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.

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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

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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

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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.

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        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     % and    % 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. 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.

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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 expense, including facility fees, on the indebtedness identified above for the year ended December 31, 2004 and for the three months ended March 31, 2005 was approximately $23.0 million and $6.2 million, respectively. At March 31, 2005, our total consolidated debt to capitalization 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 2005, 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 2005. 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.

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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.

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        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.

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 320,564 shares as of the date of this prospectus), these employee stockholders have the right, upon the sale by 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. As a percentage of total shares held, the employee stockholders shall 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."

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which may be sold freely pursuant to Rule 144(k) once they have been held for at least five years from the date of the relevant management stockholder's agreement. See "Shares Eligible for Future Sale."

        In addition, 681,436 shares were available for future issuance under our 2003 Stock Purchase and Option Plan as of March 31, 2005, including 595,800 shares issuable upon the exercise of presently outstanding stock options, of which 239,920 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. 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.

        Prior to completion of this offering, the Articles of Incorporation and bylaws of ITC Holdings will 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 will 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."

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Provisions of the Articles of Incorporation of ITC Holdings will 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, we will amend ITC Holdings' Articles of Incorporation prior to the completion of this offering in order to 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 will provide that ITC Holdings will not issue shares that would constitute 5% or more of any series of its outstanding shares of capital stock to any market participant. Additionally, if a market participant or a "group" (as defined in SEC beneficial ownership rules) of stockholders including a market participant 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 acquires beneficial ownership of 5% or more of the outstanding shares of any series of capital stock of ITC Holdings, the Articles of Incorporation will 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 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 $            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.

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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.

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