Fortis Inc. (Form: 6-K, Received: 11/23/2016 13:51:46)

REDEMPTION
PRICE

REDEMPTION
PRICE

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2016.

Commission File Number 001-37915

FORTIS INC.

(Translation of registrant’s name into English)

Fortis Place, Suite 1100
5 Springdale Street
St. John’s, Newfoundland and Labrador
Canada, A1E 0E4

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F o

Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

EXHIBITS

Exhibit No.		Exhibit Description

99.1		Annual Information Form of Fortis Inc. dated February 17, 2016, for the fiscal year ended December 31, 2015.

99.2		Audited comparative consolidated financial statements of Fortis Inc. as at December 31, 2015 and December 31, 2014 and for the fiscal years ended December 31, 2015 and 2014, together with the notes thereto and the auditors’ report thereon dated February 17, 2016, prepared in accordance with U.S. GAAP.

99.3		Management discussion and analysis of financial condition and results of operations of Fortis Inc. dated February 17, 2016 for the fiscal year ended December 31, 2015.

99.4		Management Information Circular dated March 18, 2016 prepared in connection with the annual and special meeting of shareholders of Fortis Inc. held on May 5, 2016.

99.5		Material change report of Fortis Inc. dated February 11, 2016 relating to the announcement by Fortis Inc. of its agreement to acquire all of the issued and outstanding common stock of ITC Holdings Corp.

99.6		Fifth Amendment of the Second Amended and Restated Credit Agreement dated as of August 17, 2016 among Fortis Inc., The Bank of Nova Scotia, in its capacity as administrative agent and the lenders referred to therein.

99.7		Trust Indenture dated October 4, 2016 among Fortis Inc. and The Bank of New York Mellon, as the U.S. trustee, and BNY Trust Company of Canada, as the Canadian trustee.

99.8		First Supplemental Indenture dated October 4, 2016 among Fortis Inc. and The Bank of New York Mellon, as the U.S. trustee, and BNY Trust Company of Canada, as the Canadian trustee.

99.9		Exchange and Registration Rights Agreement dated as of October 4, 2016 among Fortis Inc. and the initial purchasers named therein.

99.10		Sixth Amendment of the Second Amended and Restated Credit Agreement dated as of October 5, 2016 among Fortis Inc., The Bank of Nova Scotia, in its capacity as administrative agent and the lenders referred to therein.

99.11		Shareholders’ Agreement dated as of October 14, 2016 among FortisUS Inc., ITC Investment Holdings Inc., ITC Holdings Corp. and Eiffel Investment Pte Ltd.

99.12		Business Acquisition Report of Fortis Inc. dated November 23, 2016 with respect to the acquisition of ITC Holdings Corp. completed on October 14, 2016.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FORTIS INC.


Date: November 23, 2016	/s/ David C. Bennett
	By:	David C. Bennett
	Title:	Executive Vice President, Chief Legal Officer and Corporate Secretary

Exhibit 99.1

ANNUAL INFORMATION FORM

FOR THE YEAR ENDED DECEMBER 31, 2015

February 17, 2016

ANNUAL INFORMATION FORM

FOR THE YEAR ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

1.0	CORPORATE STRUCTURE			6
	1.1	Name and Incorporation		7
	1.2	Inter-Corporate Relationships		8

2.0	GENERAL DEVELOPMENT OF THE BUSINESS			8
	2.1	Three-Year History		8
	2.2	Pending Acquisition of ITC		9
	2.3	Outlook		10

3.0	DESCRIPTION OF THE BUSINESS			12
	3.1	Regulated Electric & Gas Utilities — United States		13
		3.1.1	UNS Energy	13
		3.1.2	Central Hudson	18
	3.2	Regulated Gas Utility - Canadian		21
		3.2.1	FortisBC Energy	21
	3.3	Regulated Electric Utilities - Canadian		23
		3.3.1	FortisAlberta	23
		3.3.2	FortisBC Electric	24
		3.3.3	Eastern Canadian Electric Utilities	27
	3.4	Regulated Electric Utilities - Caribbean		30
	3.5	Non-Regulated - Fortis Generation		31
	3.6	Non-Regulated - Non-Utility		32

4.0	REGULATION			32

5.0	ENVIRONMENTAL MATTERS			33

6.0	RISK FACTORS			38

7.0	GENERAL DESCRIPTION OF SHARE CAPITAL STRUCTURE			38

8.0	CREDIT RATINGS			44

9.0	MARKET FOR SECURITIES			46

10.0	DIRECTORS AND OFFICERS			48

11.0	AUDIT COMMITTEE			52
	11.1	Education and Experience		52
	11.2	Audit Committee Mandate		53
	11.3	Pre-Approval Policies and Procedures		56
	11.4	External Auditor Service Fees		56

12.0	TRANSFER AGENT AND REGISTRAR			56

13.0	AUDITORS			56

14.0	ADDITIONAL INFORMATION			57

DEFINITIONS OF CERTAIN TERMS

Certain terms used in this 2015 Annual Information Form are defined below:

“2015 Annual Information Form” means this annual information form of the Corporation in respect of the year ended December 31, 2015;

“2015 Audited Consolidated Financial Statements” means the audited consolidated financial statements of the Corporation as at and for the years ended December 31, 2015 and 2014 and related notes thereto;

“ACC” means the Arizona Corporation Commission;

“Algoma Power” means Algoma Power Inc.;

“APS” means the Arizona Public Service Company;

“AUC” means the Alberta Utilities Commission;

“BC Hydro” means the BC Hydro and Power Authority;

“BCUC” means the British Columbia Utilities Commission;

“BECOL” means Belize Electric Company Limited;

“Belize Electricity” means Belize Electricity Limited;

“BEPC” means Brilliant Expansion Power Corporation;

“Board” means the Board of Directors of the Corporation;

“BPC” means Brilliant Power Corporation;

“Canadian Niagara Power” means Canadian Niagara Power Inc.;

“Caribbean Utilities” means Caribbean Utilities Company, Ltd.;

“CEA” means the Canadian Electricity Association;

“Central Hudson” means Central Hudson Gas & Electric Corporation;

“CEPSA” means the Capacity and Energy Purchase and Sale Agreement;

“CH Energy Group” means CH Energy Group, Inc.;

“COPE” means the Canadian Office and Professional Employees Union;

“Cornwall Electric” means Cornwall Street Railway, Light and Power Company, Limited;

“Corporation” means Fortis Inc.;

“CPA” means the Canal Plant Agreement;

“CPC/CBT” means Columbia Power Corporation and Columbia Basin Trust;

“CPP” means the Clean Power Plan;

“CUPE” means the Canadian Union of Public Employees;

“DBRS” means DBRS Limited;

“Eastern Canadian Electric Utilities” means, collectively, the operations of Newfoundland Power, Maritime Electric and FortisOntario;

“EMS” means environmental management system;

“Entergy Nuclear Power” means Entergy Nuclear Power Marketing, LLC;

“EPA” means the United States Environmental Protection Agency;

“ERA” means the Electricity Regulatory Authority of the Cayman Islands;

“Ethos Energy” means EthosEnergy Power Plant Services, LLC;

“External Auditor” means the firm of Chartered Professional Accountants registered with the Canadian Public Accountability Board or its successor and appointed by the shareholders of the Corporation to act as external auditor of the Corporation;

“FERC” means the United States Federal Energy Regulatory Commission;

“FHI” means FortisBC Holdings Inc., the parent company of FortisBC Energy;

“Fitch” means Fitch Ratings Inc.;

“Fortis” means Fortis Inc.;

“FortisAlberta” means FortisAlberta Inc.;

“FortisBC Electric” means, collectively, the operations of FortisBC Inc. and its parent company, FortisBC Pacific Holdings Inc., but excludes its wholly owned partnership, Walden Power Partnership;

“FortisBC Energy” means FortisBC Energy Inc.;

“FortisOntario” means, collectively, the operations of Canadian Niagara Power, Cornwall Electric and Algoma Power;

“Fortis Properties” means Fortis Properties Corporation;

“FortisTCI” means FortisTCI Limited;

“Fortis Turks and Caicos” means, collectively, FortisTCI and Turks and Caicos Utilities Limited;

“FortisUS” means FortisUS Inc.;

“FortisUS Holdings” means FortisUS Holdings Nova Scotia Limited;

“FortisWest” means FortisWest Inc.;

“ Four Corners” means Four Corners Generating Station;

“GHG” means greenhouse gas;

“GOB” means the Government of Belize;

“GSMIP” means Gas Supply Mitigation Incentive Plan;

“GWh” means gigawatt hour(s);

“IBEW” means the International Brotherhood of Electrical Workers;

“IESO” means the Independent Electricity System Operator of Ontario;

“ISO” means International Organization for Standardization;

“ITC” means ITC Holdings Corp.;

“LNG” means liquefied natural gas;

“Management” means, collectively, the senior officers of the Corporation;

“Maritime Electric” means Maritime Electric Company, Limited;

“MATS” means Mercury and Air Toxics Standards;

“MD&A” means the Corporation’s Management Discussion and Analysis prepared in accordance with National Instrument 51-102 — Continuous Disclosure Obligations, in respect of the Corporation’s annual consolidated financial statements for the year ended December 31, 2015;

“MGP” means manufactured gas plant;

“Moody’s” means Moody’s Investors Service, Inc.;

“MW” means megawatt(s);

“MWh” means megawatt hour(s);

“NB Power” means New Brunswick Power Corporation;

“NEB” means the National Energy Board;

“NEPA” means the United States National Environmental Policy Act;

“Newfoundland Hydro” means Newfoundland and Labrador Hydro Corporation;

“Newfoundland Power” means Newfoundland Power Inc.;

“NL PUB” means the Newfoundland and Labrador Board of Commissioners of Public Utilities;

“NYISO” means the New York Independent System Operator;

“OEB” means the Ontario Energy Board;

“OSM” means the United States Office of Surface Mining;

“PBR” means performance-based rate-setting;

“PCB” means polychlorinated biphenyl;

“PEI” means Prince Edward Island;

“PJ” means petajoule(s);

“PNM” means Public Service Company of New Mexico;

“PPA” means power purchase agreement;

“PPFAC” means purchased power and fuel adjustment clause;

“PRMP” means Price-Risk Management Plan;

“ROE” means rate of return on common shareholders’ equity;

“S&P” means Standard & Poor’s Financial Services LLC;

“SEC” means the United States Securities and Exchange Commission;

“SEDAR” means the System for Electronic Document Analysis and Retrieval;

“SJCC” means the San Juan Coal Company;

“Spectra Energy” means Westcoast Energy Inc. doing business as Spectra Energy Transmission;

“SRP” means Salt River Project Agricultural Improvement and Power District;

“T&D” means transmission and distribution;

“TEP” means Tucson Electric Power Company;

“TJ” means terajoule(s);

“TransCanada” means TransCanada Pipelines Limited;

“TSX” means the Toronto Stock Exchange;

“UNS Electric” and “UNSE” mean UNS Electric, Inc.;

“UNS Energy” means collectively, the operations of TEP, UNS Electric and UNS Gas;

“UNS Gas” means UNS Gas, Inc.;

“US GAAP” means accounting principles generally accepted in the United States;

“UUWA” means the United Utility Workers’ Association of Canada;

“Walden” means the Walden Power Partnership;

“Waneta Expansion” means the 335-MW hydroelectric generating facility adjacent to the existing Waneta Plant on the Pend d’Oreille River in British Columbia;

“Waneta Partnership” means the Waneta Expansion Limited Partnership between CPC/CBT and Fortis;

“WECA” means the Waneta Expansion Capacity Agreement;

“WEG” means WildEarth Guardians; and

“Whistler” means the Resort Municipality of Whistler.

1.0 CORPORATE STRUCTURE

The 2015 Annual Information Form has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations . Financial information has been prepared in accordance with US GAAP and is presented in Canadian dollars unless otherwise specified.

Except as otherwise stated, the information in the 2015 Annual Information Form is given as of December 31, 2015.

Fortis includes forward-looking information in the 2015 Annual Information Form within the meaning of applicable securities laws in Canada (“forward-looking information”). The purpose of the forward-looking information is to provide Management’s expectations regarding the Corporation’s future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes. All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation. The words “anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”, “plans”, “projects”, “schedule”, “should”, “will”, “would” and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects Management’s current beliefs and is based on information currently available to the Corporation’s Management. The forward-looking information in the 2015 Annual Information Form, including the 2015 MD&A incorporated herein by reference, includes, but is not limited to, statements regarding: the acquisition of ITC, the expected timing and conditions precedent to the closing of the acquisition of ITC, including shareholder approvals of both ITC and Fortis, regulatory approvals, governmental approvals and other customary closing conditions; the expectation that Fortis will borrow funds to satisfy its obligation to pay the cash portion of the purchase price and will issue securities to pay the balance of the purchase price; the impact of the acquisition on the Corporation’s earnings, mid-year rate base, credit rating, estimated enterprise value and compound annual growth rate; the expectation that the acquisition of ITC will be accretive in the first full year following closing and that the acquisition will support the average annual dividend growth target of Fortis; the expectation that the Corporation will become an SEC registrant and have its common shares listed on the New York Stock Exchange in connection with the acquisition; the expectation that Fortis will identify one or more minority investors to invest in ITC; forecast 2016 to 2020 midyear rate bases for the Corporation and its largest regulated utilities; the expected timing of filing of regulatory applications and of receipt of regulatory decisions; the Corporations consolidated forecast gross capital expenditures for 2016 and total capital spending over the five-year period from 2016 through 2020; the breakdown of total capital spending over the five-year period from 2016 through 2020; various natural gas investment opportunities that may be available to the Corporation; the nature, timing and expected costs of certain capital projects including, without limitation, the Tilbury liquefied natural gas facility expansions, the Residential Solar Program, the Lower Mainland System Upgrade Project, FortisAlberta’s pole replacement program, the Gas Main Replacement Program at Central Hudson, Woodfibre pipeline expansion, New York Transco, LLC at Central Hudson, renewable energy alternatives at UNS Energy, Wataynikaneyap transmission line, the consolidations of Rural Electrification Associations and the construction of a diesel power plant at Caribbean Utilities; the expectation that the Corporation’s significant capital expenditure program will support continuing growth in earnings and dividends; the expectation that the Corporation’s subsidiaries will have reasonable access to long-term capital to fund their 2016 capital expenditure programs, operating and interest costs, and dividend payments; that TEP and UNS Electric expect to invest in renewable projects in 2016 to meet future renewable energy requirements; the impact of advances in technology and new energy efficiency standards on the Corporation’s results of operations; the impact of new or revised environmental laws and regulations on the Corporation’s results of operations; the expectation of the Corporation and its subsidiaries to remain compliant with existing, new or revised environmental laws and regulations; the expectation that there will be a significant reduction in the use of coal in certain of UNS Energy’s generating facilities by 2022; and the expectation that any liability from current legal proceedings will not have a material adverse effect on the Corporation’s consolidated financial position and results of operations.

The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received, and the expectation of regulatory stability; FortisAlberta’s continued recovery of its cost of service and ability to earn its allowed ROE under performance-based rate-setting, which commenced for a five-year term effective January 1, 2013; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the electricity and gas systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; sufficient liquidity and capital resources; the continuation of regulator approved mechanisms to flow through the cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, natural gas prices, electricity prices and fuel prices; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas, fuel and electricity supply; continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans and environmental laws that may materially negatively affect the operations and cash flows of the Corporation and its subsidiaries; no material change in public policies and directions by governments that could materially negatively affect the Corporation and its subsidiaries; new or revised environmental laws and regulations will not severely affect the results of operations; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; the ability to report under US GAAP beyond 2018 or the adoption of International Financial Reporting Standards after 2018 that allows for the recognition of regulatory assets and liabilities; the continued tax deferred treatment of earnings from the Corporation’s Caribbean operations; continued maintenance of information technology infrastructure; continued favourable relations with First Nations; favourable labour relations; that the Corporation can reasonably accurately assess the merit of and potential liability attributable to ongoing legal proceedings; and sufficient human resources to deliver service and execute the capital program.

that a continuation of a low interest rate environment may have on the allowed rate of return on common shareholders’ equity at the Corporation’s regulated utilities; the impact of fluctuations in foreign exchange rates; and risk associated with the impact of less favorable economic conditions on the Corporation’s results of operations.

All forward-looking information in the 2015 Annual Information Form is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.

1.1 Name and Incorporation

Fortis is a holding company that was incorporated as 81800 Canada Ltd. under the Canada Business Corporations Act on June 28, 1977 and continued under the Corporations Act (Newfoundland and Labrador) on August 28, 1987.

The articles of incorporation of the Corporation were amended to: (i) change its name to Fortis on October 13, 1987; (ii) set out the rights, privileges, restrictions and conditions attached to the Common Shares on October 15, 1987; (iii) designate 2,000,000 First Preference Shares, Series A on September 11, 1990; (iv) replace the class rights, privileges, restrictions and conditions attaching to the First Preference Shares and the Second Preference Shares on July 22, 1991; (v) designate 2,000,000 First Preference Shares, Series B on December 13, 1995; (vi) designate 5,000,000 First Preference Shares, Series C on May 27, 2003; (vii) designate 8,000,000 First Preference Shares, Series D and First Preference Shares, Series E on January 23, 2004; (viii) amend the redemption provisions attaching to the First Preference Shares, Series D on July 15, 2005; (ix) designate 5,000,000 First Preference Shares, Series F on September 22, 2006; (x) designate 9,200,000 First Preference Shares, Series G on May 20, 2008; (xi) designate 10,000,000 First Preference Shares, Series H and 10,000,000 First Preference Shares, Series I on January 20, 2010; (xii) designate 8,000,000 First Preference Shares, Series J on November 8, 2012; (xiii) designate 12,000,000 First Preference Shares, Series K and 12,000,000 First Preference Shares, Series L on July 11, 2013; and; (xiv) designate 24,000,000 First Preference Shares, Series M and 24,000,000 First Preference Shares, Series N on September 16, 2014.

Fortis redeemed all of its outstanding First Preference Shares, Series A, First Preference Shares, Series B and First Preference Shares, Series C on September 30, 1997, December 2, 2002, and July 10, 2013, respectively. On January 29, 2004, Fortis issued 8,000,000 First Preference Units, each unit consisting of one First Preference Share, Series D and one Warrant. During 2004, 7,993,500 First Preference Units were converted into 7,993,500 First Preference Shares, Series E and 6,500 First Preference Shares, Series D remained outstanding. On September 20, 2005, the 6,500 First Preference Shares, Series D were redeemed by the Corporation. On September 28, 2006, Fortis issued 5,000,000 First Preference Shares, Series F. On May 23, 2008, Fortis issued 8,000,000 First Preference Shares, Series G and on June 4, 2008 issued an additional 1,200,000 First Preference Shares, Series G, following the exercise of an over-allotment option in connection with the offering of the 8,000,000 First Preference Shares, Series G. On January 26, 2010, Fortis issued 10,000,000 First Preference Shares, Series H. On November 13, 2012, Fortis issued 8,000,000 First Preference Shares, Series J. On July 18, 2013, Fortis issued 10,000,000 First Preference Shares, Series K. On September 19, 2014, Fortis issued 24,000,000 First Preference Shares, Series M. On June 1, 2015, 2,975,154 First Preference Shares, Series H were converted into First Preference Shares, Series I, and 7,024,846 First Preference Shares, Series H remained outstanding.

The corporate head office and registered office of Fortis are located at Fortis Place, Suite 1100, 5 Springdale Street, P.O. Box 8837, St. John’s, NL, Canada, A1B 3T2.

1.2 Inter-Corporate Relationships

Fortis is a leader in the North American electric and gas utility business, with total assets of approximately $29 billion and fiscal 2015 revenue of $6.7 billion. The Corporation’s asset mix is approximately 96% regulated utilities (70% electric, 26% gas), with the remaining 4% comprised of long-term contracted hydroelectric operations. The Corporation’s regulated utilities serve more than 3 million customers across Canada and in the United States and the Caribbean. In 2015 the Corporation’s electricity distribution systems met a combined peak demand of 9,705 MW and its gas distribution systems met a peak day demand of 1,323 TJ.

The Corporation’s regulated holdings include electric distribution utilities in five Canadian provinces, two U.S. states and three Caribbean countries and natural gas utilities in the province of British Columbia and the states of Arizona and New York. As at December 31, 2015, approximately 47% of the Corporation’s assets were located outside of Canada and approximately 49% of the Corporation’s revenue was derived from foreign operations.

The following table lists the principal subsidiaries of the Corporation, their jurisdictions of incorporation and the percentage of votes attaching to voting securities held directly or indirectly by the Corporation as at February 17, 2016. This table excludes certain subsidiaries, the total assets of which individually constituted less than 10% of the Corporation’s consolidated assets as at December 31, 2015, or the total revenue of which individually constituted less than 10% of the Corporation’s 2015 consolidated revenue. The principal subsidiaries together comprise approximately 76% of the Corporation’s consolidated assets as at December 31, 2015 and approximately 71% of the Corporation’s 2015 consolidated revenue. FortisBC Electric and Newfoundland Power comprise approximately 7% and 5%, respectively, of the Corporation’s consolidated assets as at December 31, 2015 and approximately 5% and 10%, respectively, of the Corporation’s 2015 consolidated revenue.

Principal Subsidiaries

		Percentage of votes attaching to
		voting securities beneficially owned,
		controlled or directed by the
Subsidiary	Jurisdiction of Incorporation	Corporation
UNS Energy (1)	Arizona State, United States	100
Central Hudson (2)	New York State, United States	100
FortisBC Energy (3)	British Columbia, Canada	100
FortisAlberta (4)	Alberta, Canada	100

(1) UNS Energy, an Arizona State corporation, owns all of the shares of TEP, UNS Electric and UNS Gas. FortisUS, a Delaware State corporation, owns all of the shares of UNS Energy. FortisUS Holdings, a Canadian corporation, owns all of the shares of FortisUS. Fortis owns all of the shares of FortisUS Holdings.

(2) CH Energy Group, a New York State corporation, owns all of the shares of Central Hudson. FortisUS, a Delaware State corporation, owns all of the shares of CH Energy Group. FortisUS Holdings, a Canadian corporation, owns all of the shares of FortisUS. Fortis owns all of the shares of FortisUS Holdings.

(3) FHI, a British Columbia corporation, owns all of the shares of FortisBC Energy. Fortis owns all of the shares of FHI.

(4) FortisAlberta Holdings Inc., an Alberta corporation, owns all of the shares of FortisAlberta. FortisWest, a Canadian corporation, owns all of the shares of FortisAlberta Holdings Inc. Fortis owns all of the shares of FortisWest.

2.0 GENERAL DEVELOPMENT OF THE BUSINESS

2.1 Three-Year History

Over the past three years, Fortis has experienced significant growth in its business operations. Total assets have grown approximately 92% from $15.0 billion as at December 31, 2012 to $28.8 billion as at December 31, 2015. The Corporation’s shareholders’ equity has also grown approximately 93% from $5.4 billion as at December 31, 2012 to $10.4 billion as at December 31, 2015. Net earnings attributable to common equity shareholders have increased from $315 million in 2012 to $728 million in 2015.

The growth in business operations reflects the Corporation’s profitable growth strategy for its principal regulated electric and gas utilities. This strategy includes a combination of growth from acquisitions and organic growth through the Corporation’s consolidated capital expenditure program.

Over the past three years, Fortis has significantly increased its regulated utility investments through acquisitions. In June 2013 Fortis acquired CH Energy Group for a purchase price of approximately US$1.5 billion, including the assumption of US$518 million of debt on closing. CH Energy Group is an energy delivery company headquartered in Poughkeepsie, New York. Its main business, Central Hudson, is a regulated T&D utility serving approximately 300,000 electricity customers and 79,000 natural gas customers in eight counties of New York State’s Mid-Hudson River Valley. In August 2014 Fortis acquired UNS Energy for a purchase price of approximately US$4.5 billion, including the assumption of approximately US$2.0 billion of debt on closing. UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through its primary subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona, serving approximately 663,000 electricity and gas customers.

On April 1, 2015, the Corporation completed construction of the $900 million, 335-MW Waneta Expansion hydroelectric generating facility ahead of schedule and on budget while maintaining an excellent safety and environmental protection record. Construction of the Waneta Expansion commenced late in 2010. Fortis has a 51% controlling ownership interest in the Waneta Expansion and operates and maintains the non-regulated investment. On April 2, 2015, the Waneta Expansion began generating power, all of which is being sold to BC Hydro and FortisBC Electric under 40-year contracts. In 2015, the Waneta Expansion contributed $22 million in earnings to the Corporation.

In June 2015 the Corporation completed the sale of the commercial real estate assets of Fortis Properties for gross proceeds of $430 million to a subsidiary of Slate Office REIT. As part of the transaction, Fortis subscribed to trust units of Slate Office REIT for total consideration of approximately $35 million. In October 2015, the Corporation completed the sale of the hotel assets of Fortis Properties for gross proceeds of $365 million to a private investor group.

In June and July of 2015, the Corporation completed the sale of its non-regulated generation assets in Upstate New York and Ontario, respectively, for gross proceeds of approximately $93 million.

In August 2015 the Corporation announced that it had reached terms of settlement with the GOB regarding the expropriation of the Corporation’s approximate 70% interest in Belize Electricity in June 2011. The terms of the settlement included a one-time US$35 million cash payment to Fortis from the GOB and an approximate 33% equity investment in Belize Electricity.

In December 2015 the Corporation, through an indirect wholly owned subsidiary, entered into a definitive share purchase and sale agreement with Chevron Canada Properties Ltd. to acquire its share of the Aitken Creek Gas Storage Facility, the largest gas storage facility in British Columbia, with a total working gas capacity of 77 billion cubic feet for approximately US$266 million. The acquisition is subject to regulatory approval, and is expected to close in the first half of 2016.

The Corporation’s gross consolidated capital expenditures for 2015 were approximately $2.2 billion, up approximately 30% from 2014. Over the past three years, including 2015, gross consolidated capital expenditures totalled $5.1 billion. Organic asset growth at the regulated utilities has been driven by the capital expenditure programs in western Canada. Total assets at FortisAlberta and the FortisBC gas and electric utilities have grown by approximately 27% and 9%, respectively, over the past three years. Organic growth at non-regulated operations has been driven by the construction of the Waneta Expansion.

2.2 Pending Acquisition of ITC

On February 9, 2016, Fortis and ITC entered into an agreement and plan of merger pursuant to which Fortis will acquire ITC in a transaction valued at approximately US$11.3 billion, based on the closing price for Fortis common shares and the foreign exchange rate on February 8, 2016. Under the terms of the transaction, ITC shareholders will receive US$22.57 in cash and 0.7520 Fortis common shares per ITC common share, representing total consideration of approximately US$6.9 billion, and Fortis will assume approximately US$4.4 billion of ITC consolidated indebtedness.

ITC’s tariff rates are regulated by FERC, which has been one of the most consistently supportive utility regulators in North America providing reasonable returns and equity ratios. Rates are set using a forward-looking rate-setting mechanism with an annual true-up, which provides timely cost recovery and reduces regulatory lag.

The closing of the acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory, state and federal approvals including, among others, those of FERC, the Committee on Foreign Investment in the United States, and the United States Federal Trade Commission/Department of Justice under the Hart-Scott Rodino Antitrust Improvement Act . The closing of the Acquisition is expected to occur in late 2016.

The pending acquisition is in alignment with the Corporation’s business model and acquisition strategy, and is expected to provide approximately 5% accretion to earnings per common share in the first full year following closing, excluding one-time acquisition-related expenses and assuming a stable currency exchange environment. The acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. On a pro forma basis, 2016 forecast midyear rate base of Fortis is expected to increase by approximately $8 billion to approximately $26 billion, as a result of the acquisition.

The financing of the acquisition has been structured to allow Fortis to maintain investment-grade credit ratings and is consistent with the Corporation’s existing capital structure. Financing of the cash portion of the acquisition will be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. In addition, Fortis has obtained commitments of US$2.0 billion from Goldman Sachs Bank USA to bridge the long-term debt financing and US$1.7 billion from The Bank of Nova Scotia to primarily bridge the sale of the minority investment in ITC. These non-revolving term credit facilities are repayable in full on the first anniversary of their advance, although syndication is not required, Fortis expects that these bridge facilities will be syndicated.

Upon completion of the acquisition, ITC will become a subsidiary of Fortis and approximately 27% of the common shares of Fortis will be held by ITC shareholders. In connection with the acquisition, Fortis will become a registrant with the SEC and will apply to list its common shares on the New York Stock Exchange and will continue to have its shares listed on the TSX.

2.3 Outlook

Fortis is focused on closing the acquisition of ITC by the end of 2016. The acquisition is in alignment with the Corporation’s business model and acquisition strategy, and is expected to provide approximately 5% accretion to earnings per common share in the first full year following closing, excluding one-time acquisition-related expenses and assuming a stable currency exchange environment. The acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix.

Substantially all of Fortis’ assets are low-risk, regulated utilities and long-term contracted energy infrastructure. No single regulatory jurisdiction comprises more than one third of total assets. Over the five-year period through 2020, excluding the acquisition of ITC, the Corporation’s highly executable capital program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase rate base to almost $21 billion in 2020 and produce a five-year compound annual growth rate in rate base of approximately 5%.

On a pro forma basis, 2016 forecast midyear rate base of Fortis is expected to increase by approximately $8 billion to approximately $26 billion, as a result of the acquisition of ITC. Following the acquisition, Fortis will be one of the top 15 North American public utilities ranked by enterprise value, with an estimated enterprise value of $42 billion. Additionally, ITC’s midyear rate base, including construction work in progress, is expected to increase at a compound annual growth rate of approximately 7.5% through 2018, based on ITC’s planned capital expenditure program.

Fortis continues to target 6% average annual dividend growth through 2020. This dividend guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at the Corporation’s utilities, the successful execution of the five-year capital expenditure plan, and management’s continued confidence in the strength of the Corporation’s diversified portfolio of assets and record of operational excellence. The pending acquisition of ITC further supports this dividend guidance.

Fortis expects long-term sustainable growth in rate base, assets and earnings resulting from strategic acquisitions and investment in its existing utility operations. The Corporation is also committed to identifying and executing on opportunities for incremental rate base and earnings growth through additional investments in existing service territories and in new franchise areas.

The approximate breakdown of the capital spending expected to be incurred over the five-year period from 2016 to 2020, excluding the acquisition of ITC, is as follows: 40% at Regulated Gas & Electric Utilities in the United States; 37% at Canadian Regulated Electric Utilities, driven by FortisAlberta; 17% at Canadian Regulated Gas Utilities; 5% at Caribbean Regulated Electric Utilities; and the remaining 1% at non-regulated operations. Capital expenditures at the regulated utilities are subject to regulatory approval. Over the five-year period, on average annually, the approximate breakdown of the total capital spending to be incurred is as follows: 35% to meet customer growth; 50% to ensure continued and enhanced performance, reliability and safety of generation and T&D assets (i.e. sustaining capital expenditures); and 15% for facilities, equipment, vehicles, information technology and other assets.

Gross consolidated capital expenditures for 2016 are expected to be approximately $1.9 billion, as summarized in the following table. Planned capital expenditures are based on detailed forecasts of energy demand, weather, cost of labour and materials, as well as other factors, including economic conditions and foreign exchange rates, which could change and cause actual expenditures to differ from those forecast.

Forecast Gross Consolidated Capital Expenditures (1)

Year Ending December 31, 2016

		($ millions)
UNS Energy (2)		485
Central Hudson (2)		228
FortisBC Energy		349
FortisAlberta		441
FortisBC Electric		79
Eastern Canadian Electric Utilities		174
Regulated Electric Utilities — Caribbean (2)		127
Non-Regulated - Fortis Generation		15
Non-Regulated - Non-Utility (3)		3
Total		1,901

(1) Relates to forecast cash payments to acquire or construct utility capital assets and intangible assets, as would be reflected on the consolidated statement of cash flows. Excludes the non-cash equity component of allowance for funds used during construction.

(2) Forecast capital expenditures are based on a forecast exchange rate of US$1.00 = CAD$1.38.

(3) Includes forecast capital expenditures of approximately $3 million at FortisBC Alternative Energy Services Inc., which is reported in the Corporate and Other segment of the Corporation’s 2015 Audited Consolidated Financial Statements.

The most significant capital projects forecast for 2016 include:

· the Residential Solar Program at UNS Energy, consisting of the installation of rooftop solar systems for residential customers, for US$82 million, with forecast expenditures of US$16 million expected in 2016;

· the Gas Main Replacement Program at Central Hudson, a 15-year replacement program to eliminate and replace leakage-prone pipes throughout the gas distribution system with forecast expenditures of US$21 million expected in 2016 and US$98 million from 2017 through 2020 with the majority of spending expected post-2020;

· the ongoing Tilbury LNG facility expansion by FortisBC Energy, which includes the construction of a second LNG tank and a new liquefier, both to be in service by the end of 2016 at a total project cost of approximately $440 million with $326 million of project costs incurred to the end of 2015 and forecast expenditures of $105 million in 2016;

· the Lower Mainland System Upgrade project at FortisBC Energy, which is in place to address system capacity and pipeline condition issues for the gas supply system in the Lower Mainland area of British Columbia, to be completed in 2018 for an estimated project cost of $427 million with forecast expenditures of $50 million expected in 2016;

· the replacement of vintage poles under FortisAlberta’s Pole-Management Program is expected to cost $336 million through 2020 with forecast expenditures of $42 million expected in 2016; and

· the purchase and turnkey installation of two 18.5 MW diesel-generating units, one 2.7 MW waste heat recovery steam turbine and associated auxiliary equipment at Caribbean Utilities. The project cost is estimated to be US$85 million, with approximately US$48 million spent in 2015 and US$25 million forecast to be spent in 2016. The plant is expected to be commissioned in mid-2016.

FortisBC Energy is also pursuing additional LNG investment opportunities including a $600 million pipeline expansion for the proposed Woodfibre LNG site in British Columbia and further expansion of the Tilbury site that would include additional liquefaction, which investment opportunities are not included in the current capital expenditures forecast set forth in the table above.

Other potential projects that have not yet been included in the Corporation’s capital expenditure forecast include, but are not limited to, the New York Transco, LLC at Central Hudson to address transmission constraints in New York; renewable energy alternatives at UNS Energy; Wataynikaneyap transmission line to connect remote First Nations communities at FortisOntario; further gas infrastructure opportunities at FortisBC Energy; and consolidation of Rural Electrification Associations at FortisAlberta.

The Corporation’s subsidiaries expect to have reasonable access to long-term capital in 2016 to fund their capital expenditure programs.

Actual 2015 and forecast 2016 midyear rate base for the Corporation’s reporting utility segments, as well as the Waneta Expansion, is provided in the following table.

Midyear Rate Base

($billions)

	Actual 2015	Forecast 2016
UNS Energy (1)	4.1	4.8
Central Hudson (1)	1.4	1.6
FortisBC Energy	3.7	3.7
FortisAlberta	2.7	3.0
FortisBC Electric	1.3	1.3
Eastern Canadian Electric Utilities	1.6	1.7
Regulated Electric Utilities — Caribbean (1)	0.8	0.9
Waneta Expansion	0.8	0.8
Total	16.4	17.8

(1) Actual midyear rate base for 2015 is based on the actual average exchange rate of US$1.00=CAD$1.28 and forecast midyear rate base for 2016 is based on a forecast exchange rate of US$1.00=CAD$1.38.

3.0 DESCRIPTION OF THE BUSINESS

Fortis is principally an electric and gas utility holding company. Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis also holds investments in non-regulated generation assets, which is treated as a separate segment. The Corporation’s reporting segments allow Management to evaluate the operational performance and assess the overall contribution of each segment to the long-term objectives of Fortis. Each entity within the reporting segments operates with substantial autonomy, assumes profit and loss responsibility and is accountable for its own resource allocation.

The business segments of the Corporation are: (i) Regulated Electric & Gas Utilities — United States; (ii) Regulated Gas Utility — Canadian; (iii) Regulated Electric Utilities — Canadian; (iv) Regulated Electric Utilities — Caribbean; (v) Non-Regulated — Fortis Generation; (vi) Non-regulated — Non-Utility; and (vii) Corporate and Other.

The following sections describe the operations included in each of the Corporation’s reportable segments.

3.1 Regulated Electric & Gas Utilities - United States

3.1.1 UNS Energy

UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through its primary subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona, serving approximately 663,000 electricity and gas customers. UNS Energy was acquired by Fortis in August 2014.

UNS Energy is primarily comprised of three wholly owned regulated utilities: TEP, UNS Electric and UNS Gas.

TEP, UNS Energy’s largest operating subsidiary, is a vertically integrated regulated electric utility. TEP serves approximately 417,000 retail customers in a territory comprising approximately 2,991 square kilometres in southeastern Arizona, including the greater Tucson metropolitan area in Pima County, as well as parts of Cochise County. TEP’s service area covers a population of approximately 1,000,000 people. TEP also sells wholesale electricity to other entities in the western United States.

UNS Electric is a vertically integrated regulated electric utility that generates, transmits and distributes electricity to approximately 94,000 retail customers in Arizona’s Mohave and Santa Cruz counties, which have a combined population of approximately 250,000.

TEP and UNS Electric currently own generation resources with an aggregate capacity of 2,799 MW, including 54 MW of solar capacity. Several of the generating assets in which TEP and UNS Electric have an interest are jointly owned. TEP has sufficient generating capacity that, together with existing PPAs and expected generation plant additions, should satisfy the requirements of its customer base and meet future peak demand requirements. As at December 31, 2015, approximately 43% of the generating capacity was fuelled by coal.

UNS Gas is a regulated gas distribution utility that serves approximately 152,000 retail customers in Arizona’s Mohave, Yavapai, Coconino, Navajo and Santa Cruz counties, which have a combined population of approximately 700,000.

Market and Sales

UNS Energy’s electricity sales were 15,366 GWh for 2015, compared to 14,560 GWh for the full year in 2014. Earnings for UNS Energy’s electric utilities are generally highest in the second and third quarters due to the use of air conditioning and other cooling equipment. Gas volumes were 13 PJ for 2015, comparable with the full year in 2014. Revenue was US$1,588 million for 2015, compared to US$1,560 million for the full year in 2014.

The following table provides the composition of UNS Energy’s 2015 and 2014 revenue, electricity sales, and gas volumes by customer class.

UNS Energy (1)

Revenue and Electricity & Gas Sales by Customer Class

Revenue

GWh Sales

PJ Volumes

(%)

2015

2014

2015

2014

2015

2014

Residential

37.3

36.2

29.8

31.2

55.1

53.8

Commercial

22.5

22.5

17.7

19.1

23.7

24.1

Industrial

17.0

16.9

21.8

23.9

2.0

2.1

Other (2)

23.2

24.4

30.7

25.8

19.2

20.0

Total

100.0

100.0

100.0

100.0

100.0

100.0

(1) The 2014 information presented is for the year ended December 31, 2014. UNS Energy was acquired by Fortis in August 2014; therefore, only financial results from the date of acquisition, August 15, 2014, are reflected in the comparatives of the Corporation’s 2014 Audited Consolidated Financial Statements.

(2) Includes electricity sales and gas volumes to other entities for resale and revenue from sources other than from the sale of electricity and gas.

Power Supply

TEP meets the electricity supply requirements of its retail and wholesale customers with its owned electrical generating capacity of 2,501 MW and its transmission and distribution system consisting of approximately 15,654 kilometres of line. In 2015, TEP met a peak demand of 2,860 MW which includes firm sales to wholesale customers. TEP is a member of a regional reserve-sharing organization and has reliability and power sharing relationships with other utilities.

At December 31, 2015, TEP owned 2,501 MW of generating capacity, as set forth in the following table:

					Total		TEP’s	TEP’s
	Unit		Date in	Resource	Capacity	Operating	Share	Share
Generating Source	No.	Location	Service	Type	(MW)	Agent	(%)	(MW)
Springerville Station	1	Springerville, AZ	1985	Coal	387	TEP	49.5	192
Springerville Station	2	Springerville, AZ	1990	Coal	406	TEP	100.0	406
San Juan Station	1	Farmington, NM	1976	Coal	340	PNM	50.0	170
San Juan Station	2	Farmington, NM	1973	Coal	340	PNM	50.0	170
Navajo Station	1	Page, AZ	1974	Coal	750	SRP	7.5	56
Navajo Station	2	Page, AZ	1975	Coal	750	SRP	7.5	56
Navajo Station	3	Page, AZ	1976	Coal	750	SRP	7.5	56
Four Corners Station	4	Farmington, NM	1969	Coal	785	APS	7.0	55
Four Corners Station	5	Farmington, NM	1970	Coal	785	APS	7.0	55
Gila River Power Station (1)	3	Gila Bend, AZ	2003	Gas	550	Ethos Energy	75.0	413
Luna Generating Station	1	Deming, NM	2006	Gas	555	PNM	33.3	185
Sundt Station	1	Tucson, AZ	1958	Gas/Oil	81	TEP	100.0	81
Sundt Station	2	Tucson, AZ	1960	Gas/Oil	81	TEP	100.0	81
Sundt Station	3	Tucson, AZ	1962	Gas/Oil	104	TEP	100.0	104
Sundt Station (2)	4	Tucson, AZ	1967	Gas	156	TEP	100.0	156
Sundt Internal Combustion Turbines		Tucson, AZ	1972-1973	Gas/Oil	50	TEP	100.0	50
DeMoss Petrie		Tucson, AZ	2001	Gas	75	TEP	100.0	75
North Loop		Tucson, AZ	2001	Gas	94	TEP	100.0	94
Springerville Solar Station		Springerville, AZ	2002-2014	Solar	16	TEP	100.0	16
Tucson Solar Projects		Tucson, AZ	2010-2014	Solar	13	TEP	100.0	13
Ft. Huachuca Project		Ft. Huachuca, AZ	2014	Solar	17	TEP	100.0	17
Total Capacity *(3)*								2,501

(1) In December 2014, TEP and UNS Electric together completed the acquisition of Unit 3 of the Gila River Power Station, a 550 MW gas-fired combined-cycle unit for US$219 million. Both TEP and UNS Electric rely on a portfolio of long-term, medium-term and short-term PPAs to meet customer load requirements.

(2) In August 2015, TEP exhausted its existing coal supply at Sundt Station and has been operating Sundt Station with natural gas as a primary fuel source. TEP expects to retire the Sundt Station earlier than expected, and has requested to apply excess depreciation reserves against the unrecovered net book value in its 2015 rate case.

(3) Excludes 913 MW of additional generation resources, which consist of certain capacity purchases and interruptible retail load.

UNS Electric meets the electricity supply requirements of its retail customers through a mix of its own generation and power purchase contracts. UNS Electric owns and operates several gas and diesel-fuelled generating plants, with a collective electrical generating capacity of 298 MW, which provided approximately 73% of its 407 MW 2015 peak capacity needs.

UNS Electric’s generating capacity as of December 31, 2015 is set forth in the following table:

Total

UNSE’s

Generating

Unit

Date

Resource

Capacity

Operating

Share

Source

No.

Location

In Service

Type

(MW)

Agent

(%)

(MW)

Black Mountain

Kingman, AZ

2011

Gas

UNSE

100.0

Black Mountain

Kingman, AZ

2011

Gas

UNSE

100.0

Valencia

Nogales, AZ

Purchased 2003

Gas/Oil

UNSE

100.0

Valencia

Nogales, AZ

Purchased 2003

Gas/Oil

UNSE

100.0

Valencia

Nogales, AZ

Purchased 2003

Gas/Oil

UNSE

100.0

Valencia

Nogales, AZ

Purchased 2003

Gas/Oil

UNSE

100.0

Gila River Power Station

Gila Bend, AZ

2003

Gas

550

Ethos Energy

25.0

137

La Senita

Kingman, AZ

2011

Solar

UNSE

100.0

Rio Rico

Rio Rico, AZ

2014

Solar

UNSE

100.0

Total Capacity

298

Each of TEP and UNS Electric are subject to government-mandated renewable energy requirements. TEP satisfies these requirements through its 46 MW of owned photovoltaic solar generating capacity and PPAs for capacity from solar resources (175 MW), wind resources (80 MW) and a landfill gas generation plant (4 MW). UNS Electric satisfies its respective requirements through its 8 MW of owned photovoltaic solar generating capacity and PPAs for capacity from solar resources (10 MW) and wind resources (10 MW). TEP and UNS Electric expect to spend US$64 million on renewable projects in 2016 to meet future renewable energy requirements which are recoverable through rates.

Gas Purchases

UNS Gas directly manages its gas supply and transportation contracts. The price for gas varies based on market conditions, which include weather, supply balance, economic growth rates, and other factors. UNS Gas hedges its gas supply prices by entering into fixed-price forward contracts, collars, and financial swaps from time to time, up to three years in advance, with a view to hedging at least 70% of expected monthly gas consumption with fixed prices prior to the beginning of each month.

UNS Gas purchases the majority of its gas supply from the San Juan Basin. The gas is delivered on the El Paso Natural Gas, L.L.C. and Transwestern Pipeline Company interstate pipeline systems under firm transportation agreements with combined capacity sufficient to meet the demands of UNS Gas’ customers.

Legal Proceedings

Springerville Generating Station, Unit 1

In November 2014 the Springerville Unit 1 third-party owners filed a complaint against TEP with FERC, alleging that TEP had not agreed to wheel power and energy for the third-party owners in the manner specified in the existing Springerville Unit 1 facility support agreement between TEP and the third-party owners and for the cost specified by the third-party owners. The third-party owners requested an order from FERC requiring such wheeling of the third-party owners’ energy from their Springerville Unit 1 interests beginning in January 2015 for the price specified by the third-party owners. In February 2015 FERC issued an order denying the third-party owners’ complaint. In March 2015 the third-party owners filed a request for rehearing in the FERC action, which FERC denied in October 2015. In December 2015 the third-party owners appealed FERC’s order denying the third party-owners’ complaint to the U.S. Court of Appeals for the Ninth Circuit. In December 2015 TEP filed an unopposed motion to intervene in the Ninth Circuit appeal.

In December 2014 the third-party owners filed a complaint against TEP in the Supreme Court of the State of New York, New York County. In response to motions filed by TEP to dismiss various counts and compel arbitration of certain of the matters alleged and the court’s subsequent ruling on the motions, the third-party owners have amended the complaint three times, dropping certain of the allegations and raising others in the New York action and in the arbitration proceeding described below. As amended, the New York action alleges, among other things, that TEP failed to properly operate, maintain, and make capital investments in Springerville Unit 1 during the term of the leases; and that TEP breached the lease transaction documents by refusing to pay certain of the third-party owners’ claimed expenses. The third amended complaint seeks US$71 million in liquidated damages and direct and consequential damages in an amount to be determined at trial. The third-party owners have also agreed to stay their

claim that TEP has not agreed to wheel power and energy as required pending the outcome of the FERC action. In November 2015 the third-party owners filed a motion for summary judgment on their claim that TEP failed to pay certain of the third-party owners’ claimed expenses.

In December 2014 and January 2015, Wilmington Trust Company, as owner trustees and lessors under the leases of the third-party owners, sent notices to TEP that alleged that TEP had defaulted under the third-party owners’ leases. The notices demanded that TEP pay liquidated damages totalling approximately US$71 million. In letters to the owner trustees, TEP denied the allegations in the notices.

In April 2015 TEP filed a demand for arbitration with the American Arbitration Association seeking an award of the owner trustees and co-trustees’ share of unreimbursed expenses and capital expenditures for Springerville Unit 1. In June 2015 the third-party owners filed a separate demand for arbitration with the American Arbitration Association alleging, among other things, that TEP has failed to properly operate, maintain and make capital investments in Springerville Unit 1 since the leases have expired. The third-party owners’ arbitration demand seeks declaratory judgments, damages in an amount to be determined by the arbitration panel and the third-party owners’ fees and expenses. TEP and the third-party owners have since agreed to consolidate their arbitration demands into one proceeding. In August 2015 the third-party owners filed an amended arbitration demand adding claims that TEP has converted the third-party owners’ water rights and certain emission reduction payments and that TEP is improperly dispatching the third-party owners’ unscheduled Springerville Unit 1 power and capacity.

In October 2015 the arbitration panel granted TEP’s motion for interim relief, ordering the third-party trustees and co-trustees to pay TEP their pro-rata share of unreimbursed expenses and capital expenditures for Springerville Unit 1 during the pendency of the arbitration. The arbitration panel also denied the third-party owners’ motion for interim relief, which had requested that TEP be enjoined from dispatching the third-party owners’ unscheduled Springerville Unit 1 power and capacity. TEP has been scheduling the third-party owners’ entitlement share of power from Springerville Unit 1, as permitted under the Springerville Unit 1 facility support agreement, since June 2015. The arbitration hearing is scheduled for July 2016.

In November 2015 TEP filed a petition to confirm the interim arbitration order in the Supreme Court of the State of New York naming the owner trustee and co-trustee as respondents. The petition seeks an order from the court confirming the interim arbitration order under the Federal Arbitration Act. In December 2015 the owner trustees filed an answer to the petition and a cross-motion to vacate the interim arbitration order.

As of December 31, 2015 TEP billed the third-party owners approximately US$23 million for their pro-rata share of Springerville Unit 1 expenses and US$4 million for their pro-rata share of capital expenditures, none of which had been paid as of February 17, 2016.

TEP cannot predict the outcome of the claims relating to Springerville Unit 1 and, due to the general and non-specific scope and nature of the claims, TEP cannot determine estimates of the range of loss, if any, at this time and, accordingly, no amount has been accrued in the 2015 Audited Consolidated Financial Statements. TEP intends to vigorously defend itself against the claims asserted by the third-party owners and to vigorously pursue the claims it has asserted against the third-party owners.

TEP and the third-party owners have agreed to stay these litigation matters relating to Springerville Unit 1 in furtherance of settlement negotiations. However, there is no assurance that a settlement will be reached or that the litigation will not continue.

Navajo Generating Station Lease Extension

Navajo Generating Station is located on a site that is leased from the Navajo Nation with an initial lease term through 2019. The Navajo Nation signed a lease amendment in 2013 that would extend the lease from 2019 through 2044. The participants in Navajo Generating Station, including TEP, have not signed the lease amendment because certain participants have expressed an interest in discontinuing their participation in Navajo Generating Station. Negotiations between the participants are ongoing, and all parties will likely agree to the terms. To become effective, this lease amendment must be signed by all of the participants, approved by the U.S. Department of the Interior, and is subject to environmental reviews. Once the lease amendment becomes effective, the participants will be responsible for additional lease costs from the date the Navajo Nation signed the lease amendment. TEP owns 7.5% of Navajo Generating Station. In 2015, TEP recorded additional estimated lease expense of approximately US$1 million with the expectation that the lease amendment will become effective. As at December 31, 2015 a total liability of US$3 million (December 31, 2014 — US$2 million) was recognized.

Environmental Contingencies

San Juan Generating Station

In August 2013, the U.S. Bureau of Land Management proposed regulations that, among other things, redefine the term “underground mine” to exclude high-wall mining operations and impose a higher surface mine coal royalty on high-wall mining. SJCC utilized high-wall mining techniques at its surface mines prior to beginning underground mining operations in January 2003. If the proposed regulations become effective, SJCC may be subject to additional royalties on coal delivered to San Juan between August 2000 and January 2003 totaling approximately US$5 million of which TEP’s proportionate share would approximate US$1 million. TEP owns 50% of Units 1 and 2 at San Juan, which represents approximately 20% of the total generation capacity at San Juan, and is responsible for its share of any settlements. TEP cannot predict the final outcome of the Bureau of Land Management’s proposed regulations.

In February 2013 WEG filed a Petition for Review in the U.S. District Court of Colorado against the OSM challenging federal administrative decisions affecting seven different mines in four states issued at various times from 2007 through 2012. In its petition, WEG challenges several unrelated mining plan modification approvals, which were each separately approved by OSM. Of the fifteen claims for relief in the WEG Petition, two concern SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arise from OSM administrative actions in 2008. WEG alleges various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents. WEG’s petition seeks various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the seven mines. SJCC intervened in this matter. SJCC was granted its motion to sever its claims from the lawsuit and transfer venue to the U.S. District Court for the District of New Mexico, where this matter is now proceeding. The parties have requested the court to stay this matter until April 2016 in furtherance of settlement negotiations. If WEG ultimately obtains the relief it has requested, such a ruling could require significant expenditures to reconfigure operations at the San Juan mine, impact the production of coal, and impact the economic viability of the San Juan mine and San Juan. TEP cannot currently predict the outcome of this matter or the range of its potential impact.

Four Corners Generating Station

In October 2011 EarthJustice, on behalf of several environmental organizations, filed a lawsuit in the U.S. District Court for the District of New Mexico against APS and the other Four Corners Generating Station participants alleging violations of the prevention of significant deterioration provisions of the Clean Air Act at Four Corners Generating Station. In January 2012 EarthJustice amended their complaint alleging violations of New Source Performance Standards resulting from equipment replacements at Four Corners Generating Station. Among other things, the plaintiffs sought to have the court issue an order to cease operations at Four Corners Generating Station until any required prevention of significant deterioration permits are issued and order the payment of civil penalties, including a beneficial mitigation project. In April 2012, APS filed motions to dismiss with the court for all claims asserted by EarthJustice in the amended complaint.

TEP owns 7% of Four Corners Generating Station Units 4 and 5 and is liable for its share of any resulting liabilities. In June 2015 APS, the operator of Four Corners Generating Station, announced a settlement with the EPA for outstanding environmental issues related to New Source Review provisions under the Clean Air Act. The settlement calls for environmental upgrades including selective catalytic reduction upgrades already planned for under the Regional Haze regulation, environmental mitigation projects, and civil penalties. A consent decree reflecting terms of the settlement was entered by the court in August 2015, effectively closing the case. TEP’s share of the additional capital, excluding the selective catalytic reduction upgrades, is approximately US$2 million over the three year period it will take to construct the upgrades. TEP’s share of the annual operations and maintenance expenses is approximately US$1 million. In addition, TEP recorded less than US$1 million for its share of the one-time charges for environmental mitigation projects and civil penalties.

In May 2013 the New Mexico Taxation and Revenue Department issued a notice of assessment for coal severance tax, penalties, and interest totaling US$30 million to the coal supplier at Four Corners. TEP’s share of the assessment is US$1 million based on its ownership percentage. In December 2013, the coal supplier and Four Corners Generating Station’s operating agent filed a claim contesting the validity of the assessment on behalf of the participants in Four Corners Generating Station, who will be liable

for their share of any resulting liabilities. In June 2015 the U.S. District Court ruled in favor of the Four Corners Generating Station’s participants. The New Mexico Taxation and Revenue Department filed an appeal of the decision in August 2015. TEP cannot predict the final outcome or timing of resolution of these claims.

Mine Reclamation Costs

TEP pays ongoing reclamation costs related to coal mines that supply generating stations in which TEP has an ownership interest but does not operate. TEP is liable for a portion of final reclamation costs upon closure of the mines servicing the San Juan, Four Corners and Navajo generating stations. TEP’s share of reclamation costs at all three mines is expected to be US$43 million upon expiration of the coal supply agreements, which expire between 2019 and 2031. The mine reclamation liability recorded as at December 31, 2015 was US$25 million (December 31, 2014 — US$22 million), and represents the present value of the estimated future liability.

Amounts recorded for final reclamation are subject to various assumptions, such as estimations of reclamation costs, the dates when final reclamation will occur, and the expected inflation rate. As these assumptions change, TEP will prospectively adjust the expense amounts for final reclamation over the remaining coal supply agreements’ terms. TEP does not believe that recognition of its final reclamation obligations will be material to TEP in any single year because recognition will occur over the remaining terms of its coal supply agreements. TEP is permitted to fully recover these costs from retail customers and, accordingly, these costs are deferred as a regulatory asset.

Human Resources

As at December 31, 2015: (i) TEP employed approximately 1,478 employees, of whom 688 are represented by IBEW under a collective agreement expiring in January 2019; (ii) UNS Electric employed 145 approximately employees, of whom 111 are represented by IBEW under collective agreements expiring in June 2016 and February 2017; and (iii) UNS Gas employed approximately 184 employees, of whom 111 are represented by IBEW under collective agreements expiring February 2017 and June 2018. UniSource Energy Services Inc., another wholly owned subsidiary of UNS Energy, employed approximately 208 employees, of whom 199 are represented by IBEW under collective agreements expiring in May 2016, July 2016 and December 2016.

3.1.2 Central Hudson

Central Hudson is a regulated T&D utility serving approximately 300,000 electricity customers and 79,000 natural gas customers in eight counties of New York State’s Mid-Hudson River Valley. Central Hudson was acquired by Fortis as part of the acquisition of CH Energy Group in June 2013.

Central Hudson serves a territory comprising approximately 6,734 square kilometres in the Hudson Valley. Electric service is available throughout the territory, and natural gas service is provided in and about the cities of Poughkeepsie, Beacon, Newburgh, and Kingston, New York, and in certain outlying and intervening territories.

Central Hudson’s electric transmission system consists of approximately 1,000 kilometres of line. Central Hudson’s electric distribution system consists of approximately 11,600 kilometres of overhead lines and 2,400 trench kilometres of underground lines, as well as customer service lines and meters. Central Hudson’s electricity system met a peak demand of 1,059 MW in 2015.

Central Hudson’s natural gas system consists of approximately 300 kilometres of transmission pipelines and 2,000 kilometres of distribution pipelines, as well as customer service lines and meters. In 2015 Central Hudson’s natural gas system met a peak day demand of 140 TJ.

Market and Sales

Central Hudson’s electricity sales were 5,132 GWh for 2015, compared to 5,075 GWh for 2014. Natural gas sales volumes for 2015 were 24 PJ, compared to 23 PJ for 2014. Revenue was US$691 million for 2015, compared to US$743 million in 2014.

The following tables compare the composition of Central Hudson’s 2015 and 2014 revenue, electricity sales and gas volumes by customer class.

Central Hudson

Revenue and Electricity Sales by Customer Class

	Revenue		GWh Sales
	(%)		(%)
	2015	2014	2015	2014
Residential	61.0	60.9	40.6	40.3
Commercial	26.4	28.0	38.0	37.8
Industrial	4.0	4.1	19.7	20.1
Other	7.9	6.2	0.7	0.7
Sales for Resale	0.7	0.8	1.0	1.1
Total	100.0	100.0	100.0	100.0

Central Hudson

Revenue and Gas Volumes by Customer Class

	Revenue		PJ Volumes
	(%)		(%)
	2015	2014	2015	2014
Residential	52.9	53.5	26.1	27.1
Commercial	26.5	29.0	33.1	33.9
Industrial	8.3	4.8	20.2	17.2
Other	3.1	1.1	7.7	7.8
Sales for Resale	9.2	11.6	12.9	14.0
Total	100.0	100.0	100.0	100.0

Power Supply

Central Hudson relies on purchased capacity and energy from third-party providers, together with its own minimal generating capacity, to meet the demands of its full-service customers.

Central Hudson is obligated to supply electricity to its retail electric customers. Central Hudson, the staff of the New York State Public Service Commission and others entered into a settlement agreement in 1998 with respect to the auction of fossil-fuel generation plants owned by Central Hudson. Under the settlement agreement, Central Hudson’s retail customers may elect to procure electricity from third-party suppliers or may continue to rely on Central Hudson. As part of its requirement to supply customers who continue to rely on Central Hudson for their energy supply, Central Hudson entered into a 10-year revenue sharing agreement with Constellation Energy Group, Inc. in 2011, pursuant to which Central Hudson shares in a portion of the power sales revenue attributable to Unit No. 2 of the Nine Mile Point Nuclear Generating Station.

During 2015 Central Hudson entered into agreements to purchase electricity on a unit-contingent basis at defined prices during peak load periods from June 2015 through August 2016, replacing existing contracts which expired in March 2015.

In June 2014 Central Hudson entered into a PPA to purchase capacity from the Danskammer Generating Facility from October 2014 through August 2018, with approximately US$76 million in purchase commitments remaining as at December 31, 2015.

In November 2013 Central Hudson entered into a PPA to purchase 200 MW of installed capacity from the Roseton Generating Facility from May 2014 through April 2017, with approximately US$14 million in purchase commitments remaining as at December 31, 2015.

Costs of electric and natural gas commodity purchases are recovered from customers, without earning a profit on these costs. Rates are reset monthly based on Central Hudson’s actual costs to purchase the electricity and natural gas needed to serve its full-service customers.

Other Contractual Obligations

CH Energy Group is party to an investment to develop, own and operate electric transmission projects in New York State. In December 2014 an application was filed with FERC for the recovery of the cost of, and return on, five high-voltage transmission projects totaling US$1.7 billion, of which CH Energy Group’s maximum commitment is US$182 million. CH Energy Group issued a parental guarantee to assure the payment of its maximum commitment. As at December 31, 2015, no payment obligation was expected under this guarantee.

Litigation

Asbestos Litigation

Prior to and after its acquisition by Fortis, various asbestos lawsuits had been brought against Central Hudson. While a total of 3,350 asbestos cases have been raised, 1,167 remained pending as at December 31, 2015. Of the cases no longer pending against Central Hudson, 2,027 have been dismissed or discontinued without payment by Central Hudson, and it has settled the remaining 156 cases. The company is presently unable to assess the validity of the remaining asbestos lawsuits; however, based on information known to Central Hudson at this time, including the Company’s experience in the settlement and/or dismissal of asbestos cases, Central Hudson believes that the costs which may be incurred in connection with the remaining lawsuits will not have a material effect on its financial position, results of operations or cash flows and, accordingly, no amount has been accrued in 2015 Audited Consolidated Financial Statements.

Environmental Contingencies

Former MGP Facilities

Central Hudson and its predecessors owned and operated MGPs to serve their customers’ heating and lighting needs. These plants manufactured gas from coal and oil beginning in the mid to late 1800s with all sites ceasing operations by the 1950s. This process produced certain by-products that may pose risks to human health and the environment.

