UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



Michigan						32-0058047
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

(~~248~~) (248) 946-3000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑

*~~(Note: The registrant filed~~ (Note: the Registrant is a ~~registration statement on Form S-4 that was declared effective by the Securities~~voluntary filer and ~~Exchange Commission on May 18, 2018 and between that date and December 31, 2018, the registrant was~~has not been subject to the filing requirements under Section 13 or 15(d) of the Securities Exchange Act of ~~1934. At January 1, 2019 there were less than 300 holders of~~1934 for the ~~securities registered pursuant to the Form S-4 and at that time the registrant was no longer subject to the filing requirements under Section 15(d) of the Securities Exchange Act of 1934.~~preceding 12 months.)

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

☑

☐

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

All shares of outstanding common stock of ITC Holdings Corp. are held by its parent company, ITC Investment Holdings Inc., which is an indirect majority owned subsidiary of Fortis Inc. There were 224,203,112 shares of common stock, no par value, outstanding as of ~~August 1, 2019.~~

Form 10-Q for the Quarterly Period Ended June 30, ~~2019~~2020

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DEFINITIONS

Unless otherwise noted or the context requires, all references in this report to:

ITC Holdings Corp. and its subsidiaries

•“ITC Great Plains” are references to ITC Great Plains, LLC, a wholly-owned subsidiary of ITC Holdings;

•“ITC Holdings” are references to ITC Holdings Corp. and not any of its subsidiaries;

•“ITC Interconnection” are references to ITC Interconnection LLC, a wholly-owned subsidiary of ITC Holdings;

•“ITC Midwest” are references to ITC Midwest LLC, a wholly-owned subsidiary of ITC Holdings;

•“ITCTransmission” are references to International Transmission Company, a wholly-owned subsidiary of ITC Holdings;

•“METC” are references to Michigan Electric Transmission Company, LLC, a wholly-owned subsidiary of MTH;

•“MISO Regulated Operating Subsidiaries” are references to ITCTransmission, METC and ITC Midwest together;

•“MTH” are references to Michigan Transco Holdings, LLC, the sole member of METC and a wholly-owned subsidiary of ITC Holdings;

•“Regulated Operating Subsidiaries” are references to ITCTransmission, METC, ITC Midwest, ITC Great Plains and ITC Interconnection together; and

•“Company,” “we,” “our” and “us” are references to ITC Holdings together with all of its subsidiaries.

Other definitions

~~“2017 Omnibus Plan” are references to the Company’s February 27, 2017 long-term equity incentive plan as amended July 10, 2017;~~

~~“ADIT” are references to accumulated deferred income tax;~~

•“AFUDC” are references to an allowance for ~~the cost of equity and borrowings~~funds used during construction;

•“ALJ” are references to an administrative law judge;

•“AOCI” are references to accumulated other comprehensive income or (loss);

•“Consumers Energy” are references to Consumers Energy Company, a wholly-owned subsidiary of CMS Energy Corporation;

•“COVID-19” are references to the Coronavirus disease 2019 that the World Health Organization declared a pandemic in March 2020;

•“D.C. Circuit Court” are references to the U.S. Court of Appeals for the District of Columbia Circuit;

•“DCF” are references to discounted cash flow;

•“DTE Electric” are references to DTE Electric Company, a wholly-owned subsidiary of DTE Energy Company;

•“ESPP” are references to the Fortis Amended and Restated 2012 Employee Share Purchase Plan;

•“FASB” are references to the Financial Accounting Standards Board;

•“FERC” are references to the Federal Energy Regulatory Commission;

•“Fortis” are references to Fortis Inc.;

•“Formula Rate” are references to a FERC-approved formula template used to calculate an annual revenue requirement;

•“FPA” are references to the Federal Power Act;

•“GAAP” are references to accounting principles generally accepted in the United States of America;

•“GIC” are references to GIC Private Limited;

•“Initial Complaint” are references to a November 2013 complaint to the FERC under Section 206 of the FPA regarding the base ROE;

•“ITC Investment Holdings” are references to ITC Investment Holdings Inc., a majority owned indirect subsidiary of Fortis in which GIC has an indirect minority ownership interest;

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•“IP&L” are references to Interstate Power and Light Company, an Alliant Energy Corporation subsidiary;

•“IRS” are references to the Internal Revenue Service;

•“ISO” are references to Independent System Operators;

•“KCC” are references to the Kansas Corporation Commission;

•“kW” are references to kilowatts (one kilowatt equaling 1,000 watts);

•“May 2020 Order” are references to an order issued by the FERC on May 21, 2020 regarding MISO ROE Complaints;

•“MISO” are references to the Midcontinent Independent System Operator, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the Midwestern United States and Manitoba, Canada, and of which ITCTransmission, METC and ITC Midwest are members;

•“MISO ROE Complaints” are references to the Initial Complaint and the Second Complaint;

•“NERC” are references to the North American Electric Reliability Corporation;

•“NOPR” are references to a Notice of Proposed Rulemaking issued by the FERC;

•“November 2018 Order” are references to an order issued by the FERC on November 15, 2018 regarding MISO ~~base~~ ROE ~~complaints;~~Complaints;

•“November 2019 Order” are references to an order issued by the FERC on November 21, 2019 regarding MISO ROE Complaints;

•“PBU” are references to a performance-based unit;

•“PCBs” are references to polychlorinated biphenyls;

•“ROE” are references to return on equity;

•“RTO” are references to Regional Transmission Organizations;

•“SBU” are references to a service-based unit;

•“SEC” are references to the Securities and Exchange Commission;

•“Second Complaint” are references to an additional complaint filed on February 12, 2015 with the FERC under Section 206 of the FPA regarding the base ROE;

•“September 2016 Order” are references to an order issued by the FERC on September 28, 2016 regarding ~~ROE complaints;~~the Initial Complaint;

•“SPP” are references to Southwest Power Pool, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the South Central United States, and of which ITC Great Plains is a member; and

~~“TCJA” are references to the Tax Cuts and Jobs Act of 2017, a comprehensive tax reform bill enacted on December 22, 2017; and~~

•“TO” are references to transmission ~~owners.~~

owner.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)


	June 30,		December 31,			June 30,		December 31,
(in millions, except share data)	2019		2018		(in millions, except share data)	2020		2019
ASSETS					ASSETS
Current assets					Current assets
Cash and cash equivalents	$	3	$	6	Cash and cash equivalents	$	78	$	4
Accounts receivable	133		102		Accounts receivable	150		117
Inventory	32		32		Inventory	38		39
Regulatory assets	12		12		Regulatory assets	30		12
Income tax receivable	—		1

Prepaid and other current assets	12		11		Prepaid and other current assets	16		15
Total current assets	192		164		Total current assets	312		187
Property, plant and equipment (net of accumulated depreciation and amortization of $1,850 and $1,779, respectively)	8,232		7,910
Property, plant and equipment (net of accumulated depreciation and amortization of $2,011 and $1,930, respectively)					Property, plant and equipment (net of accumulated depreciation and amortization of $2,011 and $1,930, respectively)	8,839		8,582
Other assets					Other assets
Goodwill	950		950		Goodwill	950		950
Intangible assets (net of accumulated amortization of $40 and $39, respectively)	35		38
Intangible assets (net of accumulated amortization of $44 and $42, respectively)					Intangible assets (net of accumulated amortization of $44 and $42, respectively)	31		33
Regulatory assets	247		200		Regulatory assets	246		229

Other assets	74		67		Other assets	85		77
Total other assets	1,306		1,255		Total other assets	1,312		1,289
TOTAL ASSETS	$	9,730	$	9,329	TOTAL ASSETS	$	10,463	$	10,058
LIABILITIES AND STOCKHOLDER’S EQUITY					LIABILITIES AND STOCKHOLDER’S EQUITY	��
Current liabilities					Current liabilities
Accounts payable	$	121	$	106	Accounts payable	$	102	$	82
Accrued compensation	37		30		Accrued compensation	42		61
Accrued interest	59		50		Accrued interest	51		48
Accrued taxes	67		64		Accrued taxes	68		66
Regulatory liabilities	193		178		Regulatory liabilities	47		123
Refundable deposits and advances for construction	18		33		Refundable deposits and advances for construction	37		27
Debt maturing within one year	184		—		Debt maturing within one year	110		235
Other current liabilities	9		11		Other current liabilities	19		16
Total current liabilities	688		472		Total current liabilities	476		658
Accrued pension and postretirement liabilities	68		68		Accrued pension and postretirement liabilities	74		73
Deferred income taxes	784		721		Deferred income taxes	943		873
Regulatory liabilities	621		640		Regulatory liabilities	587		584
Refundable deposits	18		13		Refundable deposits	16		19
Other liabilities	32		26		Other liabilities	36		47
Long-term debt	5,441		5,338		Long-term debt	6,068		5,572
Commitments and contingent liabilities (Notes 5 and 14)
Commitments and contingent liabilities (Notes 5 and 13)					Commitments and contingent liabilities (Notes 5 and 13)
TOTAL LIABILITIES					TOTAL LIABILITIES	8,200		7,826
STOCKHOLDER’S EQUITY					STOCKHOLDER’S EQUITY
Common stock, without par value, 235,000,000 shares authorized, 224,203,112 shares issued and outstanding at June 30, 2019 and December 31, 2018	892		892
Common stock, without par value, 235,000,000 shares authorized, 224,203,112 shares issued and outstanding at June 30, 2020 and December 31, 2019					Common stock, without par value, 235,000,000 shares authorized, 224,203,112 shares issued and outstanding at June 30, 2020 and December 31, 2019	892		892
Retained earnings	1,181		1,155		Retained earnings	1,381		1,333
Accumulated other comprehensive income	5		4
Accumulated other comprehensive (loss) income					Accumulated other comprehensive (loss) income	(10)		7
Total stockholder’s equity	2,078		2,051		Total stockholder’s equity	2,263		2,232
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	9,730	$	9,329	TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	10,463	$	10,058

See notes to condensed consolidated interim financial statements (unaudited).

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ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three months ended						Six months ended							Three months ended						Six months ended
	June 30,						June 30,							June 30,						June 30,
(in millions)	2019			2018			2019			2018			(in millions)	2020		2019		2020		2019
OPERATING REVENUES													OPERATING REVENUES
Transmission and other services	$	288		$	311		$	577		$	582		Transmission and other services	$	341	$	288	$	630	$	577
Formula rate true-up	32			(21		)	50			(13		)	Formula rate true-up	1		32		34		50
Total operating revenues	320			290			627			569			Total operating revenues	342		320		664		627
OPERATING EXPENSES													OPERATING EXPENSES
Operation and maintenance	32			28			57			51			Operation and maintenance	20		32		47		57
General and administrative	38			28			76			59			General and administrative	28		38		59		76
Depreciation and amortization	51			44			98			88			Depreciation and amortization	54		51		108		98
Taxes other than income taxes	28			28			59			55			Taxes other than income taxes	31		28		62		59
Other operating (income) and expenses, net	—			(1		)	—			(1		)

Total operating expenses	149			127			290			252			Total operating expenses	133		149		276		290
OPERATING INCOME	171			163			337			317			OPERATING INCOME	209		171		388		337
OTHER EXPENSES (INCOME)													OTHER EXPENSES (INCOME)
Interest expense, net	64			56			123			111			Interest expense, net	57		64		116		123
Allowance for equity funds used during construction	(8		)	(9		)	(16		)	(18		)	Allowance for equity funds used during construction	(6)		(8)		(12)		(16)
Other (income) and expenses, net	(1		)	2			(1		)	2			Other (income) and expenses, net	(3)		(1)		(1)		(1)
Total other expenses (income)	55			49			106			95			Total other expenses (income)	48		55		103		106
INCOME BEFORE INCOME TAXES	116			114			231			222			INCOME BEFORE INCOME TAXES	161		116		285		231
INCOME TAX PROVISION	29			35			60			61			INCOME TAX PROVISION	40		29		72		60
NET INCOME	87			79			171			161			NET INCOME	121		87		213		171
OTHER COMPREHENSIVE INCOME
Derivative instruments, net of tax (Note 11)	1			1			1			2
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX	1			1			1			2
OTHER COMPREHENSIVE (LOSS) INCOME													OTHER COMPREHENSIVE (LOSS) INCOME
Derivative instruments, net of tax (Note 10)													Derivative instruments, net of tax (Note 10)	(1)		1		(17)		1
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX													TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX	(1)		1		(17)		1
TOTAL COMPREHENSIVE INCOME	$	88		$	80		$	172		$	163		TOTAL COMPREHENSIVE INCOME	$	120	$	88	$	196	$	172

See notes to condensed consolidated interim financial statements (unaudited).

