ITC Holdings' CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: ITC Holdings Corp. (ITC)
by: SA Transcripts

Operator

Good day, ladies and gentlemen and welcome to the ITC Holdings Corp Fourth Quarter Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be followed at that time. (Operator Instructions) As a remainder, this conference maybe recorded.

I would now like to turn the call over to Gretchen Holloway. You may begin.

Gretchen Holloway

Good morning, everyone and thank you for joining us for ITC's 2013 fourth quarter and year-end earnings conference call. Joining me on today's call is Joseph Welch, Chairman, President and CEO of ITC and Cameron Bready, our Executive Vice President and CFO.

This morning, we issued a press release summarizing our results for the fourth quarter and for the year ended December 31, 2013. We expect to file our Form 10-K with the Securities and Exchange Commission today.

Before we begin, I would like to make everyone aware of the cautionary language contained in the Safe Harbor statement. Certain statements made during today's call that are not historical facts such as those regarding our future plans, objectives and expected performance reflects forward-looking statements under federal securities laws. While we believe these statements are reasonable, they are subject to various risks and uncertainties and actual results may differ materially from our projections and expectations.

These risks and uncertainties are discussed in our reports filed with the SEC such as our 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.

A reconciliation of the non-GAAP financial measures discussed on today's call is available on the Investor Relations page of our website.

I will now turn the call over to Joe Welch.

Joe Welch

Thank you, Gretchen and good morning everyone. I'm pleased to have the opportunity to today to report on another strong year performance for ITC. I'm quite proud of all we accomplished this past year in particular that we achieved our operational and financial objectives all while pursuing the Entergy transactions.

These results build on our strong history of investing in and operating our transmission system to create value for customers while also delivering strong financial performance for shareholders. Before discussing our operating results for the year, I would like to briefly address the Entergy transaction and our decision to terminate pursuit of it in mid-December.

As you're well aware, we put of great deal of effort into stakeholder outreach over the course of the last two years in attempt to garner support for the transaction. We also strongly demonstrated that the transaction was in the public interest based on significant benefits that would result from ITC's ownership of the Entergy transmission system.

In addition, we and Entergy offered substantial customer rate-protections and other commitments that more than adequately address the rate impact of our regulatory concerns raised throughout the process. Despite all of this, we received an unfavorable decision for the Mississippi Public Service Commission in early December reflecting their unwillingness to approve the transaction as proposed.

As a result, we concluded that there was no viable path to secure the necessary approvals that would allow us to preserve both the integrity of ITC's business model and the value we saw in the transaction. We regret the customers in the mid-south region will not have the opportunity to realize the benefits that the transaction offered.

However, given the circumstances it was apparent to us that the best course of action to position ITC for future success was to terminate our efforts to close this transaction. During our pursuit of this opportunity, many of our employees poured their time, talent and passion into the efforts.

ITC is very fortunate to have such a talented and dedicated team willing to sacrifice so much for success of our company. Despite the outcome, I'm very much believed that we are better company for having pursued this and there is much that we have taken away from the experience that will benefit us, as we advance our business going forward.

Turning now to our operating results for 2013. After incurring some initials delays in our constructions activities early in the year due to incumbent weather, we work diligently to make up for lost ground. As a result, we successfully completed our capital plan for the year which amounted to approximately $845 million of investment, a new transmission infrastructure.

These investments remain focused on replacing ageing infrastructure improving reliability, facilitating competitive markets and addressing other infrastructure needs in our region. All to drive value and benefits for our customers.

On the operational front, I'm also pleased to report that our continued focus on driving operational efficiencies and cost containment allow for our operating expenses to come in below budget for the year despite the slight increase in actual number of hours worked by our crews during 2013.

These efforts combined with long-term maintenance plans, which are premise more on preventative activities enable us to reduce overall operating and maintenance cost for our customers. This is yet another example of the benefits customers derive from our sole focus on transmission.

Importantly, while our crews work more hours during the year. We improved our safety performance with an overall reduction and recordable entries [ph]. These results continue to support our position as a top 10% safety performer among EEI companies. I'm very pleased that we continue to foster and culture focus on safety of our employees and our contractors which is a priority for ITC.

As I have noted many times, we remain focused on executing on our standalone plans while pursuing the Entergy's transaction and continue to advance a number of key initiatives during 2013. First we made good progress on our current regional infrastructure projects including the Thumb Loop project, the Kansas V-Plan project and our portions of the four MVP projects in MISO.