The New York State Department of Environmental Conservation, which regulates the timing and extent of remediation of MGP sites in New York State, has notified Central Hudson that it believes the company or its predecessors at one time owned and/or operated MGPs at seven sites in Central Hudson’s franchise territory. The New York State Department of Environmental Conservation has further requested that the company investigate and, if necessary, remediate these sites under a Consent Order, Voluntary Clean-up Agreement or Brownfield Clean-up Agreement. Central Hudson accrues for remediation costs based on the amounts that can be reasonably estimated. As at December 31, 2015, an obligation of US$92 million (December 31, 2014 — US$105 million) was recognized in respect of MGP remediation and, based upon cost model analysis completed in 2014, it is estimated, with a 90% confidence level, that total costs to remediate these sites over the next 30 years will not exceed US$169 million.

Central Hudson has notified its insurers and intends to seek reimbursement from insurers for remediation, where coverage exists. Further, as authorized by the New York State Public Service Commission, Central Hudson is currently permitted to defer, for future recovery from customers, differences between actual costs for MGP site investigation and remediation and the associated rate allowances, with carrying charges to be accrued on the deferred balances at the authorized pre-tax rate of return.

Human Resources

As at December 31, 2015, Central Hudson employed approximately 966 employees, of whom 566 are represented by IBEW under a collective agreement expiring April 30, 2017.

3.2 Regulated Gas Utility - Canadian

3.2.1 FortisBC Energy

FortisBC Energy is the largest distributor of natural gas in British Columbia, serving approximately 982,000 residential, commercial and industrial and transportation customers in more than 135 communities. Major areas served by FortisBC Energy include the Lower Mainland, Vancouver Island and Whistler regions of British Columbia.

In addition to providing T&D services to customers, FortisBC Energy also obtains natural gas supplies on behalf of most residential, commercial and industrial customers.

FortisBC Energy owns and operates approximately 48,000 kilometres of natural gas pipelines and met a peak day demand of 1,074 TJ in 2015.

Market and Sales

FortisBC Energy’s natural gas sales volumes were 186 PJ in 2015, compared to 195 PJ in 2014. Revenue decreased from $1,435 million in 2014 to $1,295 million in 2015.

The following table compares the composition of FortisBC Energy’s 2015 and 2014 revenue and natural gas volumes by customer class.

FortisBC Energy

Revenue and Gas Volumes by Customer Class

	Revenue		PJ Volumes
	(%)		(%)
	2015	2014	2015	2014
Residential	56.8	56.2	36.0	36.9
Commercial	29.1	30.2	23.1	23.1
Industrial	1.7	2.7	1.6	2.1
Transportation	7.8	6.8	33.9	31.8
Other (1)	4.6	4.1	5.4	6.1
Total	100.0	100.0	100.0	100.0

(1) Includes amounts under fixed-revenue contracts and revenue from sources other than from the sale of natural gas.

Gas Purchase Agreements

In order to ensure supply of adequate resources to provide reliable natural gas deliveries to its customers, FortisBC Energy purchases natural gas supply from counterparties, including producers, aggregators and marketers. These counterparties adhere to standards of counterparty creditworthiness and contract execution and/or management policies. FortisBC Energy contracts for approximately 136 PJ of baseload and seasonal supply, of which the majority is sourced in north east British Columbia and transported on Spectra Energy’s Westcoast Pipeline Transmission-South pipeline system. The remainder is sourced in Alberta and transported on TransCanada’s pipeline transportation system.

FortisBC Energy procures and delivers natural gas directly to core market customers. Transportation only customers are responsible to procure and deliver their own natural gas to the FortisBC Energy system and FortisBC Energy then delivers the gas to the operating premises of these customers. FortisBC Energy contracts for transportation capacity on third party pipelines, such as Spectra and TransCanada, to transport gas supply from various market hubs to FortisBC Energy’s system. These third-party pipelines are regulated by the NEB. FortisBC Energy pays both fixed and variable charges for the use of transportation capacity on these pipelines, which are recovered through rates paid by FortisBC Energy’s core market customers. FortisBC Energy contracts for firm transportation capacity in order to ensure it is able to meet its obligation to supply customers within its broad operating region under all reasonable demand scenarios.

Gas Storage and Peak-Shaving Arrangements

FortisBC Energy incorporates peak shaving and gas storage facilities into its portfolio to:

(i)	supplement contracted baseload and seasonal gas supply in the winter months while injecting excess baseload supply to refill storage in the summer months;
(ii)	mitigate the risk of supply shortages during cooler weather and a peak day;
(iii)	manage the cost of gas during the winter months; and
(iv)	balance daily supply and demand on the distribution system during periods of peak use that occur over the course of the winter months.

FortisBC Energy holds approximately 35.3 PJs of total storage capacity. FortisBC Energy owns Tilbury and Mount Hayes LNG peak shaving facilities, which provide on-system storage capacity and deliverability. FortisBC Energy also contracts for underground storage capacity and deliverability from third parties in north east British Columbia, Alberta and the Pacific Northwest of the United States. On a combined basis, FortisBC Energy’s Tilbury and Mount Hayes facilities, the contracted storage facilities, and other peaking arrangements can deliver up to 0.74 PJs per day of supply to FortisBC Energy on the coldest days of the heating season. The heating season typically occurs during the December through February period.

Off-System Sales

FortisBC Energy engages in off-system sales activities that allow for the recovery or mitigation of costs of any unutilized supply and/or pipeline and storage capacity that is available once customers’ daily load requirements are met.

Under the GSMIP revenue sharing model, which is approved by the BCUC, FortisBC Energy can earn an incentive payment for mitigation activities. Historically, FortisBC Energy has earned approximately $1.0 million annually through GSMIP, while the remaining savings are credited back to customers through reduced rates. Subject to the BCUC’s approval, FortisBC Energy earned an incentive payment of approximately $2.0 million in respect of the gas contract year ended October 31, 2015.

The current GSMIP program was approved by the BCUC following a comprehensive review in 2011. In 2013, the BCUC approved an extension of the program until October 31, 2016.

Price-Risk Management Plan

FortisBC Energy engages in price-risk management activities to mitigate the impact to customer rates of fluctuations in natural gas prices. These activities include physical gas purchasing and storage strategies as well as FortisBC Energy’s current quarterly commodity rate-setting and deferral account mechanism. Prior to 2010, FEI also typically included the use of derivative instruments which were implemented pursuant to an annual price risk management plan reviewed and approved by the BCUC. Following a comprehensive review process, in July 2011 the BCUC directed FEI to suspend the majority of its natural gas commodity hedging activities. All hedges that had been in place from previously approved PRMPs prior to the suspension of the hedging strategy, expired in 2014.

During 2015, FortisBC Energy conducted a series of workshops with stakeholders to provide background and education and obtain feedback regarding FortisBC Energy’s current price-risk management activities and possible strategies and options it could pursue in the future. Subsequently, FortisBC Energy filed the 2015 Price-Risk Management Application on December 23, 2015 with the BCUC which included FortisBC Energy’s request to implement a medium-term hedging program and commodity rate-setting enhancements. FortisBC Energy is currently awaiting the BCUC’s determination regarding the review process for this application.

Unbundling

A Customer Choice program at FortisBC Energy allows eligible commercial and residential customers a choice to buy their natural gas commodity supply from FortisBC Energy or directly from third-party marketers. FortisBC Energy continues to provide the delivery service of the natural gas to all its customers.

The program has been in place since November 2004 for commercial customers and November 2007 for residential customers. For the year ended December 31, 2015, approximately 4% of eligible commercial customers and 3% of eligible residential customers participated in the program by purchasing their commodity supply from alternate providers.

Legal Proceedings

In April 2013 FHI, the parent of FortisBC Energy, and Fortis were named as defendants in an action in the B.C. Supreme Court by the Coldwater Indian Band. The claim is in regard to interests in a pipeline right of way on reserve lands. The pipeline on the right of way was transferred by FHI (then Terasen Inc.) to Kinder Morgan Inc. in April 2007. The Coldwater Indian Band seeks orders cancelling the right of way and claims damages for wrongful interference with its use and enjoyment of reserve lands. The outcome cannot be reasonably determined and estimated at this time and, accordingly, no amount has been accrued in the consolidated financial statements.

Human Resources

As at December 31, 2015, FortisBC Energy had approximately 1,620 full-time equivalent employees. Approximately 70% of the employees are represented by IBEW and COPE under collective agreements. The IBEW collective agreement came into effect on April 1, 2015 and expires on March 31, 2019. There are two collective agreements between COPE and FortisBC Energy which expire March 31, 2017 and March 31, 2018, respectively.

3.3 Regulated Electric Utilities - Canadian

3.3.1 FortisAlberta

FortisAlberta is a regulated electricity distribution utility operating in Alberta. Its business is the ownership and operation of regulated electricity distribution facilities that distribute electricity, generated by other market participants, from high-voltage transmission substations to end-use customers. FortisAlberta is not involved in the generation, transmission or direct sale of electricity. FortisAlberta operates the electricity distribution system in a substantial portion of southern and central Alberta, totalling approximately 121,000 kilometres of distribution lines. Many of FortisAlberta’s customers are located in rural and suburban areas around and between the cities of Edmonton and Calgary. FortisAlberta’s distribution network serves approximately 539,000 customers, comprising residential, commercial, farm, oil and gas and industrial consumers, and met a peak demand of 2,733 MW in 2015.

Market and Sales

FortisAlberta’s annual energy deliveries decreased from 17,372 GWh in 2014 to 17,132 GWh in 2015. Revenue was $563 million in 2015 compared to $518 million in 2014.

As a significant portion of FortisAlberta’s distribution revenue is derived from fixed or largely fixed billing determinants, changes in quantities of energy delivered are not entirely correlated with changes in revenue. Revenue is a function of numerous variables, many of which are independent of actual energy deliveries.

The following table compares the composition of FortisAlberta’s 2015 and 2014 revenue and energy deliveries by customer class.

FortisAlberta

Revenue and Energy Deliveries by Customer Class

	Revenue		GWh Deliveries (1)
	(%)		(%)
	2015	2014	2015	2014
Residential	29.4	30.5	17.5	17.1
Large commercial, industrial and oil field	21.9	21.5	60.7	61.3
Farms	13.5	11.8	7.9	7.5
Small commercial	12.0	10.8	8.0	8.0
Small oil field	9.6	8.1	5.5	5.7
Other (2)	13.6	17.3	0.4	0.4
Total	100.0	100.0	100.0	100.0

(1)	GWh percentages exclude FortisAlberta’s GWh deliveries to “transmission-connected” customers. These deliveries were 6,663 GWh in 2015 and 7,076 GWh in 2014, based on interim settlement that is expected to be finalized in May 2016, and consisted primarily of energy deliveries to large-scale industrial customers directly connected to the transmission grid.
(2)	Includes revenue from sources other than the delivery of energy, including that related to street-lighting services, rate riders, deferrals and adjustments.

Franchise Agreements

FortisAlberta serves customers residing within various municipalities throughout its service areas. From time to time, municipal governments in Alberta give consideration to creating their own electric distribution utilities by purchasing the assets of FortisAlberta located within their municipal boundaries. Upon the termination, or in the absence, of a franchise agreement, a municipality has the right, subject to AUC approval, to purchase FortisAlberta’s assets within its municipal boundaries pursuant to the Municipal Government Act (Alberta), with the price to be as agreed by FortisAlberta and the municipality, failing which it is to be determined by the AUC. Additionally, under the Hydro and Electric Energy Act (Alberta), if a municipality that owns an electric distribution system expands its boundaries, it can acquire FortisAlberta’s assets in the annexed area. In such circumstances, the Hydro and Electric Energy Act (Alberta) provides that the AUC may determine that the municipality should pay compensation to FortisAlberta for any facilities transferred on the basis of replacement cost less depreciation. Given the historical population and economic growth of Alberta and its municipalities, FortisAlberta is affected by transactions of this type from time to time.

FortisAlberta holds franchise agreements with 156 municipalities within its service area. The franchise agreement template includes a 10-year term with an option that will permit the agreement to automatically renew for a further five years. To date, FortisAlberta has converted over 90% of the municipalities within its service area to the new franchise agreement. The current 10-year terms will not expire until 2023 and beyond.

Human Resources

As at December 31, 2015, FortisAlberta had approximately 1,162 full-time equivalent employees. Approximately 80% of the employees of FortisAlberta are members of the UUWA and represented by a collective agreement that expires on December 31, 2017.

3.3.2 FortisBC Electric

FortisBC Electric is an integrated electric utility that owns hydroelectric generating plants, high voltage transmission lines, and a large network of distribution assets, all of which are located in the southern interior of British Columbia. FortisBC Electric serves a diverse mix of approximately 168,000 customers, of whom approximately 132,000 are served directly by FortisBC Electric in Kelowna, Oliver, Osoyoos, Trail, Castlegar, Creston and Rossland, while the remainder are served through the wholesale supply of power to municipal distributors in the communities of Summerland, Penticton, Grand Forks and Nelson, as well as to BC Hydro. In 2015, FortisBC Electric met a peak demand of 624 MW. Residential customers represent the largest customer class of the company. FortisBC Electric’s T&D assets include approximately 7,200 kilometres of T&D lines and 65 substations.

FortisBC Electric also includes the operating, maintenance and management services relating to the 493-MW Waneta hydroelectric generating facility owned by Teck Metals Ltd. and BC Hydro; the 335-MW Waneta Expansion, owned by Fortis and CPC/CBT; the 149-MW Brilliant hydroelectric plant and the 120-MW Brilliant hydroelectric expansion plant, both owned by CPC/CBT; and the 185-MW Arrow Lakes hydroelectric plant owned by CPC/CBT.

Market and Sales

FortisBC Electric has a diverse customer base composed of residential, commercial, industrial and municipal wholesale, and other industrial customers. Electricity sales were 3,116 GWh in 2015, compared to 3,179 GWh in 2014. Revenue increased to $360 million in 2015 from $334 million in 2014.

The following table compares the composition of FortisBC Electric’s 2015 and 2014 revenue and electricity sales by customer class.

FortisBC Electric

Revenue and Electricity Sales by Customer Class

	Revenue		GWh Sales
	(%)		(%)
	2015	2014	2015	2014
Residential	45.3	48.4	40.2	41.2
Commercial	24.0	24.7	29.1	28.9
Wholesale	12.2	13.0	18.6	18.1
Industrial	8.3	9.0	12.1	11.8
Other (1)	10.2	4.9	—	—
Total	100.0	100.0	100.0	100.0

(1) Includes revenue from sources other than from the sale of electricity, including revenue of FortisBC Pacific Holdings Inc. associated with non-regulated operating, maintenance and management services.

Generation and Power Supply

FortisBC Electric meets the electricity supply requirements of its customers through a mix of its own generation and power purchase contracts. The company owns four regulated hydroelectric generating plants on the Kootenay River with an aggregate capacity of 225 MW, which provide approximately 45% of the company’s energy needs and 30% of its peak capacity needs. FortisBC Electric meets the balance of its requirements through a portfolio of long-term and short-term PPAs.

FortisBC Electric’s four hydroelectric generating facilities are governed by the multi-party CPA that enables the six separate owners of nine major hydroelectric generating plants, with a combined capacity of approximately 1,900 MW and located in relatively close proximity to each other, to coordinate the operation and dispatch of their generating plants.

The following table lists the plants and their respective capacity and owner.

Plant	Capacity (MW)	Owners
Canal Plant	580	BC Hydro
Waneta Dam	256	BC Hydro
Waneta Dam	237	Teck Metals Ltd.
Waneta Expansion	335	Waneta Partnership
Kootenay River System	225	FortisBC Electric
Brilliant Dam	149	BPC
Brilliant Expansion	120	BEPC
Total	1,902

BPC, BEPC, Teck Metals Ltd. and FortisBC Electric are collectively defined in the CPA as the entitlement parties. The CPA enables BC Hydro and the entitlement parties to generate more power from their respective generating plants than they could if they operated independently through coordinated use of water flows, subject to the 1961 Columbia River Treaty between Canada and the United States, and coordinated operation of storage reservoirs and generating plants. Under the CPA, BC Hydro takes into its system all power actually generated by the plants listed in the table above. In exchange for permitting BC Hydro to determine the output of these facilities, each of the entitlement parties is contractually entitled to a fixed annual entitlement of capacity and energy from BC Hydro, which is based on 50-year historical water flows. The entitlement parties receive their defined entitlements irrespective of actual water flows to the entitlement parties’ generating plants. BC Hydro enjoys the benefits of the additional power generated through coordinated operation and optimal use of water flows. The entitlement parties benefit by knowing years in advance the amount of power that they will receive from their generating plants and therefore do not face hydrology variability in generation supply planning. However, FortisBC Electric retains rights to its original water licenses and flows in perpetuity. Should the CPA be terminated, the output of FortisBC Electric’s Kootenay River system plants would, with the water and storage authorized under its existing licences and on a long-term average, be approximately the same power output as FortisBC Electric receives under the CPA. The CPA does not affect FortisBC Electric’s ownership of its physical generation assets. The CPA continues in force until terminated by any of the parties by giving no less than five years’ notice at any time on or after December 31, 2030.

FortisBC Electric’s remaining electricity supply is acquired through the following power purchase contracts:

i. a 149-MW long-term PPA with BPC terminating in 2056 (Brilliant PPA);

ii. a 200-MW PPA with BC Hydro terminating in 2033 (BC Hydro PPA);

iii. a capacity and energy purchase agreement with CPC, for a total of 78,500 MWh from 2013 through 2017 (Brilliant Expansion Capacity and Energy Purchase Agreement);

iv. a number of small power purchase contracts with independent power producers;

v. spot market and contracted capacity purchases; and

vi. a 40-year agreement to purchase 234 MW of capacity from the WECA.

These purchase contracts have been accepted by the BCUC and prudently incurred costs thereunder flow through to customers through FortisBC Electric’s electricity rates.

Brilliant PPA

Under the Brilliant PPA, FortisBC Electric has agreed to purchase from BPC, on a long-term basis: (i) the entitlement allocated to the Brilliant hydroelectric plant; and (ii) after the expiration of the CPA, the actual electrical output generated by the Brilliant hydroelectric plant. While the total entitlement is 985,000 MWh, FortisBC Electric does not purchase the approximate 60,000 MWh of regulated flow upgrade entitlement under the Brilliant PPA. However, FortisBC Electric has entered into another agreement with CPC for this energy over a five-year period, as discussed below. The Brilliant PPA uses a take-or-pay contract structure, which requires that FortisBC Electric pay for the Brilliant hydroelectric plant’s entitlement, irrespective of whether FortisBC Electric actually takes it. FortisBC Electric does not foresee any circumstances under which FortisBC Electric would be required to pay for power that it does not require. During the first 30 years of the Brilliant PPA term, FortisBC Electric pays to BPC an amount that covers the operation and maintenance costs of the Brilliant hydroelectric plant and provides a return on capital, including original purchase costs, sustaining capital costs and any life-extension investments. During the second 30 years of the Brilliant PPA term, commencing in 2026, an adjustment using a market-price mechanism based on the depreciated value of the Brilliant hydroelectric plant and then-prevailing operating costs will be made to the amounts payable by FortisBC Electric. The Brilliant PPA provided FortisBC Electric with approximately 27% of its energy requirements in 2015.

BC Hydro PPA

FortisBC Electric is a party to the BC Hydro PPA, which provides FortisBC Electric with additional electricity for purposes of supplying its load requirements, up to a maximum demand of 200 MW. Energy bought pursuant to the BC Hydro PPA provided approximately 15% of FortisBC Electric’s energy requirements in 2015. The current BC Hydro PPA was approved by the BCUC in May 2014 and expires in September 2033.

Brilliant Expansion Capacity and Energy Purchase Agreement

In November 2012, FortisBC Electric entered into an agreement to purchase CPC’s unused capacity and energy entitlements from 2013 to 2017. The entitlements are from the Brilliant hydroelectric plant and the Brilliant hydroelectric expansion plant, including the 60,000 MWh from the Brilliant hydroelectric plant that is not included in the Brilliant PPA. The agreement is for a total of 78,500 MWh and provided approximately 2% of FortisBC Electric’s energy requirements in 2015.

Small Power Purchase Contracts

FortisBC Electric has a number of small power purchase contracts with independent power producers, which collectively provided less than 1% of FortisBC Electric’s energy supply requirements in 2015. The majority of these contracts have been accepted by the BCUC.

Spot Market and Contracted Capacity Purchases

During 2014, FortisBC Electric purchased capacity and energy from the market to meet its peak energy requirements and optimize its overall power supply portfolio. To facilitate market transactions going forward, FortisBC Electric entered into the CEPSA with Powerex Corp. which was approved by the BCUC in April 2015. The CEPSA is a master agreement that sets the terms and conditions for future market transactions entered into by FortisBC Electric with Powerex Corp. The CEPSA became effective May 1, 2015 and expires on September 30, 2018, unless extended by a mutual agreement. Spot market and contracted purchases provided approximately 8% of FortisBC Electric’s energy supply requirements in 2015.

WECA

The Corporation entered into the WECA to purchase capacity from the Waneta Expansion. The Waneta Expansion is owned and operated by a limited partnership, the limited partners of which are Fortis, which owns a 51% interest, and a wholly owned subsidiary of each of CPC/CBT. The WECA, which was approved by the BCUC in May 2012, allows FortisBC Electric to purchase capacity over a 40 year period as of April 2, 2015.

Legal Proceedings

The Government of British Columbia filed a claim in the B.C. Supreme Court in June 2012 claiming on its behalf, and on behalf of approximately 17 homeowners, damages suffered as a result of a landslide caused by a dam failure in Oliver, British Columbia in 2010. The Government of British Columbia alleges in its claim that the dam failure was caused by the defendants’, which include FortisBC Electric, use of a road on top of the dam. The Government of British Columbia estimates its damages and the damages of the homeowners, on whose behalf it is claiming, to be approximately $15 million. While FortisBC Electric has notified its insurers, it has been advised by the Government of British Columbia that a response to the claim is not required at this time. The outcome cannot be reasonably determined and estimated at this time and, accordingly, no amount has been accrued in the 2015 Audited Consolidated Financial Statements.

Human Resources

As at December 31, 2015, FortisBC Electric had approximately 507 full-time equivalent employees. Approximately 70% of the employees are represented by IBEW and COPE. The IBEW collective agreement expires January 31, 2018. FortisBC Electric’s two COPE collective agreements expire March 31, 2017 and December 31, 2018.

3.3.3 Eastern Canadian Electric Utilities

Eastern Canadian Electric Utilities are comprised of the operations of Newfoundland Power, Maritime Electric and FortisOntario.

Newfoundland Power is an integrated electric utility and the principal distributor of electricity on the island portion of Newfoundland and Labrador, serving approximately 262,000 customers in approximately 600 communities. Newfoundland Power has installed generating capacity of 139 MW and met a peak demand of 1,359 MW in 2015. Newfoundland Power owns and operates approximately 12,000 kilometres of T&D lines.

The Corporation, through FortisWest, holds all of the common shares of Maritime Electric, an integrated electric utility and the principal distributor of electricity on PEI, serving approximately 78,000 customers, constituting approximately 90% of electricity consumers on PEI. Maritime Electric purchases most of the energy it distributes to its customers from NB Power, a New Brunswick Crown corporation, through various energy purchase agreements. Maritime Electric owns and operates on-Island generating plants

with a combined capacity of 150 MW on PEI and met a peak demand of 264 MW in 2015. Maritime Electric owns and operates approximately 5,800 kilometres of T&D lines.

FortisOntario provides integrated electric utility service to approximately 65,000 customers in Fort Erie, Cornwall, Gananoque, Port Colborne and the District of Algoma in Ontario. FortisOntario’s operations are comprised of Canadian Niagara Power, Cornwall Electric and Algoma Power. FortisOntario also owns a 10% interest in certain regional electric distribution companies serving approximately 40,000 customers. FortisOntario met a combined peak demand of 260 MW in 2015. FortisOntario owns and operates approximately 3,600 kilometres of T&D lines.

Market and Sales

Electricity sales attributable to the Eastern Canadian Electric Utilities were 8,403 GWh in 2015 compared to 8,376 GWh in 2014. Revenue was $1,033 million in 2015 compared to $1,008 million in 2014.

The following table compares the composition of revenue and electricity sales by customer class at Eastern Canadian Electric Utilities in 2015 and 2014.

Eastern Canadian Electric Utilities

Revenue and Electricity Sales by Customer Class

	Revenue		GWh Sales
	(%)		(%)
	2015	2014	2015	2014
Residential	56.6	56.1	56.9	56.4
Commercial and Industrial	40.1	41.1	43.0	43.5
Other (1)	3.3	2.8	0.1	0.1
Total	100.0	100.0	100.0	100.0

(1) Includes revenue from sources other than from the sale of electricity.

Power Supply

Newfoundland Power

Approximately 93% of Newfoundland Power’s energy requirements are purchased from Newfoundland Hydro. The principal terms of the supply arrangements with Newfoundland Hydro are regulated by the NL PUB on a basis similar to that upon which Newfoundland Power’s service to its customers is regulated.

The purchased power rate structure is the basis upon which Newfoundland Hydro charges Newfoundland Power for purchased power and includes charges for both demand and energy purchased. The demand charge is based on applying a rate to the peak-billing demand for the most recent winter season. The energy charge is a two-block charge with a higher second-block charge set to reflect Newfoundland Hydro’s marginal cost of generating electricity.

Newfoundland Hydro has a general rate application before the NL PUB which will establish a new wholesale rate for Newfoundland Power. The outcome of this application, and future changes in supply costs, including costs associated with Nalcor Energy’s Muskrat Falls hydroelectric generation development and associated transmission assets, may affect electricity prices in a manner that affects Newfoundland Power’s sales. The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.

Newfoundland Power experienced losses of electricity supply from Newfoundland Hydro in January 2013 and January 2014, which disabled Newfoundland Power from meeting all of its customers’ requirements. The NL PUB is conducting an inquiry and hearing into these system supply issues and power interruptions. To the extent it is able, Newfoundland Power intends to participate in these reviews in 2016. The NL PUB’s final report on the adequacy and reliability of the Island Interconnected system until interconnection with Muskrat Falls is currently outstanding. A consideration of longer term issues associated with adequacy and reliability on the Island Interconnected system after interconnection with Muskrat Falls is ongoing. The Government of Newfoundland and Labrador has engaged consultants to complete an independent review of the electricity system in Newfoundland and Labrador. The consultant’s report, released on October 30, 2015, indicated that Newfoundland Power’s operations were

substantially in compliance with industry best practice and that the NL PUB’s oversight of the company appears to provide regulatory predictability and certainty.

Newfoundland Power operates 28 small generating facilities, which generate approximately 7% of the electricity sold by the company. Newfoundland Power’s hydroelectric generating plants have a total capacity of 97 MW. The diesel plants and gas turbines have a total capacity of approximately 5 MW and 37 MW, respectively.

Maritime Electric

Maritime Electric purchased 75% of the electricity required to meet its customers’ needs from NB Power in 2015. The balance was met through the purchase of wind energy produced on PEI by facilities owned by the PEI Energy Corporation and from company-owned on-Island generation. Maritime Electric’s on-Island generation facilities are used primarily for peaking, submarine-cable loading issues and emergency purposes.

Maritime Electric has two take-or-pay contracts for the purchase of either energy or capacity: (i) a fixed pricing contract with NB Power expiring February 28, 2019; and (ii) a transmission capacity contract allowing Maritime Electric to reserve 30 MW of capacity to PEI expiring November 2032. As well, Maritime Electric has an Energy Purchase Agreement with NB Power expiring in February 2019.

Maritime Electric has entitlement to approximately 4.55% of the output from NB Power’s Point Lepreau Nuclear Generating Station for the life of the unit and as part of its entitlement is required to pay its share of the capital and operating costs of the unit.

FortisOntario

The power requirements of FortisOntario’s service areas are provided from various sources. Canadian Niagara Power purchases its power requirements for Fort Erie and Port Colborne from IESO. Canadian Niagara Power purchases approximately 80% of energy requirements for Gananoque through monthly energy purchases from Hydro One Networks Inc. and the remaining 20% is purchased, through the Hydroelectric Contract Initiative, from the five hydroelectric generating plants of the EO Generation LP. Algoma Power purchases 100% of its energy from IESO.

Under the Standard Supply Code of the OEB, Canadian Niagara Power and Algoma Power are obliged to provide Standard Service Supply to all its customers who do not choose to contract with an electricity retailer. This energy is provided to customers at either regulated or market prices.

Cornwall Electric purchases substantially all of its power requirements from Hydro-Québec Energy Marketing under two fixed-term contracts. The first contract provides approximately 237 GWh of energy per year and up to 45 MW of capacity at any one time. The second contract provides 100 MW of capacity and energy and provides a minimum of 300 GWh of energy per year. Both contracts expire in December 2019.

Human Resources

Newfoundland Power

As at December 31, 2015, Newfoundland Power had approximately 653 full-time equivalent employees, and approximately 49% of its employees were represented by IBEW under two collective agreements expiring September 30, 2017. One bargaining unit is composed predominately of clerical employees and the other predominately of skilled trade workers.

Maritime Electric

As at December 31, 2015, Maritime Electric had approximately 182 full-time equivalent employees, of whom approximately 70% were represented by IBEW under a collective agreement expiring December 31, 2018.

FortisOntario

As at December 31, 2015, FortisOntario had approximately 198 full-time equivalent employees, of whom approximately 58% were represented by CUPE, in Cornwall; IBEW in the Niagara region and Gananoque; and Power Workers Union, a CUPE affiliate, in the Algoma region. The expiry dates of the collective agreements are April 30, 2016; February 29, 2016 and July 31, 2016; and December 31, 2016, respectively.

3.4 Regulated Electric Utilities - Caribbean

The Regulated Electric Utilities — Caribbean segment includes Caribbean Utilities, Fortis Turks and Caicos, and the Corporation’s 33% equity investment in Belize Electricity.

Caribbean Utilities is an integrated electric utility and the sole provider of electricity on Grand Cayman, Cayman Islands, serving approximately 28,000 customers. The company met a peak demand of 101 MW in 2015. Caribbean Utilities owns and operates more than 700 kilometres of T&D lines, including 24 kilometres of submarine cable. Fortis holds an approximate 60% (December 31, 2014 — 60%) controlling ownership interest in the utility. Caribbean Utilities is a public company traded on the TSX (TSX:CUP.U).

Fortis Turks and Caicos is comprised of two integrated electric utilities serving approximately 14,000 customers on certain islands in Turks and Caicos. The utilities met a combined peak demand of approximately 38 MW in 2015. Fortis Turks and Caicos owns and operates approximately 600 kilometres of T&D lines.

Market and Sales

Electricity sales of Regulated Electric Utilities — Caribbean were 802 GWh in 2015, compared to 771 GWh in 2014. Revenue was $321 million in both 2015 and 2014.

The following table compares the composition of revenue and electricity sales by customer class at the Regulated Electric Utilities — Caribbean for 2015 and 2014.

Regulated Electric Utilities — Caribbean (1)

Revenue and Electricity Sales by Customer Class

	Revenue		GWh Sales
	(%)		(%)
	2015	2014	2015	2014
Residential	42.9	44.0	43.0	42.6
Commercial and Industrial	56.2	54.9	57.0	57.4
Other (2)	0.9	1.1	—	—
Total	100.0	100.0	100.0	100.0

(1)	Excludes Belize Electricity.
(2)	Includes revenue from sources other than from the sale of electricity.

Power Supply

Caribbean Utilities relies upon in-house diesel-powered generation to produce electricity for Grand Cayman. Grand Cayman has neither hydroelectric potential nor inherent thermal resources and it must rely upon diesel fuel imported to Grand Cayman primarily from refineries in the Caribbean and the Gulf of Mexico. Caribbean Utilities has an installed diesel-powered generating capacity of approximately 132 MW.

Caribbean Utilities is party to primary and secondary fuel supply contracts with two different suppliers and is committed to purchasing approximately 60% and 40%, respectively, of Caribbean Utilities’ diesel fuel requirements for the operation of its diesel-powered generating plant. Each contract was renewed for an additional 18-month term in September 2014 and is under negotiation for renewal in March 2016. The approximate combined quantity under the contracts for 2016 is 20 million imperial gallons. These contracts enable Caribbean Utilities to purchase fuel from the suppliers on what it believes to be competitive terms and pricing. The fuel contracts include disaster recovery and business continuity plans in the event of foreseeable disruptions to fuel supplies to reduce the impact on Caribbean Utilities’ operations.

In October 2014 the ERA announced that Caribbean Utilities was the successful bidder for new generation capacity. Caribbean Utilities will develop and operate a new 39.7 MW diesel power plant, including two 18.5 MW diesel-generating units and a 2.7 MW waste heat recovery steam turbine and associated auxiliary equipment. The project cost is estimated at US$85 million and the plant is expected

to be commissioned mid-2016. Subsequently, in November 2014 the ERA issued a new non-exclusive Electricity Generation License to Caribbean Utilities for a term of 25 years, expiring in November 2039.

Fortis Turks and Caicos relies upon in-house diesel-powered generation, with an installed generating capacity of 82 MW, to produce electricity for its customers. In September 2015 the third Wartsila generating unit was placed into commercial production.

Fortis Turks and Caicos has a renewable contract with a major supplier for all of its diesel fuel requirements associated with the generation of electricity. The approximate fuel requirements under this contract are 12 million imperial gallons per annum.

Human Resources

As at December 31, 2015, Regulated Electric Utilities - Caribbean employed approximately 356 full-time equivalent employees. The 201 employees at Caribbean Utilities and 155 employees at Fortis Turks and Caicos are non-unionized.

3.5 Non-Regulated - Fortis Generation

The following table summarizes the Corporation’s non-regulated generation assets by location.

Non-Regulated - Fortis Generation

Assets

Location	Plants	Fuel	Capacity (MW)
Belize	3	hydro	51
British Columbia	2	hydro	351
Ontario	1	thermal	5
Total	6		407

The hydroelectric generation operations in Belize are conducted through the Corporation’s indirectly wholly owned subsidiary BECOL under a franchise agreement with the GOB. The non-regulated generation operations of BECOL consist of the 25-MW Mollejon, 7-MW Chalillo and 19-MW Vaca hydroelectric generating facilities. All of the output of these facilities is sold to Belize Electricity under 50-year PPAs expiring in 2055 and 2060.

The non-regulated generation operations of FortisBC Inc. include the 16-MW run-of-river Walden hydroelectric generating facility near Lillooet, British Columbia. All of the output of the facility is sold to BC Hydro under a long-term contract that cannot be terminated prior to 2024. As at December 31, 2015, the Walden hydroelectric generating facility has been classified as held for sale.

Non-regulated generation operations in British Columbia also include the Corporation’s 51% controlling ownership interest in the Waneta Partnership, with CPC/CBT holding the remaining 49% interest. Construction of the $900 million, 335-MW Waneta Expansion was completed on April 1, 2015, ahead of schedule and on budget. Construction of the Waneta Expansion, which is adjacent to the Waneta Dam and powerhouse facilities on the Pend d’Oreille River, south of Trail, British Columbia, commenced late in 2010. The expansion added a second powerhouse, immediately downstream of the Waneta Dam on the Pend d’Oreille River, that shares the existing hydraulic head and generates clean, renewable, cost-effective power from water that would otherwise be spilled. The project also included construction of a 10-kilometre, 230-kilovolt transmission line. On April 2, 2015, the Waneta Expansion began generating power, all of which is being sold to BC Hydro and FortisBC Electric under 40-year contracts. FortisBC Electric operates and maintains the non-regulated investment.

Non-regulated generation operations of FortisOntario are comprised of the operation of a 5-MW gas-powered cogeneration plant in Cornwall. All thermal energy output of this plant is sold to external third parties, while the electricity output is sold to Cornwall Electric.

In June 2015 and July 2015 the Corporation sold its non-regulated hydro generation assets in Upstate New York and Ontario, respectively.

Market and Sales

Energy sales from non-regulated generation assets were 844 GWh in 2015 compared to 407 GWh in 2014. Revenue was $107 million in 2015 compared to $38 million in 2014. Energy sales and revenue in 2015 were impacted by the completion of Waneta Expansion and the sale of the non-regulated hydro generation assets in Upstate New York and Ontario.

The following table compares the composition of Fortis Generation’s 2015 and 2014 revenue and energy sales by location.

Non-Regulated - Fortis Generation

Revenue and Energy Sales by Location

	Revenue		GWh Sales
	(%)		(%)
	2015	2014	2015	2014
Belize	28.1	71.0	26.8	60.3
Ontario	3.6	13.2	4.1	13.2
British Columbia	67.4	5.5	65.6	8.3
Upstate New York	0.9	10.3	3.5	18.2
Total	100.0	100.0	100.0	100.0

Human Resources

As at December 31, 2015, BECOL employed approximately 34 full-time employees, none of whom participate in a collective agreement. Non-regulated generation operations in Ontario and British Columbia are staffed by employees of FortisOntario and FortisBC Inc., respectively.

3.6 Non-Regulated — Non-Utility

The Non-Utility segment previously included Fortis Properties and Griffith Energy Services, Inc. The Corporation completed the sale of the commercial real estate assets of Fortis Properties in June 2015 and the hotel assets of Fortis Properties in October 2015. Griffith Energy Services, Inc. was sold in March 2014.

Fortis Properties’ revenue was $171 million in 2015 compared to $249 million in 2014.

4.0 REGULATION

The Corporation’s utilities primarily operate under a cost of service regulation and, in certain circumstances, performance-based rate-setting mechanisms, and are regulated by the regulatory body in their respective operating jurisdiction. With regulated utilities in nine different jurisdictions, Fortis has significant regulatory expertise.

For information with respect to the nature of regulation and material regulatory decisions and applications associated with each of the Corporation’s electric and gas utilities, refer to the “Regulatory Highlights” section of the Corporation’s MD&A and to Note 8 of the Corporation’s 2015 Audited Consolidated Financial Statements.

5.0 ENVIRONMENTAL MATTERS

The Corporation and its subsidiaries are subject to various federal, provincial, state and municipal laws, regulations and guidelines relating to the protection of the environment including, but not limited to, wildlife, water and land protection, emissions and the proper storage, transportation, recycling and disposal of hazardous and non-hazardous substances. In addition, federal, provincial and state governments have environmental assessment legislation, which is designed to foster better land-use planning and environmental protection through the identification and mitigation of potential environmental impacts of projects or undertakings prior to and after their commencement. The constant evolution of environmental legislation results in ongoing risks to the Corporation, as its subsidiaries must adjust their business operations to comply.

Several key Canadian federal environmental laws and regulations affecting the operations of the Corporation’s Canadian subsidiaries include, but are not limited to, the: (i) Canadian Environmental Assessment Act, 2012; (ii) Canadian Environmental Protection Act, 1999 ; (iii) Transportation of Dangerous Goods Act and Regulations ; (iv) Hazardous Products Act ; (v) Canada Wildlife Act ; (vi) Navigation Protection Act ; (vii) Canada National Parks Act ; (viii) Fisheries Act; (ix) Canada Water Act; (x) National Fire Code of Canada; (xi) Pest Control Products Act and Regulations; (xii) PCB Regulations; (xiii) Species at Risk Act; (xiv) Ozone Depleting Substances Regulations; (xv) Indian Act and the duty to consult and accommodate ; (xvi) International River Improvements Act; and (xvii) Migratory Birds Convention Act, 1994.

Several key U.S. federal environmental laws and regulations affecting the operations of UNS Energy and Central Hudson include, but are not limited to, the: (i) Clean Water Act ; (ii) Safe Drinking Water Act ; (iii) Clean Air Act ; (iv) Endangered Species Act ; (v) Resource Conservation & Recovery Act ; (vi) Toxic Substances Control Act ; (vii) Comprehensive Environmental Response, Compensation, and Liability Act ; (viii) National Environmental Policy Act ; (ix) Emergency Planning & Community Right to Know Act ; and (x) Pollution Prevention Act of 1990 .

Environmental risks affecting the Corporation’s utility operations include, but are not limited to: (i) hazards associated with the transportation, storage and handling of large volumes of fuel for fuel-powered electricity generating plants, including leaching of the fuel and other operational by-products into the soil, groundwater, nearby watershed areas and open waters; (ii) risk of spills or leaks of petroleum-based products, including PCB-contaminated oil, which are used in the cooling and lubrication of transformers, capacitors and other electrical equipment; (iii) risk related to natural gas discharges; (iv) risk of spills or releases into the environment arising from the improper transportation, storage, handling and disposal of other hazardous substances; (v) GHG and other fuel gas emissions, including natural gas and propane leaks and spills and emissions from the combustion of fuel required to generate electricity; (vi) risk of fire; (vii) risk of disruption to vegetation; (viii) risk of contamination of soil and water near chemically treated poles; (ix) risk of disruption to fish, animals and their habitat as a result of the creation of artificial water flows and levels associated with hydroelectric water storage and utilization; and (x) risk of responsibility for remediation of contaminated properties, whether or not such contamination resulted from the Corporation’s utility operations.

Air Emissions

In addition to changing air emission standards, the management of GHG emissions is a specific environmental concern of the Corporation’s Regulated Utilities in Canada and the United States, primarily due to the uncertainties relating to new and emerging federal, provincial and state GHG laws, regulations and guidelines in Canada and the United States. Governmental policy direction is unfolding; however, it remains to be determined whether a GHG air emissions cap or limit may be imposed and to what extent it will impact the Corporation’s utilities. Canada has committed to reduce GHG emissions to 30% below 2005 levels by 2030, and the United States has committed to reduce GHG emissions to 32% below 2005 levels by 2030. Both countries are in the process of imposing sectoral requirements, yet it is not certain how the Corporation’s subsidiaries will be impacted.

Regulated Utilities — Canada

In British Columbia, the Carbon Tax Act, Clean Energy Act, Greenhouse Gas Industrial Reporting and Control Act and Greenhouse Gas Reduction Targets Act and anticipated cap-and-trade regulations specifically affect, or may potentially affect, the operations of FortisBC Energy and FortisBC Electric. To help mitigate uncertainty, FortisBC Energy participates in sector and industry groups in order to monitor the development of emerging regulation and policy.

The Government of British Columbia’s Energy Plan and GHG reduction targets present risks and opportunities to FortisBC Energy and, to a lesser degree, FortisBC Electric. These government initiatives continue to place pressure on natural gas consumption and its contribution to GHG emissions. The energy and emissions policy in British Columbia also presents opportunities for FortisBC Energy by creating support for incentives to expand the use of renewable energy (such as biogas), transportation related incentives (LNG/compressed natural gas refuelling) and to expand the Energy Efficiency and Conservation program. In addition, the Renewable and Low Carbon Fuel Requirements Regulation under the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirement) Act provides FortisBC Energy the opportunity to sell low carbon fuel credits generated from customer offerings. The Carbon Tax Act improves the position of natural gas relative to other fossil energy, as the tax is based on the amount of carbon dioxide equivalent emitted per unit energy. Natural gas, therefore, has a lower tax rate than oil or coal products.

In 2011 FortisBC Energy began reporting its GHG emissions pursuant to the reporting regulation under the Greenhouse Gas Reduction (Cap and Trade) Act. The Greenhouse Gas Reduction (Cap and Trade) Act was repealed effective January 1, 2016 and was replaced by the Greenhouse Gas Industrial Reporting and Control Act . FortisBC Energy will continue to report its GHG emissions pursuant to the Greenhouse Gas Emission Reporting Regulation under the Greenhouse Gas Industrial Reporting and Control Act . In addition, FortisBC Energy continues to report its GHG emissions under Environment Canada’s GHG Program. FortisBC Energy has developed capabilities that will support the management of compliance requirements in an upcoming GHG emissions’ trading environment, as government policy in that area evolves.

British Columbia continues to be a participant in the Western Climate Initiative, which expects to implement a cap-and-trade program to reduce GHG emissions. FortisBC Energy is expected to be covered under the program. If implemented, the cap-and-trade program is expected to have a declining cap on emissions that all applicable facilities must meet, either by reducing emissions internally or by purchasing allowances from other facilities for release of GHG emissions over the capped amounts.

The impact of GHG emissions is lower at the Corporation’s Canadian regulated electric utilities because their primary business is the distribution of electricity. With respect to FortisAlberta, its operations involve only the distribution of electricity. Additionally, all in-house generating capacity at FortisBC Electric, about 70% at Newfoundland Power, and most of the Corporation’s non-regulated generating capacity is hydroelectric, a clean energy source. The 335-MW Waneta Expansion is a clean renewable hydroelectric energy source and came into service in April 2015. Only a small portion of in-house generation at Canadian regulated electric utilities uses diesel fuel. The Corporation’s Canadian regulated electric utilities are indirectly impacted, however, by GHG emissions through the purchase of power generated by suppliers using combustible fuel. Such power suppliers are responsible for compliance with carbon dioxide emissions standards and the cost of compliance with such standards is generally flowed through to end-use consumers.

Regulated Utilities — United States

UNS Energy and Central Hudson are subject to regulation by United States federal, state and local authorities related to the environmental effects of their operations. The impact of GHG emissions is lower at Central Hudson because it owns minimal generating capacity and relies on purchased capacity and energy from third-party providers.

UNS Energy owns significant generating assets. In August 2015, the EPA issued carbon emission regulations for existing power plants called the CPP. The CPP targets carbon emissions reductions for existing facilities by 2030 and establishes interim goals that begin in 2022. States are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 2016. TEP will continue to work with other Arizona and New Mexico utilities, as well as the appropriate regulatory agencies, to develop the state compliance plans. TEP is unable to determine how the final CPP rule will impact its facilities until state plans are developed and approved by the EPA.

The EPA incorporated the compliance obligations for existing power plants located on Indian nations, like the Navajo Nation, in the existing sources rule and a newly proposed Federal Plan using a compliance method similar to that of the states. The proposed Federal Plan would be implemented for any Indian nation and/or state that does not submit a plan or that does not have an EPA or approved state plan. TEP will work with the participants at Four Corners and Navajo to determine how this revision may impact compliance and operations at both facilities. TEP has submitted comments on the proposed Federal Plan impacting its facilities, including Four Corners and Navajo stating, among other things, that the EPA should not regulate the greenhouse gases on the Navajo Nation because it is not appropriate

or necessary. The reduction of greenhouse gases achieved due to the shutdowns resulting from Regional Haze compliance will be equivalent to those required under the CPP rule. TEP cannot predict the ultimate outcome of these matters.

The Company’s compliance requirements under the CPP are subject to the outcomes of potential proceedings and litigation challenging the rule. In February 2016 the United States Supreme Court granted a stay effectively ordering the EPA to stop CPP implementation efforts until legal challenges to the regulation have been resolved. The ruling introduces uncertainty as to whether and when the states and utilities will have to comply with the CPP. UNS Energy will continue to work with the Arizona Department of Environmental Quality to determine what, if any, actions need to be taken in light of the ruling. UNS Energy anticipates that the ruling will likely delay the requirement to submit a plan or request an extension under the CPP by September 2016.

In 2012 the EPA issued final rules for the control of mercury emissions and other hazardous air pollutants from power plants. TEP’s Navajo and Springerville plants must be compliant with these rules by April 2016. TEP is proceeding with its compliance activity at each of its facilities.

In June 2015, the U.S. Supreme Court reversed and remanded the D.C. Circuit Court of Appeals decision in Michigan v. EPA to uphold the MATS rules requiring power plants to control mercury and other emissions. The Supreme Court held that the EPA did not adequately consider “costs” before determining that the rules were “appropriate and necessary.” At this time, the rules remain in force and effect. TEP will proceed with its planned MATS compliance activity at each of its facilities, which ensures compliance with both the federal and state rule, as applicable.

The EPA’s Regional Haze Rules impose emission controls on facilities emitting air pollutants that reduce visibility in national parks and wilderness areas. Complying with the EPA’s findings, and with other future environmental rules, may make it economically impractical to continue operating all or a portion of TEP’s coal-fired generating facilities or for individual joint owners to continue to participate in the units they own at these power plants.

In April 2015, the EPA issued a final rule requiring all coal ash and other coal combustion residuals to be treated as a solid waste under Subtitle D of the Resource Conservation and Recovery Act for disposal in landfills and/or surface impoundments while allowing for the continued recycling of coal ash. TEP does not own or operate any impoundments. Under the rule, the Springerville ash landfill is classified as an existing landfill and is not subject to the lateral expansion requirements. However, TEP will incur additional costs for site preparation and monitoring at Springerville to be fully compliant with the rule. TEP’s share of the cost at Springerville is estimated to be US$2 million, the majority of which is expected to be capital expenditures. TEP currently estimates its share of the costs to be US$5 million at Four Corners, US$3 million at Navajo, and less than US$1 million at San Juan, the majority of which are expected to be capital expenditures.

Regulated Utilities — Caribbean

While there are environmental laws, regulations and guidelines affecting the Corporation’s operations in Grand Cayman and Turks and Caicos Islands, they are less extensive than the laws, regulations and guidelines in Canada and the United States. The United Kingdom’s ratification of the United Nations Framework Convention on Climate Change and its Kyoto Protocol were extended to the Cayman Islands in 2007. This framework aims to reduce GHG emissions produced by certain industries. Under the Kyoto Protocol, the United Kingdom is legally bound to reduce its GHG emissions. As an overseas territory, the Cayman Islands are not required to set a target for emissions reduction but are required to give available national statistics on an annual basis to the United Kingdom which will be added to its inventory and reported to the United Nations Framework Convention on Climate Change Secretariat. Caribbean Utilities continues to supply the Cayman Islands Government with data for the national GHG inventory.

All of the energy requirements of Caribbean Utilities and Fortis Turks and Caicos are sourced from in house diesel-powered generation. The more recently installed generators at Caribbean Utilities and Fortis Turks and Caicos have also been designed to provide an increased output per gallon consumed over the older generators, which generate electricity in a more efficient and environmentally friendly manner. Further, exhaust stacks have been designed and installed so as to maximize sound attenuation and optimize exhaust plume dispersion, thereby improving local air quality in accordance with what the utilities believe to be the best industry practice. The use of diesel oil versus heavy fuel oil also results in significantly lower levels of exhaust emissions.

Enterprise Risk Management

The key focus of the utilities is to provide reliable cost-effective service with full regard for the safety of employees and the public while operating in an environmentally responsible manner. A focus on safety and the environment is, therefore, an integral and continuing component of the Corporation’s operating activities.

Each of the Corporation’s utilities has either an EMS or comprehensive environmental protocols. Through an EMS and environmental protocols, documented procedures are in place to control activities that can affect the environment. Common elements of the utilities’ EMS and environmental protocols include: (i) regular inspections of fuel and oil-filled equipment in order to identify and correct for potential spills, and spill response systems to ensure that all spills are addressed, and the associated cleanup is conducted in a prompt and environmentally responsible manner; (ii) GHG emissions management; (iii) procedures for handling, transporting, storing and disposing of hazardous substances, including chemically treated poles, asbestos, lead and mercury, where applicable; (iv) programs to mitigate fire-related incidents; (v) programs for the management and/or elimination of PCBs, where applicable; (vi) vegetation management programs; (vii) training and communicating of environmental policies to employees to ensure work is conducted in an environmentally responsible manner; (viii) review of work practices that affect the environment and implementation of environmental protection measures; (ix) waste management programs; (x) environmental emergency response procedures; (xi) environmental site assessments; and (xii) environmental incident reporting procedures. Additionally, Newfoundland Power’s EMS addresses water control and dam structure, as well as hydroelectric generating facility operations and the impact of such on fish and the surrounding habitat. FortisBC Electric’s EMS addresses the environmental impacts associated with water flows including impacts on fisheries and critical habitats.

FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric and FortisOntario have developed their respective EMSs consistent with the guidelines of ISO 14001, an internationally recognized standard for EMSs. Caribbean Utilities operates an EMS associated with its generation operations, which is ISO 14001 certified, and uses an EMS for its T&D operations, which is consistent with ISO 14001 guidelines. Fortis Turks and Caicos’ EMS is also expected to be ISO 14001 certified. External and/or internal audits of the EMSs and protocols are performed on a periodic basis. Based on audits last completed, the EMSs continue to be effective, properly implemented and maintained, and materially consistent with ISO 14001 guidelines.

Environmental policies form the cornerstone of the EMSs and UNS Energy and Central Hudson’s environmental protocols, and outline the following commitments by each utility and its employees with respect to conducting business in a safe and environmentally responsible manner: (i) meet and comply with all applicable laws, legislation, policies, regulations and accepted standards of environmental protection; (ii) manage activities consistent with industry practice and in support of the environmental policies of all levels of government; (iii) identify and manage risks to prevent or reduce adverse consequences from operations, including preventing pollution and conserving natural resources; (iv) regularly conduct environmental monitoring and audits of the EMSs and environmental protocols, and strive for continual improvement in environmental performance; (v) regularly set and review environmental objectives, targets and programs; (vi) communicate openly with stakeholders including making available the utility’s environmental policy and knowledge of environmental issues to customers, employees, contractors and the general public; (vii) support and participate in community based projects that focus on the environment; (viii) provide training for employees and those working on behalf of the utility to enable them to fulfill their duties in an environmentally responsible manner; and (ix) work with industry associations, government and other stakeholders to establish standards for the environment appropriate to the utility’s business.

Non-Regulated Generation

Environmental risks associated with the Corporation’s non-regulated generation operations are addressed in a similar manner as the Corporation’s regulated electric utilities that operate in the same jurisdiction as the non-regulated generation operations.

Remediation and Asset Retirement Obligations

Central Hudson is exposed to environmental contingencies associated with MGPs that it and its predecessors owned and operated to serve their customers’ heating and lighting needs from the mid to late 1800s to the 1950s. The New York State Department of Environmental Conservation regulates the timing and extent of remediation of MGP sites in New York State. As at December 31, 2015, Central Hudson has recognized approximately US$92 million in associated MGP environmental remediation liabilities. As approved by the New York State Public Service Commission, the company is currently permitted to recover MGP site investigation and remediation costs in customer rates. For additional information, refer to the “3.1.2 Central Hudson” section of this 2015 Annual Information Form.

The Corporation has asset retirement obligations as disclosed in the notes to its 2015 Audited Consolidated Financial Statements. As at December 31, 2015, a liability of $49 million in asset retirement obligations at UNS Energy, Central Hudson and FortisBC Electric has been recognized. With the exception of those asset retirement obligations recognized at UNS Energy, Central Hudson and FortisBC Electric, liabilities with respect to asset retirement obligations associated with the removal of PCB-contaminated oil from electrical equipment at Central Hudson, FortisAlberta, Newfoundland Power, FortisOntario and Maritime Electric have not been recorded in the Corporation’s 2015 Audited Consolidated Financial Statements, as they were determined to be immaterial to the Corporation’s consolidated results of operations, cash flows or financial position. The utilities have ongoing programs to identify and replace transformers which are at risk of spillage of oil, and PCBs continue to be removed from service and safely disposed of in compliance with applicable laws and regulations.

Costs and Oversight

Costs associated with environmental protection initiatives (including the development, implementation and maintenance of EMSs and protocols), compliance with environmental laws, regulations and guidelines, and environmental damage did not have a material impact on the Corporation’s consolidated results of operations, cash flows or financial position during 2015 and, based on current laws, facts and circumstances, are not expected to have a material effect in 2016. Many of the above costs, however, are embedded in the utilities’ operating, maintenance and capital programs and are, therefore, not readily identifiable. At the Corporation’s regulated utilities, prudently incurred operating and capital costs associated with environmental protection initiatives, compliance with environmental laws, regulations and guidelines, and environmental damage are eligible for recovery in customer rates. Fortis believes that the Corporation and its subsidiaries are materially compliant with the environmental laws and regulations applicable to them in the various jurisdictions in which they operate.

TEP has in place an Environmental Compliance Adjustor, as approved by the ACC, which allows for the recovery of certain capital carrying costs to comply with government-mandated environmental regulations between rate cases.

Oversight of environmental matters is performed at the subsidiary level with regular reporting of environmental matters to the respective subsidiary’s Board of Directors.

Sustainability and Efficiency Initiatives

The Fortis utilities have various initiatives focused on clean energy to reduce GHG emissions, including hydroelectric, solar power, wind energy, natural gas and renewable natural gas. Each utility also has implemented energy efficiency programs directed at customers, which help in reducing air emissions and water usage. Further information on how Fortis is managing its impact on the environment will be contained in the Corporation’s Environmental Report to be dated on or about March 31, 2016 and published on the Corporation’s website at www.fortisinc.com.

Each of the Corporation’s Canadian Regulated Electric Utilities that is a member of the CEA is an active participant in the CEA’s Sustainable Electricity Program, which was launched in 2009. Participants in the program commit to continuous improvement of their environmental management and performance including reporting annually on environmental and other performance indicators.

For further information on the Corporation’s environmental risk factors, refer to the “Business Risk Management - Environmental Risks” section of the Corporation’s MD&A.

6.0 RISK FACTORS

For information with respect to the Corporation’s business risks, refer to the “Business Risk Management” section of the Corporation’s MD&A.

7.0 GENERAL DESCRIPTION OF SHARE CAPITAL STRUCTURE

The authorized share capital of the Corporation consists of the following:

(a) an unlimited number of Common Shares without nominal or par value;

(b) an unlimited number of First Preference Shares without nominal or par value; and

As at February 17, 2016, the following Common Shares and First Preference Shares were issued and outstanding.

	Issued and
Share Capital	Outstanding	Votes per Share (1)
Common Shares	281,854,344	One
First Preference Shares, Series E	7,993,500	None
First Preference Shares, Series F	5,000,000	None
First Preference Shares, Series G	9,200,000	None
First Preference Shares, Series H (2)	7,024,846	None
First Preference Shares, Series I (2)	2,975,154	None
First Preference Shares, Series J	8,000,000	None
First Preference Shares, Series K	10,000,000	None
First Preference Shares, Series M	24,000,000	None

(1)	The First Preference Shares do not have voting rights unless and until Fortis fails to pay eight quarterly dividends, whether or not consecutive, and whether or not such dividends have been declared.
(2)	On June 1, 2015, 2,975,154 of the 10,000,000 First Preference Shares, Series H were converted on a one-for-one basis into First Preference Shares, Series I. As a result of the conversion, Fortis has issued and outstanding 7,024,846 First Preference Shares, Series H and 2,975,154 First Preference Shares, Series I.

Dividend Policy

Fortis has targeted annual average dividend growth of 6% through 2020. This dividend guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at the Corporation’s utilities, the successful execution of the five-year capital expenditure plan, and management’s continued confidence in the strength of the Corporation’s diversified portfolio of assets and record of operational excellence. The pending acquisition of ITC further supports this dividend guidance. The following table summarizes the cash dividends declared per share for each of the Corporation’s class of shares for the past three years.

	Dividends Declared
	(per share)
Share Capital	2015		2014		2013
Common Shares	$	1.43	$	1.30	$	1.25
First Preference Shares, Series C (1)	—		—		$	0.4862
First Preference Shares, Series E	$	1.2250	$	1.2250	$	1.2250
First Preference Shares, Series F	$	1.2250	$	1.2250	$	1.2250
First Preference Shares, Series G (2)	$	0.9708	$	0.9708	$	1.1416
First Preference Shares, Series H (3)	$	0.7344	$	1.0625	$	1.0625
First Preference Shares, Series I (3)	$	0.3637	—		—
First Preference Shares, Series J	$	1.1875	$	1.1875	$	1.1875
First Preference Shares, Series K (4)	$	1.0000	$	1.0000	$	0.6233
First Preference Shares, Series M (5)	$	1.0250	$	0.4613	—

(1)	In July 2013 the Corporation redeemed all of the issued and outstanding First Preference Shares, Series C.
(2)	The annual fixed dividend per share for the First Preference Shares, Series G was reset from $1.3125 to $0.9708 for the five-year period from and including September 1, 2013 to but excluding September 1, 2018.
(3)	The annual fixed dividend per share for the First Preference Shares, Series H was reset from $1.0625 to $0.6250 for the five-year period from and including June 1, 2015 to but excluding June 1, 2020. The First Preference Shares, Series I are entitled to receive floating rate cumulative dividends, which rate will be reset every quarter based on the then current three-month Government of Canada Treasury Bill rate plus 1.45%.
(4)	The Fixed Rate Reset First Preference Shares, Series K were issued in July 2013 at $25.00 per share and are entitled to receive cumulative dividends in the amount of $1.0000 per share per annum for the first six years.
(5)	The Fixed Rate Reset First Preference Shares, Series M were issued in September 2014 at $25.00 per share and are entitled to receive cumulative dividends in the amount of $1.0250 per share per annum for the first five years.

For purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends paid on Common and Preferred Shares after December 31, 2005 by Fortis to Canadian residents are designated as “eligible dividends”. Unless stated otherwise, all dividends paid by Fortis hereafter are designated as “eligible dividends” for the purposes of such rules.

In September 2015 Fortis increased its dividend per common share over 10% to $0.375 per share, or $1.50 on an annualized basis. In December 2015 the Board declared a fourth quarter 2015 dividend on the Common Shares and the First Preference Shares, Series E, F, G, H, I, J, K and M in accordance with the applicable annual prescribed rate to be paid on March 1, 2016 to holders of record as of February 17, 2016.

Common Shares

Dividends on Common Shares are declared at the discretion of the Board. Holders of Common Shares are entitled to dividends on a pro rata basis if, as, and when declared by the Board. Subject to the rights of the holders of the First Preference Shares and Second Preference Shares and any other class of shares of the Corporation entitled to receive dividends in priority to or ratably with the holders of the Common Shares, the Board may declare dividends on the Common Shares to the exclusion of any other class of shares of the Corporation.

