ITC: A Critical Investment in America’s Power Grid
“International Transmission Company is the first truly stand-alone, independent transmission company in the United States of America, and has accomplished this remarkable goal within its first year of existence. Let it serve as an example as we strive to provide reliable, affordable energy to customers across the country.”
Pat Wood III, April 2004, FERC Chairman, 2001– 2005
“We are proud of ITC’s commitment to enhancing electric reliability throughout Michigan and the Midwest… The 2003 blackout demonstrated just how important it is that we have a safe, reliable, and efficient transmission system to deliver electricity. It is gratifying to see this great Michigan-based company investing in our electric transmission infrastructure to ensure that electricity will be delivered in that way to millions of Michigan citizens as well as customers in other Midwest states.”
Jennifer M. Granholm, January 2007, Governor of Michigan
Overview
- During KKR’s ownership, the Company invested over $400 million to rebuild and upgrade the transmission grid in southeast Michigan.
- KKR exited this investment in 2007. Today, ITC is the largest independently owned and operated electricity transmission company in the U.S. and is the ninth-largest electric transmission-owning company in the country based on total retail megawatt-hours sales.
- ITC’s subsidiaries now have more than 400 employees and nearly 1,000 skilled labor contractors.
Creating Value in Complex, Regulated Business
KKR’s investment in ITC Holdings Corp. demonstrates the firm’s approach to creating value in complex, regulated businesses: providing patient capital focused on building an industry-leading business through ongoing investment and support, with an acute awareness of the interests of customers and stakeholders served. ITC is based in Novi, Michigan and invests in the electric transmission grid to improve system reliability, expand access to markets, lower the overall cost of delivered energy and allow new generating resources to interconnect to its transmission systems.
Following a two-year review of the electric utility sector, KKR identified a need for transmission grid investment and an opportunity to invest in regulated transmission businesses. According to the Edison Electric Institute, transmission investment made by investor-owned utilities declined from $42.3 billion in the 10-year period from 1975 to 1984 to $29.5 billion for the 10-year period from 1992 to 2001. Moreover, the Department of Energy estimated that annual electricity consumption more than doubled during the same time frame. Recognizing the need for transmission investment and support from the Federal Energy Regulatory Commission (“FERC”) for independent transmission grid ownership, KKR began searching for potential investment opportunities in the regulated transmission sector. In 2002 KKR capitalized on this effort by teaming with Trimaran Capital Partners to sign an agreement to acquire the International Transmission Company from DTE Energy.
As part of the acquisition process, KKR worked closely with both ITC’s previous regulator, the Michigan Public Service Commission, and its current regulator, the FERC, to ensure that ITC became a truly independent owner and operator of the transmission grid in southeast Michigan. This close collaboration ultimately led to KKR and Trimaran receiving FERC approval for the transaction within 60 days of their initial filing. In addition, KKR worked with the FERC to develop a regulatory rate structure that created clear incentives for ITC to address a key issue facing the transmission grid across the United States: the need for increased investment to enhance system reliability, reduce congestion, and lower the delivered cost of electricity to end-use customers. KKR also worked closely with the Company’s lenders and rating agencies to develop a flexible capital structure, enhancing the financial strength of the utility and providing a low-cost source of capital to finance the Company’s substantial capital investment plan and growth.
At the beginning of its partnership with KKR, ITC consisted of transmission assets (lines, poles, and transformers), 38 direct employees, and numerous contracts with Detroit Edison and DTE Energy to provide the transition services needed to conduct ITC’s day-to-day operations. However, within one year of KKR’s investment in ITC, the Company implemented an independent control center and put in place the systems and resources to function as a self-sufficient entity.
Providing Capital to Help Realize Potential
Under KKR’s ownership, the Company delivered on its commitment to invest in and enhance the transmission grid in southeast Michigan. When KKR acquired the Company, ITC had a capital budget of approximately $10 million per annum and a system in need of significant investment. During KKR’s ownership, the Company invested over $400 million to rebuild and upgrade the transmission grid in southeast Michigan. This investment on behalf of Michigan customers has been critical to ITC’s ability to ensure system reliability. In August 2006, the benefit of this investment became clear, as ITC Transmission’s system operated flawlessly without system outages during periods of all-time record peak load.
KKR exited this investment in 2007. Today, ITC is the largest independently owned and operated electricity transmission company in the U.S. and is the ninth-largest electric transmission-owning company in the country based on total retail megawatt-hours sales. The company’s operating revenues were $696.8 million in 2010 and its total capital investments for the year ended December 31, 2010, were $454.6 million. ITC’s subsidiaries now have more than 400 employees and nearly 1,000 skilled labor contractors. More importantly, it continues to provide a safe and dependable electric transmission system in the Midwest.
