Fortis Inc. (FTS) Q2 2010 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the ITC Holdings Inc Corp, Second Quarter Conference Call and Webcast. (Operator Instructions), I would now like to introduce your host for today's conference Ms. Gretchen Holloway, Ma'am you many begin.

Good morning and thank you for joining us for ITC's 2010 second quarter earnings conference call. Joining me on today's call are Joseph Welch, Chairman, President and CEO of ITC and Cameron Bready our Senior Vice President, Treasurer and CFO. Last night we issued a press release summarizing our results for the second quarter and for the six months ended June 30th 2010. We expect to file our Form 10-Q with the Securities and Exchange Commissions today. Before we begin I would like to remind everyone of the cautionary language contained in the safe harbor statement. Certain statements made today during today's call are non-historical facts such as those regarding our future plans, objects and expected performance are considered forward-looking statements under federal securities laws. While we believe these statements are reasonable, they are subject to various risks to uncertainties and actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our report filed with the SEC such as there periodic reports on Forms 10-Q and 10-K and our other SEC filings. You should consider these risk factors when evaluating our forward looking statements. Our forward looking statements represent our outlook only as of today and we disclaim any obligation to update these statements, except as maybe required by law. With that I would like to turn the call over to Joe Welch.

Thanks Gretchen, we are pleased with yet another quarter very strong results and with our overall operations and physical performance for the first half of the 2010. ITC continues to deliver on our commitments to our customers and shareholders by successfully executing our five year plan which is premised around capital investments capital investments of around $3 billion in transmission infrastructure to improve reliability, facilitate access to all generation, including renewable resources, reduce congestion and improve efficiency and lower the cost of delivered energy. As we have emphasized previously, ITC's capital investment and maintenance program directly support our mission of best-in-class performance for all of our operating subsidiaries. Achieving and maintaining best-in-class performance is critical to ITC's overall business strategy as a transmission only company, as it reflects our ability to improve and maintain the reliability of transmission system we operate. We believe that our best-in-class performance serves as a differentiating factor for ITC and provides an important building block for our development efforts and desires to meaningfully participate in the build out of the regional transmission projects. The improved reliability we have released through out investments has once again been demonstrated through the results of the 2010 SGS Statistical Services Transmission Reliability benchmark study. For the second year in a row, both ITC transmission and METC rank in the top decile for sustained outages. In addition both companies continue there strong performance related to momentary outages, with ITC transmission ranking in the top decile and METC raking in the top quartile of the of the performance. These results represent considerable improvement over ITC's results in 2006. The first year in which ITC participated in the study and in the year of which we acquired the METC transmission system. The 2010 study results also reflected considerable improvement at ITC Midwest, with a 46% reduction in sustained outages in the prior year for the potions of the system which have voltages of 69 kV or above. With the reduction of outages, ITC Midwest moved up to the second and third quartile of performance for sustained and momentary outages respectively, which is a substantial improvement in just one year. While we are pleased with the overall improvement, we have seen at ITC Midwest our two years of ownership we are still early in our capital investment cycle for this system and much work remains to achieve our goal of best in class performance for ITC Midwest. None the less, these study results continue to demonstrate the positive impacts of ITC's investment in the transmission system. In addition to the benchmarking study results ITC's operational excellence was further demonstrated through the reliability of our system under stress conditions over the past couple of months due to both the extreme heat experience in Michigan, in early July and the severe storms which have consistently made there way through the Midwest region this summer. Even under these stress conditions, ITC systems demonstrated outstanding performance unlike some of the reports you may have heard regarding transmission systems in other areas around the country. Our performance during the past couple of months is particularly impressive given the fact that electrical demand in Michigan reached its highest level since 2007. We have also experienced several major storms in our operating areas this summer some of which produced high winds and tornados. One example of the challenges that resulted from this weather included isolated tornado damage to ITC transmission lines serving the Fermi nuclear power plant in Monroe, Michigan. ITC Transmission was able to restore these facilities which are necessary for the safe operations of the nuclear plant in less than 24 hours due to the impressive actions of our operations team along with our well designed restoration protocols. ITC successes to date around best-in-class performance and proven reliability continue to validate the importance of executing on our capital and maintenance plans. Turning to the legislative front, the Gulf oil spill has served to invigorate the debate surrounding compressive energy policy and once again the President has called to pass legislation to address a national energy policy that would place a price on carbon and seek to reduce our dependence on foreign oil. The house has already acted on this version of an energy build, so it was initially believed that the environmental disaster might prove -- provide the necessary political momentum for the senate to act on the measure to create federal renewable efficiency standard and/or place a price on carbon. However recent development suggests that the senate will focus on a more narrowly crafted legislation to address the Gulf oil spill, natural gas vehicles, and the HomeStar program, and that a more comprehensive energy bill will be delayed until at least this fall or possibly late this year in a lame duck session. Given this I continue to remain skeptical, the comprehensive energy legislation will actually materialize this year, especially considering the difficulties that we have seen so far in advancing any legislation. Depending on election in November of this year and the limited number of days the congress will actually be in session for the remainder of 2010. With that said, I do believe that in the long term some form of legislation will be passed that will result in an energy policy that will better allow us to plan the transmission system for the future. While actions on comprehensive energy legislation is waning, we have very encouraging developments in the second quarter as the Federal Energy Regulatory Commission including the initiating of a notice of proposed rule making or NOPR, focused on regional transmission planning and cost allocation specifically the Federal Energy Regulatory Commission released a proposed rule, that changes how transmission is planned, build and paid for. The rule recognizes the broad benefits transmission provides to customers and requires cost be allocated accordingly. The rule also seeks to ensure that transmission planning aligned with state and regional public policy goals such as enhanced renewable energy development, while establishing a stable process for planning for multi-regional projects. The FERC is currently seeking comments on this proposal, which are due later this summer. Although there is no stipulated time period for the rule making process to conclude, we are hope full the FERC will complete it's final rule in the spring of 2011. The FERC's proposed rule making serves to crystallize some majors found in the pending energy legislation and is broadly consistent with the ITC's position on both cost allocations and the need for improved planning. We expect the rule making will further our goal of developing a robust modern transmission grid as it should ultimately provide a clear path for regional transmission projects to advance. In addition, I believe FERC's action to initiate this rule making will expedite the process of providing solutions around regional planning and cost allocation, even in the absence of energy legislation. If energy legislation were passed today, the