On the liquidation, dissolution or winding-up of Fortis, holders of Common Shares are entitled to participate ratably in any distribution of assets of Fortis, subject to the rights of holders of First Preference Shares and Second Preference Shares and any other class of shares of the Corporation entitled to receive the assets of the Corporation on such a distribution in priority to or ratably with the holders of the Common Shares.

Holders of the Common Shares are entitled to receive notice of and to attend all annual and special meetings of the shareholders of Fortis, other than separate meetings of holders of any other class or series of shares, and are entitled to one vote in respect of each Common Share held at such meetings.

First Preference Shares, Series E

Holders of the 7,993,500 First Preference Shares, Series E are entitled to receive fixed cumulative preferential cash dividends at a rate of $1.2250 per share per annum. The Corporation may, at its option, redeem all, or from time to time any part of, the outstanding First Preference Shares, Series E by the payment in cash of a sum per redeemed share equal to $25.25 if redeemed during the 12 months commencing June 1, 2015; and $25.00 if redeemed on or after June 1, 2016 plus, in each case, all accrued and unpaid dividends up to but excluding the date fixed for redemption. The Corporation may, at its option, convert all, or from time to time any part of the outstanding First Preference Shares, Series E into fully paid and freely tradeable Common Shares of the Corporation. The number of Common Shares into which each Preference Share may be so converted will be determined by dividing the then-applicable redemption price per First Preference Share, Series E, together with all accrued and unpaid dividends up to but excluding the date fixed for conversion, by the greater of $1.00 and 95% of the then-current market price of the Common Shares at such time. On or after September 1, 2016, each First Preference Share, Series E will be convertible at the option of the holder on the first business day of September, December, March and June of each year, into fully paid and freely tradeable Common Shares determined by dividing $25.00, together with all accrued and unpaid dividends up to but excluding the date fixed for conversion, by the greater of $1.00 and 95% of the then-current market price of the Common Shares. If a holder of First Preference Shares, Series E elects to convert any of such shares into Common Shares, the Corporation can redeem such First Preference Shares, Series E for cash or arrange for the sale of those shares to other purchasers.

First Preference Shares, Series F

Holders of the 5,000,000 First Preference Shares, Series F are entitled to receive fixed cumulative preferential cash dividends at a rate of $1.2250 per share per annum. The Corporation may, at its option, redeem for cash the First Preference Shares, Series F, in whole at any time or in part from time to time at $25.00 per share if redeemed on or after December 1, 2015 plus all accrued and unpaid dividends up to but excluding the date fixed for redemption.

First Preference Shares, Series G

Holders of the 9,200,000 First Preference Shares, Series G were entitled to receive fixed cumulative preferential cash dividends at a rate of $1.3125 per share per annum for each year up to and including August 31, 2013. The annual fixed dividend rate per share for the First Preference Shares, Series G was reset to $0.9708 per share per annum for the five-year period from and including September 1, 2013 to but excluding September 1, 2018. For each five-year period after that date, the holders of First Preference Shares, Series G are entitled to receive reset fixed cumulative preferential cash dividends. The reset annual dividends per share will be determined by multiplying $25.00 per share by the annual fixed dividend rate, which is the sum of the five-year Government of Canada bond yield on the applicable reset date plus 2.13%. On September 1, 2018, and on September 1 every five years thereafter, the Corporation has the option to redeem for cash the outstanding First Preference Shares, Series G, in whole at any time, or in part from time to time, at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption.

First Preference Shares, Series H

Holders of the 7,024,846 First Preference Shares, Series H are entitled to receive fixed cumulative preferential cash dividends at a rate of $0.6250 per share per annum for each year up to but excluding June 1, 2020. For each five-year period after that date, the holders of First Preference Shares, Series H are entitled to receive reset fixed cumulative preferential cash dividends. The reset annual dividends per share will be determined by multiplying $25.00 per share by the annual fixed dividend rate, which is the sum of the five-year Government of Canada bond yield on the applicable reset date plus 1.45%.

On each Series H Conversion Date, being June 1, 2015, and June 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series H, at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each Series H Conversion Date, the holders of First Preference Shares, Series H, have the option to convert any or all of their First Preference Shares, Series H into an equal number of cumulative redeemable floating rate First Preference Shares, Series I.

On any First Preference Shares, Series H Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series H outstanding, such remaining First Preference Shares, Series H will automatically be converted into an equal number of First Preference Shares, Series I.

First Preference Shares, Series I

Holders of the 2,975,154 First Preference Shares, Series I are entitled to receive floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of the Corporation, in the amount per share determined by multiplying the applicable floating quarterly dividend rate by $25.00, for the five-year period beginning after June 1, 2015. The floating quarterly dividend rate will be reset every quarter based on the then current three-month Government of Canada Treasury Bill rate plus 1.45%.

On each First Preference Shares, Series I Conversion Date, being June 1, 2020, and June 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series I at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On any date after June 1, 2015, that is not a First Preference Shares, Series I Conversion Date, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series I at a price of $25.50 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each First Preference Shares, Series I Conversion Date, the holders of First Preference Shares, Series I have the option to convert any or all of their First Preference Shares, Series I into an equal number of First Preference Shares, Series H.

On any First Preference Shares, Series I Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series I outstanding, such remaining First Preference Shares, Series I will automatically be converted into an equal number of First Preference Shares, Series H. However, if such automatic conversions would result in less than 1,000,000 First Preference Shares, Series I or less than 1,000,000 First Preference Shares, Series H outstanding then no automatic conversion would take place.

First Preference Shares, Series J

Holders of the 8,000,000 First Preference Shares, Series J are entitled to receive fixed cumulative preferential cash dividends at a rate of $1.1875 per share per annum. On or after December 1, 2017, the Corporation may, at its option, redeem for cash the First Preference Shares, Series J, in whole at any time or in part from time to time, at $26.00 per share if redeemed before December 1, 2018; at $25.75 per share if redeemed on or after December 1, 2018 but before December 1, 2019; at $25.50 per share if redeemed on or after December 1, 2019 but before December 1, 2020; at $25.25 per share if redeemed on or after December 1, 2020 but before December 1, 2021; and at $25.00 per share if redeemed on or after December 1, 2021 plus, in each case, all accrued and unpaid dividends up to but excluding the date fixed for redemption.

First Preference Shares, Series K

Holders of the 10,000,000 First Preference Shares, Series K are entitled to receive fixed cumulative preferential cash dividends at a rate of $1.0000 per share per annum for each year up to but excluding March 1, 2019. For each five-year period after that date, the holders of First Preference Shares, Series K are entitled to receive reset fixed cumulative preferential cash dividends. The reset annual dividends per share will be determined by multiplying $25.00 per share by the annual fixed dividend rate, which is the sum of the five-year Government of Canada bond yield on the applicable reset date plus 2.05%.

On each Series K Conversion Date, being March 1, 2019, and March 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series K, at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each Series K Conversion Date, the holders of First Preference Shares, Series K have the option to convert any or all of their First Preference Shares, Series K into an equal number of cumulative redeemable floating rate First Preference Shares, Series L.

Holders of the First Preference Shares, Series L will be entitled to receive floating rate cumulative preferential cash dividends in the amount per share determined by multiplying the applicable floating quarterly dividend rate by $25.00. The floating quarterly dividend rate will be equal to the sum of the average yield expressed as a percentage per annum on three-month Government of Canada treasury bills plus 2.05%.

On each First Preference Shares, Series L Conversion Date, being March 1, 2024, and March 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series L at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On any date after March 1, 2019, that is not a First Preference Shares, Series L Conversion Date, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series L at a price of $25.50 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each First Preference Shares, Series L Conversion Date, the holders of First Preference Shares, Series L have the option to convert any or all of their First Preference Shares, Series L into an equal number of First Preference Shares, Series K.

On any First Preference Shares, Series K Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series K outstanding, such remaining First Preference Shares, Series K will automatically be converted into an equal number of First Preference Shares, Series L. On any First Preference Shares, Series L Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series L outstanding, such remaining First Preference Shares, Series L will automatically be converted into an equal number of First Preference Shares, Series K. However, if such automatic conversions would result in less than 1,000,000 First Preference Shares, Series L or less than 1,000,000 First Preference Shares, Series K outstanding then no automatic conversion would take place.

First Preference Shares, Series M

Holders of the 24,000,000 First Preference Shares, Series M are entitled to receive fixed cumulative preferential cash dividends at a rate of $1.0250 per share per annum for each year up to but excluding December 1, 2019. For each five-year period after that date, the holders of First Preference Shares, Series M are entitled to receive reset fixed cumulative preferential cash dividends. The reset annual dividends per share will be determined by multiplying $25.00 per share by the annual fixed dividend rate, which is the sum of the five-year Government of Canada bond yield on the applicable reset date plus 2.48%.

On each Series M Conversion Date, being December 1, 2019, and December 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series M, at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each Series M Conversion Date, the holders of First Preference Shares, Series M have the option to convert any or all of their First Preference Shares, Series M into an equal number of cumulative redeemable floating rate First Preference Shares, Series N.

Holders of the First Preference Shares, Series N will be entitled to receive floating rate cumulative preferential cash dividends in the amount per share determined by multiplying the applicable floating quarterly dividend rate by $25.00. The floating quarterly dividend rate will be equal to the sum of the average yield expressed as a percentage per annum on three-month Government of Canada treasury bills plus 2.48%.

On each First Preference Shares, Series N Conversion Date, being December 1, 2024, and December 1 every five years thereafter, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series N at a price of $25.00 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On any date after December 1, 2019, that is not a First Preference Shares, Series N Conversion Date, the Corporation has the option to redeem for cash all or any part of the outstanding First Preference Shares, Series N at a price of $25.50 per share plus all accrued and unpaid dividends up to but excluding the date fixed for redemption. On each First Preference Shares, Series N Conversion Date, the holders of First Preference Shares, Series N have the option to convert any or all of their First Preference Shares, Series N into an equal number of First Preference Shares, Series M.

On any First Preference Shares, Series M Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series M outstanding, such remaining First Preference Shares, Series M will automatically be converted into an equal number of First Preference Shares, Series N. On any First Preference Shares, Series N Conversion Date, if the Corporation determines that there would be less than 1,000,000 First Preference Shares, Series N outstanding, such remaining First Preference Shares, Series N will automatically be converted into an equal number of First Preference Shares, Series M. However, if such automatic conversions would result in less than 1,000,000 First Preference Shares, Series N or less than 1,000,000 First Preference Shares, Series M outstanding then no automatic conversion would take place.

Debt Covenant Restrictions on Dividend Distributions

The Trust Indenture pertaining to the Corporation’s $200 million Senior Unsecured Debentures contains a covenant which provides that Fortis shall not declare or pay any dividends (other than stock dividends or cumulative preferred dividends on preferred shares not issued as stock dividends) or make any other distribution on its shares or redeem any of its shares or prepay subordinated debt if, immediately thereafter, its consolidated funded obligations would be in excess of 75% of its total consolidated capitalization.

The Corporation has a $1 billion unsecured committed revolving corporate credit facility, maturing in July 2020, that is available for general corporate purposes. The Corporation has the ability to increase this facility to $1.3 billion. As of December 31, 2015, the Corporation has not yet exercised its option for the additional $300 million. The credit facility contains a covenant which provides that Fortis shall not declare or pay any dividends or make any other restricted payments if, immediately thereafter, consolidated debt to consolidated capitalization ratio would exceed 65% at any time.

As at December 31, 2015 and 2014, the Corporation was in compliance with its debt covenant restrictions pertaining to dividend distributions, as described above.

8.0 CREDIT RATINGS

Securities issued by Fortis and its utilities, that are currently rated, are rated by one or more credit rating agencies, namely, DBRS, S&P and/or Moody’s. The ratings assigned to securities issued by Fortis and its utilities are reviewed by the agencies on an ongoing basis. Credit ratings and stability ratings are intended to provide investors with an independent measure of credit quality of an issue of securities and are not recommendations to buy sell or hold securities. Ratings may be subject to revision or withdrawal at any time by the rating organization. The following table summarizes the Corporation’s debt credit ratings as at February 17, 2016.

Fortis

Credit Ratings

Company	DBRS	S&P	Moody’s
Fortis (1)	A (low), Under Review -	BBB+, Negative (unsecured debt)	N/A
	Negative
	(unsecured debt)

Caribbean Utilities (2)	A (low), Stable	A-, Negative	N/A
Caribbean Utilities (2)	(senior unsecured debt)	(senior unsecured debt)	N/A

Central Hudson (2) (3)	N/A	A, Negative	A2, Stable
Central Hudson (2) (3)	N/A	(unsecured debt)	(unsecured debt)

FortisBC Energy	A, Stable (secured & unsecured debt)	N/A	A1/A3, Stable
			(secured/unsecured
			debt)

FortisAlberta (2)	A (low), Stable	A-, Negative	N/A
FortisAlberta (2)	(senior unsecured debt)	(senior unsecured debt)	N/A

FortisBC Electric	A (low), Stable	N/A	Baa1, Stable (unsecured debt)
FortisBC Electric	(secured & unsecured debt)	N/A	Baa1, Stable (unsecured debt)

Fortis Turks and	N/A	BBB, Stable	N/A
Caicos	N/A	(senior unsecured debt)	N/A

Maritime Electric (2)	N/A	A, Negative	N/A
Maritime Electric (2)	N/A	(senior secured debt)	N/A

Newfoundland Power	A, Stable	N/A	A2, Stable
Newfoundland Power	(first mortgage bonds)	N/A	(first mortgage bonds)

TEP (2)	N/A	BBB+, Negative	A3, Stable
TEP (2)	N/A	(unsecured debt)	(senior unsecured debt)

UNS Energy	N/A	N/A	Baa1, Stable
UNS Energy	N/A	N/A	(senior secured debt)

(1)	In February 2016, after the announcement by Fortis that it had entered into an agreement to acquire ITC, S&P affirmed the Corporation’s corporate credit rating of A-, revised its unsecured debt credit rating to BBB+ from A-, and revised its outlook on the Corporation to negative from stable. Similarly, in February 2016 DBRS placed the Corporation’s corporate credit rating under review with negative implications.
(2)	In February 2016, after the announcement by Fortis that it had entered into an agreement to acquire ITC, S&P revised its outlook on TEP, Central Hudson, FortisAlberta, Maritime Electric and Caribbean Utilities to negative from stable.
(3)	Central Hudson’s senior unsecured debt is also rated by Fitch at ‘A-, Stable’.

DBRS rates debt instruments by rating categories ranging from AAA to D, which represents the range from highest to lowest quality of such securities. DBRS states that: (i) its long-term debt ratings are meant to give an indication of the risk that the borrower will not fulfill its obligations in a timely manner with respect to both interest and principal commitments; (ii) its ratings do not take factors such as pricing or market risk into consideration and are expected to be used by purchasers as one part of their investment decision; and (iii) every rating is based on quantitative and qualitative considerations that are relevant for the borrowing entity. According to DBRS, a rating of A by DBRS is in the middle of three subcategories within the third highest of nine major categories. Such rating is assigned to debt instruments considered to be of satisfactory credit quality and for which protection of interest and principal is still substantial, but the degree of strength is less than with AA rated entities. Entities rated in the BBB category are considered to have long-term debt of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. The assignment of a (high) or (low) modifier within each rating category indicates relative standing within such category.

S&P long-term debt ratings are on a ratings scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities. S&P uses ‘+’ or ‘-’ designations to indicate the relative standing of securities within a particular rating category. S&P states that its credit ratings are current opinions of the financial security characteristics with respect to the ability to pay under contracts in accordance with their terms. This opinion is not specific to any particular contract, nor does it address the suitability of a particular contract for a specific purpose or purchaser. An issuer rated A is regarded as having financial security characteristics to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories.

Moody’s long-term debt ratings are on a rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities. In addition, Moody’s applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa to Caa to indicate relative standing within such classification. The modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the security ranks in the lower end of its generic rating category. Moody’s states that its long-term debt ratings are opinions of relative risk of fixed-income obligations with an original maturity of one year or more and that such ratings reflect both the likelihood of default and any financial loss suffered in the event of default. According to Moody’s, a rating of Baa is the fourth highest of nine major categories and such a debt rating is assigned to debt instruments considered to be of medium-grade quality. Debt instruments rated Baa are subject to moderate credit risk and may possess certain speculative characteristics. Debt instruments rated A are considered upper-medium grade and are subject to low credit risk.

Fitch’s long-term debt rating are on a rating scale that ranges from AAA to C, which represents the range from highest to lowest qualify of such securities. Fitch uses ‘+’ or ‘-’ designations to indicate the relative standing of securities within a particular rating category. Such modifiers are not added to the AAA rating or to ratings below B. Fitch states that its credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Fitch’s credit ratings do not directly address any risk other than credit risk. A rating of ‘A’ denotes expectation of low default risk, with strong capacity for payment of financial commitments. A rating of ‘BBB’ denotes current expectations of low default risk, with adequate capacity for the payment of financial commitments.

The Corporation pays each of DBRS, S&P and Moody’s an annual monitoring fee and a one-time fee in connection with each rated issuance. In 2015, Fortis also paid fees to S&P and Moody’s in respect of certain advisory services provided in connection with the pending acquisition of ITC. No such fees were paid in 2014.

9.0 MARKET FOR SECURITIES

The Common Shares; First Preference Shares, Series E; First Preference Shares, Series F; First Preference Shares, Series G; First Preference Shares, Series H; First Preference Shares, Series I; First Preference Shares, Series J; First Preference Shares, Series K and First Preference Shares, Series M of Fortis are listed on the TSX under the symbols FTS, FTS.PR.E, FTS.PR.F, FTS.PR.G, FTS.PR.H, FTS.PR.I, FTS.PR.J, FTS.PR.K and FTS.PR.M, respectively.

The following tables set forth the reported high and low trading prices and trading volumes for the Common Shares; First Preference Shares, Series E; First Preference Shares, Series F; First Preference Shares, Series G; First Preference Shares, Series H; First Preference Shares, Series I; First Preference Shares, Series J; First Preference Shares, Series K; and First Preference Shares, Series M on a monthly basis for the year ended December 31, 2015.

Fortis

2015 Trading Prices and Volumes

	Common Shares			First Preference Shares, Series E
Month	High ($)	Low ($)	Volume	High ($)	Low ($)	Volume
January	42.23	38.77	14,559,158	26.08	25.75	20,889
February	42.23	38.32	15,673,004	26.04	25.58	25,379
March	40.29	38.36	18,477,567	25.86	25.63	54,230
April	39.90	38.05	9,767,559	25.80	25.60	54,105
May	39.49	37.12	11,546,629	25.90	25.59	24,900
June	38.49	34.45	15,119,531	25.80	25.55	16,200
July	38.46	35.08	11,661,513	25.75	25.45	18,387
August	38.75	34.16	14,095,079	25.69	25.20	16,415
September	38.17	34.20	17,476,551	25.47	25.18	95,148
October	40.14	37.18	15,692,958	25.47	25.30	128,932
November	38.60	36.35	12,504,209	25.49	25.06	32,705
December	38.26	35.51	15,464,056	25.35	25.16	360,105

Fortis

2015 Trading Prices and Volumes

	First Preference Shares, Series F			First Preference Shares, Series G
Month	High ($)	Low ($)	Volume	High ($)	Low ($)	Volume
January	25.22	24.51	38,138	25.46	23.26	70,820
February	25.68	24.86	30,672	24.18	23.06	81,535
March	25.24	24.84	48,096	24.47	23.53	248,758
April	25.10	24.36	71,811	23.71	20.84	192,548
May	25.00	24.11	63,091	22.50	21.36	170,316
June	24.51	23.20	55,565	22.17	21.35	94,522
July	24.30	23.52	64,713	21.94	19.95	83,440
August	23.97	21.64	54,337	20.36	16.62	137,163
September	23.07	21.60	210,994	19.26	16.37	280,932
October	22.74	21.20	92,747	19.19	15.90	282,181
November	23.55	21.95	128,647	19.96	17.78	280,941
December	23.71	21.65	87,471	18.49	15.57	374,203

	First Preference Shares, Series H (1)			First Preference Shares, Series I (1)
Month	High ($)	Low ($)	Volume	High ($)	Low ($)	Volume
January	19.59	16.84	405,862	—	—	—
February	17.29	16.50	219,928	—	—	—
March	16.97	16.05	402,886	—	—	—
April	16.80	15.20	892,668	—	—	—
May	17.10	15.90	233,282	—	—	—
June	17.00	16.05	204,409	17.16	15.61	31,999
July	17.23	16.09	343,502	17.00	15.50	18,950
August	16.55	14.01	293,047	16.10	13.00	20,650
September	15.64	13.00	76,007	14.26	12.10	35,030
October	14.70	13.60	138,311	13.35	12.00	49,072
November	15.70	13.95	110,962	13.75	12.00	75,755
December	14.81	12.75	145,156	13.00	10.92	101,208

	First Preference Shares, Series J			First Preference Shares, Series K
Month	High ($)	Low ($)	Volume	High ($)	Low ($)	Volume
January	25.13	24.16	117,712	25.53	23.30	89,307
February	25.50	24.80	130,658	24.49	23.15	153,649
March	25.37	24.75	123,776	24.20	23.54	175,640
April	25.12	24.25	168,938	23.90	20.19	219,961
May	25.05	24.00	113,793	22.98	21.48	113,621
June	24.55	23.29	74,548	22.00	20.81	155,165
July	24.40	23.29	58,285	21.90	20.84	158,790
August	23.23	21.20	64,228	21.65	17.90	142,852
September	22.49	21.00	67,129	19.98	15.92	368,777
October	22.45	20.58	78,940	20.04	16.01	340,911
November	22.85	21.23	112,115	20.49	18.52	404,180
December	23.00	20.80	76,388	19.39	16.56	314,369

	First Preference Shares, Series M
Month	High ($)	Low ($)	Volume
January	25.75	24.26	435,010
February	25.30	24.50	245,579
March	25.34	24.60	331,494
April	25.05	23.26	1,095,659
May	25.46	24.51	550,788
June	24.80	23.48	375,183
July	24.06	22.38	297,623
August	23.77	19.63	178,882
September	22.40	19.40	310,304
October	21.72	17.18	401,744
November	22.83	19.85	311,587
December	21.19	17.90	792,543

(1) 2,975,154 of the 10,000,000 First Preference Shares, Series H were converted on a one-for-one basis into First Preference Shares, Series I on June 1, 2015. As a result of the conversion, Fortis has issued and outstanding 7,024,846 First Preference Shares, Series H and 2,975,154 First Preference Shares, Series I.

10.0 DIRECTORS AND OFFICERS

The Board has governance guidelines which cover various items, including director tenure. The governance guidelines provide that Directors of the Corporation are to be elected for a term of one year and, except in appropriate circumstances determined by the Board, be eligible for re-election until the annual meeting of shareholders next following the date on which they achieve age 72 or the 12 th anniversary of their initial election to the Board.

The following chart sets out the name and municipality of residence of each of the Directors of Fortis as of February 17, 2016, and indicates their principal occupations within the five preceding years. Each Director’s current term expires at the close of the May 5, 2016 annual meeting of shareholders. Paul J. Bonavia, who was elected to the Board of the Corporation in May 2015, resigned from the Board effective February 8, 2016 in order to remain in compliance with the rules of another entity of which he is a director. These rules would not permit Mr. Bonavia to serve as a director of Fortis following the announcement by the Corporation that it has entered into an agreement to acquire ITC.

Fortis Directors

Name		Principal Occupations Within Five Preceding Years
TRACEY C. BALL (1) Edmonton, Alberta		Ms. Ball, 58, joined the Fortis Board in May 2014. She retired in September 2014 as Executive Vice President and Chief Financial Officer of Canadian Western Bank Group. Prior to joining a predecessor bank to Canadian Western Bank in 1987, she worked in public accounting and consulting. Ms. Ball has served on several private and public sector boards, including the Province of Alberta Audit Committee and the Financial Executives Institute of Canada. She currently serves on the City of Edmonton LRT Governance Board. Ms. Ball graduated from Simon Fraser University with a Bachelor of Arts (Commerce). She is a member of the Chartered Professionals Accountants of Canada, the Institute of Chartered Accountants of Alberta, and the Association of Chartered Professional Accountants of British Columbia. Ms. Ball holds an ICD.D designation from the Institute of Corporate Directors. She serves as a director of FortisAlberta and is Chair of that company’s Audit Committee. She does not serve as a director of any other reporting issuer.

PIERRE J. BLOUIN (3) Ile Bizard, Quebec		Mr. Blouin, 58, joined the Fortis Board in May 2015. He was Chief Executive Officer of Manitoba Telecom Services, Inc. until his retirement in December 2014. Prior to joining Manitoba Telecom Services, Inc. as its Chief Executive Officer in 2005, Mr. Blouin held various executive positions in the Bell Canada group of companies, including Group President, Consumer Markets for Bell Canada, Chief Executive Officer of BCE Emergis, Inc. and CEO of Bell Mobility. Mr. Blouin graduated from Hautes Etudes Commerciales with a Bachelor of Commerce in Business Administration. He is a Fellow of Purchasing Management Association of Canada and a Fellow of the Institute of Bankers (Canada). Mr. Blouin was appointed to the Human Resources Committee on May 7, 2015. He does not serve as a director of any other reporting issuer.

PETER E. CASE (1) (2) Kingston, Ontario		Mr. Case, 61, a Corporate Director, retired in February 2003 as Executive Director, Institutional Equity Research at CIBC World Markets. During his 17-year career as senior investment analyst with CIBC World Markets and BMO Nesbitt Burns and its predecessors, Mr. Case’s coverage of Canadian and selected U.S. pipeline and energy utilities was consistently rated among the top rankings. Mr. Case was awarded a Bachelor of Arts and an MBA from Queen’s University and a Master of Divinity from Wycliffe College, University of Toronto. He was first elected to the Board in May 2005 and has been Chair of the Audit Committee of the Board since March 2011. Mr. Case was a Director of FortisOntario from 2003 through 2010 and served as Chair of the FortisOntario Board from 2009 through 2010. He does not serve as a director of any other reporting issuer.

Fortis Directors (continued)

Name		Principal Occupations Within Five Preceding Years
MAURA J. CLARK (1) New York, New York		Ms. Clark, 57, joined the Fortis Board in May 2015. She retired from Direct Energy, a subsidiary of Centrica plc, in March 2014 where she was President of Direct Energy Business, a leading energy retailer in Canada and the United States, from 2007. Previously Ms. Clark was Executive Vice President of North American Strategy and Mergers and Acquisitions for Direct Energy. Ms. Clark’s prior experience includes investment banking and serving as Chief Financial Officer of an independent oil refining and marketing company. Ms. Clark graduated from Queen’s University with a Bachelor of Arts in Economics. She is a member of the Association of Chartered Professional Accountants of Ontario. Ms. Clark was appointed to the Audit Committee in May 2015 upon her election to the Board. Ms. Clark also serves as a director of Elizabeth Arden, Inc.

IDA J. GOODREAU (2) (3) Bowen Island, British Columbia		Ms. Goodreau, 64, is a past President and Chief Executive Officer of LifeLabs. Prior to joining LifeLabs in March 2009, she served as President and Chief Executive Officer of Vancouver Coastal Health Authority from 2002. Ms. Goodreau has held senior leadership roles in several Canadian and international pulp and paper and natural gas companies. She was awarded an MBA and a Bachelor of Commerce, Honours, degree from the University of Windsor and a Bachelor of Arts (English and Economics) from the University of Western Ontario. She has served on numerous private and public sector boards and has been a director of FortisBC Energy and FortisBC Inc. since 2007 and 2010, respectively. Ms. Goodreau serves as Chair of the Governance Committee of FortisBC Energy and FortisBC Inc. She was first elected to the Board in May 2009. Ms. Goodreau does not serve as a director of any other reporting issuer.

DOUGLAS J. HAUGHEY (1) (3) Calgary, Alberta		Mr. Haughey, 59, from August 2012 through May 2013, was Chief Executive Officer of The Churchill Corporation, a commercial construction and industrial services company focused on the western Canadian market. From 2010 through its successful sale to Pembina Pipeline in April 2012, he served as President and Chief Executive Officer of Provident Energy Ltd., an owner/operator of natural gas liquids midstream facilities. From 1999 through 2008, he held several executive roles with Spectra Energy and predecessor companies. Mr. Haughey had overall responsibility for its western Canadian natural gas midstream business, was President and Chief Executive Officer of Spectra Energy Income Fund and also led Spectra’s strategic development and mergers and acquisitions teams based in Houston, Texas. He graduated from the University of Regina with a Bachelor of Administration and from the University of Calgary with an MBA. Mr. Haughey also holds an ICD.D designation from the Institute of Corporate Directors. He was first elected to the Board in May 2009. Mr. Haughey became a director of FortisAlberta in 2010, and serves as Chair of that Board. Mr. Haughey was appointed Chair of the Human Resources Committee in March 2015. Mr. Haughey is also lead director of Keyera Corporation.

R. HARRY McWATTERS (2) Summerland, British Columbia		Mr. McWatters, 70, is President of Vintage Consulting Group Inc., Harry McWatters Inc., and TIME Estate Winery, all of which are engaged in various aspects of the British Columbia wine industry. He is the founder and past President of Sumac Ridge Estate Wine Group. Mr. McWatters was first elected to the Board in May 2007. He was a Director of FHI and FortisBC Inc., where he served as Chair from 2006 through 2010. Mr. McWatters does not serve as a director of any other reporting issuer.

Fortis Directors (continued)

Name		Principal Occupations Within Five Preceding Years
RONALD D. MUNKLEY (2) (3) Mississauga, Ontario		Mr. Munkley, 70, a Corporate Director, retired in April 2009 as Vice Chairman and Head of the Power and Utility Business of CIBC World Markets. While there he acted as lead advisor on over 175 capital markets and strategic and advisory assignments for North American utility clients. Prior to that he was COO at Enbridge Inc. and Chairman of Enbridge Consumer Gas. Previously he was President and CEO of Consumer Gas where he led the company through deregulation and restructuring in the 1990s. He graduated from Queen’s University with a Bachelor of Science (Engineering), Honours. Mr. Munkley is a professional engineer and has completed the Executive and Senior Executive Programs of the University of Western Ontario and the Partners, Directors and Senior Officers Certificate of the Canadian Securities Institute. He was first elected to the Board in May 2009. Mr. Munkley also serves as a director of Bird Construction Inc.

DAVID G. NORRIS (1) (2) (3) St. John’s, Newfoundland and Labrador		Mr. Norris, 68, a Corporate Director, was a financial and management consultant from 2001 until his retirement in December 2013. Prior to that he was Executive Vice President, Finance and Business Development of Fishery Products International Limited. Previously, he held Deputy Minister positions with the Department of Finance and Treasury Board of the Government of Newfoundland and Labrador. Mr. Norris graduated with a Bachelor of Commerce, Honours, from Memorial University of Newfoundland and an MBA from McMaster University. He was first elected to the Board in May 2005 and was appointed Chair of the Board in December 2010. Mr. Norris served as Chair of the Audit Committee of the Board from May 2006 through March 2011. He was a director of Newfoundland Power from 2003 through 2010 and served as Chair of that Board from 2006 through 2010. Mr. Norris served as a director of Fortis Properties from 2006 through 2010. He does not serve as a director of any other reporting issuer.

BARRY V. PERRY St. John’s, Newfoundland and Labrador		Mr. Perry, 51, is President and Chief Executive Officer of the Corporation. Prior to his current position at Fortis, he served as President from June 30, 2014 to December 31, 2014 and prior to that served as Vice President, Finance and Chief Financial Officer of the Corporation. Mr. Perry joined the Fortis organization in 2000 as Vice President, Finance and Chief Financial Officer of Newfoundland Power. He earned a Bachelor of Commerce from Memorial University of Newfoundland and is a member of the Association of Chartered Professional Accountants of Newfoundland and Labrador. Mr. Perry serves on the Boards of Fortis utilities in British Columbia, Alberta, Arizona and New York. Mr. Perry was appointed to the Board on January 1, 2015, concurrent with his appointment as President and Chief Executive Officer of the Corporation.

(1)	Serves on the Audit Committee.
(2)	Serves on the Governance and Nominating Committee.
(3)	Serves on the Human Resources Committee.

The following table sets out the name and municipality of residence of each of the officers of Fortis as of December 31, 2015, and indicates the office held.

Fortis Officers

Name and Municipality of Residence		Office Held
Barry V. Perry		President and Chief Executive Officer (1)
St. John’s, Newfoundland and Labrador
Karl W. Smith		Executive Vice President, Chief Financial Officer (2)
St. John’s, Newfoundland and Labrador
Nora M. Duke		Executive Vice President, Corporate Services and Chief
St. John’s, Newfoundland and Labrador		Human Resource Officer (3)
Earl A. Ludlow		Executive Vice President, Eastern Canadian and
Paradise, Newfoundland and Labrador		Caribbean Operations (4)
David C. Bennett		Vice President, Chief Legal Officer and Corporate
St. John’s, Newfoundland and Labrador		Secretary (5)
James D. Spinney		Vice President, Treasurer (6)
Mount Pearl, Newfoundland and Labrador
Jamie D. Roberts		Vice President, Controller (7)
Mount Pearl, Newfoundland and Labrador
Regan P. O’Dea		Assistant Corporate Secretary (8)
St. John’s, Newfoundland and Labrador

(1)	Mr. Perry was appointed President and Chief Executive Officer, effective January 1, 2015, upon the retirement of Mr. H. Stanley Marshall. Mr. Perry became President of Fortis effective June 30, 2014. Prior to that time, Mr. Perry served as Vice President, Finance and Chief Financial Officer of Fortis since 2004.
(2)	Mr. Smith was appointed Executive Vice President, Chief Financial Officer, effective June 30, 2014. Prior to that time, Mr. Smith served as President and Chief Executive Officer of FortisAlberta since 2007.
(3)	Ms. Duke was appointed Executive Vice President, Corporate Services and Chief Human Resource Officer, effective August 1, 2015. Prior to that time, Ms. Duke served as President and Chief Executive Officer of Fortis Properties since 2008.
(4)	Mr. Ludlow was appointed Executive Vice President, Eastern Canadian and Caribbean Operations, effective August 1, 2014. Prior to that time, Mr. Ludlow served as President and Chief Executive Officer at Newfoundland Power since 2007.
(5)	Mr. Bennett was appointed Vice President, Chief Legal Officer and Corporate Secretary, effective September 19, 2014. Prior to that time, Mr. Bennett served as Vice President, Operations Support, General Counsel and Corporate Secretary since 2013 and Vice President, General Counsel and Corporate Secretary since 2010 for FortisBC Inc., FortisBC Energy and FHI.
(6)	Mr. Spinney was appointed Vice President, Treasurer, effective March 20, 2013. Prior to that time, Mr. Spinney served as Manager, Treasury at Fortis since October 2002.
(7)	Mr. Roberts was appointed Vice President, Controller, effective March 20, 2013. Prior to that time, Mr. Roberts served as Vice President, Finance and Chief Financial Officer of Fortis Properties since July 2008.
(8)	Mr. O’Dea was appointed Assistant Corporate Secretary effective May 7, 2015, and holds the position of Associate General Counsel since January 2014. Prior to that time, Mr. O’Dea served as Director, Legal and Corporate Services and Corporate Secretary of Johnson Inc. since 2011.

As at December 31, 2015, the directors and officers of Fortis, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 603,991 Common Shares, representing 0.2% of the issued and outstanding Common Shares of Fortis. The Common Shares are the only voting securities of the Corporation.

11.0 AUDIT COMMITTEE

11.1 Education and Experience

The education and experience of each Audit Committee Member that is relevant to such Member’s responsibilities as a Member of the Audit Committee are set out below. As at December 31, 2015, the Audit Committee was composed of the following persons.

Fortis

Audit Committee

Name		Relevant Education and Experience

PETER E. CASE (Chair) Kingston, Ontario		Mr. Case retired in February 2003 as Executive Director, Institutional Equity Research at CIBC World Markets. He was awarded a Bachelor of Arts and an MBA from Queen’s University and a Master of Divinity from Wycliffe College, University of Toronto.

TRACEY C. BALL Edmonton, Alberta		Ms. Ball retired in September 2014 as Executive Vice President and Chief Financial Officer of Canadian Western Bank Group. Ms. Ball has served on several private and public sector boards, including the Province of Alberta Audit Committee and the Financial Executives Institute of Canada. She currently serves on the City of Edmonton LRT Governance Board. She graduated from Simon Fraser University with a Bachelor of Arts (Commerce). She is a member of the Canadian Chartered Professional Accountants of Canada, the Institute of Chartered Accountants of Alberta, and the Association of Chartered Professional Accountants of British Columbia. She holds an ICD.D designation from the Institute of Corporate Directors.

MAURA J. CLARK New York, New York		Ms. Clark retired from Direct Energy, a subsidiary of Centrica plc, in March 2014 where she was President of Direct Energy Business, a leading energy retailer in Canada and the United States. Previously Ms. Clark was Executive Vice President of North American Strategy and Mergers and Acquisitions for Direct Energy. Ms. Clark’s prior experience includes investment banking and serving as Chief Financial Officer of an independent oil refining and marketing company. Ms. Clark graduated from Queen’s University with a Bachelor of Arts in Economics. She is a member of the Association of Chartered Professional Accountants of Ontario.

DOUGLAS J. HAUGHEY Calgary, Alberta		Mr. Haughey, from August 2012 through May 2013, was Chief Executive Officer of The Churchill Corporation. Prior to that, he served as President and Chief Executive Officer of Provident Energy Ltd. and held several executive roles with Spectra Energy and predecessor companies. He graduated from the University of Regina with a Bachelor of Administration and from the University of Calgary with an MBA. Mr. Haughey also holds an ICD.D designation from the Institute of Corporate Directors.

DAVID G. NORRIS St. John’s, Newfoundland and Labrador		Mr. Norris was a financial and management consultant from 2001 until his retirement in December 2013. Prior to that he was Executive Vice President, Finance and Business Development of Fishery Products International Limited. He graduated with a Bachelor of Commerce, Honours, from Memorial University of Newfoundland and an MBA from McMaster University.

The Board has determined that each of the Audit Committee Members is independent and financially literate. Independent means free from any direct or indirect material relationship with the Corporation which, in the view of the Board, could reasonably be expected to interfere with the exercise of a Member’s independent judgment as more particularly described in Multilateral Instrument 52-110 - Audit Committees . Financially literate means having the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breath and complexity of the issues that can reasonably be expected to be raised by the Corporation’s 2015 Audited Consolidated Financial Statements.

11.2 Audit Committee Mandate

The text of the Corporation’s Audit Committee Mandate is detailed below.

A. Objective

The Committee shall provide assistance to the Board by overseeing the external audit of the Corporation’s annual financial statements and the accounting and financial reporting and disclosure processes and policies of the Corporation.

B. Definitions

In this mandate:

“ AIF ” means the Annual Information Form filed by the Corporation;

“ Committee ” means the Audit Committee appointed by the Board pursuant to this mandate;

“ Board ” means the board of directors of the Corporation;

“ Corporation ” means Fortis Inc.;

“ Director ” means a member of the Board;

“ Financially Literate ” means having the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breath and complexity of the issues that can reasonably be expected to be present in the Corporation’s financial statements;

“ External Auditor ” means the firm of chartered professional accountants, registered with the Canadian Public Accountability Board or its successor, and appointed by the shareholders of the Corporation to act as external auditor of the Corporation;

“ Independent ” means free from any direct or indirect material relationship with the Corporation which, in the view of the Board, could reasonably be expected to interfere with the exercise of a Member’s independent judgment as more particularly described in National Instrument 52-110;

“ Internal Auditor ” means the person employed or engaged by the Corporation to perform the internal audit function of the Corporation;

“ Management ” means the senior officers of the Corporation;

“ MD&A ” means the Corporation’s management discussion and analysis prepared in accordance with National Instrument 51-102F1 in respect of the Corporation’s annual and interim financial statements; and

“ Member ” means a Director appointed to the Committee.

C. Composition and Meetings

1. The Committee shall be appointed annually by the Board and shall be comprised of three (3) or more Directors, each of whom is Independent and Financially Literate and none of whom is a member of Management or an employee of the Corporation or of any affiliate of the Corporation.

2. The Board shall appoint a Chair of the Committee on the recommendation of the Corporation’s Governance and Nominating Committee, or such other committee as the Board may authorize.

3. The Committee shall meet at least four (4) times each year and shall meet at such other times during the year as it deems appropriate. Meetings of the Committee shall be held at the call (i) of the Chair of the Committee, or (ii) of any two (2) Members, or (iii) of the External Auditor.

4. The President and Chief Executive Officer, the Executive Vice President, Chief Financial Officer, the External Auditor and the Internal Auditor, shall receive notice of, and (unless otherwise determined by the Chair of the Committee) shall attend all meetings of the Committee.

5. A quorum at any meeting of the Committee shall be three (3) Members.

6. The Chair of the Committee shall act as chair of all meetings of the Committee at which the Chair is present. In the absence of the Chair from any meeting of the Committee, the Members present at the meeting shall appoint one of their Members to act as Chair of the meeting.

7. Unless otherwise determined by the Chair of the Committee, the Secretary of the Corporation shall act as secretary of all meetings of the Committee.

D. Oversight of the External Audit and the Accounting and Financial Reporting and Disclosure Processes and Policies

The primary purpose of the Committee is oversight of the Corporation’s external audit and the accounting and financial reporting and disclosure processes and policies on behalf of the Board. Management of the Corporation is responsible for the selection, implementation and maintenance of appropriate accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. Management is responsible for the preparation and integrity of the financial statements of the Corporation.

1. Oversight of the External Audit

The oversight of the external audit pertains to the audit of the Corporation’s annual financial statements.

1.1. The Committee is responsible for the evaluation and recommendation of the External Auditor to be proposed by the Board for appointment by the shareholders.

1.2. In advance of each audit, the Committee shall review the External Auditor’s audit plan including the general approach, scope and areas subject to risk of material misstatement.

1.3. The Committee is responsible for approving the terms of engagement and fees of the External Auditor, including any non-audit services provided by the External Auditor.

1.4. The Committee shall review and discuss the Corporation’s annual audited financial statements, together with the External Auditor’s report thereon, and MD&A with Management and the External Auditor to gain reasonable assurance as to the accuracy, consistency and completeness thereof. The Committee shall meet privately with the External Auditor. The Committee shall oversee the work of the External Auditor and resolve any disagreements between Management and the External Auditor.

1.5. The Committee shall use reasonable efforts, including discussion with the External Auditor, to satisfy itself as to the External Auditor’s independence as defined in Canadian Auditing Standard — 260.

2. Oversight of the Accounting and Financial Reporting and Disclosure Processes

2.1. The Committee shall recommend the annual audited financial statements together with the MD&A for approval by the Board.

2.2. The Committee shall review the interim unaudited financial statements with the External Auditor and Management, together with the External Auditor’s review engagement report thereon.

2.3. The Committee shall review and approve publication of the interim unaudited financial statements together with notes thereto, the interim MD&A and earnings media release on behalf of the Board.

2.4. The Committee shall review and recommend approval by the Board of the Corporation’s AIF, Management Information Circular, any prospectus and other financial information or disclosure documents to be issued by the Corporation prior to their public release.

2.5. The Committee shall use reasonable efforts to satisfy itself as to the integrity of the Corporation’s financial information systems, internal control over financial reporting and the competence of the Corporation’s accounting personnel and senior financial management responsible for accounting and financial reporting.

2.6. The Committee shall use reasonable efforts to satisfy itself as to the appropriateness of the Corporation’s material financing and tax structures.

2.7. The Committee shall be responsible for the oversight of the Internal Auditor.

2.8. The Committee shall monitor and report on the development of the Enterprise Risk Management Program.

3. Oversight of the Audit Committee Mandate and Policies

On a periodic basis, the Committee shall review and report to the Board on the Audit Committee Mandate as well as on the following policies:

3.1. Policy on Reporting Allegations of Suspected Improper Conduct and Wrongdoing;

3.2. Derivative Instruments and Hedging Policy;

3.3. Pre-Approval of Audit and Non-Audit Services Policy;

3.4. Hiring from Independent Auditing Firms Policy;

3.5. Policy on the Role of the Internal Audit Function;

3.6. Disclosure Policy; and

3.7. any other policies that may be established, from time to time, relating to accounting and financial reporting and disclosure processes; oversight of the external audit of the Corporation’s financial statements; and oversight of the internal audit function.

4. Retaining and Compensating Advisors

The Committee shall have the sole authority to engage independent counsel and any other advisors as the Committee may deem appropriate in its sole discretion and to set the compensation for any advisors employed by the Committee. The Committee shall not be required to obtain the approval of the Board in order to retain or compensate such consultants or advisors.

E. Reporting

The Chair of the Committee, or another designated Member, shall report to the Board at each regular meeting on those matters which were dealt with by the Committee since the last regular meeting of the Board.

F. Other

1. The Committee shall perform such other functions as may, from time to time, be assigned to the Committee by the Board.

11.3 Pre-Approval Policies and Procedures

The Audit Committee has established a policy which requires pre-approval of all audit and non-audit services provided to the Corporation and its subsidiaries by the Corporation’s External Auditor. The Pre-Approval of Audit and Non-Audit Services Policy describes the services which may be contracted from the External Auditor and the limitations and authorization procedures related thereto. This policy defines services such as bookkeeping, valuations, internal audit and management functions which may not be contracted from the External Auditor and establishes an annual limit for permissible non-audit services not greater than the total fee for audit services. Audit Committee pre-approval is required for all audit and non-audit services.

11.4 External Auditor Service Fees

Fees incurred by the Corporation for work performed by Ernst & Young LLP, the Corporation’s External Auditors, during each of the last two fiscal years for audit, audit-related, tax, and non-audit services were as follows.

Fortis

External Auditor Service Fees

($ thousands)

Ernst & Young LLP	2015	2014
Audit Fees	5,223	4,601
Audit-Related Fees	870	748
Tax Fees	475	119
Non-Audit Fees	—	48
Total	6,568	5,516

Audit fees were higher in 2015 than in 2014, mainly due to general increases in fees and the impact of foreign exchange on US dollar-denominated audit fees. The increase in tax fees was largely due to additional work completed on the sale of non-core assets. Ernst & Young LLP did not provide any non-audit services in 2015.

12.0 TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares and First Preference Shares of Fortis is Computershare Trust Company of Canada in Halifax, Montréal and Toronto.

Computershare Trust Company of Canada

8 th Floor, 100 University Avenue

Toronto, ON M5J 2Y1

T: 514.982.7555 or 1.866.586.7638

F: 416.263.9394 or 1.888.453.0330

W: www.investorcentre.com/fortisinc

13.0 AUDITORS

The auditors of the Corporation are Ernst & Young LLP, Chartered Professional Accountants, Fortis Place, Suite 800, 5 Springdale Street, St. John’s, NL, A1E 0E4. The consolidated financial statements of the Corporation for the fiscal year ended December 31, 2015 have been audited by Ernst & Young LLP. Ernst & Young LLP report that they are independent of the Corporation in accordance with the Rules of Professional Conduct of the Association of Chartered Professional Accountants of Newfoundland and Labrador.

14.0 ADDITIONAL INFORMATION

Additional financial information is provided in the Corporation’s MD&A and 2015 Audited Consolidated Financial Statements, which are incorporated herein by reference. These documents and additional information relating to the Corporation can be found on the Corporation’s website at www.fortisinc.com and on SEDAR at www.sedar.com.

Further additional information, including officers’ and directors’ remuneration and indebtedness, principal holders of the securities of Fortis, options to purchase securities and interests of insiders in material transactions, where applicable, will be contained in the management information circular of Fortis to be dated on or about March 18, 2016 for the May 5, 2016 annual meeting of shareholders.

Requests for additional copies of the above-mentioned documents, as well as the 2015 Annual Information Form, should be directed to the Corporate Secretary, Fortis, P.O. Box 8837, St. John’s, NL, A1B 3T2 (telephone: 709.737.2800). In addition, such documentation and additional information relating to the Corporation is contained on the Corporation’s website at www.fortisinc.com.

Exhibit 99.2

FORTIS INC.

Audited Consolidated Financial Statements

As at and for the years ended December 31, 2015 and 2014

Prepared in accordance with accounting principles generally accepted in the United States

TABLE OF CONTENTS


Management’s Report		i
Independent Auditors’ Report		ii
Consolidated Balance Sheets		1
Consolidated Statements of Earnings		2
Consolidated Statements of Comprehensive Income		2
Consolidated Statements of Cash Flows		3
Consolidated Statements of Changes in Equity		4

Notes to Consolidated Financial Statements
NOTE 1	Description of the Business	5
NOTE 2	Nature of Regulation	7
NOTE 3	Summary of Significant Accounting Policies	11
NOTE 4	Future Accounting Pronouncements	26
NOTE 5	Segmented Information	27
NOTE 6	Accounts Receivable and Other Current Assets	28
NOTE 7	Inventories	29
NOTE 8	Regulatory Assets and Liabilities	30
NOTE 9	Other Assets	35
NOTE 10	Utility Capital Assets	36
NOTE 11	Non-Utility Capital Assets	38
NOTE 12	Intangible Assets	38
NOTE 13	Goodwill	39
NOTE 14	Accounts Payable and Other Current Liabilities	39
NOTE 15	Long-Term Debt	40
NOTE 16	Capital Lease and Finance Obligations	42
NOTE 17	Other Liabilities	44
NOTE 18	Common Shares	45
NOTE 19	Earnings Per Common Share	46
NOTE 20	Preference Shares	47
NOTE 21	Accumulated Other Comprehensive Income	49
NOTE 22	Non-Controlling Interests	50
NOTE 23	Stock-Based Compensation Plans	50
NOTE 24	Other Income (Expenses), Net	54
NOTE 25	Finance Charges	54
NOTE 26	Income Taxes	55
NOTE 27	Employee Future Benefits	57
NOTE 28	Dispositions and Discontinued Operations	63
NOTE 29	Business Acquisitions	63
NOTE 30	Supplementary Information to Consolidated Statements of Cash Flows	65
NOTE 31	Fair Value Measurements and Financial Instruments	65
NOTE 32	Financial Risk Management	70
NOTE 33	Commitments	74
NOTE 34	Contingencies	77
NOTE 35	Subsequent Event	80
NOTE 36	Comparative Figures	81

Management’s Report

The accompanying Annual Consolidated Financial Statements of Fortis Inc. have been prepared by management, who is responsible for the integrity of the information presented including the amounts that must, of necessity, be based on estimates and informed judgments. These Annual Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States.

In meeting its responsibility for the reliability and integrity of the Annual Consolidated Financial Statements, management has developed and maintains a system of accounting and reporting which provides for the necessary internal controls to ensure transactions are properly authorized and recorded, assets are safeguarded and liabilities are recognized. The systems of the Corporation and its subsidiaries focus on the need for training of qualified and professional staff and the effective communication of management guidelines and policies. The effectiveness of the internal controls of Fortis Inc. is evaluated on an ongoing basis.

The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee which is composed entirely of outside independent directors. The Audit Committee oversees the external audit of the Corporation’s Annual Consolidated Financial Statements and the accounting and financial reporting and disclosure processes and policies of the Corporation. The Audit Committee meets with management, the shareholders’ auditors and the internal auditor to discuss the results of the external audit, the adequacy of the internal accounting controls and the quality and integrity of financial reporting. The Corporation’s Annual Consolidated Financial Statements are reviewed by the Audit Committee with each of management and the shareholders’ auditors before the statements are recommended to the Board of Directors for approval. The shareholders’ auditors have full and free access to the Audit Committee. The Audit Committee has the duty to review the adoption of, and changes in, accounting principles and practices which have a material effect on the Corporation’s Annual Consolidated Financial Statements and to review and report to the Board of Directors on policies relating to the accounting and financial reporting and disclosure processes.

The Audit Committee has the duty to review financial reports requiring Board of Directors’ approval prior to the submission to securities commissions or other regulatory authorities, to assess and review management judgments material to reported financial information and to review shareholders’ auditors’ independence and auditors’ fees. The 2015 Annual Consolidated Financial Statements were reviewed by the Audit Committee and, on their recommendation, were approved by the Board of Directors of Fortis Inc. Ernst & Young LLP, independent auditors appointed by the shareholders of Fortis Inc. upon recommendation of the Audit Committee, have performed an audit of the 2015 Annual Consolidated Financial Statements and their report follows.


/s/ Barry V. Perry

Barry V. Perry
President and Chief Executive Officer, Fortis Inc.

/s/ Karl W. Smith

Karl W. Smith
Executive Vice President, Chief Financial Officer, Fortis Inc.

St. John’s, Canada

Independent Auditors’ Report

To the Shareholders of Fortis Inc.

We have audited the accompanying consolidated financial statements of Fortis Inc., which comprise the consolidated balance sheets as at December 31, 2015 and 2014, and the consolidated statements of earnings, comprehensive income, cash flows and changes in equity for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Fortis Inc. as at December 31, 2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

	/s /Ernst & Young LLP
St. John’s, Canada
February 17, 2016	Chartered Professional Accountants

Fortis Inc.

Consolidated Balance Sheets

As at December 31

(in millions of Canadian dollars)

	2015		2014
			(Note 36)

ASSETS

Current assets
Cash and cash equivalents	$	242	$	230
Accounts receivable and other current assets (Note 6)	964		900
Prepaid expenses	68		59
Inventories (Note 7)	337		321
Regulatory assets (Note 8)	246		277
	1,857		1,787

Other assets (Note 9)	352		272
Regulatory assets (Note 8)	2,286		2,138
Utility capital assets (Note 10)	19,595		17,179
Non-utility capital assets (Note 11)	—		664
Intangible assets (Note 12)	541		461
Goodwill (Note 13)	4,173		3,732
	$	28,804	$	26,233

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Short-term borrowings (Note 32)	$	511	$	330
Accounts payable and other current liabilities (Note 14)	1,419		1,440
Regulatory liabilities (Note 8)	298		173
Current installments of long-term debt (Note 15)	384		525
Current installments of capital lease and finance obligations (Note 16)	26		208
	2,638		2,676

Other liabilities (Note 17)	1,152		1,141
Regulatory liabilities (Note 8)	1,340		1,272
Deferred income taxes (Note 26)	2,050		1,626
Long-term debt (Note 15)	10,784		9,911
Capital lease and finance obligations (Note 16)	487		495
	18,451		17,121

Shareholders’ equity
Common shares (1) (Note 18)	5,867		5,667
Preference shares (Note 20)	1,820		1,820
Additional paid-in capital	14		15
Accumulated other comprehensive income (Note 21)	791		129
Retained earnings	1,388		1,060
	9,880		8,691
Non-controlling interests (Note 22)	473		421
	10,353		9,112
	$	28,804	$	26,233

(1) No par value. Unlimited authorized shares; 281.6 million and 276.0 million issued and outstanding as at December 31, 2015 and 2014, respectively

Approved on Behalf of the Board

Commitments (Note 33) Contingencies (Note 34)	/s/ David G. Norris	/s/ Peter E. Case
	David G. Norris,	Peter E. Case,
See accompanying Notes to Consolidated Financial Statements	Director	Director

Fortis Inc.

Consolidated Statements of Earnings

For the years ended December 31

(in millions of Canadian dollars, except per share amounts)

	2015		2014
Revenue	$	6,727	$	5,401

Expenses
Energy supply costs	2,561		2,197
Operating	1,864		1,493
Depreciation and amortization	873		688
	5,298		4,378
Operating income	1,429		1,023
Other income (expenses), net (Note 24)	187		(25		)
Finance charges (Note 25)	553		547
Earnings before income taxes and discontinued operations	1,063		451
Income tax expense (Note 26)	223		66
Earnings from continuing operations	840		385
Earnings from discontinued operations, net of tax (Note 28)	—		5
Net earnings	$	840	$	390

Net earnings attributable to:
Non-controlling interests	$	35	$	11
Preference equity shareholders	77		62
Common equity shareholders	728		317
	$	840	$	390

Earnings per common share from continuing operations (Note 19)
Basic	$	2.61	$	1.39
Diluted	$	2.59	$	1.38

Earnings per common share (Note 19)
Basic	$	2.61	$	1.41
Diluted	$	2.59	$	1.40

See accompanying Notes to Consolidated Financial Statements

Fortis Inc.

Consolidated Statements of Comprehensive Income

For the years ended December 31

(in millions of Canadian dollars)

	2015			2014

Net earnings	$	840		$	390

Other comprehensive income (loss)
Unrealized foreign currency translation gains, net of hedging activities and tax (Note 21)	660			204
Reclassification to earnings of foreign currency translation loss on disposal of investment in foreign operations, net of tax (Note 21)	2			—
Net change in fair value of cash flow hedges, net of tax (Notes 21 and 31)	1			1
Reclassification to earnings of net losses on derivative instruments discontinued as cash flow hedges, net of tax (Note 21)	—			1
Unrealized loss on available-for-sale investment, net of tax (Notes 9, 21 and 31)	(2		)	—
Unrealized employee future benefits gains (losses), net of tax (Notes 21 and 27)	1			(5		)
	662			201
Comprehensive income	$	1,502		$	591

Comprehensive income attributable to:
Non-controlling interests	$	35		$	11
Preference equity shareholders	77			62
Common equity shareholders	1,390			518
	$	1,502		$	591

See accompanying Notes to Consolidated Financial Statements

Fortis Inc.

Consolidated Statements of Cash Flows

For the years ended December 31

(in millions of Canadian dollars)

	2015			2014

Operating activities
Net earnings	$	840		$	390
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation - capital assets	785			597
Amortization - intangible assets	64			60
Amortization - other	24			31
Deferred income tax expense (Note 26)	164			23
Accrued employee future benefits	(19		)	25
Equity component of allowance for funds used during construction (Note 24)	(23		)	(11		)
Gain on sale of non-utility capital assets (Note 24)	(131		)	—
Gain on sale of non-regulated generation assets (Note 24)	(62		)	—
Other	79			71
Change in long-term regulatory assets and liabilities	(89		)	(80		)
Change in non-cash operating working capital (Note 30)	41			(124		)
	1,673			982

Investing activities
Change in other assets and other liabilities	(36		)	(4		)
Capital expenditures - utility capital assets	(2,122		)	(1,617		)
Capital expenditures - non-utility capital assets	(9		)	(39		)
Capital expenditures - intangible assets	(112		)	(69		)
Contributions in aid of construction	59			69
Purchase of assets held for sale (Notes 6 and 16)	(32		)	—
Proceeds on sale of assets (Notes 16 and 28)	922			109
Business acquisitions, net of cash acquired (Notes 9 and 29)	(38		)	(2,648		)
	(1,368		)	(4,199		)

Financing activities
Change in short-term borrowings	148			167
Proceeds from convertible debentures, net of issue costs (Note 18)	—			1,725
Proceeds from long-term debt, net of issue costs (Note 15)	1,002			1,193
Repayments of long-term debt and capital lease and finance obligations	(602		)	(743		)
Net (repayments) borrowings under committed credit facilities	(622		)	610
Advances from non-controlling interests	20			38
Issue of common shares, net of costs and dividends reinvested (Note 18)	40			51
Issue of preference shares, net of costs (Note 20)	—			586
Dividends
Common shares, net of dividends reinvested	(232		)	(194		)
Preference shares	(77		)	(62		)
Subsidiary dividends paid to non-controlling interests	(23		)	(10		)
	(346		)	3,361
Effect of exchange rate changes on cash and cash equivalents	53			14

Change in cash and cash equivalents	12			158
Cash and cash equivalents, beginning of year	230			72

Cash and cash equivalents, end of year	$	242		$	230

Supplementary Information to Consolidated Statements of Cash Flows (Note 30)

See accompanying Notes to Consolidated Financial Statements

Fortis Inc.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015 and 2014

(in millions of Canadian dollars)

								Accumulated
					Additional			Other						Non-
	Common		Preference		Paid-in			Comprehensive			Retained			Controlling			Total
	Shares		Shares		Capital			Income (Loss)			Earnings			Interests			Equity
	(Note 18)		(Note 20)					(Note 21)						(Note 22)
As at January 1, 2015	$	5,667	$	1,820	$	15		$	129		$	1,060		$	421		$	9,112
Net earnings	—		—		—			—			805			35			840
Other comprehensive income	—		—		—			662			—			—			662
Common share issues	200		—		(4		)	—			—			—			196
Stock-based compensation	—		—		3			—			—			—			3
Advances from non-controlling interests	—		—		—			—			—			20			20
Foreign currency translation impacts	—		—		—			—			—			20			20
Subsidiary dividends paid to non-controlling interests	—		—		—			—			—			(23		)	(23		)
Dividends declared on common shares ($1.43 per share)	—		—		—			—			(400		)	—			(400		)
Dividends declared on preference shares	—		—		—			—			(77		)	—			(77		)
As at December 31, 2015	$	5,867	$	1,820	$	14		$	791		$	1,388		$	473		$	10,353
As at January 1, 2014	$	3,783	$	1,229	$	17		$	(72	)	$	1,044		$	375		$	6,376
Net earnings	—		—		—			—			379			11			390
Other comprehensive income	—		—		—			201			—			—			201
Preference share issue	—		591		—			—			—			—			591
Common share issues	1,884		—		(5		)	—			—			—			1,879
Stock-based compensation	—		—		3			—			—			—			3
Advances from non-controlling interests	—		—		—			—			—			38			38
Foreign currency translation impacts	—		—		—			—			—			7			7
Subsidiary dividends paid to non-controlling interests	—		—		—			—			—			(10		)	(10		)
Dividends declared on common shares ($1.30 per share)	—		—		—			—			(301		)	—			(301		)
Dividends declared on preference shares	—		—		—			—			(62		)	—			(62		)
As at December 31, 2014	$	5,667	$	1,820	$	15		$	129		$	1,060		$	421		$	9,112

See accompanying Notes to Consolidated Financial Statements

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

1. DESCRIPTION OF THE BUSINESS

Nature of Operations

Fortis Inc. (“Fortis” or the “Corporation”) is principally an international electric and gas utility holding company. Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis also holds investments in non-regulated generation assets, which are treated as a separate segment. The Corporation’s reporting segments allow senior management to evaluate the operational performance and assess the overall contribution of each segment to the long-term objectives of Fortis. Each entity within the reporting segments operates with substantial autonomy, assumes profit and loss responsibility and is accountable for its own resource allocation.

