ITC Holdings Corp. (NYSE: ITC ) Q3 2015 Earnings Call November 05, 2015 11:00 am ET Executives Stephanie Amaimo – Director-Investor Relations Joseph L. Welch – Chairman, President & Chief Executive Officer Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Analysts Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Jay L. Dobson – Wunderlich Securities, Inc. Daniel L. Eggers – Credit Suisse Securities (NYSE: USA ) LLC (Broker) Charles Fishman – Morningstar Research Steve Fleishman – Wolfe Research LLC Julien Dumoulin-Smith – UBS Securities LLC Operator Good day, ladies and gentlemen, and welcome to the ITC Holdings Corporation Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Stephanie Amaimo. Please go ahead, ma’am. Stephanie Amaimo – Director-Investor Relations Good morning, everyone, and thank you for joining us for ITC’s 2015 third quarter conference call. Joining me on today’s call are Joseph Welch, Chairman, President, and CEO of ITC; and Rejji Hayes, our Senior Vice President, CFO, and Treasurer. This morning, we issued a press release summarizing our results for the third quarter. We expect to file our Form 10-Q with the Securities and Exchange Commission today. Before we begin, I would like to make everyone aware of the cautionary language contained in the Safe Harbor statement. Certain statements made during today’s call that are not historical facts such as those regarding our future plans, objectives, and expected performance reflect forward-looking statements under federal securities laws. While we believe these statements are reasonable, they are subject to various risks and uncertainties and actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC such as our periodic reports on Forms 10-K and 10-Q and our other SEC filings. You should consider these risk factors when evaluating our forward-looking statements. Our forward-looking statements represent our outlook only as of today and we disclaim any obligation to update these statements except as may be required by law. A reconciliation of the non-GAAP financial measures discussed on today’s call is available on the Investor Relations page of our website. I will now turn the call over to Joe Welch. Joseph L. Welch – Chairman, President & Chief Executive Officer Thank you, Stephanie, and good morning, everyone. I’m pleased to report that the company achieved solid results in the third quarter. This should set the stage for another strong year of overall performance in delivering on expectations. On the operational front, as a testament to our model of operational excellence, our system once again performed well during the summer months when we served higher loads. Overall, we remain focused on completing our base, regional development projects in a timely and cost-effective fashion to the benefit of customers and investors, as we always have. In addition to solid operational execution, we continued to honor our commitments around value return to investors driven by our capital allocation strategy. In August, we increased our dividend by approximately 15% year-to-year. This marks the 10th straight year that we have increased our dividend. Also, in early October, we commenced an accelerated share repurchase program of $115 million which will be concluded in December, effectively using the remaining capacity of board-authorized share repurchases. These actions underscore the financial health of the business while highlighting our ability to manage our balance sheet effectively to ensure that we have ample liquidity for both capital investments and value return as appropriate. Shifting gears to regulatory matters, the initial MISO base ROE complaint procedural schedule continues to advance with hearings and briefings occurring over the past several months. The administrative law judge is scheduled to issue an initial decision containing a recommendation for the base ROE for the period covered by the initial complaint by the end of November. An order is expected from FERC in September of 2016, however, there’s no stipulated period for that action. With regards to the second complaint, the MISO transmission owners filed their initial testimony on October 20 with hearings scheduled for February of 2016. An initial decision from the ALJ is scheduled for late June of 2016. We currently expect a FERC order on the second complaint in the second quarter of 2017 but, again, there’s no stipulated period. As discussed previously, while the resolution around this matter is expected to be protracted, we do expect FERC to continue to support its historical policies of promoting ROEs and other incentives that will drive electricity transmission investment. Turning to development. We continue to source and evaluate opportunities in our contracted transmission portfolio while pursuing regulated Order 1000-related projects. In the third quarter, we completed the non-binding open solicitation for the Lake Erie Connector project and are pleased with the preliminary expressions of interest. We are now in bilateral negotiations with prospective counterparties. Assuming we are successful in executing favorable transmission service agreements over the course of the next several months, we would then anticipate receiving federal, state, and provincial permits by the second quarter of 2017. We would commence construction around that time with commercial operation expected in 2019. As previously noted, we remain cautiously optimistic about the prospects of this project and we are keenly focused at this point on the quality of the bilateral contracts with the counterparties in the associated terms and conditions. Regarding the opportunity