Good day, ladies and gentlemen, and welcome to the ITC Holdings Corp. fourth quarter conference call and webcast. (Operator Instructions) I'd now like to turn the conference over to your host Ms. Gretchen Holloway.

Good morning, everyone, and thank you for joining us for ITC's 2012 fourth quarter and yearend earnings conference call. Joining me on today's call are Joseph Welch, Chairman, President and CEO of ITC; and Cameron Bready, our Executive Vice President and CFO. Last night, we issued a press release summarizing our results for the fourth quarter and for the year ended December 31, 2012. We expect to file our Form 10-K with the Securities and Exchange Commission tomorrow. 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 reflect 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 may be 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. In addition, ITC filed a registration statement on Form S-4 with the SEC to register shares of ITC common stock to be issued to shareholders of Entergy Corporation in connection with proposed transaction with Entergy Corporation previously announced on December 5, 2011. This registration statement which was declared effective by the SEC on February 25, 2013, includes a proxy statement of…

Thank you, Gretchen, and good morning everyone. I'm pleased to report today that we have successfully completed 2012 as strongly as we started it, effectively marking the end of our first decade of delivering on our commitments to our customers, stakeholders and shareholders. Our results for the year reflect a culmination of our overarching strategy, which is premised on investing in our core systems to achieve operational excellence, while also building on our industry leadership position to promote the development of a 21st century energy grid, better equipped to meet the demands of society today and in the future. It is this strategy that has led to our solid operational strategic and financial results, over our first 10 years of operation. And is the furtherance of this strategy going forward, that we'll continue to drive our performance. Importantly, our transaction with Entergy Corporation aligns perfectly with this strategy and represents a natural extension of our independent business model into the Mid-South region. Successful completion of the transaction in 2013 will build on our standalone plans of achieving best-in-class performance for transmission systems that we own and operate, while strategically positioning ITC for incremental future transmission development opportunities. Of course, operational excellence for our core systems is a pivotal business building block for our strategy, as this speaks to the merits and benefits of our independent business model and singular focus on transmission. From an operating perspective, 2012 proved to be another very successful year for ITC. First, and most importantly, we are proud of the fact that we incurred zero safety incidents this year at both ITCTransmission and METC. We've also reported zero incidents for the construction of the KETA line at ITC Great Plains. As you can see and appreciate, keeping our employees safe is always our first priority.…

Thanks, Joe, and good morning everyone. My update today will begin with a summary of our financial results for the fourth quarter and full year, after which I'll provide some commentary on our standalone long-term plan as well as our longer-term vision. First, as it relates to our financial performance for the fourth quarter and for the year. Our operational success as highlighted by Joe, have again translated into solid financial results. For the fourth quarter 2012, reported net income was $48.3 million or $0.92 per diluted share as compared to a reported net income of $42.7 million or $0.82 per diluted share for the fourth quarter of 2011. Reported net income for the year ended December 31, 2012, was $187.9 million or $3.60 per diluted share compared to $171.7 million or $3.31 per diluted share for the same period last year. Operating earnings for the quarter were $56.9 million or $1.09 per diluted share compared to $44.9 million or $0.86 per diluted share for the fourth quarter of 2011. Operating earnings for the year ended December 31, 2012, were $216.3 million or $4.14 per diluted share compared to $174 million or $3.35 per diluted share for the same period last year. Operating earnings are reported on a basis consistent with how we provided our earnings guidance for the year and excluded the following items that were not reflected in our earnings guidance and do not impact the future earnings potential for the business. Number one, after-tax expenses of approximately $8.6 million or $0.17 per diluted share for the quarter and $20.1 million or $0.38 per diluted share for the full year ended December 31, 2012, associated with the Entergy transaction. Number two, after-tax expenses of approximately $8.3 million or $0.16 per diluted share for the year ended December 31,…

(Operator Instructions) Our first question comes from Jonathan Arnold of Deutsche Bank.