FERC would still be required to go through a rule making process, so the fact that FERC has asserted it's authority to address this issues now actually serves in some ways to accelerate the process. In addition to the FERC's NOPR, the regional transmission organizations or RTO's in which ITC operates. The Southwest Power Pool or SPP and the Midwest independent sys -- the independent transmission system operator, MISO continued to advance their own effort around addressing impediments to regional transmission development within there footprint. SPP continues to make significant progress with its efforts which are centered around both its highway/byway cost allocation proposal and it's integrated transmission planning process. On June 17th, the FERC unanimously approved SPP's highway/byway cost allocation methodology. This cost allocation methodology allocates 100% of the cost of regional transmission projects at 300 kV and above broadly across the SPP region. Projects above a 100 kV and below 300 kV are allocated 1/3 regionally and 2/3 to the local zone and projects 100 kV and below are allocated 100% to the local zone. We believe that the implementation of this cost allocation methodology will promote both the constriction of EHP transmission facilities and the efficient operation of competitive regional social energy market with SPP. The FERC's unanimous support of a proposal and the written order approving the methodology are very positive and a strong validation of SPP's effort over the last year to implement a progressive cost allocation methodology. In addition, SPP recently files its integrated transmission planning ITP process, with FERC and received unanimous approval on July 15th. The ITP is a compressive transmission planning process which covers both reliability projects and economic projects and also incorporates certain public policy initiative into the planning study impute. The planning process takes a long term view around Project planning and combines an industry leading 20 year planning horizon with a 10 year and near term assessment to provide for well coordinated transmission opportunities. In issuing there order approving the SPP Planning Proposal, FERC commissioners praised SPP efforts in developing a comprehensive planning process that should result in facilitating near and long term transmission needs. To quote commissioner Wellinghoff, "Other regions may want to follow SPP's lead, so that the transmission infrastructure that is needed to maintain reliability, reduce congestion and meet policy objectives is build." We are very supportive of both FERC orders approving SPP's proposal for cost allocation and transmission planning. We believe that the FERC's approval and the supporting praise of these proposals provides a good indication of how they thinking about these issue and what solution they consider appropriate to ultimately resolve them. MISO, also advanced it own proposed cost allocation methodology through it's filing with the FERC on July 15th. MISO's proposed cost allocation methodology creates a new category of projects called Multi Value Projects or MVP's, which have a regional impact and are part of a regional plan. MVP's are also intended to facilitate both state and federal legislative regulatory and policy mandates that are governing or enacted. The proposal further provided for the cost of MVP projects to be allocated 100% across the MISO region. MISO has requested approval of this proposal at the FERC's open meeting in December. MISO's cost allocation proposal if approved, is expected to go a long way towards addressing the issues we have previously identified with MISO's transmission planning process. By filling the cost allocation void, that currently inhibits the advancement of regional projects such as regional generation outlet study or RGOS or the Green Power Express and its underlying segment. As designed the proposed cost allocation mechanism should provide the necessary frame work to advance regional and policy driven transmission projects within the MISO footprint, that previously had been stalled due to there inability to meet the existing limited planning criteria used to assess projects. While the ultimate implementation in resulting process around the MVP cost allocation proposal need to be fully vetted. We are cautiously optimistic, but this is a large step in the right direction for advancing regional transmission in MISO. As you can see there was quiet a bit of regulatory activity in the second quarter. I think an important take away from all this is that we are starting to see alignment around broader principles for regional planning and cost allocation, that if implemented should effectively serve to diminish two key impediments to regional transmission development in the United States. I would note that ITC has long been an advocate of these broad principles and is pleased to see others recognize there merits which we have continued to high light over the years, while the process to determine and implement solution to allow for the build out of regional transmission continues to be lengthy. The recent developments at the FERC are encouraging and begin to create a clearer landscape to advance these initiatives. How ever that being said, we believe that a fulsome process to address policy reform issues around transmission is necessary in order to properly evaluate various proposals and stakeholder input in order to ensure the appropriate the decisions are made at the end of the day. We also believe that the challenge and the length these processes play to our strength and serve as a unique competitive advantage to ITC, given our transmission only focus and the proven sustainability of our business model. These singular transmissions focus along with our current foothold in both MISO and SCP regions, strategically positions ITC to play an important role in the future regional transmission opportunities. During the second quarter we continue to make progress on advancing our investment plans based on our three pronged growth strategy, which includes in our base operating companies, developing regional projects and investing in interconnection for generation resources including renewal. Some key highlights around this progress include development around certain capital projects as ITC is currently advancing. MISO continues with its review of ITC's 345 kV transmission plan to interconnect the thumb region of Michigan through an out of cycle review process. As previously discussed ITC has requested MISO board approval of this project at its August meeting. Upon receiving MISO's approval, we will begin routing and siting activities in Michigan for the projects. Assuming approval by MISO in mid August we expect to be able to file a siting application with the Michigan Public Service Commission by the end of the year. Under the legislation passed in 2008, these transmission projects will be eligible for expedited sighting with a six months approval process. This timeline would allow for ITC to start acquiring right away in mid 2011 with material capital investment for the project starting in 2012. A regional transmission development project at ITC Great Plains continue to advance as well with all the projects remaining on track. The key to project continues to advance as planned with phase one on schedule and the pre construction activities underway, including the acquisition right away. In addition on June 30th we received approval from the Kansas Corporation commissioner or KCC of our siting application for Phase II of the KETA project. With the siting approval for the next phase, ITC will now begin preconstruction activities for Phase II as well as continue to pursue the other remaining regulatory approvals still needed for the projects. We also reached the couple of key milestones for the Kansas V plan in the second quarter of 2010. The FERC approval of the SPP highway/byway cost allocation proposal provides regional cost allocations for the Kansas V plan and serves as the catalyst for the SPP to issue the notification to construct for the project at the end of June. We continue to work towards obtaining the remaining regulatory approvals for the project, including siting. We currently expect to follow our siting application with the KCC with the early 2011. With the progress we have made during the first quarter 2010, we believe we are well positioned to continue to deliver a very attractive total return to our share holders. Our five year plans key goals include best-in-class operation and executing on our $3 billon capital expenditure plan, by investing in both our core operations and our development projects. We remain confident in our ability to meet our commitments and deliver the results we have identified consistent with our performance over the last seven year years of our company history. At this time I'll turn the call over to Cameron to provide an update on our financial results and outlook.