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ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (UNAUDITED)


						Accumulated										Accumulated
						Other		Total								Other		Total
			Retained			Comprehensive		Stockholder’s						Retained		Comprehensive		Stockholder’s
(in millions)	Common Stock		Earnings			Income (Loss)		Equity			(in millions)	Common Stock		Earnings		Income (Loss)		Equity
BALANCE, DECEMBER 31, 2017	$	892	$	1,026		$	2	$	1,920
Opening balance reclassification	—		(1		)	1		—
Net income	—		82			—		82
Dividends to ITC Investment Holdings Inc.	—		(50		)	—		(50		)
BALANCE, MARCH 31, 2018	892		1,057			3		1,952
Net income	—		79			—		79
Dividends to ITC Investment Holdings Inc.	—		(50		)	—		(50		)
Other comprehensive income, net of tax (Note 11)	—		—			1		1
BALANCE, JUNE 30, 2018	$	892	$	1,086		$	4	$	1,982

BALANCE, DECEMBER 31, 2018	$	892	$	1,155		$	4	$	2,051		BALANCE, DECEMBER 31, 2018	$	892	$	1,155	$	4	$	2,051
Net income	—		84			—		84			Net income	—		84		—		84
Dividends to ITC Investment Holdings Inc.	—		(72		)	—		(72		)	Dividends to ITC Investment Holdings Inc.	—		(72)		—		(72)
BALANCE, MARCH 31, 2019	892		1,167			4		2,063			BALANCE, MARCH 31, 2019	892		1,167		4		2,063
Net income	—		87			—		87			Net income	—		87		—		87
Dividends to ITC Investment Holdings Inc.	—		(73		)	—		(73		)	Dividends to ITC Investment Holdings Inc.	—		(73)		—		(73)
Other comprehensive income, net of tax (Note 11)	—		—			1		1
Other comprehensive income, net of tax (Note 10)											Other comprehensive income, net of tax (Note 10)	—		—		1		1
BALANCE, JUNE 30, 2019	$	892	$	1,181		$	5	$	2,078		BALANCE, JUNE 30, 2019	$	892	$	1,181	$	5	$	2,078

BALANCE, DECEMBER 31, 2019											BALANCE, DECEMBER 31, 2019	$	892	$	1,333	$	7	$	2,232

Net income											Net income	—		92		—		92
Dividends to ITC Investment Holdings Inc.											Dividends to ITC Investment Holdings Inc.	—		(82)		—		(82)
Other comprehensive (loss), net of tax (Note 10)											Other comprehensive (loss), net of tax (Note 10)	—		—		(16)		(16)
BALANCE, MARCH 31, 2020											BALANCE, MARCH 31, 2020	892		1,343		(9)		2,226
Net income											Net income	—		121		—		121
Dividends to ITC Investment Holdings Inc.											Dividends to ITC Investment Holdings Inc.	—		(83)		—		(83)
Other comprehensive (loss), net of tax (Note 10)											Other comprehensive (loss), net of tax (Note 10)	—		—		(1)		(1)
BALANCE, JUNE 30, 2020											BALANCE, JUNE 30, 2020	$	892	$	1,381	$	(10)	$	2,263

See notes to condensed consolidated interim financial statements (unaudited).

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ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six months ended							Six months ended
	June 30,							June 30, 2020
(in millions)	2019			2018			(in millions)	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES							CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	171		$	161		Net income	$	213	$	171
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	98			88			Depreciation and amortization expense	108		98
Recognition, refund and collection of revenue accruals and deferrals — including accrued interest	(56		)	3			Recognition, refund and collection of revenue accruals and deferrals — including accrued interest	(53)		(56)
Deferred income tax expense	59			61			Deferred income tax expense	74		59
Allowance for equity funds used during construction	(16		)	(18		)	Allowance for equity funds used during construction	(12)		(16)
Share-based compensation							Share-based compensation	10		15
Other	19			4			Other	3		4
Changes in assets and liabilities, exclusive of changes shown separately:							Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable	(28		)	(19		)	Accounts receivable	(27)		(28)
Income tax receivable	1			13

Accounts payable	1			1			Accounts payable	6		1
Accrued compensation	—			(7		)	Accrued compensation	(19)		—
Accrued interest	9			(25		)	Accrued interest	3		9
Accrued taxes	3			3			Accrued taxes	2		3

Net refund related to return on equity complaints							Net refund related to return on equity complaints	(54)		4

Other current and non-current assets and liabilities, net	—			9			Other current and non-current assets and liabilities, net	(14)		(3)
Net cash provided by operating activities	261			274			Net cash provided by operating activities	240		261
CASH FLOWS FROM INVESTING ACTIVITIES							CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(403		)	(365		)	Expenditures for property, plant and equipment	(353)		(403)
Contributions in aid of construction	1			17			Contributions in aid of construction	2		1
Other	1			(1		)	Other	1		1
Net cash used in investing activities	(401		)	(349		)	Net cash used in investing activities	(350)		(401)
CASH FLOWS FROM FINANCING ACTIVITIES							CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	50			225			Issuance of long-term debt	700		50
Borrowings under revolving credit agreements	501			368			Borrowings under revolving credit agreements	931		501
Borrowings under term loan credit agreements	200			—			Borrowings under term loan credit agreements	275		200
Net issuance of commercial paper, net of discount	184			13
Net (repayment) issuance of commercial paper							Net (repayment) issuance of commercial paper	(200)		184
Retirement of long-term debt — including extinguishment of debt costs	(203		)	(100		)	Retirement of long-term debt — including extinguishment of debt costs	—		(203)
Repayments of revolving credit agreements	(451		)	(333		)	Repayments of revolving credit agreements	(929)		(451)
Repayment of term loan credit agreement	—			(50		)	Repayment of term loan credit agreement	(400)		—
Dividends to ITC Investment Holdings Inc.	(145		)	(100		)	Dividends to ITC Investment Holdings Inc.	(165)		(145)

Settlement of interest rate swaps							Settlement of interest rate swaps	(23)		—
Other	(1		)	(2		)	Other	(3)		(1)
Net cash provided by financing activities	135			21			Net cash provided by financing activities	186		135
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(5		)	(54		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH							NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	76		(5)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	10			68			CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	6		10
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	5		$	14		CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	82	$	5

See notes to condensed consolidated interim financial statements (unaudited).

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

ITC Holdings and its subsidiaries are engaged in the transmission of electricity in the United States. Through our Regulated Operating Subsidiaries, we own and operate high-voltage electric transmission systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our transmission systems. ITC Holdings is a wholly-owned subsidiary of ITC Investment Holdings.

Basis of Presentation

These condensed consolidated interim financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, ~~2018~~2019 included in ITC Holdings’ annual report on Form 10-K for such period.

The accompanying condensed consolidated interim financial statements have been prepared using GAAP and with the instructions to Form 10-Q and Rule 10-01 of SEC Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

The condensed consolidated interim financial statements are unaudited but, in our opinion, include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

Recent Developments Regarding the COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a pandemic. Efforts to control the recent outbreak of COVID-19 have resulted in impacts to businesses and facilities in various industries around the world, such as operating restrictions and closures, and disruptions to the global economy and supply chains. The COVID-19 pandemic has and will continue to impact our customers throughout our operating footprint. To date, COVID-19 has not had a material impact on our net income. However, we have implemented various temporary cost saving measures related to operating expenses, including operation and maintenance expenses and general and administrative expenses, in an attempt to reduce costs that are collected from customers through our Formula Rates.

The duration of COVID-19 and the extent of such impact on our operations is unknown at this time. We are continuing to monitor developments involving our workforce, customers and suppliers and cannot predict whether COVID-19 will have a material impact on our consolidated results of operations, cash flows or financial condition. We continue to monitor the rapidly evolving situation and guidance from federal, state and local public health authorities. We are taking steps to mitigate the potential risks to us posed by COVID-19 and are following all government requirements to reduce the transmission of COVID-19.

Monthly Network Peak Load

For our MISO Regulated Operating Subsidiaries, monthly network peak loads are used for billing network revenues, which currently is the largest component of our operating revenues. One of the primary factors that impacts our collection of revenues is actual monthly network peak load, which is impacted by a number of factors including network usage and weather. Although monthly network peak loads do not impact our recognition of operating revenues, actual network load affects the timing of collection of our cash flows from transmission service. During March and April of 2020, the period of most significant business disruption to date, actual monthly network peak load for our MISO Regulated Operating Subsidiaries was down ranging from as much as 9% to 26% across each of the operating companies as compared to pre-COVID-19 forecasted load. This decrease was primarily as a result of reductions in or suspension of operations for many businesses and facilities in our operating footprint due to COVID-19. Further, while monthly network peak loads at our MISO Regulated Operating Subsidiaries have returned to more normalized levels in recent months, we are unable to predict the amount and duration of possible future impacts of COVID-19, weather and other factors on load levels.

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2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

~~Accounting for Leases~~

Effective January 1, 2019, we adopted accounting guidance that requires lessees to recognize a right-of-use asset and lease liability for most leases, along with additional quantitative and qualitative disclosures. We elected to apply transition relief which permitted us to adopt the new guidance on a modified retrospective basis at the adoption date (i.e., January 1, 2019) as opposed to at the beginning of the earliest period presented in the financial statements (i.e., January 1, 2017). Therefore, while we began applying the new guidance as of January 1, 2019, prior period comparative financial statements and disclosures will continue to be presented under previous lease accounting guidance.

~~In connection with our adoption of the new guidance, we elected various practical expedients and made certain accounting policy elections, including:~~

~~a “package of three” practical expedients that must be taken together and allows us to not reassess:~~

~~whether any expired or existing contract is a lease or contains a lease,~~

~~the lease classification of any expired or existing leases, and~~

~~the initial direct costs for any existing leases;~~

~~a practical expedient that permits entities to not evaluate existing land easements at adoption that were not previously accounted for as leases; and~~

~~an accounting policy election to not apply the recognition requirements to short-term leases (i.e., leases with terms of 12 months or less).~~

Our leasing activities primarily relate to office facilities, but we also have limited leasing activity relating to equipment and storage facilities. As of January 1, 2019, adoption of the guidance resulted in recognition of right-of-use lease assets of $3 million, current lease liabilities of $1 million, and non-current lease liabilities of $2 million. The adoption of this guidance did not have any impact on retained earnings or net income. We also added disclosures as a result of our adoption of the guidance; refer to Note 7 for more information on our leasing activities.

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~~Targeted Improvements to Accounting for Hedging Activities~~

In August 2017, the FASB issued authoritative guidance to make targeted improvements to hedge accounting to better align with an entity’s risk management objectives and to reduce the complexity of hedge accounting. Among other changes, the new guidance simplifies hedge accounting by (a) allowing more time for entities to complete initial quantitative hedge effectiveness assessments, (b) enabling entities to elect to perform subsequent effectiveness assessments qualitatively, (c) eliminating the concept of recognizing periodic hedge ineffectiveness for cash flow hedges, (d) requiring the change in fair value of a derivative to be recorded in the same consolidated statements of comprehensive income line item as the earnings effect of the hedged item, and (e) permitting additional hedge strategies to qualify for hedge accounting. In addition, the guidance modifies existing disclosure requirements and adds new disclosure requirements. We adopted the guidance as of January 1, 2019; however adoption of the accounting standard did not have a material impact on our financial statements or disclosures.

~~Recently Issued Pronouncements~~

We have considered all new accounting pronouncements issued by the FASB and concluded the following accounting guidance, which has not yet been adopted by us, may, subject to further evaluation, have a material impact on our consolidated financial statements.

~~Pension and Other Postretirement Plan Disclosures~~

In August 2018, the FASB issued authoritative guidance modifying the disclosure requirements for defined benefit pension and other postretirement plans. The new guidance requires disclosures including (a) the weighted average interest credit rates used for cash balance pension plans, (b) a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period, and (c) an explanation of other significant changes in the benefit obligation or plan assets. In addition, the guidance removes currently required disclosures including, among others, the requirement for public entities to disclose the effects of a one-percentage-point change on the assumed health care costs and the effect of the change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. The new guidance, which is effective for fiscal years ending after December 15, 2020 with early adoption permitted, is required to be adopted on a retrospective basis. We plan to early adopt this guidance in the 2019 annual consolidated financial statements.

Accounting for Cloud Computing Arrangements

In August 2018, the FASB issued authoritative guidance to address the accounting for implementation costs incurred in a cloud computing agreement that is a service contract. The new standard aligns the accounting for implementation costs incurred in a cloud computing arrangement as a service contract with existing guidance on capitalizing costs associated with developing or obtaining internal-use software. In addition, the new guidance requires entities to expense capitalized implementation costs of a cloud computing arrangement that is a service contract over the term of the agreement and to present the expense in the same income statement line item as the hosting fees. The guidance is effective for fiscal years beginning after December 15, 2019 with ~~early~~either prospective or retrospective adoption permitted. We ~~are still evaluating~~adopted the ~~impact~~standard prospectively on January 1, 2020. Adoption of ~~the new guidance~~this standard did not have a material impact on our condensed consolidated interim financial ~~statements, including disclosures, as well as whether to early adopt this guidance.~~statements.

3. REVENUE

Our total revenues are comprised of revenues which arise from three classifications including transmission services, other services, and Formula Rate true-up. As other services revenue is immaterial, it is presented in combination with transmission services on the condensed consolidated statements of comprehensive income.

Transmission Services

Through our Regulated Operating Subsidiaries, we generate nearly all our revenue from providing electric transmission services over our transmission systems. As independent transmission companies, our transmission services are provided and revenues are received based on our tariffs, as approved by the FERC. The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually using Formula Rates and remain in effect for a one-year period. By updating the inputs to the formula and resulting rates on an annual basis, the revenues at our Regulated Operating Subsidiaries reflect changing operating data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items.

We recognize revenue for transmission services over time as transmission services are provided to customers (generally using an output measure of progress based on transmission load delivered). Customers simultaneously receive and consume the benefits provided by the Regulated Operating Subsidiaries’ services. We recognize revenue in the amount to which we

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have the right to invoice because we have a right to consideration in an amount that corresponds directly with the value to the customer of performance completed to date. As billing agents, MISO and SPP independently bill our customers on a monthly basis and ~~collect~~collects fees for the use of our transmission systems. No component of the transaction price is allocated to unsatisfied performance obligations.

Transmission service revenue includes an estimate for unbilled revenues from service that has been provided but not billed by the end of an accounting period. Unbilled revenues are dependent upon a number of factors that require management’s judgment including estimates of transmission network load (for the MISO Regulated Operating Subsidiaries) and preliminary information provided by billing agents. Due to the seasonal fluctuations of actual load, the unbilled revenue amount generally increases during the spring and summer and decreases during the fall and winter. See Note 4 for information on changes in unbilled accounts receivable.