in Puerto Rico, we continue our due diligence activities alongside NRG Energy and York Capital. We have participated in a formal expression of interest process with the Puerto Rico Electric Power Authority. We continue to believe that our joint proposal offers superior economic benefits for the citizens of Puerto Rico and other key stakeholders. To conclude my remarks I’ll note an important milestone in the third quarter which marked our 10th anniversary as a public company. As I reflect on our roles as pioneers in modernizing electrical infrastructure in the U.S. and serving as the sole steward of FERC’s historical transmission policies for a considerable period, I’m extremely proud of our results. Since our inception in 2003, ITC has invested over $5 billion of capital into the grid to improve reliability, expand access to power markets, and allow generating resources to interconnect to the grid, thereby lowering the overall cost of delivered energy to our customers. Given the inherent risk in transmission investment, our ability to execute large capital programs in a timely and cost-efficient manner while minimizing our cost of capital is no small feat. This capability is noteworthy because we are providing value to customers while concurrently meeting the expectations of the investment community. These past achievements serve as the foundation for our future success. As we look ahead to the fourth quarter and beyond, we remain highly confident that we will continue on the path of operational excellence, industry-leading growth and balance sheet management to the benefits of our constituents. I will now turn the call over to Rejji for an update on our financial results and outlook. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Thank you, Joe, and good morning, everyone. For the third quarter of 2015, we reported operating earnings at $82.3 million or $0.53 per diluted share, an increase of 12% or $0.06 per diluted share over the same period in 2014. Reported net income for the quarter was $65.6 million or $0.42 per diluted share, a decrease of $8.3 million or $0.05 per diluted share compared to the third quarter in 2014. For the nine months ended September 30, 2015, we reported operating earnings of $236.2 million or $1.51 per diluted share, an increase of 11% or $0.15 per diluted share over the same period in 2014. As highlighted in our prior calls, absent the Kansas V-Plan Project bonus payment expenses booked in the first quarter 2015, our year-over-year growth would have been approximately 14%. Reported net income for the nine months ended September 30, 2015 was $205 million or $1.31 per diluted share, an increase of $7.7 million or $0.06 per diluted share compared to the same period in 2014. Operating earnings are reported on a basis consistent with how we have provided our guidance for the year and exclude the following items. First, they exclude after-tax impacts associated with the Entergy transaction of approximately $0.1 million for the third quarter of 2014. These expenses total $0.6 million for the nine months ended September 30, 2014. Second, they exclude regulatory charges of approximately $5.5 million, or $0.4 per diluted share for the third quarter 2015. These expenses total $6.6 million, or $0.4 per diluted share for the nine months ended September 30, 2015 and $0.1 million for the nine months ended September 30, 2014. The 2015 charges relate to management’s decision to write off abandoned costs associated with a project at ITCTransmission and a refund liability attributable to contributions in aid of construction. The 2014 charge relates to certain acquisition accounting adjustments for ITC Midwest, ITCTransmission and METC resulting from the FERC audit order on ITC Midwest issued in May of 2012. Third, operating earnings exclude after-tax expenses associated with the cash tender offer and consent solicitation transaction for select bonds at ITC Holdings that we completed in the second quarter of 2014. The impact of this item totaled $0.1 million for the third quarter of 2014 and $18 million or $0.11 per diluted share for the year-to-date period ended September 30, 2014. Lastly operating earnings exclude the estimated refund liability associated with the MISO base ROE, which totaled $11.2 million or $0.7 per diluted share for the third quarter of 2015, and $24.5 million or $0.16 per diluted share for the nine months ended September 30, 2015. It is possible that upon the ultimate resolution of this matter, we may be required to pay refunds beyond what has been recorded to-date. We will continue to assess this matter and will provide updates as necessary. For the nine months ended September 30, 2015, we reported total capital investments of $501.4 million, which includes $120.2 million at ITCTransmission, $91.6 million at METC, $273.9 million at ITC Midwest, $11.6 million at ITC Great Plains, and $4.1 million of Development-related investments in the New Covert project. We remain on track to be well within our range of guidance for 2015. Moving on to balance sheet-related activities. As Joe noted, in September, we executed effectively the remaining portion of the $250 million board-authorized share repurchase program. On October 1, we announced $115 million accelerated share repurchase program with an initial delivery of 2.8 million shares with a market value of $92 million, or approximately $33.34 per share prior to any discounts applied under the program. The remaining portion of shares will be repurchased at the agent’s discretion, but prior to the end of the year. The overall effective share price to repurchase will be determined by the