BUILDING ON A FOUNDATION OF RELIABILITY ITC HOLDINGS CORP. 2006 ANNUAL REPORT BUILDING ON A FOUNDATION OF RELIABILITY Our business model is quite simple. As an independent transmission company, ITC Holdings Corp. (NYSE: ITC) and its subsidiaries are singularly focused on improving the reliability of the electric transmission grid. It is the foundation on which our companies are built and our continuing motivation. STRENGTHENING OUR INFRASTRUCTURE Since beginning operations in March 2003, ITC, through our subsidiaries, has invested over $500 million toward ensuring and promoting electric reliability for our customers through capital and maintenance improvements. This ongoing investment has demonstrated results in the form of improved operations. 2006 was a shining example of our efforts. EXPANDING OUR FOOTPRINT In our fourth year of operations, we leveraged ITC’s established ability to successfully and reliably operate our transmission grid and improve electric reliability to begin exploring new opportunities to expand our footprint. 2006 was truly a year of growth for ITC. INVESTING IN THE FUTURE table of contents We have made significant progress toward improving electric reliability, but we recognize that there remains much work to be done. ITC will continue to look ahead in order to lay the 1 Financial Highlights groundwork that will allow us to continue in our mission. 2 To Our Shareholders 6 Building on a Foundation of Reliability LEADING BY EXCELLENCE 14 Management Team and ITC has led by example in our efforts to focus on and Board of Directors reinvest in transmission infrastructure. We also strive to lead 16 Corporate Information by example by being a good corporate citizen, community member, and a great place to work. financial highlights 2006(1) 2005 2004 OPERATING RESULTS (in millions) Operating Revenues $ 223.6 $ 205.3 $ 126.4 Net Income 33.2 34.7 2.6 Cash Flows from Operations 61.9 61.7 49.6 Investments in Property, Plant & Equipment (2) 221.5 117.8 81.5 Dividends Paid Per Share 1.075 0.525 — EARNINGS PER SHARE Basic Earnings Per Share $ 0.95 $ 1.10 $ 0.09 Diluted Earnings Per Share 0.92 1.06 0.08 WEIGHTED-AVERAGE SHARES OUTSTANDING (in thousands) Basic 35,048 31,455 30,184 Diluted 36,237 32,730 30,900 BALANCE SHEET (in millions) Property, Plant & Equipment (Net of Depreciation) $ 1,197.9 $ 603.6 $ 513.7 Total Assets 2,128.8 916.6 808.8 Total Debt 1,262.3 517.3 483.4 Total Equity 532.2 263.3 196.6 (1) 2006 year-end results reflect acquisition of Michigan Electric Transmission Company (METC) completed on October 10, 2006. (2) Investments in property, plant & equipment for year ended December 31, 2006, for ITCTransmission and METC were $171.5 million and $50.0 million, respectively. three-year results OPERATING REVENUES NET INCOME PROPERTY, PLANT AND EQUIPMENT – (Net of Depreciation) (in millions) (in millions) (in millions) 2006 ANNUAL REPORT 1 to our shareholders ITC made significant progress in 2006 toward our mission to rebuild and invest in the electric transmission infrastructure for the benefit of customers through improved reliability and enhanced access to the competitive energy marketplace. We made increased transmission capital investments, expanded our footprint in Michigan’s Lower Peninsula, and formed two subsidiaries to explore additional opportunities outside of Michigan. We also delivered significant value with approximately 46% return to our shareholders in 2006. In the third quarter, we increased the quarterly dividend 4.8% from $0.2625 per share to $0.275 per share. During 2006 ITCTransmission made capital system improvements totaling $171.5 million. Our efforts to improve reliability are paying off. On August 2, 2006, following several days of near record temperatures, an all-time record network peak load of 12,745 megawatts (MW) was reached. Throughout this period ITCTransmission’s system performance was stellar. There was not one transmission-related outage or any issues with voltage profile on our system. Three years ago and prior to the investments ITCTransmission has made, we believe the system would not have been able to support that demand. 2 ITC HOLDINGS CORP. On October 10, 2006, following the completion of successful common equity and debt offerings, we closed on our first acquisition, Michigan Electric Transmission Company (METC), a transaction valued at approximately $865 million. This acquisition is a major milestone in our growth strategy. We are now the 8th largest transmission company in the U.S. based on load served. Further, our ownership of METC and ITCTransmission positions ITC as the largest and only publicly-traded independent transmission company in the U.S. COMPARISON OF 2 YEAR CUMULATIVE TOTAL RETURN Another significant event during the year was receipt (Assumes initial investment of $100 and reinvestment of dividends) of authorization from the Federal Energy Regulatory Commission (FERC) allowing ITCTransmission and METC to recover their expenses and investments on E U L A a current rather than lagging basis beginning on V X E January 1, 2007. This adjustment enhances our D N I ability to continue to rebuild and strengthen the transmission grid in Michigan’s Lower Peninsula by more closely aligning our cash inflows with the timing of our capital expenditures. 