Other Services

Other services revenue consists of rental revenues, easement revenues, and amounts from providing ancillary services. A portion of other services revenue is treated as a revenue credit and reduces gross revenue requirement when calculating net revenue requirement under our Formula Rates. Total other services revenue for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 were $1 ~~million and $2 million, respectively.~~million. Total other services revenue for the six months ended June 30, 2020 and 2019 ~~and 2018~~ were $4$2 million and $3$4 million, respectively.

Formula Rate True-Up

The true-up mechanism under our Formula Rates is considered an alternative revenue program of a rate-regulated utility given it permits our Regulated Operating Subsidiaries to adjust future rates in response to past activities or completed events in order to collect our actual revenue requirements under our Formula Rates. In accordance with our accounting

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policy, only the current year origination of the true-up is reported as a Formula Rate true-up. See ~~“Cost-based~~“Cost-Based Formula Rates with True-Up Mechanism” in Note 5 for more information on our Formula Rates.

4. ACCOUNTS RECEIVABLE

The following table presents the components of accounts receivable on the ~~balance sheet:~~condensed consolidated statements of financial position:

June 30, December 31,
(in millions) 2019 2018
Trade accounts receivable $ 2
$ 2
Unbilled accounts receivable 120
92
Due from affiliates 1
1
Other 10
7
Total accounts receivable $ 133
$ 102


	June 30,		December 31,
(in millions)	2020		2019
Trade accounts receivable	$	2	$	2
Unbilled accounts receivable	128		102
Due from affiliates	—		1
Other	20		12
Total accounts receivable	$	150	$	117

5. REGULATORY MATTERS

Cost-Based Formula Rates with True-Up Mechanism

The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually using Formula Rates and remain in effect for a ~~one year~~one-year period. By updating the inputs to the formula and resulting rates on an annual basis, the revenues at our Regulated Operating Subsidiaries reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The formula used to derive the rates does not require further action or FERC filings each year, although the formula inputs remain subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use the formula to calculate their respective annual revenue requirements unless the FERC determines the resulting rates to be unjust and unreasonable and another mechanism is determined by the FERC to be just and reasonable. See “Rate of Return on Equity Complaints” in Note 1413 for detail on ROE matters for our MISO Regulated Operating Subsidiaries and “Incentive Adders for Transmission Rates” discussed in Note 5 herein.

The cost-based Formula Rates at our Regulated Operating Subsidiaries include a true-up mechanism that compares the actual revenue requirements of our Regulated Operating Subsidiaries to their billed revenues for each year to determine any over- or under-collection of revenue requirements. Revenue is recognized for services provided during each reporting period

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based on actual revenue requirements calculated using the formula. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The amount of accrued or deferred revenues is reflected in future revenue requirements and thus flows through to customer bills within two years under the provisions of our Formula Rates.

The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ Formula Rate revenue accruals and deferrals, including accrued interest, were as follows during the six months ended June 30, ~~2019:~~2020:


(in millions)	Total
Net regulatory assets as of December 31, 2019	$	3
Net refund of 2018 revenue deferrals and accruals, including accrued interest	20
Net revenue accrual for the six months ended June 30, 2020	34
Net accrued interest payable for the six months ended June 30, 2020	(1)
Net regulatory assets as of June 30, 2020	$	56

(in millions) Total
Net regulatory liabilities as of December 31, 2018 $ (52 )
Net refund of 2017 revenue deferrals and accruals, including accrued interest 8
Net revenue accrual for the six months ended June 30, 2019 50
Net accrued interest payable for the six months ended June 30, 2019 (2 )
Net regulatory assets as of June 30, 2019 $ 4

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ Formula Rate revenue accruals and deferrals, including accrued interest, are recorded in the condensed consolidated statements of financial position ~~at June 30, 2019 and December 31, 2018~~ as follows:

June 30, December 31,
(in millions) 2019 2018
Current regulatory assets $ 11
$ 12
Non-current regulatory assets 60
12
Current regulatory liabilities (38 ) (27 )
Non-current regulatory liabilities (29 ) (49 )
Net regulatory assets (liabilities) $ 4
$ (52 )


	June 30,		December 31,
(in millions)	2020		2019
Current regulatory assets	$	28	$	12
Non-current regulatory assets	58		43
Current regulatory liabilities	(27)		(51)
Non-current regulatory liabilities	(3)		(1)
Net regulatory assets	$	56	$	3

Incentive Adders for Transmission Rates

The FERC has authorized the use of ROE incentives, or adders, that can be applied to the rates of TOs when certain conditions are met. Our MISO Regulated Operating Subsidiaries and ITC Great Plains utilize ROE adders related to independent transmission ownership and RTO participation.

MISO Regulated Operating Subsidiaries

Effective for the period following the September 2016 Order, the authorized ROE used by ITCTransmission, METC and ITC Midwest were 11.35%, 11.35%, and 11.32%, respectively. These were inclusive of adders at ITCTransmission, METC and ITC Midwest of 150 basis points, 150 basis points and 100 basis points, respectively, subject to the maximum ROE limitation in the September 2016 Order of 11.35%. The adders at each of ITCTransmission and METC included a 100 basis point adder for independent transmission ownership and a 50 basis point adder for RTO participation. The adders at ITC Midwest included a 50 basis point adder for independent transmission ownership and a 50 basis point adder for RTO participation.

quarter of 2019. The MISO Regulated Operating Subsidiaries sought rehearing of the FERC’s October 18, 2018 order, and on July 18, 2019, the FERC denied the rehearing request. On September 11, 2019, the MISO Regulated Operating Subsidiaries filed an appeal of the FERC’s order in the D.C. Circuit Court. On December 16, 2019, the D.C. Circuit Court established a briefing schedule for the appeal. An initial brief was filed on January 27, 2020 and a reply brief was filed on April 24, 2020. Oral argument on the appeal is scheduled for September 23, 2020. We do not expect the final resolution of this proceeding to have a material adverse impact on our consolidated results of operations, cash flows or financial condition.

~~Based on~~For the ~~October 18, 2018 FERC order,~~three and six months ended June 30, 2020 and 2019, the authorized ~~ROE~~incentive adders for the MISO Regulated Operating Subsidiaries ~~has been revised to 11.07% (10.32% base ROE with~~included a 25 basis point adder for independent ~~transmission~~ ownership and a 50 basis point adder for RTO ~~participation).~~participation. See Note 1413 for information regarding the MISO ROE ~~complaints.~~Complaints and the associated impact to the base ROE of our MISO Regulated Operating Subsidiaries.

On June 11, 2019, KCC filed a complaint with the FERC under section 206 of the FPA, challenging the ROE adder for independent transmission ownership that is included in the transmission rate charged by ITC Great Plains. The complaint argues that because ITC Great Plains is similarly situated to our MISO Regulated Operating Subsidiaries with respect to ownership by Fortis and GIC, the same rationale by which the FERC lowered the MISO Regulated Operating Subsidiaries adders for independent transmission ownership, as discussed above, also applies to ITC Great Plains. The adder for independent transmission ownership allows up to 100 basis points to be added to the ITC Great Plains authorized ROE, subject to any ROE cap established by the FERC. ITC Great Plains filed an answer to the complaint on July 1, 2019 asking the FERC to deny the complaint since KCC showed no evidence that ITC Great Plains’ independence or the benefits it provides as an independent TO has been compromised or reduced as a result of the Fortis and GIC acquisition. As of June 30, 2020, we have recorded a current regulatory liability of $3 million related to this complaint. On July 16, 2020, the FERC issued an order granting the complaint, setting the revised adder for independent transmission ownership for ITC

Great Plains to 25 basis points, and requiring ITC Great Plains to include the revised adder, effective June 11, 2019, in their Formula Rates. In addition, the order directed ITC Great Plains to provide refunds, with interest, for the period from June 11, 2019 through July 16, 2020 within 60 days of the date of the order. We are considering our options for responding to the FERC order in this complaint, but we do not expect the final resolution of this proceeding to have a material adverse impact on our consolidated results of operations, cash flows or financial ~~position.~~condition.

~~The~~For the three and six months ended June 30, 2020 and 2019, the authorized ROE used by ITC Great Plains is 12.16% and is composed of a base ROE of 10.66% with a 100 basis point adder for independent transmission ownership and a 50 basis point adder for RTO participation.

~~Calculation of Accumulated Deferred Income Tax Balances in Projected Formula Rates~~

On June 21, 2018, the FERC issued an order initiating a proceeding and paper hearings, pursuant to Section 206 of the FPA, to examine the methodology used by a group of TOs, including ITCTransmission and ITC Midwest, for calculating balances of ADIT in forward-looking Formula Rates. The order is based on a previous FERC decision for another group of TOs in which the FERC concluded that the two-step averaging methodology for ADIT is no longer necessary to comply with IRS normalization rules in light of IRS guidance issued in 2017. On August 27, 2018, ITCTransmission and ITC Midwest, along with other MISO TOs, filed an initial brief in the paper hearing proceeding. In addition, on August 27, 2018, our MISO Regulated Operating Subsidiaries submitted a filing with the FERC under Section 205 of the FPA to eliminate the use of the two-step averaging methodology in the calculation of ADIT balances for the projected test year and also to modify the manner by which they calculate average ADIT balances in their annual transmission Formula Rate true-up calculation, subject to receiving guidance from the IRS to respond to the FERC order. On December 20, 2018, the FERC issued an order that (1) indicated that it did not believe it was necessary for the MISO Regulated Operating Subsidiaries to delay implementation of the template changes pending IRS approval, (2) ordered ITCTransmission and ITC Midwest to make a compliance filing to implement the changes and (3) formally instituted a proceeding against METC pursuant to Section 206 of the FPA to implement the changes. On May 16, 2019, the FERC issued an order accepting in part and rejecting in part ITCTransmission’s and ITC Midwest’s January 22, 2019 compliance filing and ordered us to make another compliance filing within 30 days of the date of the order. Specifically, the FERC accepted the portion of our compliance filing that removed the two-step averaging methodology, but rejected our compliance filing insofar as it carried proration to our true up because the FERC found that was beyond the scope of its previous orders in the docket. Additionally, on May 16, 2019, the FERC issued an order rejecting the January 22, 2019 METC 205 filing and ordered us to make a compliance filing in the 206 proceeding within 30 days of the date of the order. The FERC rejected the 205 filing because the FERC found that we had impermissibly requested a retroactive effective date of January 1, 2019. The FERC noted in the order that our compliance filing should only remove the two-step averaging methodology and should not carry proration to our true up. On June 17, 2019, our MISO Regulated Operating Subsidiaries made compliance filings consistent with the FERC orders. Additionally, on April 10, 2019, our MISO Regulated Operating Subsidiaries received formal guidance from the IRS, which we believe is consistent with the filings that we have made to date in these proceedings. We do not expect the resolution of these proceedings to have a material adverse impact on our consolidated results of operations, cash flows or financial condition.

Rate of Return on Equity Complaints

See “Rate of Return on Equity Complaints” in Note 1413 for a discussion of the MISO ROE ~~complaints.~~Complaints.

6. GOODWILL AND INTANGIBLE ASSETS

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173 million, $454 million and $323 million, respectively, which resulted from the ITCTransmission and METC acquisitions and ITC Midwest’s acquisition of the IP&L transmission assets, respectively.

We have recorded intangible assets as a result of the METC acquisition in 2006. The carrying value of these assets was ~~$21~~$17 million and ~~$22~~$19 million (net of accumulated amortization of ~~$38~~$42 million and ~~$37~~$40 million) as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

We have also recorded intangible assets for payments made by and obligations of ITC Great Plains to certain TOs to acquire rights, which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including regional cost sharing projects in Kansas. The carrying amount of these intangible assets was $14 million (net of accumulated amortization of $2 million) at both June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

We recognized ~~less than~~ $1 million and less than $1 million of amortization expense of our intangible assets during each of the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and recognized $1$2 million and $2$1 million of amortization expense of our intangible assets during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. For the balance of intangible assets recorded as of June 30, ~~2019,~~2020, we expect the annual amortization of these assets to be $3 million per year for each of the next five years.

We enter into operating leases where we are the lessee, primarily for office facilities, equipment, and storage facilities. When a contract contains a lease such that it conveys the right to control the use of an identified asset for a period of time in exchange for consideration, we measure the right-of-use assets and lease liabilities at the present value of future lease payments. We calculate the present value using our incremental borrowing rate, which is a secured interest rate based on the remaining lease term. Our lease payments are substantially all fixed and in some cases escalate according to schedule. Our office facility leases may have lease components and non-lease components which are accounted for as a single lease component. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize expenses related to our operating lease obligations on a straight-line basis over the term of the lease. Operating lease costs for the three and six months ended June 30, 2019 were less than $1 million.