A large portion of the Thumb Loop project is now on service and the remainder is on track to be in service by 2015. We are also on track to complete the Kansas V-Plan project by the end of this year. Two of ITC's portions of the MVP project in MISO are in the preliminary citing process and we are working to position ITC to begin work on the other two projects.

Given our long history of advocating for regional transmission investments. We are pleased to be involved in the first regional infrastructure projects within MISO. These projects drive significant value to customers and service an important first step towards the build out of a regional backbone transmission system.

In addition to advancing these important projects, we have also been focused on preparing to be successful in the new Order 1000 paradigm. While there remains a significant amount of uncertainty as to how to exactly Order 1000 will be implemented in the regions particularly the provisions eliminating the Right of First Refusal utilities, we are taking steps to ensure that ITC will be well positioned to compete effectively in our existing regions and potentially in new regions going forward.

We look forward to providing more detail on this front along with the implications of our strategy and outlook at our upcoming Investor Day. On the regulatory front, I think it is fair to say that much of the focus remains on FERC ROEs, 2013 started with the ISO New England compliant.

In the early stages of the FERC hearing process and a number of other ROE complaints awaiting FERC action. As of today, all of these complaints still awaited decision on significant direction from FERC. In addition, in mid-November a group of industrial customers in MISO filed a Section 206 compliant with FERC against the MISO transmission owners.

This compliant seeks to lower the existing base MISO ROE, limit capital structure employed by MISO transmission owners and eliminate particular ROE incentives that have been granted to some MISO transmissions owners.

On January 6, we replied to the compliant both as a member of MISO transmission owners group and individually. In addition to including a motion to dismiss the compliant outright due to lack of standing and failure to meet the burden approved required for re-challenge.

The responses also highlighted the multiple deficiencies existing in the compliant including a fundamentally flawed application of FERC's DCF model and overall inadequate support to demonstrate that the rate element being challenged are unjust and unreasonable.

MISO transmission owners response further demonstrated the current ROE to be just and reasonable. Requested FERC's reject the adjustment to the current base ROE. Ask FERC to dismiss the request to implement a single capital structure for MISO TO's and called on FERC to reaffirm the MISO TO's eligibility for an RTO incentive adder.

ITC's individual response primarily argued for dismissal of the compliant attack on ROE incentives currently available to our MISO subsidiaries including incentives for independence in RTO participation.

We believe that the response to the base ROE aspect of the compliant presents a strong argument supporting the continuation of existing MISO based ROE. However, we expect to FERC to likely act first on the ISO delinquent compliant before addressing any of the other ROE complaints in the queue including the MISO compliant.

[Indiscernible] in the New England case alone are coupled with related generic policy will likely provide guidance that will enable action in a consistent and constructive matter on the remaining pending complaints. Regardless, we continue to believe that FERC will support the predictable ROEs that promote investment and needed transmission infrastructure going forward.

As for the request of the MISO compliant seeking to eliminate certain ROE incentives. The complaint offers no basis for why the ROE incentives are no longer just and reasonable. Rather the compliant merely raises a collateral tech on the commissions' transmission pricing policy which the commission recently reaffirmed in the November, 2012 and introduces no new information arguments as to why these incentives should not remain in place.

Similarly, the portion of the compliant that seeks to cap the equity component of the capital structure for MISO transmission owners at 50% also offers no basis for why the current capital structure employed are no longer just and reasonable.

The argument conflicts with Commission President, which was recently demonstrated with FERC's approval of 60% equity and 40% debt capital structures for the new ITC operating companies that were to be created as part of the Entergy transaction.

There is no precedent that supports a region-wide capital structure especially one set at arbitrarily capped rates. Consequently, as it relates to both ROE incentive and the capital structure elements of the complaint. We believe, there is sufficient basis for FERC to dismiss these components outright.

At this point however, there is no timeline for further action by FERC on the complaint. While ROE's continue to dominate the headlines. I also wanted to address the status of the IP&L complaint against ITC Midwest Attachment FF policy and FERC's order on the matter.

As you may recall, in July, 2013 FERC issued an order granting the complaint and requiring MISO on behalf of ITC Midwest to revise Attachment FF to conform to MISO standard policy for reimbursing generator interconnection customers for network upgrades cost.

Last July, ITC Midwest filed [indiscernible] on the matter which was denied by FERC last week. Needless to say, we continue to disagree with FERC's conclusion on this matter and remained concerned that MISO standard policy does not adequately recognize the benefits that network upgrades provide to all customers, nor does it allow for a level plain field for all new generator [ph] entrants.

