal to the same annual earnings rate that is determined from time to time as the “Interest Credit” applied to the cash balance accounts for participants under Section 5.02 of the International Transmission Company Retirement Plan.

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     2.15. “Participant” means an executive of the Company or a Subsidiary or Affiliate who has been designated by the Committee as eligible to participate in the Plan.

     2.16. “Plan” means the International Transmission Company Executive Supplemental Retirement Plan, as described herein and as amended and restated from time to time.

     2.17. “Plan Year” means the period beginning January 1 and ending December 31 of each year.

     2.18. “Spouse” means an individual who is legally married to a Participant under the laws of the State in which the Participant resides, on the day immediately preceding the Participant’s date of death.

     2.19. “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations, or group of commonly controlled corporations, other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

     2.20. “Vested Account” means the amount that the Participant is entitled to receive upon termination of employment for any reason with the Company (and any Subsidiary or Affiliate), equal to the vested percentage of the Participant’s Account as determined under Section 6.

SECTION 3.
PARTICIPATION

     3.01. Designation By Committee. An executive may only become a Participant by designation by the Committee. Such executive must be an individual who is included within a “select group of management or highly compensated employees”, within the meaning of Title I of ERISA.

     3.02. Effective Date of Participation. An executive shall become a Participant as of the date he or she is first designated as a Participant by the Committee.

     3.03. Revocation of Designation. A Participant whose designation is revoked prior to the Participant’s termination of employment or death shall not receive any Compensation Credits under the Plan subsequent to the date of such revocation. However, the balance deemed to be in the Participant’s Account as of the date of revocation shall continue to be reflected in the Participant’s Account, and shall be increased by annual Investment Credits under Section 4.01 until distribution of the Participant’s Account as provided in Section 5.

          With respect to a Participant whose designation has been revoked under this Section (including an executive who is subsequently redesignated as a Participant under Section 3.01), the provisions of Section 6.03 shall govern for purposes of determining the Participant’s vested percentage in his or her Account.

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SECTION 4.
ACCOUNTS AND EARNINGS

     4.01. Establishment of Accounts. The Committee shall establish a hypothetical bookkeeping Account for each Participant. The initial value of a Participant’s Account shall be zero. Compensation Credits shall be credited to a Participant’s Account as of the last business day of the Plan Year. The Participant’s Account at the end of the first Plan Year in which the Participant commences participation in the Plan shall equal the Compensation Credit for the Participant for that Plan Year, less the “Special Employer Contribution” (if any) made with respect to the Participant under Section 5.02 of the International Transmission Company Retirement Plan.

          In all subsequent years, the Participant’s Account shall be recalculated at the end of each Plan Year, and shall equal the sum of the following:

          (a) the prior Plan Year’s ending balance of the Account; plus

          (b) the Investment Credit on the prior Plan Year’s ending Account balance; plus

          (c) the Compensation Credit for the Participant for the current Plan Year, less the “Special Employer Contribution” (if any) made with respect to the Participant under Section 5.02 of the International Transmission Company Retirement Plan.

     4.02. No Requirement to Fund. The Company shall have sole discretion whether or not to invest any of the Company’s funds (whether or not in trust) in a manner that reflects the Compensation and Investment Credits under this Plan, or in any other manner. If and to the extent the Company chooses to invest in any particular investment, assets acquired by the Company shall remain the sole property of the Company, subject to the claims of its general creditors, and shall not be deemed to form part of any Participant’s Account. Nothing herein, however, shall preclude the Company from informally segregating assets that are intended to be a source of payment of benefits from the Plan. The Company shall not be required to fund its obligations in any manner and shall not be required to invest in any particular investment. The Company may, without limitation, purchase life insurance or any security or other property with respect to any or all of its obligations under the Plan. Participants shall have no right, title or interest in any assets held by the Company (or any trust) by reason of a Participant’s participation in this Plan.

SECTION 5.
FORM AND TIMING OF PAYMENT

     5.01. Distribution of Account. The Company shall distribute each Participant’s Vested Account in accordance with the Participant’s election as to form of distribution unless the Plan provides otherwise. The Participant’s distribution election shall provide for payment in either (i) annual installments over a period of not less than two years and not more than 15 years, in one year increments, as described in Section 5.03(a), or (ii) a lump sum distribution as

4

described in Section 5.03(b). If no distribution election is on file with the Company, the Participant’s Vested Account shall be distributed in a single lump sum.

     5.02. Timing of Commencement of Distributions. Payment of a lump sum distribution or the first of any annual installments elected under section 5.01, shall be made as of the March 1 of the Plan Year following the year of the Participant’s termination of employment for any reason with the Company (and any Subsidiary or Affiliate). Subsequent annual installments (if any) shall be made each following March 1 of the installment period. Section 7.03 shall govern timing of a distribution due to a Participant’s death.

          The foregoing notwithstanding, in the event the Participant is determined to be a “specified employee” in accordance with Code Section 409A and the rules and regulations promulgated thereunder, then the lump sum distribution or the first of any annual installment payments to the Participant under this Plan will be made on the later of: (i) the March 1 of the Plan Year following the year of the Participant’s termination of employment; or (ii) the first business day following the date that is six months after the date of termination of the Participant’s employment. Further, for all purposes under this Plan, references to “termination” of employment (or variations thereof), shall be synonymous with the meaning given to the term “separation from service” as provided under Code Section 409A, and the rules and regulations promulgated thereunder.

     5.03. Form of Distributions.

          (a) Annual Installments. The distribution to a Participant shall be paid in cash. The initial annual installment distribution shall be determined by dividing the value of the Participant’s Vested Account, determined as of December 31 of the Plan Year in which the Participant’s employment terminated, by the number of installment payments to be made. The amount distributed to the Participant thereafter shall be recalculated each year to reflect changes in the Participant’s Account through December 31 of such subsequent calendar year and the remaining number of installment payments to be made. Investment Credits shall be credited to the Participant’s Account through December 31 of each Plan Year in which the Participant has a remaining Account balance.

          (b) Lump Sum Distribution. The distribution shall be paid in a single cash payment equal to the Participant’s Vested Account balance, determined as of December 31 of the Plan Year in which the Participant’s employment terminated.

          (c) Distribution of Small Amounts. Notwithstanding a Participant’s distribution election, if a Participant’s Vested Account balance is less than or equal to $10,000 as of December 31 of the Plan Year in which the Participant’s employment terminated, the Participant’s Vested Account shall be paid in a single cash lump sum. The foregoing notwithstanding, in the event the Participant also participates in another deferred compensation plan that is required to be aggregated with this Plan in accordance with Code Section 409A and the rules and regulations promulgated thereunder, then this provision shall not apply.

     5.04. Initial Distribution Election. An executive who becomes a new Participant in the Plan, shall, by no later than thirty (30) days after being designated as a Participant, make a

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one-time election as to the form of distribution (as permitted under Section 5.01) to be made upon his later termination of employment, of all amounts credited at any time to his Vested Account under the Plan.

          The foregoing notwithstanding, with respect to any executive who is a Participant in the Plan as of the effective date of this amended and restated version of the Plan, and without regard as to whether such Participant has made a prior distribution election under the Plan, such Participant shall be permitted to make an “initial” election as to the form of distribution (as permitted under Section 5.01) to be made upon his later termination of employment, of all amounts credited at any time to his Vested Account under the Plan, by no later than December 31, 2008, as permitted under transition rules issued under Code Section 409A; provided, that such election shall apply only to amounts that would not otherwise be payable to the Participant in 2008, and shall not cause any amount to be paid to the Participant in 2008 that would not otherwise be payable in 2008.

SECTION 6.
VESTING OF BENEFITS

     6.01. General. A Participant shall vest 20% per Anniversary Year in his or her Account. There is no partial vesting for a portion of an Anniversary Year. A Participant’s vested percentage in his or her Account shall equal the product of (i) 20% and (ii) the Participant’s number of Anniversary Years as of the date of his or her termination of employment. Participants shall not receive credit for service with the DTE Energy Company.

          If a Participant terminates employment with the Company or a Subsidiary or Affiliate prior to becoming 100% vested under Section 6.01, the Participant’s Vested Account shall be distributed in accordance with Section 5 and the nonvested portion of the Account shall be forfeited.

     6.02. Rehired Participants.

          (a) Vesting. If a Participant who previously terminated employment with an Account that was less than 100% vested is subsequently rehired by the Company or a Subsidiary or Affiliate and is again designated a Participant in accordance with Section 3, any Account value forfeited upon the prior termination shall not be reinstated. A new Account (with an initial value of zero) shall be established for such rehired Participant for the purpose of recording Compensation Credits and Investment Credits beginning after such Participant’s rehire date.

          However, if the Participant has not incurred consecutive one-year breaks in service equal to (or in excess of) the greater of (i) 5 years, or (ii) the aggregate number of Anniversary Years the Participant had earned before such break in service, such Participant’s vested percentage in his or her new Account shall be redetermined periodically under Section 6.01 based on the total of such Participant’s Anniversary Years following his or her rehire, as adjusted to take into consideration such Participant’s pre-break Anniversary Years.

          (b) Pay Status of Prior Benefit. If the rehired Participant is receiving annual installment distributions of his or her Vested Account as it existed on the date of the Participant’s termination of employment, such prior Account (i) will remain separate from the new Account

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established as described in Section 6.02(a), (ii) will retain the vested percentage determined under Section 6.01 as of the Participant’s prior date of termination, and (iii) any installment payments then remaining payable to the Participant therefrom will continue in accordance with the schedule previously elected by the Participant under Section 5.01.

     6.03. Redesignated Participants. If a Participant’s designation as a Participant is revoked under Section 3.03 prior to becoming 100% vested under Section 6.01, such Participant’s vested percentage shall not change from that determined as of the date of such revocation. However, if such Participant is subsequently redesignated as a Participant under Section 3.01, such Participant’s vested percentage shall be redetermined periodically under Section 6.01 based on the total of such Participant’s Anniversary Years following his or her redesignation, as adjusted to take into consideration such Participant’s Anniversary Years prior to the initial revocation.

SECTION 7.
SELECTION OF AND PAYMENTS TO BENEFICIARY

     7.01. Beneficiary Designation. A Participant shall designate a Beneficiary on a form provided by the Human Resources Director or his or her designee, for the purpose of designating a Beneficiary. If a Participant has not designated a Beneficiary, or if a designated Beneficiary is not living or in existence at the time of a Participant’s death, any death benefits payable under the Plan shall be paid to the Participant’s Spouse, if then living, and if the Participant’s Spouse is not then living, to the Participant’s estate.

     7.02. Change in Beneficiary. A Participant may change the designated Beneficiary from time to time by filing a new written designation with the Human Resources Director, or his or her designee. Such designation shall be effective upon receipt by the Human Resources Director or his or her designee.

     7.03. Survivor Benefit. If an active Participant dies with an Account balance under this Plan, his Beneficiary shall be entitled to receive a cash lump sum distribution of 100% of the balance in the Participant’s Account. If a Participant dies after commencing receipt of installment payments under Section 5.02, any future installments remaining due will be discontinued and the then remaining balance of the Participant’s Account shall be payable to the Beneficiary in a cash lump sum. The lump sum distribution shall be paid within ninety (90) days following the Participant’s death, and shall be equal to the value of the Participant’s Account determined as of December 31 of the Plan Year immediately preceding payment to the Beneficiary.

SECTION 8.
TAX WITHHOLDING

     Benefit payments hereunder shall be subject to applicable federal, state, and local wage and income tax withholding laws.

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SECTION 9.
ADMINISTRATION OF THE PLAN

     9.01. Duties and Power. The Committee shall be the “named fiduciary” for the Plan responsible for the general operation and administration of the Plan and the proper execution of its provisions. It shall have full discretionary authority to interpret the Plan and to determine the response to all questions arising from its provisions. It shall maintain all necessary books of accounts and records. It shall have the full discretionary power and authority to establish, interpret, enforce, amend, and revoke, from time to time, such rules and regulations for the administration of the Plan and the conduct of its business as it deems appropriate, including the right to remedy ambiguities, inconsistencies and omissions. Any action that the Committee is required or authorized to take shall be final and binding upon each and every person who is or may become a Plan Participant or Beneficiary. The Committee may delegate its authority to administer the Plan.

     9.02. Benefit Statements. The Committee, or its designee, will provide each Participant with an annual statement setting forth the Participant’s Account balance.

     9.03. Right to Accelerate for Certain Tax Payments. In the event a Participant receives an assessment of Federal Insurance Contributions Act taxes from the Internal Revenue Service (“IRS”), or of state or local income taxes, which treats any amount payable to Participant under this Plan as taxable for such purpose prior to the actual payment of such amount to Participant, the Company shall pay an amount equal to such taxes to or on behalf of Participant. Further, in the event Participant receives an assessment of income taxes from the IRS which treats any amount payable to Participant under this Plan as includible in his gross income prior to the actual payment of such amount to Participant due to the failure of this Plan to meet the requirements of Code Section 409A, and the rules and regulations promulgated thereunder, the Company shall pay an amount equal to such taxes to or on behalf of Participant. In either event, such payment will be made within 30 days after receipt of notice from Participant of such assessment, which notice Participant shall timely give to Company. Thereafter, any amounts payable to the Participant under this Plan shall be reduced accordingly by an amount equal to all such payments by the Company, so long as the Board determines that the reduction of such amount will not result in additional taxes being imposed on Participant under Code Section 409A. Notwithstanding the foregoing, in the event the Company decides to challenge the IRS’s assessment, the Company shall promptly notify Participant in writing of such decision and the Company shall have the right to challenge such assessment, on behalf of Participant, at the Company’s cost and expense.

