Meeting Our Energy Goals: The Energy Superhighway

Joseph L. WelchApril 13, 2010

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Agenda

Who is ITC?

The Current Environment

What ITC Midwest’s Independence Means to You

Bringing Iowa Wind to Market

Summary

Who is ITC?

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Who is ITC?

ITC is the first fully

independent transmission

company in the U.S.

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ITC is the ninth largest transmission-owning company in the U.S.

Transmission systems in Michigan’s lower peninsula and portions of Iowa, Minnesota, Illinois and Missouri— Serves combined peak load in excess of

25,000 megawatts (MW)— Approximately 15,000 line miles

Recently announced “Green Power Express” designed to facilitate the interconnection of 12,000 MW of wind in the Dakotas, Iowa and Minnesota to eastward population centers

Also actively seeking opportunities to build, own, operate and maintain transmission in Kansas, Oklahoma and Texas (SPP region)— KETA, V-Plan, and Hugo to Valliant

projects in advanced stages of development

Who is ITC?

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ITC’s Service Territories

ITCTransmission METC ITC

Midwest

Total System Peak Load = 25,000 +25,000 +

12,700 MW 9,400 MW 3,500 MW

Service Area

SE Michigan Michigan’s Lower

Peninsula

Portions of Iowa,

Minnesota, Illinois and Missouri

Total Transmission Miles > 14,90014,900

2,805 5,465 ~ 6,800

Assets Acquired

March 1, 2003

Oct. 10, 2006

Dec. 20, 2007

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Let’s imagine that United Airlines was responsible for the control tower operations at the Des Moines International Airport.

What do you think would happen?

— Whose flights would be the first to land?

— Whose flights would be the first to take off?

There is a clear reason why independence in this case is important

How does this example apply to the energy industry?

Does Independence Really Matter?

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ITC focuses on ownership, operation, maintenance, and construction of transmission facilities as a single line of business

There is no internal competition for capital – it is dedicated for prudent transmission investment

ITC is singularly focused on transmission and aims to bring significant benefits to customers

Our Goals:

— Improve reliability

— Reduce congestion, improve efficiency

— Increase access to generation, including renewable resources

— Lower cost of delivered energy

ITC = Independent

In other words, ITC’s independence uniquely positions it to facilitate renewable resources like

wind

The Current Environment

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Before we speak about ITC Midwest, let us first understand the global energy environment

Demand for electricity continues to grow; expected to increase 26% by 2030

— Increasing population

— Shifting population centers / urban sprawl

— Increased dependence on electricity for every-day lives

Sources: U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2009* Electricity demand projections based on expected growth between 2006-2030

Growing Demand

~26%

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Yet, as shown earlier, there has been a 30-year trend of underinvestment

— 70% of transmission lines are 25 years or older

— 70% of power transformers are 25 years or older

— 60% of circuit breakers are more than 30 years old

Source: http://www.globalenvironmentfund.com/GEF%20white%20paper_Electric%20Power%20Grid.pdf

Aging Infrastructure

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Energy Is Changing

The energy industry has been going through significant changes in recent years:

— How it is bought/sold: Creation of energy markets, volatile fuel prices

— How it is made: New forms of generation including renewables

— How it is used: Shifting population, sophisticated electronics in homes and businesses, smart grid, electric cars

— How it is regulated: Creation of independent transmission companies to bring investment to grid

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Changes are Need-Driven

These changes are driven by various needs

— Create new jobs

— Support economic development

— Invest in and improve nation’s infrastructure

— Diversify our fuel sources / energy security

— Protect the environment

Central to all of these changes is the need for a robust transmission grid

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Wind has been made popular with this changing landscape, but it requires transmission and does not come without challenges

— Resource rich regions vs. states without wind

— Individual state RPS goals

— Variability of wind

— Significant barriers to entry

Wind – Renewable But Variable

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Mine-mouth Coal

Geothermal

Solar

Other Generation Sources

As an independent transmission provider, ITC must provide equal and non-discriminatory access to all forms of generation

Each of these different generation sources provide a unique challenge in interconnecting them to the grid, but they all have one thing in common:

All generation sources need access to a robust transmission grid

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National Energy Policy

Given the changing energy industry and needs, we need a national energy policy to guide decisions for our future energy delivery system.

This vision would provide the foundation upon which energy policy would be based (e.g., national RES, carbon pricing, etc.).