Consequently, we are continuing to assess options to address these concerns going forward. In the interim, we intent to elect the option available to us under the terms of the MISO Generator Interconnection Agreement to have ITC Midwest self-fund transmission system network upgrades resulting from generator interconnections.

Under these options, ITC Midwest will continue to construct and own transmission network upgrades associated with generator interconnection but will allow, will now charge generators a direct assignment facility expense after the transmission upgrades are placed into service rather than including such charges in network rates.

Looking ahead to 2014, we have had a good start to the year with our system performing very well in the RT conditions that have plague Midwest region. We have maintained service to all of our customers, despite extreme levels of smell, ice or combination of both. This once again highlights the importance of investing in transmission infrastructure to maintain a reliable grid that is able to address, the 21st Century demands including the need to withstand more severe weather conditions.

I look forward to seeing as many of you as possible at our upcoming Investor Day, where we will provide our perspective on ITC strategy and promising future. With that, I'll turn the call over to Cameron for financial update.

Cameron Bready

Thanks Joe and good morning. Before diving into our financial results, I would like to take a brief moment to discuss our recently announced stock split. As I'm sure, you're aware on February 6, we announced a three-for-one stock split which is tabled tomorrow February 28, shareholders have record as of February 18.

We believe that this split has the potential to enhance the liquidity of our stock. We are also allowing for a share price that is attractive to a broad range of investors. In addition, the split adjusted price allows for additional appreciation given the robust opportunities we foresee for the business and the resulting superior growth levels we expect to deliver.

Please note that all the financial results discussed today except where noted or reflected on a pre-stock split basis. After February 28, all of our actual and historical results will be split adjusted. 2013 was a strong year for ITC in terms of financial performance. For the fourth quarter, ITC reported net income of $76.9 million or $1.45 per diluted share.

As compared to reported net income of $48.3 million or $0.92 per diluted share for the fourth quarter of 2012. Reported net income for the full year 2013 was $233.5 million or $4.42 per diluted share compared to $187.9 million or $3.60 per diluted share for 2012. Operating earnings for the fourth quarter of 2013 was $70 million or $1.32 per diluted share compared to $57 million or $1.09 per diluted share for the fourth quarter of 2012.

For the year-ended December 31, 2013 operating earnings were $258.6 million or $4.90 per diluted share compared to $216.5 million or $4.15 per diluted share for the same period last year. Operating earnings are reported on a basis consistent with how we provide our guidance for the year and exclude the following items.

First after-tax impacts associated with the Entergy transaction consisting of a gain of approximately $7.1 million or $0.13 per diluted share for the fourth quarter of 2013 and an after-tax expense of $8.7 million or $0.17 per diluted share for the fourth quarter of 2012. The gain for the fourth quarter 2013 reflects a reduction in our income tax provision and a corresponding increase in net income related to tax effects of certain transaction expenses that were previously considered non-deductible.

Due to determination of the transaction will now be deductible. This amount includes $5.6 million associated with transaction expenses that were incurred prior to 2013. For the years ended December 31, 2013 and 2012 the impacts associated with these items consisted of after-tax expenses of approximately $24.8 million or $0.47 per diluted share and $20.3 million or $0.39 per diluted share respectively.

Operating earnings also exclude after-tax expenses associated with certain acquisition accounting adjustments for ITC Midwest, ITC Transmission and METC that resulted from the FERC audit order on ITC Midwest issued in May, 2012.

The impact of this item for both the fourth quarter, 2013 and 2012 was less than $0.1 million. For the years ended December 31, 2013 and 2012 the impacts were $0.3 million or $0.01 per diluted share and $8.3 million or $0.16 per diluted share respectively.

The primary driver contributing to the increase in our operating earnings for both the fourth quarter and full year was higher income associated with increased rate base at our operating companies. Year-end 2013 rate base was approximately $4.3 million as compared to approximately to $3.5 million as of December 31, 2012.

For the year-ended December 31, 2013 the increase in operating earnings was also attributable to increased AFUDC at our operating companies. As Joe noted previously, despite the challenges presented by incumbent weather in the early part of 2013. We were able to achieve our overall capital investment objectives.

During 2013, we invested $844.5 million in capital projects at our operating companies including $220 million at ITC Transmission, $176.9 million at METC, $301.9 million at ITC Midwest and $145.7 million at ITC Great Plains.

We achieved a new peak level of transmission infrastructure investment in 2013 which represented our second consecutive year of making investments in excess of $800 million. Our ability to effectively manage this level of annual transmission invest speaks to the scale we have created in this business over the past several years and serves as a key competitive strength going forward.