SECTION 10.
AMENDMENT AND TERMINATION

     10.01. Right to Amend or Terminate. The Plan may be amended, modified, or terminated by the Committee at any time. Such amendment, modification or termination may modify or eliminate any benefit hereunder except that such amendment, modification or termination shall not affect the rights of Participants or Beneficiaries to the vested portion of a Participant’s Account as of the date of such amendment or termination. In the event the Plan is

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terminated, Participants shall nevertheless receive payment of their benefits under the Plan in accordance with Code Section 409A and the rules and regulations promulgated thereunder.

SECTION 11.
MISCELLANEOUS

     11.01. Unfunded Plan. The Plan shall be unfunded within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. All benefits payable under the Plan shall be paid from the Company’s general assets. The Company shall not be required to set aside or hold in trust any funds for the benefit of a Participant or Beneficiary, each of whom shall have the status of a general unsecured creditor with respect to the Company’s obligation to make benefit payments pursuant to the Plan. Any assets of the Company available to pay Plan benefits shall be subject to the claims of the Company’s general creditors and may be used by the Company in its sole discretion for any purpose. A Participant shall be treated as an unsecured creditor of the Company for all benefits under the Plan.

     11.02. No Right to Continued Employment. Nothing in the Plan shall create or be construed as a contract between the Company (or a Subsidiary or Affiliate) and employees for any matter including giving any person employed by the Company or a Subsidiary or Affiliate the right to be retained in the employ of the Company, Subsidiary or Affiliate. The Company and each Subsidiary and Affiliate expressly reserve the right to dismiss any person at any time, with or without cause, without liability for the effect that such dismissal might have upon him as a Participant in the Plan or for any other purpose.

     11.03. Prohibition Against Alienation. Except as otherwise provided in the Plan, no right or benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. No such right or benefit shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such right or benefit.

     11.04. Savings Clause. If any provision of this Plan is held by a court of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision and the remaining provisions hereof shall continue to be construed and enforced as if the invalid or unenforceable provision had not been included.

     11.05. Payment of Benefit of Incompetent. In the event the Committee finds that a Participant, former Participant or Beneficiary is unable to care for his affairs because of his minority, illness, accident, or other reason, any benefits payable hereunder may, unless other claim has been made therefore by a duly appointed guardian, committee or other legal representative, be paid to a spouse, child, parent, or other blood relative or dependent or to any persons found by the Committee to have incurred expenses for the support and maintenance of such Participant, former Participant, or Beneficiary; and any such payments so made shall be a complete discharge of all liability therefore.

     11.06. Spouse’s Interest. The interest in the benefits hereunder of a Spouse who has predeceased the Participant shall automatically pass to the Participant and shall not be

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transferable by such Spouse in any manner including, but not limited to, such Spouse’s will, nor shall such interest pass under the laws of intestate succession.

     11.07. Successors. In the event of any consolidation, merger, acquisition or reorganization of the Company, the obligations of the Company and its Subsidiaries and Affiliates participating under this Plan shall continue and be binding upon the Company, its participating Subsidiaries and Affiliates, and their successors.

     11.08. Gender, Number and Heading. Whenever any words are used herein in the masculine gender, they shall be construed as though they were also used in the female gender in all cases where they would so apply. Whenever any words used herein are in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. Headings of sections and subsections as used herein are inserted solely for convenience and reference and constitute no part of the Plan.

     11.09. Legal Fees and Expenses. The Company shall pay all reasonable legal fees and expenses that the Participant may incur as a result of the Company contesting the validity, enforceability, or the Participant’s interpretation of, or determinations under this Plan, other than tax withholding under Section 8.

     11.10. Choice of Law. This Plan shall be governed by and construed in accordance with the laws of the State of Michigan, other than its choice-of-law rules, to the extent not superseded by applicable federal statutes or regulations.

     11.11. Affiliated Employees. Transfers of employment between the Company and its Subsidiaries and Affiliates will be treated as continuous and uninterrupted service under the Plan.

     11.12. Plan Document. This restated Plan document provides the final and exclusive statement of the terms of the Plan. Unless otherwise authorized by the Committee or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 10.01. This document legally governs the operation of the Plan, and any claim of right or entitlement under the Plan shall be determined solely in accordance with its provisions. To the extent that there are any inconsistencies between the terms of any related materials and the terms of this document, the terms of this document shall control and govern the operation of the Plan. No other evidence, whether written or oral, shall be taken into account in determining the right of a Participant, or Beneficiary, as applicable, to any benefit of any type under the Plan.

          All payments under this Plan are intended to be in compliance with Section 409A of the Code, but in no event shall the Company be responsible for any tax or penalty owed by any Participant or the Participant’s beneficiary with respect to payments hereunder. At all times between January 1, 2005 and the effective date of this amended and restated Plan, this Plan was administered in good faith compliance under Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the IRS relating to Code Section 409A.

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SECTION 12.
ARBITRATION

     In the event of any dispute, claim or controversy (hereinafter referred to as a “(Grievance”) between a Participant who is eligible to elect to receive the benefits provided under this Plan and the Company with respect to the payment of benefits to such Participant under this Plan, the computation of benefits, under this Plan, or any of the terms and conditions of this Plan, such Grievance shall be resolved by arbitration in accordance with this Section 12.

          (a) Arbitration shall be the sole and exclusive remedy to redress any Grievance.

          (b) The arbitration decision shall be final and binding, and a judgment on the arbitration award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.

          (c) The arbitration shall be conducted by the American Arbitration Association in accordance with the Commercial Arbitration Rules of the American Arbitration Association and reasonable expenses of the arbitrators and the American Arbitration Association shall be borne by the Company.

          (d) The place of the arbitration shall be the offices of the American Arbitration Association in the Detroit, Michigan metropolitan area.

          (e) The arbitrator(s) shall not have the jurisdiction or authority to change any of the provisions of this Plan by alteration of, addition to, or subtraction from the terms thereof. The arbitrator(s) sole authority shall be to apply any terms and conditions of this Plan. Since arbitration is the exclusive remedy with respect to any Grievance, no Participant eligible to receive benefits provided under this Plan has the right to resort to any federal court, state court, local court or administrative agency concerning breaches of any terms and provisions hereunder, and the decision of the arbitrator(s) shall be a complete defense to any suit, action or proceeding instituted in any federal court, state court, local court, or administrative agency by such employee or the Company with respect to any Grievance which is arbitrable as herein set forth.

          (f) The arbitration provisions shall, with respect to any Grievance, survive the termination of this Plan.

SECTION 13.
CHANGE IN CONTROL PROVISIONS

     13.01. General. In the event of a Change in Control, as defined in Section 13.05, then, notwithstanding any other provision of the Plan, the provisions of this Section 13 shall be applicable and shall supersede any conflicting provisions of the Plan.

     13.02. Immediate Vesting. In the case of a Change in Control, each Participant’s Account shall immediately be 100% vested.

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     13.03. Joint and Several Liability. Upon and at all times after a Change in Control, the liability under the Plan of the Company and each Subsidiary and Affiliate that has adopted the Plan shall be joint and several so that the Company and each such Subsidiary and Affiliate shall each be liable for all obligations under the Plan to each Participant covered by the Plan, regardless of the corporation or other entity by which such Participant is employed.

     13.04. Dispute Procedures. In the event that, upon or at any time subsequent to a Change in Control, a disputed claim for benefits under the Plan is brought by a Participant or Beneficiary, the following additional procedures shall be applicable:

          (a) Any amount that is not in dispute shall be paid to the Participant or Beneficiary at the time or times provided herein.

          (b) The Company shall advance to such claimant from time to time such amounts as shall be required to reimburse the claimant for reasonable legal fees, costs and expenses incurred by such claimant in seeking a judicial resolution of his or her claim, including reasonable fees, costs and expenses relating to arbitration.

     13.05. Definition of Change in Control. For purposes of this Section 13, “Change in Control” means the occurrence of any of the following events:

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

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

          (c) If a majority of members on the Company’s Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election (provided that for purposes of this paragraph, the term “Company” refers solely to the “relevant corporation,”

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as defined in Code Section 409A and IRS guidance issued thereunder, for which no other corporation is a majority shareholder); or

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

     IN WITNESS WHEREOF, ITC Holdings Corp. has caused this restated Plan to be executed as of this ___ day of                     , 2008.

ITC Holdings Corp.

By:

Its:

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EX-10.82

Exhibit 10.82

EMPLOYMENT AGREEMENT
Joseph L. Welch

          This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of December 1, 2008 (the “Effective Date”) by and between ITC Holdings Corp. (the “Company”) and Joseph L. Welch (the “Executive”).

          WHEREAS, the Executive and the Company currently are parties to an employment agreement dated as of May 10, 2005 governing the terms of the Executive’s employment with the Company (the “Prior Employment Agreement”);

          WHEREAS, the Company and the Executive desire to modify certain provisions of the Prior Employment Agreement and otherwise update them to reflect the provisions of the final regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

          NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, and intending to be legally bound hereby, the parties agree as follows:

          1. Term of Employment. Subject to the provisions of Section 7 of this Agreement, Executive shall be employed by the Company, International Transmission Company and any of their subsidiaries and/or affiliates that the Board of Directors of the Company (the “Board”) shall designate (collectively, the “Employer”) for an initial period commencing on the Effective Date and ending on May 10, 2009 on the terms and subject to the conditions set forth in this Agreement; provided, however, that such period of employment shall automatically be extended for successive one-year periods unless the Employer or Executive, at least thirty (30) days prior to the end of any such period, provides written notice to the other party of the intent not to extend such period of employment for any additional one-year period. For purposes of this Agreement, the term “Employment Term” shall mean the period of time during which Executive is employed by Employer under this Agreement.

          2. Position.

                    a. During the Employment Term, Executive shall serve as the Employer’s President, Chief Executive Officer and Treasurer. In such position, Executive shall have such duties and authority as the Board of Directors of the Employer (the “Board”) determines from time to time. If requested, Executive shall also serve as a member of the Board without additional compensation.

                    b. During the Employment Term, Executive will devote Executive’s full business time and best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall preclude Executive, subject to the prior approval of the Board, from accepting appointment to or continue to serve on any board of directors or trustees of any business corporation or any charitable

organization; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of Executive’s duties hereunder or conflict with Section 8 of this Agreement.

          3. Base Salary. During the Employment Term, the Employer shall pay Executive a base salary at the annual rate of $735,000.00, payable in regular installments in accordance with the Employer’s normal payroll practices. Executive’s base salary shall be reviewed annually by the Board and Executive shall be entitled to such increases in Executive’s base salary, if any, as may be determined from time to time in the sole discretion of the Board. Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary”.

          4. Annual Bonus. During the Employment Term, Executive shall be eligible to earn an annual bonus award in respect of each fiscal year of Employer (an “Annual Bonus”), payable upon the Employer’s achievement of certain performance targets established by the Board pursuant to the terms of an incentive compensation plan established by the Board (the “Incentive Plan”). Executive’s target Annual Bonus for each fiscal year of Employer shall be that percentage of the Executive’s Base Salary as the Board may establish from time to time (the “Target Bonus”), but shall generally be one hundred twenty-five percent (125%) of Executive’s Base Salary. The foregoing notwithstanding, any Annual Bonus to which Executive is entitled shall be paid no later than two and a half (2-1/2) months after the later of the end of the fiscal or calendar year in which such Annual Bonus is no longer subject to a substantial risk of forfeiture (as defined under Code Section 409A and the regulations promulgated thereunder).

          5. Employee Benefits and Perquisites; Business Expenses.

                    a. Employee Benefits. During the Employment Term, Executive shall be entitled to participate in the Employer’s employee benefit and retirement plans (the “ITC Plans”) as in effect from time to time as determined by the Board, which provide certain benefits (collectively the “Employee Benefits”) to Executive, including the following plans: (a) welfare benefit plans (including active medical, life, disability, flexible spending accounts and other related welfare plans); (b) fringe benefit plans (including education assistance and adoption assistance); (c) retiree welfare benefit plans (medical and life insurance); (d) qualified and non-qualified defined benefit and defined contribution plans; and (e) vacation plans (except that there shall be limitations set on the amount of vacation that Executive may carry forward from any given calendar year to the next), but excluding absence bank plans.

                    b. Perquisites. During the Employment Term, Executive shall also be entitled to receive such perquisites as are generally provided to executives of the Employer from time to time, as determined by the Board (or a compensation committee thereof).

                    c. Management Supplemental Benefit Plan. The Employer acknowledges that Executive is entitled to the benefits detailed in the Management Supplemental Benefit Plan and the schedules attached thereto (“MSBP”) (attached hereto as Exhibit 1). Employer shall provide such benefits in accordance with the terms of the MSBP as set forth in Exhibit 1.

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                    d. Business Expenses. During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Employer in accordance with the Employer’s policies; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred.