Cameron in the past you've sort of given us a little bit more of a look inside the development piece of the capital plan, the $1.7 billion number. We know with the different buckets of design, intermediate and advanced, and I realize you're not rolling this forward for another period, but can you give us any sense of how those numbers might have shifted within the total? I think we were just under $1 billion of advanced phase when you put this out a year ago, what would that number be today?

I don't have a specific update to share with you today. I can't say we have continued to roll some projects into the advanced cycle as we've also continued to construct projects and move them forward into service. I don't think there is a material difference in the overall levels between design intermediate and early stage development at this stage. We continue to try to build the overall portfolio. We continue to try to advance project through the development cycle. I think as it relates to the overall development initiatives and we've had a little bit of this conversation over the course of the last year, and I think you guys appreciate this, the competitive environment continues to increase or the tension, I should say in the transmission investment environment continues to increase. As far it promotes more competitive development of transmission infrastructure at a time when obviously certainly investors desire more and more information. So it puts us in the unenviable position of trying to preserve the competitive advantages that we think we have and some of the unique opportunities we're trying to explore, while at the same time being in a position to perhaps not provide as much detail around those as investors might want. So we're trying to hold our cards a little close to our vest around the development portfolio, simply because, disclosing more information around that frankly is counterproductive relative to our overall efforts.

So we should probably anticipate you won't provide that level of granularity post-merger going forward because of increased competition I guess?

I think what we'll try to continue to do is to give investors a sense as to what the overall portfolio looks like. And the expectation that we have for being able to advance projects into our capital plan on a probability weighted basis, similar to how we have historically. I think providing significant incremental disclosure above and beyond that is, again, I don't think it helpful to our end game.

And just on sort of slightly picking up on one comment you made that you wouldn't anticipate rolling out the merged, sort of, CapEx look until after close do you have sort of any rough idea of how long post close we'll have to expect to wait for that? Is it going to be a matter of, is it weeks, six months or just some guidance on that?

I think it's fair to say you should measure it in months not weeks. I mean just given the sheer magnitude of the transaction that we're trying to execute thinking of the size of their system we know what their capital plan is, what we don't know is how quickly we're going to be able to I think implement all of our planning protocols and identify the incremental opportunities that we would perhaps believe need to be advanced, be it additional reliability investments or identified economic efficiency projects that serve to with our delivery cost of energy to customers. So it's going to take us a little bit of time to get our hands around that, as I'm sure you can appreciate. We'll strive to do it as quickly as we can as we know that will be an interesting topic and a hot topic for investors, but I think it's fair to say, it's something that should be measured in months and not weeks after closing the transaction.

Any change in thoughts about the relative merits of special dividend versus the stock buyback given, I guess, a bit more clarity on the fiscal front perhaps but anything else may have changed there?

Nothing else has really changed around that front that would allow us to say definitively today what our strategy will be. As I've mentioned before I believe the two primary drivers that will dictate that approach are really going to be a function of a tax policy. And you're correct and that we do have a little more clarity, I think around certainly how dividend and capital gains will be treated in the new tax environment, but the second driving factor is what is the price at which we believe we could buy end shares if we chose to do or execute a share repurchase and how does that factor into value creation relative to the opportunity to effectuate the recapitalization by a special dividend. So that's going to be a decision that we have to make closer to the time of execution, because we're going to have to wait and see how the stock performing at that time and whether or not we believe there's an opportunity for us to execute a repurchase that allows to acquire our shares at a price that we find attractive relative to the intrinsic value of the business. Although, we have a little more clearly around tax policy, ultimately we're going to wait and see kind of where we are from a share price perspective and from an opportunity to create value perspective as we near more closely the timing of executing the recapitalization.

I guess I could ask you what would you do if you had to make the decision today.

You're good. That would be a good question.

I decided maybe you might not well answer that.

That is probably a good expectation.

Our next question comes from Julien Dumoulin-Smith of UBS.