The following table shows the undiscounted future minimum lease payments under our operating leases at June 30, 2019 reconciled to the corresponding discounted lease liabilities presented in our condensed consolidated interim financial statements:

Future Minimum Lease Payments (in millions)
2019 (excluding six months ended 6/30/2019) $ —
2020 1
2021 1
2022 —
2023 1
2024 and beyond —
Total lease payments 3
Difference between undiscounted cash flows and discounted cash flows —
Present value of lease liabilities 3
Less: Current operating lease liabilities (1 )
Noncurrent operating lease liabilities $ 2

~~Leases are presented in the condensed consolidated statements of financial position as follows:~~

(in millions) Classification June 30, 2019
Operating Lease Assets Other assets $ 3
Current Operating Lease Liabilities Other current liabilities 1
Noncurrent Operating Lease Liabilities Other liabilities 2

~~Disclosures Related to Periods Prior to Adoption of the New Lease Guidance~~

Operating lease costs for the three and six months ended June 30, 2018 were less than $1 million and $1 million, respectively. Undiscounted future minimum lease payments under the operating leases at December 31, 2018 were as follows:

(in millions)
2019 $ 1
2020 1
2021 1
2022 —
2023 and thereafter 1
Total minimum lease payments $ 4

~~Supplementary Lease Information~~



	~~June 30, 2019~~
~~Weighted-average remaining lease term (years)~~	~~4.6~~
~~Weighted-average discount rate~~	~~4.6~~	%

Senior Unsecured Notes

On May 14, 2020, ITC Holdings completed the private offering of $700 million aggregate principal amount of unsecured 2.95% Senior Notes, due May 14, 2030. The net proceeds from this offering were used to repay the amount outstanding under ITC Holdings’ $400 million term loan credit agreement, to repay $122 million under ITC Holdings’ revolving credit agreement, and to repay $92 million under ITC Holdings’ commercial paper program, with remaining proceeds to be used for general corporate purposes. These Senior Notes were issued under ITC Holdings’ indenture, dated April 18, 2013.

Term Loan Credit Agreement

On June 12, 2019, ITC Holdings entered into an unsecured, unguaranteed $400 million term loan credit agreement with a maturity date of June 11, 2021, under which ITC Holdings initially borrowed $200 million. The proceeds were used for the early redemption of the $200 million 5.50% Senior Notes due January 15, 2020. In January 2020, ITC Holdings ~~has the ability to draw~~drew upon the remaining $200 million under the term loan credit agreement ~~by March 12,~~to repay outstanding commercial paper balances. These borrowings were repaid in full in May 2020 from the proceeds of the ITC Holdings Senior Notes issued on May 14, 2020. The weighted-average interest rate onthroughout the ~~borrowing outstanding under this agreement~~life of the loan was ~~3.1% at June 30, 2019.~~2.27%.

Commercial Paper Program

ITC Holdings has an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed $400 million outstanding at any one time. Borrowings under ITC Holdings’ $400 million revolving credit facility may be used to repay the notes under the commercial paper program, if necessary. Despite impacts to the commercial paper market due to COVID-19, ITC Holdings was able to issue and repay commercial paper borrowings during the three months ended June 30, 2020. As of June 30, 2019, ITC Holdings had $184 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 2.7% and weighted average remaining days to maturity of 9 days. The amount outstanding as of June 30, 2019 was classified as debt maturing within one year in the condensed consolidated statements of financial position. As of December 31, 2018,2020, ITC Holdings did not have any commercial paper ~~outstanding.~~issued or outstanding under the program.

~~Senior Secured Notes~~Term Loan Credit Agreement

On January ~~15, 2019,~~23, 2020, METC ~~issued $50 million of 4.55% Senior Secured Notes,~~entered into an unsecured, unguaranteed term loan credit agreement, due January ~~15, 2049. On July 10, 2019,~~23, 2021, under which METC ~~issued an additional $50~~borrowed the maximum of $75 million ~~of Senior Secured Notes at 4.65% with terms and conditions identical to those of~~available under the ~~4.55% Senior Secured Notes, except the interest rate which includes a 10 basis point premium and the due date which is 30 years from the date of the issuance.~~agreement. The proceeds ~~from both issuances will be~~were used ~~to repay~~for general corporate purposes, primarily the repayment of borrowings under the METC revolving credit agreement. The weighted-average interest rate on the borrowing outstanding under this agreement was 0.63% at June 30, 2020.

First Mortgage Bonds

On July 15, 2020, ITC Midwest issued an aggregate of $180 million of 3.13% First Mortgage Bonds due July 15, 2051. The proceeds were used to partially repay existing indebtedness under the ITC Midwest revolving credit agreement, partially fund capital expenditures and for general corporate purposes. ~~All of METC’s Senior Secured Notes are~~ITC Midwest’s First Mortgage Bonds were issued under its first mortgage ~~indenture~~and deed of trust and secured by a first mortgage lien on substantially all of its real property and tangible personal property.

Derivative Instruments and Hedging Activities

~~We may use derivative financial instruments, including~~In May 2020, we terminated $450 million of 5-year interest rate swap contracts ~~to manage our exposure to fluctuations in~~that managed the interest ~~rates.~~ rate risk associated with the ITC Holdings $700 million Senior Notes with a maturity date of May 14, 2030. A summary of the terminated interest rate swaps is provided below:


Interest Rate Swaps (in millions, except percentages)	Notional Amount		Weighted Average Fixed Rate of Interest Rate Swaps		Comparable Reference Rate of Notes	Loss on Derivatives		Settlement Date
5-year interest rate swaps	$	450	1.41	%	0.38%	$	23	May 2020

The ~~use of these financial instruments mitigates exposure to these risks~~interest rate swaps qualified for cash flow hedge accounting treatment and the ~~variability~~cumulative pre-tax loss of $23 million was recognized in May 2020 for the effective portion of the hedges and recorded net of tax in AOCI. This amount is being amortized as a component of interest expense over the initial five years of the term of the related debt. Consistent with our ~~operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes.~~accounting policy, the swap settlement payment was recognized within cash flows from financing activities in the condensed consolidated statements of cash flows. At June 30, ~~2019,~~2020, ITC Holdings did not have any interest rate swaps outstanding. ~~On July 25, 2019, ITC Holdings entered into a 5-year forward starting interest rate swap agreement with a notional amount~~

Table of $50 million. The interest rate swap manages interest rate risk associated with the refinancing of the $400 million term loan at ITC Holdings with a maturity date of June 11, 2021. As of June 30, 2019, ITC Holdings had $200 million outstanding under the term loan described above.Contents

The 5-year term interest rate swap calls for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and to pay interest semi-annually at a fixed rate of 1.816% effective for the 5-year period beginning November 15, 2020. The agreement includes a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swap of November 15, 2020. The interest rate swap is expected to be highly effective at offsetting changes in the fair value of the forecasted interest cash flows associated with the debt issuance, resulting from changes in benchmark interest rates from the trade date of the interest rate swaps to the issuance date of the debt obligation.

The interest rate swap is expected to qualify for cash flow hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date is recorded net of tax in AOCI. This amount will be accumulated and amortized as a component of interest expense over the life of the forecasted debt. The interest rate swap does not contain credit-risk-related contingent features.

Revolving Credit Agreements

At June 30, ~~2019,~~2020, ITC Holdings and certain of its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:


(in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity			Weighted Average Interest Rate on Outstanding Balance (b)	Commitment Fee Rate (c)		(in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity			Weighted Average Interest Rate on Outstanding Balance (b)	Commitment Fee Rate (c)
ITC Holdings	$	400	$	—	$	400	(d)		0.175	%	ITC Holdings	$	400	$	—	$	400	(d)	—%	0.175	%
ITCTransmission	100		76		24			3.4%	0.10	%	ITCTransmission	100		57		43			1.1%	0.10	%
METC	100		58		42			3.4%	0.10	%	METC	100		45		55			1.1%	0.10	%
ITC Midwest	225		88		137			3.4%	0.10	%	ITC Midwest	225		169		56			1.1%	0.10	%
ITC Great Plains	75		37		38			3.4%	0.10	%	ITC Great Plains	75		30		45			1.1%	0.10	%
Total	$	900	$	259	$	641					Total	$	900	$	301	$	599

____________________________

(a)Included within long-term ~~debt.~~

~~Interest charged on borrowings depends on the variable rate structure we elected at the time of each borrowing.~~

~~Our~~ debt ~~instruments contain numerous~~in the condensed consolidated statements of financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries and selling or otherwise disposing of all or substantially all of our assets. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and certain funds from operations to debt levels. As of June 30, 2019, we were not in violation of any debt covenant.

9.(b)Interest charged on borrowings depends on the variable rate structure we elected at the time of each borrowing.

(c)Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

(d)ITC Holdings’ revolving credit agreement may be used for general corporate purposes, including to repay commercial paper issued pursuant to the commercial paper program described above, if necessary.

Revolving Credit Agreement Amendments

On January 10, 2020, ITC Holdings, ITCTransmission, METC, ITC Midwest and ITC Great Plains amended and restated their respective revolving credit agreements each dated October 23, 2017. The amendments extend the maturity date of the revolving credit agreements from October 2022 to October 2023. The determination of the applicable interest rates and commitment fee rates in the new agreements is consistent with the previous agreements as described above and remain subject to adjustment based on the borrower’s credit rating.

8. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Pension Plan Benefits

We have a qualified defined benefit pension plan (“retirement plan”) for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees, and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the retirement plan is generally to fund the annual net pension cost, though we may contribute additional amounts ~~or use our available funding balance~~ as necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 or as we deem appropriate. During the second quarter of ~~2019,~~2020, we contributed $4 million to the retirement plan. We do not expect to make any additional contributions to this plan in ~~2019.~~2020.

We also have two supplemental nonqualified, noncontributory, defined benefit pension plans for selected management employees (the “supplemental benefit plans” and, collectively with the retirement plan, the “pension plans”). The supplemental benefit plans provide for benefits that supplement those provided by the retirement plan. During the second quarter of ~~2019,~~2020, we contributed $1$3 million to the supplemental benefit plans. We do not expect to make any additional contributions to these plans in ~~2019.~~2020.

Net periodic benefit cost for the pension plans, by component, was as follows:

Three months ended Six months ended
June 30, June 30,
(in millions) 2019 2018 2019 2018
Service cost $ 2
$ 2
$ 4
$ 4
Interest cost 1
1
2
2
Expected return on plan assets (1 ) (1 ) (2 ) (2 )
Net pension cost $ 2
$ 2
$ 4
$ 4


	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Service cost	$	2	$	2	$	4	$	4
Interest cost	1		1		2		2
Expected return on plan assets	(1)		(1)		(2)		(2)


Net pension cost	$	2	$	2	$	4	$	4

The components of net pension cost other than the service cost component are included in Other (income) and expenses, net in the condensed consolidated statements of comprehensive income.

Other Postretirement Benefits

We provide certain postretirement health care, dental and life insurance benefits for eligible employees. During the second quarter of ~~2019~~2020, we contributed $4$5 million to the postretirement benefit plan. We expect to make additional contributions of $5 million to the postretirement benefit plan during the second half of ~~2019.~~2020.

Net postretirement benefit plan cost, by component, was as follows:

Three months ended Six months ended
June 30, June 30,
(in millions) 2019 2018 2019 2018
Service cost $ 3
$ 3
$ 5
$ 5
Interest cost 1
1
2
2
Expected return on plan assets (1 ) (1 ) (2 ) (2 )
Net postretirement cost $ 3
$ 3
$ 5
$ 5


	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Service cost	$	2	$	3	$	5	$	5
Interest cost	1		1		2		2
Expected return on plan assets	(1)		(1)		(2)		(2)

Net postretirement cost	$	2	$	3	$	5	$	5

The components of net postretirement cost other than the service cost component are included in Other (income) and expenses, net in the condensed consolidated statements of comprehensive income.

Defined Contribution Plan

We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was $1 million for each of the three months ended June 30, 2020 and 2019, and ~~2018~~$4 million and $3 million for ~~each of~~ the six months ended June 30, 2020 and 2019, ~~and 2018.~~respectively.

~~10.~~9. FAIR VALUE MEASUREMENTS

The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the six months ended June 30, ~~2019~~2020 and the year ended December 31, ~~2018,~~2019, there were no transfers between levels.

Our assets are measured at fair value subject to the three-tier hierarchy at June 30, 2020, were as follows:


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in millions)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash equivalents	$	2	$	—	$	—
Mutual funds — fixed income securities	50		—		—
Mutual funds — equity securities	9		—		—



Total	$	61	$	—	$	—

Our assets measured at fair value subject to the three-tier hierarchy at ~~June 30,~~December 31, 2019, were as follows:

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other Observable
Inputs

Significant
Unobservable
Inputs
(in millions) (Level 1) (Level 2) (Level 3)
Financial assets measured on a recurring basis:
Cash equivalents $ 1
$ —
$ —
Mutual funds — fixed income securities 50
—
—
Mutual funds — equity securities 7
—
—
Total $ 58
$ —
$ —

~~Our assets measured at fair value subject to the three-tier hierarchy at~~ ~~December 31, 2018, were as follows:~~

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other Observable
Inputs

Significant
Unobservable
Inputs
(in millions) (Level 1) (Level 2) (Level 3)
Financial assets measured on a recurring basis:
Cash equivalents $ 1
$ —
$ —
Mutual funds — fixed income securities 49
—
—
Mutual funds — equity securities 5
—
—
Total $ 55
$ —
$ —


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in millions)	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:

Mutual funds — fixed income securities	$	50	$	—	$	—
Mutual funds — equity securities	8		—		—
Interest rate swap derivatives	—		3		—


Total	$	58	$	3	$	—

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we held certain assets that are required to be measured at fair value on a recurring basis. The assets included in the table consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental benefit plans described in Note 9.8. The mutual funds we own are publicly traded and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value. Gains and losses for all mutual fund investments are recorded in earnings.

The assets related to derivatives consist of interest rate swaps discussed in Note 7. The fair value of our interest rate swap derivatives is determined based on a DCF method using LIBOR swap rates, which are observable at commonly quoted intervals.

We also held non-financial assets that are required to be measured at fair value on a non-recurring basis. These consist of goodwill and intangible assets. We did not record any impairment charges on long-lived assets and no other significant events occurred requiring non-financial assets and liabilities to be measured at fair value (subsequent to initial recognition) during the three and six months ended June 30, ~~2019~~2020 and ~~2018. See~~2019. Refer to Note 6 for additional information on our goodwill and intangible assets.