          6. Equity Participation. Executive’s equity participation in the Company has been documented pursuant to some or all of the 2003 Stock Purchase and Option Plan for Key Employees of the Company and its Subsidiaries and the associated Management Stockholder’s Agreement, the Amended and Restated ITC Holdings Corp. 2006 Long Term Incentive Plan and the associated Amendment to Management Stockholder’s Agreement, and in one or more Stock Option, Restricted Stock Award and Sale Participation Agreements associated therewith, each as executed by the Executive, the Company, and its shareholders, as applicable (such documents, collectively, the “Equity Documents”). The Company and Executive each acknowledges that the terms and conditions of the aforementioned documents govern Executive’s acquisition, holding, sale or other disposition of Executive’s equity in the Company, and Executive’s and the Company’s rights with respect thereto.

          7. Termination. Executive’s employment hereunder may be terminated by either party at any time and for any reason, subject to the applicable provisions of this Section 7; provided that Executive will be required to give the Employer at least 30 days advance written notice of any resignation of Executive’s employment; and provided, further, that the Employer will be required to give Executive at least ten (10) business days advance notice of a termination of Executive’s employment by the Employer without Cause (other than in the event of Executive’s Disability) (the “Company Notice Period”), unless the Employer provides Executive with a payment equal to the Base Salary that would otherwise be payable in respect of any portion of the Company Notice Period which the Employer elects to waive. Notwithstanding any other provision of this Agreement (and except as may otherwise be provided in the Equity Documents), the provisions of this Section 7 shall exclusively govern Executive’s rights upon termination of employment with the Employer.

                    a. By the Employer For Cause or By Executive Resignation Without Good Reason.

               (i) Executive’s employment hereunder may be terminated by the Employer for Cause (as defined below) and shall terminate automatically upon Executive’s resignation without Good Reason.

               (ii) For purposes of this Agreement, “Cause” shall mean (A) Executive’s continued failure substantially to perform Executive’s duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Employer to Executive of such failure, (B) dishonesty in the performance of Executive’s duties hereunder, (C) Executive’s conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, (D) Executive’s willful malfeasance or willful misconduct in connection with Executive’s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Employer or affiliates or (E) Executive’s breach of the provisions of Sections 8 or 9 of this Agreement.

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               (iii) If Executive’s employment is terminated by the Employer for Cause or if Executive resigns without Good Reason (other than due to a Disability (as such term is defined below)), Executive shall be entitled to receive:

               (A) any Base Salary earned through the date of termination, payable in a lump sum at such time as the Base Salary would otherwise be payable in accordance with the normal payroll practices of the Employer;

               (B) any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year, payable in a lump sum at such time as such Annual Bonus would normally be paid under the Incentive Plan as provided in Section 4 hereof;

               (C) reimbursement for any unreimbursed business expenses properly incurred by Executive through the date of termination, payable at such time(s) and in accordance with the Employer’s policy prior to the date of Executive’s termination; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred; and

               (D) such Employee Benefits, if any, as to which Executive may be entitled under the applicable ITC Plans upon termination of employment hereunder (the payments and benefits described in clauses (A) through (D) hereof being referred to, collectively, as the “Accrued Rights”).

Following such termination of Executive’s employment by the Employer for Cause or resignation by Executive, except as set forth in this Section 7(a) (iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    b. Disability or Death.

               (i) Executive’s employment hereunder shall terminate upon Executive’s death and may be terminated by the Employer if Executive experiences a “Disability” (as such term shall be defined from time to time under Code Section 409A). Any question as to the existence of the Disability of Executive as to which Executive and the Employer cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Employer. If Executive and the Employer cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Employer and Executive shall be final and conclusive for all purposes of the Agreement.

               (ii) Upon termination of Executive’s employment hereunder for Disability or death, Executive, Executive’s then spouse, or Executive’s estate (as the case may be), shall be entitled to receive:

               (A) the Accrued Rights;

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               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar year in which the date of such termination of employment occurs, relative to the applicable full calendar year), payable in a lump sum within fifteen (15) business days after the date of such termination of employment;

               (C) full and immediate vesting of any then unvested options to purchase shares of common stock of the Company held by Executive immediately prior to the date of such termination of employment; and

               (D) the vested benefits under the a) MSBP; b) the International Transmission Company Retirement Plan; c) the International Transmission Company Savings and Investment Plan; and d) the International Transmission Company Executive Deferred Compensation Plan.

Following Executive’s termination of employment due to death or Disability, except as set forth in this Section 7(b) (ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    c. By the Employer Without Cause or by Executive Resignation for Good Reason.

               (i) Executive’s employment hereunder may be terminated (A) by the Employer without Cause (which shall not include Executive’s termination of employment due to his Disability) or (B) or by Executive for Good Reason (as defined below).

               (ii) For purposes of this Agreement, “Good Reason” shall mean (A) a greater than 10% reduction in the total value of Executive’s Base Salary, Target Bonus, and Employee Benefits; (B) Executive’s job responsibility and authority are substantially diminished; and (C) Executive’s work location is relocated to more than fifty (50) miles from Novi, Michigan or Ann Arbor, Michigan; and provided, further, that “Good Reason” shall cease to exist for an event unless:

               (D) no later than the 60^th day following the initial existence of such Good Reason condition, Executive has given the Employer written notice thereof;

               (E) the Employer is afforded a period of thirty (30) days to remedy the condition; and

               (F) in the absence of any such remedy, the Executive terminates employment within one hundred eighty (180) days following the end of the cure period described in (E) above

               (iii) If Executive’s employment is terminated by the Employer without Cause (other than by reason of death or Disability) or by Executive for Good Reason, subject to Executive’s execution of a release of all claims against Employer, Executive shall be entitled to receive:

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               (A) the Accrued Rights;

               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar year in which the date of such termination of employment occurs, relative to the full calendar year), payable based upon the Employer’s actual achievement of the performance targets for such year as determined under and at the time that such an Annual Bonus (if any) would normally be paid as set forth in Section 4 hereof;

               (C) continued payment in substantially equal installments, in accordance with the normal payroll practices of Employer, for a period of two (2) years following the date of termination of Executive’s employment hereunder (the “Severance Period”), of the sum of (x) the Executive’s annual rate of Base Salary as in effect immediately prior to such termination plus (y) an amount equal to the average of each of the Annual Bonuses that were payable to Executive (including any portion of any such Annual Bonus the receipt of which Executive elected to defer) for the three fiscal years immediately preceding the fiscal year in which Executive’s employment terminates (such aggregate amount, the “Severance Payment”); provided that in the event Executive is a “specified employee” within the meaning of Code Section 409A and in accordance with the involuntary “separation pay plan” exception under the Code Section 409A regulations, the total of all amounts paid to Executive within the first six (6) months following such termination pursuant to the provision shall not exceed two times the lesser of (I) the sum of the Executive’s annualized compensation based upon the annual rate of pay for services provided to the Employer for the calendar year preceding the calendar year in which the termination occurs (adjusted for any increase during that year that was expected to continue indefinitely, if the Executive had not terminated), or (II) the Code Section 401(a)(17) limit on compensation for the calendar year in which the Executive terminates. To the extent a portion of the Severance Payment exceeds such limitation, the payment shall not commence until the first business day following the date that is six months after the date of termination of Executive’s employment hereunder (the period during which such payments may be limited under Code Section 409A, the “409A Period”), at which time Employer shall (III) pay to Executive, in one lump sum, an amount equal to the portion of the Severance Payment that would otherwise have been payable during the 409A Period, and (IV) thereafter continue to pay the remaining unpaid portion of the Severance Payment in accordance with the normal payroll practices of Employer through the end of the Severance Period as otherwise provided in this Section 7(c)(iii)(C) above;

               (D) continued provision, during the Severance Period, of the applicable Employee Benefits that are health and welfare benefits (including health insurance as required to be provided by the Employer pursuant to the Consolidated Omnibus Budget Reconciliation Act), to be provided by the Employer at the same cost(s) to Executive as paid by other executives of the

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Employer during such time; provided, that such coverage may be provided through the Employer’s purchase of individual insurance policies if the Employer’s group healthcare programs cannot provide the continuing coverage described herein or cannot do so on a non-discriminatory basis for tax purposes;

               (E) in addition to the benefits provided under subsection (D) above, Executive shall, regardless of Executive’s age or number of years of service with the Employer on the date of termination of employment, be deemed to have satisfied the age and service requirements for benefit eligibility under the International Transmission Company Postretirement Welfare Plan (as in effect from time to time), and shall, at such time as Executive actually achieves the age at which benefits would otherwise be provided to a participant in such plan, be entitled to receive benefits under such plan on the same terms and conditions as all other plan participants who actually satisfy such requirements; and

               (F) outplacement services of a duration of up to two (2) years from the date of termination (or until such earlier date on which Executive obtains other employment), and at a level commensurate with Executive’s former position with the Employer, and by a provider as determined by the Employer in good faith.

Notwithstanding anything set forth in Section 7(c)(iii)(E), if the Company terminates the International Transmission Company Postretirement Welfare Plan (and does not replace it with any successor plan that provides retiree welfare benefits that are non-taxable and comparable to those provided under the International Transmission Company Postretirement Welfare Plan (“Retiree Benefits”)) either (x) prior to an event giving rise to the Employer’s obligations under this Section 7(c)(iii)(E) or (y) at any time after such event and, at such time, by operation of Section 7(c)(iii)(E) Executive would otherwise be eligible to receive the benefits provided therein (the “Plan Termination Date”), then, in satisfaction of all obligations the Employer would otherwise have under Section 7(c)(iii)(E), the Employer shall at the earliest time on or after the Plan Termination Date that the Executive is eligible to receive the Retiree Benefits (the “Benefit Eligibility Date”), either (I) establish and maintain a plan for the purpose of providing Executive with non-taxable Retiree Benefits or otherwise purchase individual insurance policies to provide the Retiree Benefits, for so long as the Employer would otherwise be required to provide benefits under Section 7(c)(iii)(E) or (II) if, and to the extent, the Employer is not permitted by applicable regulations to establish such a plan for Executive or cannot otherwise purchase individual insurance policies to provide such coverage for Executive, pay Executive in cash a lump sum amount equal to the Employer’s cost of otherwise providing the Retiree Benefits that cannot be so provided, the amount of which shall be determined by an enrolled actuary retained by the Employer for such purpose. If a lump sum payment is due to Executive pursuant to clause (II) of the preceding sentence, such payment will be made within two and a half (2-1/2) months after the Executive’s Benefit Eligibility Date (or, if later, on such other earliest date on which amounts can be paid as may be required so as not to incur any penalties under Code Section 409A).

Following Executive’s termination of employment by the Employer without Cause (other than by reason of Executive’s death or Disability) or Executive for Good Reason, except as set forth

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in this Section 7(c)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    d. Notice of Termination. Any purported termination of employment by the Employer or by Executive (other than due to Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(h) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

                    e. Board/Committee Resignation; Execution of Release of all Claims.

               (i) Upon termination of Executive’s employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the board of directors (and any committees thereof) of any of the Company’s affiliates.

               (ii) Upon termination of Executive’s employment for any reason, Executive agrees to execute a release of all claims against the Company, its subsidiaries, affiliates, shareholders, directors, officers, employees, and agents, substantially in a form to be provided to Executive by Employer at such time. Notwithstanding anything set forth in this Agreement to the contrary, upon termination of Executive’s employment for any reason, Executive shall not receive any payments or benefits to which he may be entitled hereunder (other than those which by law cannot be subject to the execution of a release) (A) if Executive revokes such release or (B) until eight (8) days after the date Executive signs such release (or until such other date as applicable law may provide that Executive cannot revoke such release).

          8. Non-Competition.

                    a. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Employer and its affiliates and accordingly agrees as follows:

               (i) During the Employment Term and (x) in the event of a termination of Executive’s employment without Cause by Employer (other than due to Executive’s Disability) or for Good Reason by Executive, at all times during the Severance Period, or (y) in the event of any termination of Executive’s employment for Cause by Employer, due to Executive’s Disability or otherwise without Good Reason by Executive, for a period of one year following the date Executive ceases to be employed by the Employer (the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“Person”), directly or indirectly solicit or assist in soliciting in competition with the Employer, the business of any customer or prospective customer:

               (A) with whom Executive had personal contact or dealings on behalf of the Employer during the one-year period preceding Executive’s termination of employment;

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               (B) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Employer during the one year immediately preceding Executive’s termination of employment; or

               (C) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive’s termination of employment.

               (ii) During the Restricted Period, Executive will not directly or indirectly:

               (A) engage in any business that competes with the business of the Employer or its affiliates (including, without limitation, businesses which the Employer or its affiliates have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area that is within 100 miles of any geographical area where the Employer or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services (a “Competitive Business”);

               (B) enter the employ of, or render any services to, any Person (or any division or controlled or controlling affiliate of any Person) who or which engages in a Competitive Business;

               (C) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or

               (D) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the Employer or any of its affiliates and customers, clients, suppliers, partners, members or investors of the Employer or its affiliates.

               (iii) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any Person engaged in the business of the Employer or its affiliates which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (A) is not a controlling person of, or a member of a group which controls, such person and (B) does not, directly or indirectly, own 5% or more of any class of securities of such Person.

