As filed with the Securities and Exchange Commission on July 8,20, 2005

Registration No. 333-123657

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 45
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ITC HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)

        Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

        If the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 

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        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 

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        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 

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        If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box.  o

        The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

PROSPECTUS

Subject to Completion, dated July 11,20, 2005

PROSPECTUS

12,500,000 Shares

Common Stock

This is the initial public offering of ITC Holdings Corp. common stock. The selling stockholder is offering 10,000,000 shares of our common stock and we are offering 2,500,000 shares of our common stock. No public market currently exists for our common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholder.

Our common stock has been approved for listing, subject to official notice of issuance, on the New York Stock Exchange under the symbol "ITC." We currently estimate that the initial public offering price will be between $19.00 and $21.00 per share.

Investing in our common stock involves risks. See "Risk Factors" beginning on page 12.

The selling stockholder has granted the underwriters a 30-day option to purchase up to an additional 1,875,000 shares of common stock on the same terms and conditions as set forth above if the underwriters sell more than 12,500,000 shares of common stock in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about                , 2005.

                         , 2005

TABLE OF CONTENTS

        Until            , 2005, 25 days after the date of this prospectus, all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

ABOUT THIS PROSPECTUS

        You should rely only on the information contained in this prospectus. We, the selling stockholder and the underwriters have not authorized any other person to provide you with information different from that contained in this prospectus. If any person provides you with different or inconsistent information, you should not rely on it. We and the selling stockholder are only offering to sell, and only seeking offers to buy, the common stock in jurisdictions where offers and sales are permitted.

        The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

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

•

"ITC Holdings" are references to ITC Holdings Corp. and not any of its subsidiaries;



•

"ITC" are references to International Transmission Company, a wholly-owned subsidiary of ITC Holdings; and



•

"We," "our" and "us" are references to ITC Holdings, together with all of its subsidiaries.

        All references in this prospectus to "kV" are references to kilovolts (one kilovolt equaling 1,000 volts). All references to "MW" are references to megawatts (one megawatt equaling 1,000,000 watts), all references to "kW" are references to kilowatts (one kilowatt equaling 1,000 watts) and all references to "TWh" are to terawatt hours (one terawatt hour equaling 1,000,000,000,000 watt hours).

i

SUMMARY

        This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the "Risk Factors" section and our historical financial statements, which are included elsewhere in this prospectus.

Our Business

Overview

        Our operating subsidiary, ITC, is the first independently owned and operated electricity transmission company in the United States. We operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability and relieve transmission constraints. By pursuing this goal, we seek to reduce the overall cost of delivered energy for end-use consumers by providing them with access to electricity from the lowest cost electricity generation sources. ITC owns a fully-regulated, high-voltage system that transmits electricity to local electricity distribution facilities from generating stations in Michigan and surrounding areas. The local distribution facilities connected to the ITC transmission system served a population of approximately 4.9 million people, as of December 31, 2004, in an area comprised of 13 southeastern Michigan counties, including the Detroit metropolitan area.

        As a transmission utility with rates regulated by the Federal Energy Regulatory Commission, ITC earns revenues through fees charged for the use of its electricity transmission system by its customers, which include investor-owned utilities, municipalities, co-operatives, power marketers and alternative energy suppliers. The rates charged to ITC's customers are established on a cost-of-service model, which allows for the recovery of expenses and income taxes and a return on and of invested capital.

The Electricity Transmission Sector

        Electricity transmission is the flow of electricity at high voltages from electricity generation resources to local distribution systems. In the United States, electricity transmission assets are predominantly owned, operated and maintained by utilities that also own electricity generation and distribution assets, known as vertically integrated utilities. The vertically integrated model has discouraged investment in transmission systems and has inhibited the provision of non-discriminatory transmission access to all market participants. Recent trends have resulted in significant transmission constraints, increased stress on aging transmission equipment, power outages and other power quality problems. Given historical underinvestment, continued growth in demand and the costs associated with outages, we believe a significant opportunity exists to invest in transmission infrastructure with the support of policy makers and end-use consumers. See "Industry Overview" for a further description of the electricity transmission sector.

Our Operations

        ITC began operations under independent ownership in February 2003. We have no ownership of or financial interest in electricity generation or distribution assets, allowing us to focus solely on the transmission of electricity and investment in transmission infrastructure. ITC's primary operating responsibilities include scheduling outages on system elements to allow for maintenance and construction, balancing electricity generation and demand, and monitoring flows over transmission lines to ensure physical limits are not exceeded.

        ITC's operating assets consist primarily of approximately 2,700 circuit miles of transmission lines, approximately 16,000 transmission towers and poles and 30 stations, which connect ITC's transmission lines to generation resources, distribution facilities and neighboring transmission systems.

        ITC is committed to investing capital in its transmission system to improve reliability and meet its customers' ongoing needs. By prudently investing capital in our transmission system, we believe we will

enhance our earnings growth potential as we continue to earn a regulated return on this expanding rate base. When ITC began independent operations, its net property, plant and equipment was approximately $435.8 million. Since that time, ITC has invested approximately $122.5 million in property, plant and equipment and expects to invest approximately $100 million in additional property, plant and equipment in each of 2005 and 2006. Prudent capital investment is indicative of our growth strategy.

        Property, plant and equipment additions in excess of depreciation and amortization expense as illustrated below result in an expansion of ITC's rate base.

(a)

Amount represents additions to property, plant and equipment. Additions to property, plant and equipment differ from cash expenditures for property, plant and equipment primarily due to construction labor and materials costs incurred as of the period end, but not yet paid for.

(b)

Amount represents depreciation and amortization expense related to property, plant and equipment.

(c)

Approximate amount that ITC expects to invest in property, plant and equipment additions.

        Substantially all of ITC's revenues for the year ended December 31, 2004 were derived from providing transmission service. ITC's principal customer is The Detroit Edison Company, a wholly-owned subsidiary of DTE Energy Company, or DTE Energy, which accounted for approximately 68% of ITC's revenues for the year ended December 31, 2004. We generated revenues, net income and adjusted EBITDA of $126.4 million, $2.6 million and $57.7 million, respectively, for the year ended December 31, 2004. If ITC's customers had been billed the rate under the Attachment O formula, we would have generated revenues of $168.5 million for the year ended December 31, 2004. We generated revenues, net income and adjusted EBITDA of $42.5 million, $7.9 million and $26.5 million, respectively, for the three months ended March 31, 2005. See "—Summary Historical Financial Data" for the definition of adjusted EBITDA and a discussion of its usefulness as a measure of our overall financial and operating performance and a reconciliation of net income to adjusted EBITDA. As described below, ITC's customers were charged a frozen rate until December 31, 2004.

Regulation and Ratemaking

        To further its policy objective of establishing the independent operation and ownership of, and investment in, transmission facilities, the Federal Energy Regulatory Commission authorized our acquisition of the transmission assets of DTE Energy, and allowed ITC to earn a return of 13.88% on the equity portion of its capital structure. The Federal Energy Regulatory Commission, in an order dated May 5, 2005, confirmed that ITC Holdings and ITC will remain independent of market participants after this offering, subject to the enforcement of the restrictions on ownership and voting by market participants in ITC Holdings' Amended and Restated Articles of Incorporation and notifications to the Federal Energy Regulatory Commission regarding such ownership. Based on its independence from market participants, ITC will continue to collect the 100 basis point incentive portion of its rate of return. As of December 31, 2004, equity constituted 60.8% of ITC's capital structure.

        ITC's rates are determined using a Federal Energy Regulatory Commission-approved formulaic rate setting mechanism known as Attachment O and automatically adjust annually to account for year-to-year changes in network load, expenses and return on and of invested capital. Beginning June 1, 2005 and each June thereafter, ITC will implement a new rate calculated using data from the previous calendar year as described above.

        On January 1, 2005, ITC's billed rate increased 47% from $1.075 per kW/month to $1.587 per kW/month, as it moved from a frozen rate with a revenue deferral, approved in connection with our acquisition of ITC, to an Attachment O formula rate. The revenue deferral resulted from the difference between the revenues ITC would have collected under Attachment O and the actual revenues ITC received based on the frozen rate. ITC's customers would have been billed a rate of $1.278 per kW/month during the period from June 1, 2003 to May 31, 2004 and a rate of $1.587 per kW/month during the period from June 1, 2004 to December 31, 2004 had its customers been charged the Attachment O rate during those periods. Based upon 2004 year-end results, the rate for the one-year period which started June 1, 2005 is $1.594 per kW/month.

Business Strengths

        We believe that ITC's business combines the stability of a regulated utility with significant opportunities for growth through prudent capital investment. Our business strengths include:

        Stability.    We believe that we benefit from the following strengths that enhance our stability as a regulated utility:

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supportive regulatory environment for independent transmission companies;



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efficient and predictable rate setting process;



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minimal weather, commodity and energy demand risk;



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attractive service territory;



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lack of competition;



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operational excellence; and



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experienced and incentivized management team.

        Growth.    Our growth strategy is aligned with the Federal Energy Regulatory Commission's policy objective to promote needed investment in transmission infrastructure, improve reliability and reduce system constraints. Key elements of our strategy are significant prudent investment in ITC's existing transmission system and the pursuit of acquisitions of other transmission systems.

Risks Related to Our Business

        Our ability to grow our business is subject to certain risks, including those generally associated with the electricity transmission industry. In addition, ITC Holdings is a holding company and is not able to pay dividends to its stockholders and fulfill its cash obligations unless it receives dividends or other payments from ITC. We had $519.8 million of consolidated indebtedness as of March 31, 2005, which may adversely affect our ability to generate cash flow, pay dividends on our common stock, remain in compliance with debt covenants and operate our business. In addition, we are a "controlled company" within the meaning of the New York Stock Exchange rules. Any of these factors or other factors described in this prospectus under "Risk Factors" may limit our ability to grow our business.

        Our principal executive offices are located at 39500 Orchard Hill Place, Suite 200, Novi, Michigan 48375 and our telephone number at that address is (248) 374-7100. ITC's website is located at www.itctransco.com. The information on ITC's website is not part of this prospectus.

Ownership Structure

        ITC Holdings is controlled by International Transmission Holdings Limited Partnership, a Michigan limited partnership, or the IT Holdings Partnership, which is managed by its general partner, Ironhill Transmission, LLC. The sole member of Ironhill Transmission, LLC is Mr. Lewis M. Eisenberg. We refer to Ironhill Transmission, LLC, together with its sole member, Mr. Lewis Eisenberg, as the General Partner. The IT Holdings Partnership has issued limited partnership interests to:

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investment partnerships that are managed and advised by affiliates of Kohlberg Kravis Roberts & Co. L.P., or KKR;



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investment partnerships that are managed and advised by affiliates of Trimaran Capital Partners, L.L.C., or Trimaran; and



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Stockwell Fund, L.P., or Stockwell, an entity formed to make direct investments for certain State of Michigan retirement funds.

        The chart below illustrates the ownership of ITC Holdings on a fully-diluted basis after giving effect to the exercise of all outstanding stock options held by management and employees of ITC Holdings at March 31, 2005, but before giving effect to this offering.

(1)

KKR Millennium Fund, L.P. and KKR Partners III, L.P. (Series A).

(2)

Trimaran Fund II, L.L.C., Trimaran Parallel Fund II, L.P., Trimaran Capital, L.L.C., CIBC Employee Private Equity Fund (Trimaran) Partners and CIBC MB Inc.

(3)

After giving effect to this offering, the IT Holdings Partnership will own approximately 55.01%, investors in this offering will own approximately 35.05% and our management and employees will own approximately 9.94% of our outstanding common stock on a fully-diluted basis after giving effect to the exercise of all outstanding stock options held by management and employees of ITC Holdings and assuming that the underwriters do not exercise their over-allotment option.

The Offering

        Unless we specifically state otherwise, all information in this prospectus:

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assumes no exercise of the over-allotment option by the underwriters;



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gives retroactive and prospective effect to aan approximately 3.34-for-one stock split of our outstanding shares of common stock that will bewas effected immediately prior to the completion of this offering;on July 19, 2005;



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gives effect to the adjustment of the number of shares authorized under the Amended and Restated 2003 Stock Purchase and Option Plan for Key Employees of ITC Holdings Corp. and its Subsidiaries, or the 2003 Stock Purchase and Option Plan, as well as the share amounts of stock grants and the number of options and exercise prices of options under the 2003 Stock Purchase and Option Plan as a result of the approximately 3.34-for-one stock split;



•

gives effect to our Amended and Restated Articles of Incorporation, which increased our authorized common stock to 100 million shares in June 2005; and

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assumes that no shares of our common stock are withheld by ITC Holdings in respect of taxes payable by our non-executive employee stockholders as the result of the lifting of restrictions on those shares pursuant to the waiver and agreements entered into by those employees as described under "Certain Relationships and Related Party Transactions—Executive and Non-Executive Waiver and Agreements"; and



•

assumes that none of the remaining 2,266,2073,920,809 shares of common stock reserved for issuance under the 2003 Stock Purchase and Option Plan have been issued, including 1,991,8781,976,878 shares of common stock issuable upon the exercise of outstanding stock options at an exercise price of $7.48 per share, 802,100 of which were vested as of March 31, 2005.