Fair Value of Financial Assets and Liabilities

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper, was ~~$5,418~~$6,674 million and ~~$5,186~~$5,672 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, net of discount and deferred financing fees and excluding revolving and term loan credit agreements and commercial paper, was ~~$4,982~~$5,802 million and ~~$5,130~~$5,108 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Revolving and Term Loan Credit Agreements

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had a consolidated total of ~~$459~~$376 million and ~~$208~~$499 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these

loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.

Other Financial Instruments

The carrying value of other financial instruments included in current assets and current liabilities, including cash and cash equivalents, special deposits and commercial paper, approximates their fair value due to the short-term nature of these instruments.

~~11.~~10. STOCKHOLDER'S EQUITY

Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI:

Three months ended Six months ended
June 30, June 30,
(in millions) 2019 2018 2019 2018
Balance at the beginning of period $ 4
$ 3
$ 4
$ 2
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to earnings (net of tax, of less than $1 for the three and six months ended June 30, 2019 and 2018) (a) 1
1
1
1
Reclassification of deferred tax effects on interest rate cash flow hedges stranded in AOCI, subject to the TCJA, into retained earnings —
—
—
1
Total other comprehensive income, net of tax 1
1
1
2
Balance at the end of period $ 5
$ 4
$ 5
$ 4

____________________________

(a) The reclassification of the net loss relating to interest rate cash flow hedges is reported in interest expense on a pre-tax basis.

The amount of net loss relating to interest rate cash flow hedges to be reclassified from AOCI to earnings for the 12-month period ending June 30, ~~2020~~2021 is expected to be approximately $1$4 million (net of tax of ~~less than $1~~$2 million). The reclassification is reported in Interest expense, net in the condensed consolidated statements of comprehensive income on a pre-tax basis.

~~12.~~11. SHARE-BASED COMPENSATION AND EMPLOYEE SHARE PURCHASE PLAN

~~2017 Omnibus Plan~~Long-Term Incentive Plans

~~On March 6, 2019,~~In the first quarter of 2020, 288,239 PBUs and 223,082 SBUs were granted pursuant to ~~the 2017 Omnibus Plan, we granted 348,904 PBUs and 270,505 SBUs. Each~~our long-term incentive plans. Generally, each PBU and SBU granted ~~will be~~is valued based on one share of Fortis common stock traded on the Toronto Stock Exchange, converted to U.S. dollars and settled only in cash. However, SBUs granted to the executives may settle in cash, 100% Fortis common stock, or 50% cash and 50% Fortis common stock depending on executives’ settlement elections and whether certain share ownership requirements are met. The awards are classified as liability awards and vest on the date specified in a particular grant agreement, provided the service and performance criteria, as applicable, are satisfied. The PBUs and SBUs earn dividend equivalents which are also re-measured and settled consistent with the target award ~~and settled in cash~~ at the end of the vesting period. The granted awards and related dividend equivalents have no shareholder rights.

The aggregate fair value of all ~~tranches of~~outstanding PBUs and SBUs as of June 30, ~~2019~~2020 was ~~$44~~$49 million and ~~$29~~$27 million, respectively. At June 30, ~~2019,~~2020, the total unrecognized compensation cost related to the PBUs and SBUs was ~~$24~~$20 million and ~~$15~~$13 million, respectively.

Employee Share Purchase Plan

We have an ESPP plan which enables ITC employees to purchase shares of Fortis common stock. Our cost of the plan is based on the value of our contribution, as additional compensation to a participating employee, equal to 10% of an employee’s contribution up to a maximum annual contribution of 1% of an employee’s base pay and an amount equal to

10% of all dividends paid on the Fortis shares allocated to an employee’s ESPP account. The cost of ITC Holdings’ contribution for each of the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 was less than $1 million.

~~13.~~12. RELATED PARTY TRANSACTIONS

Intercompany Receivables and Payables

ITC Holdings may incur charges from Fortis and other subsidiaries of Fortis that are not subsidiaries of ITC Holdings for general corporate expenses incurred. In addition, ITC Holdings may perform additional services for, or receive additional services from, Fortis and such subsidiaries. These transactions are in the normal course of business and payments for these services are settled through accounts receivable and accounts payable, as necessary. We had intercompany receivables from Fortis and such subsidiaries of ~~$1 million and~~ less than $1 million at June 30, ~~2019~~2020 and December 31, ~~2018, respectively,~~2019, and intercompany payables to Fortis and such subsidiaries of less than $1 million at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Related party charges for corporate expenses from Fortis and such subsidiaries are recorded in general and administrative expenses in the condensed consolidated statements of comprehensive income. Such expense for each of the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 for ITC Holdings was $3$2 million and $2$3 million, respectively, and for each of the six months ended June 30, 2020 and 2019 ~~and 2018 was $6~~were $5 million and $4$6 million, respectively. Related party billings for services to Fortis and other subsidiaries, recorded as an offset to general and administrative expenses for ITC Holdings, were less than $1 million for each of the three months ended June 30, 2020 and 2019 and $1 million and less than $1 million, respectively, for each of the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we paid dividends of ~~$145~~$165 million and ~~$100~~$145 million, respectively, to ITC Investment Holdings. We also paid dividends of ~~$53~~$83 million to ITC Investment Holdings in July ~~2019.~~2020.

Intercompany Tax Sharing Agreement

We are organized as a corporation for tax purposes and subject to a tax sharing agreement as a ~~wholly owned~~wholly-owned subsidiary of ITC Investment Holdings. Additionally, we record income taxes based on our separate company tax position and make or receive tax-related payments with ITC Investment Holdings. ~~We did not make or receive any tax-related payments during~~In April 2020, ITC Holdings paid $2 million to ITC Investment Holdings for matters related to the ~~six months ended June 30, 2019.~~State of Michigan income taxes.

~~14.~~13. COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

We are subject to federal, state and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of solid and hazardous wastes and hazardous materials, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities relating to investigation and remediation of contamination, as well as other liabilities concerning hazardous materials or contamination, such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as properties currently owned or operated by us. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under some environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. Although environmental requirements generally have become more stringent and compliance with those requirements more expensive, we are not aware of any specific developments that would increase our costs for such compliance in a manner that would be expected to have a material adverse effect on our results of operations, financial ~~position~~condition or liquidity.

Our assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Many of the properties that we own or operate have been used for many years and include older facilities and equipment that may be more likely than newer ones to contain or be made from such materials. Some of these properties include aboveground or underground storage tanks and associated piping. Some of them also include large electrical equipment filled with mineral oil, which may contain or previously have contained PCBs. Our facilities and equipment are often situated on or near property owned by others so that, if they are the source of contamination, others’ property may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that we do not own and

transmission assets that we own or operate are sometimes commingled at our transmission stations with distribution assets owned or operated by our transmission customers.

Some properties in which we have an ownership interest or at which we operate are, or are suspected of being, affected by environmental contamination. We are not aware of any pending or threatened claims against us with respect to environmental contamination relating to these properties, or of any investigation or remediation of contamination at these properties, that entail costs likely to materially affect us. Some facilities and properties are located near environmentally sensitive areas such as wetlands.

We are involved in certain legal proceedings before various courts, governmental agencies and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, eminent domain and vegetation management activities, regulatory matters and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss.

Rate of Return on Equity Complaints

Two complaints ~~have been~~were filed with the FERC by combinations of consumer advocates, consumer groups, municipal parties and other parties challenging the base ROE in MISO. The complaints were filed with the FERC under Section 206 of the FPA requesting that the FERC find the MISO regional base ROE rate (the “base ROE”) for all MISO TO’s, including our MISO Regulated Operating Subsidiaries, to no longer be just and reasonable.

~~A summary of the two complaints is as follows:~~

Complaint 15-Month Refund Period of Complaint (Beginning as of Complaint Filing Date) Original Base ROE Authorized by the FERC at Time of Complaint Filing Date (a) Base ROE Subsequently Authorized by the FERC for the Initial Complaint Period and also effective for the period from September 28, 2016 to current (a)
Reserve (Pre-Tax and Including Interest)
as of June 30, 2019
(in millions)

Initial 11/12/2013 - 2/11/2015 12.38% 10.32% $ —
(b)
Second 2/12/2015 - 5/11/2016 12.38% N/A 155

~~____________________________~~

On November 12, 2013, the Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group and Wisconsin Industrial Energy Group (collectively, the “complainants”) filed the Initial Complaint with the FERC. The complainants sought a FERC order to reduce the base ROE used in the formula transmission rates for our MISO Regulated Operating Subsidiaries to 9.15%, reducing the equity component of our capital structure and terminating the ROE adders approved for certain Regulated Operating Subsidiaries. The FERC set the base ROE for hearing and settlement procedures, while denying all other aspects of the Initial Complaint. The ROE collected through the MISO Regulated Operating Subsidiaries’ rates during the period November 12, 2013 through September 27, 2016 consisted of a base ROE of 12.38% plus applicable incentive adders.

On September 28, 2016, the FERC issued the September 2016 Order that set the base ROE at 10.32%, with a maximum ROE of 11.35%, effective for the period from November 12, 2013 through February 11, ~~2015.~~2015 based on a two-step DCF methodology adopted in previous complaint matters for other utilities. The September 2016 Order required our MISO Regulated Operating Subsidiaries to provide refunds, including interest, which were completed in 2017. Additionally, the base ROE established by the September 2016 Order was to be used prospectively from the date of that order until a new approved base ROE was established by the FERC. ~~The September 2016 Order required all MISO TOs, including our MISO Regulated Operating Subsidiaries, to provide refunds, which were completed in 2017.~~ On October 28, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for rehearing of the September 2016 Order regarding the short-term growth projections in the two-step DCF analysis. Additional impacts to the base ROE for the period of the Initial Complaint and the related accrued refund liabilities resulted from the November 2019 Order and May 2020 Order issued by the FERC, as discussed below.

On February 12, 2015, the Second Complaint was filed with the FERC by Arkansas Electric Cooperative Corporation, Mississippi Delta Energy Agency, Clarksdale Public Utilities Commission, Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative, Inc., seeking a FERC order to reduce the base ROE used in the formula transmission rates of our MISO Regulated Operating Subsidiaries to 8.67%, with an effective date of February 12, 2015.

On June 30, 2016, the presiding ALJ issued an initial decision that recommended a base ROE of 9.70% for the refund period from February 12, 2015 through May 11, 2016, with a maximum ROE of 10.68%, which also would be applicable going forward from the date of a final FERC order. ~~On September 29, 2017, certain MISO TO’s, including our MISO Regulated Operating Subsidiaries, filed~~The Second Complaint was dismissed as a ~~motion for~~result of the ~~FERC to dismiss~~November 2019 Order and the ~~Second Complaint. We had recorded an aggregate estimated~~

dismissal of the complaint was reaffirmed in the May 2020 Order, as discussed below.

current regulatory liability in the condensed consolidated statements of financial position of $155 million and $151 million as of June 30, 2019 and December 31, 2018, respectively, for the Second Complaint.

~~The recognition of the obligations associated with the complaints resulted in the following impacts:~~

Three months ended Six months ended
June 30, June 30,
(in millions) 2019 2018 2019 2018
Revenue increase $ —
$ (1 ) $ —
$ (1 )
Interest expense increase 2
1
4
3
Estimated net income reduction 2
1
3
2

Prior to the filing of the MISO ROE complaints, complaints were filed with the FERC regarding the regional base ROE rate for ISO New England TOs. In resolving these complaints, the FERC adopted a methodology for establishing base ROE rates based on a two-step DCF analysis. This methodology provided the precedent for the FERC ruling on the Initial Complaint and the ALJ initial decision on the Second Complaint for our MISO Regulated Operating Subsidiaries. In April 2017, the D.C. Circuit Court vacated ~~the~~certain precedent-setting FERC orders that established and applied the two-step DCF methodology for the determination of base ~~ROE.~~ROE for ISO New England TOs. The court remanded the orders to the FERC for further justification of its establishment of the new base ROE for the ISO New England TOs. The vacated orders in the ISO New England matters also provided the precedent for the September 2016 Order on the Initial Complaint and the ALJ initial decision on the Second Complaint for our MISO Regulated Operating Subsidiaries. On October 16, 2018, in the New England matters, the FERC issued an order on remand which ~~proposes~~proposed a new methodology for 1) determining when an existing ROE is no longer just and reasonable; and 2) setting a new just and reasonable ROE if an existing ROE has been found not to be just and reasonable. ~~The FERC established a paper hearing on how the proposed new methodology should apply to the ISO New England TOs ROE complaint proceedings.~~

The FERC issued a similar order, the November 2018 Order, in the MISO ~~TO base~~ ROE ~~complaint proceedings~~Complaints, establishing a paper hearing on the application of the proposed new methodology to the proceedings pending before the FERC involving the ROE of the MISO ~~TOs’ ROE,~~TOs, including our MISO Regulated Operating Subsidiaries. Briefs and reply briefs in the New England proceedings were filed on January 11, 2019 and March 8, 2019, respectively. Briefs and reply briefs in the MISO proceedings were filed on February 13, 2019 and April 10, 2019, respectively.

The November 2018 Order included illustrative, non-binding calculations for the ROE that ~~may be~~could have been established for the Initial Complaint using the FERC's proposed methodology with financial data from the proceedings related to that complaint. If the results of these illustrative calculations are confirmed in a final FERC order, then the application of the base ROE and the maximum ROE would not have a significant adverse impact on our financial condition, results of operations and cash flows.