Thanks Joe and good morning everyone. I will begin by providing a brief summery of our results for the second quarter in year-to-date period. In the second quarter of 2010, ITC reported net income of $36.3 million or $0.71 per diluted share. This compares with net income of $30.8 million or $0.61 per diluted share in the second quarter of 2009. Net income for the six months ended June 30, 2010 was $70.5 million for $1.38 per diluted share, compared to $59.5 million or a $1.17 per diluted share, for the same period last year. These increases in net income and earnings per share for the second quarter for year-to-date 2010 compared to the corresponding periods in 2009 can be attributed primarily to higher return on rate days and allowance for fund used during construction at all operating companies and lower non recoverable expenses. These increased for both the quarter and year-to-date period were partially offset by higher interest expense resulting from our recently completed long term financial activities at ITC Holdings. The improvements in net income and earnings per share for about the quarter and year-to-date period, they are also reflective of our continued success in implementing our capital investment plans. For the year-to-date 2010 period, ITC invested $216 million in capital projects at its operating companies, including $29.3 million, $65.5 million, $114.1 million and $7.1 million at ITC transmission, METC, ITC Midwest and ITC Great Plains respectively. As Joe mentioned our operating and physical performance for the first half at 2010 reinforce our confidence in our ability to continue to deliver on the commitments we have outlined in our five year plan including your capital investment objectives. Our capital plans for both 2010 and for the 5 year plan include investments in our base operating company's transmission upgrades to allow fort the interconnecting in new generating resources and regional transmits in projects. It's is important to note that in developing our capital plan back in 2009, we were cognizant of the challenging economic environment in the areas in which we operate and the risk associated with generator interconnections, given the level of uncertainty around the location and timing of these interconnections. Unlike other markets where we are aware of renewable development having slowed or decreased relative to previously anticipated levels, ITC continues the momentum for the development and interconnection of renewable in the areas we operate. For example the state of Michigan has been and continues to be very supportive of the development of renewable of energy generation in the state, this can be seen through it's recent efforts around the wind energy resources zones, where by the state has approved two wind zones with an aggregate capacity opportunity of 2,600 to 4,700 Megawatts. As Joe discussed earlier, we continue to pursue the necessary regulatory approvals to construct the required transmission infrastructure to support these wind zones, which consists primarily of our approximately $500 million, 345 kV Thumb Loop Project. The state of Idaho also remains supportive of the development and instillation of renewable generation and is created a favorable environment to encourage wind developers to locate within the state. This is evidenced by the amount of activity over the past couple of years to interconnect wind energy in Iowa as well as our back log of interconnection request that we are currently working to satisfy. In the past two years alone, ITC Midwest has connected more than 500 Megawatts of wind energy. Due to these interconnections Iowa now ranks second in the nation in terms of installed wind capacity this ranking is particularly interesting when compared to Iowa's national ranking of potential wind capacity which is currently around 10th. The difference in ranking between installed capacity and potential capacity further highlights the supportive environment that Iowa has created to promote the development of wind generation within the state. That being said, longer-term we still believe the comprehensive national energy policy, with clear renewable goals an objectives as well as policy reforms around transmission, planning and cost allocation are critical to maintaining the viability wind development in all markets. As you will probably recall at this time last year, we were in the midst of a unstable and declining economic environment in Michigan, which directly translated in the lower peak load demand. In addition last summer we experienced abnormally cool weather further reducing our peak load. Given this confluence of events it was very difficult of us at that time to asses the real impact on load, resulting from the so called Great Rescission versus those that were primarily attributable to weather anomalies. However, as Joe mentioned the recent hear experienced in Michigan in early July resulted in the highest load that have seen in the states since 2007 and perhaps more importantly also gave is the opportunity to analyze peak load data to better approximate the load degradation resulting from the economic conditions we have experienced over the past couple of years based on this analyses we believe that the economic slowdown in Michigan has resulted in an aggregate reduction in peak load demand of roughly 9%. This estimates that its economic load degradations is slightly better than our initial expectations and reinforced our confidence