The following summary describes the operations included in each of the Corporation’s reportable segments.

REGULATED UTILITIES

The Corporation’s interests in regulated electric and gas utilities are as follows.

Regulated Electric & Gas Utilities - United States

a. UNS Energy: Primarily comprised of Tucson Electric Power Company (“TEP”), UNS Electric, Inc. (“UNS Electric”) and UNS Gas, Inc. (“UNS Gas”), (collectively, the “UNS Utilities”), acquired by Fortis in August 2014 (Note 29).

TEP, UNS Energy’s largest operating subsidiary, is a vertically integrated regulated electric utility. TEP generates, transmits and distributes electricity to retail customers in southeastern Arizona, including the greater Tucson metropolitan area in Pima County, as well as parts of Cochise County. TEP also sells wholesale electricity to other entities in the western United States.

UNS Electric is a vertically integrated regulated electric utility, which generates, transmits and distributes electricity to retail customers in Arizona’s Mohave and Santa Cruz counties.

TEP and UNS Electric currently own generation resources with an aggregate capacity of 2,799 megawatts (“MW”), including 54 MW of solar capacity. Several of the generating assets in which TEP and UNS Electric have an interest are jointly owned. As at December 31, 2015, approximately 43% of the generating capacity was fuelled by coal.

UNS Gas is a regulated gas distribution utility, serving retail customers in Arizona’s Mohave, Yavapai, Coconino, Navajo and Santa Cruz counties.

b. Central Hudson : Central Hudson Gas & Electric Corporation (“Central Hudson”) is a regulated transmission and distribution (“T&D”) utility, serving eight counties of New York State’s Mid-Hudson River Valley. The Company owns gas-fired and hydroelectric generating capacity totalling 64 MW.

Regulated Gas Utility - Canadian

FortisBC Energy: Primarily includes FortisBC Energy Inc. (“FortisBC Energy” or “FEI”) and, prior to December 31, 2014, FortisBC Energy (Vancouver Island) Inc. (“FEVI”) and FortisBC Energy (Whistler) Inc. (“FEWI”). On December 31, 2014, FEI, FEVI and FEWI were amalgamated and FEI is the resulting Company (Note 2). FEI is the largest distributor of natural gas in British Columbia, serving more than 135 communities. Major areas served by the Company are the Lower Mainland, Vancouver Island and Whistler regions of British Columbia. FEI provides T&D services to customers, and obtains natural gas supplies on behalf of most residential, commercial and industrial customers. Gas supplies are sourced primarily from northeastern British Columbia and, through FEI’s Southern Crossing pipeline, from Alberta.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

1. DESCRIPTION OF THE BUSINESS (cont’d)

Regulated Electric Utilities — Canadian

a. FortisAlberta: FortisAlberta Inc. (“FortisAlberta”) owns and operates the electricity distribution system in a substantial portion of southern and central Alberta. The Company does not own or operate generation or transmission assets and is not involved in the direct sale of electricity.

b. FortisBC Electric : Includes FortisBC Inc., an integrated electric utility operating in the southern interior of British Columbia. FortisBC Inc. owns four hydroelectric generating facilities with a combined capacity of 225 MW. Also included in the FortisBC Electric segment are the operating, maintenance and management services relating to the 493-MW Waneta hydroelectric generating facility owned by Teck Metals Ltd. and BC Hydro; the 335-MW Waneta Expansion hydroelectric generating facility (“Waneta Expansion”), owned by Fortis and Columbia Power Corporation and Columbia Basin Trust (“CPC/CBT”); the 149-MW Brilliant hydroelectric plant and the 120-MW Brilliant hydroelectric expansion plant, both owned by CPC/CBT; and the 185-MW Arrow Lakes hydroelectric plant owned by CPC/CBT.

c. Eastern Canadian: Comprised of Newfoundland Power Inc. (“Newfoundland Power”), Maritime Electric Company, Limited (“Maritime Electric”) and FortisOntario Inc. (“FortisOntario”). Newfoundland Power is an integrated electric utility and the principal distributor of electricity on the island portion of Newfoundland and Labrador. Newfoundland Power has an installed generating capacity of 139 MW, of which 97 MW is hydroelectric generation. Maritime Electric is an integrated electric utility and the principal distributor of electricity on Prince Edward Island (“PEI”). Maritime Electric also maintains on-Island generating facilities with a combined capacity of 150 MW. FortisOntario provides integrated electric utility service to customers in Fort Erie, Cornwall, Gananoque, Port Colborne and the District of Algoma in Ontario. FortisOntario’s operations are primarily comprised of Canadian Niagara Power Inc. (“Canadian Niagara Power”), Cornwall Street Railway, Light and Power Company, Limited (“Cornwall Electric”) and Algoma Power Inc. (“Algoma Power”).

Regulated Electric Utilities — Caribbean

The Regulated Electric Utilities — Caribbean segment includes the Corporation’s approximate 60% controlling ownership interest in Caribbean Utilities Company, Ltd. (“Caribbean Utilities”) (December 31, 2014 - 60%), Fortis Turks and Caicos, and the Corporation’s 33% equity investment in Belize Electricity Limited (“Belize Electricity”) (Note 9). Caribbean Utilities is an integrated electric utility and the sole provider of electricity on Grand Cayman, Cayman Islands. The Company has an installed diesel-powered generating capacity of 132 MW. Caribbean Utilities is a public company traded on the Toronto Stock Exchange (“TSX”) (TSX:CUP.U). Fortis Turks and Caicos is comprised of two integrated electric utilities that provide electricity to certain islands in Turks and Caicos. The utilities have a combined diesel-powered generating capacity of 82 MW. Belize Electricity is an integrated electric utility and the principal distributor of electricity in Belize.

NON-REGULATED - FORTIS GENERATION

Fortis Generation is primarily comprised of long-term contracted generation assets in British Columbia and Belize. Generating assets in British Columbia include the Corporation’s 51% controlling ownership interest in the 335-MW Waneta Expansion. Construction of the Waneta Expansion was completed in April 2015 and the output is sold to BC Hydro and FortisBC Electric under 40-year contracts. The Corporation’s 51% controlling ownership interest in the Waneta Expansion is conducted through the Waneta Expansion Limited Partnership (“Waneta Partnership”), with CPC/CBT holding the remaining 49% interest.

Generating assets in Belize are comprised of three hydroelectric generating facilities with a combined capacity of 51 MW. All of the output of these facilities is sold to Belize Electricity under 50-year power purchase agreements (“PPAs”) expiring in 2055 and 2060. The hydroelectric generation operations in Belize are conducted through the Corporation’s indirectly wholly owned subsidiary Belize Electric Company Limited (“BECOL”) under a franchise agreement with the Government of Belize (“GOB”).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

1. DESCRIPTION OF THE BUSINESS (cont’d)

NON-REGULATED - FORTIS GENERATION (cont’d)

As at December 31, 2015, the 16-MW run-of-river Walden hydroelectric generating facility (“Walden”) has been classified as held for sale (Note 6).

In June 2015 and July 2015 the Corporation sold its non-regulated generation assets in Upstate New York and Ontario, respectively (Notes 24 and 28).

NON-REGULATED - NON-UTILITY

The Non-Utility segment previously included Fortis Properties Corporation (“Fortis Properties”) and Griffith Energy Services, Inc. (“Griffith”). Fortis Properties completed the sale of its commercial real estate assets in June 2015 and its hotel assets in October 2015, and Griffith was sold in March 2014 (Note 28).

CORPORATE AND OTHER

The Corporate and Other segment includes net corporate expenses of Fortis and non-regulated holding company expenses of FortisBC Holdings Inc. (“FHI”), CH Energy Group, Inc. (“CH Energy Group”) and UNS Energy Corporation. Also included in the Corporate and Other segment are the financial results of FortisBC Alternative Energy Services Inc. (“FAES”). FAES is a wholly owned subsidiary of FHI that provides alternative energy solutions, including thermal-energy and geo-exchange systems.

2. NATURE OF REGULATION

The Corporation’s regulated utilities are primarily determined under cost of service (“COS”) regulation and, in certain jurisdictions, performance-based rate-setting (“PBR”) mechanisms. Generally, under COS regulation the respective regulatory authority sets customer electricity and/or gas rates to permit a reasonable opportunity for the utility to recover, on a timely basis, estimated costs of providing service to customers, including a fair rate of return on a regulatory deemed or targeted capital structure applied to an approved regulatory asset value (“rate base”). The ability of a regulated utility to recover prudently incurred costs of providing service and earn the regulator-approved rate of return on common shareholders’ equity (“ROE”) and/or rate of return on rate base assets (“ROA”) depends on the utility achieving the forecasts established in the rate-setting processes. If a historical test year is used to set customer rates, there may be regulatory lag between when costs are incurred and when they are reflected in customer rates. When PBR mechanisms are utilized in determining annual revenue requirements and resulting customer rates, a formula is generally applied that incorporates inflation and assumed productivity improvements. The use of PBR mechanisms should allow a utility a reasonable opportunity to recover prudently incurred costs and earn its allowed ROE or ROA.

When future test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of the actual COS being different from that which is estimated, other than for certain prescribed costs that are eligible to be deferred on the balance sheet. In addition, the Corporation’s regulated utilities, where applicable, are permitted by their respective regulatory authority to flow through to customers, without markup, the cost of natural gas, fuel and/or purchased power through base customer rates and/or the use of rate stabilization and other mechanisms (Note 8).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

2. NATURE OF REGULATION (cont’d)

The nature of regulation at the Corporation’s utilities is as follows.

UNS Energy

The UNS Utilities are regulated by the Arizona Corporation Commission (“ACC”) and certain activities are subject to regulation by the U.S. Federal Energy Regulatory Commission (“FERC”) under the Federal Power Act (United States). The UNS Utilities operate under COS regulation as administered by the ACC, which provides for the use of a historical test year in the establishment of retail electric and gas rates. Retail electric and gas rates are set to provide the utilities with an opportunity to recover their COS and earn a reasonable rate of return on rate base, including an adjustment for the fair value of rate base as required under the laws of the State of Arizona.

TEP’s allowed ROE is set at 10.0% on a capital structure of 43.5% common equity, effective from July 1, 2013. UNS Electric’s allowed ROE is set at 9.50% on a capital structure of 52.6% common equity, effective from January 1, 2014. UNS Gas’ allowed ROE is set at 9.75% on a capital structure of 50.8% common equity, effective from May 1, 2012.

Central Hudson

Central Hudson is regulated by the New York State Public Service Commission (“PSC”) and certain activities are subject to regulation by FERC under the Federal Power Act (United States). The Company is also subject to regulation by the North American Electric Reliability Corporation. Central Hudson operates under COS regulation as administered by the PSC with the use of a future test year in the establishment of rates.

Central Hudson began operating under a three-year rate order issued by the PSC effective July 1, 2010 with an allowed ROE set at 10.0% on a deemed capital structure of 48% common equity. As approved by the PSC in June 2013, the original three-year rate order was extended for two years, through June 30, 2015, as part of the regulatory approval of the acquisition of Central Hudson by Fortis . In June 2015 the PSC issued a rate order for the Company covering a three-year period, with new electricity and natural gas delivery rates effective July 1, 2015. The new rate order reflects an allowed ROE of 9.0% and a 48% common equity component of capital structure.

Effective July 1, 2013, Central Hudson was also subject to an earnings sharing mechanism, whereby the Company and customers share equally earnings in excess of the allowed ROE up to an achieved ROE that is 50 basis points above the allowed ROE, and share 10%/90% (Company/customers) earnings in excess of 50 basis points above the allowed ROE. In the new rate order effective July 1, 2015, the earnings sharing mechanism was continued, whereby the Company and customers share equally earnings in excess of 50 basis points above the allowed ROE up to an achieved ROE that is 100 basis points above the allowed ROE. Earnings in excess of 100 basis points above the allowed ROE are shared primarily with the customer.

FortisBC Energy and FortisBC Electric

FortisBC Energy and FortisBC Electric are regulated by the British Columbia Utilities Commission (“BCUC”) pursuant to the Utilities Commission Act (British Columbia). The Companies primarily operate under COS regulation and, from time to time, PBR mechanisms for establishing customer rates.

In the first stage of the Generic Cost of Capital (“GCOC”) Proceeding in British Columbia, FEI was designated as the benchmark utility and a BCUC decision established that the allowed ROE for the benchmark utility would be set at 8.75% on a 38.5% common equity component of capital structure, both effective January 1, 2013 through December 31, 2015. In March 2014 the BCUC issued its decision on the second stage of the GCOC Proceeding, setting the common equity component of capital structure for FEVI and FEWI at 41.5%, and reaffirming the common equity component of capital structure for FortisBC Electric at 40%, all effective January 1, 2013. The resulting allowed ROEs for FEVI, FEWI and FortisBC Electric were 9.25%, 9.50% and 9.15%, respectively, also effective January 1, 2013. Effective January 1, 2015, following the amalgamation of FEI, FEVI and FEWI, the ROE and common equity component of capital structure for the amalgamated FEI, was set to equal the benchmark utility, at 8.75% and 38.5%, respectively.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

2. NATURE OF REGULATION (cont’d)

FortisBC Energy and FortisBC Electric (cont’d)

FEI and FortisBC Electric are subject to Multi-Year PBR Plans for 2014 through 2019. The PBR Plans, as approved by the BCUC, incorporate incentive mechanisms for improving operating and capital expenditure efficiencies. Operation and maintenance expenses and base capital expenditures during the PBR period are subject to an incentive formula reflecting incremental costs for inflation and half of customer growth, less a fixed productivity adjustment factor of 1.1% for FEI and 1.03% for FortisBC Electric each year. The approved PBR Plans also include a 50%/50% sharing of variances from the formula-driven operation and maintenance expenses and capital expenditures over the PBR period, and a number of service quality measures designed to ensure FEI and FortisBC Electric maintain service levels. It also sets out the requirements for an annual review process which will provide a forum for discussion between the utilities and interested parties regarding current performance and future activities.

FortisAlberta

FortisAlberta is regulated by the Alberta Utilities Commission (“AUC”) pursuant to the Electric Utilities Act (Alberta), the Public Utilities Act (Alberta), the Hydro and Electric Energy Act (Alberta) and the Alberta Utilities Commission Act (Alberta). Effective January 1, 2013, the AUC prescribed that distribution utilities in Alberta, including FortisAlberta, move to PBR for a five-year term. Under PBR, each year the prescribed formula is applied to the preceding year’s distribution rates, with 2012 used as the going-in distribution rates.

The PBR plan includes mechanisms for the recovery or settlement of items determined to flow through directly to customers (“Y factor”) and the recovery of costs related to capital expenditures that are not being recovered through the formula (“K factor” or “capital tracker”). The AUC also approved a Z factor, a PBR re-opener and an ROE efficiency carry-over mechanism. The Z factor permits an application for recovery of costs related to significant unforeseen events. The PBR re-opener permits an application to re-open and review the PBR plan to address specific problems with the design or operation of the PBR plan. The use of the Z factor and PBR re-opener mechanisms is associated with certain thresholds. The ROE efficiency carry-over mechanism provides an efficiency incentive by permitting a utility to continue to benefit from any efficiency gains achieved during the PBR term for two years following the end of that term.

The funding of capital expenditures during the PBR term is a material aspect of the PBR plan for FortisAlberta. The PBR plan provides a capital tracker mechanism to fund the recovery of costs associated with certain qualifying capital expenditures. In March 2015 the AUC issued its decision related to FortisAlberta’s 2013, 2014 and 2015 Capital Tracker Applications. The decision: (i) indicated that the majority of the Company’s applied for capital trackers met the established criteria and were, therefore, approved for collection from customers; (ii) approved FortisAlberta’s accounting test to determine qualifying K factor amounts; and (iii) confirmed certain inputs to be used in the accounting test, including the conclusion that the weighted average cost of capital be based on actual debt rates and the allowed ROE and capital structure approved in the GCOC Proceeding.

In September 2015 the AUC approved FortisAlberta’s compliance filing related to the 2015 Capital Tracker Decision, substantially as filed. Capital tracker revenue of $17 million was approved for 2013 on an actual basis and capital tracker revenue of $42 million and $62 million was approved on a forecast basis for 2014 and 2015, respectively. FortisAlberta collected $15 million, $29 million and $62 million in 2013, 2014 and 2015, respectively, related to capital tracker expenditures.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

2. NATURE OF REGULATION (cont’d)

FortisAlberta (cont’d)

FortisAlberta recognized capital tracker revenue of approximately $59 million in 2015, of which $9 million was related to updates to the 2013 and 2014 capital tracker approved amounts. The capital tracker revenue for 2015 of approximately $50 million incorporates an update for related 2015 capital tracker expenditures as compared to the approved forecast reflected in current rates. This resulted in a deferral of $12 million of 2015 capital tracker revenue as a regulatory liability.

In March 2015 the AUC issued its decision on the GCOC Proceeding in Alberta. The GCOC Proceeding set FortisAlberta’s allowed ROE for 2013 through 2015 at 8.30%, down from the interim allowed ROE of 8.75%, and set the common equity component of capital structure at 40%, down from 41%. The AUC also determined that it would not re-establish a formula-based approach to setting the allowed ROE at this time. Instead, the allowed ROE of 8.30% and common equity component of capital structure of 40% will remain in effect on an interim basis for 2016 and beyond. For regulated utilities in Alberta under PBR mechanisms, including FortisAlberta, the impact of the changes to the allowed ROE and common equity component of capital structure resulting from the GCOC Proceeding applies to the portion of rate base that is funded by capital tracker revenue only. For assets not being funded by capital tracker revenue, no revenue adjustment is required for the change in the allowed ROE and common equity component of capital structure, from that set in an earlier GCOC decision.

Eastern Canadian Electric Utilities

Newfoundland Power is regulated by the Newfoundland and Labrador Board of Commissioners of Public Utilities (“PUB”) under the Public Utilities Act (Newfoundland and Labrador). Newfoundland Power operates under COS regulation with the use of a future test year in the establishment of rates. The PUB has set the allowed ROE at 8.80% and the common equity component of capital structure at 45% for 2013 through 2015.

Maritime Electric is regulated by the Island Regulatory and Appeals Commission (“IRAC”) under the provisions of the Electric Power Act (PEI), the Renewable Energy Act (PEI), the Electric Power (Electricity Rate-Reduction) Amendment Act (PEI), and the Electric Power (Energy Accord Continuation) Amendment Act (PEI) (“Accord Continuation Act”), which covers the period March 1, 2013 to February 29, 2016. Maritime Electric operates under COS regulation with the use of a future test year for the establishment of rates. IRAC set the allowed ROE at 9.75% on a targeted minimum capital structure of 40% common equity for 2014 and 2015.

In Ontario, Canadian Niagara Power, Algoma Power and Cornwall Electric operate under the Electricity Act (Ontario) and the Ontario Energy Board Act (Ontario), as administered by the Ontario Energy Board (“OEB”). Canadian Niagara Power and Algoma Power operate under COS regulation and earnings are regulated on the basis of rate of return on rate base, plus a recovery of allowable distribution costs. In non-rebasing years, customer electricity distribution rates are set using inflationary factors less an efficiency target under the Fourth-Generation Incentive Regulation Mechanism as prescribed by the OEB. Algoma Power is also subject to the use and implementation of the Rural and Remote Rate Protection (“RRRP”) Program. The RRRP Program is calculated as the deficiency between the approved revenue requirement from the OEB and current customer electricity distribution rates, adjusted for the average rate increase across the province of Ontario. Canadian Niagara Power and Algoma Power use a future test year in the establishment of rates. Canadian Niagara Power’s allowed ROE for distribution assets was set at 8.93% for 2014 and 2015 and the allowed ROE for transmission assets was set at 8.93% for 2014 and 9.30% for 2015, both on a deemed capital structure of 40% common equity. Algoma Power’s allowed ROE was set at 9.85% for 2014 and 9.30% for 2015 on a deemed capital structure of 40% common equity. Cornwall Electric is subject to a rate-setting mechanism under a 35-year Franchise Agreement with the City of Cornwall expiring in 2033 and, therefore, is exempt from many aspects of the above Acts. The rate-setting mechanism is based on a price cap with commodity cost flow through. The base revenue requirement is adjusted annually for inflation, load growth and customer growth.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

2. NATURE OF REGULATION (cont’d)

Regulated Electric Utilities - Caribbean

Caribbean Utilities operates under T&D and generation licences from the Government of the Cayman Islands. The exclusive T&D licence is for an initial period of 20 years, expiring April 2028, with a provision for automatic renewal. In November 2014 a new non-exclusive generation licence was issued for a term of 25 years, expiring in November 2039. The licences detail the role of the Electricity Regulatory Authority, which oversees all licences, establishes and enforces licence standards, reviews the rate-cap adjustment mechanism (“RCAM”), and annually approves capital expenditures. The licences contain the provision for an RCAM based on published consumer price indices. Caribbean Utilities’ targeted allowed ROA for 2015 was in the range of 7.25% to 9.25%, compared to a range of 7.00% to 9.00% for 2014.

Fortis Turks and Caicos operates under two 50-year licences expiring in 2036 and 2037. Among other matters, the licences describe how electricity rates are set by the Government of the Turks and Caicos Islands, using a historical test year, in order to provide the utilities with an allowed ROA of between 15.0% and 17.5% (the “Allowable Operating Profit”). The Allowable Operating Profit is based on a calculated rate base including interest on the amounts by which actual operating profits fall short of the Allowable Operating Profits on a cumulative basis (the “Cumulative Shortfall”). Annual submissions are made to the Government of the Turks and Caicos Islands calculating the amount of the Allowable Operating Profit and the Cumulative Shortfall. The submissions for 2015 calculated the Allowable Operating Profit to be $51 million (US$40 million) and the Cumulative Shortfall as at December 31, 2015 to be $274 million (US$198 million). The recovery of the Cumulative Shortfall is, however, dependent on future sales volumes and expenses. The achieved ROAs at the utilities have been significantly lower than those allowed under the licences as a result of the inability, due to economic and political factors, to increase base electricity rates associated with significant capital investment in recent years.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), which for regulated utilities include specific accounting guidance for regulated operations, as outlined in Note 2, and the following summary of significant accounting policies.

All amounts presented are in Canadian dollars unless otherwise stated.

Basis of Presentation

The consolidated financial statements reflect the Corporation’s investments in its subsidiaries on a consolidated basis, with the equity method used for entities in which Fortis has significant influence, but not control, and proportionate consolidation for generation and transmission assets that are jointly owned with non-affiliated entities. All material intercompany transactions have been eliminated in the consolidated financial statements.

An evaluation of subsequent events through to February 17, 2016, the date these consolidated financial statements were approved by the Board of Directors of Fortis (“Board of Directors”), was completed to determine whether the circumstances warranted recognition and disclosure of events or transactions in the consolidated financial statements as at December 31, 2015 (Note 35).

Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term deposits with initial maturities of three months or less from the date of deposit.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects management’s best estimate of uncollectible accounts receivable balances. Fortis and each of its subsidiaries maintain an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and economic conditions. Interest is charged on accounts receivable balances that have been outstanding for more than 21 to 30 days. Accounts receivable are written-off in the period in which the receivable is deemed uncollectible.

Inventories

Inventories, consisting of materials and supplies, gas, fuel and coal in storage, are measured at the lower of weighted average cost and market value, unless evidence indicates that the weighted average cost, even in excess of market, will be recovered in future customer rates.

Regulatory Assets and Liabilities

Regulatory assets and liabilities arise as a result of the rate-setting process at the Corporation’s regulated utilities. Regulatory assets represent future revenues and/or receivables associated with certain costs incurred that will be, or are expected to be, recovered from customers in future periods through the rate-setting process. Regulatory liabilities represent future reductions or limitations of increases in revenue associated with amounts that will be, or are expected to be, refunded to customers through the rate-setting process.

All amounts deferred as regulatory assets and liabilities are subject to regulatory approval. As such, the regulatory authorities could alter the amounts subject to deferral, at which time the change would be reflected in the consolidated financial statements. Certain remaining recovery and settlement periods are those expected by management and the actual recovery or settlement periods could differ based on regulatory approval.

Investments

Portfolio investments are accounted for on the cost basis. Declines in value considered to be other than temporary are recorded in the period in which such determinations are made. Investments in which the Corporation exercises significant influence are accounted for on the equity basis. The Corporation reviews its investments on an annual basis for potential impairment in investment value. Should an impairment be identified, it will be recognized in the period in which such impairment is identified.

Available-for-Sale Assets

The Corporation’s assets designated as available-for-sale are measured at fair value based on quoted market prices. Unrealized gains or losses resulting from changes in fair value are recognized in accumulated other comprehensive income and are reclassified to earnings when the assets are sold.

Utility Capital Assets

Utility capital assets are recorded at cost less accumulated depreciation. Contributions in aid of construction represent amounts contributed by customers and governments for the cost of utility capital assets. These contributions are recorded as a reduction in the cost of utility capital assets and are being amortized annually by an amount equal to the charge for depreciation provided on the related assets.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Utility Capital Assets (cont’d)

Each of UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, Newfoundland Power and Maritime Electric accrue estimated non-asset retirement obligations (“AROs”) removal costs in depreciation, as required by their respective regulator, with the amount provided for in depreciation recorded as a long-term regulatory liability (Note 8 (xiv) ). Actual non-ARO removal costs are recorded against the regulatory liability when incurred. As permitted by the regulator, FortisBC Electric records actual non-ARO removal costs, net of salvage proceeds, against accumulated depreciation as incurred. FortisOntario, Fortis Turks and Caicos and Waneta Expansion recognize non-ARO removal costs, net of salvage proceeds, in earnings in the period incurred. Caribbean Utilities recognizes non-ARO removal costs in utility capital assets.

Utility capital assets are derecognized on disposal or when no future economic benefits are expected from their use. Upon retirement or disposal of utility capital assets, any difference between the cost and accumulated depreciation of the asset, net of salvage proceeds, is charged to accumulated depreciation by UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric, Caribbean Utilities and Fortis Turks and Caicos, as required by their respective regulator, with no gain or loss, if any, recognized in earnings. It is expected that any gains or losses charged to accumulated depreciation will be reflected in future depreciation expense when they are refunded or collected in customer electricity and gas rates. At FortisOntario, as required by its regulator, and the Waneta Partnership, any remaining net book value, net of salvage proceeds, upon retirement or disposal of utility capital assets is recognized immediately in earnings.

As required by their respective regulator, UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric, Caribbean Utilities and Fortis Turks and Caicos, capitalize overhead costs that are not directly attributable to specific utility capital assets but relate to the overall capital expenditure program. The methodology for calculating and allocating capitalized general overhead costs to utility capital assets is established by the respective regulator.

As required by their respective regulator, UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric and Caribbean Utilities include in the cost of utility capital assets both a debt and an equity component of the allowance for funds used during construction (“AFUDC”). The debt component of AFUDC is reported as a reduction of finance charges (Note 25) and the equity component of AFUDC is reported as other income (Note 24). Both components of AFUDC are charged to earnings through depreciation expense over the estimated service lives of the applicable utility capital assets. AFUDC is calculated in a manner as prescribed by the respective regulator.

At FortisAlberta, the cost of utility capital assets also includes Alberta Electric System Operator (“AESO”) contributions, which are investments required by FortisAlberta to partially fund the construction of transmission facilities.

As approved by the regulator, FortisBC Energy has reduced the amounts reported for utility capital assets by the amount of government loans received in connection with the construction and operation of the Vancouver Island natural gas pipeline. As the loans are repaid and replaced with non-government loans, FortisBC Energy increases both utility capital assets and long-term debt (Note 15).

Utility capital assets include inventories held for the development, construction and betterment of other utility capital assets, with the exception of UNS Energy. As required by its regulator, UNS Energy recognizes inventories held for the development and construction of other utility capital assets in inventories until consumed. When put into service, the inventories are reclassified to utility capital assets (Note 7).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Utility Capital Assets (cont’d)

Maintenance and repairs of utility capital assets are charged to earnings in the period incurred, while replacements and betterments which extend the useful lives are capitalized.

Utility capital assets are depreciated using the straight-line method based on the estimated service lives of the utility capital assets. Depreciation rates for regulated utility capital assets are approved by the respective regulator. Depreciation rates for 2015 ranged from 1.3% to 43.2% (2014 - 1.3% to 43.2%). The weighted average composite rate of depreciation, before reduction for amortization of contributions in aid of construction, for 2015 was 3.1% (2014 — 3.2%).

The service life ranges and weighted average remaining service life of the Corporation’s distribution, transmission, generation and other assets as at December 31 were as follows:

	2015		2014
		Weighted		Weighted
		Average		Average
	Service Life	Remaining	Service Life	Remaining
(Years)	Ranges	Service Life	Ranges	Service Life
Distribution
Electric	5-80	30	5-80	28
Gas	4-95	33	4-85	31
Transmission
Electric	20-80	29	20-70	27
Gas	7-80	36	4-71	38
Generation	5-85	27	4-75	24
Other	3-70	8	3-70	8

Non-Utility Capital Assets

In 2015 the Corporation sold its commercial real estate and hotel assets, which included office buildings, shopping malls, hotels, land, construction in progress, and related equipment and tenant inducements (Note 28). Non-utility capital assets were recorded at cost less accumulated depreciation, where applicable, using the straight-line method of depreciation.

Maintenance and repairs were charged to earnings in the period incurred, while replacements and betterments which extended the useful lives were capitalized.

Leases

Leases that transfer to the Corporation substantially all of the risks and benefits incidental to ownership of the leased item are capitalized at the present value of the minimum lease payments. Included as capital leases are any arrangements that qualify as leases by conveying the right to use a specific asset.

Capital leases are depreciated over the lease term, except where ownership of the asset is transferred at the end of the lease term, in which case capital leases are depreciated over the estimated service life of the underlying asset. Where the regulator has approved recovery of the arrangements as operating leases for rate-setting purposes that would otherwise qualify as capital leases for financial reporting purposes, the timing of the expense recognition related to the lease is modified to conform with the rate-setting process.

Operating lease payments are recognized as an expense in earnings on a straight-line basis over the lease term.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Intangible Assets

Intangible assets are recorded at cost less accumulated amortization. Intangible assets are comprised of computer software costs; land, transmission and water rights; and franchise fees. The cost of intangible assets at the Corporation’s regulated subsidiaries includes amounts for AFUDC and allocated overhead, where permitted by the respective regulators. Costs incurred to renew or extend the term of an intangible asset are capitalized and amortized over the new term of the intangible asset.

The useful lives of intangible assets are assessed to be either indefinite or finite. Intangible assets with indefinite useful lives are tested for impairment annually, either individually or at the reporting unit level, if they are held in a regulated utility. Such intangible assets are not amortized. Indefinite-lived intangible assets, not subject to amortization, consist of certain land, transmission and water rights at UNS Energy, FortisBC Energy, FortisBC Electric and the Waneta Partnership. An intangible asset with an indefinite useful life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

In testing indefinite-lived intangible assets for impairment, the Corporation has the option, on an annual basis, of performing a qualitative assessment before calculating fair value. If the qualitative factors indicate that fair value is 50% or more likely to be greater than the carrying value, calculation of fair value would not be required.

Impairment testing for indefinite-lived intangible assets is carried out at the reporting unit level at the regulated utilities. A fair rate of return on the indefinite-lived intangible assets is provided through customer electricity and gas rates, as approved by the respective regulatory authority. The net cash flows for regulated enterprises are not asset-specific but are pooled for the entire regulated utility.

Fortis performs the annual impairment test as at October 1. In addition, the Corporation also performs an impairment test if any event occurs or if circumstances change that would indicate that the fair value of the indefinite-lived intangible assets is below its carrying value. No such event or change in circumstances occurred during 2015 or 2014 and there were no impairment provisions required in either year. For its annual testing of impairment for indefinite-lived intangible assets, Fortis uses the approach for the annual testing for goodwill impairment as disclosed in this Note under “Goodwill”.

Intangible assets with finite lives are amortized using the straight-line method based on the estimated service lives of the assets and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortization rates for regulated intangible assets are approved by the respective regulator.

Amortization rates for 2015 ranged from 1.0% to 50.0% (2014 — 1.0% to 50.0%). The service life ranges and weighted average remaining service life of finite-life intangible assets as at December 31 were as follows:

	2015		2014
		Weighted		Weighted
		Average		Average
	Service Life	Remaining	Service Life	Remaining
(Years)	Ranges	Service Life	Ranges	Service Life
Computer software	3-10	4	3-10	4
Land, transmission and water rights	30-80	37	30-75	32
Franchise fees and other	10-104	15	10-100	19

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Intangible Assets (cont’d)

Intangible assets are derecognized on disposal or when no future economic benefits are expected from their use. Upon retirement or disposal of intangible assets, any difference between the cost and accumulated amortization of the asset, net of salvage proceeds, is charged to accumulated amortization by UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric, Caribbean Utilities and Fortis Turks and Caicos, as required by their respective regulator, with no gain or loss, if any, recognized in earnings. It is expected that any gains or losses charged to accumulated amortization will be reflected in future amortization costs when they are refunded or collected in customer electricity and gas rates. At FortisOntario, as required by its regulator, and the Waneta Partnership, any remaining net book value, net of salvage proceeds, upon retirement or disposal of intangible assets is recognized immediately in earnings.

Impairment of Long-Lived Assets

The Corporation reviews the valuation of utility capital assets, intangible assets with finite lives and other long-term assets when events or changes in circumstances indicate that the assets’ carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. An impairment loss, calculated as the difference between the assets’ carrying value and their fair value, which is determined using present value techniques, is recognized in earnings in the period in which it is identified. There was no material impact on the consolidated financial statements as a result of regulated long-lived asset or non-regulated generation asset impairments for the years ended December 31, 2015 and 2014. Certain of the Corporation’s non-utility hotel assets, all of which were sold in 2015, were subject to an impairment charge as a result of the carrying amount of the assets exceeding their fair value (Note 28).

Asset-impairment testing at the regulated utilities is carried out at the enterprise level to determine if assets are impaired. The recovery of regulated assets’ carrying value, including a fair rate of return, is provided through customer electricity and gas rates approved by the respective regulatory authority. The net cash flows for regulated enterprises are not asset-specific but are pooled for the entire regulated utility.

The process for asset-impairment testing differs for non-regulated generation assets compared to regulated utility assets. Since each non-regulated generating facility provides an individual cash flow stream, such an asset is tested individually and impairment is recorded if the future net cash flows are no longer sufficient to recover the carrying value of the generating facility.

Goodwill

Goodwill represents the excess, at the dates of acquisition, of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed relating to business acquisitions. Goodwill is carried at initial cost less any write-down for impairment.

Fortis performs an annual internal quantitative assessment for each reporting unit. For those reporting units where: (i) management’s assessment of quantitative and qualitative factors indicates that fair value is not 50% or more likely to be greater than carrying value; or (ii) where the excess of estimated fair value over carrying value, as determined by an external consultant as of the date of the immediately preceding impairment test, was not significant, then fair value of the reporting unit will be estimated by an external consultant in the current year. Irrespective of the above-noted approach, a reporting unit to which goodwill has been allocated may have its fair value estimated by an external consultant as at the annual impairment date, as Fortis will, at a minimum, have fair value for each material reporting unit estimated by an external consultant once every five years.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Goodwill (cont’d)

In calculating goodwill impairment, Fortis determines those reporting units that will have fair value estimated by an external consultant, as described above, and such estimated fair value is then compared to the book value of the applicable reporting units. If the fair value of the reporting unit is less than the book value, a second measurement step is performed to determine the amount of the impairment. The amount of the impairment is determined by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of the reporting unit to determine the implied fair value of goodwill, and then comparing that amount to the book value of the reporting unit’s goodwill. Any excess of the book value of the goodwill over the implied fair value is the impairment amount recognized.

The primary method for estimating fair value of the reporting units is the income approach, whereby net cash flow projections for the reporting units are discounted using an enterprise value approach. Under the enterprise value approach, sustainable cash flow is determined on an after-tax basis, prior to the deduction of interest expense, and is then discounted at the weighted average cost of capital to yield the value of the enterprise. An enterprise value approach does not assess the appropriateness of the reporting unit’s existing debt level. The estimated fair value of the reporting unit is then determined by subtracting the fair value of the reporting unit’s interest-bearing debt from the enterprise value of the reporting unit. A secondary valuation method, the market approach, may also be performed by an external consultant as a check on the conclusions reached under the income approach. The market approach includes comparing various valuation multiples underlying the discounted cash flow analysis of the applicable reporting units to trading multiples of guideline entities and recent transactions involving guideline entities, recognizing differences in growth expectations, product mix and risks of those guideline entities with the applicable reporting units.

Employee Future Benefits

Defined Benefit and Defined Contribution Pension Plans

The Corporation and its subsidiaries each maintain one or a combination of defined benefit pension plans, including retirement allowances and supplemental retirement plans for certain executive employees, and defined contribution pension plans, including group Registered Retirement Savings Plans and group 401(k) plans for employees. The projected benefit obligation and the value of pension cost associated with the defined benefit pension plans are actuarially determined using the projected benefits method prorated on service and management’s best estimate of expected plan investment performance, salary escalation and expected retirement ages of employees. Discount rates reflect market interest rates on high-quality bonds with cash flows that match the timing and amount of expected pension payments.

With the exception of FortisBC Energy and Newfoundland Power, pension plan assets are valued at fair value for the purpose of determining pension cost. At FortisBC Energy and Newfoundland Power, pension plan assets are valued using the market-related value for the purpose of determining pension cost, where investment returns in excess of, or below, expected returns are recognized in the asset value over a period of three years.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Employee Future Benefits (cont’d)

Defined Benefit and Defined Contribution Pension Plans (cont’d)

The excess of any cumulative net actuarial gain or loss over 10% of the greater of the projected benefit obligation and the fair value of plan assets (the market-related value of plan assets at FortisBC Energy and Newfoundland Power) at the beginning of the fiscal year, along with unamortized past service costs, are deferred and amortized over the average remaining service period of active employees.

The net funded or unfunded status of defined benefit pension plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, is recognized on the Corporation’s consolidated balance sheet.

With the exception of UNS Energy, FortisAlberta and Maritime Electric, any difference between pension cost recognized under US GAAP and that recovered from customers in current rates for defined benefit pension plans, which is expected to be recovered from, or refunded to, customers in future rates, is subject to deferral account treatment (Note 8 (ii) ). As approved by the regulator, the cost of defined benefit pension plans at FortisAlberta is recovered in customer rates based on the cash payments made.

At UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric and FortisOntario, any unamortized balances related to net actuarial gains and losses, past service costs and transitional obligations associated with defined benefit pension plans, which would otherwise be recognized in accumulated other comprehensive income, are subject to deferral account treatment (Note 8 (ii) ). At Fortis, FHI and Caribbean Utilities, any unamortized balances related to net actuarial gains and losses, past service costs and transitional obligations associated with defined benefit pension plans are recognized in accumulated other comprehensive income.

The costs of the defined contribution pension plans are expensed as incurred.

Other Post-Employment Benefits Plans

UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric, FortisOntario and the Corporation also offer other post-employment benefits (“OPEB”) plans, including certain health and dental coverage and life insurance benefits, for qualifying members. The accumulated benefit obligation and the cost associated with OPEB plans are actuarially determined using the projected benefits method prorated on service and management’s best estimate of expected plan performance, salary escalation, expected retirement ages of employees and health care costs. Discount rates reflect market interest rates on high-quality bonds with cash flows that match the timing and amount of expected OPEB payments.

The excess of any cumulative net actuarial gain or loss over 10% of the accumulated benefit obligation and the fair value of plan assets at the beginning of the fiscal year, along with unamortized past service costs, are deferred and amortized over the average remaining service period of active employees.

The net funded or unfunded status of OPEB plans, measured as the difference between the fair value of the plan assets and the accumulated benefit obligation, is recognized on the Corporation’s consolidated balance sheet.

As approved by the regulator, the cost of OPEB plans at FortisAlberta is recovered in customer rates based on the cash payments made.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Employee Future Benefits (cont’d)

Other Post-Employment Benefits Plans (cont’d)

With the exception of UNS Energy and FortisAlberta, any difference between the cost of OPEB plans recognized under US GAAP and that recovered from customers in current rates, which is expected to be recovered from, or refunded to, customers in future rates, is subject to deferral account treatment (Note 8 (ii) ).

At FortisAlberta, the difference between the cost of OPEB plans recognized under US GAAP and that recovered from customers in current rates does not meet the criteria for deferral account treatment and, therefore, FortisAlberta recognizes in earnings the cost associated with its OPEB plan as actuarially determined, rather than as approved by the regulator. Unamortized OPEB plan balances at FortisAlberta related to net actuarial gains and losses and past service costs are recognized as a component of other comprehensive income.

Stock-Based Compensation

The Corporation records compensation expense related to stock options granted under its 2002 Stock Option Plan (“2002 Plan”), 2006 Stock Option Plan (“2006 Plan”) and 2012 Stock Option Plan (“2012 Plan”) (Note 23). Compensation expense is measured at the date of grant using the Black-Scholes fair value option-pricing model and each grant is amortized as a single award evenly over the four-year vesting period of the options granted. The offsetting entry is an increase to additional paid-in capital for an amount equal to the annual compensation expense related to the issuance of stock options. The stock options become exercisable once time vesting requirements have been met. Upon exercise, the proceeds of the options are credited to capital stock at the option prices and the fair value of the options, as previously recognized, is reclassified from additional paid-in capital to capital stock. An exercise of options below the current market price of the Corporation’s common shares has a dilutive effect on the Corporation’s consolidated capital stock and shareholders’ equity. Fortis satisfies stock option exercises by issuing common shares from treasury.

The Corporation also records liabilities associated with its Directors’ Deferred Share Unit (“DSU”), Performance Share Unit (“PSU”) and Restricted Share Unit (“RSU”) Plans, all representing cash settled awards, at fair value at each reporting date until settlement. Compensation expense is recognized on a straight-line basis over the vesting period, which, for the PSU and RSU Plans, is over the shorter of three years or the period to retirement eligibility. The fair value of the DSU, PSU and RSU liabilities is based on the five-day volume weighted average price (“VWAP”) of the Corporation’s common shares at the end of each reporting period. The VWAP of the Corporation’s common shares as at December 31, 2015 was $37.72 (December 31, 2014 - $38.96). The fair value of the PSU liability is also based on the expected payout probability, based on historical performance in accordance with the defined metrics of each grant and management’s best estimate.

Foreign Currency Translation

The assets and liabilities of the Corporation’s foreign operations, UNS Energy, Central Hudson, Caribbean Utilities, Fortis Turks and Caicos and BECOL, all of which have a US dollar functional currency, are translated at the exchange rate in effect as at the balance sheet date. The exchange rate in effect as at December 31, 2015 was US$1.00=CAD$1.38 (December 31, 2014 - US$1.00=CAD$1.16). The resulting unrealized translation gains and losses are excluded from the determination of earnings and are recognized in accumulated other comprehensive income until the foreign subsidiary is sold, substantially liquidated or evaluated for impairment in anticipation of disposal. Revenue and expenses of the Corporation’s foreign operations are translated at the average exchange rate in effect during the reporting period, which was US$1.00=CAD$1.28 for 2015 (2014 — US$1.00=CAD$1.10).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Foreign Currency Translation (cont’d)

The Corporation’s approximate 33% equity investment in Belize Electricity is translated at the exchange rate in effect as at the balance sheet date. The resulting unrealized translation gains and losses are excluded from the determination of earnings and are recognized in accumulated other comprehensive income until the investment is sold, substantially liquidated or evaluated for impairment in anticipation of disposal (Notes 9 and 24).

Foreign exchange translation gains and losses on foreign currency-denominated long-term debt that is designated as an effective hedge of foreign net investments are accumulated as a separate component of shareholders’ equity within accumulated other comprehensive income and the current period change is recorded in other comprehensive income.

Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the balance sheet date. Revenue and expenses denominated in foreign currencies are translated at the exchange rate prevailing at the transaction date. Gains and losses on translation are recognized in earnings.

Derivative Instruments and Hedging Activities

The Corporation and its subsidiaries use various physical and financial derivative instruments to meet forecast load and reserve requirements, to reduce exposure to fluctuations in commodity prices and foreign exchange rates, and to hedge interest rate risk exposure. The Corporation does not hold or issue derivative instruments for trading purposes and generally limits the use of derivative instruments to those that qualify as accounting, economic or cash flow hedges. As at December 31, 2015, the Corporation’s derivative instruments primarily consisted of electricity swap contracts, gas swap and option contracts, electricity power purchase contracts, gas purchase contract premiums, long-term wholesale trading contracts, and interest rate swaps (Note 31).

All derivative instruments that do not meet the normal purchase or normal sale scope exception are recognized as assets or liabilities on the consolidated balance sheet and are measured at fair value. Changes in fair value are recognized in earnings unless the instruments qualify, and are designated, as an accounting or economic hedge.

Derivative instruments that meet the normal purchase or normal sale scope exception are not measured at fair value and settled amounts are recognized as energy supply costs on the consolidated statements of earnings. Derivative contracts under master netting agreements and collateral positions are presented on a gross basis. The Corporation is required to bifurcate embedded derivatives from their host instruments and account for them as free-standing derivative instruments if they meet specified criteria.

For derivatives designated as hedging contracts, the Corporation’s utilities formally assess, at inception and thereafter, whether the hedging contract is highly effective in offsetting changes in the hedged item. The hedging strategy by transaction type and risk management strategy is formally documented. As at December 31, 2015, the Corporation’s hedging relationships primarily consisted of interest rate swaps and US dollar-denominated borrowings.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Derivative Instruments and Hedging Activities (cont’d)

The Corporation’s earnings from, and net investments in, foreign subsidiaries and significant influence investments are exposed to fluctuations in the US dollar-to-Canadian dollar exchange rate. The Corporation has decreased a portion of the above-noted exposure through the use of US dollar-denominated borrowings at the corporate level. The Corporation has designated its corporately issued US dollar long-term debt as a hedge of a portion of the foreign exchange risk related to its foreign net investments. Foreign currency exchange rate fluctuations associated with the translation of the Corporation’s corporately issued US dollar-denominated borrowings designated as hedges are recognized in other comprehensive income and help offset unrealized foreign currency exchange gains and losses on the foreign net investments, which gains and losses are also recognized in other comprehensive income.

For derivatives not designated as hedging contracts, the settled amount is generally included in regulated rates, as permitted by the respective regulators. Accordingly, the net unrealized gains and losses associated with changes in fair value of the derivative contracts are recorded as regulatory assets or liabilities for recovery from, or refund to, customers in future rates (Note 8 (vii) ).

Income Taxes

The Corporation and its subsidiaries follow the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes that are more likely than not to be realized. Valuation allowances are recognized against deferred tax assets when it is more likely than not that a portion of, or the entire amount of, the deferred income tax asset will not be realized. Deferred income tax assets and liabilities are measured using enacted income tax rates and laws in effect when the temporary differences are expected to be recovered or settled. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in earnings in the period that the change occurs. Current income tax expense or recovery is recognized for the estimated income taxes payable or receivable in the current year.

As approved by the respective regulator, UNS Energy, Central Hudson and Maritime Electric recover current and deferred income tax expense in customer rates. As approved by the regulator, FortisAlberta recovers income tax expense in customer rates based only on income taxes that are currently payable. FortisBC Energy, FortisBC Electric, Newfoundland Power and FortisOntario recover income tax expense in customer rates based only on income taxes that are currently payable, except for certain regulatory balances for which deferred income tax expense is recovered from, or refunded to, customers in current rates, as prescribed by the respective regulator. Therefore, with the exception of certain deferred tax balances of FortisBC Energy, FortisBC Electric, Newfoundland Power and FortisOntario, current customer rates do not include the recovery of deferred income taxes related to temporary differences between the tax basis of assets and liabilities and their carrying amounts for regulatory purposes, as these taxes are expected to be collected in customer rates when they become payable. These utilities recognize an offsetting regulatory asset or liability for the amount of deferred income taxes that are expected to be collected from or refunded to customers in rates once income taxes become payable or receivable (Note 8 (i) ).

For regulatory reporting purposes, the capital cost allowance pool for certain utility capital assets at FortisAlberta is different from that for legal entity corporate income tax filing purposes. In a future reporting period, yet to be determined, the difference may result in higher income tax expense than that recognized for regulatory rate-setting purposes and collected in customer rates.

Caribbean Utilities and Fortis Turks and Caicos are not subject to income tax as they operate in tax-free jurisdictions. BECOL is not subject to income tax as it was granted tax-exempt status by the GOB for the terms of its 50-year PPAs.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Income Taxes (cont’d)

Any difference between the income tax expense recognized under US GAAP and that recovered from customers in current rates that is expected to be recovered from customers in future rates, is subject to deferral account treatment (Note 8 (i) ).

The Corporation intends to indefinitely reinvest earnings from certain foreign operations. Accordingly, the Corporation does not provide for deferred income taxes on temporary differences related to investments in foreign subsidiaries. The difference between the carrying values of these foreign investments and their tax bases, resulting from unrepatriated earnings and currency translation adjustments, is approximately $565 million as at December 31, 2015 (December, 2014 - $384 million). If such earnings are repatriated, in the form of dividends or otherwise, the Corporation may be subject to income taxes and foreign withholding taxes. The determination of the amount of unrecognized deferred income tax liabilities on such amounts is impractical. Canada has entered into Tax Information Exchange Agreements (“TIEAs”) with Bermuda, the Cayman Islands and the Turks and Caicos Islands. Consequently, earnings from the Corporation’s foreign subsidiaries operating in these regions, subsequent to 2010, can be repatriated to Canada on a tax-free basis and, therefore, are not included in the amount of temporary differences noted above, as no taxes are payable on these earnings. If a TIEA is entered into with Belize, earnings from the Corporation’s operations in Belize would also be able to be repatriated to Canada on a tax-free basis. Negotiations between the Government of Canada and the GOB commenced in June 2010.

Tax benefits associated with income tax positions taken, or expected to be taken, in an income tax return are recognized only when the more likely than not recognition threshold is met. The tax benefits are measured at the largest amount of benefit that is greater than 50% likely to be realized upon settlement. The difference between a tax position taken, or expected to be taken, and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit.

Income tax interest and penalties are expensed as incurred and included in income tax expense. At FortisAlberta, investment tax credits are deducted from the related assets and are recognized as a reduction of income tax expense as the Company becomes taxable for rate-setting purposes.

Sales Taxes

In the course of its operations, the Corporation’s subsidiaries collect sales taxes from their customers. When customers are billed, a current liability is recognized for the sales taxes included on customers’ bills. The liability is settled when the taxes are remitted to the appropriate government authority. The Corporation’s revenue excludes sales taxes.

For regulatory reporting purposes, Central Hudson recognizes tax revenue collected on behalf of applicable government authorities on a gross basis. In 2015 approximately $19 million was included in both revenue and expenses (2014 - $22 million).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Revenue Recognition

Revenue from the sale of electricity and gas by the Corporation’s regulated utilities is generally recognized on an accrual basis. Electricity and gas consumption is metered upon delivery to customers and is recognized as revenue using approved rates when consumed. Revenue at the regulated utilities is billed at rates approved by the applicable regulatory authority, and is generally bundled to include service associated with generation and T&D, except at FortisAlberta and FortisOntario. Meters are read periodically and bills are issued to customers based on these readings. At the end of each reporting period, a certain amount of consumed electricity and gas will not have been billed. Electricity and gas that is consumed but not yet billed to customers is estimated and accrued as revenue at each period end, as approved by the regulator. Effective July 1, 2015, Central Hudson is permitted by the regulator to accrue unbilled revenue for electricity consumed at each period end for all its electricity customers. As at December 31, 2014, approximately $15 million (US$13 million) in unbilled revenue at Central Hudson, associated with certain electricity customers, was not accrued, as permitted by the regulator.

In certain circumstances, UNS Energy enters into purchased power and wholesale sales contracts that are not settled with energy. The net sales contracts and power purchase contracts are reflected at the net amount in revenue.

As stipulated by the regulator, FortisAlberta is required to arrange and pay for transmission services with AESO and collect transmission revenue from its customers, which is achieved through invoicing the customers’ retailers through FortisAlberta’s transmission component of its regulator-approved rates. FortisAlberta is solely a distribution company and, as such, does not operate or provide any transmission or generation services. The Company is a conduit for the flow through of transmission costs to end-use customers, as the transmission provider does not have a direct relationship with these customers. As a result, FortisAlberta reports revenue and expenses related to transmission services on a net basis. The rates collected are based on forecast transmission expenses. FortisAlberta is not subject to any forecast risk with respect to transmission costs, as all differences between actual expenses related to transmission services and actual revenue collected from customers are deferred to be recovered from, or refunded to, customers in future rates (Note 8 (xviii) ).

FortisBC Electric has entered into contracts to sell surplus capacity that may be available after it meets its load requirements. This revenue is recognized on an accrual basis at rates established in the sales contract.

All of the Corporation’s non-regulated generation operations record revenue on an accrual basis and revenue is recognized on delivery of output at rates fixed under contract or based on observed market prices as stipulated in contractual arrangements.

Non-utility revenue, associated with commercial real estate and hotel assets that were sold in 2015, was recognized when services were provided or products were delivered to customers. Specifically, real estate revenue, derived from leasing retail and office space, was recognized in the month earned at rates in accordance with lease agreements. The leases were primarily of a net nature, with tenants paying basic rent plus a pro rata share of certain defined overhead expenses. Certain retail tenants paid additional rent based on a percentage of the tenants’ sales. Expenses recovered from tenants were recorded as revenue on an accrual basis. Base rent and the escalation of lease rates included in long-term leases were recognized in earnings using the straight-line method over the term of the lease.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Asset Retirement Obligations

AROs, including conditional AROs, are recorded as a liability at fair value and are classified as long-term other liabilities, with a corresponding increase to utility capital assets (Note 17). The Corporation recognizes AROs in the periods in which they are incurred if a reasonable estimate of fair value can be determined. The fair value of AROs is based on an estimate of the present value of expected future cash outlays reflecting a range of possible outcomes, discounted at a credit-adjusted risk-free interest rate. AROs are adjusted at the end of each reporting period to reflect the passage of time and any changes in the estimated future cash flows underlying the obligation. Actual costs incurred upon the settlement of AROs are recorded as a reduction in the liabilities. As permitted by the respective regulator, at UNS Energy, Central Hudson and FortisBC Electric, changes in the obligations due to the passage of time are recognized as a regulatory asset using the effective interest method.

The Corporation has AROs associated with hydroelectric generation facilities, interconnection facilities and wholesale energy supply agreements. While each of the foregoing will have legal AROs, including land and environmental remediation and/or removal of assets, the final date and cost of remediation and/or removal of the related assets cannot be reasonably determined at this time. These assets are reasonably expected to operate in perpetuity due to the nature of their operation. The licences, permits, interconnection facilities agreements and wholesale energy supply agreements are reasonably expected to be renewed or extended indefinitely to maintain the integrity of the assets and ensure the continued provision of service to customers. In the event that environmental issues are identified, assets are decommissioned or the applicable licences, permits or agreements are terminated, AROs will be recorded at that time provided the costs can be reasonably estimated.

The Corporation also has AROs associated with the removal of certain electricity distribution system assets from rights-of-way at the end of the life of the system. As it is expected that the system will be in service indefinitely, an estimate of the fair value of asset removal costs cannot be reasonably determined at this time.

The Corporation has determined that AROs may exist regarding the remediation of certain land. Certain leased land contains assets integral to operations and it is reasonably expected that the land-lease agreement will be renewed indefinitely; therefore, an estimate of the fair value of remediation costs cannot be reasonably determined at this time. Certain other land may require environmental remediation but the amount and nature of the remediation is indeterminable at this time. AROs associated with land remediation will be recorded when the timing, nature and amount of costs can be reasonably estimated.

New Accounting Policies

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

Effective January 1, 2015, the Corporation prospectively adopted Accounting Standards Update (“ASU”) No. 2014-08 that changes the criteria and disclosures for reporting discontinued operations . As a result, the sale of commercial real estate and hotel assets and the sale of non-regulated generation assets in 2015 did not meet the criteria for discontinued operations (Note 28). The sales are consistent with the Corporation’s focus on its core utility business and, therefore, do not represent a strategic shift in operations.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period

Effective January 1, 2015, the Corporation early adopted ASU No. 2014-12 that resolves diversity in practice for employee share-based payments with performance targets that can entitle an employee to benefit from an award regardless of if they are rendering services at the date the performance target is achieved. The adoption of this update was applied prospectively and did not have a material impact on the Corporation’s consolidated financial statements.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

New Accounting Policies (cont’d)

Simplifying the Presentation of Debt Issuance Costs

Effective October 1, 2015, the Corporation early adopted ASU No. 2015-03 that requires debt issuance costs to be presented on the consolidated balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The adoption of this update was applied retrospectively and resulted in the reclassification of debt issuance costs of approximately $65 million from long-term other assets to long-term debt on the Corporation’s consolidated balance sheet as at December 31, 2014 (Note 36). Additionally, the Corporation early adopted ASU No. 2015-15 that clarifies the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The update permits an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this update was applied retrospectively and did not have a material impact on the Corporation’s consolidated financial statements.

Balance Sheet Classification of Deferred Taxes

Effective October 1, 2015, the Corporation early adopted ASU No. 2015-17 that requires deferred tax assets and liabilities to be classified and presented as long term on the consolidated balance sheet. The adoption of this update was applied retrospectively and resulted in the reclassification of current deferred income taxes assets of $158 million, long-term deferred income tax assets of $62 million, and current deferred income tax liabilities of $9 million to long-term deferred income tax liabilities on the consolidated balance sheet as at December 31, 2014. As a result, the Corporation also reclassified current regulatory assets of $18 million, current regulatory liabilities of $19 million, and long-term regulatory liabilities of $91 million to long-term regulatory assets on the consolidated balance sheet as at December 31, 2014, all associated with regulatory deferred income taxes (Note 36).

Use of Accounting Estimates

The preparation of the consolidated financial statements in accordance with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates and judgments are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances.

Additionally, certain estimates and judgments are necessary since the regulatory environments in which the Corporation’s utilities operate often require amounts to be recorded at estimated values until these amounts are finalized pursuant to regulatory decisions or other regulatory proceedings. Due to changes in facts and circumstances, and the inherent uncertainty involved in making estimates, actual results may differ significantly from current estimates. Estimates and judgments are reviewed periodically and, as adjustments become necessary, are recognized in earnings in the period in which they become known. In the event that a regulatory decision is received after the balance sheet date but before the consolidated financial statements are issued, the facts and circumstances are reviewed to determine whether or not it is a recognized subsequent event.

The Corporation’s critical accounting estimates are described above in Note 3 under the headings Regulatory Assets and Liabilities, Utility Capital Assets, Intangible Assets, Goodwill, Employee Future Benefits, Stock-Based Compensation, Income Taxes, Revenue Recognition and Asset Retirement Obligations, and in Notes 8, 23 and 34.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

4 . FUTURE ACCOUNTING PRONOUNCEMENTS

The Corporation considers the applicability and impact of all ASUs issued by the Financial Accounting Standards Board (“FASB”). The following updates have been issued by FASB, but have not yet been adopted by Fortis. Any ASUs not included below were assessed and determined to be either not applicable to the Corporation or are not expected to have a material impact on the consolidated financial statements.

Revenue from Contracts with Customers

ASU No. 2014-09 was issued in May 2014 and the amendments in this update create ASC Topic 606, Revenue from Contracts with Customers , and supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition , including most industry-specific revenue recognition guidance throughout the codification. This standard completes a joint effort by FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for US GAAP and International Financial Reporting Standards that clarifies the principles for recognizing revenue and that can be applied consistently across various transactions, industries and capital markets. This standard was originally effective for annual and interim periods beginning after December 15, 2016 and is to be applied on a full retrospective or modified retrospective basis. ASU No. 2015-14 was issued in August 2015 and the amendments in this update defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the original effective date. The majority of the Corporation’s revenue is generated from energy sales to customers based on published tariff rates, as approved by the respective regulators, and is expected to be in the scope of ASU No. 2014-09. Fortis has not yet selected a transition method and is assessing the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. The Corporation plans to have this assessment substantially complete by the end of 2016.