Turning now to our financing requirements 2013 proved to be a historic year for ITC from a capital raising perspective. We executed approximately $1.7 billion of debt transactions in the aggregate during the year. This represented the most robust financing plan in the company's history.

We concluded this plan in December with the completion of $200 million approximately three-year term loan at ITC Holdings priced at LIBOR plus 112.5 basis points. In contrast, our 2014 financing plan is relatively modest given the significant amount of financing executed last year and a minimal amount of near term debt maturities.

However, we expect to remain opportunistic with respect to our liability management activities and we will continue exploring potential options to enhance value for customers and shareholders. In January, we completed the first tranche of our financing plan for the year, with the closing of a $50 million 366-day term loan agreement at METC priced at LIBOR plus 100 basis points.

The proceeds from the loan were used primarily for the repayment of borrowings under the METC revolving credit facility and for the general corporate purposes. It is noteworthy that both of S&P and Moody's recently reviewed the credit ratings of ITC Holdings and its operating companies with favorable outcomes.

On December 6, 2013 S&P upgraded the corporate and senior unsecured credit ratings of ITC Holdings and its operating companies one notch and affirm the senior secured debt ratings at ITC Transmission METC and ITC Midwest.

All debt issuing entities at ITC now have corporate credit ratings of A minus and ITC Holding senior unsecured rating is now BBB plus. Which we believe speaks volumes about the credit quality of our business.

On January 30, 2014 Moody's affirmed the investment grade credit ratings for ITC Holdings and its operating companies. As a reminder, our Moody's ratings are currently Baa2 and Baa1 at ITC Great Plains both on a senior unsecured basis and A1 at ITC Transmission METC and ITC Midwest all on a senior secured basis.

We continue to prioritize maintaining strong investment grade ratings both at our operating companies and at ITC Holdings. This serves to ensure that we have access to cost effective capital in virtually any market conditions. It orders to support the capital investment requirements of our business, as well as providing the appropriate financial flexibility to pursue our strategy.

As for our current liquidity position, as of December 31, 2013 we have $34.3 million of cash on hand and $453.8 million of net undrawn revolver capacity. Bringing our total liquidity position to $488.1 million. The total capacity unavailable under our revolving credit facility remain $725 million.

For the 12 months ended December 31, 2013 we reported operating cash flow of $449.2 million. This represented an increase of approximately $121.7 million year-over-year was largely attributable to an increase in operating revenues resulting from higher off and on rate base as well as lower cash taxes.

Before wrapping up on 2013, I would like to remind you that in August we increased our dividend approximately 13% representing a meaningful adjustment compared to prior level. This action was consistent with the guidance that we provided going into 2013 and reflected our commitment to growing the dividend at an attractive pace, well also balancing the capital requirements of the business.

Going forward, we expect this dividend policy to remain intact in the near-term resulting in our dividend becoming an increasing component of our overall total shareholder return proposition. Looking forward to 2014 and our outlook for the year. We are today affirming our 2014 operating earnings guidance of $5.50 to $5.70 per share.

After giving rise to the stock split that will effectuated tomorrow this guidance translates to $1.83 to $1.90 per share on a split adjusted basis. In addition, we are also affirming our aggregate capital investment guidance for the year of $730 million to $840 million. Which includes $250 million to $285 million for ITC Transmission, $130 million to $150 million for METC, $255 million to $290 million for ITC Midwest, and $95 million to $115 million for ITC Great Plains?

We are now in the third year of our five year $4.2 billion capital investment plan which covers the period 2012 through 2016. Based on actual capital investment levels in 2012 and 2013 along with our guidance for 2014 we remain very much on track with our cumulative investment level targets through 2014 and poised to deliver the benefits contemplated through these investments.

As highlighted earlier, we continue to make good progress in 2013 with the key projects included within our capital plans. First we placed approximately two-third of the Thumb Loop project into service in 2013. The remaining portions have been awarded to construction contractors and work is progressing well.

We are on schedule to place the remaining portion of the project in service in 2015 on time and on budget. For the Kansas V-Plan construction is near in completion at the Thistle substation which is the eastern most portion of the project and we are planning to energize that facility in the second quarter, 2014.

The full and service date remains on target for December, 2014 and the overall project is on budget. As for ITC's portions of the four MVP projects ITC Midwest began the regulatory approval process for projects three and four in 2013 while also preparing to undertake projects five and seven.

For MVP project number three, we are in the process of filing testimony with the Minnesota Public Utilities Commission and Public Hearings will begin in mid-May for the segment of the project that ITC Midwest will build in Minnesota. For the segment of this project from the Minnesota, Iowa border to propose Mid-American Energy substation in Iowa, we are making good progress negotiating voluntary easements with land owners and have filed the necessary franchise application with the Iowa Utilities Board.