               (iv) During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly:

               (A) solicit or encourage any employee of the Employer or its affiliates to leave the employment of the Employer or its affiliates; or

               (B) hire any such employee who was employed by the Employer or its affiliates as of the date of Executive’s termination of employment with the Employer or who left the employment of the Employer or

9

its affiliates coincident with, or within one year prior to or after, the termination of Executive’s employment with the Employer.

               (v) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with the Employer or its affiliates any consultant then under contract with the Employer or its affiliates.

                    b. It is expressly understood and agreed that although Executive and the Employer consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

          9. Confidentiality.

                    a. Executive will not at any time (whether during or after Executive’s employment with the Employer) (i) retain or use for the benefit, purposes or account of Executive or any other Person; or (ii) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Employer (other than its professional advisers who are bound by confidentiality obligations), any non-public, proprietary or confidential information —including without limitation rates, trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals — concerning the past, current or future business, activities and operations of the Employer, its subsidiaries or affiliates and/or any third party that has disclosed or provided any of same to the Employer on a confidential basis (“Confidential Information”) without the prior written authorization of the Board.

                    b. “Confidential Information” shall not include any information that is (i) generally known to the industry or the public other than as a result of Executive’s breach of this covenant or any breach of other confidentiality obligations by third parties; (ii) made legitimately available to Executive by a third party without breach of any confidentiality obligation; or (iii) required by law to be disclosed; provided that Executive shall give prompt written notice to the Employer of such requirement, disclose no more information than is so required, and cooperate with any attempts by the Employer to obtain a protective order or similar treatment.

                    c. Except as required by law, Executive will not disclose to anyone, other than Executive’s immediate family and legal or financial advisors, the existence or contents of this Agreement; provided that Executive may disclose to any prospective future employer the

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provisions of Sections 8 and 9 of this Agreement provided they agree to maintain the confidentiality of such terms.

                    d. Upon termination of Executive’s employment with the Employer for any reason, Executive shall (i) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Employer, its subsidiaries or affiliates; (ii) immediately destroy, delete, or return to the Employer, at the Employer’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Executive’s possession or control (including any of the foregoing stored or located in Executive’s office, home, laptop or other computer, whether or not the Employer’s property) that contain Confidential Information or otherwise relate to the business of the Employer, its affiliates and subsidiaries, except that Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information; and (iii) notify and fully cooperate with the Employer regarding the delivery or destruction of any other Confidential Information of which Executive is or becomes aware.

                    e. Executive shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the Employer any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. Executive hereby indemnifies, holds harmless and agrees to defend the Employer and its officers, directors, partners, employees, agents and representatives from any breach of the foregoing covenant. Executive shall comply with all relevant policies and guidelines of the Employer, including regarding the protection of confidential information and intellectual property and potential conflicts of interest. Executive acknowledges that the Employer may amend any such policies and guidelines from time to time, and that Executive remains at all times bound by their most current version. Notwithstanding anything set forth herein, the Company hereby represents and warrants that the Company shall not employ the provisions of this Section 9 in a manner that would interfere with Executive’s ability to obtain or retain any future employment that would not or does not otherwise violate Section 8 of this Agreement.

                    f. The provisions of this Section 9 shall survive the termination of Executive’s employment for any reason.

          10. Specific Performance. Executive acknowledges and agrees that the Employer’s remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and the Employer would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Employer, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

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          11. Arbitration. Except as provided in Section 10, any other dispute arising out of or asserting breach of this Agreement, or any statutory or common law claim by Executive relating to his employment under this Agreement or the termination thereof (including any tort or discrimination claim), shall be exclusively resolved by binding statutory arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Such arbitration process shall take place within 100 miles of the Detroit, Michigan metropolitan area. A court of competent jurisdiction may enter judgment upon the arbitrator’s award. In the event of any such dispute, all reasonable fees and disbursements of counsel incurred by Executive shall be reimbursed by Employer within a reasonable period of time following receipt from Executive (or Executive’s counsel) of a final bill invoicing all such fees and disbursements, so long as the arbitrator does not determine that such dispute was based on claims made by Executive that were frivolous or in bad faith.

          12. Miscellaneous.

                    a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to conflicts of laws principles thereof.

                    b. Entire Agreement/Amendments. Except with respect to the matters contained in the Equity Documents, this Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Employer. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

                    c. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

                    d. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.

                    e. Assignment. This Agreement, and all of Executive’s rights and duties hereunder, shall not be assignable or delegable by Executive. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect. This Agreement may be assigned by the Employer to a person or entity that is an affiliate or a successor in interest to substantially all of the business operations of the Employer. Upon such assignment, the rights and obligations of the Employer hereunder shall become the rights and obligations of such affiliate or successor person or entity.

                    f. Set Off; No Mitigation. The Employer’s obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Employer or

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its affiliates; provided, that no such set-off in excess of $5,000 shall be made against any amount payable to Executive pursuant to Section 7(c)(iii)(C) hereof. Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment or otherwise and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise.

                    g. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon the Company, its subsidiaries and affiliates, and the Executive and any personal or legal representatives, executors, administrators, successors, assigns, heirs, distributees, devisees and legatees. Further, the Company will require any successor (whether, direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company and any successor to its business and/or assets which is required by this Section 12(g) to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement; provided, however, in the event that any successor, as described above, agrees to assume this Agreement in accordance with the preceding sentence, as of the date such successor so assumes this Agreement, the Company shall cease to be liable for any of the obligations contained in this Agreement.

                    h. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

If to the Employer:

ITC Holdings Corp.
27175 Energy Way
Novi, Michigan 48377
Attention: General Counsel

With a copy to:

Dykema Gossett PLLC
400 Renaissance Center
Suite 2300
Detroit, Michigan 48243-1668
Attention: Mark A. Metz, Esq.

If to Executive:

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To the most recent address of Executive set forth in Employer’s personnel records of the Employer.

                    i. Executive Representation. Executive hereby represents to the Employer that the execution and delivery of this Agreement by Executive and the Employer and the performance by Executive of Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound.

                    j. Prior Agreements. This Agreement supercedes all prior agreements and understandings (including, without limitation, any verbal agreements, offer letters or summaries of principal terms pertaining to the employment of Executive by the Employer, and the Prior Employment Agreement) between Executive and the Employer and/or its affiliates regarding the terms and conditions of Executive’s employment with the Employer and/or its affiliates; provided, however, that the Equity Documents shall govern the terms and conditions of Executive’s equity holdings in the Company.

                    k. Cooperation. Executive shall provide Executive’s reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) that relates to events occurring during Executive’s employment hereunder. This provision shall survive any termination of this Agreement.

                    l. Taxes.

               (i) Withholding Taxes. The Employer may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

               (ii) 409A Compliance and Penalties. All payments under this Agreement are intended to be exempt from or in compliance with Code Section 409A, and the provisions of this Agreement are to be construed and administered accordingly. At all times between January 1, 2005 and December 1, 2008 during which this Agreement was in effect, this Agreement (and any prior versions thereof) was administered in good faith compliance with the exceptions or other applicable provisions under Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. Further, for all purposes under this Agreement: (I) references to “termination” of employment (or variations thereof), shall be synonymous with the meaning given to the term “separation from service” as provided under Code Section 409A, and the rules and regulations promulgated thereunder; and (II) no payment, reimbursement or benefit provided to Executive in one calendar year hereunder shall affect the provision of any such payment, reimbursement or benefit in any other calendar year.

                    Notwithstanding any other provision of this Agreement, while Executive acknowledges that Employer may take actions hereunder as are required to comply with or to minimize any potential interest charges and/or additional taxes as may be imposed by Code Section 409A (the “409A Penalties”) with respect to any payment or benefit due to Executive under this Agreement (including a delay in payment until the first business day following the end of the 409A Period, in the event Executive is a “specified employee” within the meaning of Code

14

Section 409A, as described in and consistent with the provisions of Section 7(c)(iii)(C)), the parties hereby confirm that all such payments and benefits due to Executive will in fact be made or provided at the earliest time at which it is determined either that no 409A Penalties are applicable, or that such 409A Penalties will apply without exception. Further, if at any time it is determined that any payment or benefit due to Executive under this Agreement may be subject to any 409A Penalties, the Employer shall (A) be permitted to modify the provision of such payment or benefit if such modification would reasonably be expected to eliminate or minimize such 409A Penalties, so long as such modification does not adversely affect, in any material respect, the economic benefit to Executive of such payment or benefit (or otherwise result in additional 409A Penalties), or (B) to the extent that the course of action proposed in clause (A) cannot be effected, within fifteen (15) days after the date of such determination (but no later than the end of the calendar year following the year in which the Executive remits the 409A Penalties involved; or such other earliest date on which such amount can be paid as may be permitted under Code Section 409A) pay to Executive an additional amount equal to such 409A Penalties, along with such additional amount as is required to pay any income and/or payroll taxes due on the 409A Penalties and the additional tax gross-up payment (subject to the computational rules set forth in Section 12(b)).

               (iii) Parachute Taxes. If at any time it is determined that any payment and/or benefit provided to Executive by Employer pursuant to this Agreement or otherwise (the “Employer Payments”), would be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code, the Employer shall within fifteen (15) days after the date of such determination (or in the event Executive is a “specified employee” within the meaning of Code Section 409A, the first business day following the end of the 409A Period, but no later than the end of the calendar year following the year in which Executive remits such Excise Tax), pay to Executive an additional amount (the “Gross-up Payment”) such that the net amount retained by Executive, after deduction of any Excise Tax due and any income and/or payroll taxes due on the Gross-up Payment (but before payment of any income and/or payroll taxes due on the Employer Payments), shall be equal to the Employer Payments. For purposes of making any computations hereunder: (i) the Employer’s independent accountants, at the Employer’s expense, shall make such reasonable assumptions and determinations as are consistent with Sections 4999 and 280G of the Code; and (ii) Executive shall be deemed to pay income taxes at the highest applicable marginal rates for the calendar year in which the Gross-up Payment is to be made. In the event any initial determination under this provision is subsequently modified by the Employer’s accountants or the Internal Revenue Service, Executive and Employer agree to reasonably cooperate to resolve any matter related thereto, including modification of the Gross-up Payment previously received.

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

[Signatures on next page.]

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[Signature Page to Employment Agreement]

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of this ___ day of                     , 2008, effective as of December 1, 2008.

ITC HOLDINGS CORP.:	EXECUTIVE:
By:
	Joseph L. Welch
Its:

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EX-10.83

Exhibit 10.83

EMPLOYMENT AGREEMENT
[Executive Name]

          This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of December 1, 2008 (the “Effective Date”) by and between ITC Holdings Corp. (the “Company”) and                     , (the “Executive”).

          WHEREAS, the Executive and the Company currently are parties to an employment agreement dated as of May 10, 2005 governing the terms of the Executive’s employment with the Company (the “Prior Employment Agreement”);

          WHEREAS, the Company and the Executive desire to modify certain provisions of the Prior Employment Agreement and otherwise update them to reflect the provisions of the final regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

          NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, and intending to be legally bound hereby, the parties agree as follows:

          1. Term of Employment. Subject to the provisions of Section 7 of this Agreement, Executive shall be employed by the Company, International Transmission Company and any of their subsidiaries and/or affiliates that the Board of Directors of the Company (the “Board”) shall designate (collectively, the “Employer”) for an initial period commencing on the Effective Date and ending on May 10, 2009 on the terms and subject to the conditions set forth in this Agreement; provided, however, that such period of employment shall automatically be extended for successive one-year periods unless the Employer or Executive, at least thirty (30) days prior to the end of any such period, provides written notice to the other party of the intent not to extend such period of employment for any additional one-year period. For purposes of this Agreement, the term “Employment Term” shall mean the period of time during which Executive is employed by Employer under this Agreement.

          2. Position.

                    a. During the Employment Term, Executive shall serve as the Employer’s                     . In such position, Executive shall have such duties and authority as the Chief Executive Officer of the Employer (the “Chief Executive Officer”) determines from time to time. If requested, Executive shall also serve as a member of the Board without additional compensation.

                    b. During the Employment Term, Executive will devote Executive’s full business time and best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the Chief Executive Officer; provided that nothing herein shall preclude Executive, subject to the prior approval of the Chief Executive Officer, from

accepting appointment to or continue to serve on any board of directors or trustees of any business corporation or any charitable organization; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of Executive’s duties hereunder or conflict with Section 8 of this Agreement.

          3. Base Salary. During the Employment Term, the Employer shall pay Executive a base salary at the annual rate of $___, payable in regular installments in accordance with the Employer’s normal payroll practices. Executive’s base salary shall be reviewed annually by the Board and Executive shall be entitled to such increases in Executive’s base salary, if any, as may be determined from time to time in the sole discretion of the Board. Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary”.

          4. Annual Bonus. During the Employment Term, Executive shall be eligible to earn an annual bonus award in respect of each fiscal year of Employer (an “Annual Bonus”), payable upon the Employer’s achievement of certain performance targets established by the Board pursuant to the terms of an incentive compensation plan established by the Board (the “Incentive Plan”). Executive’s target Annual Bonus for each fiscal year of Employer shall be that percentage of the Executive’s Base Salary as the Board may establish from time to time (the “Target Bonus”), but shall generally be one hundred percent (100%) of Executive’s Base Salary. The foregoing notwithstanding, any Annual Bonus to which Executive is entitled shall be paid no later than two and a half (2-1/2) months after the later of the end of the fiscal or calendar year in which such Annual Bonus is no longer subject to a substantial risk of forfeiture (as defined under Code Section 409A and the regulations promulgated thereunder).