Risk Factors

        Investing in our common stock involves substantial risk. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" in deciding whether to invest in our common stock.

Summary Historical Financial Data

        Set forth below is summary historical financial, operating and other data of ITC's predecessor and summary historical consolidated financial, operating and other data of ITC Holdings and subsidiaries, in each case, at the dates and for the periods indicated.

        The summary historical financial data presented on the following pages for the year ended December 31, 2002, and for the two-month period ended February 28, 2003, have been derived from audited financial statements of ITC's predecessor included elsewhere in this prospectus. The summary historical consolidated financial data presented on the following pages as of and for the period from February 28, 2003 through December 31, 2003, and as of and for the year ended December 31, 2004, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical condensed consolidated financial data presented on the following pages as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The financial data presented for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

        Prior to June 1, 2001, the provision of electricity transmission services over the facilities now owned by ITC was undertaken as part of The Detroit Edison Company's, or Detroit Edison's, transmission business which was integrated with Detroit Edison's distribution business. On May 31, 2001, Detroit Edison's transmission business was separated from Detroit Edison's distribution business and was contributed to ITC's predecessor.

        From June 1, 2001 until February 28, 2003, ITC's predecessor was operated as a subsidiary of DTE Energy.

        On February 28, 2003, ITC Holdings acquired ITC's predecessor from DTE Energy and began operating the transmission system as a stand-alone company, independent of DTE Energy and Detroit Edison. For the period from March 1, 2003 to December 31, 2004, ITC's rate was $1.075 per kW/month based on a frozen rate with a revenue deferral to be recovered in future periods. The term "Predecessor ITC" refers to the ITC business prior to its acquisition by ITC Holdings on February 28, 2003.

        The summary historical financial data presented below should be read together with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," Predecessor ITC's financial statements and the notes to those statements, our consolidated financial statements and the notes to those statements, in each case, included elsewhere in this prospectus.

(footnotes on next page)

(a)

Our business is seasonal, with peak transmission loads occurring during the summer air conditioning months. Annualized financial data for the two-month period ended February 28, 2003 and the period from February 28, 2003 through December 31, 2003 are not indicative of results for the full year.

(b)

Net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding. Weighted average shares for the purposes of the basic net income (loss) per share calculation has been adjusted to reflect the approximately 3.34-for-one stock split that will bewas effected immediately prior to the completion of this offering.on July 19, 2005. Basic net income (loss) per share excludes 405,485 and 337,273 shares of restricted common stock at December 31, 2003 and 2004, respectively, and 438,523 and 344,629 shares of restricted common stock at March 31, 2004 and 2005, respectively, that were issued and outstanding, but had not yet vested as of such dates.

(c)

Adjusted EBITDA is not a measurement of operating performance calculated in accordance with generally accepted accounting principles in the United States, or GAAP, and should not be considered a substitute for net income, operating income, net profit after tax or cash flows from operating activities, as determined in accordance with GAAP.

        We define adjusted EBITDA as net incomeplus:

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income taxes;



•

depreciation and amortization expense; and



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interest expense;

        excluding:

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allowance for equity funds used during construction; and



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certain other items not related to operating performance such as loss on extinguishment of debt.

We use adjusted EBITDA on a consolidated basis to assess our overall financial and operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. Adjusted EBITDA provides us with a measure of financial performance independent of items that are beyond the control of management in the short-term, such as depreciation, taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis and to determine the level of bonuses for management and employees. Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry. An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. However, adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. In addition, because adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, adjusted EBITDA, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies.

        The following table reconciles net income (loss) to adjusted EBITDA:

RISK FACTORS

        An investment in our common stock involves risks. You should carefully consider the risks described below, together with the other information in this prospectus, before deciding to purchase any common stock.

Risks Related to Our Business

ITC Holdings is a holding company with no operations, and unless ITC Holdings receives dividends or other payments from ITC, ITC Holdings will be unable to pay dividends to its stockholders and fulfill its cash obligations.

        As a holding company with no business operations, ITC Holdings' material assets consist only of the common stock of ITC (and any other subsidiaries ITC Holdings may own in the future), dividends and other payments received from time to time from ITC or such subsidiaries and the proceeds raised from the sale of debt and equity securities. ITC Holdings may not be able to access cash generated by ITC in order to fulfill cash commitments or to pay dividends to stockholders. ITC Holdings will have to rely upon dividends and other payments from ITC (and any other subsidiaries ITC Holdings may have in the future) to generate the funds necessary to fulfill its cash obligations. ITC, however, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to ITC Holdings. The ability of ITC to make dividend and other payments to ITC Holdings is subject to the availability of funds after taking into account ITC's funding requirements, the terms of ITC's indebtedness, the regulations of the Federal Energy Regulatory Commission, or the FERC, under the Federal Power Act of 1935, or the FPA, and applicable state laws.

Certain elements of ITC's cost recovery through rates can be challenged before and by the regulators which could result in lowered rates and have an adverse effect on our business, financial condition and results of operations.

        ITC provides transmission service under rates regulated by the FERC. The FERC has approved ITC's rate setting formula under Attachment O, but it has not expressly approved the amount of ITC's actual capital and operating expenditures to be used in that formula. In addition, all aspects of ITC's rates approved by the FERC, including the Midwest Independent Transmission System Operator, Inc., or MISO, Attachment O rate mechanism, ITC's allowed 13.88% return on the equity portion of its capital structure, and the data inputs provided by ITC for calculation of each year's rate, are subject to challenge by interested parties at the FERC in a Section 206 proceeding under the FPA. If a challenger can establish that any of these aspects are unjust, unreasonable, imprudent or unduly discriminatory, then the FERC will make appropriate adjustments to them and/or disallow ITC's inclusion of those aspects in the rate setting formula. This could result in lowered rates and an adverse effect on our business, financial condition and results of operations.

The regulations to which ITC is subject may limit our ability to raise capital and/or pursue acquisition or development opportunities.

        ITC is a "public utility" under the FPA and, accordingly, is subject to regulation by the FERC. As a "public utility," ITC must obtain approval from the FERC under Section 203 of the FPA for dispositions of its regulated facilities and acquisitions of regulated facilities and any securities of another public utility. ITC must also seek approval by the FERC under Section 204 of the FPA for issuances of its securities.

        In addition, ITC is a "public-utility company" as defined under the Public Utility Holding Company Act of 1935, or PUHCA. ITC Holdings and ITC are currently exempt from all provisions of PUHCA other than Section 9(a)(2), which generally requires prior Securities and Exchange Commission, or SEC, approval for any person to, directly or indirectly, acquire a 5% or greater voting

interest in more than one "public-utility company." The restrictions imposed on us by PUHCA may limit our ability to pursue acquisition or development opportunities or subject us to more burdensome and costly regulation if an acquisition results in ITC Holdings or ITC having the status of a registered holding company.

Changes in federal energy laws, regulations or policies could reduce the dividends we may be able to pay our stockholders.

        The Attachment O rate setting mechanism used by ITC has only been approved through January 31, 2008, subject to further extension that must be approved by the FERC. After January 31, 2008, we cannot predict whether the FERC will change its policies or regulations or whether the approved transmission rates, rate determination mechanism or methodologies will be changed. Any changes could significantly decrease our revenues and ITC Holdings' ability to pay dividends to its stockholders and meet its obligations.

        Transmission costs constitute a relatively small portion of end-use consumers' overall electric utility costs. However, some large institutional end-use consumers may attempt to influence government and/or regulators to change the rate setting system that applies to ITC, particularly if rates for delivered electricity increase substantially.

        ITC is regulated by the FERC as a "public utility" under the FPA. The FERC could propose new policies and regulations concerning transmission services or rate setting methodologies. In addition, the U.S. Congress has periodically considered enacting energy legislation that would repeal PUHCA, shift certain of the SEC's responsibilities to the FERC, modify provisions of the FPA or provide the FERC or another entity with increased authority to regulate transmission reliability matters. ITC cannot predict whether, and to what extent, it may be affected by any such changes in federal energy laws, regulations or policies in the future.

If the network load on ITC's transmission system is lower than expected, our revenues would be reduced.

        ITC Holdings' sole operating asset is its interest in ITC. ITC's business is the regulated transmission of high-voltage electricity between power generation facilities and local distribution networks. If the network load on ITC's transmission system is lower than expected due to mild weather, a weak economy, changes in the nature or composition of the transmission grid in Michigan or surrounding regions, poor transmission quality of neighboring transmission systems, or for any other reason, it would reduce ITC's and our revenues.

ITC's operating results fluctuate on a seasonal and quarterly basis and based upon weather conditions.

        Demand for electricity is largely dependent on weather conditions. As a result, ITC's overall operating results fluctuate substantially on a seasonal basis, thereby impacting ITC's and our operating results. In general, ITC's revenues have historically exhibited summer peaking patterns. However, a particularly cool summer may reduce demand for electricity below that expected by ITC, causing a decrease in ITC's revenues from the same period of the previous year.

ITC depends on Detroit Edison, its primary customer, for a substantial portion of its revenues, and any material failure by Detroit Edison to make payments for transmission services would adversely affect our revenues and our ability to service ITC's and our debt obligations.

        ITC derives a substantial portion of its revenues from the transmission of electricity between Detroit Edison's power generation facilities and Detroit Edison's local distribution facilities. Payments from Detroit Edison, billed by MISO, constituted approximately 76%, 68% and 74% of ITC's total operating revenues for the ten months ended December 31, 2003, the year ended December 31, 2004 and the three months ended March 31, 2005, respectively, and are expected to constitute the majority

of ITC's revenues for the foreseeable future. Any material failure by Detroit Edison to make payments for transmission services would adversely affect our revenues and our ability to service ITC's and our debt obligations.

Deregulation and/or increased competition may adversely affect ITC's customers, or Detroit Edison's customers, which in turn may reduce our revenues.

        The business of ITC's primary customer, Detroit Edison, is subject to regulation that has undergone substantial change in accordance with Michigan Public Act 141 of 2000, which mandates the implementation of retail access, as well as changes in federal regulatory requirements. The utility industry has also been undergoing dramatic structural change for several years, resulting in increasing competitive pressures on electric utility companies, such as Detroit Edison, and we expect that trend to continue for the foreseeable future. Finally, the manufacturing sector in Detroit Edison's service territory has also been subject to increasing competitive pressures. As a result, demand for electricity transmission service by manufacturing companies in ITC's service territory may be negatively impacted. These factors may create greater risks to the stability of Detroit Edison's revenues and may affect Detroit Edison's ability to make its payments for transmission service to MISO and thus to ITC, which would adversely affect our financial condition and results of operations.

        On April 1, 2005, MISO began centrally dispatching generation resources throughout much of the Midwest with the launch of its Midwest Energy Markets. Because of this restructuring of power markets throughout the Midwest, the risk profile of some of ITC's customers may change, thus affecting the ability of these customers to pay for the services provided by ITC.

Hazards associated with high-voltage electricity transmission may result in suspension of ITC's operations or the imposition of civil or criminal penalties.

        ITC's operations are subject to the usual hazards associated with high-voltage electricity transmission, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, equipment interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks. The hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. We maintain property and casualty insurance, but we are not fully insured against all potential hazards incident to our business, such as damage to poles and towers or losses caused by outages.

ITC is subject to environmental regulations and to laws that can give rise to substantial liabilities from environmental contamination.

        ITC's operations 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 hazardous materials and of solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities to investigate or remediate 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 at properties currently owned or operated by ITC. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under a number of 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. Environmental requirements generally have become more stringent in recent years, and compliance with those requirements more expensive.

