Meeting Our Energy Goals The Energy Superhighway Joseph

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

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

Who is ITC?

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

Who is ITC? u ITC is the ninth largest transmission-owning company in the U. S. u Transmission systems in Michigan’s lower peninsula and portions of Iowa, Minnesota, Illinois and Missouri — Serves combined peak load in excess of 25, 000 megawatts (MW) — Approximately 15, 000 line miles u Recently announced “Green Power Express” designed to facilitate the interconnection of 12, 000 MW of wind in the Dakotas, Iowa and Minnesota to eastward population centers u Also actively seeking opportunities to build, own, operate and maintain transmission in Kansas, Oklahoma and Texas (SPP region) — 5 KETA, V-Plan, and Hugo to Valliant projects in advanced stages of development

ITC’s Service Territories ITC Transmission Total System Peak Load = 25, 000 + Service Area Total Transmiss ion Miles > 14, 900 Assets Acquired METC ITC Midwest 12, 700 MW 9, 400 MW 3, 500 MW SE Michigan’s Lower Peninsula Portions of Iowa, Minnesota, Illinois and Missouri 2, 805 5, 465 ~ 6, 800 March 1, 2003 Oct. 10, 2006 Dec. 20, 2007 6

Does Independence Really Matter? u Let’s imagine that United Airlines was responsible for the control tower operations at the Des Moines International Airport. u What do you think would happen? — Whose flights would be the first to land? — Whose flights would be the first to take off? u There is a clear reason why independence in this case is important u How does this example apply to the energy industry? 7

ITC = Independent u ITC focuses on ownership, operation, maintenance, and construction of transmission facilities as a single line of business u There is no internal competition for capital – it is dedicated for prudent transmission investment u ITC is singularly focused on transmission and aims to bring significant benefits to customers u Our Goals: — Improve reliability — Reduce congestion, improve efficiency — Increase access to generation, including renewable resources — Lower cost of delivered energy In other words, ITC’s independence uniquely positions it to facilitate renewable resources like wind 8

The Current Environment

Growing Demand 6 ~2 u Before we speak about ITC % Midwest, let us first understand the global energy environment u Demand for electricity continues to grow; expected to increase 26% by 2030 — Increasing population — Shifting population centers / urban sprawl — Increased dependence on electricity for every-day lives Sources: U. S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2009 * Electricity demand projections based on expected growth between 2006 -2030 10

Aging Infrastructure u Yet, as shown earlier, there has been a 30 -year trend of underinvestment — 70% of transmission lines are 25 years or older — 70% of power transformers are 25 years or older — 60% of circuit breakers are more than 30 years old Source: http: //www. globalenvironmentfund. com/GEF%20 white%20 paper_Electric%20 Power%20 Grid. pdf 11

Energy Is Changing u The energy industry has been going through significant changes in recent years: — — How it is made: New forms of generation including renewables — How it is used: Shifting population, sophisticated electronics in homes and businesses, smart grid, electric cars — 12 How it is bought/sold: Creation of energy markets, volatile fuel prices How it is regulated: Creation of independent transmission companies to bring investment to grid

Changes are Need-Driven u These changes are driven by various needs — Create new jobs — Support economic development — Invest in and improve nation’s infrastructure — Diversify our fuel sources / energy security — Protect the environment u Central to all of these changes is the need for a robust transmission grid 13

Wind – Renewable But Variable u Wind has been made popular with this changing landscape, but it requires transmission and does not come without challenges — — Individual state RPS goals — Variability of wind — 14 Resource rich regions vs. states without wind Significant barriers to entry

Other Generation Sources u As an independent Mine-mouth Coal transmission provider, ITC must provide equal and nondiscriminatory access to all forms of generation u Each of these different Geothermal generation sources provide a unique challenge in interconnecting them to the grid, but they all have one thing in common: Solar Ø All generation sources need access to a robust transmission grid 15

National Energy Policy u Given the changing energy industry and needs, we need a national energy policy to guide decisions for our future energy delivery system. u This vision would provide the foundation upon which energy policy would be based (e. g. , national RES, carbon pricing, etc. ). u An energy policy vision is an important input specifically as it relates to building the necessary transmission — Regional transmission planning — Cost allocation — Siting 16