Amendments to the Consolidation Analysis

ASU No. 2015-02 was issued in February 2015 and the amendments in this update change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, the amendments note the following with regard to limited partnerships: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities; and (ii) eliminate the presumption that a general partner should consolidate a limited partnership. This update is effective for annual and interim periods beginning after December 15, 2015 and may be applied using a modified retrospective approach or retrospectively. The adoption of this update is not expected to materially impact the Corporation’s consolidated financial statements, however, it is expected to change the Corporation’s 51% controlling ownership interest in Waneta Partnership from a voting interest entity to a variable interest entity, resulting in additional note disclosure.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

5. SEGMENTED INFORMATION

Information by reportable segment is as follows:

	REGULATED										NON-REGULATED
	United States			Canada
Year Ended	Electric & Gas			Gas	Electric										Inter-
December 31, 2015	UNS	Central		FortisBC	Fortis		FortisBC	Eastern		Caribbean	Fortis	Non-	Corporate		segment
($ millions)	Energy	Hudson	Total	Energy	Alberta		Electric	Canadian	Total	Electric	Generation	Utility	and Other		eliminations		Total
Revenue	2,034	880	2,914	1,295	563		360	1,033	3,251	321	107	171	24		(61	)	6,727
Energy supply costs	820	315	1,135	498	—		116	673	1,287	169	1	—	—		(31	)	2,561
Operating expenses	573	381	954	292	183		89	143	707	46	19	124	26		(12	)	1,864
Depreciation and amortization	242	56	298	190	168		57	82	497	47	18	11	2		—		873
Operating income (loss)	399	128	527	315	212		98	135	760	59	69	36	(4	)	(18	)	1,429
Other income (expenses), net	5	8	13	11	3		—	2	16	2	56	109	(8	)	(1	)	187
Finance charges	98	38	136	134	78		39	56	307	14	3	18	94		(19	)	553
Income tax expense (recovery)	111	40	151	51	(1	)	9	19	78	—	24	13	(43	)	—		223
Net earnings (loss)	195	58	253	141	138		50	62	391	47	98	114	(63	)	—		840
Non-controlling interests	—	—	—	1	—		—	—	1	13	21	—	—		—		35
Preference share dividends	—	—	—	—	—		—	—	—	—	—	—	77		—		77
Net earnings (loss) attributable to common equity shareholders	195	58	253	140	138		50	62	390	34	77	114	(140	)	—		728

Goodwill	1,912	624	2,536	913	227		235	67	1,442	195	—	—	—		—		4,173
Identifiable assets	6,977	2,601	9,578	5,116	3,592		1,872	2,219	12,799	1,084	1,025	—	352		(207	)	24,631
Total assets	8,889	3,225	12,114	6,029	3,819		2,107	2,286	14,241	1,279	1,025	—	352		(207	)	28,804
Gross capital expenditures	669	181	850	460	452		103	175	1,190	137	38	9	19		—		2,243

Year Ended
December 31, 2014
($ millions)
Revenue	684	821	1,505	1,435	518		334	1,008	3,295	321	38		249	31		(38	)	5,401
Energy supply costs	272	345	617	646	—		87	653	1,386	195	1		—	—		(2	)	2,197
Operating expenses	209	337	546	287	176		90	143	696	39	10		172	38		(8	)	1,493
Depreciation and amortization	80	49	129	190	164		59	79	492	38	5		22	2		—		688
Operating income (loss)	123	90	213	312	178		98	133	721	49	22		55	(9	)	(28	)	1,023
Other income (expenses), net	4	6	10	4	3		1	2	10	2	(1	)	—	(45	)	(1	)	(25	)
Finance charges	34	35	69	139	79		41	56	315	14	—		24	154		(29	)	547
Income tax expense (recovery)	33	24	57	49	(1	)	12	19	79	—	1		8	(79	)	—		66
Net earnings (loss) from continuing operations	60	37	97	128	103		46	60	337	37	20		23	(129	)	—		385
Earnings from discontinued operations, net of tax	—	—	—	—	—		—	—	—	—	—		5	—		—		5
Net earnings (loss)	60	37	97	128	103		46	60	337	37	20		28	(129	)	—		390
Non-controlling interests	—	—	—	1	—		—	—	1	10	—		—	—		—		11
Preference share dividends	—	—	—	—	—		—	—	—	—	—		—	62		—		62
Net earnings (loss) attributable to common equity shareholders	60	37	97	127	103		46	60	336	27	20		28	(191	)	—		317

Goodwill	1,603	523	2,126	913	227		235	67	1,442	164	—		—	—		—		3,732
Identifiable assets	5,648	2,123	7,771	4,846	3,234		1,803	2,163	12,046	924	961		696	543		(440	)	22,501
Total assets	7,251	2,646	9,897	5,759	3,461		2,038	2,230	13,488	1,088	961		696	543		(440	)	26,233
Gross capital expenditures	444	126	570	332	348		92	166	938	71	102		38	6		—		1,725

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

5. SEGMENTED INFORMATION (cont’d)

Related-party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The significant related party inter-segment transactions during the years ended December 31 were as follows.

Significant Related Party Inter-Segment Transactions

(in millions)	2015		2014
Sales from Fortis Generation to Regulated Electric Utilities - Canadian	$	31	$	2
Revenue from Regulated Electric Utilities - Canadian to Fortis Generation	7		—
Sales from Regulated Electric Utilities - Canadian to Non-Utility	4		6
Inter-segment finance charges on lending from:
Fortis Generation to Eastern Canadian Electric Utilities	1		1
Corporate to Regulated Electric Utilities - Caribbean	—		5
Corporate to Non-Utility	17		22

The significant related party inter-segment asset balances as at December 31 were as follows.

Significant Related Party Inter-Segment Assets

(in millions)	2015		2014
Inter-segment borrowings from:
Fortis Generation to Eastern Canadian Electric Utilities	$	20	$	20
Corporate to Regulated Electric Utilities - Canadian	48		—
Corporate to Non-Utility	—		402
Other inter-segment assets - Corporate to Regulated Electric & Gas Utilities - United States	108		—
Other inter-segment assets	31		18
Total inter-segment eliminations	$	207	$	440

6. ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS

(in millions)	2015			2014
Trade accounts receivable	$	517		$	479
Unbilled accounts receivable	404			365
Allowance for doubtful accounts	(66		)	(31		)
Income tax receivable	—			25
Assets held for sale	38			—
Other	71			62
	$	964		$	900

The increase in the allowance for doubtful accounts was primarily due to an increase in the reserve for uncollectible accounts at UNS Energy in relation to billings to third-party owners of Springerville Unit 1 for their pro-rata share of costs to operate the facility. Due to ongoing litigation and uncertainty with Springerville Unit 1 third-party owners, the accounts receivable balance of $32 million (US$23 million) as at December 31, 2015 associated with operating expenses has been fully reserved (Note 34).

Assets held for sale include utility capital assets of approximately $29 million (US$21 million) purchased by UNS Energy upon expiration of the Springerville Coal Handling Facilities lease in April 2015 (Note 16). UNS Energy has an agreement with a third party whereby they can purchase a 17.05% interest or continue to make payments to UNS Energy for the use of the facility. The third party has until April 2016 to exercise its purchase option and, as a result, the assets have been classified as held for sale on the consolidated balance sheet as at December 31, 2015.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

6. ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS (cont’d)

Additionally, in December 2015 FortisBC Electric entered into an agreement to sell the non-regulated Walden hydroelectric power plant assets for a sale price of approximately $9 million (Note 31). The sale is expected to close in the first quarter of 2016. For the year ended December 31, 2015, earnings before taxes of less than $1 million were recognized (December 31, 2014 - less than $1 million) associated with Walden.

Other accounts receivable consisted of customer billings for non-core services, collateral deposits for gas purchases at FortisBC Energy and advances on coal purchases at UNS Energy. Other accounts receivable also included the fair value of derivative instruments (Note 31).

7. INVENTORIES

(in millions)	2015		2014
Materials and supplies	$	194	$	149
Gas and fuel in storage	101		134
Coal inventory	42		38
	$	337	$	321

Materials and supplies included approximately $152 million (December 31, 2014 - $118 million) at UNS Energy, and consisted of construction and repair materials for distribution, transmission and generation assets, as required by the regulator (Note 3).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES

Based on previous, existing or expected regulatory orders or decisions, the Corporation’s regulated utilities have recorded the following amounts that are expected to be recovered from, or refunded to, customers in future periods.

							Remaining
							recovery period
(in millions)	2015			2014			(Years)
Regulatory assets
Deferred income taxes (i)	$	936		$	832		To be determined
Employee future benefits (ii)	627			680			Various
Deferred energy management costs (iii)	145			111			1-10
Manufactured gas plant (“MGP”) site remediation deferral (iv)	121			123			To be determined
Rate stabilization accounts (v)	119			119			Various
Deferred lease costs (vi)	90			101			Various
Derivative instruments (vii)	74			69			Various
Deferred operating overhead costs (viii)	66			54			Various
Final mine reclamation and retiree health care costs (ix)	39			34			1-22
Deferred net losses on disposal of utility capital assets and intangible assets (x)	33			37			8
Springerville Unit 1 unamortized leasehold improvements (xi)	30			—			8
Property tax deferrals (xii)	30			29			1
Other regulatory assets (xiii)	222			226			Various
Total regulatory assets	2,532			2,415
Less: current portion	(246		)	(277		)	1
Long-term regulatory assets	$	2,286		$	2,138

Regulatory liabilities
Non-ARO removal cost provision (xiv)	$	1,060		$	951		To be determined
Rate stabilization accounts (v)	212			142			Various
Electric and gas moderator account (xv)	88			—			To be determined
Renewable energy surcharge (xvi)	47			44			To be determined
Employee future benefits (ii)	44			58			Various
Customer and community benefits obligation (xvii)	32			55			To be determined
AESO charges deferral (xviii)	25			49			1-4
Other regulatory liabilities (xix)	130			146			Various
Total regulatory liabilities	1,638			1,445
Less: current portion	(298		)	(173		)	1
Long-term regulatory liabilities	$	1,340		$	1,272

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES (cont’d)

Description of the Nature of Regulatory Assets and Liabilities

(i) Deferred Income Taxes

The Corporation’s regulated utilities recognize deferred income tax assets and liabilities and related regulatory liabilities and assets for the amount of deferred income taxes expected to be refunded to, or recovered from, customers in future electricity and gas rates. Included in deferred income tax assets and liabilities are the future income tax effects of the subsequent settlement of the related regulatory liabilities and assets through customer rates. The deferred income taxes on regulatory assets and liabilities are the result of the application of ASC Topic 740, Income Taxes. The regulatory asset balances are expected to be recovered from customers in future rates when the income taxes become payable or receivable. As at December 31, 2015, $351 million (December 31, 2014 - $265 million) in regulatory assets for deferred income taxes was not subject to a regulatory return.

(ii) Employee Future Benefits

The regulatory asset and liability associated with employee future benefits includes the actuarially determined unamortized net actuarial losses, past service costs and credits, and transitional obligations associated with defined benefit pension and OPEB plans maintained by the Corporation’s regulated utilities, which are expected to be recovered from, or refunded to, customers in future rates (Note 27). At the Corporation’s regulated utilities, as approved by the respective regulators, differences between defined benefit pension and OPEB plan costs recognized under US GAAP and those which are expected to be recovered from, or refunded to, customers in future rates are subject to deferral account treatment and have been recognized as a regulatory asset or liability. These amounts would otherwise be recognized in accumulated other comprehensive income on the consolidated balance sheet.

As at December 31, 2015, regulatory assets of approximately $367 million associated with employee future benefits were not subject to a regulatory return (December 31, 2014 - $339 million). As at December 31, 2015, regulatory liabilities of approximately $36 million associated with employee future benefits were not subject to a regulatory return (December 31, 2014 - $55 million).

(iii) Deferred Energy Management Costs

FortisBC Energy, FortisBC Electric, Central Hudson and Newfoundland Power provide energy management services to promote energy efficiency programs to their customers. As required by their respective regulator, these regulated utilities have capitalized related expenditures and are amortizing these expenditures on a straight-line basis over periods ranging from 1 to 10 years. This regulatory asset represents the unamortized balance of the energy management costs.

UNS Energy is required to implement cost-effective Demand-Side Management (“DSM”) programs to comply with the ACC’s energy efficiency standards. The energy efficiency standards provide for a DSM surcharge to recover the costs of implementing DSM programs, as well as an annual performance incentive. The existing rate orders provide for a lost fixed cost recovery mechanism to recover certain non-fuel costs that were previously unrecoverable, due to reduced electricity sales as a result of energy efficiency programs and distributed generation. As at December 31, 2015, $25 million of UNS Energy’s regulatory asset balance was not subject to a regulatory return (December 31, 2014 - $16 million).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES (cont’d)

Description of the Nature of Regulatory Assets and Liabilities (cont’d)

(iv) MGP Site Remediation Deferral

As approved by the regulator, Central Hudson is permitted to defer for future recovery from its customers the difference between actual costs for MGP site investigation and remediation and the associated rate allowances (Notes 14, 17 and 34). Central Hudson’s MGP site remediation costs are not subject to a regulatory return.

(v) Rate Stabilization Accounts

Rate stabilization accounts associated with the Corporation’s regulated electric and gas utilities are recovered from, or refunded to, customers in future rates, as approved by the respective regulatory authority. Electric rate stabilization accounts primarily mitigate the effect on earnings of variability in the cost of fuel and/or purchased power above or below a forecast or predetermined level and, at certain utilities, revenue decoupling mechanisms that minimize the earnings impact resulting from reduced energy consumption as energy efficiency programs are implemented. Gas rate stabilization accounts primarily mitigate the effect on earnings of unpredictable and uncontrollable factors, namely volume volatility caused principally by weather, and natural gas cost volatility.

As at December 31, 2015, approximately $49 million and $142 million of the rate stabilization accounts are expected to be recovered from, or refunded to, customers within one year and, as a result, are classified as current regulatory assets and liabilities, respectively (December 31, 2014 - approximately $105 million and $43 million, respectively).

As at December 31, 2015, regulatory assets of approximately $44 million associated with rate stabilization accounts were not subject to a regulatory return (December 31, 2014 - $104 million). As at December 31, 2015, regulatory liabilities of approximately $76 million associated with rate stabilization accounts were not subject to a regulatory return (December 31, 2014 - $42 million).

(vi) Deferred Lease Costs

Deferred lease costs at FortisBC Electric primarily relate to the Brilliant Power Purchase Agreement (“BPPA”), which ends in 2056. The depreciation of the asset under capital lease and interest expense associated with the capital lease obligation are not being fully recovered by FortisBC Electric in current customer rates, since those rates include only the cash payments set out under the BPPA. The regulatory asset balance as at December 31, 2015 included $90 million (December 31, 2014 - $83 million) of deferred lease costs that are expected to be recovered from customers in future rates over the term of the lease. In 2015, of the $30 million (2014 - $30 million) of interest expense related to the capital lease obligations and the $6 million (2014 - $6 million) of depreciation expense related to the assets under capital lease, a total of $26 million (2014 - $26 million) was recognized in energy supply costs and $3 million (2014 - $3 million) was recognized in operating expenses, respectively, as approved by the regulator, with the balance of $7 million (2014 - $7 million) deferred as a regulatory asset (Note 16).

The regulatory asset balance as at December 31, 2014 included $18 million of deferred lease costs at UNS Energy related to the remaining purchase commitments of Springerville Unit 1 and the Springerville Coal Handling Facility, of which both purchases occurred in 2015 (Note 16).

Deferred lease costs are not subject to a regulatory return.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES (cont’d)

Description of the Nature of Regulatory Assets and Liabilities (cont’d)

(vii) Derivative Instruments

As approved by the respective regulatory authority, unrealized gains or losses associated with changes in the fair value of certain derivative instruments at UNS Energy, Central Hudson and FortisBC Energy are deferred as a regulatory asset or liability for recovery from, or refund to, customers in future rates. These unrealized losses and gains would otherwise be recognized in earnings (Note 31). UNS Energy and Central Hudson’s deferred regulatory asset balance totalling $57 million as at December 31, 2015 was not subject to a regulatory return (December 31, 2014 - $57 million).

(viii) Deferred Operating Overhead Costs

As approved by the regulator, FortisAlberta has deferred certain operating overhead costs. The deferred costs are expected to be collected in future customer rates over the lives of the related utility capital assets and intangible assets.

(ix) Final Mine Reclamation and Retiree Health Care Costs

Final mine reclamation and retiree health care costs are associated with TEP’s jointly owned coal generating facilities at the San Juan, Four Corners and Navajo generating stations. TEP has the option to recognize its liability associated with final mine reclamation and retiree health care obligations at present or future value (Notes 17 and 34). TEP has elected to recognize these costs at future value and is permitted to fully recover these costs from customers through its rate stabilization accounts when the costs are paid. TEP expects to make continuous payments through 2037. These deferred costs are not subject to a regulatory return.

(x) Deferred Net Losses on Disposal of Utility Capital Assets and Intangible Assets

As approved by the regulator, from 2010 through 2013 net losses on the retirement or disposal of utility capital assets and intangible assets at FortisBC Energy were recorded in a regulatory deferral account to be recovered from customers in future rates. The regulator approved the recovery in customer rates of the resulting regulatory asset over a period of 10 years.

(xi) Springerville Unit 1 Unamortized Leasehold Improvements

Upon expiration of TEP’s Springerville Unit 1 capital lease in January 2015, unamortized leasehold improvements were reclassified from utility capital assets to regulatory assets. The leasehold improvements represent investments made by TEP through the end of the lease term to ensure Springerville facilities continued providing safe, reliable service to TEP’s customers. In its 2013 rate order, TEP received regulatory approval to amortize the leasehold improvements over a 10-year period. TEP continues to own an undivided 49.5% joint interest in Springerville Unit 1.

(xii) Property Tax Deferrals

Property taxes at UNS Energy and Central Hudson are deferred and are primarily collected from customers over a six-month to one-year period, as approved by the respective regulator. Property tax deferrals are not subject to a regulatory return.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES (cont’d)

Description of the Nature of Regulatory Assets and Liabilities (cont’d)

(xiii) Other Regulatory Assets

Other regulatory assets relate to all of the Corporation’s regulated utilities and are comprised of various items, each individually less than $30 million. As at December 31, 2015, $189 million (December 31, 2014 - $177 million) of the balance was approved to be recovered from customers in future rates, with the remaining balance expected to be approved. As at December 31, 2015, $69 million (December 31, 2014 - $74 million) of the balance was not subject to a regulatory return.

(xiv) Non-ARO Removal Cost Provision

As required by the respective regulator, depreciation rates at UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, Newfoundland Power and Maritime Electric include an amount allowed for regulatory purposes to accrue for non-ARO removal costs. Actual non-ARO removal costs are recorded against the regulatory liability when incurred. This regulatory liability represents amounts collected in customer electricity rates at the respective utilities in excess of incurred non-ARO removal costs.

(xv) Electric and Gas Moderator Account

Under the terms of Central Hudson’s three-year Rate Order issued in June 2015, certain of the Company’s regulatory assets and liabilities were identified and approved by the PSC for offset and a net regulatory liability electric and gas moderator account was established, which will be used for future customer rate moderation. These electric and gas moderator accounts are not subject to a regulatory return.

(xvi) Renewable Energy Surcharge

As ordered by the regulator under its Renewable Energy Standard (“RES”), UNS Energy is required to increase its use of renewable energy each year until it represents at least 15% of its total annual retail energy requirements in 2025, with distributed generation accounting for 30% of the annual renewable energy requirement. The Company must file an annual RES implementation plan for review and approval by the ACC. The approved cost of carrying out the plan is recovered from retail customers through the RES surcharge. The ACC has also approved recovery of operating costs, depreciation, property taxes and a return on investments on certain company-owned solar projects through the RES tariff until such costs are reflected in retail customer rates. Any RES surcharge collections above or below the costs incurred to implement the plans are deferred as a regulatory asset or liability.

The ACC measures compliance with its RES requirements through Renewable Energy Credits (“REC”), which represent one kilowatt hour generated from renewable resources. When UNS Energy purchases renewable energy, the premium paid above the market cost of conventional power equals the REC recoverable through the RES surcharge. When RECs are purchased, UNS Energy records the cost of the RECs as long-term other assets and a corresponding regulatory liability, to reflect the obligation to use the RECs for future RES compliance. When RECs are reported to the ACC for compliance with RES requirements, energy supply costs and revenue are recognized in an equal amount (Note 9).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

8. REGULATORY ASSETS AND LIABILITIES (cont’d)

Description of the Nature of Regulatory Assets and Liabilities (cont’d)

(xvii) Customer and Community Benefits Obligation

As approved by the respective regulator for UNS Energy and Central Hudson, Fortis committed to provide their customers and community with financial benefits that would have not been realized in the absence of the acquisitions. These commitments resulted in the recognition of regulatory liabilities to be used to mitigate future customer rate increase at the utilities. In 2014 these commitments for UNS Energy’s customers included US$10 million in year one and US$5 million in years two through five to cover credits in retail customer rates. As a result, expenses of approximately $33 million (US$30 million) were recognized in 2014 related to the acquisition of UNS Energy for customer benefit obligations (Notes 24 and 29).

(xviii) AESO Charges Deferral

FortisAlberta maintains an AESO charges deferral account that represents expenses incurred in excess of revenue collected for various items, such as transmission costs incurred and flowed through to customers, that are subject to deferral to be collected in future customer rates. To the extent that the amount of revenue collected in rates for these items exceeds actual costs incurred, the excess is deferred as a regulatory liability to be refunded in future customer rates. As at December 31, 2015, the regulatory liability primarily represented the over collection of the AESO charges deferral accounts for 2014 and 2015.

(xix) Other Regulatory Liabilities

Other regulatory liabilities relate to all of the Corporation’s regulated utilities and are comprised of various items, each individually less than $30 million. As at December 31, 2015, $120 million (December 31, 2014 - $140 million) of the balance was approved for refund to customers or reduction in future rates, with the remaining balance expected to be approved. As at December 31, 2015, $68 million (December 31, 2014 — $76 million) of the balance was not subject to a regulatory return.

9. OTHER ASSETS

(in millions)	2015		2014
Equity investment - Belize Electricity	$	79	$	—
Supplemental Executive Retirement Plan assets	58		41
Deposit on pending business acquisition (Note 29)	38		—
Available-for-sale investment (Notes 28 and 31)	33		—
Deferred compensation plan assets (Note 17)	25		21
Renewable Energy Credits (Note 8 (xvi) )	17		13
Long-term income tax receivable	13		13
Other investments	13		12
Other asset - Belize Electricity	—		116
Other	76		56
	$	352	$	272

In August 2015 the Corporation agreed to terms of a settlement with the GOB regarding the GOB’s expropriation of the Corporation’s approximate 70% interest in Belize Electricity in June 2011. The terms of the settlement included a one-time US$35 million cash payment to Fortis from the GOB and an approximate 33% equity investment in Belize Electricity. As a result of the settlement, the Corporation recognized an approximate $9 million loss in 2015 (Note 24).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

9. OTHER ASSETS (cont’d)

UNS Energy and Central Hudson provide additional post-employment benefits through both a deferred compensation plan for Directors and Officers of the Companies, as well as Supplemental Executive Retirement Plans (“SERP”). Since both plans are considered non-qualified plans under the Employee Retirement Income Security Act of 1974 , the assets are reported separately from the related liabilities (Note 17). The assets of the plans are held in trust and funded mostly through the use of trust-owned life insurance policies and mutual funds. A portion of the SERP assets is invested in corporate-owned life insurance policies. Amounts held in mutual and money market funds are recorded at fair value (Note 31).

In June 2015 the Corporation completed the sale of commercial real estate assets for gross proceeds of $430 million (Note 28). As part of the transaction, Fortis subscribed to $35 million in trust units of Slate Office REIT in conjunction with the REIT’s public offering. The investment in trust units is recorded as an available-for-sale asset. The assets are measured at fair value based on quoted market prices and unrealized gains or losses resulting from changes in fair value are recognized in accumulated other comprehensive income and are reclassified to earnings when the assets are sold (Notes 21 and 31).

Other assets are recorded at cost and are recovered or amortized over the estimated period of future benefit, where applicable. Other assets include the fair value of derivative instruments at UNS Energy and Central Hudson (Note 31).

10. UTILITY CAPITAL ASSETS

	2015
			Accumulated			Net Book
(in millions)	Cost		Depreciation			Value
Distribution
Electric	$	9,245	$	(2,634	)	$	6,611
Gas	3,829		(1,021		)	2,808
Transmission
Electric	3,093		(997		)	2,096
Gas	1,735		(531		)	1,204
Generation	6,465		(2,241		)	4,224
Other	2,429		(849		)	1,580
Assets under construction	886		—			886
Land	186		—			186
	$	27,868	$	(8,273	)	$	19,595

	2014
			Accumulated			Net Book
(in millions)	Cost		Depreciation			Value
Distribution
Electric	$	8,102	$	(2,317	)	$	5,785
Gas	3,475		(920		)	2,555
Transmission
Electric	2,562		(859		)	1,703
Gas	1,649		(491		)	1,158
Generation	5,296		(2,189		)	3,107
Other	2,158		(731		)	1,427
Assets under construction	1,277		—			1,277
Land	167		—			167
	$	24,686	$	(7,507	)	$	17,179

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

10. UTILITY CAPITAL ASSETS (cont’d)

Electric distribution assets are those used to distribute electricity at lower voltages (generally below 69 kV). These assets include poles, towers and fixtures, low-voltage wires, transformers, overhead and underground conductors, street lighting, meters, metering equipment and other related equipment. Gas distribution assets are those used to transport natural gas at low pressures (generally below 2,070 kPa) or a hoop stress of less than 20% of standard minimum yield strength. These assets include distribution stations, telemetry, distribution pipe for mains and services, meter sets and other related equipment.

Electric transmission assets are those used to transmit electricity at higher voltages (generally at 69 kV and higher). These assets include poles, wires, switching equipment, transformers, support structures and other related equipment. Gas transmission assets are those used to transport natural gas at higher pressures (generally at 2,070 kPa and higher) or a hoop stress of 20% or more of standard minimum yield strength. These assets include transmission stations, telemetry, transmission pipe and other related equipment.

Generation assets are those used to generate electricity. These assets include hydroelectric and thermal generation stations, gas and combustion turbines, coal-fired generating stations, dams, reservoirs, photovoltaic systems and other related equipment.

Other assets include buildings, equipment, vehicles, inventory and information technology assets.

Construction of the Waneta Expansion was completed in April 2015. As at December 31, 2015, assets under construction are primarily associated with FortisBC Energy’s Tilbury liquefied natural gas facility expansion and other capital projects at the Corporation’s regulated utilities.

The cost of utility capital assets under capital lease as at December 31, 2015 was $496 million (December 31, 2014 - $1,088 million) and related accumulated depreciation was $221 million (December 31, 2014 - $627 million). The decrease was primarily due to the purchase of certain utility capital assets at TEP in 2015 following the expiry of lease arrangements (Note 16).

Jointly Owned Facilities

As at December 31, 2015, UNS Energy’s interests in jointly owned generating stations and transmission systems primarily consisted of the following:

		2015
	Ownership			Accumulated			Net Book
(in millions)	%	Cost		Depreciation			Value
San Juan Units 1 and 2	50.0	$	690	$	(347	)	$	343
Navajo Units 1, 2 and 3	7.5	207		(155		)	52
Four Corners Units 4 and 5	7.0	154		(107		)	47
Luna Energy Facility	33.3	75		(1		)	74
Gila River Common Facilities	25.0	47		(14		)	33
Springerville Unit 1 (1)	49.5	452		(240		)	212
Springerville Coal Handling Facilities (2)	65.9	228		(90		)	138
Transmission Facilities	Various	531		(238		)	293
		$	2,384	$	(1,192	)	$	1,192

(1) TEP is obligated to operate the unit for third-party owners under existing agreements. The third-party owners are obligated to compensate TEP for their pro rata share of expenses (Notes 16 and 34).

(2) TEP owns an additional 17.05% undivided interest in the Springerville Coal Handling Facilities, which is classified as assets held for sale (Notes 6 and 16).

UNS Energy holds an undivided interest in the above facilities and is entitled to its pro rata share of the utility capital assets. UNS Energy is proportionately liable for its share of operating costs and liabilities in respect of the jointly owned facilities.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

11. NON-UTILITY CAPITAL ASSETS

In 2015 the Corporation sold its commercial real estate and hotel assets (Note 28). As a result, the Corporation did not hold any non-utility capital assets as at December 31, 2015.

	2014
			Accumulated			Net Book
(in millions)	Cost		Depreciation			Value
Buildings	$	599	$	(105	)	$	494
Equipment	145		(73		)	72
Tenant inducements	35		(27		)	8
Land	72		—			72
Assets under construction	18		—			18
	$	869	$	(205	)	$	664

12. INTANGIBLE ASSETS

	2015
			Accumulated			Net Book
(in millions)	Cost		Amortization			Value
Computer software	$	685	$	(436	)	$	249
Land, transmission and water rights	328		(76		)	252
Franchise fees and other	17		(13		)	4
Assets under construction	36		—			36
	$	1,066	$	(525	)	$	541

	2014
			Accumulated			Net Book
(in millions)	Cost		Amortization			Value
Computer software	$	573	$	(368	)	$	205
Land, transmission and water rights	258		(66		)	192
Franchise fees and other	16		(12		)	4
Assets under construction	60		—			60
	$	907	$	(446	)	$	461

Included in the cost of land, transmission and water rights as at December 31, 2015 was $106 million (December 31, 2014 - $77 million) not subject to amortization.

Amortization expense related to intangible assets was $64 million for 2015 (2014 - $60 million). Amortization is estimated to average approximately $78 million annually for each of the next five years.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

13. GOODWILL

(in millions)	2015		2,014
Balance, beginning of year	$	3,732	$	2,075
Acquisition of UNS Energy (Note 29)	—		1,510
Sale of Griffith (Note 28)	—		(3		)
Foreign currency translation impacts	441		150
Balance, end of year	$	4,173	$	3,732

Goodwill associated with the acquisitions of UNS Energy, Central Hudson, Caribbean Utilities and Fortis Turks and Caicos is denominated in US dollars, as the functional currency of these companies is the US dollar. Foreign currency translation impacts are the result of the translation of US dollar-denominated goodwill and the impact of the movement of the Canadian dollar relative to the US dollar.

14. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

(in millions)	2015		2014
Trade accounts payable	$	574	$	612
Gas and fuel cost payable	153		195
Employee compensation and benefits payable	137		134
Interest payable	127		128
Dividends payable	113		101
Accrued taxes other than income taxes	108		96
Fair value of derivative instruments (Note 31)	69		66
MGP site remediation (Notes 8 (iv), 17 and 34)	32		13
Defined benefit pension and OPEB plan liabilities (Note 27)	13		11
Other	93		84
	$	1,419	$	1,440

Accrued taxes other than income taxes primarily consisted of property taxes at UNS Energy and carbon tax at FortisBC Energy.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

15. LONG-TERM DEBT

(in millions)	Maturity Date	2015			2014
Regulated Utilities
UNS Energy
Unsecured US Tax-Exempt Bonds - 3.83% weighted average fixed and variable rate (2014 - 3.92%)	2020-2040	$	848		$	956
Unsecured US Fixed Rate Notes - 4.26% weighted average fixed rate (2014 - 4.98%)	2021-2045	1,557			754
Secured US Fixed Rate Notes - 5.38% weighted average fixed and variable rate (2014 - 5.38%)	2023-2026	—			151
Central Hudson
Unsecured US Promissory Notes - 4.30% weighted average fixed and variable rate (2014 - 4.31%)	2016-2042	728			587
FortisBC Energy
Secured Purchase Money Mortgages - 10.30% weighted average fixed rate (2014 - 10.71%)	2016	200			275
Unsecured Debentures - 5.73% weighted average fixed rate (2014 - 5.95%)	2029-2045	1,770			1,620
Government loan	2016	5			10
FortisAlberta
Unsecured Debentures - 4.95% weighted average fixed rate (2014 - 5.01%)	2024-2052	1,684			1,534
FortisBC Electric
Secured Debentures - 8.80% weighted average fixed rate (2014 - 8.80%)	2023	25			25
Unsecured Debentures - 5.36% weighted average fixed rate (2014 - 5.36%)	2016-2050	660			660
Eastern Canadian
Secured First Mortgage Sinking Fund Bonds - 6.72% weighted average fixed rate (2014 - 7.08%)	2016-2045	553			484
Secured First Mortgage Bonds - 7.18% weighted average fixed rate (2014 - 7.18%)	2016-2061	167			167
Unsecured Senior Notes - 6.11% weighted average fixed rate (2014 - 6.11%)	2018-2041	104			104
Caribbean Electric
Unsecured US Senior Loan Notes - 4.89% weighted average fixed rate (2014 - 4.91%)	2016-2046	467			400
Non-Regulated - Non-Utility
Secured First Mortgages and Senior Notes - 7.46% weighted average fixed rate (2014 - 7.46%)	n/a	—			34
Corporate
Unsecured US Senior Notes and Promissory Notes - 4.43% weighted average fixed rate (2014 - 4.43%)	2019-2044	1,720			1,443
Unsecured Debentures 6.49% weighted average fixed rate (2014 - 6.49%)	2039	201			201
Long-term classification of credit facility borrowings (Note 31)		551			1,096
Total long-term debt (Note 31)		11,240			10,501
Less: Deferred financing costs (Notes 3 and 36)		(72		)	(65		)
Less: Current installments of long-term debt		(384		)	(525		)
		$	10,784		$	9,911

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

15. LONG-TERM DEBT (cont’d)

As noted in the previous table, certain long-term debt instruments issued by UNS Energy, FortisBC Energy, FortisBC Electric, Newfoundland Power, and Maritime Electric are secured. When security is provided, it is typically a fixed or floating first charge on the specific assets of the Company to which the long-term debt is associated. The purchase money mortgages of FortisBC Energy are secured equally and ratably by a first fixed and specific mortgage and charge on the Company’s coastal division assets. The aggregate principal amount of the purchase money mortgages that may be issued is limited to $350 million.

UNS Energy entered into a four-year US$30 million variable rate term loan credit agreement and, at the same time, entered into a fixed-for-floating interest rate swap. Both the term loan and interest rate swap expired in 2015. The interest rate swap was designated as a cash flow hedge (Note 31).

Covenants

Certain of the Corporation’s long-term debt obligations have covenants restricting the issuance of additional debt such that consolidated debt cannot exceed 70% of the Corporation’s consolidated capital structure, as defined by the long-term debt agreements. In addition, one of the Corporation’s long-term debt obligations contains a covenant which provides that Fortis shall not declare or pay any dividends, other than stock dividends or cumulative preferred dividends on preference shares not issued as stock dividends, or make any other distribution on its shares or redeem any of its shares or prepay subordinated debt if, immediately thereafter, its consolidated funded obligations would be in excess of 75% of its total consolidated capitalization.

As at December 31, 2015, the Corporation and its subsidiaries were in compliance with their debt covenants.

Regulated Utilities

The majority of the long-term debt instruments at the Corporation’s regulated utilities are redeemable at the option of the respective utilities, at any time, at the greater of par or a specified price as defined in the respective long-term debt agreements, together with accrued and unpaid interest.

In January 2015 TEP redeemed at par US$130 million of fixed rate tax-exempt bonds that had an original maturity date of 2029. As at December 31, 2015, TEP had not remarketed the repurchase bonds.

In January 2015 Fortis Turks and Caicos issued 15-year US$10 million 4.75% unsecured notes. The net proceeds were used to finance capital expenditures and for general corporate purposes.

In February 2015 TEP issued 10-year US$300 million 3.05% senior unsecured notes. Net proceeds were used to repay long-term debt and credit facility borrowings and to finance capital expenditures.

In March 2015 Central Hudson issued 10-year US$20 million 2.98% unsecured notes. The net proceeds were used to finance capital expenditures and for general corporate purposes.

In April 2015 UNS Electric issued 30-year US$50 million 3.95% unsecured notes. The net proceeds were primarily used for general corporate purposes.

In April 2015 FortisBC Energy issued 30-year $150 million 3.38% unsecured debentures. The net proceeds were used to repay short-term borrowings and for general corporate purposes.

In August 2015 UNS Electric issued 12-year US$80 million 3.22% unsecured debentures and UNS Gas issued 30-year US$45 million 4.00% unsecured notes. The net proceeds were used to repay maturing long-term debt. Additionally, in August 2015 TEP redeemed at par US$79 million of variable rate tax-exempt bonds that had an original maturity date of 2022.

In September 2015 FortisAlberta issued 30-year $150 million 4.27% unsecured debentures. The net proceeds were used to repay credit facility borrowings and for general corporate purposes.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

15. LONG-TERM DEBT (cont’d)

Regulated Utilities (cont’d)

In September 2015 Newfoundland Power issued 30-year $75 million 4.446% secured first mortgage sinking fund bonds. The net proceeds were used to repay credit facility borrowings and for general corporate purposes.

Corporate

The unsecured debentures and US senior notes are redeemable at the option of Fortis at a price calculated as the greater of par or a specified price as defined in the respective long-term debt agreements, together with accrued and unpaid interest.

Repayment of Long-Term Debt

The consolidated annual requirements to meet principal repayments and maturities in each of the next five years and thereafter are as follows:

	Subsidiaries		Corporate		Total
Year	(in millions)		(in millions)		(in millions)
2016	$	382	$	2	$	384
2017	69		2		71
2018	281		2		283
2019	112		127		239
2020	202		655		857
Thereafter	7,793		1,613		9,406
	$	8,839	$	2,401	$	11,240

16. CAPITAL LEASE AND FINANCE OBLIGATIONS

Capital Lease Obligations

UNS Energy

In 2014 and 2015, TEP purchased certain Springerville assets upon expiry of the lease arrangements, as detailed below. As at December 31, 2015, capital lease obligations at TEP consist of an undivided one-half interest in certain Springerville Common Facilities.

Springerville Unit 1 Capital Lease Purchases

In December 2014 and January 2015, upon expiration of the Springerville Unit 1 lease, TEP purchased an additional 35.4% ownership interest in the previously leased assets for US$20 million and US$46 million, respectively. As a result of the purchases, TEP owns 49.5% of Springerville Unit 1, or 192 MW of capacity. Furthermore, TEP is obligated to operate the unit for the third-party owners under an existing agreement. The third-party owners are obligated to compensate TEP for their pro rata share of expenditures (Note 34).

Springerville Coal Handling Facilities Lease Purchase

In April 2015, upon expiration of the Springerville Coal Handling Facilities lease, TEP purchased an 86.7% ownership interest in the previously leased coal handling assets for a total of US$120 million. In May 2015 TEP sold a 17.05% interest in the facilities to a third party for US$24 million and has an agreement with another third party to either purchase a 17.05% interest for US$24 million or to continue to make payments to TEP for the use of the facility. The third party has until April 2016 to exercise its purchase option and, as a result, the associated assets have been classified as held for sale on the consolidated balance sheet as at December 31, 2015 (Note 6).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

16. CAPITAL LEASE AND FINANCE OBLIGATIONS (cont’d)

UNS Energy (cont’d)

Springerville Common Facilities Leases

TEP is party to three Springerville Common Facilities leases, which have an initial term to December 2017 for one lease and January 2021 for the other two leases, subject to optional renewal periods of two or more years through 2025 (Note 33). Instead of extending the leases, TEP may exercise a fixed-price purchase provision of US$38 million in 2017 and US$68 million in 2021. TEP has agreements with third parties that if the Springerville Common Facilities leases are not renewed, TEP will exercise the purchase options under these contracts. The third parties would be obligated to buy a portion of these facilities or continue to make payments to TEP for the use of these facilities.

UNS Energy entered into an interest rate swap that hedges a portion of the floating interest rate risk associated with the Springerville Common Facilities lease debt. As at December 31, 2015, interest on the lease debt is payable at a six-month LIBOR plus a spread of 1.88% (December 31, 2014 - 1.75%). The swap has the effect of fixing the interest rates on a portion of the amortizing principal balances of US$29 million (December 31, 2014 - US$33 million). The interest rate swap expires in 2020 and is recorded as a cash flow hedge (Note 31).

The Springerville Common Facilities capital lease obligation bears interest at a rate of 5.08%. For the year ended December 31, 2015, in total $5 million (December 31, 2014 - $2 million) of interest expense on the Springerville capital lease obligations was recognized in finance charges and $3 million (December 31, 2014 - $3 million) and $8 million (December 31, 2014 - $7 million) of depreciation expense on the Springerville leased assets was recognized in energy supply costs and depreciation, respectively.

FortisBC Electric

FortisBC Electric has a capital lease obligation with respect to the operation of the Brilliant Plant located near Castlegar, British Columbia. FortisBC Electric operates and maintains the Brilliant Plant, under the BPPA which expires in 2056, in return for a management fee. In exchange for the specified take-or-pay amounts of power, the BPPA requires semi-annual payments based on a return on capital, comprised of the original plant capital charge and periodic upgrade capital charges, which are both subject to fixed annual escalators, as well as sustaining capital charges and operating expenses. The BPPA includes a market-related price adjustment in 2026. Due to the fixed annual escalators, the interest expense on the capital lease obligation presently exceeds the required payments. The capital lease obligation will continue to increase through to 2024, and subsequently decrease for the remainder of the term when the required payments exceed the interest expense on the capital lease obligation. Approximately 94% of the output from the Brilliant Plant is being purchased by FortisBC Electric through the BPPA.

The BPPA capital lease obligation bears interest at a composite rate of 5.00%. Included in energy supply costs for 2015 was $26 million (2014 - $26 million) recognized in accordance with the BPPA, as approved by the BCUC (Note 8 (vi) ).

FortisBC Electric also has a capital lease obligation with respect to the operation of the Brilliant Terminal Station (“BTS”) , under an agreement which expires in 2056. The agreement provides that FortisBC Electric will pay a charge related to the recovery of the capital cost of the BTS and related operating costs. The obligation bears interest at a composite rate of 9.00%. Included in operating expenses for 2015 was $3 million (2014 - $3 million) recognized in accordance with the BTS agreement, as approved by the BCUC (Note 8 (vi) ).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

16. CAPITAL LEASE AND FINANCE OBLIGATIONS (cont’d)

Finance Obligations

Between 2000 and 2005 FEI entered into arrangements whereby certain natural gas distribution assets were leased to certain municipalities and then leased back by FEI from the municipalities. The natural gas distribution assets are considered to be integral equipment to real estate assets and, as such, the transactions have been accounted for as finance transactions. The proceeds from these transactions have been recognized as finance obligations on the consolidated balance sheet. Lease payments, net of the portion considered to be interest expense, reduce the finance obligations.

Obligations under the above-noted lease-in lease-out transactions at FEI have implicit interest at rates ranging from 6.82% to 8.66% and are being repaid over a 35-year period. Each of the lease-in lease-out arrangements allows FEI, at its option, to terminate the lease arrangements early, after 17 years. If the Company exercises this option, FEI would pay the municipality an early termination payment which is equal to the carrying value of the obligation at that point in time.

Repayment of Capital Lease and Finance Obligations

The present value of the minimum lease payments required for the capital lease and finance obligations over the next five years and thereafter are as follows:

	Capital		Finance
	Leases		Obligations		Total
Year	(in millions)		(in millions)		(in millions)
2016	$	68	$	4	$	72
2017	70		4		74
2018	61		32		93
2019	62		15		77
2020	73		2		75
Thereafter	2,049		38		2,087
	$	2,383	$	95	$	2,478
Less: Amounts representing imputed interest and executory costs on capital lease and finance obligations					(1,965		)
Total capital lease and finance obligations					513
Less: Current portion					(26		)
					$	487

17. OTHER LIABILITIES

(in millions)	2015		2014
OPEB plan liabilities (Note 27)	$	385	$	403
Defined benefit pension plan liabilities (Note 27)	368		390
MGP site remediation (Notes 8 (iv) , 14 and 34)	96		109
Waneta Partnership promissory note (Notes 31 and 33)	56		53
Asset retirement obligations	49		37
Final mine reclamation and retiree health care liabilities (Notes 8 (ix) and 34)	39		34
Customer security deposits	38		26
Deferred compensation plan liabilities (Note 9)	25		21
DSU, PSU and RSU liabilities (Note 23)	20		17
Fair value of derivative instruments (Note 31)	13		13
Other	63		38
	$	1,152	$	1,141

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

17. OTHER LIABILITIES (cont’d)

The Waneta Partnership promissory note is non-interest bearing with a face value of $72 million. As at December 31, 2015, its discounted net present value was $56 million (December 31, 2014 - $53 million). The promissory note was incurred by the Waneta Partnership on the acquisition of certain intangible assets and project design costs, from a company affiliated with CPC/CBT, associated with the construction of the Waneta Expansion. The promissory note is payable on April 1, 2020, the fifth anniversary of the commercial operation date of the Waneta Expansion.

As at December 31, 2015, UNS Energy, Central Hudson and FortisBC Electric recognized asset retirement obligations.

Other liabilities primarily include long-term accrued liabilities, deferred lease revenue, funds received in advance of expenditures and unrecognized tax benefits.

18. COMMON SHARES

Common shares issued during the year were as follows:

	2015			2014
	Number			Number
	of Shares	Amount		of Shares	Amount
	(in thousands)	(in millions)		(in thousands)	(in millions)
Balance, beginning of year	275,997	$	5,667	213,165	$	3,783
Conversion of Convertible Debentures	24	1		58,545	1,747
Dividend Reinvestment Plan	4,272	157		2,495	82
Consumer Share Purchase Plan	28	1		33	1
Employee Share Purchase Plan	356	13		384	12
Stock Option Plans	885	28		1,375	42
Balance, end of year	281,562	$	5,867	275,997	$	5,667

Convertible Debentures

To finance a portion of the acquisition of UNS Energy, in January 2014, Fortis completed the sale of $1.8 billion aggregate principal amount of 4% convertible unsecured subordinated debentures, represented by Installment Receipts (“Convertible Debentures”). The Convertible Debentures were sold on an installment basis at a price of $1,000 per Convertible Debenture, of which $333 was paid on closing in January 2014 and the remaining $667 was paid on October 27, 2014 (the “Final Installment Date”). Prior to the Final Installment Date, the Convertible Debentures were represented by Installment Receipts, which were traded on the TSX under the symbol “FTS.IR”. Since the Final Installment Date occurred prior to the first anniversary of the closing of the offering, holders of Convertible Debentures received, in addition to the payment of accrued and unpaid interest, a make-whole payment, representing interest that would have accrued from the day following the Final Installment Date to and including January 9, 2015. Approximately $72 million ($51 million after tax) in interest expense associated with the Convertible Debentures, including the make-whole payment, was recognized in 2014 (Note 25).

At the option of the holders, each Convertible Debenture was convertible into common shares of Fortis at any time after the Final Installment Date but prior to maturity or redemption by the Corporation at a conversion price of $30.72 per common share, being a conversion rate of 32.5521 common shares per $1,000 principal amount of Convertible Debentures. On October 28, 2014, approximately 58.2 million common shares of Fortis were issued, representing conversion into common shares of more than 99% of the Convertible Debentures. As at December 31, 2015, a total of approximately 58.6 million common shares of Fortis were issued on the conversion of Convertible Debentures, for proceeds of $1.748 billion, net of after-tax expenses. The net proceeds were used to finance a portion of the acquisition of UNS Energy (Note 29).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

19. EARNINGS PER COMMON SHARE

The Corporation calculates earnings per common share (“EPS”) on the weighted average number of common shares outstanding. The weighted average number of common shares outstanding was 278.6 million for 2015 and 225.6 million for 2014.

Diluted EPS was calculated using the treasury stock method for options and the “if-converted” method for convertible securities.

EPS were as follows:

2015

Weighted

Net Earnings to Common Shareholders

Average

(in millions)

Number of

EPS

Continuing

Discontinued

Shares

Continuing

Discontinued

Operations

Total

(millions)

Operations

Total

Basic EPS

728

—

728

278.6

2.61

—

2.61

Effect of potential dilutive securities:

Stock Options

—

0.7

Preference Shares

—

5.4

Diluted EPS

738

—

738

284.7

2.59

—

2.59

	2014
									Weighted
	Net Earnings to Common Shareholders								Average
	(in millions)								Number of		EPS
	Continuing			Discontinued					Shares		Continuing		Discontinued
	Operations			Operations		Total			(millions)		Operations		Operations		Total
Basic EPS	$	312		$	5	$	317		225.6		$	1.39	$	0.02	$	1.41
Effect of potential dilutive securities:
Stock Options	—			—		—			0.5
Preference Shares	10			—		10			6.9
	322			5		327			233.0
Deduct anti-dilutive impacts:
Preference Shares	(10		)	—		(10		)	(6.9	)
Diluted EPS	$	312		$	5	$	317		226.1		$	1.38	$	0.02	$	1.40

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

20. PREFERENCE SHARES

Authorized

(a) an unlimited number of First Preference Shares, without nominal or par value

(b) an unlimited number of Second Preference Shares, without nominal or par value

Issued and Outstanding			2015			2014
	Annual Dividend		Number of	Amount		Number of	Amount
First Preference Shares	Per Share		Shares	(in millions)		Shares	(in millions)
Series E (1)	$	1.2250	7,993,500	$	197	7,993,500	$	197
Series F (1)	$	1.2250	5,000,000	122		5,000,000	122
Series G (2)	$	0.9708	9,200,000	225		9,200,000	225
Series H (2) (3)	$	0.6250	7,024,846	172		10,000,000	245
Series I (4)			2,975,154	73		—	—
Series J (1)	$	1.1875	8,000,000	196		8,000,000	196
Series K (2)	$	1.0000	10,000,000	244		10,000,000	244
Series M (2)	$	1.0250	24,000,000	591		24,000,000	591
			74,193,500	$	1,820	74,193,500	$	1,820

(1 ) Cumulative Redeemable First Preference Shares

(2 ) Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares

(3) The annual fixed dividend per share for the First Preference Shares, Series H was reset from $1.0625 to $0.6250 for the five-year period from and including June 1, 2015 to but excluding June 1, 2020.

(4) Cumulative Redeemable Five-Year Floating Rate Preference Shares. The floating quarterly dividend rate will be reset every quarter based on the then current three-month Government of Canada Treasury Bill rate plus 1.45%.

In September 2014 the Corporation issued 24 million Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M (“First Preference Shares, Series M”) at a price of $25.00 per share for net after-tax proceeds of $591 million.

Holders of the First Preference Shares, Series E, Series F and Series J are each entitled to receive a fixed cumulative quarterly cash dividend as and when declared by the Board of Directors of the Corporation, payable in equal quarterly installments on the first day of each quarter.

On or after September 1, 2016, each First Preference Share, Series E will be convertible at the option of the holder on the first day of September, December, March and June of each year into fully paid and freely tradeable common shares of the Corporation, determined by dividing $25.00, together with all accrued and unpaid dividends, by the greater of $1.00 or 95% of the then-current market price of the common shares at such time. If a holder of First Preference Shares, Series E elects to convert any such shares into common shares, the Corporation can redeem such First Preference Shares, Series E for cash or arrange for the sale of those shares to other purchasers.

The Corporation has the option to convert all, or from time to time any part, of the outstanding First Preference Shares, Series E into fully paid and freely tradeable common shares of the Corporation. The number of common shares into which each First Preference Share, Series E may be converted will be determined by dividing the then-applicable redemption price per First Preference Share, Series E, together with all accrued and unpaid dividends, by the greater of $1.00 or 95% of the then-current market price of the common shares at such time.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

20. PREFERENCE SHARES (cont’d)

The First Preference Shares, Series G, Series H, Series K and Series M are entitled to receive fixed cumulative cash dividends as and when declared by the Board of Directors of the Corporation in the amounts of $0.9708, $0.6250, $1.0000 and $1.0250 per share per annum, respectively, for each year up to but excluding September 1, 2018, June 1, 2020, March 1, 2019, and December 1, 2019, respectively. The dividends are payable in equal quarterly installments on the first day of each quarter. As at September 1, 2018, June 1, 2020, March 1, 2019, and December 1, 2019, and each five-year period thereafter, the holders of First Preference Shares, Series G, Series H, Series K and Series M, respectively, are entitled to receive reset fixed cumulative cash dividends. The reset annual dividends per share will be determined by multiplying $25.00 per share by the annual fixed dividend rate of the First Preference Shares, Series G, Series H, Series K and Series M, which is the sum of the five-year Government of Canada Bond Yield on the applicable reset date plus 2.13%, 1.45%, 2.05% and 2.48%, respectively.

On each First Preference Shares, Series H, Series K and Series M Conversion Date, the holders of First Preference Shares, Series H, Series K and Series M have the option to convert any or all of their First Preference Shares, Series H, Series K and Series M into an equal number of cumulative redeemable floating rate First Preference Shares, Series I, Series L and Series N, respectively. On June 1, 2015, 2,975,154 of the 10,000,000 First Preference Shares, Series H were converted on a one-for-one basis into First Preference Shares, Series I. As a result of the conversion, Fortis has issued and outstanding 7,024,846 First Preference Shares, Series H and 2,975,154 First Preference Shares, Series I.

The holders for First Preference Shares, Series I are entitled to receive floating rate cumulative cash dividends, as and when declared by the Board of Directors of the Corporation, for the five-year period beginning after June 1, 2015. The floating quarterly dividend rate will be reset every quarter based on the then current three-month Government of Canada Treasury Bill rate plus 1.45%. The holders of First Preference Shares Series L and Series N will be entitled to receive floating rate cumulative cash dividends in the amount per share determined by multiplying the applicable floating quarterly dividend rate by $25.00. The floating quarterly dividend rate of the First Preference Shares Series L and Series N will be equal to the sum of the average yield expressed as a percentage per annum on three-month Government of Canada Treasury Bills plus 2.05% and 2.48%, respectively.

On or after specified dates, the Corporation has the option to redeem for cash the outstanding First Preference Shares, in whole at any time or in part from time to time, at specified fixed prices per share plus all accrued and unpaid dividends up to but excluding the dates fixed for redemption.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

21. ACCUMULATED OTHER COMPREHENSIVE INCOME

Other comprehensive income or loss results from items deferred from recognition in the consolidated statement of earnings. The change in accumulated other comprehensive income by category is provided as follows.

	2015
	Opening						Ending
	balance			Net			balance
(in millions)	January 1			change			December 31
Net unrealized foreign currency translation gains (losses):
Unrealized foreign currency translation gains on net investments in foreign operations	$	273		$	1,008		$	1,281
Losses on hedges of net investments in foreign operations	(131		)	(345		)	(476		)
Income tax recovery	2			(1		)	1
	144			662			806
Available-for-sale investment: (Notes 9, 28 and 31)
Unrealized losses on available-for-sale investment	—			(2		)	(2		)
Cash flow hedges: (Note 31)
Net change in fair value of cash flow hedges	1			2			3
Income tax expense	—			(1		)	(1		)
	1			1			2
Unrealized employee future benefits (losses) gains: (Note 27)
Unamortized past service costs	(2		)	1			(1		)
Unamortized net actuarial losses	(20		)	—			(20		)
Income tax recovery	6			—			6
	(16		)	1			(15		)
Accumulated other comprehensive income	$	129		$	662		$	791

	2014
	Opening						Ending
	balance			Net			balance
(in millions)	January 1			change			December 31
Net unrealized foreign currency translation (losses) gains:
Unrealized foreign currency translation (losses) gains on net investments in foreign operations	$	(60	)	$	333		$	273
Losses on hedges of net investments in foreign operations	—			(131		)	(131		)
Income tax recovery	—			2			2
	(60		)	204			144
Cash flow hedges: (Note 31)
Net change in fair value of cash flow hedges	—			1			1
Discontinued cash flow hedges:
Net losses on derivative instruments discontinued as cash flow hedges	(1		)	1			—
Unrealized employee future benefits (losses) gains: (Note 27)
Unamortized past service costs	(3		)	1			(2		)
Unamortized net actuarial losses	(9		)	(11		)	(20		)
Income tax recovery	1			5			6
	(11		)	(5		)	(16		)
Accumulated other comprehensive (loss) income	$	(72	)	$	201		$	129

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

22. NON-CONTROLLING INTERESTS

(in millions)	2015		2014
Waneta Partnership	$	335	$	316
Caribbean Utilities	122		88
Mount Hayes Limited Partnership	10		11
Preference shares of Newfoundland Power	6		6
	$	473	$	421

23 . STOCK-BASED COMPENSATION PLANS

Stock Options

The Corporation is authorized to grant officers and certain key employees of Fortis and its subsidiaries options to purchase common shares of the Corporation. As at December 31, 2015, the Corporation had the following stock option plans: the 2012 Plan, the 2006 Plan and the 2002 Plan. The 2012 Plan was approved at the May 4, 2012 Annual General Meeting and will ultimately replace the 2002 and 2006 Plans. The 2002 and 2006 Plans will cease to exist when all outstanding options are exercised or expire in or before 2016 and 2018, respectively. The Corporation has ceased the granting of options under the 2002 and 2006 Plans and all new options granted after 2011 are being made under the 2012 Plan. Directors are not eligible to receive grants of options under the 2012 Plan.

Options granted under the 2006 Plan are exercisable for a period not to exceed seven years from the date of grant, expire no later than three years after the termination, death or retirement of the optionee and vest evenly over a four-year period on each anniversary of the date of grant.

Options granted under the 2012 Plan are exercisable for a period not to exceed ten years from the date of grant, expire no later than three years after the termination, death or retirement of the optionee and vest evenly over a four-year period on each anniversary of the date of grant.

The following options were granted in 2015 and 2014. The fair values of the options were estimated at the date of grant using the Black-Scholes fair value option-pricing model and the following assumptions:

	2015		2014
	March	August	June	February
Options granted (#)	667,244	12,216	23,584	925,172
Exercise price ($) (1)	39.25	33.44	32.23	30.73
Grant date fair value ($)	2.46	2.47	2.69	3.53
Assumptions:
Dividend yield (%) (2)	3.6	3.8	3.8	3.8
Expected volatility (%) (3)	14.6	15.7	15.9	20.3
Risk-free interest rate (%) (4)	0.90	1.45	1.52	1.69
Weighted average expected life (years) (5)	5.5	5.5	5.5	5.5

(1) Five-day VWAP immediately preceding the date of grant

(2) Based on average annual dividend yield up to the date of grant and the weighted average expected life of the options

(3) Based on historical experience over a period equal to the weighted average expected life of the options

(4) Government of Canada benchmark bond yield in effect at the date of grant that covers the weighted average expected life of the options

(5) Based on historical experience

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

23. STOCK-BASED COMPENSATION PLANS (cont’d)

Stock Options (cont’d)

The Corporation records compensation expense upon the issuance of stock options granted under its 2002, 2006 and 2012 Plans. Using the fair value method, each grant is treated as a single award, the fair value of which is amortized to compensation expense evenly over the four-year vesting period of the options.

The following table summarizes information related to stock options for 2015.

	Total Options				Non-vested Options (1)
			Weighted				Weighted
			Average				Average
	Number of		Exercise		Number of		Grant Date
	Options		Price		Options		Fair Value
Options outstanding, January 1, 2015	4,705,935		$	30.27	2,148,380		$	3.84
Granted	667,244		$	39.25	667,244		$	2.46
Exercised	(885,242	)	$	27.55	n/a		n/a
Vested	n/a		n/a		(828,547	)	$	4.01
Cancelled/Forfeited	(71,483	)	$	33.16	(50,545	)	$	3.49
Options outstanding, December 31, 2015	4,416,454		$	32.12	1,936,532		$	3.30
Options vested, December 31, 2015 (2)	2,479,922		$	30.22

(1) As at December 31, 2015, there was $6 million of unrecognized compensation expense related to stock options not yet vested, which is expected to be recognized over a weighted average period of approximately three years.

(2) As at December 31, 2015, the weighted average remaining term of vested options was four years with an aggregate intrinsic value of $18 million.

The following table summarizes additional 2015 and 2014 stock option information.

(in millions)	2015		2014
Stock option expense recognized	$	3	$	3
Stock options exercised:
Cash received for exercise price	24		36
Intrinsic value realized by employees	10		12
Fair value of options that vested	3		3

Directors’ DSU Plan

Under the Corporation’s Directors’ DSU Plan, directors who are not officers of the Corporation are eligible for grants of DSUs representing the equity portion of directors’ annual compensation. In addition, directors can elect to receive credit for their quarterly cash retainer in a notional account of DSUs in lieu of cash. The Corporation may also determine from time to time that special circumstances exist that would reasonably justify the grant of DSUs to a director as compensation in addition to any regular retainer or fee to which the director is entitled.

Each DSU represents a unit with an underlying value equivalent to the value of one common share of the Corporation and is entitled to accrue notional common share dividends equivalent to those declared by the Corporation’s Board of Directors.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

23. STOCK-BASED COMPENSATION PLANS (cont’d)

Directors’ DSU Plan (cont’d)

Number of DSUs	2015		2014
DSUs outstanding, beginning of year	176,124		203,172
Granted	28,737		29,279
Granted - notional dividends reinvested	7,037		8,526
DSUs paid out	(44,136	)	(64,853	)
DSUs outstanding, end of year	167,762		176,124

For the year ended December 31, 2015, expense of $1 million (2014 - $3 million) was recognized in earnings with respect to the DSU Plan.

In 2015, 44,136 DSUs were paid out to retired and deceased directors at a weighted average price of $37.58 per DSU for a total of approximately $2 million.

As at December 31, 2015, the liability related to outstanding DSUs has been recorded at the VWAP of the Corporation’s common shares for the last five trading days of 2015 of $37.72, for a total of $6 million (December 31, 2014 - $7 million), and is included in long-term other liabilities (Note 17).

PSU Plans

The Corporation’s PSU Plans represent a component of long-term compensation awarded to senior management of the Corporation and its subsidiaries. As at December 31, 2015 , the Corporation had the following PSU plans: the 2013 PSU Plan, the 2015 PSU Plan, and certain subsidiaries of the Corporation have also adopted similar share unit plans that are modelled after the Corporation’s plans. Each PSU represents a unit with an underlying value equivalent to the value of one common share of the Corporation and is entitled to accrue notional common share dividends equivalent to those declared by the Corporation’s Board of Directors.

The PSUs are subject to a three-year vesting and performance period, at which time a cash payment may be made, as determined by the Human Resources Committee of the Board of Directors. Awards are calculated by multiplying the number of units outstanding at the end of the performance period by the VWAP of the Corporation’s common shares for five trading days prior to the maturity of the grant and by a payout percentage that may range from 0% to 150%.

The payout percentage for the PSU Plans is based on the Corporation’s performance over the three-year period, mainly determined by: (i) the Corporation’s total shareholder return as compared to a pre-defined peer group of companies; and (ii) the Corporation’s cumulative compound annual growth rate in earnings per common share or, for certain subsidiaries, the Company’s cumulative net income, as compared to the target established at the time of the grant. As at December 31, 2015, the estimated payout percentages for the grants under the 2013 and 2015 PSU Plans range from 96% to 118%.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

23. STOCK-BASED COMPENSATION PLANS (cont’d)

PSU Plans (cont’d)

The following table summarizes information related to the PSUs for 2015 and 2014.