        ITC has incurred expenses in connection with environmental compliance, and we anticipate that it will continue to do so in the future. Failure to comply with the extensive environmental laws and regulations applicable to it could result in significant civil or criminal penalties and remediation costs. ITC's assets and operations also involve the use of materials classified as hazardous, toxic, or otherwise dangerous. Some of ITC's facilities and properties are located near environmentally sensitive areas such as wetlands. In addition, certain properties in which ITC has an ownership interest or at which ITC operates are, and others are suspected of being, affected by environmental contamination. Compliance with these laws and regulations, and liabilities concerning contamination or hazardous materials, may adversely affect our costs and, therefore our business, financial condition and results of operations.

        In addition, claims have been made or threatened against electric utilities for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields associated with electricity transmission and distribution lines. We cannot assure you that such claims will not be asserted against us or that, if determined in a manner adverse to our interests, would not have a material adverse effect on our business, financial condition and results of operations.

Acts of war, terrorist attacks and threats or the escalation of military activity in response to such attacks or otherwise may negatively affect our business, financial condition and results of operations.

        Acts of war, terrorist attacks and threats or the escalation of military activity in response to such attacks or otherwise may negatively affect our business, financial condition and results of operations in unpredictable ways, such as increased security measures and disruptions of markets. Strategic targets, such as energy-related assets, including, for example, ITC's transmission facilities and Detroit Edison's generation and distribution facilities, may be at risk of future terrorist attacks. In addition to the increased costs associated with heightened security requirements, such events may have an adverse effect on the economy in general. A lower level of economic activity could result in a decline in energy consumption, which may adversely affect our business, financial condition and results of operations.

Risks Related to Our Capital Structure and Leverage

Because we are controlled by the IT Holdings Partnership, your ability as a stockholder of ITC Holdings to influence our management and policies will be severely limited.

        As of March 31, 2005, approximately 90.65% of the shares of common stock of ITC Holdings on a fully-diluted basis was beneficially owned by the IT Holdings Partnership. Members of management and our employees own the remaining shares of common stock. After giving effect to the sale of all of the shares of common stock in this offering, approximately 55.01% and 9.94% of the outstanding shares of common stock of ITC Holdings will be beneficially owned by the IT Holdings Partnership and members of our management and employees, respectively, after giving effect to the exercise of all outstanding stock options held by management and employees of ITC Holdings and assuming that the underwriters do not exercise their over-allotment option. Consequently, the IT Holdings Partnership has, and after this offering will continue to have, the power to determine matters submitted to a vote of ITC Holdings' stockholders without the consent of ITC Holdings' other stockholders and could take other actions that might be favorable to the IT Holdings Partnership or its partners, including electing all of ITC Holdings' directors, appointing new management and adopting amendments to ITC Holdings' Articles of Incorporation and bylaws. In addition, the ability of stockholders, other than the IT Holdings Partnership, to influence our management and policies will be severely limited, including with respect to our acquisition or disposition of assets, the approval of a merger or similar business combination, the incurrence of indebtedness, the issuance of additional shares of common stock or other equity securities and the payment of dividends or other distributions on our common stock. In addition, we cannot take certain actions that would adversely affect the limited partners of the IT Holdings Partnership without their approval. We cannot assure you that the interests of the IT

Holdings Partnership and/or its limited partners will not conflict with the interests of other holders of our common stock.

We are highly leveraged and our dependence on debt may limit our operating flexibility and ability to pay dividends and/or obtain additional financing.

        We had $519.8 million of consolidated indebtedness as of March 31, 2005. ITC had $185.0 million of 4.45% First Mortgage Bonds Series A due July 15, 2013 and ITC Holdings had $267.0 million of 5.25% Senior Notes due July 15, 2013 outstanding as of December 31, 2004 and March 31, 2005. Additionally, we had total revolving credit facility commitments at ITC and ITC Holdings of $25.0 million and $40.0 million, respectively, and amounts outstanding of $25.0 million and $7.5 million, respectively, at December 31, 2004. We had total revolving credit facility commitments at ITC and ITC Holdings of $65.0 million and $47.5 million, respectively, and amounts outstanding of $54.5 million and $14.3 million, respectively, at March 31, 2005. Total interest paid (excluding interest capitalized) on the indebtedness identified above for the year ended December 31, 2004 and for the three months ended March 31, 2005 was $22.4 million and $11.2 million, respectively. At March 31, 2005, our total long-term debt to capitalization (total long-term debt plus total stockholders' equity) was 71.7% and total stockholders' equity was $204.8 million.

        This capital structure can have several important consequences, including, but not limited to, the following:

•

If future cash flows are insufficient, we or our subsidiaries may need to incur further indebtedness in order to make the capital expenditures and other expenses or investments planned by us. We expect to invest approximately $100 million in ITC's transmission system in each of 2005 and 2006, but this amount could vary depending on the requirements of ITC's transmission system and the factors discussed below.



•

ITC Holdings' indebtedness will have the general effect of reducing its flexibility to react to changing business and economic conditions insofar as they affect its financial condition and, therefore, may pose substantial risk to ITC Holdings' stockholders. A substantial portion of the dividends and payments in lieu of taxes ITC Holdings receives from ITC will be dedicated to the payment of interest on its indebtedness, thereby reducing the funds available for the payment of dividends on our common stock.



•

In the event that ITC Holdings is liquidated, any senior or subordinated creditors of ITC Holdings and any senior or subordinated creditors of our subsidiaries will be entitled to payment in full prior to any distributions to the holders of shares of common stock of ITC Holdings.



•

Our credit facilities mature in March 2007, and our ability to secure additional financing prior to or after that time, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments.

ITC's actual capital expenditures may be lower than planned, which would decrease ITC's expected rate base and therefore our revenues.

        ITC's rate base is determined in part by its capital expenditures, specifically for property, plant and equipment, or PP&E, when placed in service. ITC expects to invest approximately $100 million in additional PP&E in each of 2005 and 2006. If ITC's capital expenditures and the resulting in service PP&E are lower for any reason, including, among other things, the impact of weather conditions, union strikes, material prices and availability, our ability to obtain financing for such expenditures, if necessary, limitations on the amount of construction that can be undertaken on our system at any one time or regulatory approvals for reasons relating to environmental, siting or regional planning issues or as a result of legal proceedings, ITC will have a lower than anticipated rate base during the year ending

December 31, 2005, thus causing its revenue requirement and future earnings to be potentially lower than anticipated.

Certain provisions in our debt instruments limit our capital flexibility.

        Our debt instruments include senior notes and first mortgage bonds and revolving credit facilities containing numerous financial and operating covenants that place significant restrictions on, among other things, our ability to:

•

incur additional indebtedness;



•

engage in sale and lease-back transactions;



•

create liens or other encumbrances;



•

enter into mergers, consolidations, liquidations or dissolutions, or sell or otherwise dispose of all or substantially all of our assets; and



•

pay dividends or make distributions on ITC Holdings' and ITC's capital stock.

        The revolving credit facilities also require ITC Holdings and ITC to meet certain financial ratios. The ability of ITC Holdings and ITC to comply with these and other requirements and restrictions may be affected by changes in economic or business conditions, results of operations or other events beyond our control. A failure to comply with the obligations contained in the senior secured credit facilities could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions.

Our ability to raise capital may be restricted which may, in turn, restrict our ability to make capital expenditures or dividend payments to our stockholders.

        Because the IT Holdings Partnership may seek to maintain its beneficial ownership percentage of ITC Holdings and may not choose to acquire additional shares of our common stock in connection with a future issuance of shares of our common stock by us, we may be constrained in our ability to raise equity capital in the future from sources other than the limited partners of the IT Holdings Partnership and other affiliates of KKR, Trimaran or Stockwell. Moreover, we cannot assure you that the IT Holdings Partnership will make any capital contributions to us in the future. If we are unable to raise capital and we do not receive capital contributions from the IT Holdings Partnership in the future, our ability to make capital expenditures or dividend payments to our stockholders may be limited.

We are a "controlled company" within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

        Upon completion of this offering, the IT Holdings Partnership will continue to control a majority of our outstanding common stock. As a result, we are a "controlled company" within the meaning of the New York Stock Exchange, or NYSE, corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain NYSE corporate governance requirements, including:

•

the requirement that a majority of the board of directors consist of independent directors;



•

the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;



•

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and



•

the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

        Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors nor will our nominating/corporate governance and compensation committees consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

Future transactions may limit our ability to use our net operating loss carryforwards.

        As of December 31, 2004, we had net operating loss carryforwards, or NOLs, of approximately $74.7 million. These NOLs may be used to offset future taxable income and thereby reduce our U.S. federal income taxes otherwise payable. Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its NOLs to reduce its tax liability. It is possible that the transactions described in this prospectus, when combined with future transactions (including issuances of new shares of our common stock and sales of shares of our common stock), would cause us to undergo an ownership change. In that event, we would not be able to use our pre-ownership-change NOLs in excess of the limitation imposed by Section 382.

Risks Related to This Offering

There is currently no public market for our common stock and we cannot assure you that an active market will develop to provide you with adequate liquidity.

        There has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or otherwise or how liquid that market might become. The initial public offering price for our common stock will be determined by negotiations between us, the selling stockholder and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. We cannot assure you that the market price for our common stock after this offering will ever exceed the price that you pay for our common stock in this offering.

Future sales of our shares could depress the market price of our common stock.

        The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We, our directors and executive officers and the selling stockholder have agreed with the underwriters not to sell, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of Lehman Brothers Inc.

        Pursuant to the management stockholder's agreements that we entered into with each of our employees who have purchased or been granted shares of our common stock (equal to an aggregate of 1,077,0071,094,012 shares as of the date of this prospectus), generally these employee stockholders have the right, upon the sale by the IT Holdings Partnership of shares of our common stock in any underwritten offering, to sell a percentage of the shares of our common stock that the employee stockholders hold at the time of the offering and any shares of our common stock underlying then exercisable options. Under the management stockholder's agreements, as a percentage of total shares held, the employee stockholders would be eligible to sell a percentage equal to the percentage sold by the IT Holdings Partnership. Otherwise, each of these employee stockholders is restricted from selling any common stock he or she holds until the fifth anniversary of the date of the execution of the employee

stockholder's respective management stockholder's agreement (which were generally entered into between February 2003 and November 2004), which date in all cases falls after 180 days from the date of this prospectus. The "piggyback" registration rights described above also expire on such fifth anniversary. See "Certain Relationships and Related Party Transactions—Management Stockholder's Agreements."

        Notwithstanding the foregoing, all of our employee stockholders have agreed to waive their right to exercise their "piggyback" registration rights with respect to this offering in exchange for certain other rights and/or benefits as further described under "Certain Relationships and Related Party Transactions—Executive and Non-Executive Waiver and Agreements."

        After this offering, we will have approximately 33,198,57433,215,579 shares of common stock outstanding. Of those shares, the 12,500,000 shares to be sold in this offering will be freely tradeable. Approximately 321,783 shares, including shares subject to options, held by our employees will be eligible for resale immediately after this offering and approximately 113,886103,851 shares (assuming sale of such shares at the midpoint of the price range set forth on the cover page of this prospectus and after payment of taxes relating to the sale of such shares) will be eligible for resale after the expiration of the 180-day lock-up period referred to above, in each case subject to restrictions under the Securities Act of 1933, as amended. If the underwriters exercise their over-allotment option in full, an additional 60,34860,349 shares will be eligible for resale immediately after this offering, subject to restrictions under the Securities Act of 1933, as amended. Approximately 20,698,57420,715,579 shares outstanding after this offering will be eligible for resale from time to time, subject to the contractual restrictions on sales referred to above and to the volume, manner of sale and other conditions of Rule 144, including approximately 259,942 shares which may be sold freely pursuant to Rule 144(k). See "Shares Eligible for Future Sale."

        In addition, 2,266,2073,920,809 shares were available for future issuance under our 2003 Stock Purchase and Option Plan as of March 31, 2005,the date of this prospectus, including 1,991,8781,976,878 shares issuable upon the exercise of presently outstanding stock options, of which 802,100 were vested as of March 31, 2005. In the future, we may issue our common stock in connection with investments or repayment of our debt. The amount of such common stock issued could constitute a material portion of our then outstanding common stock.

We may not be able to pay dividends, and the reduction or elimination of dividends would negatively affect the market price of our common stock.

        While we currently intend to pay quarterly dividends on our common stock, we have no obligation to do so. We anticipate paying a dividend in the third quarter of 2005 and paying an aggregate of approximately $17.5 million in dividends to our stockholders in 2005. Dividend payments are within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, anticipated cash needs and other factors that our board of directors may deem relevant. For example, we may not generate sufficient cash from operations in the future to pay dividends on our common stock in the intended amounts or at all. In addition, ITC Holdings is a holding company and its ability to pay dividends may be limited by restrictions upon transfer of funds applicable to its subsidiaries (including, for example, those which are contained in ITC's revolving credit agreement and the IT Holdings Partnership agreement). As a holding company without any specific operations, ITC Holdings is dependent on receiving dividends from its operating subsidiaries, such as ITC, in order to be able to make dividend distributions of its own. Any reduction or elimination of dividends would adversely affect the market price of our common stock. See "Dividend Policy."