in the load forecast used to establish our base capital plans last year. In addition based on analysis on a year-to-date period through June we are experiencing weather normalized loads that are 2% better than our forecast. While the economic environment is still challenging it has stabilized and it appears as if the impacts of the recession are less severe than we originally predicted. In the near term, this positions us such that we are not currently anticipating the need to again mitigate the risk of a significant true-up receivable. In fact we are currently forecasting that we will end the year in an aggregate payable position with respect to our Attachment O true-up. In the longer term we remain confidant the economic forecast that underpins our capital investment expectation is realistic and perhaps slightly conservative. I would like now to provide a update to our 2010 financial requirement and liquidity position. Starting with our long-term capitalization requirements, in May of this year we successfully completed a private placement of $50 million of 30 years first mortgage bonds, with the keep coupon of 5.65% at METC. With the completion of this financing and the financing executed ITC Holdings and ITC Midwest in last 2009, we have now satisfied our entire long term financing calendar for 2010. We are very pleased with the execution and the results we were able to achieve with all those these transactions. As for our current liquidity position, at June 30 2010, we had $81.4 million of cash on hand and $270.5 million of net undrawn revolver capacity, bringing our total liquidity position to approximately $351.9 million. Our revolving credit facility now have a total consolidated capacity of $285 million. Historically the total revolving credit facility capacity balances we have provided included $55 million of Lehman capacity that has not been available to us since Lehman bankruptcy filing back in 2008. Earlier this month w executed amendments to our revolving credit agreements, which removed Lehman from our facilities and as a results lowered the overall revolving credit facility capacity by $55 million which represented the aggregate Lehman commitment. We continue to believe that we are well capitalized and have the appropriate access to capital in order to efficiently and effectively fund our capital investment plans going forward. Turning now to our outlook for the reminder of 2010, as a result of the progress that we have made during the first six months of the year, we are raising our 2010 diluted earning per share guidance and revising our capital expenditure guidance range. For 2010 diluted earnings per share guidance is increasing from a range of $2.60 to $2.70 to a range of $2.70 to $2.75. In addition we're revising our 2010 capital expenditure guidance for each of our operating companies. Capital expenditures for ITC Transmission, METC, ITC Midwest and ITC Great Plains are now expected to be approximately 50 to 60 million, 130 to $140 million, 220 to $230 million and 20 to $25 million respectively. Our consolidated capital expenditure guidance is now $420 million to $460 million compared to our previous guidance of $405 million to $460 million. Our increased diluted earnings per share guidance reflects a strong financial performance we have seen in the first half of 2010 and our expectation that we will deliver on our capital investment plans for the year consistent with the revised guidance we are providing today. Our revived capital expenditure guidance reflects increased capital estimates at both ITC Great Plains and ITC Midwest. For ITC Great Plains, the increases are largely due to progress we have made with our right-of-way acquisition for the Hugo to Valiant project and for Phase I of the KETA. This has allowed us to accelerate some capital spending for these projects. For ITC Midwest, the increase is largely due to acceleration of some generator interconnect project and better than expected progress with certain of our asset of our asset replacement activates. I would also like to note that the capital guidance for ITC Midwest includes approximately $17 million for the acquisition of certain transmission assets from Northern States Power Company a subsidiary of Xcel Energy. ITC Midwest assumed the contractual right to purchase these assets as part of its acquisition of the interstate power and light transmission assets in 2007. We have filed for approval of this transaction at both the Minnesota Public Utilities commissions and at FERC, and currently expect approval of these filing by the end of the year. However, to the extent that these approvals are not received this year, this capital investment will likely be delayed until early 2011. Our revived capital expenditure estimates also include a slight reduction to capital expenditure range for METC, which is largely reflective of some small delays we have seen around the construction of certain projects the company has undertaking. Most of this difference will flow into our 2011 capital plans. Lastly, I am pleased to announce today that ITC will be hosting an investor conference in New York on September 27th at the New York Stock Exchange. On this fate we expect to provide updates to our business strategy and strategic plans. More details will be forthcoming and we hope that you'll make plans to join us for this event. With that I would like to open up the call to answer questions from the Investment Community, Devon.