          5. Employee Benefits and Perquisites; Business Expenses.

                    a. Employee Benefits. During the Employment Term, Executive shall be entitled to participate in the Employer’s employee benefit and retirement plans (the “ITC Plans”) as in effect from time to time as determined by the Board, which provide certain benefits (collectively the “Employee Benefits”) to Executive, including the following plans: (a) welfare benefit plans (including active medical, life, disability, flexible spending accounts and other related welfare plans); (b) fringe benefit plans (including education assistance and adoption assistance); (c) retiree welfare benefit plans (medical and life insurance); (d) qualified and non-qualified defined benefit and defined contribution plans; and (e) vacation plans (except that there shall be limitations set on the amount of vacation that Executive may carry forward from any given calendar year to the next), but excluding absence bank plans.

                    b. Perquisites. During the Employment Term, Executive shall also be entitled to receive such perquisites as are generally provided to executives of the Employer from time to time, as determined by the Board (or a compensation committee thereof).

                    c. Business Expenses. During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Employer in accordance with the Employer’s policies; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred.

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          6. Equity Participation. Executive’s equity participation in the Company has been documented pursuant to some or all of the 2003 Stock Purchase and Option Plan for Key Employees of the Company and its Subsidiaries and the associated Management Stockholder’s Agreement, the Amended and Restated ITC Holdings Corp. 2006 Long Term Incentive Plan and the associated Amendment to Management Stockholder’s Agreement, and in one or more Stock Option, Restricted Stock Award and Sale Participation Agreements associated therewith, each as executed by the Executive, the Company, and its shareholders, as applicable (such documents, collectively, the “Equity Documents”). The Company and Executive each acknowledges that the terms and conditions of the aforementioned documents govern Executive’s acquisition, holding, sale or other disposition of Executive’s equity in the Company, and Executive’s and the Company’s rights with respect thereto.

          7. Termination. Executive’s employment hereunder may be terminated by either party at any time and for any reason, subject to the applicable provisions of this Section 7; provided that Executive will be required to give the Employer at least 30 days advance written notice of any resignation of Executive’s employment; and provided, further, that the Employer will be required to give Executive at least ten (10) business days advance notice of a termination of Executive’s employment by the Employer without Cause (other than in the event of Executive’s Disability) (the “Company Notice Period”), unless the Employer provides Executive with a payment equal to the Base Salary that would otherwise be payable in respect of any portion of the Company Notice Period which the Employer elects to waive. Notwithstanding any other provision of this Agreement (and except as may otherwise be provided in the Equity Documents), the provisions of this Section 7 shall exclusively govern Executive’s rights upon termination of employment with the Employer.

                    a. By the Employer For Cause or By Executive Resignation Without Good Reason.

               (i) Executive’s employment hereunder may be terminated by the Employer for Cause (as defined below) and shall terminate automatically upon Executive’s resignation without Good Reason.

               (ii) For purposes of this Agreement, “Cause” shall mean (A) Executive’s continued failure substantially to perform Executive’s duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Employer to Executive of such failure, (B) dishonesty in the performance of Executive’s duties hereunder, (C) Executive’s conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, (D) Executive’s willful malfeasance or willful misconduct in connection with Executive’s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Employer or affiliates or (E) Executive’s breach of the provisions of Sections 8 or 9 of this Agreement.

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               (iii) If Executive’s employment is terminated by the Employer for Cause or if Executive resigns without Good Reason (other than due to a Disability (as such term is defined below)), Executive shall be entitled to receive:

               (A) any Base Salary earned through the date of termination, payable in a lump sum at such time as the Base Salary would otherwise be payable in accordance with the normal payroll practices of the Employer;

               (B) any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year, payable in a lump sum at such time as such Annual Bonus would normally be paid under the Incentive Plan as provided in Section 4 hereof;

               (C) reimbursement for any unreimbursed business expenses properly incurred by Executive through the date of termination, payable at such time(s) and in accordance with the Employer’s policy prior to the date of Executive’s termination; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred; and

               (D) such Employee Benefits, if any, as to which Executive may be entitled under the applicable ITC Plans upon termination of employment hereunder (the payments and benefits described in clauses (A) through (D) hereof being referred to, collectively, as the “Accrued Rights”).

Following such termination of Executive’s employment by the Employer for Cause or resignation by Executive, except as set forth in this Section 7(a) (iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    b. Disability or Death.

               (i) Executive’s employment hereunder shall terminate upon Executive’s death and may be terminated by the Employer if Executive experiences a “Disability” (as such term shall be defined from time to time under Code Section 409A). Any question as to the existence of the Disability of Executive as to which Executive and the Employer cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Employer. If Executive and the Employer cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Employer and Executive shall be final and conclusive for all purposes of the Agreement.

               (ii) Upon termination of Executive’s employment hereunder for Disability or death, Executive, Executive’s then spouse, or Executive’s estate (as the case may be), shall be entitled to receive:

               (A) the Accrued Rights;

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               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar year in which the date of such termination of employment occurs, relative to the applicable full calendar year), payable in a lump sum within fifteen (15) business days after the date of such termination of employment; and

               (C) full and immediate vesting of any then unvested options to purchase shares of common stock of the Company held by Executive immediately prior to the date of such termination of employment.

Following Executive’s termination of employment due to death or Disability, except as set forth in this Section 7(b) (ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    c. By the Employer Without Cause or by Executive Resignation for Good Reason.

               (i) Executive’s employment hereunder may be terminated (A) by the Employer without Cause (which shall not include Executive’s termination of employment due to his Disability) or (B) or by Executive for Good Reason (as defined below).

               (ii) For purposes of this Agreement, “Good Reason” shall mean (A) a greater than 10% reduction in the total value of Executive’s Base Salary, Target Bonus, and Employee Benefits; (B) Executive’s job responsibility and authority are substantially diminished; and (C) Executive’s work location is relocated to more than fifty (50) miles from Novi, Michigan or Ann Arbor, Michigan; and provided, further, that “Good Reason” shall cease to exist for an event unless:

               (D) no later than the 60^th day following the initial existence of such Good Reason condition, Executive has given the Employer written notice thereof ;

               (E) the Employer is afforded a period of thirty (30) days to remedy the condition; and

               (F) in the absence of any such remedy, the Executive terminates employment within one hundred eighty (180) days following the end of the cure period described in (E) above.

               (iii) If Executive’s employment is terminated by the Employer without Cause (other than by reason of death or Disability) or by Executive for Good Reason, subject to Executive’s execution of a release of all claims against Employer, Executive shall be entitled to receive:

               (A) the Accrued Rights;

               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar

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year in which the date of such termination of employment occurs, relative to the full calendar year), payable based upon the Employer’s actual achievement of the performance targets for such year as determined under and at the time that such an Annual Bonus (if any) would normally be paid as set forth in Section 4 hereof;

          (C) continued payment in substantially equal installments, in accordance with the normal payroll practices of Employer, for a period of two (2) years following the date of termination of Executive’s employment hereunder (the “Severance Period”), of the Executive’s annual rate of Base Salary as in effect immediately prior to such termination (such aggregate amount, the “Severance Payment”); provided that in the event Executive is a “specified employee” within the meaning of Code Section 409A and in accordance with the involuntary “separation pay plan” exception under the Code Section 409A regulations, the total of all amounts paid to Executive within the first six (6) months following such termination pursuant to the provision shall not exceed two times the lesser of (I) the sum of the Executive’s annualized compensation based upon the annual rate of pay for services provided to the Employer for the calendar year preceding the calendar year in which the termination occurs (adjusted for any increase during that year that was expected to continue indefinitely, if the Executive had not terminated), or (II) the Code Section 401(a)(17) limit on compensation for the calendar year in which the Executive terminates. To the extent a portion of the Severance Payment exceeds such limitation, the payment shall not commence until the first business day following the date that is six months after the date of termination of Executive’s employment hereunder (the period during which such payments may be limited under Code Section 409A, the “409A Period”), at which time Employer shall (III) pay to Executive, in one lump sum, an amount equal to the portion of the Severance Payment that would otherwise have been payable during the 409A Period, and (IV) thereafter continue to pay the remaining unpaid portion of the Severance Payment in accordance with the normal payroll practices of Employer through the end of the Severance Period as otherwise provided in this Section 7(c)(iii)(C) above;

          (D) continued provision, during the Severance Period, of the applicable Employee Benefits that are health and welfare benefits (including health insurance as required to be provided by the Employer pursuant to the Consolidated Omnibus Budget Reconciliation Act), to be provided by the Employer at the same cost(s) to Executive as paid by other executives of the Employer during such time; provided, that such coverage may be provided through the Employer’s purchase of individual insurance policies if the Employer’s group healthcare programs cannot provide the continuing coverage described herein or cannot do so on a non-discriminatory basis for tax purposes;

          (E) in addition to the benefits provided under subsection (D) above, Executive shall, regardless of Executive’s age or number of years of service with the Employer on the date of termination of employment, be

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deemed to have satisfied the age and service requirements for benefit eligibility under the International Transmission Company Postretirement Welfare Plan (as in effect from time to time), and shall, at such time as Executive actually achieves the age at which benefits would otherwise be provided to a participant in such plan, be entitled to receive benefits under such plan on the same terms and conditions as all other plan participants who actually satisfy such requirements; and

          (F) outplacement services of a duration of up to two (2) years from the date of termination (or until such earlier date on which Executive obtains other employment), and at a level commensurate with Executive’s former position with the Employer, and by a provider as determined by the Employer in good faith.

Notwithstanding anything set forth in Section 7(c)(iii)(E), if the Company terminates the International Transmission Company Postretirement Welfare Plan (and does not replace it with any successor plan that provides retiree welfare benefits that are non-taxable and comparable to those provided under the International Transmission Company Postretirement Welfare Plan (“Retiree Benefits”)) either (x) prior to an event giving rise to the Employer’s obligations under this Section 7(c)(iii)(E) or (y) at any time after such event and, at such time, by operation of Section 7(c)(iii)(E) Executive would otherwise be eligible to receive the benefits provided therein (the “Plan Termination Date”), then, in satisfaction of all obligations the Employer would otherwise have under Section 7(c)(iii)(E), the Employer shall at the earliest time on or after the Plan Termination Date that the Executive is eligible to receive the Retiree Benefits (the “Benefit Eligibility Date”), either (I) establish and maintain a plan for the purpose of providing Executive with non-taxable Retiree Benefits or otherwise purchase individual insurance policies to provide the Retiree Benefits, for so long as the Employer would otherwise be required to provide benefits under Section 7(c)(iii)(E), or (II) if, and to the extent, the Employer is not permitted by applicable regulations to establish such a plan for Executive or cannot otherwise purchase individual insurance policies to provide such coverage for Executive, pay Executive in cash a lump sum amount equal to the Employer’s cost of otherwise providing the Retiree Benefits that cannot be so provided, the amount of which shall be determined by an enrolled actuary retained by the Employer for such purpose. If a lump sum payment is due to Executive pursuant to clause (II) of the preceding sentence, such payment will be made within two and a half (2-1/2) months after the Executive’s Benefit Eligibility Date (or, if later, on such other earliest date on which amounts can be paid as may be required so as not to incur any penalties under Code Section 409A).

Following Executive’s termination of employment by the Employer without Cause (other than by reason of Executive’s death or Disability) or Executive for Good Reason, except as set forth in this Section 7(c)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    d. Notice of Termination. Any purported termination of employment by the Employer or by Executive (other than due to Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(h) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth

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in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

                    e. Board/Committee Resignation; Execution of Release of all Claims.

               (i) Upon termination of Executive’s employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the board of directors (and any committees thereof) of any of the Company’s affiliates.

               (ii) Upon termination of Executive’s employment for any reason, Executive agrees to execute a release of all claims against the Company, its subsidiaries, affiliates, shareholders, directors, officers, employees, and agents, substantially in a form to be provided to Executive by Employer at such time. Notwithstanding anything set forth in this Agreement to the contrary, upon termination of Executive’s employment for any reason, Executive shall not receive any payments or benefits to which he may be entitled hereunder (other than those which by law cannot be subject to the execution of a release) (A) if Executive revokes such release or (B) until eight (8) days after the date Executive signs such release (or until such other date as applicable law may provide that Executive cannot revoke such release).

          8. Non-Competition.

                    a. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Employer and its affiliates and accordingly agrees as follows:

               (i) During the Employment Term and (x) in the event of a termination of Executive’s employment without Cause by Employer (other than due to Executive’s Disability) or for Good Reason by Executive, at all times during the Severance Period, or (y) in the event of any termination of Executive’s employment for Cause by Employer, due to Executive’s Disability or otherwise without Good Reason by Executive, for a period of one year following the date Executive ceases to be employed by the Employer (the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“Person”), directly or indirectly solicit or assist in soliciting in competition with the Employer, the business of any customer or prospective customer:

               (A) with whom Executive had personal contact or dealings on behalf of the Employer during the one-year period preceding Executive’s termination of employment;

               (B) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Employer during the one year immediately preceding Executive’s termination of employment; or

               (C) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive’s termination of employment.