Provisions in the Articles of Incorporation and bylaws of ITC Holdings and Michigan corporate law may prevent efforts by our stockholders to change the direction or management of our company.

        The Articles of Incorporation and bylaws of ITC Holdings contain provisions that might enable our management to resist a proposed takeover. These provisions could discourage, delay or prevent a change of control or an acquisition at a price that our stockholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

•

a requirement that special meetings of our stockholders may be called only by our board of directors, the chairman of our board of directors, our president or the holders of a majority of the shares of our outstanding common stock;



•

a requirement of unanimity when stockholders are acting by consent without a meeting if the IT Holdings Partnership owns less than 35% of the common stock of ITC Holdings;



•

advance notice requirements for stockholder proposals and nominations; and



•

the authority of our board to issue, without stockholder approval, common or preferred stock, including in connection with our implementation of any stockholders rights plan, or "poison pill."

        For additional information regarding these provisions, you should read the information under the heading "Description of Our Capital Stock."

Provisions of the Articles of Incorporation of ITC Holdings restrict market participants from voting or owning 5% or more of the outstanding shares of capital stock of ITC Holdings.

        ITC was granted favorable rate treatment by the FERC based on its independence from market participants. The FERC defines a "market participant" as any person or entity that, either directly or through an affiliate, sells or brokers electricity or provides ancillary services to ITC or MISO. An affiliate, for these purposes, includes any person or entity that directly or indirectly owns, controls or holds with the power to vote 5% or more of the outstanding voting securities of a market participant. To help ensure that ITC Holdings and ITC will remain independent of market participants following this offering, ITC Holdings' Articles of Incorporation impose certain restrictions on the ownership and voting of shares of capital stock of ITC Holdings by market participants. In particular, the Articles of Incorporation provide that ITC Holdings is restricted from issuing any shares of capital stock or recording any transfer of shares if the issuance or transfer would cause any market participant, either individually or together with members of its "group" (as defined in SEC beneficial ownership rules), to beneficially own 5% or more of any class or series of our capital stock. Additionally, if a market participant, together with its group members, acquires beneficial ownership of 5% or more of any series of the outstanding shares of capital stock of ITC Holdings, such market participant or any stockholder who is a member of a group including a market participant will not be able to vote or direct or control the votes of shares representing 5% or more of any series of ITC Holdings' outstanding capital stock. Finally, to the extent a market participant, together with its group members, acquires beneficial ownership of 5% or more of the outstanding shares of any series of capital stock of ITC Holdings, the Articles of Incorporation allow the board of directors of ITC Holdings to redeem any shares of capital stock of ITC Holdings so that, after giving effect to the redemption, the market participant, together with its group members, will cease to beneficially own 5% or more of that series of ITC Holdings' outstanding capital stock.

The trading price of our common stock is likely to be volatile and you may not be able to sell your shares at or above the initial public offering price.

        The trading prices of securities of companies in the power industry have been highly volatile. Accordingly, the trading price of our common stock is likely to fluctuate widely. Factors that will affect the trading price of our common stock include:

•

variations in our operating results;



•

the gain or loss of significant customers;



•

changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;



•

terrorist acts and political instability; and



•

market conditions in our industry and the economy as a whole.

        In addition, if the market for power industry securities, or the stock market in general, experiences continued or increased loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition.

The book value of shares of common stock purchased in this offering will be immediately diluted.

        Purchasers of common stock in this offering will suffer immediate dilution of $17.92$17.93 per share in the pro forma net tangible book value per share. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of the common stock. To the extent that these options are exercised, purchasers in this offering will be further diluted.

We will incur increased costs as a result of being a public company.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the NYSE, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, in anticipation of becoming a public company, we are in the process of creating additional board committees and adopting policies regarding internal controls and disclosure controls and procedures. In addition, we are beginning the process of evaluating our internal control structure in relation to Section 404 of the Sarbanes-Oxley Act and, pursuant to this section, we will be required to include management attestations and auditor reports on internal controls in our annual report for the year ending December 31, 2006. We will incur additional costs and dedicate significant resources toward complying with these requirements. We also expect these new laws, rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new laws, rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. The costs of compliance or our failure to comply with these laws, rules and regulations could adversely affect our reputation, financial condition, results of operations and the price of our common stock.

FORWARD-LOOKING STATEMENTS

        This prospectus contains certain statements that describe our management's beliefs concerning future business conditions and prospects, growth opportunities and the outlook for our business and the electricity transmission industry based upon information currently available. Wherever possible, we have identified these "forward-looking" statements by words such as "anticipates," "believes," "intends," "estimates," "expects," "projects" and similar phrases.

        These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are subject to 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 other things:

•

our ability to obtain regulatory approval for rate adjustments in response to changing circumstances and changes in laws or regulations affecting us;



•

restrictions imposed by laws, including PUHCA and the FPA, or regulations affecting ITC Holdings and ITC;



•

changes in the nature or the composition of the transmission grid in surrounding areas, location of generation assets within ITC's service territory and in surrounding regions and the impact on the flow of transmission;



•

any changes in our regulatory construct;



•

the stability of Detroit Edison or deregulation affecting Detroit Edison;



•

protracted generation outages;



•

potential environmental liabilities;



•

hazards related to our business;



•

damage to our assets or our ability to serve our customers, market disruptions and other economic effects as a result of terrorism, military activity or war and action by the United States and other governments in reaction thereto;



•

higher property tax assessments from various municipalities;



•

decrease in revenues due to abnormal weather conditions; and



•

other risk factors discussed herein and listed from time to time in our public filings with the SEC.

        Any or all of our forward-looking statements in this prospectus may turn out to be wrong. They can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this prospectus 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. Actual future results may vary materially.

        Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Also, please note that we provide a cautionary discussion of risks and uncertainties under the caption "Risk Factors" in this prospectus. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect our business and results of operations.

USE OF PROCEEDS

        We estimate that our net proceeds from the sale of 2,500,000 shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $43.0$42.8 million, assuming an initial public offering price of $20.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds we receive from this offering to repay borrowings under ITC Holdings' amended and restated revolving credit agreement, to pay an aggregate of $6.7 million of one-time termination fees under management agreements with KKR, Trimaran Fund Management, L.L.C. and the IT Holdings Partnership and for general corporate purposes, including capital expenditures at ITC.

        ITC Holdings' amended and restated revolving credit agreement has a maturity date of March 19, 2007. Borrowings under this credit agreement bear interest, at ITC Holdings' option, at either the applicable London Interbank Offered Rate, or LIBOR, plus 1.50% each year or the applicable alternate base rate plus 0.50% each year, which applicable spreads are subject to adjustment based on the ratings by Moody's Investor Service, Inc. and Standard & Poor's Ratings Services applicable to ITC Holdings' senior notes (described under "Description of Our Indebtedness—5.25% Senior Notes and Mortgage Bonds—5.25% Senior Notes due July 15, 2013") from time to time. See "Description of Our Indebtedness—Revolving Credit Facilities." An affiliate of Credit Suisse First Boston LLC, one of the underwriters of this offering, is one of the lenders under this credit agreement. We expect to use $14.3$21.8 million of the net proceeds received by us in this offering to repay a portion of the amount that is currently outstanding under this credit agreement.agreement as of the date of this prospectus.

        We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder in this offering.

DIVIDEND POLICY

        We currently intend to declare and pay quarterly dividends on our common stock. We anticipate paying a dividend in the third quarter of 2005 and paying an aggregate of approximately $17.5 million in dividends to our stockholders in 2005. The declaration and payment of dividends is subject to the discretion of our board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors. If and when our board of directors declares and pays a dividend on our common stock, pursuant to our special bonus plans for executives and non-executive employees, amounts equivalent to the dividend may be paid to the special bonus plan participants, if determined by the compensation committee. We currently expect these dividend equivalent amounts to be paid upon the declaration of dividends on our common stock. See "Management—Special Bonus Plans."

        In August 2003, ITC Holdings made a distribution to stockholders of $27.1 million, or $0.90 per share of common stock.

        As a holding company with no business operations, ITC Holdings' material assets consist only of the stock of ITC and cash on hand. ITC Holdings' only sources of cash to pay dividends to its stockholders are dividends and other payments received by ITC Holdings from time to time from ITC and the proceeds raised from the sale of our debt and equity securities. ITC, however, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to ITC Holdings for the payment of dividends to ITC Holdings' stockholders or otherwise. The ability of ITC to pay dividends and make other payments to ITC Holdings is subject to, among other things, the availability of funds, after taking into account capital expenditure requirements, the terms of its indebtedness, applicable state laws and regulations of the FERC and the FPA.

        ITC Holdings' revolving credit agreement and ITC's revolving credit agreement impose restrictions on our ability to pay dividends if an event of default has occurred under the relevant agreement, and thus our ability to pay dividends on our common stock will depend upon, among other things, our level of indebtedness at the time of the proposed dividend and whether we are in compliance with the covenants under our revolving credit facilities and our debt instruments. See "Description of Our Indebtedness." Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our board of directors. For a discussion of our cash resources and needs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

CAPITALIZATION

        The following table sets forth our capitalization as of March 31, 2005 on an actual basis and on an as adjusted basis after giving effect to:

•

the issue and sale by us of approximately 2,500,000 shares of our common stock in this offering at an assumed public offering price of $20.00 per share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses;



•

aan approximately 3.34-for-one stock split of our outstanding shares of common stock that will bewas effected immediately prior to the completion of this offering;on July 19, 2005;



•

the adjustment of the number of shares authorized under the 2003 Stock Purchase and Option Plan, as well as the share amounts of stock grants and the number of options and exercise prices of options under the 2003 Stock Purchase and Option Plan as a result of the approximately 3.34-for-one stock split;



•

our Amended and Restated Articles of Incorporation, which increased our authorized common stock to 100 million shares in June; and



•

the application of the net proceeds to us described under "Use of Proceeds."

        You should read the information in this table in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited financial statements and related notes included elsewhere in this prospectus.

(a)

Consists of amounts outstanding under a $65.0 million revolving credit agreement entered into by ITC with a March 2007 maturity date and a $47.5 million revolving credit agreement entered into by ITC Holdings with a March 2007 maturity date. The amounts available under our revolving credit facilities are subject to customary borrowing conditions. The amount outstanding under the ITC Holdings revolving credit agreement was $14.3 million at March 31, 2005. As of the date of this prospectus, $21.8 million is outstanding under this credit agreement, all of which we expect to repay with the net proceeds of this offering.

        The table above excludes 802,100 shares of common stock issuable upon the exercise of options that were vested at March 31, 2005, with an exercise price of $7.48 per share.

DILUTION

        Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering will exceed the net tangible book value per share of common stock after this offering. The net tangible book value per share is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of our common stock outstanding as of March 31, 2005. For purposes of the calculation of net tangible book value, our only intangible asset is goodwill. Calculations relating to shares of common stock in the following disclosures and tables assume areflect an approximately 3.34-for-one stock split of our outstanding shares of common stock that will bewas effected immediately prior to the completion of this offering.on July 19, 2005. After giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $20.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of March 31, 2005 would have been $68.9$68.7 million, or $2.08$2.07 per share of common stock. This represents an immediate increase in net tangible book value of $1.09$1.08 per share to existing stockholders and an immediate dilution in net tangible book value of $17.92$17.93 per share to new investors.

        The following table illustrates this per share dilution:

        The following table summarizes, on a pro forma basis as of March 31, 2005, the total number of shares of common stock purchased from us and the selling stockholder, the total consideration paid to us and the selling stockholder and the average price per share paid by new investors purchasing shares in this offering:

(1)

Excludes shares of common stock being sold by the selling stockholder.

        The tables and calculations above assume no exercise of outstanding options. As of March 31, 2005, there were 1,991,878 shares of our common stock reserved for issuance upon exercise of outstanding options at an exercise price of $7.48 per share. To the extent that these options are exercised, there will be further dilution to new investors. See "Management—Compensation of Directors and Executive Officers—Option Holdings" and "Description of Our Capital Stock."

SELECTED CONSOLIDATED FINANCIAL DATA

        The following table sets forth selected historical financial data of Predecessor ITC and selected historical consolidated financial data of ITC Holdings and subsidiaries as of the dates and for the periods indicated.