So first question here, we maybe a little premature as well, but when you're thinking about the Entergy approval process here and specifically kind of moving on towards approval. When in the cycle should we be thinking about settlements? And do you have any sense yet, is that at all on the table here or do you think that this is a fully litigated process?

In most of the procedural schedules thus far, we're in a position where we have filed testimony. There are really no other testimony that has yet to be filed. So certainly you know the commission staffs will need to file testimony, other interveners will file testimony. I think that's when we'll have a better idea as to what their positions are and how they view the world. I think that will then put us in a position to I think make a better assessment as to whether or not we think settlements are feasible, possible and what it might take to resettlements. I think inherently approaching any of these types of regulatory proceedings, you know, one would want to try to settle if we felt that the landscape to do that was actionable. I don't think anybody relishes the idea of extending these through the full adjudicated process if it can be avoided through a reasonable settlement that allows us advance the transaction largely on the terms and conditions that we had agreed to with Entergy. So philosophically, we're very much open to the discussion and the idea of settlement, but the likelihood of that occurring I think it's a little early to say given that we haven't seen much from both the commission staff and other interveners in the case.

I would just like to echo what Cameron said, generally as a general principal of my own is that settlement is a preferred path over adjudication, just because you can sit down and work out details with all the parties. Of course, you have to be in a position where you think you're the zone of reasonableness for both parties overlap. And so that would be a preferred method. But it is in this particular case somewhat complicated because you're doing it in multiple states and multiple jurisdictions. And so it's how do you get to the big theory of the big settlement or you get all the parties together at once even though that won't happen quite that way but you have to position the settlement in a way that you realize you're selling all the issues with everyone rather than just one or two parties.

And then kind of going back to more to the financial side, here you talk about dividend increase, its pretty material. What are the puts and takes that you see it right now and particularly the Entergy transaction itself as to where you end up in that range?

I think the range tries to provide us some flexibility to adapt to kind of conditions as we find them as we look forward in time. I think as we look at that range we're generally comfortable with it in both a standalone world as well as an Entergy world. The reality is we have effectively grown into our payout ratio now, our targeted payout ratio that's been in that mid-to-high 30% range. So as we go forward our objectives will be to continue to try to hold that level, but it will be somewhat dictated by available opportunities to reinvest in the business. I think our investors would want us and I think we as management prioritize reinvesting in the business if there are opportunities for us to do that given the returns that we think we can achieve by doing so. However, that being said, given the landscape that we see looking forward our expectations around opportunities to reinvest in the business, the cash flows we expect to be able to produce from our operations I think gives us confidence, that that's a fairly reasonable range to target. And we'll make decisions each year as to what the appropriate level is based on kind of the facts and circumstances at that time and what we view as the investment opportunities we have looking forward. If we're growing earnings at the level that we think we can grow them in the near-term, that type of dividend increase should allow us to continue to reinvest efficiently back into the business and support the payout ratio that we're generally targeting. I would want to stress, we don't view any of these metrics that we think about from a dividend policy perspective as hard and fast rules. They're more guidance that we use as we think about setting our dividend and increasing our dividend annually. We don't want to find ourselves in a position where we're locked in at any particular variable that we're trying to solve for and maybe otherwise make a decision that we would regret with respect to being able to efficiently capitalize the business and investment in new transmission infrastructure going forward. So the guidelines that we have and we're trying to target achieving those objectives when we set our dividend policy and grow our dividend rate, but we think that range, as I noted, is a reasonable range and one that gives us a little bit of flexibility but also signals I think very strongly that we see good opportunity to grow the dividend in a roughly commensurate way with earnings going forward.

Our next question comes from Kevin Cole of Credit Suisse.

I guess my first question just with MISO, are you seeing any increased visibility into expanding your exposure to the MVP project through JVs?