Although the November 2018 Order provided illustrative calculations, the FERC stated that these calculations are merely preliminary. The FERC’s preliminary calculations are not binding and could change, as significant changes to the methodology by the FERC are possible, as a result of the paper hearing process. Until there is more certainty around the ultimate resolution of these matters, we cannot reasonably update an estimated range of gain or loss for any of the complaint proceedings or estimate a range of gain or loss for the period subsequent to the end of the Second Complaint refund period.methodology. The November 2018 Order and our response to the order through briefs and reply briefs ~~filed on February 13, 2019 and April 10, 2019, respectively, do~~did not provide a reasonable basis for a change to the reserve or ~~recognized~~ ROEs utilized for any of the complaint refund periods nor all subsequent ~~periods, and we believe~~periods.

On November 21, 2019, the FERC issued an order in the MISO ROE Complaints. The FERC did not adopt the methodology proposed in the November 2018 Order, but rather applied a methodology to the Initial Complaint period that used two financial models to determine the base ROE. The FERC determined that the ~~risk~~base ROE for the Initial Complaint should be 9.88% and the top of ~~additional material loss beyond~~the range of reasonableness for that period should be 12.24% and that this base ROE should apply during the first refund period of November 12, 2013 to February 11, 2015 and from the date of the September 2016 Order prospectively. In the November 2019 Order, the FERC also dismissed the Second Complaint. Therefore, based on the November 2019 Order, for the Second Complaint refund period from February 12, 2015 to May 11, 2016, no refund is due. As a result, we reversed the aggregate estimated current liability we had previously recorded for the Second Complaint, as noted below in “Financial Statement Impacts”. In addition, for the period from May 12, 2016 to September 27, 2016, no refund is due because no complaint had been filed for that period. The FERC ordered refunds to be made in accordance with the November 2019 Order and, on December 18, 2019, the FERC granted an extension until December 23, 2020 for settlement of the refunds. The MISO TOs, including our MISO Regulated Operating Subsidiaries, and several other parties filed requests for rehearing of the November 2019 Order. The MISO TOs filed their request for rehearing primarily on the basis that the methodology applied by the FERC in the November 2019 Order does not allow the MISO TOs to earn a reasonable rate of return on their investment, as required by precedent. On January 21, 2020, the FERC issued an order granting rehearing for further consideration.

On May 21, 2020, the FERC issued an order on rehearing of the November 2019 Order. In this order, the FERC revised its November 2019 Order methodology, finding that three financial models should be used to determine the base ROE, among other revisions. By applying the new methodology, FERC determined that the base ROE for the Initial Complaint should be 10.02% and the top of the range of reasonableness for that period should be 12.62%. The FERC determined that this base ROE should apply during the first refund period of November 12, 2013 to February 11, 2015 and from the date of the September 2016 Order prospectively. The FERC ordered refunds to be made in accordance with the May 2020 Order by December 23, 2020. In the May 2020 Order, the FERC also reaffirmed its decision to dismiss the Second Complaint and its finding that no refunds would be ordered on the Second Complaint. Our MISO Regulated Operating Subsidiaries are parties to multiple appeals of the September 2016 Order, November 2019 Order and May 2020 Order at the D.C. Circuit Court.

Financial Statement Impacts

In the condensed consolidated statements of financial position as of June 30, 2020 and in the consolidated statements of financial position as of December 31, 2019, we had recorded an aggregate current regulatory liability of $16 million and $70 million, respectively, to reflect amounts ~~already accrued~~due to customers under the terms outlined in the May 2020 Order and the November 2019 Order on the Initial Complaint and the periods subsequent to the September 2016 Order. During the six months ended June 30, 2020, we refunded $20 million of the regulatory liability to customers. We had recorded an aggregate estimated current regulatory liability in the consolidated statements of financial position of $151 million as of December 31, 2018 for the Second Complaint, which was reversed in November 2019 following the November 2019

Order. Although the November 2019 Order and May 2020 Order dismissed the Second Complaint with no refunds required, it is ~~remote.~~possible upon appeal that our MISO Regulated Operating Subsidiaries will be required to provide refunds related to the Second Complaint and these refunds could be material.

Our MISO Regulated Operating Subsidiaries currently record revenues at the base ROE of ~~10.32%~~10.02% established in the ~~September 2016~~May 2020 Order ~~on the Initial Complaint~~ plus applicable incentive adders. See Note 5 for a summary of incentive adders for transmission rates.

The recognition of the obligations associated with the MISO ROE Complaints resulted in the following impacts to the condensed consolidated statements of comprehensive income:


	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Revenue increase	$	32	$	—	$	32	$	—
Interest expense (decrease) increase	(3)		2		(3)		4
Estimated net income increase (reduction)	26		(2)		25		(3)

As of June 30, ~~2019,~~2020, our MISO Regulated Operating Subsidiaries had a total of approximately $5 billion of equity in their collective capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point change in the authorized ROE would impact annual consolidated net income by approximately $5 million.

Development Projects

~~We are pursuing strategic development~~Development projects ~~that~~ may result in payments to developers that are contingent on the projects reaching certain milestones indicating that the projects are financially viable. We believe it is reasonably possible that we will be required to make these contingent development payments up to a maximum amount of $120 million for the period from ~~2019~~2020 through 2023. In the event it becomes probable that we will make these payments, we would recognize the liability and the corresponding intangible asset or expense as appropriate.

~~15.~~14. SUPPLEMENTAL FINANCIAL INFORMATION

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated statements of financial position that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

June 30, December 31,
(in millions) 2019 2018 2018 2017
Cash and cash equivalents $ 3
$ 12
$ 6
$ 66
Restricted cash included in:
Other non-current assets 2
2
4
2
Total cash, cash equivalents and restricted cash $ 5
$ 14
$ 10
$ 68


	June 30,						December 31,
(in millions)	2020		2019		2019		2018
Cash and cash equivalents	$	78	$	3	$	4	$	6
Restricted cash included in:
Other non-current assets	4		2		2		4
Total cash, cash equivalents and restricted cash	$	82	$	5	$	6	$	10

Restricted cash included in other non-current assets primarily represents cash on deposit to pay for vegetation management, land easements and land purchases for the purpose of transmission line construction.

Supplementary Cash Flows Information

____________________________

(a)Amounts consist of current and accrued liabilities for construction, labor, materials and other costs that have not been included in investing activities. These amounts have not been paid for as of June 30, 2020 or 2019, respectively, but will be or have been included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

15. SEGMENT INFORMATION

We identify reportable segments based on the criteria set forth by the FASB regarding disclosures about segments of an enterprise, including the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses. The following tables show our financial information by reportable segment:


	Three months ended						Six months ended
OPERATING REVENUES:	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Regulated Operating Subsidiaries	$	350	$	324	$	681	$	641

Intercompany eliminations	(8)		(4)		(17)		(14)
Total Operating Revenues	$	342	$	320	$	664	$	627

Three months ended Six months ended
OPERATING REVENUES: June 30, June 30,
(in millions) 2019 2018 2019 2018
Regulated Operating Subsidiaries $ 324
$ 297
$ 641
$ 584
Intercompany eliminations (4 ) (7 ) (14 ) (15 )
Total Operating Revenues $ 320
$ 290
$ 627
$ 569


	Three months ended						Six months ended
INCOME (LOSS) BEFORE INCOME TAXES:	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Regulated Operating Subsidiaries	$	194	$	155	$	351	$	306
ITC Holdings and other	(33)		(39)		(66)		(75)
Total Income Before Income Taxes	$	161	$	116	$	285	$	231


	Three months ended						Six months ended
NET INCOME:	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Regulated Operating Subsidiaries	$	142	$	115	$	258	$	226
ITC Holdings and other	121		87		213		171
Intercompany eliminations	(142)		(115)		(258)		(226)
Total Net Income	$	121	$	87	$	213	$	171

Three months ended Six months ended
INCOME (LOSS) BEFORE INCOME TAXES: June 30, June 30,
(in millions) 2019 2018 2019 2018
Regulated Operating Subsidiaries $ 155
$ 147
$ 306
$ 290
ITC Holdings and other (39 ) (33 ) (75 ) (68 )
Total Income Before Income Taxes $ 116
$ 114
$ 231
$ 222

Three months ended Six months ended
NET INCOME: June 30, June 30,
(in millions) 2019 2018 2019 2018
Regulated Operating Subsidiaries $ 115
$ 109
$ 226
$ 215
ITC Holdings and other 87
79
171
161
Intercompany eliminations (115 ) (109 ) (226 ) (215 )
Total Net Income $ 87
$ 79
$ 171
$ 161

____________________________

(a)Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities in our segments as compared to the classification in our condensed consolidated statements of financial position.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Our reports, filings and other public announcements contain certain statements that describe our management’s beliefs concerning future business conditions, plans and prospects, growth opportunities, the outlook for our business and the electric transmission industry, and expectations with respect to various legal and regulatory proceedings based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “forecasted,” “projects,” “likely” and similar phrases. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are based on estimates and assumptions and subject to significant risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among others, the following risks and uncertainties listed in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, ~~2018:~~2019, as modified herein:

•Certain elements of our Regulated Operating Subsidiaries’ Formula Rates have been and can be challenged, which could result in lowered rates and/or refunds of amounts previously collected and thus may have an adverse effect on our business, financial condition, results of operations and cash flows.

•Our actual capital investment may be lower than planned, which would cause a lower than anticipated rate base and would therefore result in lower revenues, earnings and associated cash flows compared to our current expectations. In addition, we expect to incur expenses related to the pursuit of development opportunities, which may be higher than forecasted.

•The regulations to which we are subject may limit our ability to raise capital and/or pursue acquisitions, development opportunities or other transactions or may subject us to liabilities.

~~The TCJA and any future changes in tax laws or regulations may negatively affect our results of operations, net income, financial condition, cash flows and credit metrics.~~

•Changes in energy laws, regulations or policies could impact our business, financial condition, results of operations and cash flows.

•The widespread outbreak of an illness or other communicable disease, including the COVID-19 pandemic, or any other public health crisis, could have a material adverse impact on our business, results of operations, financial condition, cash flows and credit metrics.

•Each of our MISO Regulated Operating Subsidiaries depends on its primary customer for a substantial portion of its revenues, and any material failure by those primary customers to make payments for transmission services could have a material adverse effect on our business, financial condition, results of operations and cash flows.

•A significant amount of the land on which our assets are located is subject to easements, mineral rights and other similar encumbrances. As a result, we must comply with the provisions of various easements, mineral rights and other similar encumbrances, which may adversely impact our ability to complete construction projects in a timely manner.

•We contract with third parties to provide services for certain aspects of our business. If any of these agreements are terminated, we may face a shortage of labor or replacement contractors to provide the services formerly provided by these third parties.

•Hazards associated with high-voltage electricity transmission may result in suspension of our operations, costly litigation or the imposition of civil or criminal penalties.

•We are subject to environmental regulations and to laws that can give rise to substantial liabilities from environmental contamination.

•If amounts billed for transmission service for our Regulated Operating Subsidiaries’ transmission systems are lower than expected, or our actual revenue requirements are higher than expected, the timing of actual collection of our total revenues would be delayed.

•We are subject to various regulatory requirements, including reliability standards; contract filing requirements; reporting, recordkeeping and accounting requirements; and transaction approval requirements. Violations of these requirements, whether intentional or unintentional, may result in penalties that, under some circumstances, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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•Acts of war, terrorist attacks, natural disasters, severe weather and other catastrophic events may have a material adverse effect on our business, financial condition, results of operations and cash flows.

•A ~~cyber attack~~cyber-attack or incident could have a material adverse effect on our business, financial condition, results of operations and cash flows.

•Changes in tax laws or regulations may negatively affect our results of operations, net income, financial condition, cash flows and credit metrics.

•ITC Holdings is a holding company with no operations, and unless we receive dividends or other payments from our subsidiaries, we may be unable to fulfill our cash obligations.

•We have a considerable amount of debt and our reliance on debt financing may limit our ability to fulfill our debt obligations and/or to obtain additional financing.

•Adverse changes in our credit ratings may negatively affect us.

•Certain provisions in our debt instruments limit our financial and operating flexibility.

Forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Except as required by law, we undertake no obligation to publicly update any of our forward-looking or other statements, whether as a result of new information, future events or otherwise.

OVERVIEW

ITC Holdings and its subsidiaries are engaged in the transmission of electricity in the United States. ITC Holdings is a wholly-owned subsidiary of ITC Investment Holdings. Through our Regulated Operating Subsidiaries, we own and operate high-voltage electric transmission systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our transmission systems. Our business strategy is to own, operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and support new generating resources to interconnect to our transmission systems. We are also ~~are~~ pursuing development ~~projects outside our existing systems.~~initiatives related to grid modernization and contracted transmission projects.

As electric transmission utilities with rates regulated by the FERC, our Regulated Operating Subsidiaries earn revenues for the use of their electric transmission systems by our customers, which include investor-owned utilities, municipalities, cooperatives, power marketers and alternative energy suppliers. As independent transmission companies, our Regulated Operating Subsidiaries are subject to rate regulation only by the FERC, and our cost-based rates are discussed below under “ — Cost-Based Formula Rates with True-Up Mechanism” as well as in Note 5 to the condensed consolidated interim financial statements.

Our Regulated Operating Subsidiaries’ primary operating responsibilities include maintaining, improving and expanding their transmission systems to meet their customers’ ongoing needs, scheduling outages on system elements to allow for maintenance and construction, maintaining appropriate system voltages and monitoring flows over transmission lines and other facilities to ensure physical limits are not exceeded.