        The selected financial data presented on the following pages as of December 31, 2001 and 2002 and for the seven-month period ended December 31, 2001 have been derived from the financial statements of Predecessor ITC not included in this prospectus. The selected financial data presented on the following pages for the year ended December 31, 2002, and for the two-month period ended February 28, 2003, have been derived from audited financial statements of Predecessor ITC included elsewhere in this prospectus. The selected consolidated financial data presented on the following pages as of and for the period from February 28, 2003 through December 31, 2003, and as of and for the year ended December 31, 2004, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical condensed consolidated financial data presented on the following pages as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The financial data presented for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

        The selected financial data for the year ended December 31, 2000 and the five months ended May 31, 2001 are omitted because, prior to June 1, 2001, the provision of electricity transmission services over the facilities now owned by ITC was undertaken as part of Detroit Edison's transmission business which was integrated with Detroit Edison's distribution business and the revenues, expenses and cash flows associated with the transmission business were integrated with Detroit Edison's other operations and were not separately identifiable. On May 31, 2001, Detroit Edison's transmission business was separated from Detroit Edison's distribution business and was contributed to Predecessor ITC.

        From June 1, 2001 until February 28, 2003, Predecessor ITC was operated as a subsidiary of DTE Energy.

        On February 28, 2003, ITC Holdings acquired Predecessor ITC from DTE Energy and began operating the transmission system as a stand-alone company, independent of DTE Energy and Detroit Edison. For the period from March 1, 2003 to December 31, 2004, ITC's rate was $1.075 per kW/month based on a frozen rate with a revenue deferral for recovery in future periods.

        The selected financial data presented below should be read together with Predecessor ITC's financial statements and the notes to those statements, our consolidated financial statements and the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case, included elsewhere in this prospectus.

(footnotes on next page)

(a)

Our business is seasonal, with peak transmission loads occurring during the summer air conditioning months. Annualized financial data for the seven-month period ended December 31, 2001, the two-month period ended February 28, 2003 and the period from February 28, 2003 through December 31, 2003 are not indicative of results for the full year.

(b)

Net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding. Weighted average shares for the purposes of the basic net income (loss) per share calculation has been adjusted to reflect the approximately 3.34-for-one stock split that will bewas effected immediately prior to the completion of this offering.on July 19, 2005. Basic net income (loss) per share excludes 405,485 and 337,273 shares of restricted common stock at December 31, 2003 and 2004, respectively, and 438,523 and 344,629 shares of restricted common stock at March 31, 2004 and 2005, respectively, that were issued and outstanding, but had not yet vested as of such dates.

(c)

Adjusted EBITDA is not a measurement of operating performance calculated in accordance with GAAP and should not be considered a substitute for net income, operating income, net profit after tax or cash flows from operating activities, as determined in accordance with GAAP.

        We define adjusted EBITDA as net incomeplus:

•

income taxes;



•

depreciation and amortization expense; and



•

interest expense;

        excluding:

•

allowance for equity funds used during construction; and

•

certain other items not related to operating performance such as loss on extinguishment of debt.

We use adjusted EBITDA on a consolidated basis to assess our overall financial and operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. Adjusted EBITDA provides us with a measure of financial performance independent of items that are beyond the control of management in the short-term, such as depreciation, taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis and to determine the level of bonuses for management and employees. Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry. An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures as a supplement to our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. However, adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, adjusted EBITDA, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies.

        The following table reconciles net income (loss) to adjusted EBITDA:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion together with our audited consolidated financial statements and related notes and the audited financial statements and related notes of International Transmission Company, LLC, or Predecessor ITC, included elsewhere in this prospectus. This discussion contains forward-looking statements. Actual results could differ materially from those discussed below. Please see "Forward-Looking Statements" and "Risk Factors" for a discussion of certain of the uncertainties, risks and assumptions associated with these statements.

Overview

        ITC is the first independently owned and operated electricity transmission company in the United States. ITC owns, operates and maintains a fully-regulated, high-voltage transmission system that transmits electricity to local electricity distribution facilities from generating stations in Michigan, other midwestern states and Ontario, Canada. The local distribution facilities connected to the ITC transmission system served a population of approximately 4.9 million people, as of December 31, 2004, in an area comprised of 13 southeastern Michigan counties, including the Detroit metropolitan area. ITC's electricity transmission system also acts as a conduit for transmitting electricity to and from adjacent third party electricity transmission systems.

        ITC was formed as a legal entity and subsidiary of Detroit Edison in January 2001, but initially had no assets or employees and was supported by employees of DTE Energy. Prior to January 1, 2001, there was no separation of the transmission business from the distribution business within Detroit Edison. The distribution and transmission operations were commingled and operated jointly until June 1, 2001. Detroit Edison separated its transmission assets from its distribution assets on June 1, 2001, placing these assets in a separate subsidiary, namely ITC. A process to separately identify costs and revenues associated with ITC was implemented simultaneously with ITC becoming a subsidiary of DTE Energy. ITC became independent as a result of DTE Energy's divestiture of its electricity transmission business, consistent with FERC and State of Michigan policy initiatives promoting an independent transmission system. The FERC's transmission policy was developed in part in response to the significant historical underinvestment in transmission infrastructure in the United States and the potential for discrimination that arises when a utility operates transmission and generation facilities within the same region.

        ITC is a member of MISO, a FERC-approved regional transmission organization, or RTO, which has responsibility for the oversight and coordination of transmission service for a substantial portion of the midwestern United States and Manitoba, Canada. MISO establishes regional operating and market practices and scheduling protocols. It also administers the transmission tariff under which all customers procure transmission service.

        ITC's primary operating responsibilities include maintaining, improving and expanding its transmission system to meet its customers' ongoing needs, scheduling outages on system elements to allow for maintenance and construction, balancing electricity generation and demand, maintaining appropriate system voltages and monitoring flows over transmission lines and other facilities to make sure physical limits are not exceeded. ITC's operating assets consist primarily of approximately 2,700 circuit miles of transmission lines, approximately 16,000 transmission towers and poles and 30 stations, which connect ITC's transmission lines to generation resources, distribution facilities and neighboring transmission systems. ITC's transmission system serves distribution utilities that are located in an approximately 7,600 square mile area throughout southeastern Michigan. As of February 28, 2003, ITC's net PP&E was $435.8 million. Since that time, and through December 31, 2004, ITC has invested approximately $122.5 million in PP&E and has incurred other net PP&E activity of $0.8 million consisting of accrued asset removal costs reclassified to regulatory liabilities and asset settlements with

DTE Energy, offset by depreciation and amortization of $45.4 million, increasing its net PP&E to $513.7 million, as of December 31, 2004. For each of 2005 and 2006, ITC expects to invest approximately $100 million in additional PP&E, primarily on projects reviewed by MISO. During the three months ended March 31, 2005, ITC invested approximately $35.7 million in PP&E and has incurred other net PP&E activity of $1.2 million consisting of accrued asset removal costs reclassified to regulatory liabilities and asset settlements with DTE Energy, offset by depreciation and amortization of $7.3 million, increasing its net PP&E to $543.3 million, as of March 31, 2005.

        As a transmission utility whose rates are regulated by the FERC, ITC earns revenues through fees charged for the use of its transmission system by its customers, which include investor-owned utilities, municipalities, co-operatives, power marketers and alternative energy suppliers. ITC's rates are established on a cost-of-service model allowing for the recovery of expenses, including depreciation and amortization, and a return on invested capital. ITC's transmission rates are determined on an annual basis using a FERC-approved formulaic rate setting mechanism known as Attachment O.

Attachment O Rate Setting

        Attachment O is a FERC-approved cost of service rate formula mechanism that is applied annually by MISO to determine the rate for transmission service to customers in the zones of most transmission-owning members of MISO. MISO verifies and uses selected financial and operating data from the transmission owner's most recently completed calendar year to determine the new rate for transmission to its customers in its zone. These data are taken from the transmission owner's FERC Form 1 filing, made by the end of April of each year, which is designed to collect financial and operating information from electric utilities subject to the jurisdiction of the FERC. Under Attachment O, transmission rates and revenue requirements incorporate a return on the transmission owner's rate base, consisting primarily of net PP&E, an accumulated deferred income tax adjustment, certain regulatory assets and a materials and supplies allocation; and a recovery of operating expenses, including depreciation and amortization, and interest expense and taxes. After MISO confirms the rate derived from the information supplied by the transmission owner, no further actions or approvals are required for the new calculated rate to take effect. By completing the Attachment O template on an annual basis, ITC is able to adjust its transmission rates based on year-to-year changes in network load on its transmission system, operating expenses and rate base.

        ITC charged a fixed rate of $1.075 per kW/month from June 1, 2002 to December 31, 2004, which was based primarily on actual and allocated transmission expenses from Detroit Edison's 2000 FERC Form 1 when the transmission business was integrated with the overall utility business of Detroit Edison. Neither ITC nor its transmission business existed as a separate FERC Form 1 reporting entity until June 1, 2001. Instead, the transmission-related activities of Detroit Edison were integrated into the overall utility business of Detroit Edison. The increase in tariff rates from $1.075 per kW/month to $1.587 per kW/month in January 2005, was due primarily to changes in capital structure, the elimination of deferred taxes, the inclusion of certain regulatory assets, the inclusion in rate base of the revenue deferral associated with the rate freeze, the increase in the FERC-approved return on equity and increases in plant in service and operating expenses. Beginning June 1, 2005 and each June thereafter, ITC will implement a new rate calculated using data from the previous calendar year as described above. Based upon 2004 year-end results, the rate for the one-year period which started June 1, 2005 is $1.594 per kW/month.

        We expect that our revenues, operating cash flows and net income will increase in 2005 compared to 2004 as a result of the increase in the rates ITC charges; however, other factors may affect these measures, such as the effect of changes in expenses on operating cash flows and net income or the effect of network load on operating revenues, operating cash flows and net income.

Recent Regulatory Matters

        Initial Public Offering.On March 30, 2005, we filed a Joint Application for Authorization of an Indirect Disposition of Jurisdictional Facilities under Section 203 of the FPA and Notification of Change in Ownership Structure with the FERC. The filing contemplates the public offering of ITC Holdings' common stock, including an initial public offering and potential future public offerings. The FERC approved the application in its order issued on May 5, 2005 and, in doing so, authorized this offering, as well as potential future public offerings of ITC Holdings' common stock occurring within two years of May 5, 2005.

        Redirected Transmission Service.In January and February 2005, in FERC Docket EL05-55 and EL05-63, transmission customers filed complaints against MISO claiming that MISO was charging excessive rates for redirected transmission service. In April 2005, the FERC ordered MISO to refund, with interest, excess amounts charged to all affected transmission customers. ITC earns revenues based on an allocation from MISO for this redirected transmission service and is obligated to refund the excess amounts charged to all affected transmission customers. We had not accrued any amounts relating to this proceeding as of March 31, 2005 based on our assessment of the likelihood of any refunds resulting from these complaints at that date. Based on the April 2005 order, we will be required to refund amounts relating to redirected transmission service upon completion of the refund calculations by MISO, which MISO expects to complete during second quarter of 2005. We cannot estimate the amount of the refund until the calculations are completed.

        Long-Term Pricing.In November 2004, in FERC Docket EL02-111 et al., the FERC approved a pricing structure to facilitate seamless trading of electricity between MISO and PJM Interconnection. The order establishes a Seams Elimination Cost Adjustment, or SECA, as set forth in previous FERC orders, to take effect December 1, 2004, and remain in effect through March 31, 2006 as a transitional pricing mechanism. The SECA revenues are subject to refund and will be litigated in a contested hearing before the FERC with a final order expected in 2006. We cannot anticipate whether any refunds of amounts earned by ITC will result from this hearing and we have not accrued any amounts relating to this proceeding. Through March 31, 2005, ITC has recorded $0.7 million of SECA revenue.

        Elimination of Transmission Rate Discount.Several energy marketers filed a complaint against MISO in February 2005 in FERC Docket EL05-66, asserting that MISO improperly eliminated a rate discount that had previously been effective for transmission service at the Michigan-Ontario Independent Electric System Operator interface. Since the complaints were filed, MISO has held amounts in escrow that it has collected for the difference between the discounted tariff rate and the full tariff rate. The FERC denied this complaint in an order dated July 5, 2005. ITC has recorded revenues based only on the amounts collected by MISO and remitted to ITC. These amounts do not include the amounts held in escrow by MISO of $0.6 million as of March 31, 2005. Based on the FERC order, ITC will record revenues for the amounts held in escrow in the third quarter of 2005.