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               (ii) During the Restricted Period, Executive will not directly or indirectly:

               (A) engage in any business that competes with the business of the Employer or its affiliates (including, without limitation, businesses which the Employer or its affiliates have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area that is within 100 miles of any geographical area where the Employer or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services (a “Competitive Business”);

               (B) enter the employ of, or render any services to, any Person (or any division or controlled or controlling affiliate of any Person) who or which engages in a Competitive Business;

               (C) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or

               (D) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the Employer or any of its affiliates and customers, clients, suppliers, partners, members or investors of the Employer or its affiliates.

               (iii) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any Person engaged in the business of the Employer or its affiliates which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (A) is not a controlling person of, or a member of a group which controls, such person and (B) does not, directly or indirectly, own 5% or more of any class of securities of such Person.

               (iv) During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly:

               (A) solicit or encourage any employee of the Employer or its affiliates to leave the employment of the Employer or its affiliates; or

               (B) hire any such employee who was employed by the Employer or its affiliates as of the date of Executive’s termination of employment with the Employer or who left the employment of the Employer or its affiliates coincident with, or within one year prior to or after, the termination of Executive’s employment with the Employer.

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               (v) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with the Employer or its affiliates any consultant then under contract with the Employer or its affiliates.

                    b. It is expressly understood and agreed that although Executive and the Employer consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

          9. Confidentiality.

                    a. Executive will not at any time (whether during or after Executive’s employment with the Employer) (i) retain or use for the benefit, purposes or account of Executive or any other Person; or (ii) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Employer (other than its professional advisers who are bound by confidentiality obligations), any non-public, proprietary or confidential information —including without limitation rates, trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals — concerning the past, current or future business, activities and operations of the Employer, its subsidiaries or affiliates and/or any third party that has disclosed or provided any of same to the Employer on a confidential basis (“Confidential Information”) without the prior written authorization of the Board.

                    b. “Confidential Information” shall not include any information that is (i) generally known to the industry or the public other than as a result of Executive’s breach of this covenant or any breach of other confidentiality obligations by third parties; (ii) made legitimately available to Executive by a third party without breach of any confidentiality obligation; or (iii) required by law to be disclosed; provided that Executive shall give prompt written notice to the Employer of such requirement, disclose no more information than is so required, and cooperate with any attempts by the Employer to obtain a protective order or similar treatment.

                    c. Except as required by law, Executive will not disclose to anyone, other than Executive’s immediate family and legal or financial advisors, the existence or contents of this Agreement; provided that Executive may disclose to any prospective future employer the provisions of Sections 8 and 9 of this Agreement provided they agree to maintain the confidentiality of such terms.

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                    d. Upon termination of Executive’s employment with the Employer for any reason, Executive shall (i) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Employer, its subsidiaries or affiliates; (ii) immediately destroy, delete, or return to the Employer, at the Employer’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Executive’s possession or control (including any of the foregoing stored or located in Executive’s office, home, laptop or other computer, whether or not the Employer’s property) that contain Confidential Information or otherwise relate to the business of the Employer, its affiliates and subsidiaries, except that Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information; and (iii) notify and fully cooperate with the Employer regarding the delivery or destruction of any other Confidential Information of which Executive is or becomes aware.

                    e. Executive shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the Employer any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. Executive hereby indemnifies, holds harmless and agrees to defend the Employer and its officers, directors, partners, employees, agents and representatives from any breach of the foregoing covenant. Executive shall comply with all relevant policies and guidelines of the Employer, including regarding the protection of confidential information and intellectual property and potential conflicts of interest. Executive acknowledges that the Employer may amend any such policies and guidelines from time to time, and that Executive remains at all times bound by their most current version. Notwithstanding anything set forth herein, the Company hereby represents and warrants that the Company shall not employ the provisions of this Section 9 in a manner that would interfere with Executive’s ability to obtain or retain any future employment that would not or does not otherwise violate Section 8 of this Agreement.

                    f. The provisions of this Section 9 shall survive the termination of Executive’s employment for any reason.

          10. Specific Performance. Executive acknowledges and agrees that the Employer’s remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and the Employer would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Employer, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

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          11. Arbitration. Except as provided in Section 10, any other dispute arising out of or asserting breach of this Agreement, or any statutory or common law claim by Executive relating to his employment under this Agreement or the termination thereof (including any tort or discrimination claim), shall be exclusively resolved by binding statutory arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Such arbitration process shall take place within 100 miles of the Detroit, Michigan metropolitan area. A court of competent jurisdiction may enter judgment upon the arbitrator’s award. In the event of any such dispute, all reasonable fees and disbursements of counsel incurred by Executive shall be reimbursed by Employer within a reasonable period of time following receipt from Executive (or Executive’s counsel) of a final bill invoicing all such fees and disbursements, so long as the arbitrator does not determine that such dispute was based on claims made by Executive that were frivolous or in bad faith.

          12. Miscellaneous.

                    a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to conflicts of laws principles thereof.

                    b. Entire Agreement/Amendments. Except with respect to the matters contained in the Equity Documents, this Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Employer. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

                    c. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

                    d. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.

                    e. Assignment. This Agreement, and all of Executive’s rights and duties hereunder, shall not be assignable or delegable by Executive. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect. This Agreement may be assigned by the Employer to a person or entity that is an affiliate or a successor in interest to substantially all of the business operations of the Employer. Upon such assignment, the rights and obligations of the Employer hereunder shall become the rights and obligations of such affiliate or successor person or entity.

                    f. Set Off; No Mitigation. The Employer’s obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Employer or

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its affiliates; provided, that no such set-off in excess of $5,000 shall be made against any amount payable to Executive pursuant to Section 7(c)(iii)(C) hereof. Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment or otherwise and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise.

                    g. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon the Company, its subsidiaries and affiliates, and the Executive and any personal or legal representatives, executors, administrators, successors, assigns, heirs, distributees, devisees and legatees. Further, the Company will require any successor (whether, direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company and any successor to its business and/or assets which is required by this Section 12(g) to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement; provided, however, in the event that any successor, as described above, agrees to assume this Agreement in accordance with the preceding sentence, as of the date such successor so assumes this Agreement, the Company shall cease to be liable for any of the obligations contained in this Agreement.

                    h. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

If to the Employer:

ITC Holdings Corp.
27175 Energy Way
Novi, Michigan 48377
Attention: General Counsel

With a copy to:

Dykema Gossett PLLC
400 Renaissance Center
Suite 2300
Detroit, Michigan 48243-1668
Attention: Mark A. Metz, Esq.

If to Executive:

To the most recent address of Executive set forth in Employer’s personnel records of the Employer.

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                    i. Executive Representation. Executive hereby represents to the Employer that the execution and delivery of this Agreement by Executive and the Employer and the performance by Executive of Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound.

                    j. Prior Agreements. This Agreement supercedes all prior agreements and understandings (including, without limitation, any verbal agreements, offer letters or summaries of principal terms pertaining to the employment of Executive by the Employer, and the Prior Employment Agreement) between Executive and the Employer and/or its affiliates regarding the terms and conditions of Executive’s employment with the Employer and/or its affiliates; provided, however, that the Equity Documents shall govern the terms and conditions of Executive’s equity holdings in the Company.

                    k. Cooperation. Executive shall provide Executive’s reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) that relates to events occurring during Executive’s employment hereunder. This provision shall survive any termination of this Agreement.

                    l. Taxes.

               (i) Withholding Taxes. The Employer may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

               (ii) 409A Compliance and Penalties. All payments under this Agreement are intended to be exempt from or in compliance with Code Section 409A, and the provisions of this Agreement are to be construed and administered accordingly. At all times between January 1, 2005 and December 1, 2008 during which this Agreement was in effect, this Agreement (and any prior versions thereof) was administered in good faith compliance with the exceptions or other applicable provisions under Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. Further, for all purposes under this Agreement: (I) references to “termination” of employment (or variations thereof), shall be synonymous with the meaning given to the term “separation from service” as provided under Code Section 409A, and the rules and regulations promulgated thereunder; and (II) no payment, reimbursement or benefit provided to Executive in one calendar year hereunder shall affect the provision of any such payment, reimbursement or benefit in any other calendar year.

                    Notwithstanding any other provision of this Agreement, while Executive acknowledges that Employer may take actions hereunder as are required to comply with or to minimize any potential interest charges and/or additional taxes as may be imposed by Code Section 409A (the “409A Penalties”) with respect to any payment or benefit due to Executive under this Agreement (including a delay in payment until the first business day following the end of the 409A Period, in the event Executive is a “specified employee” within the meaning of Code

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Section 409A, as described in and consistent with the provisions of Section 7(c)(iii)(C)), the parties hereby confirm that all such payments and benefits due to Executive will in fact be made or provided at the earliest time at which it is determined either that no 409A Penalties are applicable, or that such 409A Penalties will apply without exception. Further, if at any time it is determined that any payment or benefit due to Executive under this Agreement may be subject to any 409A Penalties, the Employer shall (A) be permitted to modify the provision of such payment or benefit if such modification would reasonably be expected to eliminate or minimize such 409A Penalties, so long as such modification does not adversely affect, in any material respect, the economic benefit to Executive of such payment or benefit (or otherwise result in additional 409A Penalties), or (B) to the extent that the course of action proposed in clause (A) cannot be effected, within fifteen (15) days after the date of such determination (but no later than the end of the calendar year following the year in which the Executive remits the 409A Penalties involved; or such other earliest date on which such amount can be paid as may be permitted under Code Section 409A) pay to Executive an additional amount equal to such 409A Penalties, along with such additional amount as is required to pay any income and/or payroll taxes due on the 409A Penalties and the additional tax gross-up payment (subject to the computational rules set forth in Section 12(b)).

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

[Signatures on next page.]

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[Signature Page to Employment Agreement]

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of this___ day of                     , 2008, effective as of December 1, 2008.

ITC HOLDINGS CORP.:	EXECUTIVE:
By:
Its:

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EX-10.84

Exhibit 10.84

EMPLOYMENT AGREEMENT
[Executive Name]

          This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of December 1, 2008 (the “Effective Date”) by and between ITC Holdings Corp. (the “Company”) and                     , (the “Executive”).

          WHEREAS, the Executive and the Company currently are parties to an employment agreement dated as of May 10, 2005 governing the terms of the Executive’s employment with the Company (the “Prior Employment Agreement”);

          WHEREAS, the Company and the Executive desire to modify certain provisions of the Prior Employment Agreement and otherwise update them to reflect the provisions of the final regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

          NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, and intending to be legally bound hereby, the parties agree as follows:

          1. Term of Employment. Subject to the provisions of Section 7 of this Agreement, Executive shall be employed by the Company, International Transmission Company and any of their subsidiaries and/or affiliates that the Board of Directors of the Company (the “Board”) shall designate (collectively, the “Employer”) for an initial period commencing on the Effective Date and ending on May 10, 2009 on the terms and subject to the conditions set forth in this Agreement; provided, however, that such period of employment shall automatically be extended for successive one-year periods unless the Employer or Executive, at least thirty (30) days prior to the end of any such period, provides written notice to the other party of the intent not to extend such period of employment for any additional one-year period. For purposes of this Agreement, the term “Employment Term” shall mean the period of time during which Executive is employed by Employer under this Agreement.

          2. Position.

                    a. During the Employment Term, Executive shall serve as the Employer’s                     . In such position, Executive shall have such duties and authority as the Chief Executive Officer of the Employer (the “Chief Executive Officer”) determines from time to time. If requested, Executive shall also serve as a member of the Board without additional compensation.

                    b. During the Employment Term, Executive will devote Executive’s full business time and best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly, without the prior written consent of the Chief Executive Officer; provided that nothing herein shall preclude Executive, subject to the prior approval of the Chief Executive Officer, from

accepting appointment to or continue to serve on any board of directors or trustees of any business corporation or any charitable organization; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of Executive’s duties hereunder or conflict with Section 8 of this Agreement.

          3. Base Salary. During the Employment Term, the Employer shall pay Executive a base salary at the annual rate of $___, payable in regular installments in accordance with the Employer’s normal payroll practices. Executive’s base salary shall be reviewed annually by the Board and Executive shall be entitled to such increases in Executive’s base salary, if any, as may be determined from time to time in the sole discretion of the Board. Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary”.

          4. Annual Bonus. During the Employment Term, Executive shall be eligible to earn an annual bonus award in respect of each fiscal year of Employer (an “Annual Bonus”), payable upon the Employer’s achievement of certain performance targets established by the Board pursuant to the terms of an incentive compensation plan established by the Board (the “Incentive Plan”). Executive’s target Annual Bonus for each fiscal year of Employer shall be that percentage of the Executive’s Base Salary as the Board may establish from time to time (the “Target Bonus”), but shall generally be one hundred percent (100%) of Executive’s Base Salary. The foregoing notwithstanding, any Annual Bonus to which Executive is entitled shall be paid no later than two and a half (2-1/2) months after the later of the end of the fiscal or calendar year in which such Annual Bonus is no longer subject to a substantial risk of forfeiture (as defined under Code Section 409A and the regulations promulgated thereunder).