Based on the current regulatory schedule, we anticipate a decision on the franchise my mid-2015 allowing for construction to begin in late 2015. With completion of the entire project targeted for 2017.

For ITC's portion of MVP project number four, which ironically consists of four individual segment? ITC Midwest has filed the franchise petition with the Iowa Utilities Board for two of the segments and will be filing for the remaining two segments within the next month allowing us to work towards completion of construction between 2015 and 2018.

As for MVP project number five, which will be built into coordination with American Transmission Company? We have begun the process of seeking the necessary approvals to operate in Wisconsin by filling applications with the Public Service Commission of Wisconsin for ITC Midwest to have Public Utility status and for ITC Holdings to become an authorized Public Utility Holding Company in the state.

Hearings are scheduled for mid-March and we expect the decision in April or May. In the meantime, we've begun meeting with regulatory agencies, key stakeholders and ATC to begin advancing the project. ITC is working towards construction completion of this project in the 2018 to 2020 timeframe.

Lastly, for MVP project number seven we are finalizing the development plans with our neighboring utilities that will be responsible for portions of the project. Based on our preliminary estimates, we expect that ITC Midwest will be responsible for a segment of this project in Iowa and we are still targeting an in-service date of 2018.

We are looking forward to provide additional insight around our long-term business outlook at our Investor Day, which we will be hosting at our headquarters here in Novi, Michigan on April, 15. At this event, we expect to provide a strategic update along with our updated financial outlook for the company.

We look forward to hosting the event. At this time, I would like to open up the call for answer questions from the investment community.

Question-and-Answer Session

Operator

(Operator Instructions)

And the first question is from Julien Dumoulin-Smith of UBS. Your line is open.

Julien Dumoulin-Smith – UBS

I don't want to preempt too much the upcoming Investor Day, but could you talk a little bit about where, if you pursue M&A or let me back up. Are you interested in pursuing M&A once again in order to extend your service territory at the expense which you're is this something more of a partnership aspect or is this again more of the conventional approach that you've taken with Entergy another deal in the past?

Cameron Bready

Julien, its Cameron I'll jump and naturally ask Joe to provide any additional color. I think in general, it's safe to say we remain open-minded as it relates to M&A opportunities in the future. We still believe that M&A presents an opportunity to expand our independent business model into either within the regions in which we're operating today or potentially into new regions as well.

And we still view it as a component of our strategy going forward in terms of finding opportunities where we can acquire system that have a significant amount of investment requirement associated with upgrading existing infrastructure and have served us well in the past and we frankly think, it can continue to serve us well going forward.

I would balance those comments against the reality of the market as we see it today, which is obviously there is a lot of interest by utilities to pursue transmission growth strategies. So I don't think our view as it relates to the for lack of better term, the magnitude of M&A opportunities has changed very much.

I think we still view them as being relatively few and far between but that being said, we would be poised to pursue them if we found situations where we thought, we could again acquire system with an opportunity to invest and create value for customers and shareholders.

On the partnership front, that has been in the past. I think a very important component of our development strategy. I think it will continue to be a component of our development strategy going forward. I view it a little bit different than M&A, but again on the partnership front, it is a very important part of how we think about advancing our development portfolio arguably differently perhaps than how we thought about it historically given the implementation Order 1000 and the elimination of ROFR Provisions.

I'm not sure that they have the same partnership have the same underlying strategic rationale that they did in the past, but I still view them as being an important part or option from a development perspective.

Joe Welch

I'd like to add to what Cameron said is, with the implementation of the Order 1000. We are very focused on truly trying to understand every piece of the aspects of Order 1000 as it develops and also to get the company truly focused on a changing landscape, which ultimately should lead to being more competitive and I think that, we have absolutely demonstrated that in the competitive environment.

We have positioned this company well with our singular focus on transmission. So the growth of the company and our independent business model is very important to us and we will pursue it under any other regulatory terms that it's presented whether it's M&A partnership or a direct competition.

Julien Dumoulin-Smith – UBS

Great, then perhaps following up on the ROE issue and again, I know it's a touchy one to address. But first, I suppose there is some western utilities that have proposed perhaps using a slightly different variant of the median including comparable forms of capital asset pricing and equity risk premium approaches.

Do you see those kind of valid approach ultimately for resolving any of the pending ROE issues? And then secondly, if you could describe broadly speaking your expectations on next steps in the process from the timeline perspective?

