ITC Holdings (NYSE:ITC), since its inception, has invested more than $5.8bn in its operating systems to modernize the grid, and in 2015, those capital investments totaled $771m, ITC Chairman, President and CEO Joseph Welch said on Feb. 25 during the company’s 4Q15 earnings call.
During the first half of last year, at ITCTransmission, he said, the company placed in service the Michigan Thumb Loop Project, which is the largest project in ITC’s history and “a prime example of the effectiveness of ITC’s planning process, which identified the transmission needs to facilitate Michigan’s renewable energy goals, while also strengthening the regional transmission grid.”
That project, Welch added, increases transmission system capacity and reliability, while providing more efficient transmission of renewable energy.
ITC’s multi-value projects, or MVPs, at ITC Midwest remain on track and highlight the value of forward thinking and collaborative planning between the state, region and key stakeholders, while concurrently positioning ITC’s future success, he said.
Welch also said that the company continues to advance the Lake Erie Connector project, noting that in late January, it filed a joint permit application with the Pennsylvania Department of Environmental Protection and the U.S. Army Corps of Engineers in support of the project.
“Additionally, we continue to negotiate transmission service agreements with prospective shippers,” he said. “As we’ve discussed in the past, upon executing transmission service agreements under acceptable terms and conditions, we would then anticipate receiving federal, state and provincial permits by the second quarter of 2017, commencing construction around that time, with commercial operation expected in 2019.”
Welch also discussed the proposed deal between ITC and Fortis, saying: “[W]e are excited about this outcome for our shareholders, customers and employees. We view Fortis as an ideal partner that will enable ITC to continue our objectives of long-term investments in the electrical infrastructure in North America. Overall, we are pleased with the fourth quarter and full year 2015 results and look forward to working with Fortis to close the transaction and become a diversified infrastructure company, with a stronger platform going forward.”
He also said that the transaction accomplishes ITC’s objectives by better positioning the company to have a higher level of focus on pursuing its long-term strategy of investing in transmission opportunities to improve reliability, expand access to power markets, and allow new generating resources to interconnect to transmission systems and lower the overall cost of delivering energy for customers.
Also speaking on the call, Rejji Hayes, ITC senior vice president and CFO, noted that the transaction translated into an offer price of $44.90 in U.S. dollars per common share at announcement on Feb. 9. The offer price consists of $22.57 in cash per share and .752 of a Fortis common share, which equates to an equity purchase price all in of $6.9bn, or $11.3bn in enterprise value, including assumed debt at announcement. Upon closing, Hayes added, about 27% of Fortis common shares would be held by ITC’s investors.
“[T]he transaction enables ITC to continue to make needed investments in the grid, while maintaining operational excellence, with no expected impact to transmission rates,” he said. “We expect that the transaction will close in late 2016, upon receiving the required regulatory approvals, including [from] FERC, the Department of Justice, the Committee on Foreign Investment in the U.S., … and the states of Illinois, Kansas, Missouri, Oklahoma and Wisconsin.”
Hayes said that the company’s 2015 capital investments included $189.6m at ITCTransmission, $174.8m at METC, $388.4m at ITC Midwest, and $14.4m at ITC Great Plains.
ITC’s commitment to long-term infrastructure investment continues as evidenced by the fact that the company is revising its regulated operating company capital investment forecast upward for the period of 2016-2018 to reflect about $2.1bn of aggregate capital investments over that period, which compares favorably to ITC’s prior plan estimates of $1.9bn, he said.
Hayes also noted that the resulting capital investment plan is projected to increase ITC’s average rate base plus construction work in progress balances from about $5.3bn in 2015, to about $6.6bn in 2018.
Of regulatory matters, Welch noted that in the initial Midcontinent ISO (MISO) base return on equity (ROE) complaint at FERC, an administrative law judge (ALJ) issued an initial decision late last December, recommending a base ROE of 10.32% with a high end of the zone of reasonableness of 11.35%, he said.
ITC views that outcome as constructive, he said, adding that a final order is not expected from FERC until later this year.
In the second ROE complaint, the MISO transmission owners filed last month their initial testimony, and ITC does not expect an initial decision from the ALJ in that matter until late June, Welch said.
“As we have said in the past, we remain confident that FERC will continue to support their historic policies, given the significant investment requirements necessary to modernize the electrical infrastructure of the United States,” he said.
In response to a question on FERC Order 1000, Welch said, “I don’t think it’s safe to say that they’re getting the result that they had expected, and so I think they’re going to start to hold technical conferences to try to figure out what they could tune up to make it work a little bit better.”
In his personal opinion, he said, the order “needs to be taken off the books.”
He added, “It’s just fundamentally not working and it’s put more hindrances in expanding the transmission grid, something that wasn’t intended or designed to do.”
ITC on Feb. 25 said that reported net income for 4Q15, measured in accordance with Generally Accepted Accounting Principles (GAAP), was $37.4m, or 24 cents per diluted common share, compared to $46.7m, or 30 cents per diluted common share, for 4Q14. For the year ended Dec. 31, 2015, reported net income was $242.4m, or $1.56 per diluted common share, compared to $244.1m, or $1.54 per diluted common share, for the same period last year, the company said.
Operating earnings for 4Q15 were $87.6m, or 57 cents per diluted common share, compared to operating earnings of $75.9m, or 48 cents per diluted common share, for 4Q14, the company said. For the year ended Dec. 31, 2015, operating earnings were $323.8m, or $2.08 per diluted common share, compared to operating earnings of $292m, or $1.85 per diluted common share, for the same period last year, ITC said.