Meeting Our Energy Goals: The Energy Superhighway Joseph L. Welch April 13, 2010

1. Meeting Our Energy Goals: The Energy SuperhighwayJoseph L. WelchApril 13, 2010

2. Agenda • Who is ITC? • The Current Environment • What ITC Midwest’s Independence Means to You • Bringing Iowa Wind to Market • Summary

3. Who is ITC?

4. Who is ITC? ITC is the first fully independent transmission company in the U.S.

5. Who is ITC? • 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

6. ITC’s Service Territories

7. Does Independence Really Matter? • 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?

8. ITC = Independent • 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 In other words, ITC’s independence uniquely positions it to facilitate renewable resources like wind

9. The Current Environment

10. Growing Demand • 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 ~26% • Sources: U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2009 • * Electricity demand projections based on expected growth between 2006-2030

11. Aging Infrastructure • 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

12. 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

13. 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

14. Wind – Renewable But Variable • 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

15. Other Generation Sources Mine-mouth Coal Geothermal Solar • 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

16. 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

17. Bringing It Home: ITC Midwest in the Past 2 Years

18. Current System Presents Roadblocks • 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 • ITC Midwest’s Report Card • Investing in system improvements • Preventative maintenance • Improved reliability • Safety • Equal access to all forms of generation     

19. 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

20. 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

21. 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

22. 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

23. 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

24. Efficient Preventative Maintenance • 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

25. Improved Reliability • 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 The SGS Statistical Services Transmission Reliability Benchmarking program Participants represent over 54% of the U.S. transmission grid miles

26. Focus on Safety • 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 Recordable Incident Rate Lost Work Day Case Incident Rate ITC was one of the top companies in the study

27. Generation 66% Transmission 8% Distribution 26% Transmission as Component of Bill Proportions by Service Category (1) • All of this work is accomplished while having transmission currently representing only approximately 8% of the electricity bill (1) Source: EIA Annual Energy Outlook 2009 with Projections to 2030

28. Update on 34.5kV Conversion

29. 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.

30. 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.

31. Bringing Iowa Wind to Market

32. Transmission is the unrestricted, coordinated dispatch of generation. Today’s Energy Flow Diagram? The Traditional Energy Flow Diagram

33. Transmission as Facilitator Wind Energy Energy Efficiency Solar Power Demand Response Programs Transmission Bio-fuels National Security Clean Coal, Mine-Mouth Coal Electric Cars An independent transmission company like ITC Midwest can facilitate these new sources and technologies, like wind, through a robust transmission grid

34. 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: • http://www.nationalwind.com/iowa_wind_facts/ • Omaha World-Herald; Mar 3, 2010, http://www.omaha.com/article/20100303/NEWS01/703039859#wind-20-of-iowa-s-energy • 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

35. 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: • http://investor.itc-holdings.com/releasedetail.cfm?ReleaseID=436644

36. 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: • http://investor.itc-holdings.com/releasedetail.cfm?ReleaseID=436644

37. 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

38. Summary

39. Summary • 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 • 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?     