An energy policy vision is an important input specifically as it relates to building the necessary transmission— Regional transmission planning— Cost allocation— Siting

Bringing It Home: ITC Midwest in the Past 2 Years

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Since opening its doors in late 2007, ITC Midwest has been working tirelessly to bring value to its customers and to the end-use consumers of this region

Current System Presents Roadblocks

ITC Midwest’s Report Card Investing in system

improvements

Preventative maintenance

Improved reliability

Safety

Equal access to all forms of generation

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Capital Investments

Since its inception, ITC Midwest has invested almost $300 million in capital improvements to its transmission system

— Improve reliability

— Economic projects

— Generator interconnections

Some examples of ITC Midwest projects currently in progress:

— Story County Wind – NextEra: System upgrade to allow full output of the Story County wind farm scheduled to be completed by June 2010

— Salem-Hazleton 345 kV line

— Beverly-Sixth Street

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Salem-Hazleton 345kV Line

Project Overview— New 81 mile line of 345 kV, double

circuited with existing 161 kV for portion of line

— Completes Eastern Iowa 345 kV “Reliability Loop”

— Addresses constrained area first identified in Midwest ISO 2006 Eastern Iowa Reliability Study

— Project kicked off shortly after ITC Midwest formed IUB Public meetings held February

2009 95+% voluntary easements acquired Hearing August 3 and 4 on eminent

domain request

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Adams-Barton/Hayward-Worth

Adams-Barton— 27-mile line between Adams, Minn.,

and Bolan, Iowa— Rebuild existing 161 kV line to same

voltage, higher capacity; replace wood poles with steel structures

— Energized last week

Hayward-Worth— 20-mile, 50-year-old line between

Hayward, Minn., and Kensett, Iowa— Rebuilding existing 161 kV line to

same voltage, higher capacity; replace wood poles with steel

— Construction begins this month

Both lines improve north-south electric flow, support wind development

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DAEC-Washburn

Project Overview

— 40-mile line from Duane Arnold Energy Center to Washburn substation south of Waterloo

— Rebuild 161 kV line to same voltage, higher capacity, replace wood poles with steel structures

— Improves eastern Iowa reliability, reduces congestion

— Project completed in December 2009

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Beverly-Sixth Street

Project Overview

— Six-mile line within Cedar Rapids city limits

— Rebuild existing 34.5 kV line to 161 kV

— Had been in planning stages for more than 15 years

— Industrial growth along Highway 30 corridor drove need

— Construction began this month; completed by year end

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ITC Midwest’s maintenance methodology is simple: invest in prevention:

— Breaker and Switcher Inspections

— Line Inspections

— Substation Inspections

— Relay Calibration

— Battery Checks

— Transformer Inspections

— Infrared Inspection

— Vegetation Management Doing so is more cost-effective

and prevents costly system outages or equipment failures

Efficient Preventative Maintenance

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ITC’s goal is best in class system performance for all operating subsidiaries— Following acquisition of a new system, ITC deploys its maintenance program and

root cause analysis methodology to reduce outages

In 2009 ITC Midwest saw a 55% improvement over 2008 for the ≥69kV transmission system and 45% improvement for the <69kV system

Improved Reliability

The SGS Statistical Services Transmission Reliability Benchmarking program

Participants represent over 54% of the U.S. transmission

grid miles

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ITC’s safety program is centered around building a safety culture within all employees and contractors and our goal is zero recordable injury and lost work day case rates

ITC participates in Edison Electric Institute’s (EEI) Safety Benchmarking program to gauge its performance against approximately 70 other utilities

Focus on Safety

0

0.5

1

1.5

2

2.5

3

ITC Actual

Top Quartile

Average Rate

Recordable Incident Rate Lost Work Day Case Incident Rate

0

0.5

1

ITC was one of the top companies in the study

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Transmission as Component of Bill

All of this work is accomplished while having transmission currently representing only approximately 8% of the electricity bill

Generation66%

Distribution26%

Transmission8%

(1) Source: EIA Annual Energy Outlook 2009 with Projections to 2030

Proportions by Service Category (1)

Update on 34.5kV Conversion

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Current Status of Transition

As reported in ITC’s June 19, 2009, and December 22, 2009, transition status reports, ITC Midwest expects to work with IPL to continue current operations of the 34.5kV assets until conversion to 69kV. — Upon conversion to 69kV standards, ITC will take over operational control.

ITC Midwest manages IPL’s operation of the 34.5kV assets; negates any independence and market control concerns.— ITC Midwest specifies the maintenance and construction work and schedule for the 34.5kV system.— IPL dispatches 34.5kV assets and administers the protective (OSHA) transactions for ITC Midwest’s 34.5kV work.