volume-weighted average price of ITC stock during the term of the transaction, less an agreed upon discount and adjusted for the initial share delivery. As Joe noted, this transaction further demonstrates our commitment to providing attractive total shareholder returns without compromising our solid investment grade profile and ability to cost efficiently fund our capital investment program. To that last point, I would be remiss if I did not mention that we felt comfortable moving forward with share repurchase in Q3 given the expected timing of our contracted transmission opportunities, which remain heavily backend-weighted in the context of the 2014 to 2018 capital plan. To elaborate on our liquidity, which continues to be strong, as of September 30, 2015, we had a total liquidity position of approximately $855 million, which is largely comprised $831 million of net undrawn revolver capacity. For the nine months ended September 30, 2015, we reported operating cash flows of approximately $386 million, which represented an increase of approximately $25 million period-over-period. As we look ahead to the fourth quarter, our 2015 operating EPS guidance of $2 to $2.15 per share remains unchanged and we are revising our aggregate capital investment guidance for the year to $715 million to $765 million. The new capital guidance range includes capital investments of $180 million to $190 million at ITCTransmission, $155 million to $170 million at METC, $370 million to $385 million at ITC Midwest, $10 million to $15 million at ITC Great Plains, and up to $5 million for ITC Development. In closing, all of the initiatives and efforts that we have embarked on over the course of the year have positioned ITC to deliver on our commitments to customers and investors. At this time, we’d like to open up the call to answer questions from investment community. Question-and-Answer Session Operator Our first question comes from the line of Jonathan Arnold with Deutsche Bank. Your line is now open. Please go ahead. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Good morning, guys. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Morning. Joseph L. Welch – Chairman, President & Chief Executive Officer Morning, Jonathan. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. A quick one on the – Rejji, could you – the slight change to the 2015 CapEx guidance, can you give us a little insight into what moved I guess the higher end down a bit? And is this just spend that’s going to drift into 2016? Or is it things that you thought would happen that may not happen? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. Happy to answer that, Jonathan. I think the quick answer is we have fallen slightly behind on a couple of projects at ITCTransmission and ITC Midwest. And so, what we still think will be well within the initial range of $710 million to $810 million, based on the visibility we had at the end of Q3, we thought it made sense to revise downward the upward end of the range. And the projects that were a little behind on at those two entities, as we see it, will likely be spent in 2016. So well within our initial estimates, but we wanted to offer a little more prescription at this time of year. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So the projects are still happening, they’re just taking a little longer. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. As we see it at this point, yes. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. And then which ones in particular? Can you share? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Really immaterial projects. Not, I would say, any of the major projects and again it’s not the most material amount, particularly if you compare the midpoints of the initial guidance versus the midpoint of where we are today or implied midpoint. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. And then, if I may, on second one, do you have any updated thoughts as to when you might consider updating your five-year plan? Whether you might consider presenting your base business and the contracted opportunities kind of in a dual track or something like that. Is that something we should look for early next year? Or is it something that you’ll wait till the FERC’s resolved? I’m just curious what your current thinking is on that. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. Jonathan, at this point, clearly we have not announced the release of a new plan, but we’re clearly contemplating providing a new vintage given that we’re almost halfway done with the current plan and a number of the underlying assumptions have changed. But clearly that’s something we’ll have to talk about internally, noodle on, and as we get more visibility both on capital projects as well as clearly where the FERC is thinking at that point, we will decide when it makes sense to offer new vintage. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So when you say you’re contemplating it, does that mean it’s sort of a live discussion in this planning cycle or still not something as much? Should we be holding our breath at all, I guess is… Joseph L. Welch – Chairman, President & Chief Executive Officer I don’t think you should hold your breath, but I would anticipate that given where we’re at, we’ll clearly do something in the first half of next year with our new forecast. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. I’ll leave it at that. Thank you very much, Joe. Joseph L. Welch – Chairman, President & Chief Executive Officer Thank you. Operator And our next question comes from the line of Jay Dobson with Wunderlich Securities. Your line is now open. Jay L. Dobson – Wunderlich Securities, Inc. Hey, good morning. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Morning, Jay. Jay L. Dobson – Wunderlich Securities, Inc. Rejji, as far as the ROE reserve, it looks pretty similar to second quarter. Any change in the methodology? I know you had done a change in the second quarter from the first quarter, so just want to sort of make sure we’re still on the same track there. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. I guess not to get too cute with the response with respect to methodology, we’re still clearly evaluating what our third-party expert witnesses are providing as part of testimony and our assumptions essentially align with those estimates and we’re clearly noteful or we’re clearly mindful, rather, of what other data points have been offered up at this point over the course of this year. And we continue on a quarterly basis to look at how the ROE and DCF tests are trending and we have revised estimates from time to time. And so, we’re going to try to make sure that our latest reserve reflects where we think the market will go and where we think rather the FERC will go. And so there have been modest revisions to the math to-date, but not material changes. Jay L. Dobson – Wunderlich Securities, Inc. Great. That’s really helpful. And, Joe, talking about Lake Erie, just what do you see as sort of the gating items? Understanding you’re sort of in negotiations so you probably can’t sit here and tell us chapter and verse of where exactly things are, but how would you envision this playing out? Would we hear something sort of early next year as far as, yeah, we’re thumbs up and green-lighted? Or is this something that will be somewhat more iterative as we sort of move through a time continuum? Joseph L. Welch – Chairman, President & Chief Executive Officer Well, as I said in my opening comments, we’re now at that stage where we’re starting to start to negotiate with the parties on this line. And as a result of that negotiation, of course that’s really the critical link. I mean, first was did the line make sense? Did we see the financial economics there? Was there enough interest? We have done all of the work to see how we would construct a line, meaning the path we would take through the lake, getting it out of the lake into the two major stations where it’s going to interconnect. We had the preliminary solicitation or the non-binding solicitation where we’ve generated the interest and now, we’re at the point where we need to see if that interest is real. And we file for all of our permits, and with that, if the solicitation is – or the interest is real and the financials are there, then we’ll proceed with the permits. And so, I don’t want to call it iterative, but it’s definitely linear. And there’s many gating items, but this one is a pretty critical one. So, there’ll be a lot of clarity by mid-year on this. Jay L. Dobson – Wunderlich Securities, Inc. Got you. Nope, that’s great. And then I guess, Joe and Rejji, how is the board thinking about share repurchases? Obviously, you’ve got the one in the marketplace, so technically you’re not complete with the current authorization. But as we look out into 2016 and, Rejji, you sort of playing off your comment that some of your projects have gotten pushed off further into the decade. Is it likely the board will re-up a share repurchase program? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Well, it’s always dangerous to front run the board, Jay. But I think at this point, given the one that we’re currently executing, the $115 million, obviously our leverage ratios have come up a little bit above our targeted threshold and so we’ll need to restore leverage capacity before we offer up another batch of repurchases. But I think as part of the continuing dialogue we have with the board and internally with the management team around capital allocation strategy and value return, we still view repurchases as really effective and – tax-effective vehicle of providing value back to shareholders and so we’ll continue to look at that as a vehicle going forward, but I clearly don’t want to front run the board on that. Jay L. Dobson – Wunderlich Securities, Inc. Great. And then last question just – and I apologize for not being familiar, what is this contributions in aid of construction charge? I don’t think I’m familiar with it. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. I’ll shed some light on that, Jay. So we have for the past several months been evaluating potential modifications to our formula rate template and as part of that assessment, we identified an issue that led to excess cost recovery attributable to deferred tax assets, how they’re imputed into the formula rate template and they’re associated with contributions in aid of construction or CIACs. Upon identifying this, we quantified the refund to customers equated to about just under $9.5 million pre-tax, $5.5 million after-tax and made it part of our 205 filing with the FERC in addition to other flaws that we found in the template. We have had a discussion with the FERC on this matter, brought its attention to their staff before we made the filing and we think it’s clearly the right thing to do in the case of excess recovery to the benefit of customers. So we have done so and we obviously carved it out because we viewed it as a non-recurring charge. So that’s really the gist of it. Jay L. Dobson – Wunderlich Securities, Inc. Got you. No, that’s really helpful. And the $5.5 million obviously relates to prior periods. How should we think of that in the current period? Or if FERC approves the change, how would that impact the current formula rates? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. So what it would essentially do is correct for the way in which the deferred tax asset is running through the formula rate template. Based on our proposal, clearly it’s subject to FERC’s reaction and approval of our requested modification, but this would not be a perspective or recurring issue as we see it. So once we have made this refund to the tune of $9.5 million pre-tax, $5.5 million after tax, that should be the end of it. And we’ve obviously imputed interest expense associated with those charges over time. So we try to retroactively look at how much we owed customers over that period since we’ve been using the formula rate template at that time and we think once we paid a refund, that should call it a day. It would be effective as of January 1, 2016 per request but obviously subject to FERC’s approval. Jay L. Dobson – Wunderlich Securities, Inc. Great. Thank you very much. Really appreciate the clarity. Operator Our next question comes from the line of Dan Eggers of Credit Suisse. Your line is now open. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey. Good morning, guys. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Morning. Joseph L. Welch – Chairman, President & Chief Executive Officer Hey. Good morning, Dan. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey. Just want to follow up on the Lake Erie conversation. Now that you guys have made some progress as far as getting the intent from some potential partners. Can you talk a little bit about the nature of the people who are looking to be involved and maybe more important from kind of a credit perspective or from a durability to be either over the life of the asset to make sure you’re able to get your economic return on the project? Joseph L. Welch – Chairman, President & Chief Executive Officer Well, I think that it’s a tough thing. We just need to talk about the character of the people there. But look, I mean, let me start at a very high level and then if you want to ask more, I’ll go to that. But the people that have approached us have been showing interest, you would recognize them all. They are all pretty solid corporations. A lot of them absolutely deal in that area. They are on one side or the other of that line and they have seen the value of this line for some time, they – but now that we are out there. And so, they are all credit quality people and, of course, what we’d like to have is those contracts that are as rock solid as possible that we go back into the corporate guarantees on that. I mean, this is not a small investment and beyond that, we want to make sure that our shareholders are going to recover their investment. So we’re being very diligent with it. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Dan, this is Rejji. The only thing I would add to that is that, clearly, as we negotiate contracts with the perspective shippers, we’re going to be acutely focused on tenor of the contract, the underlying economics and the creditworthiness of the counterparties. And we want to be as impartial as possible. So obviously creditworthy differs from counterparty-to-counterparty. In any event the creditworthy is sub-optimal, we would like to give them an opportunity to put mechanisms in place and I think you’re well-versed on what those risk mitigation mechanisms could be, but put mechanisms in place to make sure that that’s not a material risk going forward because, clearly, the quality of the contracts at the end of the day will dictate whether or not it makes sense to move forward on this. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) So we haven’t done a lot of these kind of long-run merchant-ish transmission lines. Are people willing to do 20-plus-year contracts going into the deregulated Pennsylvania power market? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP So, Dan, I think at this point, we prefer to not get into specifics of any of the contracts that we’re negotiating at this point but directionally, of course, we’d like to extend tenors much as we can. But we’re not going to speculate or offer any transparency around where the contracts are headed. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Okay. And I guess just given the fact that if you’re talking about investment-grade parties who are known entities, are they doing like the pipeline deals have done where they’re saying, yeah, we’ll sign up for a piece of the line, but we’d also like to own a piece of the line? And what’s your interest in selling down the equity position you guys have developed there? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. Again, we would prefer not to get into specifics of the, I’d say, tailored negotiations we’re having with each party, but clearly fiduciaries, as always, will have our minds open on all different types of ways in which we could execute on this. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Okay. And then on Puerto Rico, what is the process there? Is there any kind of steps or time lines we should be thinking about to see if this advances? Or do we have to resolve the bankruptcy/no bankruptcy thing for the territory before your project can even have a real conversation? Joseph L. Welch – Chairman, President & Chief Executive Officer I think that – in fact, there was just a recent – I don’t know what to – they came out today where the Governor of Puerto Rico has made an announcement as to how he sees the energy policy moving forward in Puerto Rico. But clearly, they are looking to, number one, the bond holders to have a little bit of pain, meaning they’re going to have to take a hit. But he really wants to start to move forward in Puerto Rico to get the infrastructure redeveloped, improve reliability, stabilize rates for the customers in Puerto Rico and, of course, our project is one of the hallmark projects that will allow that to happen. So we remain optimistic that by mid-year of 2016, we’re going to have a lot of clarity on how to move forward in Puerto Rico. These kind of projects, especially when they involve bankruptcies, they’re time-consuming and there’s a lot of political things that have to take place, but I’d remain guardedly optimistic that by the mid-year 2016, we’re going to be in a good shape to know go/no-go on the project or at least we’re going to be in a place where we can evaluate next steps. And I think that from this recent statement by the governor, I’m probably on board on that. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP And Dan, this is Rejji. Just for reference, the bill or legislation that Joe was referring to is the PREPA Revitalization Act which hit the tape I believe earlier today. And as Joe highlighted, we are encouraged with the government of Puerto Rico and how seriously they’re taking this matter. And we think that obviously the proposed solution that we’ve offered up, alongside NRG Energy and York is the superior solution that has been offered up to date. So, we are encouraged but cautiously optimistic. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) And just one last one. Kind of as we’re looking outside of the U.S., do you guys see opportunities into Mexico? I’m thinking about all the renewables that are being developed south of the border and kind of the interflow of energy back and forth. Is that another market where you guys could do something? Joseph L. Welch – Chairman, President & Chief Executive Officer As always, we look everywhere but consistent with what I’ve started to tell everybody is where we’re going and what we’re doing now, especially on the development front. We’re probably going to stay pretty guarded on because their reward for announcing what you’re doing is to get more competition, but we’re well aware of what’s happening in Mexico and all other countries for that matter and we’ll stay watchful. And if there’s an opportunity that we think is in the best interests of our shareholders, we’ll start pursue it. Daniel L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Great. Thank you, guys. Joseph L. Welch – Chairman, President & Chief Executive Officer Thank you. Operator Our next question comes from the line of Charles Fishman with Morningstar. Your line is now open. Charles Fishman – Morningstar Research Thank you. The only question I had left was on Puerto Rico. Remind me, your – the team’s proposal was a preemptive thing. It wasn’t in response to a RFP, correct? Joseph L. Welch – Chairman, President & Chief Executive Officer Correct. That is correct. Charles Fishman – Morningstar Research And then subsequent to that, has there been any competition that’s surfaced or competing proposals? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP There was prior to us submitting our proposal and you’re correct, it was done before any formal process was put in place. There was a – I think the initial proposal was offered up by a select group of creditors which, as we see it, was inferior to what we initially proposed. And so, there have been I think one or two other alternative or competing proposals offered up but again, as we see it and it’s obviously a bias view, we think ours is superior to anything we’ve heard publicly to-date. Joseph L. Welch – Chairman, President & Chief Executive Officer Let me add to what Rejji said that in conversations with the officials in Puerto Rico, ours is the only one that started to add for infrastructure investment in Puerto Rico, which if you again read the legislation and the statements by the governor, it’s the infrastructure that is really weak and they need reliability improvement well beyond just getting generation that’s environmentally suited. So echoing off what Rejji said earlier, ours is a superior and I’m no bias, but ours is a superior solution and viewed by them as a superior solution. Charles Fishman – Morningstar Research Okay. That’s the only question I had. Thank you. Joseph L. Welch – Chairman, President & Chief Executive Officer Sure. Operator Our next question comes from the line of Steve Fleishman with Wolfe Research. Your line is now open. Steve Fleishman – Wolfe Research LLC Yeah. Hi. Good morning. Joseph L. Welch – Chairman, President & Chief Executive Officer Hi, Steve. Steve Fleishman – Wolfe Research LLC Hi. I just wanted to check – I know on the last call, you kind of talked about some of the way to look at the capital plan, particularly the development being more Lake Erie and Puerto Rico than necessarily traditional regulated projects, so I assume that’s still the case. But just maybe the base part of the capital plan, is that still kind of roughly the right ballpark of CapEx on the base part of the plan? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Steve, yeah. This is Rejji. We feel very good about the operating capital investment guidance we offered up as part of the five-year plan. So just for reference, we said an aggregate from 2014 to 2018, it would be $3.4 billion; $2.2 of which should be attributable to base capital spend. The balance of $1.2 for regional projects. We are right on trend as we see it and on course and we feel very good about the operating capital-related investments in this plan. Steve Fleishman – Wolfe Research LLC Great. And then one other question on Lake Erie. Just in terms of the logistics on terms of sighting and construction and just, once you have a commitment, just getting it done on time. Could you maybe just talk about how hard or easy that process might be relative to, let’s say, other new lines? Joseph L. Welch – Chairman, President & Chief Executive Officer Well, sighting is always somewhat difficult. But having said that, we have obtained options on the property on the route that we’ve taken. We’ve been in negotiations concurrently with other parties on the route. So right now today, we feel like we’re in a good spot, especially on the sighting proposals. We know where the terminals are, we’ve gained the easements and right of ways, or the options on the property along that route. We have a couple more small things that we have to do in Canada. And on that piece of the front, I think we’ve got it all pretty much all buttoned up. I think that once you get your permits, and of course, if you have the executable contracts, the easiest part for us is the construction because that’s what we do and that’s what we do really well. But there’s always a time line on – between point A and point B, but I think this one here we got on top of the easement and right of way issue early on, and I think we’re in really good position right now. Steve Fleishman – Wolfe Research LLC Great. Thank you. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Thank you. Operator Our next questions comes from the line of Julien Dumoulin-Smith with UBS. Your line is now open. Julien Dumoulin-Smith – UBS Securities LLC Hey. Good morning, everyone. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Hey. Good morning, Julien. Julien Dumoulin-Smith – UBS Securities LLC Hey. So just coming back from the balance sheet question just real quickly, I want to be very clear about it. What are your leverage metrics when you’re thinking about it? So as we’re trying to calibrate ourselves here, how much deleveraging are we talking about before we get to a place or concurrent with a place in which we can see further buybacks? Just trying to get a sense of the magnitude there. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Sure. Fair enough. So when we executed on the repurchase at the end of the quarter, the way these accelerated share repurchases work is that you pay the agent the full amount up front. So that was the $115 million and then clearly, they executed on a portion of that or $92 million at jump and they’re going to go do another $23 million or so. And we did actually repurchase or we get credit for about $92 million in reduction of equity when that happened. And so, that obviously has a significant impact on your debt-to-capitalization metrics, as you know, because the numerator – the debt balance goes up but the denominator essentially stays flat because the increase in debt is offset by the reduction in equity. And so, we’re north of our targeted levels of 70%, and so we’re just around 72%. We were right at that level in June of last year when we did the first slug of repurchases. And so, given the cash flow generative nature of the business, we expect to delever soon. But clearly, we’d like to get closer to our target levels before moving forward on any subsequent repurchases. And we’ve obviously exhausted the existing authority, so we would need to get more authorization from the board to move forward on any of the repos. But needless to say, I mean we don’t want to say we have to be at exactly this percentage because if the stock continues to be at attractive levels, then we think that our credit metrics and our credit risk profile can be preserved. We’ll look to be opportunistic where we can, but the first step is obviously to get additional authorization and then, obviously, we’d like to restore some leverage capacity from where we are today. Is that helpful? Julien Dumoulin-Smith – UBS Securities LLC Absolutely. And then perhaps a bigger picture question, if you will. As you look out and obviously, you haven’t rolled forward your CapEx budget, et cetera, but as you think about the transmission spend trajectory, I’d be curious, how are you seeing them shape up in, call it, like the 2018 through 2020 period as best you can tell it right now? And I’m thinking specifically here towards finally seeing some of the FERC 1000 processes play out and, well, – and CPP as well. So I’d be curious, if you see an inflection in the transmission spending cycle and why or what would be driving that. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. So, clearly, we don’t want to offer up any information around capital prospects or capital investment prospects beyond our public plan, but I think you’ve highlighted a lot of the key catalysts that would lead to additional transmission capital investments. So, while we don’t have specificity around the impact of the Clean Power Plan, we know that when you have those types of ambitions, it’s going to lead to a rebalancing of the generation fleet. And if you have significant coal plant retirements and the introduction of renewable sources, which are intermittent, you’re going to need a lot of transmission investment to proceed those activities or those events and so, clearly, that’s going to be a catalyst for growth. You’ve got NERC – or likely or looming NERC standards around physical and cyber security and on a daily basis, there seems to be increasing reliability standards that will be a catalyst for growth and we’re seeing addition distribution activity, not just current, but forecasted in our service territories and, again, those are catalysts for transmission