Thank you ladies and gentlemen (Operator Instructions), our first question comes from Neil Kalton of Wells Fargo Securities.

Hi, everybody. Just a question -- first question on the five-year CapEx forecast. So if I may, can I walk through? It sounds like the pluses to the original guidance would include the Michigan Thumb project and potential higher base CapEx from Michigan due to the economy offset by a slight negative of lower voltage for the KETA and V plans. Are there any other moving pieces in that five-year forecast?

Neil, I think-- this is Cameron. Yes, that's a pretty good summery of the potential upsides, I would say with respect to the Michigan Wind Zone opportunities we highlighted on the last call, we see the potential upside to that being, 225 to 275 million in that range. As it relates to the economic environment, I don't think we're really in positions to say that we'd expect material changes to base capital plans as a result of that. I think what we are trying to express, to a large degree, is that the economic environment is stable, perhaps not quiet as bad as what we had originally anticipated and it certainly reinforced the confidante we have in being able to achieve those base capital plans. As it relates to the downside exposure, I think your right, as we sit here today we have the V plan approved at 354 double circuit. As we discussed, again, on the last call, given some slight increases in expectations for the costs of Hugo and KETA, offset by a reduction in the voltage of V Plan from 765 to 345 we would see about a 100 million less capital potentially associated with the development projects in Great Plains.

Okay. And then, a follow up on the Michigan opportunity, wind. There was a report recently that suggested that that project could qualify for MVP status. I'm wondering how that might work. Might that complicate the MISO approval process and potentially push back a decision? I guess you're hopeful for something in August. Is that soon -- that could be a complicating factor here?

I don't necessarily think it's a complicating factor, if you look at the proposal that MISO put forward to FERC, there proposal suggested that it would apply to any projects that are approved by the MISO board after the filing day, which I believe was July 15. So to the extent that the board the project in August, as we would hope that they would. The MVP statue, to the extent to the extent it is granted to the Michigan Wind Zone Project, would apply assuming that the FERC approves the MISO cost allocation proposal in December. Ultimately, regardless of whether of not it's designated as a MVP project or not, we have an existing cost allocation methodology for the Michigan Wind Zone Project, we are advancing with it regardless of whether or not it ultimately is approved as a MVP project, to the that MISO and the State of Michigan desire to spread the costs more broadly, we certainly are supportive of that, but none the less we're going to continue to move forward regardless.

Okay, thanks.

Our next question comes from Dan Eggers of Credit Suisse.