Number of PSUs	2015		2014
PSUs outstanding, beginning of year	481,700		257,419
Granted	276,381		261,737
Granted - notional dividends reinvested	25,687		17,691
PSUs paid out	(83,637	)	(33,559	)
PSUs cancelled/forfeited	(5,745	)	(21,588	)
PSUs outstanding, end of year	694,386		481,700

In January 2015, 68,759 PSUs were paid out to the former Chief Executive Officer (“CEO”) of the Corporation at $38.90 per PSU, for a total of approximately $3 million. The payout was made in respect of the PSU grant made in March 2012 and the former CEO satisfying the payment requirements, as determined by the Human Resources Committee of the Board of Directors. As a result of the sale of commercial real estate and hotel assets, in October 2015 14,878 PSUs were paid out to certain employees at a 100% payout percentage under the 2013 PSU Plan and the 2015 PSU Plan at $38.48 per PSU, for a total of approximately $1 million.

For the year ended December 31, 2015, expense of approximately $12 million (2014 - $7 million) was recognized in earnings with respect to the PSU Plans and there was $9 million of unrecognized compensation expense related to PSUs not yet vested, which is expected to be recognized over a weighted average period of approximately two years.

As at December 31, 2015, the aggregate intrinsic value of the outstanding PSUs was $28 million, with a weighted average contractual life of approximately one year. The liability related to outstanding PSUs has been recorded at the VWAP of the Corporation’s common shares for the last five trading days of 2015 of $37.72, for a total of $19 million (December 31, 2014 - $10 million), and is included in accounts payable and other current liabilities and long-term other liabilities (Notes 14 and 17).

RSU Plans

In February 2015 the Corporation’s Board of Directors approved the 2015 RSU Plan, effective January 1, 2015. The Corporation’s 2015 RSU Plan represents a component of long-term compensation awarded to senior management of the Corporation and its subsidiaries. Each RSU represents a unit with an underlying value equivalent to the value of one common share of the Corporation and is subject to a three-year vesting period, at which time a cash payment may be made. Each RSU is entitled to accrue notional common share dividends equivalent to those declared by the Corporation’s Board of Directors.

Number of RSUs	2015
Granted	59,462
Granted - notional dividends reinvested	2,150
RSUs cancelled/forfeited	(2,872	)
RSUs outstanding, end of year	58,740

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

23. STOCK-BASED COMPENSATION PLANS (cont’d)

RSU Plans (cont’d)

For the year ended December 31, 2015, expense of approximately $1 million was recognized in earnings with respect to the RSU Plan and there was approximately $1 million of unrecognized compensation expense related to RSUs not yet vested, which is expected to be recognized over a weighted average period of approximately two years.

As at December 31, 2015, the liability related to outstanding RSUs was recorded at the VWAP of the Corporation’s common shares for the last five trading days of 2015 of $37.72, for a total of $1 million, and is included in long-term other liabilities (Note 17).

24. OTHER INCOME (EXPENSES), NET

(in millions)	2015			2014
Net gain on sale of commercial real estate and hotel assets (Note 28) (1)	$	109		$	—
Gain on sale of non-regulated generation assets (Note 28) (2)	56			—
Equity component of AFUDC	23			11
Net foreign exchange gain	13			8
Interest income	8			13
Loss on settlement of expropriation matters (Note 9)	(9		)	—
Acquisition-related expenses (Notes 29 and 35)	(10		)	(25		)
Acquisition-related customer and community benefits (Notes 8 (xvii) and 29)	—			(33		)
Other	(3		)	1
	$	187		$	(25	)

(1) Net of $23 million of expenses associated with the sale

(2) Net of $6 million of expenses and foreign exchange impacts associated with the sale

The net foreign exchange gain relates to the translation into Canadian dollars of the Corporation’s previous US dollar-denominated long-term other asset, representing the book value of the Corporation’s expropriated investment in Belize Electricity, up to the date of settlement of expropriation matters in August 2015 (Note 9). As a result of the settlement, the Corporation recognized an approximate $9 million loss in 2015. Unrealized foreign exchange gains and losses associated with the Corporation’s 33% equity investment in Belize Electricity are recognized on the balance sheet in accumulated other comprehensive income.

The acquisition-related expenses and customer and community benefits in 2014 were associated with the acquisition of UNS Energy (Note 29).

25. FINANCE CHARGES

(in millions)		2015			2014
Interest	- Long-term debt and capital lease and finance obligations	$	572		$	482
	- Short-term borrowings	8			20
	- Convertible Debentures (Note 18)	—			72
Debt component of AFUDC		(27		)	(27		)
		$	553		$	547

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

26. INCOME TAXES

Deferred Income Taxes

Deferred income taxes are provided for temporary differences. The significant components of deferred income tax assets and liabilities consist of the following.

(in millions)	2015			2014
Gross deferred income tax assets
Tax loss and credit carryforwards	$	387		$	376
Regulatory liabilities	210			186
Employee future benefits	116			108
Share issue and debt financing costs	13			20
Unrealized foreign exchange losses on long-term debt	65			17
Other	45			70
	836			777
Deferred income tax assets valuation allowance	(73		)	(24		)
Net deferred income tax assets	$	763		$	753

Gross deferred income tax liabilities
Utility capital assets	$	(2,575	)	$	(2,096	)
Regulatory assets	(201		)	(204		)
Non-utility capital assets	—			(40		)
Intangible assets	(37		)	(39		)
	(2,813		)	(2,379		)
Net deferred income tax liability	$	(2,050	)	$	(1,626	)

The deferred income tax asset associated with unrealized foreign exchange losses on long-term debt reflects $65 million of capital losses as at December 31, 2015 (December 31, 2014 - $17 million). The deferred income tax asset can only be used if the Corporation has capital gains to offset the losses. Management believes that it is more likely than not that Fortis will not be able to generate future capital gains and, as a result, the Corporation recorded a $65 million valuation allowance against the deferred income tax asset as at December 31, 2015 (December 31, 2014 - $17 million). Management believes that based on its historical pattern of taxable income, Fortis will produce sufficient income in the future to realize all other deferred income tax assets.

Unrecognized Tax Benefits

The following table summarizes the change in unrecognized tax benefits during 2015 and 2014.

(in millions)	2015		2014
Total unrecognized tax benefits, beginning of year	$	11	$	3
Additions related to the current year	1		7
Adjustments related to prior years	1		1
Total unrecognized tax benefits, end of year	$	13	$	11

Unrecognized tax benefits, if recognized, would reduce income tax expense by $1 million in 2015. Fortis has not recognized interest expense in 2015 and 2014 related to unrecognized tax benefits.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

26. INCOME TAXES (cont’d)

The components of the income tax expense were as follows.

(in millions)	2015			2014
Canadian
Current income taxes	$	59		$	43
Deferred income taxes	113			64
Less: regulatory adjustments	(100		)	(67		)
	13			(3		)
Total Canadian	$	72		$	40

Foreign
Deferred income taxes	151			26
Total Foreign	$	151		$	26
Income tax expense	$	223		$	66

Income taxes differ from the amount that would be expected to be generated by applying the enacted combined Canadian federal and provincial statutory income tax rate to earnings before income taxes. The following is a reconciliation of consolidated statutory taxes to consolidated effective taxes.

(in millions, except as noted)	2015			2014
Combined Canadian federal and provincial statutory income tax rate	27.5		%	29.0		%
Statutory income tax rate applied to earnings before income taxes	$	292		$	131
Difference between Canadian statutory income tax rate and rates applicable to foreign subsidiaries	(7		)	(23		)
Difference in Canadian provincial statutory income tax rates applicable to subsidiaries in different Canadian jurisdictions	(4		)	(10		)
Items capitalized for accounting purposes but expensed for income tax purposes	(39		)	(26		)
Difference between gain on sale of assets for accounting and amounts calculated for tax purposes	(18		)	—
Change in tax rates and legislation	13			—
Other	(14		)	(6		)
Income tax expense	$	223		$	66
Effective tax rate	21.0		%	14.6		%

In 2015 the Corporation’s combined Canadian federal and provincial statutory income tax rate decreased from 29.0% to 27.5%. This change resulted from the inclusion of the Waneta Partnership’s taxable income, which is taxable in the province of British Columbia at a lower provincial income tax rate, and increased income tax expense by approximately $3 million in 2015, through the re-measurement of deferred income tax assets. In addition, a change in New York State tax legislation in 2015 resulted in the need to include UNS Energy as part of the combined New York State tax return. As a result, existing deferred income tax balances were adjusted to reflect the effect of the change in the tax law, resulting in an increase in income tax expense of approximately $10 million in 2015.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

26. INCOME TAXES (cont’d)

As at December 31, 2015, the Corporation had the following tax carryforward amounts.

(in millions)	Expiring Year	Amount
Canadian
Capital loss	N/A	$	15
Non-capital loss	2025-2035	129
Other tax credits	2026-2035	2
		146
Unrecognized in the consolidated financial statements		(15		)
		$	131
Foreign
Capital loss	2017	$	12
Federal and state net operating loss	2031-2034	653
Other tax credits	2016-2035	69
Alternative minimum tax credits	N/A	64
		798
Unrecognized in the consolidated financial statements		(17		)
		781
Total tax carryforwards		$	912

As at December 31, 2015, the Corporation had approximately $912 million in tax carryforward amounts recognized in the consolidated financial statements (December 31, 2014 - $1,093 million).

The Corporation and one or more of its subsidiaries are subject to taxation in Canada, the United States and other foreign jurisdictions. The material jurisdictions in which the Corporation is subject to potential examinations include the United States (Federal, Arizona and New York) and Canada (Federal and British Columbia). The Corporation’s 2010 to 2015 taxation years are still open for audit in the Canadian jurisdictions and 2011 to 2015 taxation years are still open for audit in the United States jurisdictions. The Corporation is not currently under examination for income tax matters in any of these jurisdictions.

27. EMPLOYEE FUTURE BENEFITS

The Corporation and its subsidiaries each maintain one or a combination of defined benefit pension plans, defined contribution pension plans, and OPEB plans. For the defined benefit pension and OPEB plan arrangements, the benefit obligation and the fair value of plan assets are measured for accounting purposes as at December 31 of each year.

Actuarial valuations are required to determine funding contributions for pension plans, at least, every three years for Fortis’ Canadian and Caribbean subsidiaries. The most recent valuations were as of December 31, 2012 for FortisBC Energy (plan covering non-unionized employees), FortisAlberta and Caribbean Utilities; December 31, 2013 for FortisBC Electric and FortisBC Energy (plans covering unionized employees); as of December 31, 2014 for Newfoundland Power, FortisOntario, and the Corporation.

UNS Energy and Central Hudson perform annual actuarial valuations, as their funding contribution requirements are based on maintaining annual target fund percentages. Both UNS Energy and Central Hudson have met the minimum funding requirements.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

27. EMPLOYEE FUTURE BENEFITS (cont’d)

The Corporation’s investment policy is to ensure that the defined benefit pension and OPEB plan assets, together with expected contributions, are invested in a prudent and cost-effective manner to optimally meet the liabilities of the plans for its members. The investment objective of the defined benefit pension and OPEB plans is to maximize return in order to manage the funded status of the plans and minimize the Corporation’s cost over the long term, as measured by both cash contributions and defined benefit pension and OPEB expense for consolidated financial statement purposes.

The Corporation’s consolidated defined benefit pension and OPEB plan weighted average asset allocations were as follows.

Plan assets as at December 31	2015 Target
(%)	Allocation	2015	2014
Equities	50	51	49
Fixed income	46	44	46
Real estate	4	4	4
Cash and other	—	1	1
	100	100	100

The fair value measurements of defined benefit pension and OPEB plan assets by fair value hierarchy, as defined in Note 31, were as follows.

Fair value of plan assets as at December 31, 2015
(in millions)	Level 1		Level 2		Level 3		Total
Equities	$	417	$	922	$	—	$	1,339
Fixed income	—		1,166		—		1,166
Real estate	—		14		97		111
Private equities	—		—		10		10
Cash and other	3		18		—		21
	$	420	$	2,120	$	107	$	2,647

Fair value of plan assets as at December 31, 2014
(in millions)	Level 1		Level 2		Level 3		Total
Equities	$	352	$	806	$	—	$	1,158
Fixed income	23		1,069		—		1,092
Real estate	—		11		85		96
Private equities	—		—		8		8
Cash and other	6		10		—		16
	$	381	$	1,896	$	93	$	2,370

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

27. EMPLOYEE FUTURE BENEFITS (cont’d)

The following table is a reconciliation of changes in the fair value of pension plan assets that have been measured using Level 3 inputs for the years ended December 31, 2015 and 2014.

(in millions)	2015		2014
Balance, beginning of year	$	93	$	62
Assets assumed on acquisition	—		24
Actual return on plan assets held at end of year	9		6
Foreign currency translation impacts	5		—
Purchases, sales and settlements	—		1
Balance, end of year	$	107	$	93

The following is a breakdown of the Corporation’s and subsidiaries’ defined benefit pension and OPEB plans and their respective funded status.

	Defined Benefit
	Pension Plans						OPEB Plans
(in millions)	2015			2014			2015			2014
Change in benefit obligation (1)
Balance, beginning of year	$	2,604		$	1,724		$	564		$	417
Liabilities assumed on acquisition	—			403			—			83
Service costs	68			43			17			11
Employee contributions	17			17			1			1
Interest costs	109			90			23			21
Benefits paid	(118		)	(101		)	(21		)	(15		)
Actuarial (gains) losses	(102		)	335			(50		)	27
Past service credits/plan amendments	—			—			(10		)	—
Foreign currency translation impacts	250			93			50			19
Balance, end of year (2)	$	2,828		$	2,604		$	574		$	564

Change in value of plan assets
Balance, beginning of year	$	2,216		$	1,541		$	154		$	121
Assets assumed on acquisition	—			373			—			13
Actual return on plan assets	30			236			—			11
Benefits paid	(118		)	(101		)	(21		)	(15		)
Employee contributions	17			17			1			1
Employer contributions	99			70			17			11
Foreign currency translation impacts	222			80			30			12
Balance, end of year	$	2,466		$	2,216		$	181		$	154

Funded status	$	(362	)	$	(388	)	$	(393	)	$	(410	)

(1) Amounts reflect projected benefit obligation for defined benefit pension plans and accumulated benefit obligation for OPEB plans

(2) The accumulated benefit obligation for defined benefit pension plans, excluding assumptions about future salary levels, was $2,595 million as at December 31, 2015 (December 31, 2014 - $2,378 million).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

27. EMPLOYEE FUTURE BENEFITS (cont’d)

The following table summarizes the employee future benefit assets and liabilities and their classifications on the consolidated balance sheet.

	Defined Benefit
	Pension Plans				OPEB Plans
(in millions)	2015		2014		2015		2014
Assets
Defined benefit pension assets:
Long-term other assets	$	11	$	6	$	—	$	—

Liabilities
Defined benefit pension liabilities:
Current (Note 14)	5		4		—		—
Long-term other liabilities (Note 17)	368		390		—		—
OPEB plan liabilities:
Current (Note 14)	—		—		8		7
Long-term other liabilities (Note 17)	—		—		385		403
Net liabilities	$	362	$	388	$	393	$	410

The net benefit cost for the Corporation’s defined benefit pension plans and OPEB plans were as follows:

	Defined Benefit
	Pension Plans						OPEB Plans
(in millions)	2015			2014			2015			2014
Components of net benefit cost
Service costs	$	68		$	43		$	17		$	11
Interest costs	109			90			23			21
Expected return on plan assets	(140		)	(106		)	(12		)	(9		)
Amortization of actuarial losses	57			32			5			3
Amortization of past service credits/plan amendments	—			(1		)	(5		)	(3		)
Amortization of transitional obligation (asset)	2			2			(7		)	(6		)
Regulatory adjustments	1			11			6			4
Net benefit cost	$	97		$	71		$	27		$	21

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

27. EMPLOYEE FUTURE BENEFITS (cont’d)

The following tables provide the components of accumulated other comprehensive loss and regulatory assets and liabilities, which would otherwise have been recognized as accumulated other comprehensive loss, for the years ended December 31, 2015 and 2014 that have not been recognized as components of net benefit cost.

	Defined Benefit
	Pension Plans						OPEB Plans
(in millions)	2015			2014			2015			2014
Unamortized net actuarial losses	$	16		$	16		$	4		$	4
Unamortized past service costs	1			—			—			2
Income tax recovery	(5		)	(5		)	(1		)	(1		)
Accumulated other comprehensive loss (Note 21)	$	12		$	11		$	3		$	5

Net actuarial losses	$	513		$	513		$	41		$	95
Past service credits	—			—			(33		)	(43		)
Amount deferred due to actions of regulators	23			18			39			39
	$	536		$	531		$	47		$	91

Regulatory assets (Note 8 (ii) )	$	536		$	531		$	91		$	149
Regulatory liabilities (Note 8 (ii) )	—			—			(44		)	(58		)
Net regulatory assets	$	536		$	531		$	47		$	91

The following tables provide the components recognized in comprehensive income or as regulatory assets, which would otherwise have been recognized in comprehensive income.

	Defined Benefit
	Pension Plans						OPEB Plans
(in millions)	2015			2014			2015			2014
Current year net actuarial losses (gains)	$	—		$	9		$	(1	)	$	3
Past service credits/plan amendments	—			—			(1		)	(1		)
Amortization of actuarial gains (losses)	1			(1		)	—			—
Income tax recovery	—			(4		)	—			(1		)
Total recognized in comprehensive income	$	1		$	4		$	(2	)	$	1

Assets assumed on acquisition	$	—		$	79		$	—		$	6
Current year net actuarial losses (gains)	8			197			(28		)	23
Past service credits/plan amendments	—			—			(10		)	—
Amortization of actuarial losses	(56		)	(31		)	(5		)	(5		)
Amortization of past service costs	(1		)	(1		)	(2		)	(3		)
Foreign currency translation impacts	49			14			(6		)	(4		)
Regulatory adjustments	5			(37		)	7			(1		)
Total recognized in regulatory assets	$	5		$	221		$	(44	)	$	16

Net actuarial losses of $1 million are expected to be amortized from accumulated other comprehensive income into net benefit cost in 2016 related to defined benefit pension plans.

Net actuarial losses of $47 million, past service credits of $1 million and regulatory adjustments of $2 million are expected to be amortized from regulatory assets into net benefit cost in 2016 related to defined benefit pension plans. Net actuarial losses of $3 million, past service credits of $1 million and regulatory adjustments of $5 million are expected to be amortized from regulatory assets into net benefit cost in 2016 related to OPEB plans.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

27. EMPLOYEE FUTURE BENEFITS (cont’d)

Significant weighted average assumptions

	Defined Benefit
	Pension Plans		OPEB Plans
%	2015	2014	2015	2014
Discount rate during the year	4.00	4.81	3.95	4.72
Discount rate as at December 31	4.21	4.00	4.12	3.95
Expected long-term rate of return on plan assets (1)	6.25	6.46	6.95	7.08
Rate of compensation increase	3.48	3.48	—	—
Health care cost trend increase as at December 31 (2)	—	—	4.67	4.67

(1) Developed by management with assistance from independent actuaries using best estimates of expected returns, volatilities and correlations for each class of asset. The best estimates are based on historical performance, future expectations and periodic portfolio rebalancing among the diversified asset classes.

(2) The projected 2016 weighted average health care cost trend rate is 6.98% for OPEB plans and is assumed to decrease over the next 13 years by 2028 to the weighted average ultimate health care cost trend rate of 4.67% and remain at that level thereafter.

For 2015 the effects of changing the health care cost trend rate by 1% were as follows.

	1% increase		1% decrease
(in millions)	in rate		in rate
Increase (decrease) in accumulated benefit obligation	$	51	$	(43	)
Increase (decrease) in service and interest costs	5		(3		)

The following table provides the amount of benefit payments expected to be made over the next 10 years.

	Defined Benefit
	Pension Payments		OPEB Payments
Year	(in millions)		(in millions)
2016	$	122	$	24
2017	127		26
2018	131		27
2019	136		29
2020	141		30
2021 - 2025	796		173

Refer to Note 33 for expected defined benefit pension and OPEB plan funding contributions.

During 2015 the Corporation expensed $28 million (2014 - $21 million) related to defined contribution pension plans.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

28. DISPOSITIONS AND DISCONTINUED OPERATIONS

Sale of Commercial Real Estate and Hotel Assets

In June 2015 the Corporation completed the sale of the commercial real estate assets of Fortis Properties for gross proceeds of $430 million. As a result of the sale, the Corporation recognized a gain on sale of $129 million ($109 million after tax), net of expenses (Note 24). As part of the transaction, Fortis subscribed to $35 million in trust units of Slate Office REIT in conjunction with the REIT’s public offering (Notes 9 and 31).

In October 2015 the Corporation completed the sale of the hotel assets of Fortis Properties for gross proceeds of $365 million. As a result of the sale, the Corporation recognized a loss of approximately $20 million ($8 million after tax), which reflects an impairment loss and expenses associated with the sale transaction (Note 24).

Net proceeds from the sales were used by the Corporation to repay credit facility borrowings, the majority of which were used to finance a portion of the acquisition of UNS Energy (Note 29), and for other general corporate purposes.

Earnings before taxes related to Fortis Properties of approximately $18 million were recognized in 2015, excluding the net gain on sale, compared to $31 million in 2014.

Sale of Non-Regulated Generation Assets in New York and Ontario

In June 2015 the Corporation sold its non-regulated generation assets in Upstate New York for gross proceeds of approximately $77 million (US$63 million). As a result of the sale, the Corporation recognized a gain on sale of $51 million (US$41 million) ($27 million (US$22 million) after tax), net of expenses and foreign exchange impacts (Note 24).

In July 2015 the Corporation sold its non-regulated generation assets in Ontario for gross proceeds of approximately $16 million. As a result of the sale, the Corporation recognized a gain on sale of $5 million ($5 million after tax) (Note 24).

E arnings before taxes of less than $1 million were recognized in 2015, excluding the gain on sale, compared to $3 million in 2014.

Sale of Griffith

In March 2014 Griffith was sold for proceeds of approximately $105 million (US$95 million). The results of operations to the date of sale are presented as discontinued operations on the consolidated statements of earnings. As a result of the disposal, earnings from discontinued operations of $8 million ($5 million after tax) were recognized in the first quarter of 2014.

29. BUSINESS ACQUISITIONS

2015

PENDING ACQUISITION OF AITKEN CREEK GAS STORAGE FACILITY

In December 2015 Fortis, through an indirect wholly owned subsidiary, entered into a definitive share purchase and sale agreement with Chevron Canada Properties Ltd. to acquire its shares of the Aitken Creek Gas Storage Facility (“Aitken Creek”) for approximately US$266 million, subject to customary closing conditions and adjustments. Aitken Creek is the largest gas storage facility in British Columbia with a total working gas capacity of 77 billion cubic feet and is an integral part of Western Canada’s natural gas transmission network. The acquisition is subject to regulatory approval and is expected to close in the first half of 2016. The net cash purchase price is expected to be initially financed with borrowings under the Corporation’s credit facility. In December 2015 the Corporation paid a deposit of US$29 million related to the transaction, which is included in long-term other assets on the consolidated balance sheet (Note 9).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

29. BUSINESS ACQUISITIONS (cont’d)

2014

UNS ENERGY

On August 15, 2014, Fortis acquired all of the outstanding common shares of UNS Energy for US$60.25 per common share in cash, for an aggregate purchase price of approximately US$4.5 billion, including the assumption of US$2.0 billion of debt on closing.

Financing of the net cash purchase price of approximately $2.7 billion (US$2.5 billion) is complete. Fortis completed the sale of $1.8 billion 4% Convertible Debentures. Proceeds from the first installment of approximately $599 million were received in January 2014. A significant portion of these cash proceeds were used to finance a portion of the UNS Energy acquisition. Proceeds from the final installment of approximately $1.2 billion were received on October 28, 2014 and were used to repay borrowings under acquisition credit facilities initially used to finance a portion of the UNS Energy acquisition. Substantially all of the Convertible Debentures have been converted into approximately 58.6 million common shares of Fortis (Note 18). I n September 2014 Fortis issued 24 million 4.1% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M for gross proceeds of $600 million (Note 20). The net proceeds were also used to repay a portion of borrowings under the acquisition credit facilities. The remainder of the purchase price was financed through credit facility borrowings under a medium-term bridge facility and the Corporation’s revolving credit facility (Note 32), which were subsequently repaid using net proceeds from the sale of commercial real estate and hotel assets (Note 28).

UNS Energy’s operations are regulated by the ACC and FERC (Note 2). The determination of revenue and earnings is based on a regulated rate of return that is applied to historic values, which do not change with a change of ownership. No fair value adjustments, other than goodwill, were recorded for the net assets acquired because all of the economic benefits and obligations associated with them beyond regulated rates of return accrue to the customers.

The following table summarizes the final allocation of the purchase consideration to the assets and liabilities acquired as at August 15, 2014, based on their fair values, using an exchange rate of US$1.00=CAD$1.0925.

(in millions)	Total
Purchase consideration	$	2,745

Fair value assigned to net assets:
Current assets	539
Long-term regulatory assets	185
Utility capital assets	3,972
Intangible assets	116
Other long-term assets	108
Current liabilities	(458		)
Assumed long-term debt and capital lease and finance obligations (including current portion)	(2,186		)
Long-term regulatory liabilities	(341		)
Other long-term liabilities	(797		)
	1,138
Cash and cash equivalents	97
Fair value of net assets acquired	1,235
Goodwill (Note 13)	$	1,510

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

29. BUSINESS ACQUISITIONS (cont’d)

The acquisition has been accounted for using the acquisition method, whereby financial results of the business acquired have been consolidated in the financial statements of Fortis commencing on August 15, 2014.

In 2014 acquisition-related expenses of approximately $25 million ($19 million after tax) were recognized in other income (expenses), net on the consolidated statement of earnings (Note 24). In addition, approximately $33 million (US$30 million), or $20 million (US$18 million) after tax, in customer benefits offered to obtain regulatory approval of the acquisition were expensed in 2014 and were also recognized in other income (expenses), net on the consolidated statement of earnings (Notes 8 (xvii) and 24).

30. SUPPLEMENTARY INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)	2015			2014
Cash paid for:
Interest	$	561		$	538
Income taxes	109			83

Change in non-cash operating working capital:
Accounts receivable and other current assets	$	14		$	53
Prepaid expenses	(1		)	2
Inventories	15			(11		)
Regulatory assets - current portion	57			(16		)
Accounts payable and other current liabilities	(82		)	(123		)
Regulatory liabilities - current portion	38			(29		)
	$	41		$	(124	)

Non-cash investing and financing activities:
Common share dividends reinvested	$	156		$	81
Conversion of Convertible Debentures into common shares (Note 18)	1			1,747
Additions to utility capital assets, non-utility capital assets, and intangible assets included in current and long-term liabilities	187			200
Contributions in aid of construction included in current assets	4			7
Exercise of stock options into common shares	4			5

31. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Fair value is the price at which a market participant could sell an asset or transfer a liability to an unrelated party. A fair value measurement is required to reflect the assumptions that market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risks inherent in a particular valuation technique, such as a pricing model, and the risks inherent in the inputs to the model. A fair value hierarchy exists that prioritizes the inputs used to measure fair value.

The three levels of the fair value hierarchy are defined as follows:

Level 1: Fair value determined using unadjusted quoted prices in active markets;

Level 2: Fair value determined using pricing inputs that are observable; and

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

Level 3: Fair value determined using unobservable inputs only when relevant observable inputs are not available.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

31. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d)

The fair values of the Corporation’s financial instruments, including derivatives, reflect point-in-time estimates based on current and relevant market information about the instruments as at the balance sheet dates. The estimates cannot be determined with precision as they involve uncertainties and matters of judgment and, therefore, may not be relevant in predicting the Corporation’s future consolidated earnings or cash flows.

The following table presents, by level within the fair value hierarchy, the Corporation’s assets and liabilities accounted for at fair value on a recurring basis. These assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement and there were no transfers between the levels in the periods presented. For derivative instruments, the Corporation has elected gross presentation for its derivative contracts under master netting agreements and collateral positions.

	Fair value	As at December 31
(in millions)	hierarchy	2015			2014
Assets
Energy contracts subject to regulatory deferral (1) (2) (3)	Levels 2/3	$	7		$	3
Energy contracts not subject to regulatory deferral (1) (2)	Level 3	2			1
Available-for-sale investment (Note 9) (4) (5)	Level 1	33			—
Assets held for sale (Note 6)	Level 2	9			—
Other investments (4)	Level 1	12			5
Total gross assets		63			9
Less: Counterparty netting not offset on the balance sheet (6)		(6		)	(3		)
Total net assets		$	57		$	6

Liabilities
Energy contracts subject to regulatory deferral (1) (2) (7)	Levels 1/2/3	$	78		$	72
Energy contracts not subject to regulatory deferral (1) (2)	Level 3	—			1
Energy contracts - cash flow hedges (2) (8)	Level 3	—			1
Interest rate swaps - cash flow hedges (8)	Level 2	5			5
Total gross liabilities		83			79
Less: Counterparty netting not offset on the balance sheet (6)		(6		)	(3		)
Total net liabilities		$	77		$	76

(1) The fair value of the Corporation’s energy contracts is recorded in accounts receivable and other current assets, long-term other assets, accounts payable and other current liabilities and long-term other liabilities. Unrealized gains and losses arising from changes in fair value of these contracts are deferred as a regulatory asset or liability for recovery from, or refund to, customers in rates as permitted by the regulators, with the exception of long-term wholesale trading contracts.

(2) Changes in one or more of the unobservable inputs could have a significant impact on the fair value measurement depending on the magnitude and direction of the change for each input. The impacts of changes in fair value are subject to regulatory recovery, with the exception of long-term wholesale trading contracts and those that qualify as cash flow hedges.

(3) Includes $2 million - level 2 and $5 million - level 3 (2014 - $3 million - level 3)

(4) Included in long-term other assets on the consolidated balance sheet

(5) The cost of the available-for-sale investment was $35 million and unrealized gains and losses arising from changes in fair value are recorded in other comprehensive income until they become realized and are reclassified to earnings (Notes 9 and 28).

(6) Certain energy contracts are subject to legally enforceable master netting arrangements to mitigate credit risk and netted by counterparty where the intent and legal right to offset exists.

(7) Includes $1 million — level 1, $52 million - level 2 and $25 million - level 3 (2014 - $2 million - level 1, $35 million - level 2 and $35 million - level 3)

(8) The fair value of certain of the Corporation’s energy contracts are recorded in accounts payable and other current liabilities and the fair value of the Corporation’s interest rate swaps are recorded in accounts payable and other current liabilities and long-term other liabilities. Unrealized gains and losses arising from changes in fair value are recorded in other comprehensive income until they become realized and are reclassified to earnings.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

31. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d)

Derivative Instruments

The Corporation generally limits the use of derivative instruments to those that qualify as accounting, economic or cash flow hedges, or those that are approved for regulatory recovery. The Corporation records all derivative instruments at fair value, with certain exceptions including those derivatives that qualify for the normal purchase and normal sale exception. The fair value of derivative instruments are estimates of the amounts that the utilities would receive or have to pay to terminate the outstanding contracts as at the balance sheet dates.

Energy Contracts Subject to Regulatory Deferral

UNS Energy holds electricity power purchase contracts and gas swap and option contracts to reduce its exposure to energy price risk associated with purchased power and gas requirements. UNS Energy primarily applies the market approach for fair value measurements using independent third-party information, where possible. When published prices are not available, adjustments are applied based on historical price curve relationships and transmission and line losses. The fair value of gas option contracts is estimated using a Black-Scholes option-pricing model, which includes inputs such as implied volatility, interest rates, and forward price curves. UNS Energy also considers the impact of counterparty credit risk using current and historical default and recovery rates, as well as its own credit risk using credit default swap data.

Central Hudson holds electricity swap contracts and gas swap and option contracts to minimize commodity price volatility for electricity and natural gas purchases by fixing the effective purchase price for the defined commodities. The fair value of the electricity swap contracts and gas swap and option contracts was calculated using forward pricing provided by independent third parties.

FortisBC Energy holds gas purchase contract premiums to fix the effective purchase price of natural gas, as the majority of the natural gas supply contracts have floating, rather than fixed, prices. The fair value of the natural gas derivatives was calculated using the present value of cash flows based on market prices and forward curves for the cost of natural gas.

As at December 31, 2015, these energy contract derivatives were not designated as hedges; however, any unrealized gains or losses associated with changes in the fair value of the derivatives are deferred as a regulatory asset or liability for recovery from, or refund to, customers in future rates, as permitted by the regulators. These unrealized losses and gains would otherwise be recorded in earnings. As at December 31, 2015, unrealized losses of $74 million (December 31, 2014 - $69 million) were recognized in regulatory assets and unrealized gains of $3 million were recognized in regulatory liabilities (Note 8 (vii) ).

Energy Contracts Not Subject to Regulatory Deferral

In June 2015 UNS Energy entered into long-term wholesale trading contracts that qualify as derivative instruments. The unrealized gains and losses on these derivative instruments are recorded in earnings, as they do not qualify for regulatory deferral. Ten percent of any realized gains on these contracts are shared with the ratepayer through UNS Energy’s rate stabilization accounts.

Cash Flow Hedges

UNS Energy holds an interest rate swap, expiring in 2020, to mitigate its exposure to volatility in variable interest rates on lease debt, and held a power purchase swap, that expired in September 2015, to hedge the cash flow risk associated with a long-term power supply agreement. The after-tax unrealized gains and losses on cash flow hedges are recorded in other comprehensive income and reclassified to earnings as they become realized. The loss expected to be reclassified to earnings within the next 12 months is estimated to be approximately $1 million.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

31. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d)

Derivative Instruments (cont’d)

Cash Flow Hedges (cont’d)

Central Hudson holds interest rate cap contracts expiring in 2016 and 2017 on bonds with a total principal amount of US$64 million. Variations in the interest costs of the bonds, including any gains or losses associated with the interest rate cap contracts, are deferred as a regulatory asset or liability for recovery from, or refund to, customers in future rates, as permitted by the regulator and do not impact earnings.

Cash flows associated with the settlement of all derivative instruments are included in operating activities on the Corporation’s consolidated statement of cash flows.

Volume of Derivative Activity

As at December 31, 2015, the following notional volumes related to electricity and natural gas derivatives that are expected to be settled are outlined below.

	Maturity	Contracts						There-
Volume	(year)	(#)	2016	2017	2018	2019	2020	after
Energy contracts subject to regulatory deferral:
Electricity swap contracts (gigawatt hours (“GWh” ))	2019	8	1,043	730	438	219	—	—
Electricity power purchase contracts (GWh)	2017	28	1,027	145	—	—	—	—
Gas swap and option contracts (petajoules (“ PJ ”))	2018	154	40	10	4	—	—	—
Gas purchase contract premiums (PJ)	2024	89	91	42	38	22	22	64
Energy contracts not subject to regulatory deferral:
Long-term wholesale trading contracts (GWh)	2016	6	1,310	—	—	—	—	—

Financial Instruments Not Carried At Fair Value

The following table discloses the estimated fair value measurements of the Corporation’s financial instruments not carried at fair value. The fair values were measured using Level 2 pricing inputs, except as noted. The carrying values of the Corporation’s consolidated financial instruments approximate their fair values, reflecting the short-term maturity, normal trade credit terms and/or nature of these instruments, except as follows:

	As at
	December 31, 2015						December 31, 2014
Asset (Liability)	Carrying			Estimated			Carrying			Estimated
(in millions)	Value			Fair Value			Value			Fair Value
Long-term other asset - Belize Electricity (1)	$	—		$	—		$	116		$	n/a
Long-term debt, including current portion (Note 15) (2)	(11,240		)	(12,614		)	(10,501		)	(12,237		)
Waneta Partnership promissory note (Note 17)	(56		)	(59		)	(53		)	(56		)

(1) In August 2015 the Corporation settled expropriation matters with the GOB regarding the GOB’s expropriation of Belize Electricity (Note 9).

(2) The Corporation’s $200 million unsecured debentures due 2039 and consolidated borrowings under credit facilities classified as long-term debt of $551 million (December 31, 2014 - $1,096 million) are valued using Level 1 inputs. All other long-term debt is valued using Level 2 inputs.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

31. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d)

Financial Instruments Not Carried At Fair Value (cont’d)

The fair value of long-term debt is calculated using quoted market prices when available. When quoted market prices are not available, as is the case with the Waneta Partnership promissory note and certain long-term debt, the fair value is determined by either: (i) discounting the future cash flows of the specific debt instrument at an estimated yield to maturity equivalent to benchmark government bonds or treasury bills with similar terms to maturity, plus a credit risk premium equal to that of issuers of similar credit quality; or (ii) obtaining from third parties indicative prices for the same or similarly rated issues of debt of the same remaining maturities. Since the Corporation does not intend to settle the long-term debt or promissory note prior to maturity, the excess of the estimated fair value above the carrying value does not represent an actual liability.

32. FINANCIAL RISK MANAGEMENT

The Corporation is primarily exposed to credit risk, liquidity risk and market risk as a result of holding financial instruments in the normal course of business.

Credit risk	Risk that a counterparty to a financial instrument might fail to meet its obligations under the terms of the financial instrument.

Liquidity risk	Risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.

Market risk	Risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. The Corporation is exposed to foreign exchange risk, interest rate risk and commodity price risk.

Credit Risk

For cash equivalents, trade and other accounts receivable, and long-term other receivables, the Corporation’s credit risk is generally limited to the carrying value on the consolidated balance sheet. The Corporation generally has a large and diversified customer base, which minimizes the concentration of credit risk. The Corporation and its subsidiaries have various policies to minimize credit risk, which include requiring customer deposits, prepayments and/or credit checks for certain customers and performing disconnections and/or using third-party collection agencies for overdue accounts.

FortisAlberta has a concentration of credit risk as a result of its distribution service billings being to a relatively small group of retailers. As at December 31, 2015, FortisAlberta’s gross credit risk exposure was approximately $116 million, representing the projected value of retailer billings over a 37-day period. The Company has reduced its exposure to $3 million by obtaining from the retailers either a cash deposit, bond, letter of credit, an investment-grade credit rating from a major rating agency, or a financial guarantee from an entity with an investment-grade credit rating.

UNS Energy, Central Hudson and FortisBC Energy may be exposed to credit risk in the event of non-performance by counterparties to derivative instruments. The Companies use netting arrangements to reduce credit risk and net settle payments with counterparties where net settlement provisions exist. They also limit credit risk by only dealing with counterparties that have investment-grade credit ratings. At UNS Energy, contractual arrangements also contain certain provisions requiring counterparties to derivative instruments to post collateral under certain circumstances.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

32. FINANCIAL RISK MANAGEMENT (cont’d)

Liquidity Risk

The Corporation’s consolidated financial position could be adversely affected if it, or one of its subsidiaries, fails to arrange sufficient and cost-effective financing to fund, among other things, capital expenditures, acquisitions and the repayment of maturing debt. The ability to arrange sufficient and cost-effective financing is subject to numerous factors, including the consolidated results of operations and financial position of the Corporation and its subsidiaries, conditions in capital and bank credit markets, ratings assigned by rating agencies and general economic conditions.

To help mitigate liquidity risk, the Corporation and its regulated utilities have secured committed credit facilities to support short-term financing of capital expenditures and seasonal working capital requirements.

The Corporation’s committed corporate credit facility is used for interim financing of acquisitions and for general corporate purposes. Depending on the timing of cash payments from subsidiaries, borrowings under the Corporation’s committed corporate credit facility may be required from time to time to support the servicing of debt and payment of dividends. As at December 31, 2015, over the next five years, average annual consolidated fixed-term debt maturities and repayments are expected to be approximately $260 million. The combination of available credit facilities and relatively low annual debt maturities and repayments provides the Corporation and its subsidiaries with flexibility in the timing of access to capital markets.

As at December 31, 2015, the Corporation and its subsidiaries had consolidated credit facilities of approximately $3.6 billion, of which approximately $2.4 billion was unused, including $570 million unused under the Corporation’s committed revolving corporate credit facility. The credit facilities are syndicated mostly with the seven largest Canadian banks, as well as large banks in the United States, with no one bank holding more than 20% of these facilities. Approximately $3.3 billion of the total credit facilities are committed facilities with maturities ranging from 2016 through 2020.

The following summary outlines the credit facilities of the Corporation and its subsidiaries.

							Total as at			Total as at
	Regulated			Corporate			December 31,			December 31,
(in millions)	Utilities			and Other			2015			2014
Total credit facilities (1)	$	2,211		$	1,354		$	3,565		$	3,854
Credit facilities utilized:
Short-term borrowings (2)	(511		)	—			(511		)	(330		)
Long-term debt (Note 15) (3)	(71		)	(480		)	(551		)	(1,096		)
Letters of credit outstanding	(68		)	(36		)	(104		)	(192		)
Credit facilities unused	$	1,561		$	838		$	2,399		$	2,236

(1) Total credit facilities exclude a $300 million option to increase the Corporation’s committed corporate credit facility, as discussed below.

(2) The weighted average interest rate on short-term borrowings was approximately 1.0% as at December 31, 2015 (December 31, 2014 - 1.3%).

(3) As at December 31, 2015, credit facility borrowings classified as long-term debt included $71 million in current installments of long-term debt on the consolidated balance sheet (December 31, 2014 - $257 million). The weighted average interest rate on credit facility borrowings classified as long-term debt was approximately 1.5% as at December 31, 2015 (December 31, 2014 - 1.8%).

As at December 31, 2015 and 2014, certain borrowings under the Corporation’s and subsidiaries’ long-term committed credit facilities were classified as long-term debt. It is management’s intention to refinance these borrowings with long-term permanent financing during future periods.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

32. FINANCIAL RISK MANAGEMENT (cont’d)

Liquidity Risk (cont’d)

Regulated Utilities

The UNS Utilities have a total of US$350 million ($484 million) in unsecured committed revolving credit facilities maturing in October 2020, with the option of two one-year extensions.

Central Hudson has a US$200 million ($277 million) unsecured committed revolving credit facility, maturing in October 2020, that is utilized to finance capital expenditures and for general corporate purposes. Central Hudson also has an uncommitted credit facility totalling US$25 million ($34 million).

FEI has a $700 million unsecured committed revolving credit facility, maturing in August 2018, that is utilized to finance working capital requirements, capital expenditures and for general corporate purposes.

FortisAlberta has a $250 million unsecured committed revolving credit facility, maturing in August 2020, that is utilized to finance capital expenditures and for general corporate purposes.

FortisBC Electric has a $150 million unsecured committed revolving credit facility, maturing in May 2018. This facility is utilized to finance capital expenditures and for general corporate purposes. FortisBC Electric also has a $10 million unsecured demand overdraft facility.

Newfoundland Power has a $100 million unsecured committed revolving credit facility, maturing in August 2019, and a $20 million demand credit facility. Maritime Electric has a $50 million unsecured committed revolving credit facility, maturing in February 2019, and a $5 million unsecured demand credit facility. FortisOntario has a $30 million unsecured committed revolving credit facility, maturing in June 2016.

Caribbean Utilities has unsecured credit facilities totalling approximately US$47 million ($65 million). Fortis Turks and Caicos has short-term unsecured demand credit facilities of US$26 million ($36 million), maturing in September 2016.

Corporate and Other

Fortis has a $1 billion unsecured committed revolving credit facility, maturing in July 2020, that is available for general corporate purposes. The Corporation has the ability to increase this facility to $1.3 billion. As at December 31, 2015, the Corporation has not yet exercised its option for the additional $300 million. The Corporation also has a $35 million letter of credit facility, maturing in January 2017.

UNS Energy Corporation has a US$150 million ($208 million) unsecured committed revolving credit facility, maturing in October 2020, with the option of two one-year extensions.

CH Energy Group has a US$50 million ($69 million) unsecured committed revolving credit facility, maturing in July 2020, that can be utilized for general corporate purposes.

FHI has a $30 million unsecured committed revolving credit facility, maturing in April 2018, that is available for general corporate purposes.

The Corporation and its currently rated utilities target investment-grade credit ratings to maintain capital market access at reasonable interest rates. As at December 31, 2015, the Corporation’s credit ratings were as follows:

Standard & Poor’s (“S&P”)	A- / Stable (long-term corporate and unsecured debt credit rating)
DBRS	A (low) / Stable (unsecured debt credit rating)

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

32. FINANCIAL RISK MANAGEMENT (cont’d)

Liquidity Risk (cont’d)

The above-noted credit ratings reflect the Corporation’s low business-risk profile and diversity of its operations, the stand-alone nature and financial separation of each of the regulated subsidiaries of Fortis, and management’s commitment to maintaining reasonable levels of debt at the holding company level. In February 2016, after the announcement by Fortis that it had entered into an agreement to acquire ITC Holdings Corp. (“ITC”) (Note 35), S&P affirmed the Corporation’s long-term corporate credit rating at A-, revised its unsecured debt rating to BBB+ from A-, and revised its outlook on the Corporation to negative from stable. Similarly, in February 2016 DBRS placed the Corporation’s credit rating under review with negative implications.

Market Risk

Foreign Exchange Risk

The Corporation’s earnings from, and net investments in, foreign subsidiaries are exposed to fluctuations in the US dollar-to-Canadian dollar exchange rate. The Corporation has decreased the above-noted exposure through the use of US dollar-denominated borrowings at the corporate level. The foreign exchange gain or loss on the translation of US dollar-denominated interest expense partially offsets the foreign exchange gain or loss on the translation of the Corporation’s foreign subsidiaries’ earnings, which are denominated in US dollars. The reporting currency of UNS Energy, Central Hudson, Caribbean Utilities, Fortis Turks and Caicos and BECOL is the US dollar.

As at December 31, 2015, the Corporation’s corporately issued US$1,535 million (December 31, 2014 - US$1,496 million) long-term debt had been designated as an effective hedge of a portion of the Corporation’s foreign net investments. As at December 31, 2015, the Corporation had approximately US$3,137 million (December 31, 2014 - US$2,762 million) in foreign net investments remaining to be hedged. Foreign currency exchange rate fluctuations associated with the translation of the Corporation’s corporately issued US dollar-denominated borrowings designated as effective hedges are recorded on the consolidated balance sheet in accumulated other comprehensive income and serve to help offset unrealized foreign currency exchange gains and losses on the net investments in foreign subsidiaries, which gains and losses are also recorded on the consolidated balance sheet in accumulated other comprehensive income.

On an annual basis, it is estimated that a 5 cent, or 5%, increase or decrease in the US dollar relative to the Canadian dollar exchange rate of US$1.00=CAD$1.38 as at December 31, 2015 would increase or decrease earnings per common share of Fortis by approximately 4 cents. Management will continue to hedge future exchange rate fluctuations related to the Corporation’s foreign net investments and US dollar-denominated earnings streams, where possible, through future US dollar-denominated borrowings, and will continue to monitor the Corporation’s exposure to foreign currency fluctuations on a regular basis.

Interest Rate Risk

The Corporation and most of its subsidiaries are exposed to interest rate risk associated with borrowings under variable-rate credit facilities, variable-rate long-term debt and the refinancing of long-term debt. The Corporation and its subsidiaries may enter into interest rate swap agreements to help reduce this risk (Notes 15, 16 and 31).

Commodity Price Risk

UNS Energy is exposed to commodity price risk associated with changes in the market price of gas, purchased power and coal. Central Hudson is exposed to commodity price risk associated with changes in the market price of electricity and natural gas. FortisBC Energy is exposed to commodity price risk associated with changes in the market price of natural gas. The risks have been reduced by entering into derivative contracts that effectively fix the price of natural gas, power and electricity purchases. These derivative instruments are recorded on the consolidated balance sheet at fair value and any change in the fair value is deferred as a regulatory asset or liability, as permitted by the regulators, for recovery from, or refund to, customers in future rates (Note 31).

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

33. COMMITMENTS

As at December 31, 2015, the Corporation’s consolidated commitments in each of the next five years and for periods thereafter, excluding repayments of long-term debt and capital lease and finance obligations separately disclosed in Notes 15 and 16, respectively, are as follows:

		Due					Due
		within	Due in	Due in	Due in	Due in	after
($ in millions)	Total	1 year	year 2	year 3	year 4	year 5	5 years
Interest obligations on long-term debt	9,435	536	512	507	495	488	6,897
Renewable power purchase obligations (1)	1,589	93	93	92	92	92	1,127
Gas purchase obligations (2)	1,449	366	253	222	153	131	324
Power purchase obligations (3)	1,440	281	209	180	102	36	632
Long-term contracts - UNS Energy (4)	1,057	146	141	105	102	82	481
Capital cost (5)	488	19	19	19	19	19	393
Operating lease obligations (6)	181	12	11	11	11	8	128
Renewable energy credit purchase agreements (7)	162	13	13	13	13	13	97
Purchase of Springerville Common Facilities (8)	147	—	53	—	—	—	94
Defined benefit pension and OPEB funding contributions (Note 27)	139	49	12	8	9	9	52
Waneta Partnership promissory note (Note 17)	72	—	—	—	—	72	—
Joint-use asset and shared service agreements	53	3	3	3	3	3	38
Other (9)	71	15	12	16	3	—	25
Total	16,283	1,533	1,331	1,176	1,002	953	10,288

(1) TEP and UNS Electric are party to 20-year long-term renewable PPAs totalling approximately US$1,148 million as at December 31, 2015, which require TEP and UNS Electric to purchase 100% of the output of certain renewable energy generating facilities that have achieved commercial operation. While TEP and UNS Electric are not required to make payments under these contracts if power is not delivered, the table above includes estimated future payments based on expected power deliveries. These agreements have various expiry dates through 2035. TEP has entered into additional long-term renewable PPAs to comply with renewable energy standards of the State of Arizona; however, the Company’s obligation to purchase power under these agreements does not begin until the facilities are operational. In February 2016 one of the generating facilities achieved commercial operation, increasing estimated future payments of renewable PPAs by US$58 million, which is not included in the table above.

(2) Certain of the Corporation’s subsidiaries, mainly FortisBC Energy and Central Hudson, enter into contracts for the purchase of gas, gas transportation and storage services. FortisBC Energy’s gas purchase obligations are based on gas commodity indices that vary with market prices and the obligations are based on index prices as at December 31, 2015. At Central Hudson, the obligations are based on tariff rates, negotiated rates and market prices as at December 31, 2015.

(3) Power purchase obligations include various power purchase contracts held by certain of the Corporation’s subsidiaries, as described below.

FortisBC Energy

In March 2015 FortisBC Energy entered into an Electricity Supply Agreement with BC Hydro for the purchase of electricity supply to the Tilbury Expansion Project, with purchase obligations totalling $513 million as at December 31, 2015.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

33. COMMITMENTS (cont’d)

FortisBC Electric

Power purchase obligations for FortisBC Electric, totalling $292 million as at December 31, 2015, mainly include a PPA with BC Hydro to purchase up to 200 MW of capacity and 1,752 GWh of associated energy annually for a 20-year term, as approved by the BCUC. The capacity and energy to be purchased under this agreement do not relate to a specific plant.

In addition, in November 2011 FortisBC Electric executed the Waneta Expansion Capacity Agreement (“WECA”), allowing FortisBC Electric to purchase 234 MW of capacity for 40 years, effective April 2015, as approved by the BCUC. Amounts associated with the WECA have not been included in the Commitments table as they are to be paid by FortisBC Electric to a related party and such a related-party transaction would be eliminated upon consolidation with Fortis.

FortisOntario

Power purchase obligations for FortisOntario, totalling $208 million as at December 31, 2015, primarily include two long-term take-or-pay contracts between Cornwall Electric and Hydro-Quebec Energy Marketing for the supply of electricity and capacity, both expiring in December 2019. The first contract provides approximately 237 GWh of energy per year and up to 45 MW of capacity at any one time. The second contract provides 100 MW of capacity and provides a minimum of 300 GWh of electricity per contract year.

Maritime Electric

Power purchase obligations for Maritime Electric, totalling $194 million as at December 31, 2015, primarily include two take-or-pay contracts for the purchase of either capacity or energy, expiring in February 2019 and November 2032, as well as an Energy Purchase Agreement with New Brunswick Power (“NB Power”) expiring in February 2019.

Central Hudson

Central Hudson’s power purchase obligations totalled US$124 million as at December 31, 2015. In June 2014 Central Hudson entered into a contract to purchase available installed capacity from the Danskammer Generating Facility from October 2014 through August 2018 with approximately US$76 million in purchase commitments remaining as at December 31, 2015. During 2015 Central Hudson entered into agreements to purchase electricity on a unit-contingent basis at defined prices during peak load periods from June 2015 through August 2016, replacing existing contracts which expired in March 2015.

(4) UNS Energy has entered into various long-term contracts for the purchase and delivery of coal to fuel its generating facilities, the purchase of gas transportation services to meet its load requirements, and the purchase of transmission services for purchased power, with obligations totalling US$440 million, US$261 million and US$63 million, respectively, as at December 31, 2015. Amounts paid under contracts for the purchase and delivery of coal depend on actual quantities purchased and delivered. Certain of these contracts also have price adjustment clauses that will affect future costs under the contracts. As a result of the restructuring of the ownership of the San Juan generating station in January 2016, a new coal supply agreement came into effect under which TEP’s minimum purchase obligations are US$137 million, which is not included in the previous table.

(5) Maritime Electric has entitlement to approximately 4.55% of the output from NB Power’s Point Lepreau nuclear generating station for the life of the unit. As part of its entitlement, Maritime Electric is required to pay its share of the capital and operating costs of the unit.

(6) Operating lease obligations include certain office, warehouse, natural gas T&D asset, rail car, land easement and rights-of-way, and vehicle and equipment leases.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

33. COMMITMENTS (cont’d)

(7) UNS Energy is party to renewable energy credit purchase agreements, totalling approximately US$117 million as at December 31, 2015, to purchase the environmental attributions from retail customers with solar installations. Payments for the renewable energy credit purchase agreements are paid in contractually agreed-upon intervals based on metered renewable energy production.

(8) UNS Energy has entered into a commitment to exercise its fixed-price purchase provision to purchase an undivided 50% leased interest in the Springerville Common Facilities if the lease is not renewed, for a purchase price of US$106 million, with one facility to be acquired in 2017 and the remaining two facilities to be acquired in 2021 (Note 16).

(9) Other contractual obligations include various other commitments entered into by the Corporation and its subsidiaries, including PSU, RSU and DSU Plan obligations and asset retirement obligations.

Other Commitments

Capital Expenditures: The Corporation’s regulated utilities are obligated to provide service to customers within their respective service territories. The regulated utilities’ capital expenditures are largely driven by the need to ensure continued and enhanced performance, reliability and safety of the electricity and gas systems and to meet customer growth. The Corporation’s consolidated capital expenditure program, including capital spending at its non-regulated operations, is forecast to be approximately $1.9 billion for 2016. Over the five years 2016 through 2020, the Corporation’s consolidated capital expenditure program is expected to be approximately $9 billion, which has not been included in the Commitments table.

Other: CH Energy Group is party to an investment to develop, own and operate electric transmission projects in New York State. In December 2014 an application was filed with FERC for the recovery of the cost of and return on five high-voltage transmission projects totalling US$1.7 billion, of which CH Energy Group’s maximum commitment is US$182 million. CH Energy Group issued a parental guarantee to assure the payment of maximum commitment of US$182 million. As at December 31, 2015, no payment obligation is expected under this guarantee.

FortisBC Energy issued commitment letters to customers, totalling $33 million as at December 31, 2015, to provide Energy Efficiency and Conservation (“EEC”) funding under the EEC program approved by the BCUC.

Caribbean Utilities is party to primary and secondary fuel supply contracts and is committed to purchasing approximately 60% and 40%, respectively, of the Company’s diesel fuel requirements under the contracts for the operation of its diesel-powered generating plant. The approximate combined quantity under the contracts for 2016 is 20 million imperial gallons. Fortis Turks and Caicos has a renewable contract with a major supplier for all of its diesel fuel requirements associated with the generation of electricity. The approximate fuel requirements under this contract are 12 million imperial gallons per annum.

The Corporation’s long-term regulatory liabilities of $1,340 million as at December 31, 2015 have been excluded from the Commitments table, as the final timing of settlement of many of the liabilities is subject to further regulatory determination or the settlement periods are not currently known. The nature and amount of the long-term regulatory liabilities are detailed in Note 8.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

34. CONTINGENCIES

The Corporation and its subsidiaries are subject to various legal proceedings and claims associated with the ordinary course of business operations. Management believes that the amount of liability, if any, from these actions would not have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

The following describes the nature of the Corporation’s contingencies.

UNS Energy

Springerville Unit 1

In November 2014 the Springerville Unit 1 third-party owners filed a complaint (“FERC Action”) against TEP with FERC, alleging that TEP had not agreed to wheel power and energy for the third-party owners in the manner specified in the existing Springerville Unit 1 facility support agreement between TEP and the third-party owners and for the cost specified by the third-party owners. The third-party owners requested an order from FERC requiring such wheeling of the third-party owners’ energy from their Springerville Unit 1 interests beginning in January 2015 for the price specified by the third-party owners. In February 2015 FERC issued an order denying the third-party owners’ complaint. In March 2015 the third-party owners filed a request for rehearing in the FERC Action, which FERC denied in October 2015. In December 2015 the third-party owners appealed FERC’s order denying the third-party owners’ complaint to the U.S. Court of Appeals for the Ninth Circuit. In December 2015 TEP filed an unopposed motion to intervene in the Ninth Circuit appeal.

In December 2014 the third-party owners filed a complaint (“New York Action”) against TEP in the Supreme Court of the State of New York, New York County. In response to motions filed by TEP to dismiss various counts and compel arbitration of certain of the matters alleged and the court’s subsequent ruling on the motions, the third-party owners have amended the complaint three times, dropping certain of the allegations and raising others in the New York Action and in the arbitration proceeding described below. As amended, the New York Action alleges, among other things, that TEP failed to properly operate, maintain and make capital investments in Springerville Unit 1 during the term of the leases; and that TEP breached the lease transaction documents by refusing to pay certain of the third-party owners’ claimed expenses. The third amended complaint seeks US$71 million in liquidated damages and direct and consequential damages in an amount to be determined at trial. The third-party owners have also agreed to stay their claim that TEP has not agreed to wheel power and energy as required pending the outcome of the FERC Action. In November 2015 the third-party owners filed a motion for summary judgment on their claim that TEP failed to pay certain of the third-party owners’ claimed expenses.

In April 2015 TEP filed a demand for arbitration with the American Arbitration Association (“AAA”) seeking an award of the owner trustees and co-trustees’ share of unreimbursed expenses and capital expenditures for Springerville Unit 1. In June 2015 the third-party owners filed a separate demand for arbitration with the AAA alleging, among other things, that TEP has failed to properly operate, maintain and make capital investments in Springerville Unit 1 since the leases have expired. The third-party owners’ arbitration demand seeks declaratory judgments, damages in an amount to be determined by the arbitration panel and the third-party owners’ fees and expenses. TEP and the third-party owners have since agreed to consolidate their arbitration demands into one proceeding. In August 2015 the third-party owners filed an amended arbitration demand adding claims that TEP has converted the third-party owners’ water rights and certain emission reduction payments and that TEP is improperly dispatching the third-party owners’ unscheduled Springerville Unit 1 power and capacity.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

34. CONTINGENCIES (cont’d)

UNS Energy (cont’d)

Springerville Unit 1 (cont’d)

In October 2015 the arbitration panel granted TEP’s motion for interim relief, ordering the owner trustees and co-trustees to pay TEP their pro-rata share of unreimbursed expenses and capital expenditures for Springerville Unit 1 during the pendency of the arbitration. The arbitration panel also denied the third-party owners’ motion for interim relief, which had requested that TEP be enjoined from dispatching the third-party owners’ unscheduled Springerville Unit 1 power and capacity. TEP has been scheduling the third-party owners’ entitlement share of power from Springerville Unit 1, as permitted under the Springerville Unit 1 facility support agreement, since June 2015. The arbitration hearing is scheduled for July 2016.

In November 2015 TEP filed a petition to confirm the interim arbitration order in the Supreme Court of the State of New York naming owner trustee and co-trustee as respondents. The petition seeks an order from the court confirming the interim arbitration order under the Federal Arbitration Act. In December 2015 the owner trustees filed an answer to the petition and a cross-motion to vacate the interim arbitration order.

As at December 31, 2015, TEP billed the third-party owners approximately US$23 million for their pro-rata share of Springerville Unit 1 expenses and US$4 million for their pro-rata share of capital expenditures, none of which had been paid as of February 17, 2016.

TEP cannot predict the outcome of the claims relating to Springerville Unit 1 and, due to the general and non-specific scope and nature of the claims, the Company cannot determine estimates of the range of loss, if any, at this time and, accordingly, no amount has been accrued in the consolidated financial statements. TEP intends to vigorously defend itself against the claims asserted by the third-party owners and to vigorously pursue the claims it has asserted against the third-party owners.

Mine Reclamation Costs

TEP pays ongoing reclamation costs related to coal mines that supply generating stations in which the Company has an ownership interest but does not operate. TEP is liable for a portion of final reclamation costs upon closure of the mines servicing the San Juan, Four Corners and Navajo generating stations. TEP’s share of reclamation costs at all three mines is expected to be US$43 million upon expiration of the coal supply agreements, which expire between 2019 and 2031. The mine reclamation liability recorded as at December 31, 2015 was US$25 million (December 31, 2014 - US$22 million), and represents the present value of the estimated future liability (Note 17).

TEP is permitted to fully recover these costs from retail customers and, accordingly, these costs are deferred as a regulatory asset (Note 8 (ix) ) .

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

34. CONTINGENCIES (cont’d)

Central Hudson

Site Investigation and Remediation Program

Central Hudson and its predecessors owned and operated MGPs to serve their customers’ heating and lighting needs. These plants manufactured gas from coal and oil beginning in the mid to late 1800s, with all sites ceasing operations by the 1950s. This process produced certain by-products that may pose risks to human health and the environment.