Cameron Bready

Hi, Julien. It's Cameron. I'll address maybe the first part and I'll ask Joe to share any perspectives on the second, but I'll give you mine as well. I think on the different variations of determining cost of capital. I think it's pretty mature to speculate as to whether or not FERC would adopt a deferring methodology than what they have used historically.

I think our view is that, apparently there is nothing fundamentally flawed with the methodology that FERC has used historically. I think we are frankly the flaws have been introduced as were, where we would characterize as somewhat artificial screens have been introduced to that methodology that have served to over the course of times skew the results downward and then the environment in which we've been operating, I think those have particularly exacerbating effects on the results of the DCF methodology.

So I think, we've tried to encourage in our conversations not to throw the baby out with the bathwater, but there is some relatively simple modifications that could be made to FERC's existing methodology that would serve to I think again, reduce some of the screens that serve to artificially biased the numbers lower, hence modify some of the inputs in a way that would better reflect I think, cost-to-capital in the environment in which we are operating, recognizing that the historically low interest rates have serve to somewhat skew these results to the left.

On the second point, I think Joe commented on this in his prepared remarks. We don't really see a scenario where the MISO complaints at least as it relates to the ROE aspect is going to get in front of the New England compliant. I think we remain of the view, that more likely than not FERC will choose to address the ROE issue in connection with the New England case or perhaps through generic policy or rule making around that, but that will be the catalyst I would say for further action on the ROE fronts.

So the MISO compliant at least as it relates to the ROE aspect of that compliant I think will be in a holding pattern waiting action on the New England side.

Julien Dumoulin-Smith – UBS

Perhaps I could just follow-up and clarify, if we were to get a policy statement, would it be fair assumption to presume the settlement would be something parties could potentially pursue on the back of clarity on methodology?

Joe Welch

I highly doubt it, the reason why is that you have to look historically as how ROEs how, they have been floating and I guess this is the perspective I get to add coming into the business in 1970. At that time, there was huge capital expansion going on in the whole utility space and the arguments that were put forth then and actually when FERC was formulating some of their models, that could we get enough capital to flow into the utility space versus all of the other competition for capital.

And then after that happened, we had a big ebb and flow of capacity overbuild and rate shock that came in and so the whole framework and the regulatory role shifted immediately from capital attraction to rate pressures being put on everyone to reduce rates and we are still dealing with overhang of the reduction of rates, rather than to trying to get capital to flow into market.

Remember that FERC was still ordered by Congress to put rules and regulations in place to increase the investment in transmission and if you look from the time that order is been put in place or that wall was passed today, there really hasn't been that much transmission built, there is been a lot of things done in the transmission space, but when you physically look at a transmission map of the United States not much added.

And so I think, FERC has got to deal with the policy issues and then the application of the DCF and I think that's why also that the likelihood of a settlement becomes less because there is, the one side of the equation that wants to bring rates down as low as possible, which I understand on the other side, is to try to get capital to flow to get transmission built in a robust regional way. So I don't see it happening.

Julien Dumoulin-Smith – UBS

Thank you.

Operator

Thank you and the next question is from Greg Gordon of ISI Group. Your line is open.

Greg Gordon – ISI Group

Thanks, congratulations on a good quarter and a good year. So you may not be willing to go into until this April but you know there is been some speculation that another entity in the marketplace that owns transmissions assets might pursue the ITO [ph] of their transmission through a week structure at some point in the next 12 months and that's caused a kind of speculation as to what, impact that might have on your thinking as to whether or not that's an increasing viable option in terms of reducing your cost of capital.

Can you talk about your thought process on how that would relate to your business?

Cameron Bready

Greg, it's Cameron. We hear obviously speculation from time-to-time in better variety of things similar to what you described. I think from our point of view, we have to make the right decision for our company based on our facts and circumstances and what we think, best positions to this company for the future and best positions our shareholders obviously correspondingly.

As we have said, we view a potential conversion or a change in the corporate structure of ITC as a tool that's in our toolbox that under the right facts and circumstances, we may want to consider utilizing. Heretofore, we have not really been in an environment or found ourselves in the particular circumstances where we have felt like that's the right tool to address whatever issue, we see in front of us.

But going forward, we continue asses obviously the outlook for our business, the environment which we are operating, the regulatory landscape and we are continuing evaluate and will always evaluate whether some modification to the corporate structure of ITC is appropriate and a path that we think strategically thus positions us for the future.

So I know that's a bit of a high level response, but frankly given where we are, that's probably that as much as we are prepared to comment on at the topic or on the topic at this point.