Hey, good morning. Joe, I know it's still early from the SPP and MISO plans for rate allocation and planning purposes, but can you just share your thoughts as what you think the highlights of the two plans are? And do you see any chance that these plans could get merged into one more comprehensive design, just to make life easier for all the multi-region participants on a long-run basis?

Well I think first of all, just from a high level there is actually a lot of similarities in the plans. It's just that SPP when they put there plan together, they weren't quiet as far along with there cost allocation process early on so they -- when they developed there process, they developed it with kind of an eye for regional transmission development. MISO was more mature at that point and had developed other cost allocation processes, so what MISO did was they added the MVP process to what hey had, which for the most part appears to from the outside to be somewhat confusing, but I think you'll fine that, that's going to duck tail together pretty well. SPP has a more comprehensive regional plan right out of the get-go and so it's going to move forward. It think that over the long haul some of the provisions of the MISO, cost allocation process, especially those stuff that they had for there economic projects, because just to quote some of the MISO officials that process wasn't of much benefit, since nothing ever got built. And so I think that over time, you'll see MISO eliminate some of the cost allocation processes that they have, go strictly with there MVP process for regional transmission and at that point there is not a lot of difference between and the highway/byway process, so they might merge it, but I think FERC is going to be in a position where, they're going to allow those regional difference to take place, just to see which one is the most effective.

And Dan, this Cameron, that was one point I was going to make, as I do think that FERC has a history of being willing to accept regional difference as long as broadly the principles are aligned with what they would like to see. So for an intra-regional project, you can see some difference like -- that exist between MISO's filing and SPP's filing. I think the important thing about the FERC NOPR as well is it also will address inter-regional transmission projects, so there will need to be some clarification as to how not only are those projects playing, but ultimately how the cost allocation for those will work as well. And that's perhaps the point where you will see some convergence or rules for inter-regional activity.

And I guess the inter-regional rule or thought process would come after they finalize the regional plans? Is there another sit-down at that point in time, or will that be kind of worked out on an ad-hoc basis as they go?

I believe that the FERC with there notices of proposed rule making is really going to start to push it. While they'll allow the regional difference for the intra-regional projects for the inter-region projects, they are going to start to look to get some commonality on those cost allocations because as you move from the west to the east there is huge differences, especially when you go east of MISO and I think that FERC is going to start to focus on those eastern RTO's and start to get this to move forward because that's where the big difference. I think they are less concerned about the differences between the SPP and MISO at this point.

Okay. And then, I guess the next question -- picking your brain a little bit today, Joe -- but what is your thinking on kind of independent, unregulated transmission lines out in the market? And are you seeing opportunities where they might make more economic sense, if only to avoid some of the planning headaches that come with even the FERC design?

Well I think that, there will always be a spot out there for some of these unregulated lines, but by-and-large I believe those will have to be DC because once you start to -- you have an AC line, I don't -- I really from a physical operational stand point, I don't know what it means to have a merchant AC line. These things are all synchronous with the system and they are free flowing in -- I'd have a rough time comprehending how one of these lines would integrate into system that wasn't comprehensively planned across the region in the right way. A lot of people get frustrated with the planning process, but let me tell you this, if you want to remember how integrated we are, just remember August 14th of 2003, and I just don't see a roll on the AC system for it.

Okay, thanks. Cameron, on the CapEx for this year, what are going to be the big variabilities within the range? And there's still a 10% band with half a year left.

Quiet frankly with the remainder of the year left it's largely going to be dependent on weather in our ability to continue to make good progress advancing, some of the projects that are currently underway and then in certain situation, we still have permits and other local approval, that are required to advance some of the projects that we have on the calendar for the balance of the year but, in general being this far into the year and hence our willingness today to refine our capital guidance, we feel pretty good about the ranges. They're reasonably narrow given the scope of the activities that we have underway, a $10 million roughly band and 5 million for ITC Great Plains is pretty narrow given the scope of the activity that are still -- that we are still executing against in Michigan, Iowa and down in Kansas and Oklahoma, so we feel good about that range and obviously there is some variability that will exist as we work through the year, but we think that's the kind of the right point at this stage.

I guess one last one, on Michigan spending around wind. What's the thought process on an expedited approval process? And it seems like the guys who are building the wind, or running the wind, are making pretty good progress and advancing on their side. Is there an acceleration opportunity that's getting more clear at this point?

In Michigan to build the Thumb Loop project?

Yeah.

I think the schedule we laid out is fairly expatriated quiet frankly, we are a little bit hamstrung until we get that MISO approval. We are working in parallel to do as much as we can to prepare for filing our siting application as quickly as possible, on the heals of getting MISO approval. There is some, presumably, opportunity for the MPSE to do an expedited, even shorter than the six months statutory period. I wouldn't hold out a great deal a hope for that, but there is that potential that, that could happen. Our goal is to be prepared to move as soon and as quickly as possible upon getting tall the regulatory approvals that we need, so if they can accelerate there approval process, we can accelerate to some degree or our activities but I think they schedule that we outlined that we outlined is fairly realistic, just given the -- all the issues will have to be addressed at both MISO level and the MPSC level.