Well, I think that when I try to lever off what Cameron said. The fact is, is that we always look to partner with people and that's been our premise going forward and it will be a premise that we will continue to have. But other than that I won't allow anymore for us to give the specifics because the thing I've learned over the 10 years, especially in the development area when I started to give out more information that usually I don't know who is on the other end of this phone line, and it really start to give other people who would be our competitors and advantage that we no longer want to give them. Because I think if you look back on the history that we've had, especially, in our first emphases on regional development in Kansas, that pretty much was pretty open book about it and the result was that we got lot of competition that we hadn't looked for. So yes, we look for partnerships. Yes, we're going to do our best to be the pre-eminent regional transmission developer and that's about as far as it goes. I think our track record speaks for ourselves that we pretty much deliver all the time on what we say we're going to do.

So when I think of the state approval process, can a state approve separation but with an ROE or a double-lever stipulation or is it that given that those are FERC policy driven components like the FERC. The state's answer can be like a yes or no or approved or not approved?

The state, in their process does not have any tariff jurisdiction over ITC. Their jurisdiction solely is in the areas of specifically in siting and they have a lot of input, of course, through the RTO process and planning. But for rate regulation, the Federal Energy Regulatory Commission has the jurisdiction, once it becomes an independent transmission company. I should note, just as a passing that it's been upheld repeatedly in the course that actually the Federal Energy Regulatory Commission has all jurisdiction over transmission, but they have been gracious over the years to give rate regulation for transmission to the states when they are bundled as a vertical integrated utility.

And Kevin, if I could add to that just a little bit. If you look at other transactions we've done, although the states don't get to dictate the rate construct that we operate under, we have tried to do things to address concerns that they may have around the rate impacts and there are tools available to us to try to work with them in a settlement discussion that address concerns that they would have on that front. So although they don't have the ability to change it, there are certainly ways that we can work with them to try to address it, if it's something that maybe stand in the way between us and successfully advancing the transaction.

I think the other thing that I would like to add to that is that there is a tremendous amount of focus particularly by various groups on quote rate impacts for transmission. The fact is and what I went through in my dialogue today was that no customer that I'm aware of pays just the transmission bill. Those customers pay deliberate cost of energy bills. And the fact is, is that it's up to us to demonstrate that we have benefits that exceed the increase in the price and that's the one thing that always gets left out of the mix. When I talked about the Jewell Spokane line today, that was an $8 million investment that returned us 13.88% ROE, yet its savings was $60 million annually. And it was almost half of the total revenue requirement of ITCTransmission at that time. So while I think a lot of hype is given to ROE and transmission rate impact the fact is, is that we have delivered benefits far beyond the rate impact of the enhanced ROE and that's one of the things that FERC wanted. The other thing you should notice is that those projects existed before ITC bought the system. But because of their economic projects they never get built because that is not in the best interest of the host utility to do that. One another thing that I'll look at and it was again in our dialogue that if you go out to the Kansas KETA project, we brought that thing insignificantly under budget, and I don't mean just a few dollars under budget, it was significantly under budget. And that is a result of our singular focus. We have grown to the point where we have huge buying power in the transmission space. We're one of the largest buyers of transmission equipment in the United States today. And as a result of that we command those kind of prices. And so while we got a higher ROE, the customers build even for transmission was lower because we were able to bring that project in so far under budget. And I think the record results show that all of the SPP projects to date were going well and they came in under budget. So those are the things that we have to put on the table, and while a lot of people like to put an emphasis on the ROE I believe the Federal Energy Regulatory Commission is reviewing us and our job is going to be with the states is to show them the benefits that we bring far exceed that price.

I am showing no further questions at this time. I would like to turn the conference back over to Ms. Gretchen Holloway for any closing remarks.

This concludes the question-and-answer portion of our call. Anyone wishing to hear the conference call replay available through Tuesday, March 5, should dial toll free 855-859-2056 or 404-537-3406, passcode 93804905. The webcast of this event will also be archived on ITC website at itc-holdings.com. Thanks everyone and have a great day.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.