Other Legal Matters

        The Michigan Public Power Agency, or MPPA, has an ownership interest in ITC's Greenwood-St.Clair-Jewell-Stephens Transmission Line and Monroe-Wayne-Coventry-Majestic Transmission Line. An Ownership and Operating Agreement provides ITC with authority for construction of capital improvements and for the operation and management of the transmission lines. MPPA is responsible for the capital and operating and maintenance costs allocable to their ownership interest. In June 2005, MPPA notified us that it disagrees with the amounts invoiced to it by ITC in 2004 and 2003 under this agreement. Of the $2.3 million billed to MPPA under this agreement for 2004 and 2003, MPPA took the position that its obligation should not exceed $0.5 million. ITC's total amount billed to MPPA is approximately $2.9 million for the time period from March 2003 to June 2005. Of this amount, $2.8 million was included in accounts receivable at March 31, 2005. MPPA

has failed to pay any of these amounts. We have commenced litigation to recover the full amount billed to MPPA and we are considering whether an adjustment to the receivables is warranted in the second quarter of 2005.

        As discussed in Note 3 of the notes to the financial statements for the year ended December 31, 2002 and the two-month period ended February 28, 2003 for Predecessor ITC, Predecessor ITC was subject to a settlement of a dispute regarding the $1.075 per kW/month rate charged for transmission service for the period June 2002 through February 2003. In an order issued October 17, 2003, under Docket Nos. ER02-1963-000 and ER02-1963-001, the FERC accepted DTE Energy's offer of settlement to the matter which in effect required DTE Energy to refund, with interest, all amounts collected in excess of a $0.97 per kW/month rate within 30 days of the FERC order. The total amount of the refund was $9.3 million, plus accrued interest of $0.4 million.

ITC Acquisition

        ITC Holdings was formed for the purpose of acquiring International Transmission Company, LLC, or Predecessor ITC. On February 28, 2003, following the approval of the transaction by the FERC, ITC Holdings acquired the outstanding ownership interests of Predecessor ITC from DTE Energy for $610.0 million in cash plus direct transaction costs, subject to purchase price adjustments relating to PP&E and other items identified subsequent to February 28, 2003. In 2003, we paid $8.3 million in additional consideration for the acquisition of Predecessor ITC. Immediately following the acquisition, Predecessor ITC was merged with and into ITC Holdings Merger Sub, Inc., an entity formed by ITC Holdings, and ITC Holdings Merger Sub, Inc. was then renamed International Transmission Company.

        We accounted for the acquisition using the purchase method. The excess purchase price, including transaction costs, over the fair value of net assets acquired was classified as goodwill. The acquisition was treated as a taxable transaction, adjusting the tax basis of the assets to fair value pursuant to an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. The goodwill amount of $174.6 million as of March 31, 2005 is expected to be deductible for federal income tax purposes, with the majority of the goodwill being amortized over 15 years.

Trends and Seasonality

        We expect a general trend of moderate growth in our tariff rate over the next few years under Attachment O, although we cannot predict a specific year-to-year trend due to the variability of network load and other factors beyond our control. The tariff rate for the period from June 1, 2005 through May 31, 2006 is based primarily on FERC Form 1 data for the year ended December 31, 2004 and is $1.594 per kW/month compared to $1.587 per kW/month for the period from January 1, 2005 through May 31, 2005. Absent any other factors, there are two known items that will cause an increase in rate in 2006. Beginning June 1, 2006, one-fifth, or approximately $11.9 million, of the revenue that was deferred during the rate freeze will be included in ITC's rates in each of the following five 12-month periods, which will cause an increase in rates during these periods. Another component of the increase in rates that is expected to continue over the next few years is as a result of increased capital investment in excess of depreciation. This is in part due to our application of industry standards in our capital investment decision process. We continually test our transmission system against reliability standards established by the North American Electric Reliability Council, or NERC, and the MISO. These reliability standards have become more specific and stringent in recent years, primarily as a reaction to the August 2003 electrical blackout. We believe that investing in the system to meet these NERC standards, although not mandated by FERC, is a prudent way to prioritize capital spending. Moreover, since the August 2003 blackout, Congress has several times considered legislation that would make compliance with reliability standards established by NERC or another entity mandatory. In addition to investments that improve the reliability of the transmission system, we continue to identify investment opportunities that increase throughput and reduce transmission constraints in ITC's system

and in turn reduce the delivered cost of energy to end-use consumers. We expect the levels for capital spending for the next few years to be moderately higher than those seen in 2004. ITC strives for improved reliability of its system and lower delivered costs of electricity to end-use consumers.

        In support of the application of the NERC reliability standards, the FERC in a Policy Statement on Matters Related to Bulk Power System Reliability, Docket No. PL04-5-000, issued April 19, 2004, clarified its position on several matters relating to the application of the standards, one of which was a policy to allow utilities "to recover prudently incurred costs necessary to ensure bulk electric system reliability, including prudent expenditures for vegetation management, improved grid management and monitoring equipment, operator training, and compliance with NERC reliability standards and Good Utility Practices."

        Our results of operations are subject to seasonal variations. Our revenues depend on the monthly peak loads and regulated transmission rates. Demand for electricity and thus transmission load, to a large extent depend upon weather conditions. Our revenues and operating income are higher in the summer months when cooling demand and network load are higher.

        We are not aware of any trends or uncertainties in the economy and industries in ITC's service territory that are reasonably likely to have a material effect on our financial condition or results of operations. However, any changes in economic conditions that either increase or decrease the use of ITC's system to transmit electricity will impact revenue for a given year. Additionally, adverse economic conditions could impact our customers' ability to pay for our services.

Management Fees

        On February 28, 2003, we entered into agreements with KKR, Trimaran Fund Management, L.L.C. and the IT Holdings Partnership for the provision of management, consulting and financial services in exchange for annual fees. We incurred expenses of $1.0 million and $1.3 million for 2003 and 2004, respectively, in respect of these annual fees, excluding out-of-pocket costs. In connection with this offering, the parties to these agreements and ITC Holdings have agreed to amend these agreements by terminating ITC's obligation to pay these annual fees in exchange for one-time fees to KKR and Trimaran Fund Management of $4.0 million and $1.7 million, respectively, and a one-time fee to the IT Holdings Partnership of $1.0 million which will be payable by ITC Holdings upon the completion of this offering.

Termination of Dividend Equivalent Rights Plan

        On May 10, 2005, our board of directors determined that it is in the best interests of our company to terminate the Dividend Equivalent Rights Plan. Upon termination of the plan, 25 plan participants willwere entitled to receive their full account balances. As a result, an aggregate amount of approximately $1.8 million will bewas paid by us from the funded trust to participants in the plan.plan in July 2005.

Basis of Presentation

        We acquired the outstanding ownership interests of Predecessor ITC from DTE Energy on February 28, 2003 and accounted for the acquisition as a purchase. We adopted certain accounting policies and methods which differ from those followed by Predecessor ITC prior to the acquisition and as reflected in Predecessor ITC's audited financial statements and related notes included elsewhere in this prospectus.

Revenues

        We derive nearly all of our revenues from providing network transmission service, point-to-point transmission service and other related services over our system. The revenue information throughout

this Basis of Presentation section is presented for a full year of operations for the year ended December 31, 2004, which may be more meaningful than revenue information presented for a three- month period given the seasonality of our revenues. Most of our expenses and substantially all of our assets are devoted to providing transmission service. ITC's principal transmission service customer is Detroit Edison which accounted for approximately 68% of ITC's total operating revenues for the year ended December 31, 2004. ITC's system is the only transmission system that directly interconnects with Detroit Edison's distribution network. ITC's remaining revenues were generated from providing service to other entities such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers and from transaction-based capacity reservations on ITC's transmission system. MISO is responsible for billing and collection of transmission services in the MISO service territory. MISO, as the billing agent for ITC, collects fees for the use of ITC's transmission system, invoicing Detroit Edison and other ITC customers on a monthly basis. MISO has implemented credit policies for its members, which include ITC's customers.

        Network Revenues are generated from fees charged to network customers for their use of ITC's electricity transmission system during the one hour of monthly peak usage. For the year ended December 31, 2004, approximately 90.2% of ITC's operating revenues were derived from the provision of network service. ITC's network revenues are dependent on monthly peak loads and regulated transmission rates.

        Network revenues are determined using rates regulated by the FERC. ITC's monthly network revenues are the result of a calculation which can be simplified into the following:

(1)

multiply:



•

the network load measured in kWs achieved during the one hour of monthly peak usage for ITC's transmission system by



•

the appropriate monthly tariff rate as calculated under Attachment O by



•

12 by



•

the number of days in that month; and



(2)

divide the result by 365.

Therefore, ITC earns proportionately more revenues in months with 31 days than in months with a lesser number of days if all other factors remain equal. Set forth below is a simplified illustrative calculation of the network revenue earned for the month of December 2004:

8,469,000 (peak network load in kW in December) × $1.075 (the monthly tariff) × 12 × 31 (days in December)/365 = $9,278,776 total December network revenues.

        Point-to-Point Revenues consist of revenues generated from a type of transmission service for which the customer pays for transmission capacity reserved along a specified path between two points on an hourly, daily, weekly or monthly basis. Point-to-point revenues also include other components pursuant to schedules under the MISO transmission tariff. Approximately 13.4% of ITC's operating revenues for the year ended December 31, 2004 was derived from providing point-to-point service, without giving effect to the refund described below.

        The rates approved by the FERC in connection with our acquisition of ITC from DTE Energy included a departure from the Attachment O formula with respect to the treatment of point-to-point revenues received during 2003 and 2004. Based on FERC orders as part of the acquisition of ITC's transmission system from DTE Energy, ITC has refunded or will refund a portion of point-to-point revenues earned during the period from March 1, 2003 through December 31, 2004 to network and point-to-point customers pro rata. ITC refunded 100% of 2003 point-to-point revenues in March 2004

and refunded 75% of 2004 point-to-point revenues in March 2005. Point-to-point revenues collected for periods after December 31, 2004 are no longer refunded.

        Scheduling, Control and Dispatch Revenues also are approved by the FERC and are allocated to ITC by MISO as compensation for the services ITC performs, jointly with the Michigan Electric Transmission Company, or METC, in operating the Michigan Electric Coordinated Systems, or MECS, control area. Such services include processing energy schedule requests utilizing the MECS system, monitoring of reliability data, implementation of emergency procedures, and coordination of the MECS operation. Approximately 4.9% of ITC's operating revenues for the year ended December 31, 2004 were derived from providing scheduling, control and dispatch services.

        Other Revenues consist primarily of rental revenues received from METC for the use of the Michigan Electric Power Coordination Center, or MEPCC, building as well as property easement revenues. Approximately 1.6% of ITC's revenues for the year ended December 31, 2004 consisted of other revenues.

        The following table sets forth the components of our revenue, expressed as a dollar amount and percentage of net revenues, for the year ended December 31, 2004:

        The total of the monthly peak loads for 2004 was up 4.0% and down 2.4% as compared to the corresponding totals for 2003 and 2002, respectively.

Expenses

        Operation and Maintenance Expenses consist primarily of the costs of contractors to operate and maintain ITC's transmission system and salary-related expenses for ITC personnel involved in operation and maintenance activities. The majority of expenses for the operation of the transmission system relate to activities of the MECS control area. Maintenance expenses include preventative or planned maintenance, such as vegetation management, tower painting and equipment inspections, as well as reactive maintenance for equipment failures.

        Prior to February 28, 2003, ITC had entered into a Master Services Agreement with Detroit Edison whereby Detroit Edison performed maintenance, asset construction and day-to-day management of transmission operations and administration services. Detroit Edison received compensation for wages and benefits for employees performing work on behalf of ITC and for costs of construction or maintenance directly related to ITC in addition to overhead and other fees. Subsequent to February 28, 2003 and through April 2004, ITC had operated under a construction and maintenance, engineering, and system operations service level agreements, or the SLA, with Detroit Edison whereby Detroit Edison performed maintenance, asset construction, and certain aspects of transmission operations and administration, or the SLA Activities, on behalf of ITC. ITC entered into the SLA to provide an orderly transition from being a subsidiary of an integrated utility to a stand-alone independent transmission company. The SLA, as amended, had a term through February 29, 2004, with certain specified services extending through April 30, 2004, as necessary. Under the terms of the SLA, ITC's SLA Activities were jointly managed by ITC and Detroit Edison and therefore ITC did not have exclusive control over its expenditures relating to the SLA Activities through the term of the SLA. The terms of the SLA included an agreed upon pricing mechanism whereby Detroit Edison was paid an amount to compensate them for their fully allocated costs.