Okay. Thank you, guys.

Thank you our next question comes from Stefka Gerova of JP Morgan.

Good morning, and congratulations on a good quarter. Based on year-to-date results, your full-year guidance seems to imply that earnings in the second half of the year should decline modestly relative to 2009 levels. Can you elaborate what factors may be causing this?

Sure Stef, it's Camerron. I think to some degree the back half of the year has some development expenses, that are in excess of what we would have spent in the first half of this year. Which as you know puts a dag on the over all earnings for the company. I think the other item I would highlight is -- as we look at the effective tax rate through the first half of the year there is the potential that in the back half of the year that rate could be a little bit higher and we expected to be a little bit higher for the year, which again would be little bit of a drag relative to where we are for the first six months of the year, so again not tribally large impacts on either of those fronts but you know we do expect rate base to continue to grow and return on rate base to grow, but that will be potentially slightly off set by those two factors. I think given the activity we've seen on the policy and regulatory landscape we have some development initiatives in the back half of the year that are like, we require a little more support that what we have put forth than what we have put forth in the first half of the year.

Okay. And are there specific development initiatives or projects that you can highlight at this stage?

No, I don't think I think keeping with our historical approach, when we have projects that are advanced to the points where we have confidence in our ability to deliver on those we will talk about them more specifically. In the interim, I think you should rest assured that we view development and in our development -- develop new projects is a critical aspect of our strategy and it's one that we spend a tremendous amount of time focused on and we're working diligently to development new projects in the markets where we are active and I think we have a great deal of confidence on our ability to do that and as we have more details to share around specific activities, we will.

Great; thank you very much.

Thank you,(Operator Instructions), our next question comes from Jonathan Arnold of Deutsche Bank.

Hi, good morning. My question relates -- Cameron, thank you for the analyst meeting on the -- in September. I just was curious -- you said you would give a business update. Will you anticipate rolling forward the five-year plan by another year, as you've done, or is this more of a general update?

No, I think Jonathan it's fair to assume that our expectation as we roll our new five-year forecast that rolls forward our outlook another year and reflects some of the changes that we talked about with respect to those development that are material, that have changed relative to the plan we put forth last year, but also give a glimpse into our outlook for 2015 as well.

So similar content, basically, to last year and the same kind of format?

I think that's a fair expectation.

Thank you very much.

Your next question comes from Jay Dobson of Wunderlich Securities.

Hey, good morning. A question, Cameron, on G&A expenses. I think in your answer to an earlier question, you were beginning to get at the question I'm about to ask, but as we look at the last three-- certainly three quarters, we've seen G&A declining. What's sort of the run rate of that number. And I think in an earlier question you were responding that development expenses ought to trend a little higher. So should we expect those to go higher? Just give us a little run rate around G&A and what we ought to expect for the balance of the year.

Yeah, during the first half of the year we spend about $3.9 million on development activities I think at this point last year we had spend about 5.2, it's a little bit of apples and oranges, to be honest with you Jay, last year as you will recall we had not yet recognized the regulatory assets for ITC Great Plains and this year some of the development costs we've been incurring go to those regulatory assets that supposed to going to expense. So, it's a little hard to always put forth an apples-to-apples comparison of those numbers, but I think over the last couple of quarters, you've seen G&A come down a little bit largely because a lot of the development activities that we had going on have been focused on projects that have regulatory assets associated with them that have been recognized. I think going forward, as our development activities transition to -- and continue to transition for other two developing new projects, you'll see the expense side of the equation increase slightly as we look to deploy development dollars to advancing new projects that do not have regulatory assets associated with them. So, I think it's fair to assume that over the next few quarters, the run rate around that would be little bit higher than what we've seen in the first half of the year because we wont have the opportunity to put those towards regulatory assets.

Got you no, that's perfect. And if I were to look -- drill down on G&A to non-development-related G&A, would you say we're sort of at -- not minimum level, but certainly the level that's a decent run rate right now? I know, going back to fourth quarter last year, you had some austerity measures that were sort of continuing to cut that. It seems like that's continued, at least in reading your press release. Would you say we're about at a run rate for those non-developmental G&A?

