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ITC CEO: FERC Order 1000 a 'tree that doesn't bear much fruit for anyone'

ITC HoldingsCorp. President and CEO Joseph Welch declared FERC's landmark Order1000 "a complete failure" during the company's first quarter earningscall April 28, several days after the Southwest Power Pool its first competitivetransmission project.

In that initial competitive effort SPP sought bids for a2.6-mile, 115-kV line known as the "Walkemeyer" project. The gridoperator ultimately awarded the project to Mid-Kansas Electric Co. LLC, but ITC Holdings subsidiaryITC South Central Development participated as well.

Welch said in the end more money was spent bidding on andevaluating the project "than the whole line was worth." ITC Holdingsspokesperson Bob Doetsch, however, added that the experience provided anopportunity for the company to "learn how bids may be evaluated and howSPP's transmission owner selection process unfolded in practice."

ITC Holdings has been outspoken on Order 1000 in the past, asking FERC in July2015 to clarifyguidelines for developers offering cost caps for projects. Addressinginvestors, Welch said the company prefers to concentrate on projects outside ofthe Order 1000 process and therefore is focusing on the Lake Erie Connector aswell as recently announced work in Mexico and Puerto Rico. ITC Holdings CFO andSenior Vice President Rejji Hayes said the company expects to have "visibility"on the Lake Erie project by the end of the year.

"I think you could regard Order 1000 as a completefailure for the whole marketplace," Welch said. "We continue to stayinvolved in Order 1000, but I think it's a tree that doesn't bear much fruitfor anyone."

Earlier April 28, ITC Holdings that first-quarter 2016operating earnings were up $84.5 million, or 55 cents per share, from $73.1million, or 47 cents per share, in the opening months of 2015. The result washelped by increased rate base at ITC Holdings' operating companies as well aslower non-recoverable bonus payments associated with the in the first quarter of2016.

ITC Holdings is currently the target of an acquisition by , and while Welch hadlittle news to share since the previous earnings call in February, he did citean April 20 announcementthat Singapore sovereign wealth fund GICPrivate Ltd. will acquire a 19.9% stake in ITC Holdings for $1.23 billion.

With the minority investors secured, Welch said thetransaction can now proceed with the necessary federal and state regulatoryfilings and the shareholder votes for both Fortis and ITC Holdings. Thetransaction is on track as planned and expected to close in late 2016.

Welch also commented on two March 11 FERC orders that foundITC Midwest LLC'sdecision to opt out of an extension of bonus depreciation to be imprudent. ITCHoldings subsidiary MichiganElectric Transmission Co. LLC was the target of similar complaintsby CMS Energy Corp.subsidiary Consumers Energy Co.On April 15, Consumers challenged the amounts of accumulated deferred incometaxes in accounts of METC that are used to calculate charges for transmissionservice over facilities of METC.

In December 2015, Congress passed an extension of wind andsolar investment tax credits, plus an extension of bonus depreciation. Theextension allows investor-owned utilities to depreciate 50% of capitalinvestments in 2015, 2016 and 2017, then 40% of capital investments in 2018 and30% in 2019. Companies can then deductdepreciation quickly, effectively accelerating depreciation expense, and thuslowering that company's tax obligation and increasing cash flows in the nearterm. Companies that use this deduction would owe fewer taxes in the year theymake a capital investment, but more during remaining years of the asset's life.

With FERC's disapproval, ITC Midwest was directed tosimulate the effects of bonus depreciation by calculating a generallyapplicable transmission rate and its charges under a specific agreement asthough the company had moved forward with bonus depreciation for facilitiesplaced in service in 2015.

ITC Midwest has since filed a request for rehearing on thetwo orders asking FERC to reconsider. As for the complaint against METC, Welchsaid the company is evaluating its next steps. In the meantime, the company hasmoved to comply with the commission's directive and Welch said ITC Holdingsplans to elect bonus depreciation across all of its companies for the 2015 and2016 tax years.