The theme of driving change and delivering results seems quite appropriate given our performance in 2011, which proved to be a pivotal year in advancing our strategy on all fronts. We accomplished many critical objectives in 2011 and achieved significant milestones in the evolution of our company. In doing so, we have continued our strong track record of consistent execution and delivering on the commitments that we have made to our customers and shareholders, while also positioning the company well for ongoing growth and success.

Joseph L. Welch
Chairman, President and Chief Executive Officer

Driving Change

Since our formation in 2003, we have focused on promoting regulatory reforms necessary to eliminate impediments to transmission infrastructure investment with the goal of developing a 21st century transmission system to more effectively support the needs of our energy-intensive economy. Our relentless and ongoing advocacy for modernizing planning and cost allocation principles to support needed transmission expansion continues to reshape the environment in which we operate in ways that we believe to be favorable to our business strategy. While we have continued to see the benefits of policy reforms in the regional transmission organizations in which we operate, namely Southwest Power Pool (SPP) and Midwest Independent Transmission System Operator (MISO), the Federal Energy Regulatory Commission's (FERC) issuance of Order 1000 during 2011 will further promote long-term planning and cost allocation policy reforms in all regions of the country. As transmission regulation continues to evolve, we remain at the forefront of promoting policies supportive of transmission and transmission investments while also demonstrating the critical need and effectiveness of these investments.

Our December 2011 announcement regarding the agreement we reached with Entergy Corporation, whereby Entergy will separate its transmission business and merge it into a subsidiary of ITC, also serves as a prime example of our efforts to drive change. This compelling strategic transaction is transformational for our company and potentially the industry as well. By combining these businesses, we will significantly enhance the scale of our operations and financial resources as we continue to invest in electric transmission infrastructure for the benefit of customers. The transaction also will strengthen our existing transmission platform through the addition of sizable new service territories, thus enhancing our ability to deliver long-term sustainable growth.

Not only will this transaction position ITC as one of the largest transmission-owning utilities in the United States, it also will serve to promote and underscore the benefits of our independent model and provide another opportunity for us to demonstrate how it delivers value to customers in the markets we serve.

Our efforts around driving change in transmission policies to advance our strategic plans continue to support our solid performance, both operationally and financially.

Delivering Results

In 2011, ITC successfully completed its largest capital investment plan ever undertaken, totaling $633 million. These capital investments serve to further our goal of achieving and maintaining best-in-class system performance for our operating companies, which provides significant benefits to our customers. Accomplishing our investment objectives for the year was especially important because they included for the first time the advancement and construction of multiple large-scale, regional projects which are expected to deliver various benefits to the regions where they are located. These types of large-scale projects will play an increasing role in our growth objectives as we move forward.

This also was the first year we made significant investments in our development projects in the SPP region. Five years after we entered this market and established ITC Great Plains, we are now well underway in constructing three regional projects. This is a tangible example of our ability to be successful in advancing our development initiatives in a manner that benefits both customers and shareholders.

We also had strong achievements in our operational performance in 2011. While this performance is positively impacted by the investments we have made in our transmission systems over the course of the past several years, it also is a testament to the effectiveness of our operating and maintenance protocols.

In 2011, we successfully completed the most active maintenance plan in the company's history while ensuring exceptional system performance under stressed conditions, including last summer's heat wave and several severe storms.

From a reliability perspective, both ITCTransmission and METC recorded sustained outage levels that should be excellent compared to the industry. We also experienced significant operational improvement for ITC Midwest, with the fewest sustained outages recorded since ITC has owned the system. In addition to the reliability improvements at ITC Midwest, our network upgrade investments to support new generator interconnections continue to reduce generation curtailments on the system. Curtailment reductions and the resulting increases in capacity benefit customers within this region by allowing for a more efficient market.

Our ability to deliver solid operational results for our systems also translated into strong financial performance in 2011, with operating earnings of $174.0* million and operating diluted EPS of $3.35.* (*Based on Non-GAAP financial measures. See Financial Highlights page for GAAP reconciliations.) These results continue to demonstrate our consistent ability to execute on our financial commitments. Since our initial public offering, we have produced compound annual growth in earnings of approximately 21%.

While continuing to deliver strong annual earnings growth, we have also remained committed to growing our dividend. In August 2011, we once again increased our dividend by approximately 5.2%, resulting in an annualized dividend amount of $1.41 per share. This increase represented the sixth consecutive year that we increased our dividend since becoming a public company in 2005. Our steadfast approach to dividend growth has produced an aggregate increase in our dividend of approximately 34.3% since 2005, or approximately 5.0% on a compounded annual basis. As a further testament to our disciplined execution, we have been able to achieve this consistent growth in earnings and dividends while also improving the overall credit quality of the business and strengthening our financial flexibility.

In December 2011, on the date of the announcement of the proposed transaction with Entergy, S&P upgraded ITC Holdings Corp. and all of its subsidiaries as a result of improved business and financial risk profiles along with the anticipation that the Entergy transaction will preserve the credit quality of the pro forma business.

ITC's stock once again outperformed the broader markets for the year. Our total return for the year was 24.8% compared to total return for the S&P 500 of approximately 2.1% and the Dow Jones Utility Index of approximately 19.2%. The stock's performance in 2011 brings the total shareholder return over the past five years to approximately 114.3%.

Looking forward, we remain very encouraged by the future prospects for our business. We recently updated our stand-alone five year plan for the period 2012 through 2016, which forecasts capital investment opportunities of approximately $4.2 billion. These investments are expected to support a compound annual growth rate in earnings per share of approximately 15-17% over this period. We also remain confident in our ability to complete our transaction with Entergy and successfully integrate this transmission business. Our current stand-alone plan does not reflect our expectations for the pro forma business post-closing of the Entergy transaction, but we strongly believe that this transaction provides the potential to produce incremental value above and beyond what we can deliver on a stand-alone basis.

Our strategic, operational and financial performance in 2011 serves to demonstrate the effectiveness of our business model and supportive regulatory construct. By aligning the interests of all of our constituents, including customers, stakeholders and shareholders, and promoting transmission investments that serve to benefit customers, advance public policies and facilitate more efficient energy markets, our model provides an ideal platform to continue our success going forward.

We once again would like to thank our shareholders for the ongoing support and confidence you have placed in our company. We remain focused on delivering the performance you have come to expect from us.

Joseph L. Welch
Chairman, President and Chief Executive Officer