          5. Employee Benefits and Perquisites; Business Expenses.

                    a. Employee Benefits. During the Employment Term, Executive shall be entitled to participate in the Employer’s employee benefit and retirement plans (the “ITC Plans”) as in effect from time to time as determined by the Board, which provide certain benefits (collectively the “Employee Benefits”) to Executive, including the following plans: (a) welfare benefit plans (including active medical, life, disability, flexible spending accounts and other related welfare plans); (b) fringe benefit plans (including education assistance and adoption assistance); (c) retiree welfare benefit plans (medical and life insurance); (d) qualified and non-qualified defined benefit and defined contribution plans; and (e) vacation plans (except that there shall be limitations set on the amount of vacation that Executive may carry forward from any given calendar year to the next), but excluding absence bank plans.

                    b. Perquisites. During the Employment Term, Executive shall also be entitled to receive such perquisites as are generally provided to executives of the Employer from time to time, as determined by the Board (or a compensation committee thereof).

                    c. Business Expenses. During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Employer in accordance with the Employer’s policies; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred.

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          6. Equity Participation. Executive’s equity participation in the Company has been documented pursuant to some or all of the 2003 Stock Purchase and Option Plan for Key Employees of the Company and its Subsidiaries and the associated Management Stockholder’s Agreement, the Amended and Restated ITC Holdings Corp. 2006 Long Term Incentive Plan and the associated Amendment to Management Stockholder’s Agreement, and in one or more Stock Option, Restricted Stock Award and Sale Participation Agreements associated therewith, each as executed by the Executive, the Company, and its shareholders, as applicable (such documents, collectively, the “Equity Documents”). The Company and Executive each acknowledges that the terms and conditions of the aforementioned documents govern Executive’s acquisition, holding, sale or other disposition of Executive’s equity in the Company, and Executive’s and the Company’s rights with respect thereto.

          7. Termination. Executive’s employment hereunder may be terminated by either party at any time and for any reason, subject to the applicable provisions of this Section 7; provided that Executive will be required to give the Employer at least 30 days advance written notice of any resignation of Executive’s employment; and provided, further, that the Employer will be required to give Executive at least ten (10) business days advance notice of a termination of Executive’s employment by the Employer without Cause (other than in the event of Executive’s Disability) (the “Company Notice Period”), unless the Employer provides Executive with a payment equal to the Base Salary that would otherwise be payable in respect of any portion of the Company Notice Period which the Employer elects to waive. Notwithstanding any other provision of this Agreement (and except as may otherwise be provided in the Equity Documents), the provisions of this Section 7 shall exclusively govern Executive’s rights upon termination of employment with the Employer.

                    a. By the Employer For Cause or By Executive Resignation Without Good Reason.

               (i) Executive’s employment hereunder may be terminated by the Employer for Cause (as defined below) and shall terminate automatically upon Executive’s resignation without Good Reason.

               (ii) For purposes of this Agreement, “Cause” shall mean (A) Executive’s continued failure substantially to perform Executive’s duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Employer to Executive of such failure, (B) dishonesty in the performance of Executive’s duties hereunder, (C) Executive’s conviction of, or plea of nolo contendere to a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude, (D) Executive’s willful malfeasance or willful misconduct in connection with Executive’s duties hereunder or any act or omission which is injurious to the financial condition or business reputation of the Employer or affiliates or (E) Executive’s breach of the provisions of Sections 8 or 9 of this Agreement.

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               (iii) If Executive’s employment is terminated by the Employer for Cause or if Executive resigns without Good Reason (other than due to a Disability (as such term is defined below)), Executive shall be entitled to receive:

               (A) any Base Salary earned through the date of termination, payable in a lump sum at such time as the Base Salary would otherwise be payable in accordance with the normal payroll practices of the Employer;

               (B) any Annual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year, payable in a lump sum at such time as such Annual Bonus would normally be paid under the Incentive Plan as provided in Section 4 hereof;

               (C) reimbursement for any unreimbursed business expenses properly incurred by Executive through the date of termination, payable at such time(s) and in accordance with the Employer’s policy prior to the date of Executive’s termination; provided that such reimbursement shall in any event occur no later than ninety (90) days after the date on which an eligible business expense is incurred; and

               (D) such Employee Benefits, if any, as to which Executive may be entitled under the applicable ITC Plans upon termination of employment hereunder (the payments and benefits described in clauses (A) through (D) hereof being referred to, collectively, as the “Accrued Rights”).

Following such termination of Executive’s employment by the Employer for Cause or resignation by Executive, except as set forth in this Section 7(a) (iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    b. Disability or Death.

               (i) Executive’s employment hereunder shall terminate upon Executive’s death and may be terminated by the Employer if Executive experiences a “Disability” (as such term shall be defined from time to time under Code Section 409A). Any question as to the existence of the Disability of Executive as to which Executive and the Employer cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Employer. If Executive and the Employer cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Employer and Executive shall be final and conclusive for all purposes of the Agreement.

               (ii) Upon termination of Executive’s employment hereunder for Disability or death, Executive, Executive’s then spouse, or Executive’s estate (as the case may be), shall be entitled to receive:

               (A) the Accrued Rights;

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               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar year in which the date of such termination of employment occurs, relative to the applicable full calendar year), payable in a lump sum within fifteen (15) business days after the date of such termination of employment; and

               (C) full and immediate vesting of any then unvested options to purchase shares of common stock of the Company held by Executive immediately prior to the date of such termination of employment.

Following Executive’s termination of employment due to death or Disability, except as set forth in this Section 7(b) (ii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    c. By the Employer Without Cause or by Executive Resignation for Good Reason.

               (i) Executive’s employment hereunder may be terminated (A) by the Employer without Cause (which shall not include Executive’s termination of employment due to his Disability) or (B) or by Executive for Good Reason (as defined below).

               (ii) For purposes of this Agreement, “Good Reason” shall mean (A) a greater than 10% reduction in the total value of Executive’s Base Salary, Target Bonus, and Employee Benefits; (B) Executive’s job responsibility and authority are substantially diminished; and (C) Executive’s work location is relocated to more than fifty (50) miles from Novi, Michigan or Ann Arbor, Michigan; and provided, further, that “Good Reason” shall cease to exist for an event unless:

               (D) no later than the 60^th day following the initial existence of such Good Reason condition, Executive has given the Employer written notice thereof ;

               (E) the Employer is afforded a period of thirty (30) days to remedy the condition; and

               (F) in the absence of any such remedy, the Executive terminates employment within one hundred eighty (180) days following the end of the cure period described in (E) above.

               (iii) If Executive’s employment is terminated by the Employer without Cause (other than by reason of death or Disability) or by Executive for Good Reason, subject to Executive’s execution of a release of all claims against Employer, Executive shall be entitled to receive:

               (A) the Accrued Rights;

               (B) a pro rata portion of the Target Bonus (calculated based on the number of days Executive was employed hereunder during the calendar

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year in which the date of such termination of employment occurs, relative to the full calendar year), payable based upon the Employer’s actual achievement of the performance targets for such year as determined under and at the time that such an Annual Bonus (if any) would normally be paid as set forth in Section 4 hereof;

               (C) continued payment in substantially equal installments, in accordance with the normal payroll practices of Employer, for a period of one (1) year following the date of termination of Executive’s employment hereunder (the “Severance Period”), of the Executive’s annual rate of Base Salary as in effect immediately prior to such termination (such aggregate amount, the “Severance Payment”); provided that in the event Executive is a “specified employee” within the meaning of Code Section 409A and in accordance with the involuntary “separation pay plan” exception under the Code Section 409A regulations, the total of all amounts paid to Executive within the first six (6) months following such termination pursuant to the provision shall not exceed two times the lesser of (I) the sum of the Executive’s annualized compensation based upon the annual rate of pay for services provided to the Employer for the calendar year preceding the calendar year in which the termination occurs (adjusted for any increase during that year that was expected to continue indefinitely, if the Executive had not terminated), or (II) the Code Section 401(a)(17) limit on compensation for the calendar year in which the Executive terminates. To the extent a portion of the Severance Payment exceeds such limitation, the payment shall not commence until the first business day following the date that is six months after the date of termination of Executive’s employment hereunder (the period during which such payments may be limited under Code Section 409A, the “409A Period”), at which time Employer shall (III) pay to Executive, in one lump sum, an amount equal to the portion of the Severance Payment that would otherwise have been payable during the 409A Period, and (IV) thereafter continue to pay the remaining unpaid portion of the Severance Payment in accordance with the normal payroll practices of Employer through the end of the Severance Period as otherwise provided in this Section 7(c)(iii)(C) above;

               (D) continued provision, during the Severance Period, of the applicable Employee Benefits that are health and welfare benefits (including health insurance as required to be provided by the Employer pursuant to the Consolidated Omnibus Budget Reconciliation Act), to be provided by the Employer at the same cost(s) to Executive as paid by other executives of the Employer during such time; provided, that such coverage may be provided through the Employer’s purchase of individual insurance policies if the Employer’s group healthcare programs cannot provide the continuing coverage described herein or cannot do so on a non-discriminatory basis for tax purposes;

               (E) in addition to the benefits provided under subsection (D) above, in the event that, if Executive had remained employed with the Employer through the end of the Severance Period, Executive would have

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satisfied the age and service requirements for benefit eligibility under the International Transmission Company Postretirement Welfare Plan (as in effect from time to time), at the end of the Severance Period Executive shall be deemed to have satisfied such requirements, and shall, at such time be entitled to receive benefits under such plan on the same terms and conditions as all other plan participants who actually satisfy such requirements; and

               (F) outplacement services of a duration of up to two (2) years from the date of termination (or until such earlier date on which Executive obtains other employment), and at a level commensurate with Executive’s former position with the Employer, and by a provider as determined by the Employer in good faith.

Notwithstanding anything set forth in Section 7(c)(iii)(E), if the Company terminates the International Transmission Company Postretirement Welfare Plan (and does not replace it with any successor plan that provides retiree welfare benefits that are non-taxable and comparable to those provided under the International Transmission Company Postretirement Welfare Plan (“Retiree Benefits”)) either (x) prior to an event giving rise to the Employer’s obligations under this Section 7(c)(iii)(E) or (y) at any time after such event and, at such time, by operation of Section 7(c)(iii)(E) Executive would otherwise be eligible to receive the benefits provided therein (the “Plan Termination Date”), then, in satisfaction of all obligations the Employer would otherwise have under Section 7(c)(iii)(E), the Employer shall at the earliest time on or after the Plan Termination Date that the Executive is eligible to receive the Retiree Benefits (the “Benefit Eligibility Date”), either (I) establish and maintain a plan for the purpose of providing Executive with non-taxable Retiree Benefits or otherwise purchase individual insurance policies to provide the Retiree Benefits, for so long as the Employer would otherwise be required to provide benefits under Section 7(c)(iii)(E), or (II) if, and to the extent, the Employer is not permitted by applicable regulations to establish such a plan for Executive or cannot otherwise purchase individual insurance policies to provide such coverage for Executive, pay Executive in cash a lump sum amount equal to the Employer’s cost of otherwise providing the Retiree Benefits that cannot be so provided, the amount of which shall be determined by an enrolled actuary retained by the Employer for such purpose. If a lump sum payment is due to Executive pursuant to clause (II) of the preceding sentence, such payment will be made within two and a half (2-1/2) months after the Executive’s Benefit Eligibility Date (or, if later, on such other earliest date on which amounts can be paid as may be required so as not to incur any penalties under Code Section 409A).

Following Executive’s termination of employment by the Employer without Cause (other than by reason of Executive’s death or Disability) or Executive for Good Reason, except as set forth in this Section 7(c)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.

                    d. Notice of Termination. Any purported termination of employment by the Employer or by Executive (other than due to Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(h) hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth

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in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.

                    e. Board/Committee Resignation; Execution of Release of all Claims.

               (i) Upon termination of Executive’s employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the board of directors (and any committees thereof) of any of the Company’s affiliates.

               (ii) Upon termination of Executive’s employment for any reason, Executive agrees to execute a release of all claims against the Company, its subsidiaries, affiliates, shareholders, directors, officers, employees, and agents, substantially in a form to be provided to Executive by Employer at such time. Notwithstanding anything set forth in this Agreement to the contrary, upon termination of Executive’s employment for any reason, Executive shall not receive any payments or benefits to which he may be entitled hereunder (other than those which by law cannot be subject to the execution of a release) (A) if Executive revokes such release or (B) until eight (8) days after the date Executive signs such release (or until such other date as applicable law may provide that Executive cannot revoke such release).

          8. Non-Competition.

                    a. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Employer and its affiliates and accordingly agrees as follows:

               (i) During the Employment Term and for a period of one year following the date Executive ceases to be employed by the Employer (the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“Person”), directly or indirectly solicit or assist in soliciting in competition with the Employer, the business of any customer or prospective customer:

               (A) with whom Executive had personal contact or dealings on behalf of the Employer during the one-year period preceding Executive’s termination of employment;

               (B) with whom employees reporting to Executive have had personal contact or dealings on behalf of the Employer during the one year immediately preceding Executive’s termination of employment; or

               (C) for whom Executive had direct or indirect responsibility during the one year immediately preceding Executive’s termination of employment.