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Rebuild/Conversion Plan Being Implemented

IPL’s continued operation of the 34.5kV assets is cost-effective. — Operating the 34.5kV system requires additional labor resources due to frequent switching needed to maintain service to customers.— Costs incurred to incorporate a “not smart” system into ITC’s “Smart” monitoring system would largely be wasted when the assets are converted to 69kV.— More cost-saving synergies exist between the 34.5kV system and IPL’s distribution system than between the 34.5kV system and ITC’s high voltage system.— ITC Midwest does not have resources to support retail customer calls related to 34.5kV system outages.— Current operations shorten customer outage times through use of the closest first responder.

Rebuild / Conversion Plan— Rebuild Lines to 69kV Standards Over 12 Year Period: Unloaded ITC Midwest Budget Cost = $38M Per Year Compared to $76M Per Year for 7 Year Plan— Conversion to 69kV Operation Over 18 Year Period: Conversion over an 18 year period would allow additional time for IPL, RECs, and Municipal substations to be converted

significantly reducing their budget and resource load.

Bringing Iowa Wind to Market

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The Traditional Energy Flow DiagramToday’s Energy Flow Diagram?

Transmission is the unrestricted, coordinated dispatch of generation.

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Demand Response Programs

National Security

Clean Coal, Mine-Mouth Coal Electric Cars

Bio-fuels

Solar Power

Wind Energy

Transmission

Transmission as Facilitator

An independent transmission company like ITC Midwest can facilitate these new sources and technologies, like wind,

through a robust transmission grid

Energy Efficiency

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Wind Power in the State of Iowa

As of the end of 2009:

Iowa has over 1100 working turbines spread over 47 wind farms1.

Over 3000 MW in installed capacity provides 20% of the state’s energy2.

National Renewable Energy Laboratory (NREL) research has shown that roughly three-quarters of Iowa has high enough wind at 80 meters above the ground to produce wind energy3.

Sources: 1. http://www.nationalwind.com/iowa_wind_facts/2. Omaha World-Herald; Mar 3, 2010, http://www.omaha.com/article/20100303/NEWS01/703039859#wind-20-of-iowa-s-energy3. Economic Development Impacts of Wind Energy: an Iowa Case Study, SEAC Seminar Series, Feb 12, 2009,

www.nrel.gov/analysis/seminar/docs/2009/ea_seminar_feb_12.ppt

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Economic Benefits to the State

According to a 2009 NREL study1, every 1,000 MW of wind development implies the following:— 600 jobs directly involved in construction, with associated

earnings of $40 million, over a 1 year construction horizon. An additional 1,650 jobs with $50 million in earnings are

estimated to be created by associated peripheral activity.— During the operations period following construction, 75

permanent jobs with an associated $5 million in earnings in directly-related activity and multiplier effects of 195 jobs with $7 million in earnings.

— Annual $4 million lease and $6 million property taxes

Sources: 1. http://investor.itc-holdings.com/releasedetail.cfm?ReleaseID=436644

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Benefits from ITC Interconnected Wind

In 2008, ITC Midwest interconnected 810 MW of wind generation, in 2009 716 MW was interconnected1. — Using the benefit standards identified by the NREL report, the

Iowa benefits of this development are: 900 construction jobs with $60 million in earnings for each

year of the construction period. 2,475 peripheral jobs with $75 million in earnings. 113 permanent positions with $7.5 million in earnings upon

the commencement of operations. 293 jobs created as a multiplier effect of these permanent

positions, generating $10.5 million in annual earnings. $6 million in lease payments and $9 million in property tax

remittances annually.Sources: 1. http://investor.itc-holdings.com/releasedetail.cfm?ReleaseID=436644

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Benefits from ITC Interconnected Wind, cont.

The wind farms that ITC Midwest has interconnected to the power grid will enable the following economic benefits:— The generation of clean electricity

sufficient to power over 60,000 homes.— Investment of roughly $1.2 billion in

three rural counties.— Approximately $200 million in property

taxes paid over the first 30 years of these projects

— Estimated $110 million in landowner royalty payments

— About 40 permanent, full time positions created

Summary

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ITC Midwest strives to be a best-in-class transmission provider

We pledge to work tirelessly every day to understand and try to meet the needs of our stakeholders and the states in which we operate

We welcome your input on what we can do better to meet your energy needs

Summary

ITC Midwest’s Report Card Investing in system

improvements

Preventative maintenance

Improved reliability

Safety

Equal access to all forms of generation

Understanding and meeting the needs of stakeholders?