Greg Gordon – ISI Group

Thanks Cameron.

Operator

Thank you. The next question is from Charles Fishman of Morningstar. Your line is open.

Charles Fishman – Morningstar

Thank you as far as capital expenditure is beyond 2014 obviously you'll or I would think you would provide a lot more detail on that, on April 2015. Can I assume though, there will be an update in the 10-K that's going to be filed later today?

Cameron Bready

As far as capital investment plans beyond 2014?

Charles Fishman – Morningstar

Yes.

Cameron Bready

No, I think for the time being Charles we would continue to include in the 10-K what is our current plan that we have communicated and shared it with investors which is our 2012 to 2016 plan. When we provide more detail, we will update our SEC disclosures accordingly.

Charles Fishman – Morningstar

Okay, so there won't be anything new in the 10-K that's filed later and then that was going to be filed today, right?

Cameron Bready

That's our intent, yes.

Charles Fishman – Morningstar

Okay and then one more on Attachment FF. so I understand this, on the option you're going to pursue the self-funding option all of that, all of those costs, our investments eventually flow to the generators. So the only difference here is that, obviously more is pushed to the generator, but it is also a timing issue that there might be some investment that ITC has to make, until they're reimbursed by the generators, is that all the option entails?

Cameron Bready

There is really no timing element Charles, I think your first characterization is right. I mean, it really becomes a cost allocation issue under the old Attachment FF policy, we would make these network upgrades and then include them in our network rates recover them from network customers.

Under the options that's available to us under the standard MISO Generator Interconnection Agreement as a result of Attachment FF having been ruled for us being forced to adopt the MISO standard policy.

Any upgrades that we are or that require associated with network upgrades to facilitate a generator interconnect that the generator would otherwise have to fund. We are going to act our option to self-fund those and we will charge the generator basically a fixed charge that recovers our return off and non-capital for those investments rather than including those costs in our network rates.

So from an ITC Midwest perspective, the economics are effectively identical as what they would have been under Attachment FF, but now we are having to recover those cost directly from the generator as oppose to recovering them from network customers.

Charles Fishman – Morningstar

Okay at the end of the day, it just makes it less desirable for the generator to build something.

Cameron Bready

Well, I mean it makes it less desirable on a relative basis compared to what it used to be, but it's no less desirable than any other place in MISO. Largely as a result of the 90/10 being MISO standard policy. So from our perspective, it does obviously create this is part of our concern with the elimination of Attachment FF and MISO standard policy and I think even some FERC Commissioners have echoed this.

I mean, it doesn't necessarily reflect the benefits that network customers realize from the network upgrades that we are effectuating as part of generator interconnect and it doesn't create a plain field for new entrants vis-à-vis existing generators particularly utility-owned generators who have had those costs included in rates that they're recovering from customers.

Charles Fishman – Morningstar

Okay. Thank you.

Operator

Thank you and the next question is from Rajeev Lalwani of Morgan Stanley. Your line is open.

Rajeev Lalwani – Morgan Stanley

Hi, thanks for taking my question. First question was just on, your thoughts around the change in for clear shuts [ph] and the implications for the ROE decision or just policy overall and the second question. As it relates to whether you've seen to-date, has there been any impact on your capital spending plans, so far?

Joe Welch

This is Joe. I'll address the first part. I think that clearly as the leadership preferred changes overtime. You'll see ebbs and flows and policies and when I say, the ebbs and flows and policies. Where you really see is, how it's handled on the what I call the fringes, where you will see a focus in one area or another, but overall I don't see a huge a shift over a long period on FERC Policy in general.

FERC does a very good job in my mind of establishing their policies and sticking with them and they build each one of their orders based on past cases and their decisions and so, it makes for a more stable policy domain than you usually see in States where these people are – some States where they are elected by the populist and you see, really quick policy changes.

So I don't see much on that, as to others. Cameron, if you want to address it.

Cameron Bready

Sure, I think the second part of your question and I'll sucker back on the first in a second because I think there was an element, you'd say there but on the second part. I think it's pretty mature for us to have adjusted any of our capital plans given the ROE compliant that was lodged against the MISO base rate.

Obviously depending on the resolution of that, we will have to continue to look at all the different variety of projects we have in our portfolio and make determinations depending upon the outcome as to whether or not, the expected returns associated with those projects are support for lack of better term, the continued pursuit of those opportunities, but at this point it's pretty mature for us to have adjusted anything as the outcome is still uncertain and obviously, we've remained of the view that the existing rate is just and reasonable and we are continuing to push ahead accordingly.