Bringing It Home: ITC Midwest in the Past 2 Years

Current System Presents Roadblocks u Since opening its doors in late 2007, ITC Midwest has been working tirelessly to bring value to its customers and to the end-use consumers of this region ITC Midwest’s Report Card q Investing in system improvements q Preventative maintenance q Improved reliability q Safety q Equal access to all forms of generation 18

Capital Investments u Since its inception, ITC Midwest has invested almost $300 million in capital improvements to its transmission system — Improve reliability — Economic projects — Generator interconnections u Some examples of ITC Midwest projects currently in progress: — Story County Wind – Next. Era: System upgrade to allow full output of the Story County wind farm scheduled to be completed by June 2010 — Salem-Hazleton 345 k. V line —Beverly-Sixth 19 Street

Salem-Hazleton 345 k. V Line u Project Overview — New 81 mile line of 345 k. V, double circuited with existing 161 k. V for portion of line — Completes Eastern Iowa 345 k. V “Reliability Loop” — Addresses constrained area first identified in Midwest ISO 2006 Eastern Iowa Reliability Study — Project kicked off shortly after ITC Midwest formed Ø IUB Public meetings held February 2009 Ø 95+% voluntary easements acquired ØHearing August 3 and 4 on eminent domain request 20

Adams-Barton/Hayward-Worth u Adams-Barton — 27 -mile line between Adams, Minn. , and Bolan, Iowa — Rebuild existing 161 k. V line to same voltage, higher capacity; replace wood poles with steel structures — Energized last week u Hayward-Worth — — — 20 -mile, 50 -year-old line between Hayward, Minn. , and Kensett, Iowa Rebuilding existing 161 k. V line to same voltage, higher capacity; replace wood poles with steel Construction begins this month u Both lines improve north-south electric flow, support wind development 21

DAEC-Washburn u Project Overview — 40 -mile line from Duane Arnold Energy Center to Washburn substation south of Waterloo — — Improves eastern Iowa reliability, reduces congestion — 22 Rebuild 161 k. V line to same voltage, higher capacity, replace wood poles with steel structures Project completed in December 2009

Beverly-Sixth Street u Project Overview — Six-mile line within Cedar Rapids city limits — — Had been in planning stages for more than 15 years — Industrial growth along Highway 30 corridor drove need — 23 Rebuild existing 34. 5 k. V line to 161 k. V Construction began this month; completed by year end

Efficient Preventative Maintenance u ITC Midwest’s maintenance methodology is simple: invest in prevention: — Breaker and Switcher Inspections — Line Inspections — Substation Inspections — Relay Calibration — Battery Checks — Transformer Inspections — Infrared Inspection — Vegetation Management u Doing so is more cost-effective and prevents costly system outages or equipment failures 24

Improved Reliability u ITC’s goal is best in class system performance for all operating subsidiaries — Following acquisition of a new system, ITC deploys its maintenance program and root cause analysis methodology to reduce outages u In 2009 ITC Midwest saw a 55% improvement over 2008 for the ≥ 69 k. V transmission system and 45% improvement for the <69 k. V system The SGS Statistical Services Transmission Reliability Benchmarking program Participants represent over 54% of the U. S. transmission grid miles 25

Focus on Safety u ITC’s safety program is centered around building a safety culture within all employees and contractors and our goal is zero recordable injury and lost work day case rates u ITC participates in Edison Electric Institute’s (EEI) Safety Benchmarking program to gauge its performance against approximately 70 other utilities Recordable Incident Rate Lost Work Day Case Incident Rate ITC was one of the top companies in the study 26

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

Update on 34. 5 k. V Conversion

Current Status of Transition u As reported in ITC’s June 19, 2009, and December 22, 2009, transition status reports, ITC Midwest expects to work with IPL to continue current operations of the 34. 5 k. V assets until conversion to 69 k. V. — Upon conversion to 69 k. V standards, ITC will take over operational control. u ITC Midwest manages IPL’s operation of the 34. 5 k. V assets; negates any independence and market control concerns. ITC Midwest specifies the maintenance and construction work and schedule for the 34. 5 k. V system. — IPL dispatches 34. 5 k. V assets and administers the protective (OSHA) transactions for ITC Midwest’s 34. 5 k. V work. — 29