        In August 2003, ITC entered into an Operation and Maintenance Agreement with its primary maintenance contractor and a Supply Chain Management Agreement with its primary purchasing and inventory management contractor to perform these services subsequent to the term of the SLA. In order to facilitate the transition from Detroit Edison, the new contractors had performed work in parallel with Detroit Edison prior to the termination of the SLA. The agreements reduce uncertainty with regard to ITC's cost structure for the period ending August 28, 2008. Additionally, the new operating agreements allow ITC to exclusively manage and control operating expenditures.

        Because Predecessor ITC had no employees of its own, it was supported by employees of other DTE Energy subsidiaries, principally Detroit Edison. Any work a person did on behalf of Predecessor ITC (both field operations or administrative) was captured and recorded as operation and maintenance expense. In addition, there were allocations of employee benefits (for those employees whose time was billed to Predecessor ITC), corporate overhead (executive staff, legal) and infrastructure costs (facilities, information technology, equipment etc.) that were assigned to Predecessor ITC and recorded as operation and maintenance expense. Administrative costs such as employee benefits, corporate overhead and infrastructure costs are now recorded in general and administrative expenses at ITC.

        General and Administrative Expenses consist primarily of compensation and related costs for personnel and facilities for our finance, human resources, regulatory, information technology and legal organizations, and fees for professional services. Professional services are principally composed of outside legal, audit, consulting and information technology services. Additionally, benefits expenses for all employees are included in general and administrative expenses.

        During 2003, under the terms of the SLA, Detroit Edison performed many of the administrative duties in support of ITC's construction program. Subsequent to the termination of the SLA, we began to capitalize certain general and administrative expenses in July 2004 that resulted from our management of the expanded construction program. These expenses are included in PP&E.

        Depreciation and Amortization Expenses consist primarily of depreciation of PP&E using the straight-line method for financial reporting. Additionally, we amortize the regulatory asset-acquisition

adjustment, representing a portion of the goodwill created from the acquisition of ITC that was approved for recovery in rates by the FERC. The original amount of $60.6 million as of February 28, 2003 is being amortized over 20 years on a straight-line basis.

        Taxes other than Income Taxes consist primarily of property tax expenses. In accordance with Michigan law, ITC's real property tax values were uncapped as a result of the change in ownership of the assets of ITC. Additionally, numerous municipalities have applied their own valuation tables in assessing the value of ITC's personal property, rather than using the valuation tables approved by the State Tax Commission, or STC, resulting in higher property values. ITC has filed tax appeals and is in the process of discussing December 31, 2003 tax assessments with various municipalities, which are the basis for 2004 property tax expense. ITC has developed an appeal strategy and filed formal appeals with the Michigan Tax Tribunal, or MTT, for the municipalities that did not utilize the STC tax tables. The December 31, 2004 tax assessments received from the municipalities that are the basis for 2005 personal property taxes use the STC-approved valuation tables.

        The Michigan Single Business Tax, a value-added tax, will be recorded in taxes other than income taxes when incurred. We did not incur any Michigan Single Business Tax during the period from February 28, 2003 through December 31, 2003 or during 2004.

        Interest Expense consists primarily of interest on ITC Holdings' $267.0 million of 5.25% Senior Notes and ITC's $185.0 million of 4.45% Series A Mortgage Bonds. ITC Holdings and ITC also have revolving credit facilities outstanding, with the interest expense and facility fees being recorded to interest expense. Additionally, the amortization of debt financing expenses is recorded to interest expense.

Non-GAAP Financial Measures

        A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this prospectus, we define and use adjusted EBITDA, a non-GAAP financial measure, as set forth below.

Definition of Adjusted EBITDA

        We define adjusted EBITDA as follows:

        net incomeplus:

•

income taxes;



•

depreciation and amortization expense; and



•

interest expense;

        excluding:

•

allowance for equity funds used during construction; and



•

certain other items not related to operating performance such as loss on extinguishment of debt.

Management's Use of Adjusted EBITDA

        We use adjusted EBITDA on a consolidated basis to assess our overall financial and operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

        Adjusted EBITDA provides us with a measure of financial performance independent of items that are beyond the control of management in the short-term, such as depreciation, taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis and to determine the level of bonuses for management and employees. Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry.

        We have not used adjusted EBITDA as a measure of segment performance. We only measure performance on a consolidated basis because we have only one primary operating segment.

Limitations of Adjusted EBITDA

        Adjusted EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

•

the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to securities issuance activities generally represent charges (gains) which may significantly affect our financial results;



•

depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of other plant, equipment and intangible assets which permit us to provide electricity transmission to our customers and may be indicative of future needs for capital expenditures, or development or acquisition of intangible assets; and



•

allowance for equity funds used during construction is a result of strategic capital spending decisions and is excluded for the same reason as interest expense.

        An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

        Adjusted EBITDA is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. You should not rely on adjusted EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of adjusted EBITDA to GAAP net income (loss), along with our consolidated financial statements included elsewhere in this prospectus. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the adjusted EBITDA measure, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies.

Critical Accounting Policies and Methods

        Preparation of financial statements and related disclosures in compliance with GAAP requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events, including legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying assumptions. In addition, the financial and operating environment also may have a significant effect, not only on the operation of our business, but on our results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies applied has not changed.

        The following is a list of accounting policies that are most significant to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments.

        Regulation.    Nearly all of ITC's business is subject to regulation. As a result, we apply accounting principles in accordance with Statement of Financial Accounting Standards, or SFAS, 71, "Accounting for the Effects of Certain Types of Regulation," or SFAS 71. Use of SFAS 71 results in differences in the application of GAAP between regulated and non-regulated businesses. SFAS 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as expense or revenue in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in discontinuing the application of SFAS 71. If we were to discontinue the application of SFAS 71 on ITC's operations, we may be required to record extraordinary losses of $55.1 million relating to the regulatory asset-acquisition adjustment and $8.1 million of other regulatory assets relating to deferred financing fees at December 31, 2004. Additionally, we may be required to record extraordinary gains of $43.9 million relating to asset removal costs that have been accrued in advance of incurring these costs, recorded as regulatory liabilities at December 31, 2004.

        We believe that currently available facts support the continued applicability of SFAS 71 and that all regulatory assets and liabilities are recoverable or refundable under our current rate environment.

        Attachment O Revenue Deferral.    ITC's revenue deferral resulted from the difference between the revenue ITC would have collected under Attachment O and the actual revenue ITC received based on the frozen rate. The final revenue deferral at December 31, 2004 as established during the rate freeze was $59.7 million ($38.8 million net of tax). The revenue deferral and related taxes are not reflected as an asset or as revenue in our consolidated financial statements because they do not meet the criteria to be recorded as regulatory assets in accordance with SFAS 71 or Emerging Issues Task Force 92-7, "Accounting by Rate-Regulated Utilities for the Effects of Certain Alternative Revenue Programs," or EITF 92-7. SFAS 71 provides that an enterprise shall capitalize all or part of an incurred cost that would otherwise be charged to expense if certain criteria are met, including whether it is probable that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate-making purposes. Although the amortization of the revenue deferral is an allowable component of future rates based on FERC approval obtained for this item, the revenue deferral does not represent an incurred cost. Rather, it is a delayed recovery of revenue based on many components of our tariff rate, including incurred costs, rate base, capital structure, network load and other components of Attachment O. EITF 92-7 provides that a regulated enterprise should recognize revenue for other than incurred costs if the revenue program meets certain criteria. The revenue deferral does not satisfy the criteria of EITF 92-7 to record the revenue deferral in the year it is determined. We believe the proper revenue recognition relating to the revenue deferral occurs when we begin to charge the rate that includes the amortization of the revenue deferral beginning in June 2006.

        Purchase Accounting.    We accounted for our acquisition of Predecessor ITC using the purchase method, prescribed by SFAS 141, "Business Combinations." Estimates have been made in valuing certain assets and liabilities in the balance sheet. The provisions of the acquisition required an adjustment to the acquisition price of $610.0 million based on the closing balance sheet at February 28, 2003 prepared by DTE Energy. ITC Holdings paid an additional $8.3 million to DTE Energy subsequent to February 28, 2003 relating to the acquisition. During 2004, ITC Holdings and DTE Energy negotiated additional adjustments to the purchase price relating to the acquisition for various PP&E and inventory balances. These negotiations are not final; however, ITC Holdings recorded an increase in the purchase price related to its best estimate of the outcome. There may be additional purchase price adjustments as ITC and DTE Energy continue to identify differences from the closing balance sheet at February 28, 2003. We do not expect any additional purchase price adjustments to be

significant. If additional purchase price adjustments are identified, the amount recorded for goodwill or other balance sheet items would be impacted.

        Goodwill.    We have goodwill resulting from the acquisition of Predecessor ITC. In accordance with SFAS 142, "Goodwill and Other Intangible Assets," we are required to perform an impairment test annually or whenever events or circumstances indicate that the value of goodwill may be impaired. In order to perform these impairment tests, we determined fair value using valuation techniques based on estimates of market-based valuation multiples for companies within ITC's peer group and also considered discounted future cash flows under various scenarios. The market-based multiples involve judgment regarding the appropriate peer group and the appropriate multiple to apply in the valuation and the cash flow estimates involve judgments based on a broad range of assumptions, information and historical results. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, we may be required to write down all or a portion of ITC's goodwill, which would adversely impact earnings. As of December 31, 2004, goodwill totaled $176.0 million and we determined that no impairment existed as of our goodwill impairment testing date of October 1, 2004.

        Valuation.    Our accounting for stock-based compensation requires us to determine the fair value of shares of ITC Holdings' common stock. The fair value of ITC Holdings' common stock is determined using a discounted future cash flow method, which is a valuation technique that is acceptable for privately-held companies. The cash flow estimates involve judgments based on a broad range of assumptions, information and historical results. In the event different assumptions were used, it would result in a different fair value of ITC Holdings' common stock which would impact the amount of compensation expense recognized related to our stock-based awards.

        Property Taxes.    Property taxes recognized for 2004 are based on a total annual legal liability of $20.3 million from the 2004 tax statements received from municipalities. Numerous municipalities have applied their own valuation tables in assessing the value of ITC's personal property subsequent to the acquisition of Predecessor ITC, rather than the valuation tables approved by the STC. ITC has filed formal tax appeals with the MTT and is discussing December 31, 2003 tax assessments with various municipalities, which are the basis for 2004 property tax expense. As part of its appeal strategy, ITC has reached tentative settlements with the municipalities that did not utilize the STC tax tables. The tentative settlements would significantly reduce the 2004 property tax statements issued by those municipalities to ITC but remain to be finalized and approved by the MTT. Until this issue is resolved, ITC has made property tax payments based on the valuation tables approved by the STC, while continuing to expense the full amounts billed by the municipalities in applying their own valuation tables. In the event that the tentative settlements with the municipalities are finalized or the MTT appeals are otherwise resolved and the estimated personal property tax values change, any adjustments to ITC's property tax expense would be recorded at that time.

Results of Operations

        The financial information presented in this prospectus includes results of operations for Predecessor ITC for the two-month period ended February 28, 2003 and ITC Holdings Corp. for the period from February 28, 2003 through December 31, 2003. Neither the two-month period nor the ten-month period is reflective of a twelve-month year of operations and, accordingly, neither of such periods individually is directly comparable to the results of operations for the year ended December 31, 2004 or for the year ended December 31, 2002.

        In order to provide a year-over-year analysis, audited financial information for Predecessor ITC for the two-month period ended February 28, 2003 and audited information for ITC Holdings for the period from February 28, 2003 through December 31, 2003 have been combined to create a pro forma period consisting of the year ended December 31, 2003, which we refer to as the 2003 Pro Forma Period. The discussion is provided for comparative purposes only, but the value of such a comparison may be limited. You should not interpret the 2003 Pro Forma Period financial information as the result

of operations that ITC Holdings would have achieved had the acquisition occurred prior to January 1, 2003.

        The following statement summarizes historical operating results for the periods indicated:

Results of Operations for the Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2005

        Operating Revenues.    Revenues increased by $15.0 million, or 54.5%, from $27.5 million in the three months ended March 31, 2004 to $42.5 million in the three months ended March 31, 2005.