I think part of your initial question, I think was targeted more towards with a change in leadership do we see any potential change as it relates to the outcome of the ROE matters. I think, Commissioner LaFleur in her role is acting Chairman or Chairwoman, I'm not sure exactly what she prefers to be called, but had made it fairly obvious that her intent was to try to bring resolution to this fairly quickly.

I think perhaps part of that was in effort to demonstrate leadership, prior to Mr. Bay being nominated and hopefully positioning herself for the Chairman's role as I think she had publicly indicated desires to have on a more permanent basis. Whether or not, Mr. Bay's nomination in ultimate confirmation assuming it gets that far, whether that will change FERC motivation for actual better terms to move on the ROE issue in the near-term, I'm not sure.

I don't we know or have a particular view on that as this point. We are hopeful, it won't. we do think resolving this overhanging issue is important and we would like to see FERC move on it, but frankly it's hard to predict sitting here today whether or not the new nomination of Mr. Bay for not only participation on the commission but as Commission Chair will change the existing sitting Commissioner's desires to advance this issue timely.

Rajeev Lalwani – Morgan Stanley

Thanks, actually the second part of my question was just on whether, the actual weather conditions to-date have impacted capital spending for the company overall.

Cameron Bready

I'm sorry, I misunderstood. It's been a tough January certainly in the Midwest from a weather perspective. And it has made a bit challenging to execute on some of our capital investment plans, it's pretty mature to speculate as to whether or not, that's going to have any impact on the first quarter results sitting here today. February was a little better than January, but certainly we did face some challenging weather conditions in January.

That did impact our ability to capital work as timely as we would have otherwise expected. As of right now, I don't expect it to be material but we are obviously continuing to work through the quarter and continuing to remain focused on getting the work done that we can, despite the weather that doesn't want to cooperate.

Rajeev Lalwani – Morgan Stanley

Great. Thank you, gentlemen.

Operator

Thank you and the next question is from Jonathan Arnold of Deutsche Bank. Your line is open.

Jonathan Arnold – Deutsche Bank

Good morning, Cameron.

Cameron Bready

Good morning Jonathan.

Jonathan Arnold – Deutsche Bank

Can you hear me?

Cameron Bready

Yes, we can.

Jonathan Arnold – Deutsche Bank

Great, firs one just given the timing of the Analyst Day which is a little later in the year than you've typically done these things. Should we be anticipating a typical five-year update perhaps based of 2014 rather than sort of the immediately past year at a stage, can you give us any sense what the plan of what your gain will be?

Cameron Bready

I think Jonathan our plans would be to provide to 2014 to 2018 five-year plan hinged off of the most recently completed 2013 year.

Jonathan Arnold – Deutsche Bank

Okay, so normal five years off of the years just passed.

Cameron Bready

Yes, I think would be fairly consistent with our prior practice.

Jonathan Arnold – Deutsche Bank

Perfect and then you know, you obviously doing a meeting offsite, any as oppose to coming to New York, are there any other. Do you think you will give anything else in addition, you think you are communicating that we can just sort of think about conceptually?

Cameron Bready

No, I wouldn't say there is anything particularly unusual as it relates to our decision to host the Investor Day here, we think it is important for investors and those who are interested in our story to have the opportunity to see our operation without being overly frightful about it, we do have a lot of pride in our operations here.

We have a lot of pride in the business we built, the scale that we have and we think it's important for investors and those interested in our story to have the opportunity to experience that. Most many haven't and by doing it here, we will give people I think a good opportunity to have a chance to witness first-hand our capabilities in our operating platform.

Jonathan Arnold – Deutsche Bank

Okay and then just on the outlook last quarter, on the last call I think you said that onto some questioning we probably anticipate that we have been looking at a comfortably double-digit growth rate that you still standby that statement?

Cameron Bready

Yes, I think that's still a fair assessment of how we view kind of outlook for the business at least in the, through the balance of this decade as it relates to growth profile.

Jonathan Arnold – Deutsche Bank

Okay, great. Thank you.

Operator

Thank you and at this time. I would like to turn the call back over to Gretchen for closing remarks.

Gretchen Holloway

This concludes the question-and-answer portion of our call. Anyone wishing to hear the conference replay available through March 3, 2014 can be accessed by dialing 855-859-2056 toll free or 404-537-3406 with the pass code of 49758882. The webcast of this event will also be archived on the ITC website at .itc-holdings.com. Thanks everyone and have a great day.

Operator

Ladies and gentlemen this concludes today's conference. You may now disconnect. Good day.

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