The New York State Department of Environmental Conservation (“DEC”), which regulates the timing and extent of remediation of MGP sites in New York State, has notified Central Hudson that it believes the Company or its predecessors at one time owned and/or operated MGPs at seven sites in Central Hudson’s franchise territory. The DEC has further requested that the Company investigate and, if necessary, remediate these sites under a Consent Order, Voluntary Clean-up Agreement or Brownfield Clean-up Agreement. Central Hudson accrues for remediation costs based on the amounts that can be reasonably estimated. As at December 31, 2015, an obligation of US$92 million (December 31, 2014 - US$105 million) was recognized in respect of site investigation and remediation and, based upon cost model analysis completed in 2014, it is estimated, with a 90% confidence level, that total costs to remediate these sites over the next 30 years will not exceed US$169 million.

Central Hudson has notified its insurers and intends to seek reimbursement from insurers for remediation, where coverage exists. Further, as authorized by the PSC, Central Hudson is currently permitted to defer, for future recovery from customers, differences between actual costs for MGP site investigation and remediation and the associated rate allowances, with carrying charges to be accrued on the deferred balances at the authorized pre-tax rate of return. In the three-year rate order issued by the PSC in June 2015, Central Hudson’s authorization to defer all site investigation and remediation costs was reaffirmed and extended through June 2018 (Note 8 (iv) ) .

Asbestos Litigation

Prior to and after its acquisition by Fortis, various asbestos lawsuits have been brought against Central Hudson. While a total of 3,350 asbestos cases have been raised, 1,167 remained pending as at December 31, 2015. Of the cases no longer pending against Central Hudson, 2,027 have been dismissed or discontinued without payment by the Company, and Central Hudson has settled the remaining 156 cases. The Company is presently unable to assess the validity of the outstanding asbestos lawsuits; however, based on information known to Central Hudson at this time, including the Company’s experience in the settlement and/or dismissal of asbestos cases, Central Hudson believes that the costs which may be incurred in connection with the remaining lawsuits will not have a material effect on its financial position, results of operations or cash flows and, accordingly, no amount has been accrued in the consolidated financial statements.

FortisBC Electric

The Government of British Columbia filed a claim in the British Columbia Supreme Court in June 2012 claiming on its behalf, and on behalf of approximately 17 homeowners, damages suffered as a result of a landslide caused by a dam failure in Oliver, British Columbia in 2010. The Government of British Columbia alleges in its claim that the dam failure was caused by the defendants’, which include FortisBC Electric, use of a road on top of the dam. The Government of British Columbia estimates its damages and the damages of the homeowners, on whose behalf it is claiming, to be approximately $15 million. While FortisBC Electric has notified its insurers, it has been advised by the Government of British Columbia that a response to the claim is not required at this time. The outcome cannot be reasonably determined and estimated at this time and, accordingly, no amount has been accrued in the consolidated financial statements.

FHI

In April 2013 FHI and Fortis were named as defendants in an action in the B.C. Supreme Court by the Coldwater Indian Band (“Band”). The claim is in regard to interests in a pipeline right of way on reserve lands. The pipeline on the right of way was transferred by FHI (then Terasen Inc.) to Kinder Morgan Inc. in April 2007. The Band seeks orders cancelling the right of way and claims damages for wrongful interference with the Band’s use and enjoyment of reserve lands. The outcome cannot be reasonably determined and estimated at this time and, accordingly, no amount has been accrued in the consolidated financial statements.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

35. SUBSEQUENT EVENT

On February 9, 2016, Fortis and ITC (NYSE:ITC) entered into an agreement and plan of merger pursuant to which Fortis will acquire ITC in a transaction (the “Acquisition”) valued at approximately US$11.3 billion, based on the closing price for Fortis common shares and the foreign exchange rate on February 8, 2016. Under the terms of the transaction, ITC shareholders will receive US$22.57 in cash and 0.7520 Fortis common shares per ITC common share, representing total consideration of approximately US$6.9 billion, and Fortis will assume approximately US$4.4 billion of ITC consolidated indebtedness.

ITC is the largest independent pure-play electric transmission company in the United States. ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 MW along approximately 15,600 miles of transmission line. In addition, ITC is a public utility and independent transmission owner in Wisconsin. ITC’s tariff rates are regulated by FERC, which has been one of the most consistently supportive utility regulators in North America providing reasonable returns and equity ratios. Rates are set using a forward-looking rate-setting mechanism with an annual true-up, which provides timely cost recovery and reduces regulatory lag.

The closing of the Acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory, state and federal approvals including, among others, those of FERC, the Committee on Foreign Investment in the United States, and the United States Federal Trade Commission/Department of Justice under the Hart-Scott Rodino Antitrust Improvement Act . The closing of the Acquisition is expected to occur in late 2016.

The pending Acquisition is in alignment with the Corporation’s business model and acquisition strategy, and is expected to provide approximately 5% accretion to earnings per common share in the first full year following closing, excluding one-time acquisition-related expenses and assuming a stable currency exchange environment. The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. On a pro forma basis, 2016 forecast midyear rate base of Fortis is expected to increase by approximately $8 billion to approximately $26 billion, as a result of the Acquisition.

The financing of the Acquisition has been structured to allow Fortis to maintain investment-grade credit ratings and is consistent with the Corporation’s existing capital structure. Financing of the cash portion of the Acquisition will be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. In addition, Fortis has obtained commitments of US$2.0 billion from Goldman Sachs Bank USA to bridge the long-term debt financing and US$1.7 billion from The Bank of Nova Scotia to primarily bridge the sale of the minority investment in ITC. These non-revolving term credit facilities are repayable in full on the first anniversary of their advance and although syndication is not required, Fortis expects that these bridge facilities will be syndicated.

Upon completion of the Acquisition, ITC will become a subsidiary of Fortis and approximately 27% of the common shares of Fortis will be held by ITC shareholders. In connection with the Acquisition, Fortis will become a registrant with the U.S. Securities and Exchange Commission and will apply to list its common shares on the New York Stock Exchange and will continue to have its shares listed on the TSX.

FORTIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2015 and 2014

36. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to comply with current period presentation. As a result of the adoption of new accounting policies in 2015 (Note 3), the following changes to the Corporation’s comparative financial statements were made:

(i) the reclassification of deferred financing costs of approximately $65 million from long-term other assets to long-term debt on the Corporation’s consolidated balance sheet as at December 31, 2014 (Note 15); and

(ii) the presentation of all deferred income tax assets and liabilities as long term. This change in presentation resulted in the following reclassifications: (i) a decrease in current deferred income taxes assets of $158 million; (ii) a decrease in long-term deferred income tax assets of $62 million; (iii) a decrease in current deferred income tax liabilities of $9 million; and (iv) a decrease in long-term deferred income tax liabilities of $211 million on the consolidated balance sheet as at December 31, 2014 (Note 26). In addition, the Corporation also reclassified the associated regulatory deferred income taxes as long-term, resulting in the following reclassifications: (i) a decrease in current regulatory assets of $18 million; (ii) a decrease in long-term regulatory assets of $92 million; (iii) a decrease in current regulatory liabilities of $19 million; and (iv) a decrease in long-term regulatory liabilities of $91 million on the consolidated balance sheet as at December 31, 2014 (Note 8).

Exhibit 99.3

Management Discussion and Analysis

For the year ended December 31, 2015

Dated February 17, 2016

CONTENTS

Forward-Looking Information	1
Corporate Overview	3
Corporate Strategy	6
Key Trends, Risks and Opportunities	6
Significant Items in 2015	9
Summary Financial Highlights	10
Consolidated Results of Operations	12
Segmented Results of Operations	14
Regulated Utilities	14
Regulated Electric & Gas Utilities — United States	15
UNS Energy	15
Central Hudson	16
Regulated Gas Utility — Canadian	16
FortisBC Energy	17
Regulated Electric Utilities — Canadian	17
FortisAlberta	18
FortisBC Electric	18
Eastern Canadian Electric Utilities	19
Regulated Electric Utilities — Caribbean	19
Non-Regulated
Non-Regulated — Fortis Generation	20
Non-Regulated — Non-Utility	21
Corporate and Other	22
Regulatory Highlights	23
Nature of Regulation	23
Material Regulatory Decisions and Applications	24
Consolidated Financial Position	27
Liquidity and Capital Resources
Summary of Consolidated Cash Flows	29
Contractual Obligations	32
Capital Structure	35
Credit Ratings	35
Capital Expenditure Program	36
Additional Investment Opportunities	40
Cash Flow Requirements	40
Credit Facilities	41
Off-Balance Sheet Arrangements	42
Business Risk Management	43
Changes in Accounting Policies	59
Future Accounting Pronouncements	60
Financial Instruments	61
Critical Accounting Estimates	64
Related-Party Transactions	72
Selected Annual Financial Information	73
Fourth Quarter Results	75
Summary of Quarterly Results	77
Management’s Evaluation of Disclosure Controls and Procedures and Internal Controls over Financial Reporting	79
Subsequent Event	79
Outlook	80
Outstanding Share Data	81

FORWARD-LOOKING INFORMATION

The following Fortis Inc. (“Fortis” or the “Corporation”) Management Discussion and Analysis (“MD&A”) has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations . The MD&A should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2015. Financial information for 2015 and comparative periods contained in the MD&A has been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and is presented in Canadian dollars unless otherwise specified.

Fortis includes forward-looking information in the MD&A within the meaning of applicable securities laws in Canada (“forward-looking information”). The purpose of the forward-looking information is to provide management’s expectations regarding the Corporation’s future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes. All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation. The words “anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”, “plans”, “projects”, “schedule”, “should”, “target”, “will”, “would” and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management’s current beliefs based on information currently available. The forward-looking information in the MD&A includes, but is not limited to, statements related to the acquisition of ITC Holdings Corp. (“ITC”), the expected timing and conditions precedent to the closing of the acquisition of ITC, including shareholder approvals of both ITC and Fortis, regulatory approvals, governmental approvals and other customary closing conditions; the expectation that Fortis will borrow funds to satisfy its obligation to pay the cash portion of the purchase price and will issue securities to pay the balance of the purchase price; the assumption of ITC debt and expected maintenance of investment-grade credit ratings; the impact of the acquisition on the Corporation’s earnings, midyear rate base, credit rating, estimated enterprise value and compound annual growth rate; the expectation that the acquisition of ITC will be accretive in the first full year following closing and that the acquisition will support the average annual dividend growth target of Fortis; the expectation that the Corporation will become a U.S. Securities and Exchange Commission registrant and have its common shares listed on the New York Stock Exchange in connection with the acquisition; the expectation that Fortis will identify one or more minority investors to invest in ITC; the annualized

2016 common share dividend; targeted annual dividend growth through 2020; the expectation that there will be a significant reduction in the use of coal in certain of UNS Energy’s generating facilities by 2022; the acquisition of a share of Aitken Creek Gas Storage facility, the expected timing, total expected consideration and conditions precedent to the closing of such acquisition, including regulatory approval; the expected timing of filing of regulatory applications and receipt and outcome of regulatory decisions; the expectation that midyear rate base will increase from 2016 to 2020; the Corporation’s forecast gross consolidated capital expenditures for 2016 and total capital spending over the five-year period from 2016 through 2020; the nature, timing and expected costs of certain capital projects including, without limitation, the Tilbury liquefied natural gas (“LNG”) facility expansion, the pipeline expansion to the Woodfibre LNG site, the development of a diesel power plant in Grand Cayman, the Residential Solar Program, the Gas Main Replacement Program, the Lower Mainland System Upgrade, the Pole Management Program, and additional opportunities including electric transmission, LNG and renewable related infrastructure and generation; the expectation that the Corporation’s significant capital expenditure program will support continuing growth in earnings and dividends; the expectation that cash required to complete subsidiary capital expenditure programs will be sourced from a combination of cash from operations, borrowings under credit facilities, equity injections from Fortis and long-term debt offerings; the expectation that the Corporation’s subsidiaries will be able to source the cash required to fund their 2016 capital expenditure programs, operating and interest costs, and dividend payments; the expected consolidated fixed-term debt maturities and repayments in 2016 and on average annually over the next five years; the expectation that long-term debt will not be settled prior to maturity; the expectation that the Corporation and its subsidiaries will continue to have reasonable access to capital in the near to long terms; the expectation that the combination of available credit facilities and relatively low annual debt maturities and repayments will provide the Corporation and its subsidiaries with flexibility in the timing of access to capital markets; the expectation that the Corporation and its subsidiaries will remain compliant with debt covenants during 2016; the intent of management to hedge future exchange rate fluctuations and monitor its foreign currency exposure; the expectation that economic conditions in Arizona will improve; the expectation that any liability from current legal proceedings will not have a material adverse effect on the Corporation’s consolidated financial position and results of operations; and the expectation that the adoption of future accounting pronouncements will not have a material impact on the Corporations consolidated financial statements.

The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received, and the expectation of regulatory stability; no material capital project and financing cost overrun related to any of the Corporation’s capital projects; the realization of additional opportunities including natural gas related infrastructure and generation; the Board of Directors exercising its discretion to declare dividends, taking into account the business performance and financial conditions of the Corporation; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the electricity and gas systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; sufficient liquidity and capital resources; the continuation of regulator-approved mechanisms to flow through the cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, natural gas prices and electricity prices; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas, fuel, coal and electricity supply; continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long-term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans and environmental laws that may materially negatively affect the operations and cash flows of the Corporation and its subsidiaries; no material change in public policies and directions by governments that could materially negatively affect the Corporation and its subsidiaries; new or revised environmental laws and regulations will not severely affect the results of operations; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; the ability to report under US GAAP beyond 2018 or the adoption of International Financial Reporting Standards after 2018 that allows for the recognition of regulatory assets and liabilities; the continued tax-deferred treatment of earnings from the Corporation’s Caribbean operations; continued maintenance of information technology infrastructure; continued favourable relations with First Nations; favourable labour relations; that the Corporation can reasonably assess the merit of and potential liability attributable to ongoing legal proceedings; and sufficient human resources to deliver service and execute the capital program.

All forward-looking information in the MD&A is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.

CORPORATE OVERVIEW

Fortis is a leader in the North American electric and gas utility business, with total assets of approximately $29 billion and fiscal 2015 revenue of $6.7 billion. The Corporation’s asset mix is approximately 96% regulated (70% electric, 26% gas), with the remaining 4% comprised of long-term contracted hydroelectric operations. The Corporation’s regulated utilities serve more than 3 million customers across Canada and in the United States and the Caribbean. In 2015 the Corporation’s electricity distribution systems met a combined peak demand of 9,705 megawatts (“MW”) and its gas distribution systems met a peak day demand of 1,323 terajoules.

The Corporation’s main business, utility operations, is highly regulated and the earnings of the Corporation’s regulated utilities are primarily determined under cost of service (“COS”) regulation and, in certain jurisdictions, performance-based rate-setting (“PBR”) mechanisms. Generally, under COS regulation the respective regulatory authority sets customer electricity and/or gas rates to permit a reasonable opportunity for the utility to recover, on a timely basis, estimated costs of providing service to customers, including a fair rate of return on a regulatory deemed or targeted capital structure applied to an approved regulatory asset value (“rate base”). The ability of a regulated utility to recover prudently incurred costs of providing service and earn the regulator-approved rate of return on common shareholders’ equity (“ROE”) and/or rate of return on rate base assets (“ROA”) depends on the utility achieving the forecasts established in the rate-setting processes. If a historical test year is used to set customer rates, there may be regulatory lag between when costs are incurred and when they are reflected in customer rates. When PBR mechanisms are utilized in determining annual revenue requirements and resulting customer rates, a formula is generally applied that incorporates inflation and assumed productivity improvements. The use of PBR mechanisms should allow a utility a reasonable opportunity to recover prudently incurred costs and earn its allowed ROE or ROA.

Earnings of regulated utilities may be impacted by: (i) changes in the regulator-approved allowed ROE and/or ROA and common equity component of capital structure; (ii) changes in rate base; (iii) changes in energy sales or gas delivery volumes; (iv) changes in the number and composition of customers; (v) variances between actual expenses incurred and forecast expenses used to determine revenue requirements and set customer rates; and (vi) regulatory lag in the case of a historical test year. When future test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of the actual COS being different from that which is estimated, other than for certain prescribed costs that are eligible to be deferred on the balance sheet. In addition, the Corporation’s regulated utilities, where applicable, are permitted by their respective regulatory authority to flow through to customers, without markup, the cost of natural gas, fuel and/or purchased power through base customer rates and/or the use of rate stabilization and other mechanisms.

Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis also holds investments in non-regulated generation assets, which are treated as a separate segment. The Corporation’s reporting segments allow senior management to evaluate the operational performance and assess the overall contribution of each segment to the long-term objectives of Fortis. Each entity within the reporting segments operates with substantial autonomy, assumes profit and loss responsibility and is accountable for its own resource allocation.

The following summary describes the operations included in each of the Corporation’s reportable segments.

REGULATED UTILITIES

The Corporation’s interests in regulated electric and gas utilities are as follows.

Regulated Electric & Gas Utilities - United States

TEP, UNS Energy’s largest operating subsidiary, is a vertically integrated regulated electric utility. TEP generates, transmits and distributes electricity to approximately 417,000 retail customers in southeastern Arizona, including the greater Tucson metropolitan area in Pima County, as well as parts of Cochise County. TEP also sells wholesale electricity to other entities in the western United States.

UNS Electric is a vertically integrated regulated electric utility, which generates, transmits and distributes electricity to approximately 94,000 retail customers in Arizona’s Mohave and Santa Cruz counties.

UNS Gas is a regulated gas distribution utility, serving approximately 152,000 retail customers in Arizona’s Mohave, Yavapai, Coconino, Navajo and Santa Cruz counties.

b. Central Hudson: Central Hudson Gas & Electric Corporation (“Central Hudson”) is a regulated transmission and distribution (“T&D”) utility, serving approximately 300,000 electricity customers and 79,000 natural gas customers in eight counties of New York State’s Mid-Hudson River Valley. The Company owns gas-fired and hydroelectric generating capacity totalling 64 MW.

Regulated Gas Utility - Canadian

FortisBC Energy: Primarily includes FortisBC Energy Inc. (“FortisBC Energy” or “FEI”) and, prior to December 31, 2014, FortisBC Energy (Vancouver Island) Inc. (“FEVI”) and FortisBC Energy (Whistler) Inc. (“FEWI”). On December 31, 2014, FEI, FEVI and FEWI were amalgamated and FEI is the resulting Company. FEI is the largest distributor of natural gas in British Columbia, serving approximately 982,000 customers in more than 135 communities. Major areas served by the Company are the Lower Mainland, Vancouver Island and Whistler regions of British Columbia. FEI provides T&D services to customers, and obtains natural gas supplies on behalf of most residential, commercial and industrial customers. Gas supplies are sourced primarily from northeastern British Columbia and, through FEI’s Southern Crossing pipeline, from Alberta.

Regulated Electric Utilities - Canadian

a. FortisAlberta: FortisAlberta Inc. (“FortisAlberta”) owns and operates the electricity distribution system in a substantial portion of southern and central Alberta, serving approximately 539,000 customers. The Company does not own or operate generation or transmission assets and is not involved in the direct sale of electricity.

b. FortisBC Electric: Includes FortisBC Inc., an integrated electric utility operating in the southern interior of British Columbia, serving approximately 168,000 customers directly and indirectly. FortisBC Inc. owns four hydroelectric generating facilities with a combined capacity of 225 MW. Also included in the FortisBC Electric segment are the operating, maintenance and management services relating to the 493-MW Waneta hydroelectric generating facility owned by Teck Metals Ltd. and BC Hydro; the 335-MW Waneta Expansion hydroelectric generating facility (“Waneta Expansion”), owned by Fortis and Columbia Power Corporation and Columbia Basin Trust (“CPC/CBT”); the 149-MW Brilliant hydroelectric plant and the 120-MW Brilliant hydroelectric expansion plant, both owned by CPC/CBT; and the 185-MW Arrow Lakes hydroelectric plant owned by CPC/CBT.

c. Eastern Canadian: Comprised of Newfoundland Power Inc. (“Newfoundland Power”), Maritime Electric Company, Limited (“Maritime Electric”) and FortisOntario Inc. (“FortisOntario”). Newfoundland Power is an integrated electric utility and the principal distributor of electricity on the island portion of Newfoundland and Labrador, serving approximately 262,000 customers. Newfoundland Power has an installed generating capacity of 139 MW, of which 97 MW is hydroelectric generation. Maritime Electric is an integrated electric utility and the principal distributor of electricity on Prince Edward Island (“PEI”), serving approximately 78,000 customers. Maritime Electric also maintains on-Island generating facilities with a combined capacity of 150 MW. FortisOntario provides integrated electric utility service to approximately 65,000 customers in Fort Erie, Cornwall, Gananoque, Port Colborne and the District of Algoma in Ontario. FortisOntario’s operations are primarily comprised of Canadian Niagara Power Inc. (“Canadian Niagara Power”), Cornwall Street Railway, Light and Power Company, Limited (“Cornwall Electric”) and Algoma Power Inc. (“Algoma Power”).

Regulated Electric Utilities - Caribbean

The Regulated Electric Utilities — Caribbean segment includes the Corporation’s approximate 60% controlling ownership interest in Caribbean Utilities Company, Ltd. (“Caribbean Utilities”) (December 31, 2014 - 60%), Fortis Turks and Caicos, and the Corporation’s 33% equity investment in Belize Electricity Limited (“Belize Electricity”). Caribbean Utilities is an integrated electric utility and the sole provider of electricity on Grand Cayman, Cayman Islands, serving approximately 28,000 customers. The Company has an installed diesel-powered generating capacity of 132 MW. Caribbean Utilities is a public company traded on the Toronto Stock Exchange (“TSX”) (TSX:CUP.U). Fortis Turks and Caicos is comprised of two integrated electric utilities serving approximately 14,000 customers on certain islands in Turks and Caicos. The utilities have a combined diesel-powered generating capacity of 82 MW. Belize Electricity is an integrated electric utility and the principal distributor of electricity in Belize.

NON-REGULATED - FORTIS GENERATION

As at December 31, 2015, the 16-MW run-of-river Walden hydroelectric generating facility has been classified as held for sale.

In June 2015 and July 2015 the Corporation sold its non-regulated generation assets in Upstate New York and Ontario, respectively.

NON-REGULATED - NON-UTILITY

CORPORATE AND OTHER

The Corporate and Other segment captures expense and revenue items not specifically related to any reportable segment and those business operations that are below the required threshold for reporting as separate segments. The Corporate and Other segment includes net corporate expenses of Fortis and non-regulated holding company expenses of FortisBC Holdings Inc. (“FHI”), CH Energy Group, Inc. and UNS Energy Corporation. Also included in the Corporate and Other segment are the financial results of FortisBC Alternative Energy Services Inc. (“FAES”). FAES is a wholly owned subsidiary of FHI that provides alternative energy solutions, including thermal-energy and geo-exchange systems.

CORPORATE STRATEGY

The principal business of Fortis is the ownership and operation of regulated electric and gas utilities. The Corporation remains focused on being a leader in the North American utility industry and its strategic vision is guided by the goals of delivering long-term profitable growth and building shareholder value. Earnings per common share and total shareholder return are the primary measures of financial performance.

Over the 10-year period ended December 31, 2015, earnings per common share of Fortis grew at a compound annual growth rate of 4.6%, on an adjusted basis. Over the same period, Fortis delivered an average annualized total return to shareholders of 8.2%, exceeding the S&P/TSX Capped Utilities and S&P/TSX Composite Indices, which delivered average annualized performance of 4.6% and 7.4%, respectively, over the same period.

The Corporation’s first priority remains the continued profitable expansion of existing operations. Management remains focused on executing the consolidated capital program and pursuing additional investment opportunities within existing service territories. Fortis has also demonstrated its ability to acquire additional regulated utilities in Canada and the United States. The Corporation’s standalone operating model and financial strength, driven by a strong balance sheet and investment-grade credit ratings, positions it well for future investment opportunities in existing and new franchise areas.

KEY TRENDS, RISKS AND OPPORTUNITIES

Pending Acquisition of ITC Holdings Corp.: On February 9, 2016, Fortis and ITC Holdings Corp. (“ITC”) (NYSE:ITC) entered into an agreement and plan of merger pursuant to which Fortis will acquire ITC in a transaction (the “Acquisition”) valued at approximately US$11.3 billion, based on the closing price for Fortis common shares and the foreign exchange rate on February 8, 2016. For details on the Acquisition, including transaction details, strategic rationale and acquisition financing, refer to the “Subsequent Event” section of this MD&A, and for a discussion of risks associated with the Acquisition, refer to the “Business Risk Management — Risks Associated with the Acquisition of ITC” section of this MD&A.

Electric Utility Industry Developments: The North American electric utility industry has changed significantly over the past several years. The most notable changes include a continued focus on clean energy and energy conservation initiatives, while balancing technology advancements and changes in customer needs. At the same time, the continued low interest rate environment and decrease in world oil and gas prices are having significant impacts on the North American economy. Notwithstanding the changes occurring in the utility industry, safety, reliability and serving customers at the lowest reasonable cost remain at the forefront of the utility industry’s focus.

Government and regulatory policy in Canada and the United States is being directed at environmental protection and energy efficiency. The increasing availability of cleaner sources of power generation are driving new environmental regulation designed to eliminate or reduce dependence on traditional sources of electricity power generation, such as coal. The availability of cheaper, cleaner burning natural gas, as well as growing accessibility of renewable or alternative energy sources like solar are

encouraging governments to deploy aggressive targets for the removal of high carbon emission sources of energy. Reaching these targets will require the shutdown of certain high carbon emission generating plants earlier than planned, which is an issue that utilities and regulators need to address. These environmental regulations are, however, expected to create additional investment opportunities in renewable power generation and related energy infrastructure. Fortis’ regulated utilities are actively involved in pursuing these opportunities.

Technological development, particularly in the area of distributed generation, is playing a significant role in the transformation of the utility industry. Although distributed generation customers remain connected to the electrical system and benefit from that connection, they avoid paying much of the fixed operating and maintenance costs because they can offset a portion of their volumetric energy usage with their own systems. This results in an increasing amount of utility costs that are ultimately shifted to other customers. The declining cost of certain types of distributed generation technologies, together with government subsidization, is encouraging increased adoption by customers. Not only does this expose the utility to declining revenue because of a decrease in energy sales, the rate structure serves to shift an increasing burden for these costs on those customers that do not have distributed generation, such as rooftop solar. Traditional rate designs have not been structured to ensure fairness among all customers, which is a focus for utilities and regulators. Fortis, through its subsidiaries, is working with its regulators to address these rate design issues for its customers.

Despite the challenges facing the utility industry, Fortis is well positioned to meet these headwinds and capitalize on any resulting opportunities. Its decentralized structure and customer focused business culture will support the efforts required to both meet evolving customer expectations and to work with policy makers and regulators on solutions that are financially sustainable for the utilities. Leveraging those relationships to get out in front of these evolving challenges will be essential to meeting the industry challenges.

Natural Gas Opportunities: FortisBC Energy continues to pursue opportunities in British Columbia related to gas infrastructure. The combination of an abundant supply of natural gas, low costs for natural gas and supportive government policy are generating new interest for large industrial customers and niche liquefied natural gas (“LNG”) producers to utilize FortisBC Energy’s gas system.

In 2013 the Government of British Columbia issued an Order in Council announcing the exemption of FEI’s Tilbury LNG facility expansion (“Tilbury Expansion”) from regulatory review. The Tilbury Expansion is well underway and will increase LNG production and storage capabilities, and is expected to be in service around the end of 2016. Since this announcement, there has been considerable interest for LNG supply from the Pacific Northwest, Hawaii, Alaska and international markets. In 2014 the Government of British Columbia issued a second Order in Council amending directions to the regulator regarding the Tilbury Expansion. The revisions set out a number of requirements for the regulator, including the consideration of a further expansion of the Tilbury site that would include additional liquefaction.

Traditionally, the majority of natural gas production in northern British Columbia has served the provincial and Pacific Northwest markets via the Westcoast (Spectra) system. However, to realize the full potential of British Columbia shale gas opportunities, additional capacity to connect to markets will have to be developed. FortisBC Energy continues to explore pipeline investment opportunities that include expansion of their existing distribution system to supply natural gas to a prospective LNG export facility, as well as to expand capacity on their Southern Crossing transmission pipeline. Specifically, FortisBC Energy is pursuing a potential pipeline expansion to the proposed Woodfibre LNG site in British Columbia. The Woodfibre LNG site is a former paper mill site located near Squamish, British Columbia. The Company has an opportunity to expand its gas pipeline and increase compression to deliver natural gas to this site.

For further information on the Corporation’s natural gas investment opportunities, refer to the “Liquidity and Capital Resources — Additional Investment Opportunities” section of this MD&A.

Regulation: The Corporation’s key business risk is regulation. Each of the Corporation’s nine utilities is subject to regulation by the regulatory body in its respective operating jurisdiction. Relationships with the regulatory authorities are managed at the local utility level.

Commitment by the Corporation’s utilities to provide safe and reliable service, operational excellence and promote positive customer and regulatory relations is important to ensure supportive regulatory relationships and obtain full cost recovery and competitive returns for the Corporation’s shareholders.

Central Hudson began operating under a new three-year rate order in mid-2015. In November 2015 TEP filed a general rate application (“GRA”) with the Arizona Corporation Commission (“ACC”) requesting new retail rates to be effective January 1, 2017, using the year ended June 30, 2015 as a historical test year. Since its last approved rate order in 2013, which used a 2011 historical test year, TEP’s total rate base has increased by approximately US$0.6 billion and the common equity component of capital structure increased from 43.5% to approximately 50%. The application also addresses rate design changes that would reduce the reliance on volumetric sales to recover fixed costs, and a new net metering tariff that would ensure that customers who install distributed generation pay an equitable price for their electric service. In May 2015 UNS Electric filed a similar GRA requesting new retail rates effective May 1, 2016, using 2014 as a historical test year. The nature of UNS Electric’s application was similar to that of TEP.

The Corporation’s regulatory calendar for its utilities in Canada continues to be extensive. Newfoundland Power recently filed a GRA for 2016 and FortisBC Energy, the benchmark utility in British Columbia, filed its application to review cost of capital for 2016. In Alberta, while the regulator issued decisions on outstanding generic cost of capital proceedings and capital tracker applications early in 2015, it has initiated a generic cost of capital proceeding for 2016 and 2017, which includes FortisAlberta.

For a further discussion of the nature of regulation and material regulatory decisions and applications and regulatory risk, refer to the “Regulatory Highlights” and “Business Risk Management” sections of this MD&A.

Capital Expenditure Program and Rate Base Growth: The Corporation’s regulated midyear rate base for 2015 was $16.4 billion. Over the five-year period through 2020, excluding the pending acquisition of ITC, the Corporation’s capital program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase rate base to almost $21 billion in 2020 and produce a five-year compound annual growth rate in rate base of approximately 5%. Fortis expects this capital investment to support growth in earnings and dividends.

For further information on the Corporation’s consolidated capital expenditure program and rate base of its regulated utilities, refer to the “Liquidity and Capital Resources — Capital Expenditure Program” section of this MD&A.

Access to Capital and Liquidity: The Corporation’s regulated utilities require ongoing access to long-term capital to fund investments in infrastructure necessary to provide service to customers. Long-term capital required to carry out the utility capital expenditure programs is mostly obtained at the regulated utility level. The regulated utilities usually issue debt at terms ranging between 5 and 40 years. As at December 31, 2015, almost 90% of the Corporation’s consolidated long-term debt, excluding borrowings under long-term committed credit facilities, had maturities beyond five years. Management expects consolidated fixed-term debt maturities and repayments to average approximately $260 million annually over the next five years.

To help ensure uninterrupted access to capital and sufficient liquidity to fund capital programs and working capital requirements, the Corporation and its subsidiaries have approximately $3.6 billion in credit facilities, of which approximately $2.4 billion was unused as at December 31, 2015. Based on current credit ratings and conservative capital structures, the Corporation and its regulated utilities expect to continue to have reasonable access to long-term capital in 2016.

The Corporation has significant financing requirements associated with the pending acquisition of ITC. Refer to the “Business Risk Management — Risks Associated with the Acquisition of ITC” and “Subsequent Event” sections of this MD&A.

Dividend Increases: Dividends paid per common share increased to $1.40 in 2015. During 2015 Fortis increased its quarterly dividend per common share over 17% to $0.375 per quarter, or $1.50 on an annualized basis. This continues the Corporation’s record of raising its annualized dividend to common shareholders for 42 consecutive years, the record for a public corporation in Canada.

Fortis also announced dividend guidance, targeting annual dividend per common share growth through 2020 of 6% based on a 2016 dividend of $1.50. This guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at its utilities, the successful execution of its $9 billion five-year capital expenditure plan, and management’s continued confidence in the strength of the Corporation’s diversified portfolio of assets and record of operational excellence. The pending acquisition of ITC further supports this dividend guidance.

SIGNIFICANT ITEMS IN 2015

Pending Acquisition of Aitken Creek Gas Storage Facility: In December 2015 Fortis, through an indirect wholly owned subsidiary, entered into a definitive share purchase and sale agreement with Chevron Canada Properties Ltd. to acquire its share of the Aitken Creek Gas Storage Facility (“Aitken Creek”) for approximately US$266 million, subject to customary closing conditions and adjustments. Aitken Creek is the largest gas storage facility in British Columbia with a total working gas capacity of 77 billion cubic feet and is an integral part of Western Canada’s natural gas transmission network. The acquisition is subject to regulatory approval and is expected to close in the first half of 2016. The net cash purchase price is expected to be initially financed with borrowings under the Corporation’s credit facility. In December 2015 the Corporation paid a deposit of US$29 million related to the transaction.

Sale of Commercial Real Estate and Hotel Assets: In June 2015 the Corporation completed the sale of the commercial real estate assets of Fortis Properties for gross proceeds of $430 million. As a result of the sale, the Corporation recognized an after-tax gain of approximately $109 million, net of expenses. As part of the transaction, Fortis subscribed to $35 million in trust units of Slate Office REIT in conjunction with the REIT’s public offering.

In October 2015 the Corporation completed the sale of the hotel assets of Fortis Properties for gross proceeds of $365 million. As a result of the sale, the Corporation recognized an after-tax loss of approximately $8 million, which reflects an impairment loss and expenses associated with the sale transaction.

Net proceeds from the sales were used by the Corporation to repay credit facility borrowings, the majority of which were used to finance a portion of the acquisition of UNS Energy.

Sale of Non-Regulated Generation Assets in New York and Ontario: In June 2015 the Corporation sold its non-regulated generation assets in Upstate New York for gross proceeds of approximately $77 million (US$63 million). As a result of the sale, the Corporation recognized an after-tax gain of approximately $27 million (US$22 million), net of expenses and foreign exchange impacts.

Settlement of Belize Electricity Expropriation Matters: In August 2015 the Corporation agreed to terms of a settlement with the GOB regarding the expropriation of the Corporation’s approximate 70% interest in Belize Electricity in June 2011. The terms of the settlement included a one-time US$35 million cash payment to Fortis from the GOB and an approximate 33% equity investment in Belize Electricity. As a result of the settlement, the Corporation recognized an approximate $9 million loss.

SUMMARY FINANCIAL HIGHLIGHTS

For the Years Ended December 31	2015	2014	Variance
Net Earnings Attributable to Common Equity Shareholders ($ millions)	728	317	411
Basic Earnings per Common Share ($)	2.61	1.41	1.20
Diluted Earnings per Common Share ($)	2.59	1.40	1.19
Weighted Average Number of Common Shares Outstanding (millions)	278.6	225.6	53.0
Cash Flow from Operating Activities ($ millions)	1,673	982	691
Dividends Paid per Common Share ($)	1.40	1.28	0.12
Dividend Payout Ratio (%)	53.6	90.8	(37.2	)
Return on Average Book Common Shareholders’ Equity (%) (1)	9.8	5.4	4.4
Total Assets ($ billions)	28.8	26.2	2.6
Gross Capital Expenditures ($ billions)	2.2	1.7	0.5
Public Preference Share Offering ($ billions)	—	0.6	(0.6	)
Convertible Debenture Offering ($ billions)	—	1.8	(1.8	)
Long-Term Debt Offerings ($ billions)	1.0	1.2	(0.2	)

(1) Return on average book common shareholders’ equity is a non-US GAAP measure and is defined as net earnings attributable to common equity shareholders divided by the average of opening and closing consolidated shareholders’ equity, excluding preference shares and non-controlling interests. Return on average book common shareholders’ equity is referred to by users of the Corporation’s consolidated financial statements in evaluating the results of operations.

Net Earnings Attributable to Common Equity Shareholders: Fortis achieved net earnings attributable to common equity shareholders of $728 million in 2015 compared to $317 million in 2014. On an adjusted basis, net earnings attributable to common equity shareholders for 2015 were $589 million, an increase of $195 million, or almost 50%, over 2014. Results for both years were impacted by non-recurring or adjusting items, which are detailed in the “Consolidated Results of Operations” section of this MD&A. The increase in adjusted net earnings attributable to common equity shareholders was driven by a full year’s contribution from UNS Energy, which was acquired in mid-August 2014, earnings contribution from the Waneta Expansion, which came online in early April 2015, rate base growth associated with capital expenditures and growth in the number of customers at FortisAlberta, a higher allowance for funds used during construction (“AFUDC”) at FortisBC Energy, the resetting of customer rates at Central Hudson, effective July 1, 2015, and the continued strength of the US dollar relative to the Canadian dollar. Earnings growth was tempered by an increase in Corporate expenses and lower earnings contribution due to the sale of the commercial real estate and hotel assets.

Basic Earnings per Common Share: Basic earnings per common share were $2.61 in 2015 compared to $1.41 in 2014. On an adjusted basis, as noted above, basic earnings per common share were $2.11 for 2015, an increase of $0.36 over 2014.The increase was driven by higher adjusted earnings per common share, as discussed above, partially offset by an increase in the weighted average number of common shares outstanding.

Cash Flow from Operating Activities: Cash flow from operating activities was $1,673 million for 2015,an increase of $691 million, or 70%, over 2014. The increase was driven by higher cash earnings, mainly due to the factors noted above, and favourable changes in working capital.

Dividends: Dividends paid per common share increased to $1.40 in 2015, 9.0% higher than $1.28 in 2014. During 2015 Fortis increased its quarterly dividend per common share over 17% to $0.375 per quarter. The Corporation’s dividend payout ratio was 53.6% in 2015 compared to 90.8% in 2014. On an adjusted basis, the dividend payout ratio was 66.4% in 2015 compared to 73.1% in 2014.

Return on Average Book Common Shareholders Equity: The return on average book common shareholders’ equity for 2015 was 9.8% compared to 5.4% for 2014. On an adjusted basis, the return on average book common shareholders’ equity for 2015 was 7.9%, compared to 6.8% for 2014.

Total Assets: Total assets increased 9.9% to approximately $28.8 billion at the end of 2015 compared to approximately $26.2 billion at the end of 2014. The increase reflects favourable foreign exchange on the translation of US dollar-denominated assets and continued investment in energy infrastructure, driven by capital spending at the regulated utilities, partially offset by the sale of commercial real estate and hotel assets in 2015.

Gross Capital Expenditures: Consolidated capital expenditures, before customer contributions, were $2.2 billion in 2015 compared to $1.7 billion in 2014. The increase was driven by a full year contribution from UNS Energy and higher capital spending at most of the Corporation’s regulated utilities, partially offset by lower non-regulated capital expenditures due to the completion of the Waneta Expansion and the sale of commercial real estate and hotel assets. For a detailed discussion of the Corporation’s consolidated capital expenditure program, refer to the “Liquidity and Capital Resources — Capital Expenditure Program” section of this MD&A.

Long-Term Capital: The Corporation’s regulated utilities raised approximately $1 billion in long-term debt in 2015, largely in support of energy infrastructure investment and regularly scheduled debt repayments.

Fortis completed the sale of $1.8 billion convertible debentures in 2014 to finance a portion of the acquisition of UNS Energy. In October 2014 approximately 58.2 million common shares of Fortis were issued on conversion of the debentures. In September 2014 Fortis issued 24 million First Preference Shares, Series M for gross proceeds of $600 million. The net proceeds were also used to finance a portion of the acquisition of UNS Energy. The Corporation and its regulated utilities raised approximately $1.2 billion in long-term debt in 2014.

For further information, refer to the “Liquidity and Capital Resources — Summary of Consolidated Cash Flows” section of this MD&A.

CONSOLIDATED RESULTS OF OPERATIONS

Years Ended December 31
($ millions)	2015	2014		Variance
Revenue	6,727	5,401		1,326
Energy Supply Costs	2,561	2,197		364
Operating Expenses	1,864	1,493		371
Depreciation and Amortization	873	688		185
Other Income (Expenses), Net	187	(25	)	212
Finance Charges	553	547		6
Income Tax Expense	223	66		157
Earnings From Continuing Operations	840	385		455
Earnings From Discontinued Operations, Net of Tax	—	5		(5	)
Net Earnings	840	390		450
Net Earnings Attributable to:
Non-Controlling Interests	35	11		24
Preference Equity Shareholders	77	62		15
Common Equity Shareholders	728	317		411
Net Earnings	840	390		450

Revenue

The increase in revenue was driven by the acquisition of UNS Energy in August 2014. Favourable foreign exchange associated with the translation of US dollar-denominated revenue, contribution from the Waneta Expansion and higher base electricity rates at the Canadian Regulated Electric Utilities also contributed to the increase. The increase was partially offset by the flow through in customer rates of lower energy supply costs at FortisBC Energy, Central Hudson and the Caribbean Regulated Electric Utilities, and a decrease in non-utility revenue due to the sale of commercial real estate and hotel assets in June 2015 and October 2015, respectively.

Energy Supply Costs

The increase in energy supply costs was primarily due to the acquisition of UNS Energy and unfavourable foreign exchange associated with the translation of US dollar-denominated energy supply costs. The increase was partially offset by lower commodity costs at FortisBC Energy, Central Hudson and the Caribbean Regulated Electric Utilities.

Operating Expenses

The increase in operating expenses was primarily due to the acquisition of UNS Energy, unfavourable foreign exchange associated with the translation of US dollar-denominated operating expenses and general inflationary and employee-related cost increases. The increase was partially offset by a decrease in non-utility operating expenses due to the sale of commercial real estate and hotel assets, and lower Corporate retirement expenses.

Depreciation and Amortization

The increase in depreciation and amortization was primarily due to the acquisition of UNS Energy and continued investment in energy infrastructure at the Corporation’s regulated utilities.

Other Income (Expenses), Net

The increase in other income, net of expenses, was driven by gains on the sale of commercial real estate and non-regulated generation assets in 2015, compared to acquisition-related expenses associated with UNS Energy in 2014. The increase was partially offset by a loss associated with the sale of hotel assets in 2015.

Finance Charges

The increase in finance charges was primarily due to the acquisition of UNS Energy, including interest expense on debt issued to complete the financing of the acquisition, and unfavourable foreign exchange associated with the translation of US-dollar denominated interest expense. The increase was partially offset by lower interest on convertible debentures. Approximately $72 million ($51 million after tax) in interest expense was recognized in 2014 associated with convertible debentures issued to finance a portion of the acquisition of UNS Energy. In October 2014 the convertible debentures were substantially all converted into common shares of the Corporation.

Income Tax Expense

The increase in income tax expense was primarily due to higher earnings before income taxes, driven by the acquisition of UNS Energy and gains on the sale of commercial real estate and non-regulated generation assets in 2015, and a higher effective income tax rate, mainly due to the combined federal and state income tax rate at UNS Energy.

Net Earnings Attributable to Common Equity Shareholders and Basic Earnings Per Common Share

Net earnings attributable to common equity shareholders were impacted by a number of non-recurring or non-operating items. These items, referred to as adjusting items, are reconciled below and discussed in the segmented results of operations for the respective reporting segments. Management believes that adjusted net earnings attributable to common equity shareholders and adjusted basic earnings per common share provide useful information to investors and shareholders as they provide increased transparency and predictive value. The adjusting items do not have a standardized meaning as prescribed under US GAAP and are not considered US GAAP measures. Therefore, these adjusting items may not be comparable with similar measures presented by other companies.

Non-US GAAP Reconciliation

Years Ended December 31
($ millions, except for common share data)	2015		2014		Variance
Net Earnings Attributable to Common Equity Shareholders	728		317		411
Adjusting Items:
FortisAlberta -
Capital tracker revenue adjustment for 2013 and 2014	(9	)	—		(9	)
Non-Regulated - Fortis Generation -
Gain on sale of generation assets	(32	)	—		(32	)
Non-Utility -
Gain on sale of commercial real estate assets	(109	)	—		(109	)
Loss on sale of hotel assets	8		—		8
Earnings from discontinued operations	—		(5	)	5
Corporate and Other -
Foreign exchange gain	(13	)	(8	)	(5	)
Loss on settlement of expropriation matters	9		—		9
Interest expense on convertible debentures	—		51		(51	)
Acquisition-related expenses	7		39		(32	)
Adjusted Net Earnings Attributable to Common Equity Shareholders	589		394		195
Adjusted Basic Earnings Per Common Share ($)	2.11		1.75		0.36

Adjusted Net Earnings Attributable to Common Equity Shareholders

The increase in adjusted net earnings attributable to common equity shareholders was driven by earnings contribution of $195 million at UNS Energy compared to $60 million for 2014. Earnings contribution of $22 million from the Waneta Expansion, which represents the Corporation’s 51% controlling ownership interest, also contributed to the increase. Performance was driven by all of the Corporation’s other regulated utilities, including rate base growth associated with capital expenditures and growth in the number of customers at FortisAlberta; a higher AFUDC at FortisBC Energy; and improved performance at Central Hudson under a new three-year rate order. Favourable foreign exchange impacts associated with US dollar-denominated earnings also increased earnings year over year. The increase in adjusted earnings was partially offset by higher preference share dividends and finance charges in the Corporate and Other segment, largely associated with the acquisition of UNS Energy, and lower earnings contribution from non-utility assets due to the sale of commercial real estate and hotel assets.

Adjusted Basic Earnings Per Common Share

The increase in adjusted earnings per common share was driven by accretion associated with the acquisition of UNS Energy, after considering the finance charges associated with the acquisition and the increase in the weighted average number of common shares outstanding, and contribution from the Waneta Expansion. Performance at all of the Corporation’s other regulated utilities, as discussed above, and the impact of favourable foreign exchange also contributed to the increase. The increase was partially offset by an increase in Corporate expenses and lower earnings contribution from non-utility assets due to the sale of commercial real estate and hotel assets.

SEGMENTED RESULTS OF OPERATIONS

Segmented Net Earnings Attributable to Common Equity Shareholders

Years Ended December 31
($ millions)	2015		2014		Variance
Regulated Electric & Gas Utilities - United States
UNS Energy	*195*		60		135
Central Hudson	58		37		21
	253		97		156
Regulated Gas Utility - Canadian
FortisBC Energy	140		127		13
Regulated Electric Utilities - Canadian
FortisAlberta	*138*		103		35
FortisBC Electric	50		46		4
Eastern Canadian	62		60		2
	250		209		41
Regulated Electric Utilities - Caribbean	34		27		7
Non-Regulated - Fortis Generation	77		20		57
Non-Regulated - Non-Utility	114		28		86
Corporate and Other	(140	)	(191	)	51
Net Earnings Attributable to Common Equity Shareholders	728		317		411

The following is a discussion of the financial results of the Corporation’s reporting segments. A discussion of the nature of regulation and material regulatory decisions and applications pertaining to the Corporation’s regulated utilities is provided in the “Regulatory Highlights” section of this MD&A.

REGULATED UTILITIES

The Corporation’s primary business is the ownership and operation of regulated utilities. In 2015 earnings from regulated assets represented approximately 92% (2014 — 91%) of the Corporation’s earnings from its operating segments (excluding Corporate and Other segment expenses), excluding the gains on sale of non-core assets. Total regulated assets represented 96% of the Corporation’s total assets as at December 31, 2015 (December 31, 2014 — 93%).

REGULATED ELECTRIC & GAS UTILITIES — UNITED STATES

Regulated Electric & Gas Utilities - United States earnings for 2015 were $253 million (2014 - $97 million), which represented approximately 37% (2014 - 21%) of the Corporation’s total regulated earnings. Total segment assets were approximately $12.1 billion as at December 31, 2015 (December 31, 2014 - $9.9 billion), which represented approximately 44% of the Corporation’s total regulated assets as at December 31, 2015 (December 31, 2014 - 40%).

UNS ENERGY

Financial Highlights (1)
Years Ended December 31	2015	2014
Average US:CAD Exchange Rate (2)	1.28	1.12
Electricity Sales (gigawatt hours (“GWh”))	15,366	5,646
Gas Volumes (petajoules (“PJ”))	13	5
Revenue ($ millions)	2,034	684
Earnings ($ millions)	195	60

(1) Financial results of UNS Energy are from August 15, 2014, the date of acquisition.

(2) The reporting currency of UNS Energy is the US dollar. The average US:CAD exchange rate for 2014 is from the date of acquisition.

Electricity Sales & Gas Volumes

Electricity sales were 15,366 gigawatt hours (“GWh”) for 2015 compared to 14,560 GWh for the full year in 2014. The increase was primarily due to higher short-term wholesale electricity sales. The majority of short-term wholesale electricity sales is flowed through to customers and has no impact on earnings. Retail sales were comparable year over year.

Gas volumes of 13 petajoules (“PJ”) for 2015 were comparable with the full year in 2014.

Revenue

Revenue was US$1,588 million for 2015 compared to US$1,560 million for the full year in 2014. The increase was primarily due to the flow through to customers of higher purchased power and fuel supply costs, higher transmission revenue, and higher wholesale electricity sales. On a Canadian dollar basis, revenue was also impacted by favourable foreign exchange.

Earnings

Earnings were US$152 million for 2015 compared to US$144 million for the full year in 2014, excluding the impact of acquisition-related expenses. The increase was primarily due to higher transmission revenue and a decrease in interest expense due to the expiry of leasing arrangements. The increase was partially offset by higher operating expenses. On a Canadian dollar basis, earnings were also impacted by favourable foreign exchange.

CENTRAL HUDSON

Financial Highlights
Years Ended December 31	2015	2014	Variance
Average US:CAD Exchange Rate (1)	1.28	1.10	0.18
Electricity Sales (GWh)	5,132	5,075	57
Gas Volumes (PJ)	24	23	1
Revenue ($ millions)	880	821	59
Earnings ($ millions)	58	37	21

(1) The reporting currency of Central Hudson is the US dollar.

Electricity Sales & Gas Volumes

The increase in electricity sales was mainly due to higher average consumption as a result of warmer temperatures in the summer, which increased the use of air conditioning and other cooling equipment. Gas volumes for 2015 were comparable with last year.

Changes in electricity sales and gas volumes at Central Hudson are subject to regulatory revenue decoupling mechanisms and, as a result, do not have a material impact on revenue and earnings.

Revenue

The increase in revenue was driven by approximately $111 million of favourable foreign exchange associated with the translation of US dollar-denominated revenue. An increase in base electricity rates effective July 1, 2015 and the recovery from customers of previously deferred electricity costs also contributed to the increase in revenue. Additionally, revenue for the first half of 2015 was favourably impacted by energy efficiency incentives and higher gas revenue associated with a new gas delivery contract in late 2014. The increase was partially offset by the recovery from customers of lower commodity costs, which were mainly due to lower wholesale prices.

Earnings

The increase in earnings was primarily due to approximately $9 million of favourable foreign exchange associated with the translation of US dollar-denominated earnings, an increase in base electricity rates effective July 1, 2015, a new gas delivery contract implemented in late 2014, and energy efficiency incentives earned during the first half of 2015. The increase was partially offset by the impact of higher expenses during the two-year rate freeze period post acquisition, which ended on June 30, 2015.

REGULATED GAS UTILITY — CANADIAN

Regulated Gas Utility - Canadian earnings for 2015 were $140 million (2014 - $127 million), which represented approximately 21% of the Corporation’s total regulated earnings (2014 - 28%). Total segment assets were approximately $6.0 billion as at December 31, 2015 (December 31, 2014 - $5.8 billion), which represented approximately 22% of the Corporation’s total regulated assets as at December 31, 2015 (December 31, 2014 -24%).

FORTISBC ENERGY

Financial Highlights
Years Ended December 31	2015	2014	Variance
Gas Volumes (PJ)	186	195	(9	)
Revenue ($ millions)	1,295	1,435	(140	)
Earnings ($ millions)	140	127	13

Gas Volumes

The decrease in gas volumes was primarily due to lower average consumption in the first quarter as a result of warmer temperatures.

FortisBC Energy earns approximately the same margin regardless of whether a customer contracts for the purchase and delivery of natural gas or only for the delivery of natural gas. As a result of the operation of regulatory deferral mechanisms, changes in consumption levels and the cost of natural gas from those forecast to set customer gas rates do not materially affect earnings.

Revenue

The decrease in revenue was primarily due to a lower commodity cost of natural gas charged to customers and lower gas volumes. The decrease was partially offset by higher regulatory flow-through deferral amounts.

Earnings

The increase in earnings was mainly due to higher AFUDC, regulatory flow-through deferral amounts and operating cost savings, net of the earnings sharing mechanism. The increase was partially offset by a decrease in the allowed ROE and equity component of capital structure as a result of the amalgamation of FEVI and FEWI with FEI, effective December 31, 2014. For further details on the amalgamation, refer to the “Material Regulatory Decisions and Applications” section of this MD&A.

REGULATED ELECTRIC UTILITIES - CANADIAN

Regulated Electric Utilities - Canadian earnings for 2015 were $250 million (2014 - $209 million), which represented approximately 37% of the Corporation’s total regulated earnings (2014 — 45%). Total segment assets were approximately $8.2 billion as at December 31, 2015 (December 31, 2014 - $7.7 billion), which represented approximately 30% of the Corporation’s total regulated assets as at December 31, 2015 (December 31, 2014 — 32%).

FORTISALBERTA

Financial Highlights
Years Ended December 31	2015	2014	Variance
Energy Deliveries (GWh)	17,132	17,372	(240	)
Revenue ($ millions)	563	518	45
Earnings ($ millions)	138	103	35

Energy Deliveries

The decrease in energy deliveries was primarily due to lower average consumption by oil and gas customers as a result of low commodity prices for oil and gas, partially offset by higher average consumption by farm and irrigation, residential and commercial customers. Lower levels of precipitation, particularly in the third quarter, and warmer temperatures had a favorable impact on energy deliveries to farm and irrigation customers. Higher energy deliveries to residential and commercial customers due to customer growth were partially offset by lower average consumption due to warmer temperatures.

Revenue

The increase in revenue was primarily due to the operation of the PBR formula, including an increase in customer rates based on a combined inflation and productivity factor of 1.49%, higher capital tracker revenue, growth in the number of customers, and higher revenue related to flow-through costs to customers. Revenue was also favourably impacted by a $9 million capital tracker revenue adjustment recognized in 2015 associated with 2013 and 2014, as a result of regulatory decisions. For further details on regulatory decisions, refer to the “Material Regulatory Decisions and Applications” section of this MD&A.

Earnings

The increase in earnings was primarily due to rate base growth associated with capital expenditures, growth in the number of customers, and the impact of a technical update on depreciation and amortization. Also contributing to the increase in earnings was capital tracker revenue of approximately $9 million recognized in 2015 associated with 2013 and 2014, as discussed above.

FORTISBC ELECTRIC

Financial Highlights
Years Ended December 31	2015	2014	Variance
Electricity Sales (GWh)	3,116	3,179	(63	)
Revenue ($ millions)	360	334	26
Earnings ($ millions)	50	46	4

Electricity Sales

The decrease in electricity sales was primarily due to lower average consumption in the first and fourth quarters as a result of warmer temperatures.

Revenue

The increase in revenue was driven by increases in base electricity rates, mainly established to recover higher power purchase costs, and surplus capacity sales. Revenue was also favourably impacted by higher contribution from non-regulated operating, maintenance and management services associated with the Waneta Expansion. The increase was partially offset by lower electricity sales.

Earnings

The increase in earnings was primarily due to higher earnings from non-regulated operating, maintenance and management services, and rate base growth.

EASTERN CANADIAN ELECTRIC UTILITIES

Financial Highlights
Years Ended December 31	2015	2014	Variance
Electricity Sales (GWh)	8,403	8,376	27
Revenue ($ millions)	1,033	1,008	25
Earnings ($ millions)	62	60	2

Electricity Sales

The increase in electricity sales was primarily due to customer growth in Newfoundland, as well as higher average consumption in PEI, mainly due to an increase in the number of customers using electricity for home heating. The increase was partially offset by lower electricity sales in Ontario, largely due to the loss of a commercial customer and lower average consumption by residential customers due to changes in temperatures.

Revenue

The increase in revenue was mainly due to the flow through in customer electricity rates of overall higher energy supply costs and electricity sales growth.

Earnings

The increase in earnings was primarily due to electricity sales growth and lower operating costs, mainly due to restoration efforts at Newfoundland Power following the loss of energy supply from Newfoundland and Labrador Hydro (“Newfoundland Hydro”) and related power interruptions in January 2014, partially offset by higher depreciation expense.

REGULATED ELECTRIC UTILITIES - CARIBBEAN

Regulated Electric Utilities - Caribbean earnings for 2015 were $34 million (2014 - $27 million), which represented approximately 5% of the Corporation’s total regulated earnings (2014 — 6%). Total segment assets were approximately $1.3 billion as at December 31, 2015 (December 31, 2014 - $1.1 billion), which represented approximately 4% of the Corporation’s total regulated assets as at December 31, 2015 (December 31, 2014 — 4%).

Financial Highlights
Years Ended December 31	2015	2014	Variance
Average US:CAD Exchange Rate (1)	1.28	1.10	0.18
Electricity Sales (GWh)	802	771	31
Revenue ($ millions)	321	321	—
Earnings ($ millions)	34	27	7

(1) The reporting currency of Caribbean Utilities and Fortis Turks and Caicos is the US dollar. The reporting currency of Belize Electricity is the Belizean dollar, which is pegged to the US dollar at BZ$2.00=US$1.00.

Electricity Sales

The increase in electricity sales was primarily due to growth in the number of customers as a result of increased economic activity and overall warmer temperatures, which increased air conditioning load.

Revenue

Revenue was impacted by approximately $39 million of favourable foreign exchange associated with the translation of US dollar-denominated revenue, and electricity sales growth. The increase was largely offset by the flow through in customer electricity rates of lower fuel costs at Caribbean Utilities.

Earnings

The increase in earnings was due to approximately $5 million of favourable foreign exchange associated with the translation of US dollar-denominated earnings, electricity sales growth and higher capitalized interest at Caribbean Utilities. The increase was partially offset by higher depreciation. Equity income from Belize Electricity from the date of settlement in August 2015 was less than $1 million.

NON-REGULATED

NON-REGULATED - FORTIS GENERATION

Financial Highlights
Years Ended December 31	2015	2014	Variance
Energy Sales (GWh)	844	407	437
Revenue ($ millions)	107	38	69
Earnings ($ millions)	77	20	57

Energy Sales

The increase in energy sales was driven by the Waneta Expansion, which commenced production in early April 2015 and reported energy sales of 517 GWh in 2015. The increase was partially offset by decreased production in Belize due to lower rainfall and in Upstate New York and Ontario due to the sale of generation assets in mid 2015, lower rainfall, and generating units taken out of service for repairs.

Revenue

The increase in revenue was driven by the Waneta Expansion, which recognized revenue of $70 million in 2015, and approximately $4 million of favourable foreign exchange associated with the translation of US dollar-denominated revenue. The increase was partially offset by decreased production in Belize, Upstate New York and Ontario.

Earnings

The increase in earnings was driven by the recognition of after-tax gains totalling approximately $32 million on the sale of generation assets in Upstate New York and Ontario in mid 2015, and earnings contribution of $22 million from the Waneta Expansion. Approximately $3 million of favourable foreign exchange associated with the translation of US dollar-denominated earnings and lower business development costs were partially offset by decreased production in Belize, Upstate New York and Ontario.

NON-REGULATED — NON-UTILITY

Financial Highlights
Years Ended December 31
($ millions)	2015	2014	Variance
Revenue	171	249	(78	)
Earnings	114	28	86

Revenue

The decrease in revenue was primarily due to the sale of commercial real estate and hotel assets in June 2015 and October 2015, respectively.

Earnings

The increase in earnings was driven by a net after-tax gain of approximately $101 million on the sale of commercial real estate and hotel assets. The increase was partially offset by lower earnings contribution from the commercial real estate and hotel assets as a result of the sale and $5 million in earnings in 2014 associated with Griffith from normal operations to the date of sale in March 2014.

CORPORATE AND OTHER

Financial Highlights
Years Ended December 31
($ millions)	2015		2014		Variance
Revenue	24		31		(7	)
Operating Expenses	26		38		(12	)
Depreciation and Amortization	2		2		—
Other Income (Expenses), Net	(8	)	(45	)	37
Finance Charges	94		154		(60	)
Income Tax Recovery	(43	)	(79	)	36
	(63	)	(129	)	66
Preference Share Dividends	77		62		15
Net Corporate and Other Expenses	(140	)	(191	)	51

Net Corporate and Other expenses were impacted by the following items.

(i) A foreign exchange gain of $13 million in 2015 compared to $8 million in 2014, associated with the Corporation’s previous US-dollar denominated long-term other asset that represented the book value of its expropriated investment in Belize Electricity, which was included in other income;

(ii) A loss of approximately $9 million in 2015 on settlement of expropriation matters related to the Corporation’s investment in Belize Electricity, which was included in other income, net of expenses;

(iii) Acquisition-related expenses of $10 million ($7 million after tax) in 2015 associated with the pending acquisition of ITC, which were included in other income;

(iv) Finance charges of $72 million ($51 million after tax) in 2014 associated with the convertible debentures issued to finance a portion of the acquisition of UNS Energy; and

(v) Other expenses of approximately $58 million ($39 million after tax) in 2014 related to the acquisition of UNS Energy.