investments. So we can’t give any prescription beyond the planned period, but we think there’s a lot of tailwinds in place for incremental transmission investment in the current period and also beyond. So we’re very bullish on transmission investing, as we always have been, and we think in addition to the restoration or modernization of the systems we own, we think there’s a lot of catalyst for growth around whether it’s Order 1000, whether it’s a lot of the looming policies, as well as just power market dynamics. Again, we think the future looks quite good for incremental transmission investment, not just in this period but beyond. Julien Dumoulin-Smith – UBS Securities LLC Got it. And just to be clear about that, when you’re thinking about the opportunities here for generator interconnection ties, et cetera, is that within your core organic footprint or are you thinking that still to follow the mantra of looking via competitor processes and sort of outside the service territory to continue that growth? I mean, how is the organic footprint looking in sort of the longer term look, initially? Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Yeah. So, we… Joseph L. Welch – Chairman, President & Chief Executive Officer I’ll go ahead. I would say that the organic footprint is actually looking very good. I think Rejji said that pretty clearly that he said a lot of the utilities that are serviced by our transmission system are now in a phase where they’re making significant investments in their distribution systems to upgrade their service quality and reliability. And so, based on that, they are looking to us to, of course, to upgrade our services to them because they’re upgrading their services and actually asking for additional transmission service. So I think that we, in the organic side, though, that’s probably the cheeriest or the most optimistic thing that we have going on right now. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP And Julien, at the end of the day, this is Rejji, we’re still in seven states and own three very large systems. So, clearly, as you see changes in the generation fleet and other policy-related initiatives that are going to impact transmission spend, we’re going to clearly have exposure to those types of initiatives to the upside. So I think both organically as well as Order 1000 opportunities, we’re well positioned to do well in either front. Julien Dumoulin-Smith – UBS Securities LLC Great. Thanks for the time, guys. Joseph L. Welch – Chairman, President & Chief Executive Officer Thank you. Rejji P. Hayes – Chief Financial Officer, Treasurer & Senior VP Thank you. Operator Thank you. And I’m showing a follow-up question from the line of Jay Dobson with Wunderlich. Your line is now open. Jay L. Dobson – Wunderlich Securities, Inc. Hey, Joe. Not the perfect forum for this, but just was wondering on succession planning, how are you thinking about this? Sort of (42:11) fully understanding you haven’t announced anything, so you don’t have anything specific to say. But how are you thinking about succession planning, particularly given the 10-year anniversary of ITC as a public company? You’re ready for another 10 years? Joseph L. Welch – Chairman, President & Chief Executive Officer Well, that might be a stretch. No, I’m not ready for another 10 years. Look, I mean I’ve talked about this. I’ll try to be as candid as I can be that our board has been engaged in a active succession plan and development plan for the senior management of the company for some time now, in fact, in excess of two years. And so, we continue to work forward as – to make sure that we not only have succession planning for me, which is always a question about me, but we are looking multiple layers down in the corporation to make sure that we have the depth of bench that we absolutely need to have that good succession plan, not only for my retirement, but for unforeseen events that happen from time to time. So just to be pointed, I mean, we had – you all knew Cameron when he was here as our CFO and Cameron decided that he would take an opportunity somewhere else. But when that came, we already started to make those plans and not that we try to usher Cameron out, but knew that that could be a possibility. And so we had Rejji ready, willing, and able to go and further down in the bench, we had Gretchen Holloway in a position where we could move Gretchen up. And so, we have been actively doing this. I started off with a really young management team and we still have a young management team and so I’m happy about that. For myself, the board, is – we’ve been working together as to what makes sense and when’s the right time. And when we do it, I’ll announce it. But the fact of the matter is I’m still pretty passionate about the business. I hope I’m not disappointing you guys. Jay L. Dobson – Wunderlich Securities, Inc. Nope. Not at all. Thanks for the candor. I really appreciate it. Joseph L. Welch – Chairman, President & Chief Executive Officer Oh, you’re more than welcome. Don’t you guys want to ask 10 more questions? Operator Thank you. At this time, I’m showing no further questions. I’d like to turn the call back to Stephanie Amaimo for any further remarks. Stephanie Amaimo – Director-Investor Relations This concludes our call. Anyone wishing to hear the conference call replay available through November 10 can access it by dialing 855-859-2056 toll-free or 404-537-3406, pass code 51993117. The webcast of this event will also be archived on the ITC website at itc-holdings.com. Thank you, everyone, and have a great day. Operator Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.