Yeah, I think, the first thing I would highlight is, those are all, for the most part, recoverable costs, and are simply a factor in the Attachment O revenue requirements. So, we're recovering all those costs through our Attachment O mechanism. Yeah, I think we've had a philosophy here of always running a very lean organization, and I think we've done a very good job at running a very lean organization, we're highly efficient. But I think, with any business you can only get so much productivity gain, as we continue to grow in size and in scale. Obviously, there will need to be incremental G&A support to accomplish that. As with everything we try to do, we will add it in the most efficient way possible and the least amount that we think is necessary to support the objectives that we have. But I think in terms of going forward, assuming that we can do that on the backs of productivity gains of our existing workforce is probably, little bit optimistic. I did think the G&A will have to expand somewhat to be able to achieve the growth that we have premised in our plan. That being said, it certainly won't in my mind grow at the level that certainly rate base and revenue will grow, as we continue to execute on our forecast.

That's great.

Does that help?

Yes, tremendously, thanks. And Joe, maybe just sort of taking that, and so you're going to be spending more developmental dollars. And in a sort of answer to an earlier question, you clearly suggested you didn't have anything advanced enough that you wanted to disclose on this call. But maybe if you could, just talk a little bit about the environment for new development and I guess, I'm sort of thinking outside of the Iowa and Michigan area, where you predominately operate franchises, but for Kansas-type, SPP-type development, which it sounds like what you'd be pursuing in that realm, since they'd be development dollars. Just what the environment's like for that?

The environment, clearly, has improved tremendously. When we started in Kansas, we had a long period just working through the process because of the two major issues. One was the planning process, which was very immature, which has changed dramatically, and the second one, which is, you know, put the -- which has allowed us then to move forward with the V plan, was there around cost allocation. With those two items set, now you really have broad based plans starting to come together. And now, it really starts to set the stage for the development work to really, in my mind, have a much broader scope and a lot more opportunities out there and hopefully we can compress some of the times on the front end of this. So if we met, I mean, everyone wants to compress time but that front in process should get shorter for us. So we're very optimistic across the whole footprint both in the Western portions of MISO and in SPP.

Got you and then just last question on the competitive environment and sort of an add-on to that, because certainly there's at least more people saying they're going to chase transmission investments relative to the time period that you were pursuing or a bit developing SPP. Just sort of how you view that landscape, though? Clearly, you all have a competitive advantage here.

Well, I think I view that landscape as I always did. You'll always have competition. When we started this business, there were other people out there that were going to go into the transmission business. So and we have a sustained and grown, I mean, I looked -- in some way I look forward to the competition because it makes -- really gets you going in candidly for me, I guess, It gets my juices flowing. But having said that, you've got a lot of big companies that have announced that they want to form trends goes or ITC like companies. I don't think one, I don't think any of them can give the financial performance that we get and the second thing is that, Cameron said that in a little differently as he was answering the question, we want a pretty lean organization and now the decision making process is here and ITC are pretty quick. And we are pretty nimble company and so while I assure that the other companies can do a lot of good things and they will make us get better but I think we've got the competitive advantages. We've got the skill sets and the demonstration of those skill sets to deliver. So, there's plenty of work out there and there's a plenty of stuff where a lot of people to do, will get our fair share. With that bet, I fell very confident.

Yes, nice to compete with a competitive advantage, definitely. Thanks a lot Joe, I appreciate it.

Thanks Jay.

Thank you. We have a follow-up question from Neil Kalton of Wells Fargo Securities.

If there's an open in the question, but you were recently appointed to a task force in New Mexico. And I wonder if you could maybe share the background on that. And then maybe also provide some thoughts about the longer-term opportunities that you see in the state.

Yes, Neil. I think generally when we look at expanding or development activities, we looked for markets that we think have number one in need for transmission, number two have sort of the need being recognized and three, frankly, that there's support for it. I think in Mexico, it is at least in some degree on the eastern side connected to SPP, they do have good renewable expansion opportunities as it relates to both wind and solar and we think potentially longer term it might make for an interesting market for us to try to participate. That being said, very early in our thinking, as it relates to the Mexico and what activities ultimately might be available to us there, but certainly by being appointed to this task force and having any individual kind of actively monitoring the environment there and participating in the dialog. We'll continue to assess it and make it a determination as to whether a longer term, it's worthy of our further development efforts. This is the pretty inexpensive way to explore in the market and we try to find those opportunities when we can and we make decisions from there as to whether or not it wants a lot of further investment quite frankly in both personal and financial resources.

Got you. That's helpful; thanks.

Thank you, I'm showing no further questions at this time, sir.

This concludes the question and answer portion of our call. Before I end the call I'd like to thank everyone who participated today. Anyone wishing to hear the conference replay available through August 13th 2010 should dial tool free 1800-642-1687 or 706-645-92-91, the pass code is 87-28-18-17. The webcast of this event will also be archived on the ITC website at itc-holdings.com, under our investors section. Have a great day everyone.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program, you may all now disconnect.