        The following table sets forth the components of our revenue, expressed as a dollar amount and percentage of net operating revenues, for the three months ended March 31, 2004 and 2005:

        Network revenues increased by $11.9 million, or 48.2%, from $24.7 million in the three months ended March 31, 2004 to $36.6 million in the three months ended March 31, 2005. The increase was due primarily to an increase in the rate used for network revenues from $1.075 per kW/month in the three months ended March 31, 2004 to $1.587 in the three months ended March 31, 2005, which increased revenues by $11.4 million. The remaining increase of $0.5 million was primarily due to an increase in the total of the monthly peak loads for the three months ended March 31, 2005 of 0.9% compared to the three months ended March 31, 2004, which increased revenues by $0.3 million.

        Point-to-point revenues, net of refunds, increased by $3.1 million, or 310.0% from $1.0 million in the three months ended March 31, 2004 to $4.1 million in the three months ended March 31, 2005, primarily because ITC is no longer is required to refund point-to-point revenues earned in 2005, as was required for point-to-point revenues earned during the three months ended March 31, 2004 in the amount of $2.9 million.

        Operating Expenses.    Total operating expenses decreased by $1.1 million, or 4.4%, from $25.2 million in the three months ended March 31, 2004 to $24.1 million in the three months ended March 31, 2005.

        Operation and maintenance expenses increased by $0.1 million, or 1.6%, from $6.4 million in the three months ended March 31, 2004 to $6.5 million in the three months ended March 31, 2005. The increase was due to increased operation and maintenance activities performed during the three months ended March 31, 2005 of $1.7 million, primarily due to increases in preventative maintenance for vegetation management of $0.9 million and circuit breaker inspections of $0.6 million, as well as other net increases of $0.2 million. Partially offsetting this increase was a $1.6 million decrease in expenses relating to training contract personnel to transition ITC's operation and maintenance activities from Detroit Edison in the three months ended March 31, 2004 that did not recur during the three months ended March 31, 2005.

        General and administrative expenses decreased by $1.1 million, or 17.2%, from $6.4 million in the three months ended March 31, 2004 to $5.3 million in the three months ended March 31, 2005. The decrease was primarily due to the capitalization of certain general and administrative expenditures totaling $0.9 million in the three months ended March 31, 2005. No such amounts were capitalized in the three months ended March 31, 2004. Additionally, general and administrative expenses decreased

by $0.9 million due to losses incurred in the three months ended March 31, 2004 related to our investment in Conjunction LLC, or Conjunction, through our wholly-owned subsidiary, New York Transmission Holdings Corporation, or NYTHC. Conjunction was formed in 2003 to develop a high-voltage direct current line to be built within New York state to transmit power to the metropolitan New York City area. There was no impact from Conjunction in the three months ended March 31, 2005. Partially offsetting these decreases of $1.8 million were increases of $0.7 million, which related to higher compensation and benefits expense of $0.6 million due to additions in headcount and various other items totaling a net increase of $0.1 million.

        Depreciation and amortization expenses increased by $1.0 million, or 14.3%, from $7.0 million in the three months ended March 31, 2004 to $8.0 million in the three months ended March 31, 2005 due to a higher depreciable asset base as a result of PP&E additions during 2004 and the three months ended March 31, 2005.

        Taxes other than income taxes decreased by $1.1 million, or 20.4%, from $5.4 million in the three months ended March 31, 2004 to $4.3 million in the three months ended March 31, 2005 due to ITC's lower assessed property tax values as of December 31, 2004 that are the basis for the 2005 property taxes compared to the assessed values as of December 31, 2003 that were the basis for the 2004 property taxes. Numerous municipalities had applied their own valuation tables in assessing the value of ITC's personal property at December 31, 2003, rather than using the valuation tables approved by the STC. The municipalities used the valuation tables approved by the STC in assessing the value of ITC's personal property at December 31, 2004, which will result in lower property taxes in 2005 compared to 2004.

        Other Expenses.    Interest expense increased by $0.6 million, or 9.5%, from $6.3 million in the three months ended March 31, 2004 to $6.9 million in the three months ended March 31, 2005. The increase was primarily due to higher borrowing levels under our revolving credit facilities in the three months ended March 31, 2005 to finance capital expenditures at ITC.

        Net Income (Loss).    As a result of the factors identified above, net income after taxes increased by $10.3 million from a net loss of $2.4 million in the three months ended March 31, 2004 to net income of $7.9 million in the three months ended March 31, 2005.

Results of Operations for the Year Ended December 31, 2004 Compared to the 2003 Pro Forma Period

        Operating Revenues.    Revenues increased by $3.1 million, or 2.5%, from $123.3 million in the 2003 Pro Forma Period to $126.4 million in 2004. This increase was primarily due to higher monthly peak load in 2004 resulting in increased network revenues of $2.8 million and a $1.3 million increase in net point-to-point revenues. Partially offsetting these increases was a net $1.0 million decrease primarily in revenues associated with scheduling, controlling and dispatch services and amounts received for use of utility property.

        Operating Expenses.    Total operating expenses increased by $3.5 million, or 3.7%, from $95.8 million in the 2003 Pro Forma Period to $99.3 million in 2004.

        Operation and maintenance expenses decreased by $4.0 million, or 14.0%, from $28.6 million in the 2003 Pro Forma Period to $24.6 million in 2004 primarily due to active cost management. During 2003, Detroit Edison and ITC jointly controlled maintenance activities under the terms of the SLA. Beginning in April 2004, ITC had exclusive control over its operation and maintenance activities.

        General and administrative expenses decreased by $1.9 million, or 7.2%, from $26.3 million in the 2003 Pro Forma Period to $24.4 million in 2004. The decrease was primarily due to non-recurring expenses of $4.9 million in the 2003 Pro Forma Period comprised of regulatory asset amortization relating to MISO and ITC start-up costs partially offset by general increases in salary, benefits, and professional services in 2004. The offsetting increase relating to salary, benefits and other expenses

would have been higher in 2004 if not for the capitalization of certain general and administrative expenditures totaling $2.5 million.

        Depreciation and amortization expenses increased by $4.4 million, or 17.5%, from $25.1 million in the 2003 Pro Forma Period to $29.5 million in 2004 due to a higher depreciable asset base as a result of PP&E additions during 2004 and the 2003 Pro Forma Period.

        Taxes other than income taxes increased by $5.0 million, or 31.6%, from $15.8 million in the 2003 Pro Forma Period to $20.8 million in 2004 due to ITC's higher property tax values as of December 31, 2003. In accordance with Michigan law, ITC's real property tax values were uncapped as a result of the change in ownership of ITC's assets. Additionally, numerous municipalities have applied their own valuation tables in assessing the value of ITC's personal property, rather than using the valuation tables approved by the STC, resulting in higher property taxes.

        Other Expenses.    Interest expense increased by $4.0 million, or 18.5%, from $21.6 million in the 2003 Pro Forma Period to $25.6 million in 2004. The increase was primarily due to 12 months of borrowings in 2004, as compared to 10 months of borrowings in the 2003 Pro Forma Period, as well as higher borrowing levels in 2004 related to increased capital expenditures in 2004.

        There was a non-recurring expense of $11.4 million in the 2003 Pro Forma Period relating to the extinguishment of debt as a result of ITC Holdings' debt refinancing in July 2003.

        Net Income (Loss).    As a result of the factors identified above, net income after taxes increased by $7.2 million from a net loss of $4.6 million in the 2003 Pro Forma Period to net income of $2.6 million in 2004.

Results of Operations for the 2003 Pro Forma Period Compared to the Year Ended December 31, 2002

        Operating Revenues.    Revenues decreased by $14.2 million, or 10.3%, from $137.5 million in 2002 to $123.3 million in the 2003 Pro Forma Period. This decrease was due to a $13.3 million reduction of net Point-to-Point revenues due primarily to the refunding of 100% of March through December 2003 Point-to-Point revenues and a $4.2 million decrease in network revenues due primarily to lower monthly peak loads. Partially offsetting these decreases was a net increase of $3.3 million primarily as a result of scheduling, controlling and dispatch revenues and amounts received for use of utility property.

        Operating Expenses.    Total operating expenses increased by $23.3 million, or 32.1%, from $72.5 million in 2002 to $95.8 million in the 2003 Pro Forma Period.

        Operation and maintenance expenses decreased by $6.1 million, or 17.6%, from $34.7 million in 2002 to $28.6 million in the 2003 Pro Forma Period. In 2002 and the first two months of 2003, general and administrative costs were classified as operation and maintenance expense. Directly identifiable general and administrative costs of $9.0 million and allocated corporate overhead costs of $11.0 million were billed by DTE Energy to ITC and classified as operation and maintenance expense in 2002 as compared to $3.1 million and $0.9 million, respectively, in the 2003 Pro Forma Period. Predecessor ITC had no employees and was supported by employees of other DTE Energy subsidiaries. We record these types of expenses as general and administrative expenses. Offsetting the $16.0 million decrease was an increase relating to operation and maintenance expenses for transmission station equipment of $6.8 million and overhead and underground lines of $1.7 million and an increase of $1.4 million in miscellaneous expenses.

        General and administrative expenses increased by $26.3 million in the 2003 Pro Forma Period as Predecessor ITC recognized no general and administrative expenses in 2002. The 2003 Pro Forma Period general and administrative expenses resulted from non-recurring expenses of $4.9 million for the amortization of a regulatory asset relating to MISO and Predecessor ITC start-up costs. In 2003, we acquired a majority interest in Conjunction. We recorded $1.6 million of expenses at NYTHC in the 2003 Pro Forma Period related to the start-up activities of Conjunction. The remaining increase of

$19.8 million related to certain general and administrative expenses. In 2002 expenses for these functions charged by DTE Energy to Predecessor ITC were recorded as operation and maintenance expense. These expenses in the 2003 Pro Forma Period included salary and benefits costs of $8.8 million, professional services of $6.4 million, insurance expense of $1.7 million and $2.9 million of general office expenses such as rent and supplies.

        Depreciation and amortization expenses increased by $3.1 million, or 14.1%, from $22.0 million in 2002 to $25.1 million in the 2003 Pro Forma Period primarily due to $2.5 million in amortization expense related to a regulatory asset-acquisition adjustment in the 2003 Pro Forma Period, as well as other increases of $0.6 million for depreciation expense as a result of a higher depreciable asset base in 2003.

        Taxes other than income taxes were $15.8 million in both 2002 and the 2003 Pro Forma Period.

        Other Expenses.    Interest expense increased by $21.5 million from $0.1 million in 2002 compared to $21.6 million in the 2003 Pro Forma Period primarily as a result of the fact that no debt was outstanding during 2002. 2003 Pro Forma Period interest expense on borrowings was $11.4 million and $7.6 million at Holdings and ITC, respectively. Additionally, amortization of debt issuance costs of $2.6 million was recorded in the 2003 Pro Forma Period with no corresponding amount in 2002.

        There was a non-recurring expense of $11.4 million in the 2003 Pro Forma Period relating to the extinguishment of debt as a result of Holdings' debt refinancing in July 2003.

        Net Income (Loss).    As a result of the factors identified above, net income after taxes decreased by $47.8 million from net income of $43.2 million in 2002 to a net loss of $4.6 million in the 2003 Pro Forma Period.

Liquidity and Capital Resources

Liquidity

        We expect to fund our future liquidity needs with cash from operations, our cash and cash equivalents, proceeds from our initial public offering of common stock and amounts available under our revolving credit facilities, subject to certain conditions. We expect that our liquidity requirements will arise principally from our need to:

•

fund capital expenditures;



•

fund ITC Holdings' and ITC's debt service requirements;



•

fund working capital requirements; and



•

pay dividends on our common stock.

We believe that we have sufficient liquidity to meet our cash and other needs for at least the next 12 months.

        For each of 2005 and 2006, we expect to invest approximately $100 million in additional PP&E, primarily on projects reviewed by MISO. This amount consists of a significant amount of capital investment that ITC could defer (or not incur in a particular year) if then current business conditions require. The expected investment amount also could vary as ITC continues to identify prudent capital investment opportunities that would reduce transmission constraints, increase flows across the system, or improve system reliability. Additionally, the amount could vary for other reasons, including, among other things, the impact of weather conditions, union strikes, material prices and availability, our ability to obtain financing for such expenditures, if necessary, limitations on the amount of construction that can be undertaken on our system at any one time or regulatory approvals for reasons relating to environmental, siting or regional planning issues or as a result of legal proceedings, as well as variances between the actual costs of construction contracts awarded compared to the forecasted costs.

        We expect to pay approximately $24.0 million of interest expense in 2005. In 2005, we expect to pay an aggregate of approximately $17.5 million in dividends to our stockholders.

        The following table summarizes cash flows for the periods indicated: