ITC Holdings Corporation ( ITC)

Analyst Day

December 5, 2011 9:00 a.m. ET

Executives

Joseph Welch - Chairman, President and Chief Executive Officer

J. Wayne Leonard - Chairman and Chief Executive Officer of Entergy

Cameron Bready - Executive Vice President and Chief Financial Officer

Presentation

Joseph Welch

Well, good morning, everyone. First of all I would like to thank everyone for coming out today. This was scheduled as our normal analyst day that got put off a little bit. Of course, one thing that we are going to talk about a lot today is the transaction that we announced this morning. But, so that everyone is clear, we’ll have to comeback at a later date and update you on all of the metrics that we are going to have for ITC for next year, so we want to focus on this transaction.

So with that, I would like to introduce Wayne Leonard, who is CEO and Chairman of Entergy, and tell you that it’s really been my pleasure to do this business and this transaction with Wayne and his team. What Wayne doesn’t know but I’ll probably tell him now is that when we were looking at doing the formation of ITC back in the late 90s I pulled out a lot of the articles that Wayne had actually penned and authored. And so I actually look at this as kind of, for us, being the natural transition to the things that a person like Wayne had envisioned. And I think he is pretty scholarly on this.

So the other thing is is that the pleasure in the transaction has been is the true focus that Wayne has put and asked ITC to put on, really delivering customer service. Making sure that we are going to be the operators that we have proven to be, and that we are going to give care and concern to the system that they are going to be entrusting us with. So with no further adieu I would like to introduce Wayne Leonard, who would like to start our presentation for the day.

J. Wayne Leonard

Well, thank you. It’s a pleasure to be here in front of all of you. As Joe said, for any of you who follow Entergy or those of you who follow ITC, this transaction should not be a surprise to any of you. At Entergy we have been promoting the independent transmission model for well over 15 years. We made one attempt at trying to implement it over ten years ago that didn’t, wasn’t properly structured I think, as we look back on it and didn’t get done. This time it’s much more regulator and customer friendly then possibly that first attempt was, and we have learned a lot I think in the marketplace the value of an independent transmission company since then.

If you did not see the announcement this morning -- first of all you would wonder why I am here. But both boards have approved the transaction. A definitive agreement whereby Entergy will divest all of its electric transmission business in a reverse in a Reverse Morris Trust transaction. It will be a tax free, that business then will be -- it’ll be spun off into a separate company. Shareholders will own that company, that company will then be merged into ITC. In order to right size the transaction for tax purposes ITC will be doing a $700 million special dividend to make the numbers work, and the $1.775 billion of debt that Entergy has, most of that on the transmission assets, then will be retired at Entergy and it will be absorbed by ITC as part of the transaction.

It’s subject to a lot of different approvals. As you well know, the most important being the jurisdiction approvals, right there. The transaction, we have talked about this many times, it fulfills the objectives that we have talked about before. It increases, from Entergy’s standpoint it increases the financial flexibility, provides cash available for future growth, provides the operational excellence to maintain that. We are very proud at Entergy, been through various storms and other things, and ITC brings that same type of expertise along with the people that we will bring over -- send over to ITC that have a lot of storm restoration experience also. And it’s truly independent.

When this is all over with, Entergy will have no connection to the transmission business whatsoever, except as the largest customer of ITC. Now at EEI we talked a lot about why a transco made a lot of sense to us. In particular, we believe that that has all of our stakeholders grow to understand the value of having complete independence. The value of having an entity singularly focused on doing something that’s going to become a critical piece of our business as we go forward. It’s been a stepchild of it before, kind of a connector between generation and the distribution business, the customer business, and now it’s going to be a value driver for customers and virtually all of our stakeholders as we go forward.

And the need to improve the credit quality of the operating companies, it does that for us. Other companies may have different needs, in our case it’s a critical piece of maintaining that and certainly consistent with the direction that Congress and FERC have set out for how this industry should be structured. I don’t know of any credible economist or lawyer who works on structures that would argue the issue that an independent transmission company, when you have competitive generation, and when you have a natural monopoly on the distribution side and you own the customers, isn’t the most rational and most natural structure to facilitate the achievement of all the different goals.

And that’s not what we have today. We have the opportunity for that we haven’t seen a lot of companies move in that direction. The Energy Policy Act of 2005 was very clear. It added Section 219 to the Federal Power Act, basically requiring FERC to do whatever it needed to do to increase throughput on the grid, increase reliability of the grid and increase -- or alleviate congestion and create more independence than currently exists. In response to that FERC came up with a number of different ways to do that. The Secretary of Energy had did a study and basically the conclusion they came to was the only way you are going to get there is if you provide certainty. Certainty around the rules, certainty around recover of costs and timing of the recovery of costs and certainty around what the returns will be.

And FERC has developed a regulatory mechanism that allows the grid to be expanded to meet the challenges of the future and it gives confidence to the -- it should confidence to the financial markets that there is not going to be a lot of dilution, attrition and timeframes in between when this is going to -- when ITC, for example, would recover those costs and how much they will - the return will be on those costs. FERC has those carrots and those sticks available to them. You don’t want to be on the side of the stick. I’ll guarantee you that much. It’s pretty heavy handed if you don’t have size.

This transaction, why? If you look at the end of the screen we talked a little bit of this at the EEI. The industry has about $600 billion of market cap. They are looking over the next 20 years to spent $2.2 trillion. That stretches the imagination, how that’s going to get done. We have tenuous financial markets, we have volatile commodity markets. We haven’t built a lot of stuff in thirty years. We have already started to see some of the projects that are being built struggle. It’s just been a long time since we build anything. And that’s a long time to be spending that kind of money.

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