Significant recent matters that influenced our financial ~~position,~~condition, results of operations and cash flows for the six months ended June 30, ~~2019~~2020 or that may affect future results include:

•The recent outbreak of the COVID-19 pandemic that led to efforts to control the spread of the virus, which have resulted in impacts to businesses and facilities in various industries around the world, such as operating restrictions and closures, and disruptions to the global economy and supply chains;

•Our capital expenditures of ~~$403~~$353 million at our Regulated Operating Subsidiaries during the six months ended June 30, ~~2019~~2020 as described below under “ — Capital Investment and Operating Results Trends,” resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources;

•Debt issuances and repayments as described in Note 87 to the condensed consolidated interim financial statements, including ~~issuance of Senior Secured notes by METC and~~ borrowings under our revolving and term loan credit agreements and commercial paper program to fund capital investment at our Regulated Operating Subsidiaries as well as for general corporate purposes;

~~Our MISO Regulated Operating Subsidiaries had an estimated current regulatory liability~~

Table of ~~$155 million as~~Contents

•Issuance of ~~June 30, 2019 for~~ the ~~potential refund relating~~May 2020 Order related to the ~~Second Complaint,~~MISO ROE Complaints, as described in Note 1413 to the condensed consolidated interim financial ~~statements;~~statements, which reaffirmed the decision in the November 2019 Order to dismiss the Second Complaint and

~~On March 21,~~ revised the methodology outlined in the November 2019 ~~the FERC issued two notices of inquiry seeking comments on (1) whether and how policies concerning the determination of~~Order for determining the base ROE for ~~electric utilities should be modified,~~the period of the Initial Complaint and ~~(2) its electric~~the period subsequent to the September 2016 Order; and

•Issuance of a NOPR by the FERC on March 20, 2020 including proposing to update the transmission incentives ~~policy.~~

~~Table~~policy to grant incentives to transmission projects based upon benefits to customers ensuring reliability and reducing the cost of ~~Contents~~delivered power by reducing transmission congestion.

These items are discussed in more detail throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recent Developments

COVID-19 Pandemic

Monthly Network Peak Load

Liquidity and Access to Capital Markets

The COVID-19 pandemic has caused a disruption in capital markets and has resulted in periods of limited access to certain types of funding in the United States, including borrowings on commercial paper programs. We rely on both internal and external sources of liquidity to provide working capital and fund capital investments. As a result of the capital markets disruption, we may have limited access to capital markets and encounter increased borrowing costs.

Rate of Return on Equity Complaints

Two complaints ~~have been~~were filed with the FERC by combinations of consumer advocates, consumer groups, municipal parties and other parties challenging the base ROEs in MISO. ~~See Note 14~~In addition to ~~the condensed consolidated interim financial statements for a summary of the complaints and related proceedings.~~

In 2017, $118 million, including interest, was refunded to customers of our MISO Regulated Operating Subsidiaries for the Initial Complaint based on the refund liability associated with the September 2016 Order. As of June 30, 2019 we had recorded an aggregate estimated current regulatory liability in the condensed consolidated statements of financial position of $155 million for the Second Complaint. The recognition of the obligations associated with the complaints resulted in the following impacts:

~~Prior to the filing of~~ the MISO ROE ~~complaints,~~Complaints, complaints were filed with the FERC regarding the regional base ROE rate for ISO New England TOs. ~~In resolving these complaints,~~See Note 13 to the condensed consolidated interim financial statements for a summary of the MISO ROE Complaints and related proceedings.

Related FERC adopted a methodology for establishing base ROE rates based on a two-step DCF analysis. This methodology provided the precedent for the FERC ruling on the Initial Complaint and the ALJ initial decision on the Second Complaint for our MISO Regulated Operating Subsidiaries. Orders

In April 2017, the D.C. Circuit Court vacated ~~the~~certain precedent-setting FERC orders that established and applied the two-step DCF methodology for the determination of base ~~ROE.~~ROE for ISO New England TOs. The court remanded the orders

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to the FERC for further justification of its establishment of the new base ROE for the ISO New England TOs. The vacated orders in the ISO New England matters also provided the precedent for the September 2016 Order on the Initial Complaint and the ALJ initial decision on the Second Complaint for our MISO Regulated Operating Subsidiaries. On October 16, 2018, in the New England matters, the FERC issued an order on remand which ~~proposes~~proposed a new methodology for 1) determining when an existing ROE is no longer just and reasonable; and 2) setting a new just and reasonable ROE if an existing ROE has been found not to be just and reasonable. ~~The FERC established a paper hearing on how the proposed new methodology should apply to the ISO New England TOs ROE complaint proceedings.~~

November 2019 Order

On ~~March~~November 21, 2019, the FERC issued an order in the MISO ROE Complaints. The FERC did not adopt the methodology proposed in the November 2018 Order, but rather applied a ~~notice of inquiry seeking comments on whether and how policies concerning~~methodology to the ~~determination of~~Initial Complaint period that used two financial models to determine the base ROE. The FERC determined that the base ROE for ~~electric utilities~~the Initial Complaint should be ~~modified,~~9.88% and the top of the range of reasonableness for that period should be 12.24% and that this base ROE should apply during the first refund period of November 12, 2013 to February 11, 2015 and from the date of the September 2016 Order prospectively. In the November 2019 Order, the FERC also dismissed the Second Complaint. Therefore, based on the November 2019 Order, for the Second Complaint refund period from February 12, 2015 to May 11, 2016, no refund is due. As a result, we reversed the aggregate estimated current liability we had previously recorded for the Second Complaint, as noted below in “Financial Statement Impacts”. In addition, for the period from May 12, 2016 to September 27, 2016, no refund is due because no complaint had been filed for that period. The FERC ordered refunds to be made in accordance with the November 2019 Order and, on December 18, 2019, the FERC granted an extension until December 23, 2020 for settlement of the refunds. The MISO TOs, including our MISO Regulated Operating Subsidiaries, and several other parties filed requests for rehearing of the November 2019 Order. The MISO TOs filed their request for rehearing primarily on the basis that the methodology applied by the FERC in the November 2019 Order does not allow the MISO TOs to earn a reasonable rate of return on their investment, as required by precedent. On January 21, 2020, the FERC issued an order granting rehearing for further consideration.

May 2020 Order

Financial Statement Impacts

In the condensed consolidated statements of financial position as of June 30, 2020 and in the consolidated statements of financial position as of December 31, 2019, we had recorded an aggregate current regulatory liability of $16 million and $70 million, respectively, to reflect amounts due to customers under the terms outlined in the May 2020 Order and the November 2019 Order on the Initial Complaint and the periods subsequent to the September 2016 Order. During the six months ended June 30, 2020, we refunded $20 million of the regulatory liability to customers. We had recorded an aggregate estimated current regulatory liability in the consolidated statements of financial position of $151 million as of December 31, 2018 for the Second Complaint, which was reversed in November 2019 following the November 2019 Order. Although the November 2019 Order and May 2020 Order dismissed the Second Complaint with no refunds required, it is ~~still pending. The FERC’s consideration of responses~~possible upon appeal that our MISO Regulated Operating Subsidiaries will be required to ~~this notice of inquiry may impact our future base ROE.~~

provide refunds related to the Second Complaint and these refunds could be material.

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Our MISO Regulated Operating Subsidiaries currently record revenues at the base ROE of ~~10.32%~~10.02% established in the ~~September 2016~~May 2020 Order ~~on the Initial Complaint~~ plus applicable incentive adders. See Note 5 to the condensed consolidated interim financial statements for a summary of incentive adders for transmission rates.

The recognition of the obligations associated with the MISO ROE Complaints resulted in the following impacts to the condensed consolidated statements of comprehensive income:


	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2020		2019		2020		2019
Revenue increase	$	32	$	—	$	32	$	—
Interest expense (decrease) increase	(3)		2		(3)		4
Estimated net income increase (reduction)	26		(2)		25		(3)

Challenges to Incentive Adders for Transmission Rates

On March ~~21, 2019,~~20, 2020, the FERC issued a ~~notice of inquiry seeking comments on its electric~~NOPR including proposing to update the transmission incentives policy ~~which is still pending.~~to grant incentives to transmission projects based upon benefits to customers. The ~~FERC’s consideration~~outcome of ~~responses to~~ this ~~inquiry~~proposal may impact the incentive adders that our Regulated Operating Subsidiaries are authorized to apply to their base ~~ROEs.~~ROEs on a prospective basis. See Note 5 to the condensed consolidated interim financial statements for a summary of incentive adders for transmission rates.

MISO Regulated Operating Subsidiaries

On April 20, 2018, Consumers Energy, IP&L, Midwest Municipal Transmission Group, Missouri River Energy Services, Southern Minnesota Municipal Power Agency and WPPI Energy filed a complaint with the FERC under section 206 of the FPA, challenging the adders for independent transmission ownership that are included in transmission rates charged by the MISO Regulated Operating Subsidiaries. The adders for independent transmission ownership allowed up to 50 basis points or 100 basis points to be added to the MISO Regulated Operating Subsidiaries’ authorized ROE, subject to any ROE cap established by the FERC. On October 18, 2018, the FERC issued an order granting the complaint in part, setting revised adders for independent transmission ownership for each of the MISO Regulated Operating Subsidiaries to 25 basis points, and requiring the MISO Regulated Operating Subsidiaries to include the revised adders, effective April 20, 2018, in their Formula Rates. In addition, the order directed the MISO Regulated Operating Subsidiaries to provide refunds, with interest, for the period from April 20, 2018 through October 18, 2018. The MISO Regulated Operating Subsidiaries ~~sought rehearing of the FERC’s October 18, 2018 order, and on July 18, 2019, FERC denied the rehearing request. The MISO Regulated Operating Subsidiaries~~ began reflecting the 25 basis point adder for independent transmission ownership in transmission rates in November 2018. Refunds of $7 million were primarily made in the fourth quarter of 2018 and were completed in the first quarter of 2019. The MISO Regulated Operating Subsidiaries sought rehearing of the FERC’s October 18, 2018 order, and on July 18, 2019, the FERC denied the rehearing request. On September 11, 2019, the MISO Regulated Operating Subsidiaries filed an appeal of the FERC’s order in the D.C. Circuit Court. On December 16, 2019, the D.C. Circuit Court established a briefing schedule for the appeal. An initial brief was filed on January 27, 2020 and a reply brief was filed on April 24, 2020. Oral argument on the appeal is scheduled for September 23, 2020. We do not expect the final resolution of this proceeding to have a material adverse impact on our consolidated results of operations, cash flows or financial condition.

ITC Great Plains

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30, 2020, we have recorded a current regulatory liability of $3 million related to this complaint. On July 16, 2020, the FERC issued an order granting the complaint, setting the revised adder for independent transmission ownership for ITC Great Plains to 25 basis points, and requiring ITC Great Plains to include the revised adder, effective June 11, 2019, in their Formula Rates. In addition, the order directed ITC Great Plains to provide refunds, with interest, for the period from June 11, 2019 through July 16, 2020 within 60 days of the date of the order. We are considering our options for responding to the FERC order in this complaint, but we do not expect the final resolution of this proceeding to have a material adverse impact on our consolidated results of operations, cash flows or financial ~~position.~~condition.

Cost-Based Formula Rates with True-Up Mechanism

Our Regulated Operating Subsidiaries calculate their revenue requirements using cost-based Formula Rates that are effective without the need to file rate cases with the FERC, although the rates are subject to legal challenge at the FERC. Under their cost-based formula, each of our Regulated Operating Subsidiaries separately calculates a revenue requirement based on financial information specific to each company. The calculation of projected revenue requirement for a future period is used to establish the transmission rate used for billing purposes. The calculation of actual revenue requirements for a historic period is used to calculate the amount of revenues recognized in that period and determine the over-or under-collection for that period.

Under these Formula Rates, our Regulated Operating Subsidiaries recover expenses and earn a return on and recover investments in property, plant and equipment on a current basis. The Formula Rates for a given year reflect forecasted expenses, property, plant and equipment, point-to-point revenues, network load at our MISO Regulated Operating Subsidiaries and other items for the upcoming calendar year to establish projected revenue requirements for each of our Regulated Operating Subsidiaries that are used as the basis for billing for service on their systems from January 1 to December 31 of that year. Our

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Formula Rates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue. The over- or under-collection typically results from differences between the projected revenue requirement used as the basis for billing and actual revenue requirement at each of our Regulated Operating Subsidiaries, or from differences between actual and projected monthly network peak loads at our MISO Regulated Operating Subsidiaries. In the event billed revenues in a given year are more or less than actual revenue requirements, which are calculated primarily using information from that year’s FERC Form No. 1, our Regulated Operating Subsidiaries will refund or collect additional revenues, with interest, within a two-year period such that customers pay only the amounts that correspond to actual revenue requirements for that given period. This annual true-up ensures that our Regulated Operating Subsidiaries recover their allowed costs and earn their allowed returns.

See “Cost-Based Formula Rates with True-Up Mechanism” in Note 5 to the condensed consolidated interim financial statements for further discussion of our Formula Rates and see “Rate of Return on Equity Complaints” in Note 1413 to the condensed consolidated interim financial statements for detail on ROE matters.

Revenue Accruals and Deferrals — Effects of Monthly Network Peak Loads

For our MISO Regulated Operating Subsidiaries, monthly network peak loads are used for billing network revenues, which currently is the largest component of our operating revenues. One of the primary factors that impacts the revenue accruals and deferrals at our MISO Regulated Operating Subsidiaries is actual monthly network peak loads experienced as compared to those forecasted in establishing the annual network transmission rate. Under their cost-based Formula Rates that contain a true-up mechanism, our MISO Regulated Operating Subsidiaries accrue or defer revenues to the extent that their actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. Although monthly network peak loads do not impact operating revenues recognized, network load affects the timing of our cash flows from transmission service. The monthly network peak load of our MISO Regulated Operating Subsidiaries is generally impacted by weather and economic conditions and seasonally shaped with higher load in the summer months when cooling demand is higher.