               (ii) During the Restricted Period, Executive will not directly or indirectly:

               (A) engage in any business that competes with the business of the Employer or its affiliates (including, without limitation, businesses which

8

the Employer or its affiliates have specific plans to conduct in the future and as to which Executive is aware of such planning) in any geographical area that is within 100 miles of any geographical area where the Employer or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services (a “Competitive Business”);

               (B) enter the employ of, or render any services to, any Person (or any division or controlled or controlling affiliate of any Person) who or which engages in a Competitive Business;

               (C) acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or

               (D) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the Employer or any of its affiliates and customers, clients, suppliers, partners, members or investors of the Employer or its affiliates.

               (iii) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as an investment, securities of any Person engaged in the business of the Employer or its affiliates which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Executive (A) is not a controlling person of, or a member of a group which controls, such person and (B) does not, directly or indirectly, own 5% or more of any class of securities of such Person.

               (iv) During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly:

               (A) solicit or encourage any employee of the Employer or its affiliates to leave the employment of the Employer or its affiliates; or

               (B) hire any such employee who was employed by the Employer or its affiliates as of the date of Executive’s termination of employment with the Employer or who left the employment of the Employer or its affiliates coincident with, or within one year prior to or after, the termination of Executive’s employment with the Employer.

               (v) During the Restricted Period, Executive will not, directly or indirectly, solicit or encourage to cease to work with the Employer or its affiliates any consultant then under contract with the Employer or its affiliates.

               (vi) Employer may, in its sole discretion, extend the Restricted Period (and thereby the non-competition provisions of this Section 8) by one additional year and, in consideration thereof, will provide Executive with continued payment in substantially equal installments and in accordance with the normal payroll practices of the Employer, for a period of one (1) year following the first anniversary of the date of termination of Executive’s employment

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hereunder, of Executive’s annual rate of Base Salary as in effect immediately prior to such termination. In the event Employer elects to exercise its discretion to extend the Restricted Period as provided above, the Employer will notify Executive to this effect, by no later than six (6) months after the date of termination of Executive’s employment hereunder. The foregoing notwithstanding, such extension of the Restricted Period will not result in any similar extension of the Severance Period, as defined elsewhere in this Agreement.

                    b. It is expressly understood and agreed that although Executive and the Employer consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

          9. Confidentiality.

                    a. Executive will not at any time (whether during or after Executive’s employment with the Employer) (i) retain or use for the benefit, purposes or account of Executive or any other Person; or (ii) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Employer (other than its professional advisers who are bound by confidentiality obligations), any non-public, proprietary or confidential information —including without limitation rates, trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals — concerning the past, current or future business, activities and operations of the Employer, its subsidiaries or affiliates and/or any third party that has disclosed or provided any of same to the Employer on a confidential basis (“Confidential Information”) without the prior written authorization of the Board.

                    b. “Confidential Information” shall not include any information that is (i) generally known to the industry or the public other than as a result of Executive’s breach of this covenant or any breach of other confidentiality obligations by third parties; (ii) made legitimately available to Executive by a third party without breach of any confidentiality obligation; or (iii) required by law to be disclosed; provided that Executive shall give prompt written notice to the Employer of such requirement, disclose no more information than is so required, and cooperate with any attempts by the Employer to obtain a protective order or similar treatment.

                    c. Except as required by law, Executive will not disclose to anyone, other than Executive’s immediate family and legal or financial advisors, the existence or contents of this Agreement; provided that Executive may disclose to any prospective future employer the

10

provisions of Sections 8 and 9 of this Agreement provided they agree to maintain the confidentiality of such terms.

                    d. Upon termination of Executive’s employment with the Employer for any reason, Executive shall (i) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Employer, its subsidiaries or affiliates; (ii) immediately destroy, delete, or return to the Employer, at the Employer’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Executive’s possession or control (including any of the foregoing stored or located in Executive’s office, home, laptop or other computer, whether or not the Employer’s property) that contain Confidential Information or otherwise relate to the business of the Employer, its affiliates and subsidiaries, except that Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information; and (iii) notify and fully cooperate with the Employer regarding the delivery or destruction of any other Confidential Information of which Executive is or becomes aware.

                    e. Executive shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the Employer any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. Executive hereby indemnifies, holds harmless and agrees to defend the Employer and its officers, directors, partners, employees, agents and representatives from any breach of the foregoing covenant. Executive shall comply with all relevant policies and guidelines of the Employer, including regarding the protection of confidential information and intellectual property and potential conflicts of interest. Executive acknowledges that the Employer may amend any such policies and guidelines from time to time, and that Executive remains at all times bound by their most current version. Notwithstanding anything set forth herein, the Company hereby represents and warrants that the Company shall not employ the provisions of this Section 9 in a manner that would interfere with Executive’s ability to obtain or retain any future employment that would not or does not otherwise violate Section 8 of this Agreement.

                    f. The provisions of this Section 9 shall survive the termination of Executive’s employment for any reason.

          10. Specific Performance. Executive acknowledges and agrees that the Employer’s remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and the Employer would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Employer, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

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          11. Arbitration. Except as provided in Section 10, any other dispute arising out of or asserting breach of this Agreement, or any statutory or common law claim by Executive relating to his employment under this Agreement or the termination thereof (including any tort or discrimination claim), shall be exclusively resolved by binding statutory arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Such arbitration process shall take place within 100 miles of the Detroit, Michigan metropolitan area. A court of competent jurisdiction may enter judgment upon the arbitrator’s award. In the event of any such dispute, all reasonable fees and disbursements of counsel incurred by Executive shall be reimbursed by Employer within a reasonable period of time following receipt from Executive (or Executive’s counsel) of a final bill invoicing all such fees and disbursements, so long as the arbitrator does not determine that such dispute was based on claims made by Executive that were frivolous or in bad faith.

          12. Miscellaneous.

                    a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to conflicts of laws principles thereof.

                    b. Entire Agreement/Amendments. Except with respect to the matters contained in the Equity Documents, this Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Employer. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

                    c. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

                    d. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.

                    e. Assignment. This Agreement, and all of Executive’s rights and duties hereunder, shall not be assignable or delegable by Executive. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect. This Agreement may be assigned by the Employer to a person or entity that is an affiliate or a successor in interest to substantially all of the business operations of the Employer. Upon such assignment, the rights and obligations of the Employer hereunder shall become the rights and obligations of such affiliate or successor person or entity.

                    f. Set Off; No Mitigation. The Employer’s obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Employer or

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its affiliates; provided, that no such set-off in excess of $5,000 shall be made against any amount payable to Executive pursuant to Section 7(c)(iii)(C) hereof. Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment or otherwise and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise.

                    g. Successors; Binding Agreement. This Agreement shall inure to the benefit of and be binding upon the Company, its subsidiaries and affiliates, and the Executive and any personal or legal representatives, executors, administrators, successors, assigns, heirs, distributees, devisees and legatees. Further, the Company will require any successor (whether, direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company and any successor to its business and/or assets which is required by this Section 12(g) to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement; provided, however, in the event that any successor, as described above, agrees to assume this Agreement in accordance with the preceding sentence, as of the date such successor so assumes this Agreement, the Company shall cease to be liable for any of the obligations contained in this Agreement.

                    h. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

If to the Employer:

ITC Holdings Corp.
27175 Energy Way
Novi, Michigan 48377
Attention: General Counsel

With a copy to:

Dykema Gossett PLLC
400 Renaissance Center
Suite 2300
Detroit, Michigan 48243-1668
Attention: Mark A. Metz, Esq.

If to Executive:

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To the most recent address of Executive set forth in Employer’s personnel records of the Employer.

                    i. Executive Representation. Executive hereby represents to the Employer that the execution and delivery of this Agreement by Executive and the Employer and the performance by Executive of Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound.

                    j. Prior Agreements. This Agreement supercedes all prior agreements and understandings (including, without limitation, any verbal agreements, offer letters or summaries of principal terms pertaining to the employment of Executive by the Employer, and the Prior Employment Agreement) between Executive and the Employer and/or its affiliates regarding the terms and conditions of Executive’s employment with the Employer and/or its affiliates; provided, however, that the Equity Documents shall govern the terms and conditions of Executive’s equity holdings in the Company.

                    k. Cooperation. Executive shall provide Executive’s reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) that relates to events occurring during Executive’s employment hereunder. This provision shall survive any termination of this Agreement.

                    l. Taxes.

               (i) Withholding Taxes. The Employer may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

               (ii) 409A Compliance and Penalties. All payments under this Agreement are intended to be exempt from or in compliance with Code Section 409A, and the provisions of this Agreement are to be construed and administered accordingly. At all times between January 1, 2005 and December 1, 2008 during which this Agreement was in effect, this Agreement (and any prior versions thereof) was administered in good faith compliance with the exceptions or other applicable provisions under Code Section 409A, taking into account the statutory language, legislative history and interim guidance issued by the Internal Revenue Service relating to Code Section 409A. Further, for all purposes under this Agreement: (I) references to “termination” of employment (or variations thereof), shall be synonymous with the meaning given to the term “separation from service” as provided under Code Section 409A, and the rules and regulations promulgated thereunder; and (II) no payment, reimbursement or benefit provided to Executive in one calendar year hereunder shall affect the provision of any such payment, reimbursement or benefit in any other calendar year.

                    Notwithstanding any other provision of this Agreement, while Executive acknowledges that Employer may take actions hereunder as are required to comply with or to minimize any potential interest charges and/or additional taxes as may be imposed by Code Section 409A (the “409A Penalties”) with respect to any payment or benefit due to Executive under this Agreement (including a delay in payment until the first business day following the end of the 409A Period, in the event Executive is a “specified employee” within the meaning of Code

14

Section 409A, as described in and consistent with the provisions of Section 7(c)(iii)(C)), the parties hereby confirm that all such payments and benefits due to Executive will in fact be made or provided at the earliest time at which it is determined either that no 409A Penalties are applicable, or that such 409A Penalties will apply without exception. Further, if at any time it is determined that any payment or benefit due to Executive under this Agreement may be subject to any 409A Penalties, the Employer shall (A) be permitted to modify the provision of such payment or benefit if such modification would reasonably be expected to eliminate or minimize such 409A Penalties, so long as such modification does not adversely affect, in any material respect, the economic benefit to Executive of such payment or benefit (or otherwise result in additional 409A Penalties), or (B) to the extent that the course of action proposed in clause (A) cannot be effected, within fifteen (15) days after the date of such determination (but no later than the end of the calendar year following the year in which the Executive remits the 409A Penalties involved; or such other earliest date on which such amount can be paid as may be permitted under Code Section 409A) pay to Executive an additional amount equal to such 409A Penalties, along with such additional amount as is required to pay any income and/or payroll taxes due on the 409A Penalties and the additional tax gross-up payment (subject to the computational rules set forth in Section 12(b)).

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

[Signatures on next page.]

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[Signature Page to Employment Agreement]

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of this___ day of                     , 2008, effective as of December 1, 2008.

ITC HOLDINGS CORP.:	EXECUTIVE:
By:
Its:

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EX-21

Exhibit 21

ITC HOLDINGS CORP. CORPORATE ORGANIZATION CHART ITC HOLDINGS CORP. METC GP Holdings, Inc. International Transmission            ITC Equipment, LLC            ITC Midwest LLC            ITC Grid Development, LLC            ITC Green            New York Company            Power Express            Transmission d/b/a ITCTransmission            LLC            Holdings Corp. ** Green Power            Conjunction LLC Express LLC ** * METC GP Holdings II, LLC            METC LP            METC LP            METC LP            METC LP            METC LP Holdings 1, Inc. * Holdings II, Holdings III, Holdings IV, Holdings V, Inc.* Inc. * Inc.* Inc. * Empire Conjunction LLC ** Michigan            Green Powei Transco            Express LP * Holdings, L.P. ITC Panhandle Transmission, LLC            ITC Great Plains, LLC Michigan Electric Transmission Company, LLC All entities are organized in the State of Michigan, except: * Entities organized in the State of Delaware ** Entities organized in the State of New York

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-153016, 333-141430, 333-138048, 333-136657, 333-126942, and 333-126943 on Forms S-8 and Registration Statement No. 333-140026 on Form S-3 of our reports dated February 26, 2009, relating to the financial statements and financial statement schedule of ITC Holdings Corp. and subsidiaries, and the effectiveness of ITC Holdings Corp. and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of ITC Holdings Corp. for the year ended December 31, 2008.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan
February 26, 2009

EX-31.1

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph L. Welch, certify that:

     1. I have reviewed this annual report on Form 10-K 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.

Date: February 26, 2009

/s/ Joseph L. Welch

Joseph L. Welch
President & Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward M. Rahill, certify that:

     1. I have reviewed this annual report on Form 10-K 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.

Date: February 26, 2009

/s/ Edward M. Rahill

Edward M. Rahill
Senior Vice President — Finance and Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Annual Report of ITC Holdings Corp. (the “Registrant”) on Form 10-K for the period ended December 31, 2008, as filed with the Securities and Exchange Commission on February 26, 2009 (the “Report”), we, Joseph L. Welch, President & Chief Executive Officer of the Registrant, and Edward M. Rahill, Senior Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge, that:

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

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

Date: February 26, 2009

/s/ Joseph L. Welch

Joseph L. Welch
President & Chief Executive Officer

/s/ Edward M. Rahill

Edward M. Rahill
Senior Vice President — Finance and Chief Financial Officer