7/26/2005 2005 2006 ITC HOLDINGS CORP. Return % – 22.13 45.69 Cum $ 100.00 122.13 177.93 Looking ahead, we are most excited about future S&P UTILITIES INDEX Return % – 0.33 20.99 Cum $ 100.00 100.33 121.39 opportunities for ITC. We have made great progress S&P 500 INDEX Return % – 5.77 15.79 Cum $ 100.00 105.77 122.48 toward rebuilding the transmission grid in Michigan’s Lower Peninsula, but there remains much work to be done. ITC is committed to making the necessary improvements. We are also leveraging our experience and partnerships and beginning to look at opportunities in regions outside of Michigan. To that end, in July 2006, we formed two subsidiaries: ITC Grid Development, a subsidiary of ITC, and ITC Great Plains, a subsidiary of ITC Grid Development. 2006 ANNUAL REPORT 3 Our first area of focus at ITC Great Plains is Kansas. The state’s leadership has recognized the need for electric transmission system upgrades in order to address Kansas’ cross-state transmission capacity issues and to develop the transmission infrastructure to support the potential for renewable energy through wind farms in Kansas. Responding to this recognized need, we have established an office in Topeka and filed an Application for Certificate of Convenience and Authority with the Kansas Corporation Commission. If approved, the certificate will officially designate ITC Great Plains as a utility operating under Kansas law, which is the first step toward becoming a FERC jurisdictional utility operating in the state of Kansas. Our employees are key to our success. The achievements ITC has made in establishing itself as a fully independent transmission company and our continued success in efforts to improve reliability are thanks to the commitment of our employees and their can-do attitude. During 2006 our employees have been focused on a wide variety of initiatives from integrating METC into our operations to becoming Sarbanes- Oxley compliant all while keeping ITC’s goal of being a best-in-class transmission provider in sight. This is because as shareholders, ITC employees understand that the interests of the company and shareholders are aligned with the needs of the customers and FERC’s vision. ITC FAST FACTS I Began operations on March 1, 2003 I First fully independent transmission company in U.S. and only publicly-traded company exclusively engaged in electric transmission I Approximately 230 employees I Subsidiaries include ITCTransmission, METC, ITC Grid Development, ITC Great Plains and ITC Midwest I ITCTransmission and METC are members of Midwest Independent Transmission System Operator (MISO) I ITCTransmission and METC are regulated by the Federal Energy Regulatory Commission (FERC) 4 ITC HOLDINGS CORP. ITC has worked hard to attract and retain quality employees so that we can be successful. Therefore, we were extremely pleased when ITCTransmission was recognized by the Michigan Business and Professional Association as one of Metropolitan Detroit’s 101 Best & Brightest Companies to Work For. This award recognizes our commitment to employees and our ongoing dedication to building upon a culture in which they can thrive. The transmission grid plays an essential role in the future of the energy industry. We are committed to facilitating the entrance of renewable resources, wind generation and more efficient generation into the market. As the backbone of the energy delivery system, the transmission grid can bring renewable generation resources to where demand exists, and we are committed to building transmission that will help to remove barriers to competition and encourage open energy markets. Further, demand response is a means to use energy more efficiently by managing loads to ensure minimization of loads during peak times or by shifting loads to off-peak periods. A seamless robust transmission system will enable optimal demand response. The transmission grid can play a very important role in making these visions a reality, and ITC is leading the way to a brighter and greener future. At the end of July, we celebrated our first year as a publicly traded company. We are pleased with the advancements we have made since we began operations in 2003, but we know that there remains much to be done for us to meet our goals of improving electricity reliability, encouraging the development and introduction into the market of renewable resources, and facilitating open, efficient and competitive energy markets. In 2007 we look forward to continued progress on our previously announced growth initiatives, as well as the anticipated completion of our acquisition of the Interstate Power & Light transmission assets announced in January of 2007.