ITC Great Plains does not receive revenue based on a peak load or a dollar amount per kW each month therefore, peak load does not have a seasonal effect on operating cash flows. The SPP tariff applicable to ITC Great Plains is billed ratably each month based on its annual projected revenue requirement posted annually by SPP.

Capital Investment and Operating Results Trends

We expect a long-term upward trend in revenues and earnings, subject to the impact of any rate changes and required refunds resulting from the resolution of the ROE complaints as described in Note 14 to the condensed consolidated interim financial statements.

~~The primary factor that is expected to continue to increase our revenues and earnings in future years is increased~~ rate base ~~that would result~~resulting from our anticipated capital investment, in excess of depreciation and any acquisition premiums, from our Regulated Operating Subsidiaries’ long-term capital investment programs to improve reliability, increase system capacity and upgrade the transmission network to support new generating

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resources. ~~Investments~~Investment in property, plant and equipment, when placed in-service upon completion of a capital project, are added to the rate base of our Regulated Operating Subsidiaries. While we expect increases in rate base to result in a corresponding long-term upward trend in revenues and earnings, our revenues and earnings are also impacted by changes in our ROE or required refunds resulting from the resolution of the incentive adders complaints and MISO ROE Complaints, as described in Note 5 and Note 13 to the condensed consolidated interim financial statements, or other future increases or decreases to our rates for incentive adders and base ROE.

Our Regulated Operating Subsidiaries strive for high reliability of their systems and improvement in system accessibility for all generation resources. The FERC requires compliance with certain reliability standards and may take enforcement actions against violators, including the imposition of substantial fines. NERC is responsible for developing and enforcing these mandatory reliability standards. We continually assess our transmission systems against standards established by NERC, as well as the standards of applicable regional entities under NERC that have been delegated certain authority for the purpose of proposing and enforcing reliability standards. We believe that we meet the applicable standards in all material respects, although further investment in our transmission systems and an increase in maintenance activities will likely be needed to maintain compliance, improve reliability and address any new standards that may be promulgated.

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We also assess our transmission systems against our own planning criteria that are filed annually with the FERC. Based on our planning studies, we see needs to make capital investments to: (1) maintain and replace the current transmission infrastructure; (2) enhance system integrity and reliability and accommodate load growth; (3) upgrade physical and technological grid security; and (4) develop and build regional transmission infrastructure, including additional transmission facilities that will provide interconnection opportunities for generating facilities. We do not currently expect any material change in planned capital expenditures in 2020 due to COVID-19; however, we continue to evaluate potential impacts of COVID-19 on our forecasted capital expenditures. Depending on the length and severity of impacts of COVID-19, certain planned capital expenditures for 2020 may be shifted to later years of the forecast. We currently do not anticipate a change to our total forecasted capital expenditures for the years 2020 through 2024. The following table shows our actual and expected capital expenditures at our Regulated Operating Subsidiaries:

Actual Capital

Forecasted

Actual Capital

Forecasted

Expenditures for the

Capital

Expenditures for the

Capital

Six Months Ended

Expenditures

Six Months Ended

Expenditures

(in millions)

June 30, 2019

2019 — 2023

(in millions)

June 30, 2020

2020 — 2024

Expenditures for property, plant and equipment (a)

403

3,515

Expenditures for property, plant and equipment (a)

353

3,746

____________________________

~~We are pursuing~~(a)Amounts represent the cash payments to acquire or construct property, plant and equipment, as presented in the condensed consolidated statements of cash flows. These amounts exclude non-cash additions to property, plant and equipment for the AFUDC equity as well as accrued liabilities for construction, labor and materials that have not yet been paid.

Our development projects ~~that~~ could result in a significant amount of capital investment, but we are not able to estimate the amounts we ultimately expect to invest or the timing of such investments. ~~Our capital investment efforts relating to development initiatives are based on establishing an ongoing pipeline of projects that would position us for long-term growth.~~ Refer to “Item 1 Business — Development of Business” in our Form 10-K for the year ended December 31, ~~2018~~2019 for a discussion of our development activities.

Investments in property, plant and equipment could ~~vary~~be lower than expected due to ~~among other things, the impact~~a variety of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment prices and availability, our ability to obtain any necessary financing for such expenditures, limitations on the amount of construction that can be undertaken on our systems at any one time, regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery or other issues orfactors, as ~~a result of legal proceedings, variances between estimated and actual costs of construction contracts awarded and the potential for greater competition for new development projects.~~discussed in “Item 1A Risk Factors”. In addition, investments in transmission network upgrades for generator interconnection projects could change from prior estimates significantly due to changes in the MISO queue for generation projects and other factors beyond our control.

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RESULTS OF OPERATIONS

Results of Operations and Variances


	Three months ended									Percentage		Six months ended									Percentage			Three months ended								Percentage		Six months ended							Percentage
	June 30,						Increase			increase		June 30,						Increase			increase			June 30,						Increase		increase		June 30,						Increase	increase
(in millions)	2019			2018			(decrease)			(decrease)		2019			2018			(decrease)			(decrease)		(in millions)	2020		2019		(decrease)		(decrease)		2020		2019		(decrease)		(decrease)
OPERATING REVENUES																							OPERATING REVENUES
Transmission and other services	$	288		$	311		$	(23	)	(7	)%	$	577		$	582		$	(5	)	(1	)%	Transmission and other services	$	341	$	288	$	53	18	%	$	630	$	577	$	53	9	%
Formula Rate true-up	32			(21		)	53			(252	)%	50			(13		)	63			(485	)%	Formula Rate true-up	1		32		(31)		(97)	%	34		50		(16)		(32)	%
Total operating revenues	320			290			30			10	%	627			569			58			10	%	Total operating revenues	342		320		22		7	%	664		627		37		6	%
OPERATING EXPENSES																							OPERATING EXPENSES
Operation and maintenance	32			28			4			14	%	57			51			6			12	%	Operation and maintenance	20		32		(12)		(38)	%	47		57		(10)		(18)	%
General and administrative	38			28			10			36	%	76			59			17			29	%	General and administrative	28		38		(10)		(26)	%	59		76		(17)		(22)	%
Depreciation and amortization	51			44			7			16	%	98			88			10			11	%	Depreciation and amortization	54		51		3		6	%	108		98		10		10	%
Taxes other than income taxes	28			28			—			—	%	59			55			4			7	%	Taxes other than income taxes	31		28		3		11	%	62		59		3		5	%
Other operating (income) and expenses, net	—			(1		)	1			(100	)%	—			(1		)	1			(100	)%

Total operating expenses	149			127			22			17	%	290			252			38			15	%	Total operating expenses	133		149		(16)		(11)	%	276		290		(14)		(5)	%
OPERATING INCOME	171			163			8			5	%	337			317			20			6	%	OPERATING INCOME	209		171		38		22	%	388		337		51		15	%
OTHER EXPENSES (INCOME)																							OTHER EXPENSES (INCOME)
Interest expense, net	64			56			8			14	%	123			111			12			11	%	Interest expense, net	57		64		(7)		(11)	%	116		123		(7)		(6)	%
Allowance for equity funds used during construction	(8		)	(9		)	1			(11	)%	(16		)	(18		)	2			(11	)%	Allowance for equity funds used during construction	(6)		(8)		2		(25)	%	(12)		(16)		4		(25)	%
Other (income) and expenses, net	(1		)	2			(3		)	(150	)%	(1		)	2			(3		)	(150	)%	Other (income) and expenses, net	(3)		(1)		(2)		200	%	(1)		(1)		—		—
Total other expenses (income)	55			49			6			12	%	106			95			11			12	%	Total other expenses (income)	48		55		(7)		(13)	%	103		106		(3)		(3)	%
INCOME BEFORE INCOME TAXES	116			114			2			2	%	231			222			9			4	%	INCOME BEFORE INCOME TAXES	161		116		45		39	%	285		231		54		23	%
INCOME TAX PROVISION	29			35			(6		)	(17	)%	60			61			(1		)	(2	)%	INCOME TAX PROVISION	40		29		11		38	%	72		60		12		20	%
NET INCOME	$	87		$	79		$	8		10	%	$	171		$	161		$	10		6	%	NET INCOME	$	121	$	87	$	34	39	%	$	213	$	171	$	42	25	%

~~Three and six months ended June 30, 2019 compared to three and six months ended June 30, 2018~~

The following table sets forth the components of and changes in operating revenues for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 which included revenue accruals and deferrals as described in Note 5 to the condensed consolidated interim financial statements:

____________________________

(a)Includes a portion of the Formula Rate true-up of $1 million and $32 million for the three months ended June 30, 2020 and 2019, respectively.



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None



			Page
Part I. Financial Information			5
Item 1. Financial Statements			5
Condensed Consolidated Statements of Financial Position (Unaudited)			5
Condensed Consolidated Statements of Comprehensive Income (Unaudited)			6
Condensed Consolidated Statements of Changes in Stockholder’s Equity (Unaudited)			7
Condensed Consolidated Statements of Cash Flows (Unaudited)			8
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3536
Item 4. Controls and Procedures			3637
Part II. Other Information			3637
Item 1. Legal Proceedings			3637
Item 1A. Risk Factors			3638
Item 6. Exhibits			3739
Signatures			3840



Exhibit No.	Description of Document

~~10.192~~






4.52	~~ITC Holdings 2019 Term Loan Credit Agreement,~~Fifth Supplemental Indenture, dated as of ~~June 12, 2019, among~~May 14, 2020 between ITC Holdings Corp.~~, the various financial institutions~~ and ~~other persons from time to time parties thereto~~Wells Fargo Bank, National Association, as lenders and Toronto-Dominion (Texas) LLC, as administrative agent for the Lenders, Mizuho Bank, Ltd. and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners and Mizuho Bank, Ltd., as syndication agenttrustee, together with form of 2.95% Note due 2030 (filed with Registrant’s Form 8-K on ~~June~~May 14, ~~2019)~~2020)

~~31.1~~4.53	Eleventh Supplemental Indenture, dated as of May 8, 2020 between ITC Midwest LL and The Bank of New York Mellon Trust Company, N.A., (as successor to The Bank of New York Trust Company, N.A.), as trustee (filed with the Registrant’s Form 8-K on July 15, 2020)

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Database

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, formatted in Inline XBRL



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended	June 30, ~~2019~~2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



(in millions)	Total
Net regulatory liabilities as of December 31, 2018	$	(52	)
Net refund of 2017 revenue deferrals and accruals, including accrued interest	8
Net revenue accrual for the six months ended June 30, 2019	50
Net accrued interest payable for the six months ended June 30, 2019	(2		)
Net regulatory assets as of June 30, 2019	$	4



Future Minimum Lease Payments	(in millions)
2019 (excluding six months ended 6/30/2019)	$	—
2020	1
2021	1
2022	—
2023	1
2024 and beyond	—
Total lease payments	3
Difference between undiscounted cash flows and discounted cash flows	—
Present value of lease liabilities	3
Less: Current operating lease liabilities	(1		)
Noncurrent operating lease liabilities	$	2


~~(b)~~	~~Interest charged on borrowings depends on the variable rate structure we elected at the time of each borrowing.~~


~~(c)~~	~~Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.~~


~~(a)~~	~~The reclassification of the net loss relating to interest rate cash flow hedges is reported in interest expense on a pre-tax basis.~~



Complaint	15-Month Refund Period of Complaint (Beginning as of Complaint Filing Date)	Original Base ROE Authorized by the FERC at Time of Complaint Filing Date (a)	Base ROE Subsequently Authorized by the FERC for the Initial Complaint Period and also effective for the period from September 28, 2016 to current (a)	Reserve (Pre-Tax and Including Interest) as of June 30, 2019 (in millions)
Initial	11/12/2013 - 2/11/2015	12.38%	10.32%	$	—	(b)
Second	2/12/2015 - 5/11/2016	12.38%	N/A	155


~~(a)~~	The ROE collected through the MISO Regulated Operating Subsidiaries’ rates during the period November 12, 2013 through September 27, 2016, a portion of which was later refunded to customers for the period of the Initial Complaint, consisted of a base ROE of 12.38% plus applicable incentive adders.


~~(a)~~	Amounts consist of current and accrued liabilities for construction, labor, materials and other costs that have not been included in investing activities. These amounts have not been paid for as of June 30, 2019 or 2018, respectively, but will be or have been included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.


TOTAL ASSETS:	June 30,			December 31,			TOTAL ASSETS:	June 30,		December 31,
(in millions)	2019			2018			(in millions)	2020		2019
Regulated Operating Subsidiaries	$	9,625		$	9,224		Regulated Operating Subsidiaries	$	10,269	$	9,946
ITC Holdings and other	5,164			4,977			ITC Holdings and other	5,666		5,402
Reconciliations / Intercompany eliminations (a)	(5,059		)	(4,872		)	Reconciliations / Intercompany eliminations (a)	(5,472)		(5,290)
Total Assets	$	9,730		$	9,329		Total Assets	$	10,463	$	10,058


~~(a)~~	Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities in our segments as compared to the classification in our condensed consolidated statements of financial position.


~~(a)~~	Amounts represent the cash payments to acquire or construct property, plant and equipment, as presented in the condensed consolidated statements of cash flows. These amounts exclude non-cash additions to property, plant and equipment for the AFDUC equity as well as accrued liabilities for construction, labor and materials that have not yet been paid.


~~(a)~~	~~Includes a portion of the Formula Rate true-up of $32 million and $(21) million for the three months ended June 30, 2019 and 2018, respectively.~~

(in millions)

Classification

June 30, 2019

Operating Lease Assets

Other assets

Current Operating Lease Liabilities

Other current liabilities

Noncurrent Operating Lease Liabilities

Other liabilities