Rebuild/Conversion Plan Being Implemented u IPL’s continued operation of the 34. 5 k. V assets is cost-effective. — Operating the 34. 5 k. V system requires additional labor resources due to frequent switching needed to maintain service to customers. — Costs incurred to incorporate a “not smart” system into ITC’s “Smart” monitoring system would largely be wasted when the assets are converted to 69 k. V. More cost-saving synergies exist between the 34. 5 k. V system and IPL’s distribution system than between the 34. 5 k. V system and ITC’s high voltage system. — ITC Midwest does not have resources to support retail customer calls related to 34. 5 k. V system outages. — Current operations shorten customer outage times through use of the closest first responder. — u Rebuild / Conversion Plan Rebuild Lines to 69 k. V Standards Over 12 Year Period: Unloaded ITC Midwest Budget Cost = $38 M Per Year Compared to $76 M Per Year for 7 Year Plan — Conversion to 69 k. V Operation Over 18 Year Period: Conversion over an 18 year period would allow additional time for IPL, RECs, and Municipal substations to be converted significantly reducing their budget and resource load. — 30

Bringing Iowa Wind to Market

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

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

Wind Power in the State of Iowa u As of the end of 2009: u Iowa has over 1100 working turbines spread over 47 wind farms 1. u Over 3000 MW in installed capacity provides 20% of the state’s energy 2. u National Renewable Energy Laboratory (NREL) research has shown that roughly three-quarters of Iowa has high enough wind at 80 meters above the ground to produce wind energy 3. Sources: 1. http: //www. nationalwind. com/iowa_wind_facts/ 2. Omaha World-Herald; Mar 3, 2010, http: //www. omaha. com/article/20100303/NEWS 01/703039859#wind-20 -of-iowa-s-energy 3. Economic Development Impacts of Wind Energy: an Iowa Case Study, SEAC Seminar Series, Feb 12, 2009, www. nrel. gov/analysis/seminar/docs/2009/ea_seminar_feb_12. ppt 34

Economic Benefits to the State u According to a 2009 NREL study 1, every 1, 000 MW of wind development implies the following: — 600 jobs directly involved in construction, with associated earnings of $40 million, over a 1 year construction horizon. Ø An additional 1, 650 jobs with $50 million in earnings are estimated to be created by associated peripheral activity. — During the operations period following construction, 75 permanent jobs with an associated $5 million in earnings in directly-related activity and multiplier effects of 195 jobs with $7 million in earnings. — Annual $4 million lease and $6 million property taxes Sources: 1. http: //investor. itc-holdings. com/releasedetail. cfm? Release. ID=436644 35

Benefits from ITC Interconnected Wind u In 2008, ITC Midwest interconnected 810 MW of wind generation, in 2009 716 MW was interconnected 1. — Using the benefit standards identified by the NREL report, the Iowa benefits of this development are: Ø 900 construction jobs with $60 million in earnings for each year of the construction period. Ø 2, 475 peripheral jobs with $75 million in earnings. Ø 113 permanent positions with $7. 5 million in earnings upon the commencement of operations. Ø 293 jobs created as a multiplier effect of these permanent positions, generating $10. 5 million in annual earnings. Ø $6 million in lease payments and $9 million in property tax remittances annually. Sources: 1. http: //investor. itc-holdings. com/releasedetail. cfm? Release. ID=436644 36

Benefits from ITC Interconnected Wind, cont. u The wind farms that ITC Midwest has interconnected to the power grid will enable the following economic benefits: — — Investment of roughly $1. 2 billion in three rural counties. — Approximately $200 million in property taxes paid over the first 30 years of these projects — Estimated $110 million in landowner royalty payments — 37 The generation of clean electricity sufficient to power over 60, 000 homes. About 40 permanent, full time positions created

Summary

Summary u ITC Midwest strives to be a best-in ITC Midwest’s Report Card -class transmission provider q Investing in system improvements u We pledge to work tirelessly every q Preventative maintenance day to understand try to meet the needs of our stakeholders and the states in which we operate q Improved reliability q Safety u We welcome your input on what q Equal access to all forms of generation we can do better to meet your energy needs q Understanding and meeting the needs of stakeholders? 39