Excluding the above-noted items, net Corporate and Other expenses were $137 million for 2015 compared to approximately $109 million for 2014. The increase in net Corporate and Other expenses was primarily due to higher preference share dividends and finance charges, and a decrease in revenue. The increase was partially offset by lower operating expenses.

The increase in preference share dividends and finance charges was primarily due to the acquisition of UNS Energy. Finance charges were also impacted by no longer capitalizing interest upon completion of the Waneta Expansion and unfavourable foreign exchange associated with the translation of US-dollar denominated interest expense.

The decrease in revenue was primarily due to a decrease in related-party interest income, mainly due to the sale of commercial real estate and hotel assets in June 2015 and October 2015, respectively.

The decrease in operating expenses was primarily due to lower retirement expenses. Retirement expenses of approximately $13 million ($11 million after tax) were recognized in 2014 compared to approximately $2 million ($1 million after tax) in 2015. The decrease in operating expenses was partially offset by a $3 million ($2 million after tax) corporate donation recognized in 2015.

REGULATORY HIGHLIGHTS

The nature of regulation and material regulatory decisions and applications associated with each of the Corporation’s regulated electric and gas utilities are summarized as follows.

NATURE OF REGULATION

Allowed

Common

Allowed Returns (%)

Significant Features

Regulated

Regulatory

Equity

2014

2015

2016

Future or Historical Test Year

Utility

Authority

(%)

ROE

Used to Set Customer Rates

TEP

ACC

43.5

10.00

COS/ROE (1)

UNS Electric

ACC

52.6

(2)

9.50

(2)

ROEs established by the ACC

UNS Gas

ACC

50.8

9.75

Historical Test Year

Central

New York State

10.00

10.00/9.00 (3)

9.00

COS/ROE

Hudson

Public Service

Commission (“PSC”)

Earnings sharing mechanism

ROE established by the PSC

Future Test Year

FEI

British Columbia

38.5

(2)

8.75

(2)

COS/ROE

Utilities Commission

(“BCUC”)

PBR mechanism for 2014 through 2019

FEVI

BCUC

41.5

(4)

9.25

n/a (4)

ROEs established by the BCUC

FEWI

BCUC

41.5

(4)

9.50

n/a (4)

2013 test year with 2014 through 2019

rates set using PBR mechanism

FortisBC

BCUC

(2)

9.15

(2)

COS/ROE

Electric

PBR mechanism for 2014 through 2019

ROE established by the BCUC

2013 test year with 2014 through 2019

rates set using PBR mechanism

FortisAlberta

Alberta Utilities

(2)

8.30

(2)

COS/ROE

Commission (“AUC”)

PBR mechanism for 2013 through

2017 with capital tracker account

and other supportive features

ROE established by the AUC

2012 test year with 2013 through

2017 rates set using PBR mechanism

Newfoundland

Newfoundland and

(2)

8.80 +/-

8.80 +/- (2)

COS/ROE

Power

Labrador Board of

50 bps

Commissioners of

ROE established by the PUB

Public Utilities

(“PUB”)

Future Test Year

Maritime

Island Regulatory

(2)

9.75

9.35

(2)

COS/ROE

Electric

and Appeals

Commission (“IRAC”)

ROE established by the PEI Energy Accord

in 2014 and 2015. ROE in 2016 to be

established by IRAC

Future Test Year

FortisOntario

Ontario Energy

8.93 -

COS/ROE (5)

Board

9.85

9.30

Future test year and incentive regulation

rate-setting mechanism

ROA

Caribbean

Electricity Regulatory

N/A

7.00 -

7.25 -

6.75 -

COS/ROA

Utilities

Authority

9.00

9.25

8.75

Rate-cap adjustment mechanism based on

published consumer price indices

Historical Test Year

Fortis Turks

Government of the

N/A

15.00 -

COS/ROA

and Caicos

Turks and Caicos

17.50

(6)

17.50

(6)

17.50

(6)

Islands

Historical Test Year

(1) Additionally, allowed ROEs are adjusted for the fair value of rate base as required under the laws of the State of Arizona.

(2) Interim and subject to change pending the outcome of regulatory proceedings effective January 1, 2016 for FortisAlberta, FEI and FortisBC Electric; May 1, 2016 for UNS Electric; July 1, 2016 for Newfoundland Power; and March 1, 2016 for Maritime Electric.

(3) Allowed ROE of 10.0% with a 48% common equity component of capital structure to June 30, 2015. Allowed ROE of 9.00% with a 48% common equity component of capital structure effective July 1, 2015 through June 30, 2018.

(4) As approved by the BCUC, effective December 31, 2014, FEVI and FEWI were amalgamated with FEI and, as a result, the allowed ROE and common equity component of capital structure for 2015 reverted to those of FEI.

(5) Cornwall Electric is subject to a rate-setting mechanism under a Franchise Agreement with the City of Cornwall, based on a price cap with commodity cost flow through.

(6) Achieved ROAs at the utilities are significantly lower than those allowed under licences as a result of the inability, due to economic and political factors, to increase base customer electricity rates.

MATERIAL REGULATORY DECISIONS AND APPLICATIONS

The following summarizes the significant regulatory decisions and applications for the Corporation’s regulated utilities for 2015.

UNS Energy

In November 2015 TEP, UNS Energy’s largest utility, filed a GRA with the ACC requesting new retail rates to be effective January 1, 2017, using the year ended June 30, 2015 as a historical test year. The key provisions of the rate request include: (i) a base retail rate increase of US$110 million, or 12.0%, compared with adjusted test year revenue; (ii) a 7.34% return on original cost rate base of US$2.1 billion; (iii) a common equity component of capital structure of approximately 50%; (iv) a cost of equity of 10.35% and an average cost of debt of 4.32%; and (v) rate design changes that would reduce the reliance on volumetric sales to recover fixed costs, and a new net metering tariff that would ensure that customers who install distributed generation pay an equitable price for their electric service. Since its last approved rate order in 2013, which used a 2011 historical test year, TEP’s total rate base has increased by approximately US$0.6 billion and the common equity component of capital structure increased from 43.5% to approximately 50%. In May 2015 UNS Electric filed a GRA requesting new retail rates to be effective May 1, 2016, using 2014 as a historical test year. The nature of UNS Electric’s GRA was similar to that of TEP. A decision on UNS Electric’s application is expected in the third quarter of 2016 and TEP’s application is expected in the fourth quarter of 2016.

Central Hudson

Three-Year Rate Order

In June 2015 the PSC issued a Rate Order for Central Hudson covering a three-year period, with new electricity and natural gas delivery rates effective July 1, 2015. A delivery rate freeze was implemented for electricity and natural gas delivery rates through June 30, 2015 as part of the regulatory approval of the acquisition of Central Hudson by Fortis. Central Hudson invested approximately US$225 million in energy infrastructure during the two-year delivery rate freeze period ended June 30, 2015. The approved Rate Order reflects an allowed ROE of 9.0% and a 48% common equity component of capital structure. The Rate Order includes capital investments of approximately US$490 million during the three-year period targeted at making the electric and gas systems stronger.

The approved Rate Order includes full cost recovery of electric and natural gas commodity costs and continuation of certain mechanisms, including revenue decoupling and earnings sharing mechanisms. In the approved earnings sharing mechanism, the Company and customers share equally earnings in excess of 50 basis points above the allowed ROE up to an achieved ROE that is 100 basis points above the allowed ROE. Earnings in excess of 100 basis points above the allowed ROE are shared primarily with the customer. In addition, the Rate Order includes a major storm reserve for electric operations and provides for continuation of recovery of various operating expenses, including environmental site investigation and remediation costs. To the extent that Central Hudson receives gas delivery revenue associated with a new contract implemented in late 2014, associated revenue is being used to mitigate future gas customer rate increases, effective July 1, 2015.

Reforming the Energy Vision

In 2014 the PSC issued an order instituting a proceeding to reform New York State’s electricity industry and regulatory practices (“Reforming the Energy Vision”). The initiative seeks to further a number of policy objectives and seeks to determine the appropriate role of electric distribution utilities in furthering these objectives, as well as considering regulatory changes to better align utility interest with energy policy objectives. In 2015 Central Hudson continued to fully participate in this proceeding. The outcome of Reforming the Energy Vision cannot be determined at this time and it could impact the scope of regulated utilities in New York State.

FortisBC Energy and FortisBC Electric

Multi-Year PBR Plans

In September 2014 the BCUC issued its decisions on FEI and FortisBC Electric’s Multi-Year PBR Plans for 2014 through 2019. The approved PBR Plans incorporate incentive mechanisms for improving operating and capital expenditure efficiencies. Operation and maintenance expenses and base capital expenditures during the PBR period are subject to an incentive formula reflecting incremental costs for inflation and half of customer growth, less a fixed productivity adjustment factor of 1.1% for FEI and

1.03% for FortisBC Electric each year. The approved PBR Plans also include a 50%/50% sharing of variances from the formula-driven operation and maintenance expenses and capital expenditures over the PBR period, and a number of service quality measures designed to ensure FEI and FortisBC Electric maintain service levels. It also sets out the requirements for an annual review process which will provide a forum for discussion between the utilities and interested parties regarding current performance and future activities.

In May 2015 and June 2015, the BCUC issued its decisions on FEI and FortisBC Electric’s 2015 rates in compliance with the PBR decisions issued in September 2014. The decisions approved 2015 midyear rate base of approximately $3,661 million and $1,249 million for FEI and FortisBC Electric, respectively, and approved customer rate increases for 2015 of 0.7% and 4.2% over 2014 rates, respectively.

In December 2015 the BCUC issued its decisions on FEI and FortisBC Electric’s 2016 rates. The decisions approved 2016 midyear rate base of approximately $3,693 million and $1,286 million for FEI and FortisBC Electric, respectively, and approved customer rate increases for 2016 of 1.79% and 2.96% over 2015 rates, respectively.

Generic Cost of Capital Proceedings

A Generic Cost of Capital (“GCOC”) Proceeding to establish the allowed ROE and capital structures for regulated utilities in British Columbia occurred from 2012 through 2014. FEI was designated as the benchmark utility and a BCUC decision established that the ROE for the benchmark utility would be set at 8.75% with a 38.5% common equity component of capital structure, both effective January 1, 2013 through December 31, 2015. The GCOC Proceeding reaffirmed for FortisBC Electric a risk premium over the benchmark utility of 40 basis points, resulting in an allowed ROE of 9.15% effective January 1, 2013 through December 31, 2015, and a common equity component of capital structure at 40%.

The BCUC decision directed FEI to file an application to review the 2016 benchmark utility ROE and common equity component of capital structure. In October 2015, as required by the regulator, FEI filed its application to review the 2016 benchmark allowed ROE and common equity component of capital structure. As FEI is the benchmark utility, the review of the application could also have an impact on FortisBC Electric. A decision on the application is expected in the second quarter of 2016.

FortisAlberta

Generic Cost of Capital Proceedings

In April 2015 the AUC initiated a GCOC Proceeding to set the allowed ROE and capital structure for 2016 and 2017. While the AUC approved a request by utilities in Alberta to negotiate matters at issue in the GCOC Proceeding for 2016, a negotiated settlement was not reached and a 2016 and 2017 GCOC Proceeding commenced. A hearing is scheduled for June 2016 and a decision is expected before the end of 2016.

Capital Tracker Applications

In March 2015 the AUC issued its decision related to FortisAlberta’s 2013, 2014 and 2015 Capital Tracker Applications. The decision: (i) indicated that the majority of the Company’s applied for capital trackers met the established criteria and were, therefore, approved for collection from customers; (ii) approved FortisAlberta’s accounting test to determine qualifying K factor amounts; and (iii) confirmed certain inputs to be used in the accounting test, including the conclusion that the weighted average cost of capital be based on actual debt rates and the allowed ROE and capital structure approved in the GCOC Proceeding.

In May 2015 FortisAlberta filed an application with the AUC seeking: (i) capital tracker revenue of $72 million for 2016 and $90 million for 2017; (ii) a reduction of $5 million to the 2014 capital tracker revenue to reflect actual capital expenditures; and (iii) approval of additional revenue related to capital tracker amounts that had not been fully approved in the 2015 Capital Tracker Decision. A hearing related to this proceeding concluded in October 2015, with a decision from the regulator expected in the first quarter of 2016.

FortisAlberta recognized capital tracker revenue of approximately $59 million in 2015, of which $9 million was related to updates to the 2013 and 2014 capital tracker approved amounts. The capital tracker revenue for 2015 of approximately $50 million incorporates an update for related 2015 capital expenditures as compared to the approved forecast reflected in current rates. This resulted in a deferral of $12 million of 2015 capital tracker revenue as a regulatory liability.

2016 Annual Rates Application

In December 2015 the regulator approved FortisAlberta’s 2016 Annual Rates Application substantially as filed. The rates and riders, effective January 1, 2016, include an increase of approximately 4.6% to the distribution component of customer rates. This increase reflects: (i) a combined inflation and productivity factor of 0.9%; (ii) a K factor placeholder of $64 million, which is 90% of the depreciation and return associated with the 2016 forecast capital tracker expenditures as filed in the capital tracker applications, as discussed previously; and (iii) $17 million for adjustments to 2013, 2014 and 2015 capital tracker revenue as filed in the capital tracker compliance filing related to the 2015 capital tracker decision.

Utility Asset Disposition Matters

In previous decisions, the AUC made statements regarding cost responsibility for stranded assets and gains or losses related to extraordinary retirement of utility assets, which FortisAlberta and other Alberta utilities challenged as being incorrectly made. Stranded assets are generally understood to be utility assets no longer used to provide utility service as a result of extraordinary circumstances. The AUC’s statements implied that the shareholder is responsible for the cost of stranded assets in a broader sense than that generally understood by regulated utilities and also conflicted with the Electric Utilities Act (Alberta). As a result, the utilities in Alberta had filed leave to appeal motions with the Court of Appeal of Alberta.

In September 2015 the Court of Appeal of Alberta issued a decision that dismissed the appeals of the utilities. The basis for the decision was that the AUC should be accorded deference for its conclusions in utility asset disposition matters. The decision by the Court of Appeal of Alberta has no immediate impact on FortisAlberta’s financial position. However, the Company is exposed to the risk that unrecovered costs associated with utility assets subsequently deemed by the AUC to have been subject to an extraordinary retirement will not be recoverable from customers. In November 2015 the utilities in Alberta filed a leave to appeal motion with the Supreme Court of Canada, the outcome and timing of which is unknown.

Eastern Canadian Electric Utilities

In October 2015 Newfoundland Power filed a 2016/2017 GRA with the PUB to set customer rates effective July 1, 2016. The Company is proposing an overall average increase in electricity rates of 3.1%. The GRA will include a full review of Newfoundland Power’s costs, including cost of capital. The application is currently under review by the PUB. A public hearing is scheduled to begin at the end of the first quarter of 2016 and a decision on the application is expected by the end of the second quarter of 2016.

In October 2015 Maritime Electric filed a GRA with the IRAC to set customer rates effective March 1, 2016, on expiry of the Prince Edward Island Energy Accord. In January 2016 Maritime Electric and the Government of PEI entered into a 2016 General Rate Agreement covering the three-year period from March 1, 2016 through February 28, 2019. The agreement, which is subject to regulatory approval, is generally consistent with the GRA filed in October 2015, however, reflects an allowed ROE capped at 9.35% on a maximum average common equity component of capital structure of 40%. Under the agreement, the typical customer electricity cost increase will be limited to a maximum of 2.3% annually.

Significant Regulatory Proceedings

The following table summarizes significant ongoing regulatory proceedings, including filing dates and expected timing of decisions for the Corporation’s regulated utilities.

Regulated Utility	Application/Proceeding	Filing Date	Expected Decision
TEP	GRA for 2017	November 2015	Fourth quarter of 2016
UNS Electric	GRA for 2016	May 2015	Third quarter of 2016
Central Hudson	Reforming the Energy Vision	Not applicable	To be determined
FEI	2016 Cost of Capital Application	October 2015	Second quarter of 2016
FortisAlberta	2016/2017 Capital Tracker Application	May 2015	First quarter of 2016
	2016/2017 GCOC Proceeding	Not applicable	Second half of 2016
Newfoundland Power	GRA for 2016/2017	October 2015	Second quarter of 2016

CONSOLIDATED FINANCIAL POSITION

The following table outlines the significant changes in the consolidated balance sheets between December 31, 2015 and December 31, 2014.

Significant Changes in the Consolidated Balance Sheets between December 31, 2015

and December 31, 2014

	Increase/
	(Decrease)
Balance Sheet Account	($ millions)	Explanation
Regulatory assets — current and long-term	117	The increase was mainly due to: (i) an increase in regulatory deferred income taxes, mainly at FortisAlberta; (ii) the impact of foreign exchange on the translation of US dollar-denominated regulatory assets; and (iii) the deferral of various other costs as permitted by the regulators. The above-noted increases were partially offset by a reduction in regulatory assets at Central Hudson due to the offsetting of certain regulatory account balances, as approved by the regulator, and a decrease in the deferral for employee future benefits.

	Increase/
	(Decrease)
Balance Sheet Account	($ millions)		Explanation

Utility capital assets	2,416		The increase primarily related to utility capital expenditures and the impact of foreign exchange on the translation of US dollar-denominated utility capital assets, partially offset by depreciation and customer contributions.
Non-utility capital assets	(664	)	The decrease was due to the sale of commercial real estate and hotel assets in June 2015 and October 2015, respectively.
Goodwill	441		The increase was due to the impact of foreign exchange on the translation of US dollar-denominated goodwill.
Short-term borrowings	181		The increase was mainly due to higher short-term borrowings at FortisBC Energy and FortisBC Electric, largely to finance utility capital expenditures.
Regulatory liabilities — current and long-term	193		The increase was mainly due to the impact of foreign exchange on the translation of US dollar-denominated regulatory liabilities and higher rate stabilization accounts at FortisBC Energy, partially offset by a reduction in regulatory liabilities at Central Hudson due to the offsetting of certain regulatory account balances, as approved by the regulator.
Long-term debt (including current portion)	732		The increase was primarily due to the issuance of long-term debt at the Corporation’s regulated utilities, largely in support of energy infrastructure investment, and the impact of foreign exchange on the translation of US dollar-denominated debt. The increase was partially offset by regularly scheduled debt repayments and net repayments under committed credit facilities, mainly at the Corporation, using net proceeds from the sale of commercial real estate and hotel assets.
Capital lease and finance obligations (including current portion)	(190	)	The decrease was mainly due to the purchase of an additional ownership interest in the Springerville Unit 1 generating facility and the Springerville coal handling facilities at UNS Energy following the expiry of lease arrangements.
Deferred income tax liabilities	424		The increase was primarily due to tax timing differences mainly related to capital expenditures at the regulated utilities and the impact of foreign exchange on the translation of US dollar-denominated deferred income tax liabilities.
Shareholders’ equity (before non-controlling interests)	1,189		The increase primarily related to: (i) an increase in accumulated other comprehensive income associated with the translation of the Corporation’s US dollar-denominated investments in subsidiaries, net of hedging activities and tax; (ii) net earnings attributable to common equity shareholders for 2015, less dividends declared on common shares; and (iii) the issuance of common shares under the Corporation’s dividend reinvestment, employee share purchase and stock option plans.

LIQUIDITY AND CAPITAL RESOURCES

SUMMARY OF CONSOLIDATED CASH FLOWS

The table below outlines the Corporation’s sources and uses of cash in 2015 compared to 2014, followed by a discussion of the nature of the variances in cash flows.

Summary of Consolidated Cash Flows

Years Ended December 31
($ millions)	2015		2014		Variance
Cash, Beginning of Year	230		72		158
Cash Provided by (Used in):
Operating Activities	1,673		982		691
Investing Activities	(1,368	)	(4,199	)	2,831
Financing Activities	(346	)	3,361		(3,707	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	53		14		39
Cash, End of Year	242		230		12

Operating Activities: Cash flow from operating activities in 2015 was $691 million higher than in 2014. The increase was driven by higher cash earnings and favourable changes in working capital. The increase in cash earnings was driven by the acquisition of UNS Energy in August 2014. Earnings contribution from the Waneta Expansion and higher cash earnings at FortisAlberta also contributed to the increase. Favourable changes in working capital at FortisBC Energy and UNS Energy were partially offset by unfavourable changes at FortisAlberta.

Investing Activities: Cash used in investing activities in 2015 was $2,831 million lower than in 2014. The decrease was due to the acquisition of UNS Energy in August 2014 for a net cash purchase price of $2,745 million. Also contributing to the decrease were proceeds received from the sale of commercial real estate assets in June 2015 for $430 million, hotel assets in October 2015 for $365 million, and generation assets in Upstate New York in June 2015 for $77 million (US$63 million), compared to proceeds of $105 million (US$95 million) on the sale of Griffith in March 2014. The decrease was partially offset by an increase in capital expenditures of $518 million, driven by a full year contribution from UNS Energy and higher capital spending at most of the Corporation’s regulated utilities, partially offset by lower non-regulated capital expenditures due to the completion of the Waneta Expansion and the sale of commercial real estate and hotel assets.

Financing Activities: Cash provided by financing activities in 2015 was $3,707 million lower than in 2014. The decrease was primarily due to financing associated with the acquisition of UNS Energy in August 2014 and the repayment of credit facility borrowings in 2015 using proceeds from the sale of commercial real estate and hotel assets. The acquisition of UNS Energy was financed from proceeds of $1,800 million, or $1,725 million net of issue costs, from the issue of convertible debentures, proceeds from the issuance of preference shares and credit facility borrowings. In October 2014 substantially all of the convertible debentures were converted into 58.2 million common shares of Fortis.

Proceeds from long-term debt, net of issue costs, repayments of long-term debt and capital lease and finance obligations, and net (repayments) borrowings under committed credit facilities for 2015 and 2014 are summarized in the following tables.

Proceeds from Long-Term Debt, Net of Issue Costs

Years Ended December 31
($ millions)	2015	2014	Variance
UNS Energy (1)	591	—	591
Central Hudson (2)	25	33	(8	)
FortisBC Energy (3)	150	—	150
FortisAlberta (4)	149	274	(125	)
FortisBC Electric (5)	—	198	(198	)
Newfoundland Power (6)	75	—	75
Caribbean Utilities (7)	—	57	(57	)
Fortis Turks and Caicos (8)	12	92	(80	)
Corporate (9)	—	539	(539	)
Total	1,002	1,193	(191	)

(1) In February 2015 TEP issued 10-year US$300 million 3.05% senior unsecured notes. Net proceeds were used to repay long-term debt and credit facility borrowings and to finance capital expenditures. In April 2015 UNS Electric issued 30-year US$50 million 3.95% unsecured notes. The net proceeds were primarily used for general corporate purposes. In August 2015 UNS Electric issued 12-year US$80 million 3.22% unsecured notes and UNS Gas issued 30-year US$45 million 4.00% unsecured notes. The net proceeds were used to repay maturing long-term debt.

(2) In March 2015 Central Hudson issued 10-year US$20 million 2.98% unsecured notes. The net proceeds were used to finance capital expenditures and for general corporate purposes. In March 2014 Central Hudson issued 10-year US$30 million unsecured notes with a floating interest rate of 3-month LIBOR plus 1%. The net proceeds were used to repay maturing long-term debt and for other general corporate purposes.

(3) In April 2015 FortisBC Energy issued 30-year $150 million 3.38% unsecured debentures. The net proceeds were used to repay short-term borrowings and for general corporate purposes.

(4) In September 2015 FortisAlberta issued 30-year $150 million 4.27% senior unsecured debentures. The net proceeds were used to repay credit facility borrowings and for general corporate purposes. In September 2014 FortisAlberta issued $275 million senior unsecured debentures in a dual tranche of 10-year $150 million at 3.30% and 30-year $125 million at 4.11%. The net proceeds were used to repay maturing long-term debt, finance capital expenditures and for general corporate purposes.

(5) In October 2014 FortisBC Electric issued 30-year $200 million 4.00% senior unsecured debentures. The net proceeds were used to repay long-term debt and credit facility borrowings.

(6) In September 2015 Newfoundland Power issued 30-year $75 million 4.446% secured first mortgage sinking fund bonds. The net proceeds were used to repay credit facility borrowings and for general corporate purposes.

(7) In November 2014 Caribbean Utilities issued a total of US$50 million unsecured notes with terms to maturity ranging from 15 to 32 years and coupon rates ranging from 3.65% to 4.53%. The net proceeds were used to finance capital expenditures.

(8) In January 2015 Fortis Turks and Caicos issued 15-year US$10 million 4.75% unsecured notes. The net proceeds were used to finance capital expenditures and for general corporate purposes. In December 2014 Fortis Turks and Caicos issued 15-year US$80 million 4.75% unsecured notes. The net proceeds were used to repay inter-company loans with a direct subsidiary of Fortis.

(9) In June 2014 the Corporation issued US$213 million unsecured notes with terms to maturity ranging from 5 to 30 years and coupon rates ranging from 2.92% to 4.88%. The weighted average term to maturity was approximately 9 years and the weighted average coupon rate was 3.51%. Net proceeds were used to repay US-dollar denominated borrowings on the Corporation’s committed credit facility and for general corporate purposes. In September 2014 the Corporation issued US$287 million unsecured notes with terms to maturity ranging from 7 to 30 years and coupon rates ranging from 3.64% to 5.03%. The weighted average term to maturity was approximately 12 years and the weighted average coupon rate was 4.11%. Net proceeds were used to repay long-term debt and for general corporate purposes.

Repayments of Long-Term Debt and Capital Lease and Finance Obligations

Years Ended December 31
($ millions)	2015		2014		Variance
UNS Energy	(449	)	—		(449	)
Central Hudson	—		(24	)	24
FortisBC Energy	(92	)	(6	)	(86	)
FortisAlberta	—		(200	)	200
FortisBC Electric	—		(140	)	140
Newfoundland Power	(6	)	(35	)	29
Caribbean Utilities	(17	)	(19	)	2
Fortis Turks and Caicos	(4	)	(4	)	—
Fortis Properties	(34	)	(22	)	(12	)
Corporate	—		(293	)	293
Total	(602	)	(743	)	141

Net (Repayments) Borrowings Under Committed Credit Facilities

Years Ended December 31
($ millions)	2015		2014		Variance
UNS Energy	(199	)	61		(260	)
FortisAlberta	30		3		27
FortisBC Electric	—		(54	)	54
Newfoundland Power	(47	)	65		(112	)
Corporate	(406	)	535		(941	)
Total	(622	)	610		(1,232	)

Borrowings under credit facilities by the utilities are primarily in support of their respective capital expenditure programs and/or for working capital requirements. Repayments are primarily financed through the issuance of long-term debt, cash from operations and/or equity injections from Fortis. From time to time, proceeds from preference share, common share and long-term debt offerings are used to repay borrowings under the Corporation’s committed credit facility.

In September 2014 Fortis issued 24 million First Preference Shares, Series M for gross proceeds of $600 million. The net proceeds were used to repay a portion of credit facility borrowings used to initially finance a portion of the acquisition of UNS Energy.

Common share dividends paid in 2015 totalled $232 million, net of $156 million of dividends reinvested, compared to $194 million, net of $81 million of dividends reinvested, paid in 2014. The increase in dividends paid was due to a higher annual dividend paid per common share and an increase in the number of common shares outstanding. The dividend paid per common share was $1.40 in 2015 compared to $1.28 in 2014. The weighted average number of common shares outstanding was 278.6 million for 2015 compared to 225.6 million for 2014.

CONTRACTUAL OBLIGATIONS

The Corporation’s consolidated contractual obligations with external third parties in each of the next five years and for periods thereafter, as at December 31, 2015, are outlined in the following table.

Contractual Obligations

		Due					Due
As at December 31, 2015		within	Due in	Due in	Due in	Due in	after
($ millions)	Total	1 year	year 2	year 3	year 4	year 5	5 years
Long-term debt	11,240	384	71	283	239	857	9,406
Interest obligations on long-term debt	9,435	536	512	507	495	488	6,897
Capital lease and finance obligations (1)	2,478	72	74	93	77	75	2,087
Renewable power purchase obligations (2)	1,589	93	93	92	92	92	1,127
Gas purchase obligations (3)	1,449	366	253	222	153	131	324
Power purchase obligations (4)	1,440	281	209	180	102	36	632
Long-term contracts - UNS Energy (5)	1,057	146	141	105	102	82	481
Capital cost (6)	488	19	19	19	19	19	393
Operating lease obligations (7)	181	12	11	11	11	8	128
Renewable energy credit purchase agreements (8)	162	13	13	13	13	13	97
Purchase of Springerville Common Facilities (9)	147	—	53	—	—	—	94
Employee future benefits funding contributions	139	49	12	8	9	9	52
Waneta Partnership promissory note	72	—	—	—	—	72	—
Joint-use asset and shared service agreements	53	3	3	3	3	3	38
Other (10)	71	15	12	16	3	—	25
Total	30,001	1,989	1,476	1,552	1,318	1,885	21,781

(1) Includes principal payments, imputed interest and executory costs, mainly related to FortisBC Electric’s capital lease obligations.

(2) TEP and UNS Electric are party to 20-year long-term renewable PPAs totalling approximately US$1,148 million as at December 31, 2015, which require TEP and UNS Electric to purchase 100% of the output of certain renewable energy generating facilities that have achieved commercial operation. While TEP and UNS Electric are not required to make payments under these contracts if power is not delivered, the table above includes estimated future payments based on expected power deliveries. These agreements have various expiry dates through 2035. TEP has entered into additional long-term renewable PPAs to comply with renewable energy standards of the State of Arizona; however, the Company’s obligation to purchase power under these agreements does not begin until the facilities are operational. In February 2016 one of the generating facilities achieved commercial operation, increasing estimated future payments of renewable PPAs by US$58 million, which is not included in the table above.

(3) Certain of the Corporation’s subsidiaries, mainly FortisBC Energy and Central Hudson, enter into contracts for the purchase of gas, gas transportation and storage services. FortisBC Energy’s gas purchase obligations are based on gas commodity indices that vary with market prices and the obligations are based on index prices as at December 31, 2015. At Central Hudson, the obligations are based on tariff rates, negotiated rates and market prices as at December 31, 2015.

(4) Power purchase obligations include various power purchase contracts held by certain of the Corporation’s subsidiaries, as described below.

FortisBC Energy

FortisBC Electric

In addition, in November 2011 FortisBC Electric executed the Waneta Expansion Capacity Agreement (“WECA”), allowing FortisBC Electric to purchase 234 MW of capacity for 40 years, effective April 2015, as approved by the BCUC. Amounts associated with the WECA have not been included in the Contractual Obligations table as they are to be paid by FortisBC Electric to a related party and such a related-party transaction would be eliminated upon consolidation with Fortis.

FortisOntario

Maritime Electric

Central Hudson

Central Hudson’s power purchase obligations totalled US$124 million as at December 31, 2015. In June 2014 Central Hudson entered into a contract to purchase available installed capacity from the Danskammer Generating Facility from October 2014 through August 2018 with approximately US$76 million in purchase commitments remaining as at December 31, 2015. During 2015, Central Hudson entered into agreements to purchase electricity on a unit-contingent basis at defined prices during peak load periods from June 2015 through August 2016, replacing existing contracts which expired in March 2015.

(5) UNS Energy has entered into various long-term contracts for the purchase and delivery of coal to fuel its generating facilities, the purchase of gas transportation services to meet its load requirements, and the purchase of transmission services for purchased power, with obligations totalling US$440 million, US$261 million and US$63 million, respectively, as at December 31, 2015. Amounts paid under contracts for the purchase and delivery of coal depend on actual quantities purchased and delivered. Certain of these contracts also have price adjustment clauses that will affect future costs under the contracts. As a result of the restructuring of the ownership of the San Juan generating station in January 2016, a new coal supply agreement came into effect under which TEP’s minimum purchase obligations are US$137 million, which is not included in the previous table.

(6) Maritime Electric has entitlement to approximately 4.55% of the output from NB Power’s Point Lepreau nuclear generating station for the life of the unit. As part of its entitlement, Maritime Electric is required to pay its share of the capital and operating costs of the unit.

(7) Operating lease obligations include certain office, warehouse, natural gas T&D asset, rail car, land easement and rights-of-way, and vehicle and equipment leases.

(8) UNS Energy is party to renewable energy credit purchase agreements, totalling approximately US$117 million as at December 31, 2015, to purchase the environmental attributions from retail customers with solar installations. Payments for the renewable energy credit purchase agreements are paid in contractually agreed-upon intervals based on metered renewable energy production.

(9) UNS Energy has entered into a commitment to exercise its fixed-price purchase provision to purchase an undivided 50% leased interest in the Springerville Common Facilities if the lease is not renewed, for a purchase price of US$106 million, with one facility to be acquired in 2017 and the remaining two facilities to be acquired in 2021.

(10) Other contractual obligations include various other commitments entered into by the Corporation and its subsidiaries, including Performance Share Unit, Restricted Share Unit and Directors’ Deferred Share Unit Plan obligations and asset retirement obligations.

Other Contractual Obligations

Other: CH Energy Group is party to an investment to develop, own and operate electric transmission projects in New York State. In December 2014 an application was filed with the U.S. Federal Energy Regulatory Commission (“FERC”) for the recovery of the cost of and return on five high-voltage transmission projects totalling US$1.7 billion, of which CH Energy Group’s maximum commitment is US$182 million. CH Energy Group issued a parental guarantee to assure the payment of maximum commitment of US$182 million. As at December 31, 2015, no payment obligation is expected under this guarantee.

The Corporation’s long-term regulatory liabilities of $1,340 million as at December 31, 2015 have been excluded from the Contractual Obligations table, as the final timing of settlement of many of the liabilities is subject to further regulatory determination or the settlement periods are not currently known. The nature and amount of the long-term regulatory liabilities are detailed in Note 8 to the Corporation’s 2015 Audited Consolidated Financial Statements.

CAPITAL STRUCTURE

The Corporation’s principal businesses of regulated electric and gas utilities require ongoing access to capital to enable the utilities to fund maintenance and expansion of infrastructure. Fortis raises debt at the subsidiary level to ensure regulatory transparency, tax efficiency and financing flexibility. Fortis generally finances a significant portion of acquisitions at the corporate level with proceeds from common share, preference share and long-term debt offerings. To help ensure access to capital, the Corporation targets a consolidated long-term capital structure containing approximately 35% common equity, 65% debt and preferred equity, as well as investment-grade credit ratings. Each of the Corporation’s regulated utilities maintains its own capital structure in line with the deemed capital structure reflected in each of the utility’s customer rates.

The consolidated capital structure of Fortis is presented in the following table.

Capital Structure

	2015		2014
As at December 31	($ millions)	(%)	($ millions)	(%)
Total debt and capital lease and finance obligations (net of cash) (1)	11,950	54.8	11,239	56.4
Preference shares	1,820	8.3	1,820	9.1
Common shareholders’ equity	8,060	36.9	6,871	34.5
Total (2)	21,830	100.0	19,930	100.0

(1) Includes long-term debt and capital lease and finance obligations, including current portions, and short-term borrowings, net of cash

(2) Excludes amounts related to non-controlling interests

Excluding capital lease and finance obligations, the Corporation’s capital structure as at December 31, 2015 was 53.7% debt, 8.5% preference shares and 37.8% common shareholders’ equity (December 31, 2014 - 54.8% debt, 9.5% preference shares and 35.7% common shareholders’ equity).

The improvement in the Corporation’s capital structure was due to an increase in common shareholders’ equity as a result of: (i) an increase in accumulated other comprehensive income associated with the translation of the Corporation’s US dollar-denominated investments in subsidiaries, net of hedging activities and tax; (ii) net earnings attributable to common equity shareholders for the year ended December 31, 2015, less dividends declared on common shares; and (iii) the issuance of common shares under the Corporation’s dividend reinvestment, employee share purchase and stock option plans. The capital structure was also impacted by an increase in total debt due to the impact of foreign exchange on the translation of US-dollar denominated debt and new debt in support of energy infrastructure investment, partially offset by regular scheduled debt repayments and net repayments under committed credit facilities.

CREDIT RATINGS

As at December 31, 2015, the Corporation’s credit ratings were as follows:

Standard & Poor’s (“S&P”) A- / Stable (long-term corporate and unsecured debt credit rating)

DBRS A (low) / Stable (unsecured debt credit rating)

The above-noted credit ratings reflect the Corporation’s low business-risk profile and diversity of its operations, the stand-alone nature and financial separation of each of the regulated subsidiaries of Fortis, and management’s commitment to maintaining reasonable levels of debt at the holding company level. In February 2016, after the announcement by Fortis that it had entered into an agreement to acquire ITC, S&P affirmed the Corporation’s long-term corporate credit rating at A-, revised its unsecured debt credit rating to BBB+ from A-, and revised its outlook on the Corporation to negative from stable. Similarly, in February 2016 DBRS placed the Corporation’s credit rating under review with negative implications.

CAPITAL EXPENDITURE PROGRAM

Capital investment in energy infrastructure is required to ensure continued and enhanced performance, reliability and safety of the electricity and gas systems, and to meet customer growth. All costs considered to be maintenance and repairs are expensed as incurred. Costs related to replacements, upgrades and betterments of capital assets are capitalized as incurred. Approximately $276 million in maintenance and repairs was expensed in 2015 compared to approximately $203 million in 2014. The increase was largely due to a full year of expense for UNS Energy in 2015.

Gross consolidated capital expenditures for 2015 were approximately $2.2 billion. A breakdown of these capital expenditures by segment and asset category for 2015 is provided in the following table.

Gross Consolidated Capital Expenditures (1)

	Regulated Utilities								Non-Regulated
								Total
Year Ended December 31, 2015	UNS	Central	FortisBC	Fortis	FortisBC	Eastern	Caribbean	Regulated	Fortis	Non-
($ millions)	Energy	Hudson	Energy	Alberta	Electric	Canadian	Electric	Utilities	Generation	Utility (2)	Total
Generation	321	1	—	—	3	9	107	441	38	—	479
Transmission	131	37	57	—	19	23	2	269	—	—	269
Distribution	135	102	134	358	38	121	16	904	—	—	904
Facilities, equipment, vehicles and other (3)	39	27	254	73	35	14	9	451	—	28	479
Information technology	43	14	15	21	8	8	3	112	—	—	112
Total	669	181	460	452	103	175	137	2,177	38	28	2,243

(1) Represents cash payments to construct utility capital assets, non-utility capital assets and intangible assets, as reflected on the consolidated statement of cash flows. Excludes the non-cash equity component of AFUDC.

(2) Includes capital expenditures of approximately $14 million at FAES, which is reported in the Corporate and Other segment

(3) Includes capital expenditures associated with the Tilbury Expansion at FortisBC Energy and Alberta Electric System Operator (“AESO”) transmission-related capital expenditures at FortisAlberta

Planned capital expenditures are based on detailed forecasts of energy demand, cost of labour and materials, as well as other factors, including economic conditions and foreign exchange rates, which could change and cause actual expenditures to differ from those forecast. Gross consolidated capital expenditures of $2,243 million for 2015 were $91 million higher than $2,152 million forecast for 2015, as disclosed in the MD&A for the year ended December 31, 2014. The increase was driven by higher capital spending at FortisBC Energy primarily due to the timing of payments associated with the Tilbury Expansion and at FortisAlberta primarily due to the purchase of two Rural Electrification Associations (“REAs”) for approximately $21 million in 2015, and due to the impact of foreign exchange associated with the translation of US dollar-denominated capital expenditures. The increase was partially offset by lower-than-forecast capital spending at the Waneta Expansion, due to the timing of payments, and at FAES.

Gross consolidated capital expenditures for 2016 are expected to be approximately $1.9 billion. A breakdown of forecast gross consolidated capital expenditures by segment and asset category for 2016 is provided in the following table.

Forecast Gross Consolidated Capital Expenditures (1)

	Regulated Utilities								Non-Regulated
								Total
Year Ending December 31, 2016	UNS	Central	FortisBC	Fortis	FortisBC	Eastern	Caribbean	Regulated	Fortis	Non-
($ millions)	Energy	Hudson	Energy	Alberta	Electric	Canadian	Electric	Utilities	Generation	Utility (2)	Total
Generation	162	2	—	—	2	24	73	263	15	—	278
Transmission	66	30	84	—	21	19	6	226	—	—	226
Distribution	168	142	129	311	29	110	23	912	—	—	912
Facilities, equipment, vehicles and other (3)	40	25	118	109	16	9	20	337	—	3	340
Information technology	49	29	18	21	11	12	5	145	—	—	145
Total	485	228	349	441	79	174	127	1,883	15	3	1,901

(1) Represents forecast cash payments to construct utility capital assets and intangible assets, as would be reflected on the consolidated statement of cash flows. Excludes the non-cash equity component of AFUDC. Forecast capital expenditures for 2016 are based on a forecast exchange rate of US$1.00=CAD$1.38.

(2) Includes forecast capital expenditures of approximately $3 million at FAES, which is reported in the Corporate and Other segment

(3) Includes forecast capital expenditures associated with the Tilbury Expansion at FortisBC Energy and AESO transmission-related capital expenditures at FortisAlberta

The percentage breakdown of 2015 actual and 2016 forecast gross consolidated capital expenditures among growth, sustaining and other is as follows.

Gross Consolidated Capital Expenditures

Year Ending December 31	Actual	Forecast
(%)	2015	2016
Growth (1)	40	36
Sustaining (2)	44	48
Other (3)	16	16
Total	100	100

(1) Includes capital expenditures associated with the Tilbury Expansion at FortisBC Energy and AESO transmission-related capital expenditures at FortisAlberta

(2) Capital expenditures required to ensure continued and enhanced performance, reliability and safety of generation and T&D assets

(3) Relates to facilities, equipment, vehicles, information technology systems and other assets

Over the five-year period 2016 through 2020, excluding the pending acquisition of ITC, gross consolidated capital expenditures are expected to be approximately $9 billion. The approximate breakdown of the capital spending expected to be incurred is as follows: 40% at Regulated Electric & Gas Utilities in the United States; 37% at Canadian Regulated Electric Utilities, driven by FortisAlberta; 17% at Canadian Regulated Gas Utility; 5% at Caribbean Regulated Electric Utilities; and the remaining 1% at non-regulated operations. Capital expenditures at the regulated utilities are subject to regulatory approval. Over the five-year period, on average annually, the approximate breakdown of the total capital spending to be incurred is as follows: 35% to meet customer growth; 50% to ensure continued and enhanced performance, reliability and safety of generation and T&D assets, i.e., sustaining capital expenditures; and 15% for facilities, equipment, vehicles, information technology and other assets.

Actual 2015 and forecast 2016 midyear rate base for the Corporation’s regulated utilities and the Waneta Expansion is provided in the following table.

Midyear Rate Base

	Actual	Forecast
($ billions)	2015	2016
UNS Energy (1)	4.1	4.8
Central Hudson (1)	1.4	1.6
FortisBC Energy	3.7	3.7
FortisAlberta	2.7	3.0
FortisBC Electric	1.3	1.3
Eastern Canadian Electric Utilities	1.6	1.7
Regulated Electric Utilities - Caribbean (1)	0.8	0.9
Waneta Expansion	0.8	0.8
Total	16.4	17.8

(1) Actual midyear rate base for 2015 is based on the actual average exchange rate of US$1.00=CAD$1.28 and forecast midyear rate base for 2016 is based on a forecast exchange rate of US$1.00=CAD$1.38.

The most significant capital projects that are included in the Corporation’s base consolidated capital expenditures for 2015 and 2016 are summarized in the table below.

Significant Capital Projects (1)

($ millions)

					Forecast	Expected
		Pre-	Actual	Forecast	2017-	Year of
Company	Nature of Project	2015	2015	2016	2020	Completion
UNS Energy (2)	Interest in Springerville Unit 1	23	57	—	—	2015
	Springerville Coal Handling
	Facilities Lease Buyout	—	91	—	—	2015
	Pinal Transmission Project	9	84	—	—	2015
	Residential Solar Program	—	1	22	90	Ongoing
Central Hudson (2)	Gas Main Replacement Program	7	19	29	135	Post-2020
FortisBC Energy	Tilbury LNG Facility
	Expansion (3)	145	181	105	15	2016
	Lower Mainland System Upgrade	4	11	50	362	2018
FortisAlberta	Pole-Management Program	159	41	42	94	Post-2020
Caribbean Utilities (2)	Generation Expansion	12	61	35	—	2016
Waneta Partnership	Waneta Expansion (4)	679	36	13	97	2015

(1) Represents utility capital asset and intangible asset expenditures, including both the capitalized interest and equity components of AFUDC, where applicable

(2) Forecast capital expenditures are based on a forecast exchange rate of US$1.00=CAD$1.38 for 2016 through 2020

(3) Total project investment as at December 31, 2014 and 2015 includes approximately $43 million and $11 million, respectively, in non-cash capital accruals

(4) Includes the $72 million payment expected to be made in 2020 and excludes forecast capitalized interest of the minority partners, CPC/CBT, in the Waneta Partnership

UNS Energy completed three significant capital investments in 2015. In January 2015, upon expiration of the Springerville Unit 1 lease, UNS Energy purchased an additional ownership interest in Springerville Unit 1 for US$46 million. This purchase increased the ownership interest to 49.5%. Additionally, upon expiration of the Springerville Coal Handling Facilities lease in April 2015, UNS Energy purchased an ownership interest in the coal-handling assets for US$72 million. The Pinal Transmission Project at UNS Energy was also completed in 2015 at a total project cost of US$79 million. The project consisted of the construction of a 500-kilovolt transmission line in Pinal County that will increase the Company’s import capacity from Gila River Unit 3 and the Palo Verde trading hub.

The Residential Solar Program at UNS Energy is a partnership with local solar companies for UNS Energy to own and install rooftop solar systems for residential customers. The total capital cost of the program through 2020 is expected to be approximately US$82 million, with approximately US$16 million expected to be spent in 2016.

The Gas Main Replacement Program at Central Hudson is a 15-year replacement program to eliminate and replace leakage-prone pipes throughout the gas distribution system. The proposed replacement program increases the rate of annual expenditures on pipe replacements to approximately US$20 million to expedite the replacement plan. Approximately US$15 million was spent on this program in 2015 and an additional US$21 million is expected to be spent in 2016. The majority of spending is expected post 2020.

FortisBC Energy’s ongoing Tilbury LNG Facility Expansion, at an estimated total project cost of $440 million, will include a second LNG tank and a new liquefier, both to be in service around the end of 2016. FortisBC Energy received an Order in Council from the Government of British Columbia exempting the Tilbury LNG Facility project from further regulatory review. Key construction activities in 2015 were focused on construction of the storage tank and liquefaction process areas. Total projects costs to the end of 2015 were approximately $326 million.

The Lower Mainland System Upgrade project at FortisBC Energy is in place to address system capacity and pipeline condition issues for the gas supply system in the Lower Mainland area of British Columbia. The project will be completed in two phases: (i) the Lower Mainland Intermediate Pressure System Upgrade project phase, which is focused on addressing pipeline condition issues; and (ii) the Coastal Transmission System phase, which is intended to increase security of supply by reducing the number of single points of failure. The project has an estimated capital cost of $427 million, with approximately $50 million forecast to be spent in 2016, and is expected to be completed in 2018. The BCUC approved the application to replace certain sections of intermediate pressure pipeline segments within the Greater Vancouver area in October 2015. The Coastal Transmission System phase was approved by a Special Direction by the Government of British Columbia in 2014 and will not be subject to further regulatory review.

During 2015 FortisAlberta continued with the replacement of vintage poles under its Pole-Management Program to extend the service life of existing poles and to replace poles when deterioration is beyond repair. The total capital cost of the program through 2020 is expected to be approximately $336 million. Approximately $41 million was spent on this program in 2015, for a total of $200 million spent to date.

Caribbean Utilities was the successful bidder for new generation capacity and entered into a design-build contract agreement to cover the purchase and turnkey installation of two 18.5 MW diesel-generating units, one 2.7 MW waste heat recovery steam turbine and associated auxiliary equipment. Approximately US$48 million was spent on the project in 2015, with approximately US$25 million forecast to be spent in 2016. The project cost is estimated to be US$85 million and the plant is expected to be commissioned in mid-2016.

Construction of the $900 million, 335-MW Waneta Expansion was completed on April 1, 2015, ahead of schedule and on budget. Construction of the Waneta Expansion, which is adjacent to the Waneta Dam and powerhouse facilities on the Pend d’Oreille River, south of Trail, British Columbia, commenced late in 2010. The expansion added a second powerhouse, immediately downstream of the Waneta Dam on the Pend d’Oreille River, that shares the existing hydraulic head and generates clean, renewable, cost-effective power from water that would otherwise be spilled. The project also included construction of a 10-kilometre, 230-kilovolt transmission line. On April 2, 2015, the Waneta Expansion began generating power, all of which is being sold to BC Hydro and FortisBC Electric under 40-year contracts. Fortis owns a 51% interest in the Waneta Partnership and operates and maintains the non-regulated investment. The capital cost of the Waneta Expansion, as reported in the Significant Capital Projects table, includes capitalized interest by Fortis during construction, as well as other eligible capitalized expenses, and a $72 million payment expected to be made in 2020 related to accrued development costs previously incurred by CPC/CBT. The table excludes approximately $50 million of forecast capitalized interest of the minority partners in the Waneta Partnership.

ADDITIONAL INVESTMENT OPPORTUNITIES

In addition to the Corporation’s base consolidated capital expenditure forecast, management is pursuing additional investment opportunities within existing service territories. These additional investment opportunities, as discussed below, are not included in the Corporation’s base capital expenditure forecast and also exclude the acquisition of ITC.

FortisBC Energy is pursuing additional LNG infrastructure investment opportunities, including a pipeline expansion to the proposed Woodfibre LNG site in Squamish, British Columbia and a further expansion of Tilbury. In December 2014 FortisBC Energy received an Order in Council from the Government of British Columbia effectively exempting these projects from further regulatory approval by the BCUC.

The pipeline expansion is conditional on Woodfibre LNG proceeding with its LNG export facility. The Woodfibre LNG plant has passed the British Columbia Environmental Assessment Office review and the Squamish First Nation approved an environmental certificate for the project in October 2015. These approvals are significant milestones; however, the project is pending a Federal Environmental Assessment. In addition, FortisBC Energy’s pipeline expansion, at an estimated total project cost of up to $600 million, is also subject to various environmental approvals. A final investment decision by Woodfibre LNG is expected in 2016.

A further expansion of Tilbury is conditional upon having long-term contracts in place for the offtake of 70% of the additional liquefaction capacity, on average, for the first 15 years of operation. FortisBC Energy has a conditional agreement with Hawaiian Electric Company that would meet this requirement, subject to the regulatory approval process in Hawaii. The Corporation continues to have discussions with Hawaiian Electric Company, which is expected to be the primary offtaker, regarding the viability and scope of the project. Any resulting agreement would be subject to the approval of the Hawaii Public Utilities Commission.

The Corporation also has other significant opportunities that have not yet been included in the Corporation’s capital expenditure forecast including, but not limited to, the New York Transco, LLC at Central Hudson to address transmission constraints in New York; renewable energy alternatives at UNS Energy; Wataynikaneyap transmission line to connect remote First Nations communities at FortisOntario; further gas infrastructure opportunities at FortisBC Energy; and consolidation of Rural Electrification Associations at FortisAlberta.

CASH FLOW REQUIREMENTS

At the subsidiary level, it is expected that operating expenses and interest costs will generally be paid out of subsidiary operating cash flows, with varying levels of residual cash flows available for subsidiary capital expenditures and/or dividend payments to Fortis. Borrowings under credit facilities may be required from time to time to support seasonal working capital requirements. Cash required to complete subsidiary capital expenditure programs is also expected to be financed from a combination of borrowings under credit facilities, equity injections from Fortis and long-term debt offerings.

The Corporation’s ability to service its debt obligations and pay dividends on its common shares and preference shares is dependent on the financial results of the operating subsidiaries and the related cash payments from these subsidiaries. Certain regulated subsidiaries may be subject to restrictions that may limit their ability to distribute cash to Fortis.

Cash required of Fortis to support subsidiary capital expenditure programs and finance acquisitions is expected to be derived from a combination of borrowings under the Corporation’s committed corporate credit facility and proceeds from the issuance of common shares, preference shares and long-term debt. Depending on the timing of cash payments from the subsidiaries, borrowings under the Corporation’s committed corporate credit facility may be required from time to time to support the servicing of debt and payment of dividends. For a discussion of the Corporation’s cash flow requirements associated with the pending acquisition of ITC, refer to the “Business Risk Management - Risks Associated with the Acquisition of ITC” and “Subsequent Event” sections of this MD&A.

In April 2015 FortisBC Energy filed a short-form base shelf prospectus to establish a Medium-Term Note Debenture Program, under which the Company may issue debentures in an aggregate principal amount of up to $1 billion during the 25-month life of the shelf prospectus. In April 2015 FortisBC Energy issued 30-year $150 million 3.38% unsecured debentures under the base shelf prospectus.

In June 2015 Fortis injected US$180 million of equity into TEP. Proceeds were used to repay credit facility borrowings in June 2015 and the balance was used to redeem bonds in August 2015 and provide additional liquidity to TEP. This equity injection fulfilled one of the commitments made by Fortis in order to receive regulatory approval for the acquisition of UNS Energy, and increased TEP’s common equity component of capital structure to almost 50%, which is comparable with other regulated utilities in Arizona.

In May 2015 Caribbean Utilities completed a rights offering in which it raised gross proceeds of US$32 million through the issue of 2.9 million common shares. Fortis invested US$23 million in approximately 2.2 million common shares of Caribbean Utilities. The net proceeds from the rights offering were used by Caribbean Utilities to finance capital expenditures.

In October 2015 FortisAlberta filed a short-form base shelf prospectus to establish a Medium-Term Note Debenture Program, under which the Company may issue debentures in an aggregate principal amount of up to $500 million during the 25-month life of the shelf prospectus.

As at December 31, 2015, management expects consolidated fixed-term debt maturities and repayments to be $313 million in 2016 and to average approximately $260 million annually over the next five years. The combination of available credit facilities and relatively low annual debt maturities and repayments provides the Corporation and its subsidiaries with flexibility in the timing of access to capital markets. For a discussion of capital resources and liquidity risk, refer to the “Business Risk Management - Capital Resources and Liquidity Risk” section of this MD&A.

Fortis and its subsidiaries were in compliance with debt covenants as at December 31, 2015 and are expected to remain compliant in 2016.

CREDIT FACILITIES

The following summary outlines the credit facilities of the Corporation and its subsidiaries.

Credit Facilities

					Total as at		Total as at
	Regulated		Corporate		December 31,		December 31,
($ millions)	Utilities		and Other		2015		2014
Total credit facilities (1)	2,211		1,354		3,565		3,854
Credit facilities utilized:
Short-term borrowings	(511	)	—		(511	)	(330	)
Long-term debt (including current portion) (2)	(71	)	(480	)	(551	)	(1,096	)
Letters of credit outstanding	(68	)	(36	)	(104	)	(192	)
Credit facilities unused	1,561		838		2,399		2,236

(1) Total credit facilities exclude a $300 million option to increase the Corporation’s committed corporate credit facility, as discussed below.

(2) As at December 31, 2015, credit facility borrowings classified as long-term debt included $71 million in current installments of long-term debt on the consolidated balance sheet (December 31, 2014 - $257 million).

Regulated Utilities

The UNS Utilities have a total of US$350 million ($484 million) in unsecured committed revolving credit facilities maturing in October 2020, with the option of two one-year extensions.

FortisAlberta has a $250 million unsecured committed revolving credit facility, maturing in August 2020, that is utilized to finance capital expenditures and for general corporate purposes.

Corporate and Other

UNS Energy Corporation has a US$150 million ($208 million) unsecured committed revolving credit facility, maturing in October 2020, with the option of two one-year extensions.

CH Energy Group has a US$50 million ($69 million) unsecured committed revolving credit facility, maturing in July 2020, that can be utilized for general corporate purposes.

FHI has a $30 million unsecured committed revolving credit facility, maturing in April 2018, that is available for general corporate purposes.

OFF-BALANCE SHEET ARRANGEMENTS

With the exception of letters of credit outstanding of $104 million as at December 31, 2015 (December 31, 2014 - $192 million), the Corporation had no off-balance sheet arrangements that are reasonably likely to materially affect liquidity or the availability of, or requirements for, capital resources.

BUSINESS RISK MANAGEMENT

The following is a summary of the Corporation’s significant business risks.

Regulatory Risk: The Corporation’s key business risk is regulation. Regulated utility assets comprised approximately 96% of total assets of Fortis as at December 31, 2015 (December 31, 2014 - 93%). Approximately 96% of the Corporation’s operating revenue1 was derived from regulated utility operations in 2015 (2014 - 95%), and approximately 92% of the Corporation’s operating earnings1, excluding the gains on sale of non-core assets, were derived from regulated utility operations in 2015 (2014 — 91%). The Corporation operates nine utilities in different jurisdictions in Canada, the United States and the Caribbean, with no more than one-third of total assets located in any one regulatory jurisdiction.

Each of the Corporation’s regulated utilities is subject to normal regulation that can affect future revenue and earnings. As a result, the utilities are subject to uncertainties faced by regulated entities, including approval by the respective regulatory authorities of electricity and gas rates that permit a reasonable opportunity to recover, on a timely basis, the estimated COS, including a fair rate of return on rate base and, in the case of utilities in the Caribbean, the continuation of licences. Generally, the ability of a utility to recover the actual COS and earn the approved ROE and/or ROA depends on achieving the forecasts established in the rate-setting processes. When PBR mechanisms are utilized in determining annual revenue requirements and resulting customer rates, a formula is generally applied that incorporates inflation and assumed productivity improvements. The use of PBR mechanisms should allow a utility a reasonable opportunity to recover prudent cost of service and earn its allowed ROE, however, a utility is exposed to risks that inflationary increases may exceed the inflationary factor set by the regulator and that the utility may be unable to achieve productivity improvements. In the case of FortisAlberta’s current PBR mechanism, there is a risk that capital expenditures may not qualify, or be approved, as a capital tracker where necessary.

Regulators approve the allowed ROEs and deemed capital structures of the utilities. Fair regulatory treatment that allows a utility to earn a fair risk-adjusted rate of return, comparable to that available on alternative investments of similar risk, is essential for maintaining service quality, as well as ongoing capital attraction and growth. Rate applications establishing revenue requirements may be subject to negotiated settlement procedures. Failing a negotiated settlement, rate applications may be pursued through a litigated public hearing process. There can be no assurance that resulting rate orders issued by the regulators will permit the regulated utilities to recover all costs actually incurred and to earn the expected or fair rates of return on an appropriate capitalization.

Electricity and gas infrastructure investments require the approval of the regulatory authorities, either through the approval of capital expenditure plans or revenue requirements for the purpose of setting electricity and gas rates, which include the impact of capital expenditures on rate base and/or COS. There is no assurance that capital projects perceived as required or completed by the Corporation’s regulated utilities will be approved. Capital cost overruns may not be recoverable in customer rates.

A failure to obtain acceptable rate orders, appropriate ROEs or capital structures as applied for may adversely affect the business carried on by the regulated utilities, the undertaking or timing of capital expenditures, ratings assigned by credit rating agencies, the issuance of long-term debt and other matters, which may, in turn, have a material adverse effect on the results of operations and financial position of the Corporation’s regulated utilities. In addition, there is no assurance that the regulated utilities will receive regulatory decisions in a timely manner and, therefore, costs may be incurred prior to having an approved revenue requirement.

1 Operating revenue and operating earnings are non-US GAAP measures and refer to total revenue, excluding Corporate and Other segment revenue and inter-segment eliminations, and net earnings attributable to common equity shareholders, excluding Corporate and Other segment expenses, respectively. Operating revenue and operating earnings are referred to by users of the consolidated financial statements in evaluating the performance of the Corporation’s operating subsidiaries.

As an owner of an electricity distribution network under the Electric Utilities Act (Alberta), FortisAlberta is required to act, or to authorize a substitute party to act, as a provider of electricity services, including the sale of electricity, to eligible customers under a regulated rate and to appoint a retailer as a default supplier to provide electricity services to customers otherwise unable to obtain electricity services. In order to remain solely a distribution utility, FortisAlberta appointed EPCOR Energy Services (Alberta) Inc. (“EPCOR”) as its regulated-rate provider. As a result of this appointment, EPCOR assumed all of FortisAlberta’s rights and obligations in respect of these services. In the unlikely event that EPCOR is unable or unwilling to act as a regulated-rate provider or default supplier, and no other party is willing to act in this capacity, FortisAlberta would be required to act as a provider of electricity services to eligible customers under a regulated rate or to provide electricity services to customers otherwise unable to obtain electricity services. If FortisAlberta could not secure outsourcing for these functions, it would need to administer these retail responsibilities by adding necessary staff, facilities and/or equipment.

For additional information on the nature of regulation and various regulatory matters pertaining to the Corporation’s utilities, refer to the “Regulatory Highlights” section of this MD&A.

Risks Associated with the Pending Acquisition of ITC: ITC is a public company and its directors have fiduciary duties which may require them to consider competing offers to purchase the common stock of ITC as an alternative to the Acquisition. The agreement and plan of merger preserves the ability of the directors of ITC to accept a competing offer, in certain circumstances. Fortis may exercise its right to match such offer and, as a result, the purchase price could increase and other key transaction terms could change.

The closing of the acquisition of ITC, which is expected to occur in late 2016, is subject to normal commercial risks that the Acquisition will not close on the terms negotiated, or at all. Completion of the Acquisition remains subject to receipt of ITC and Fortis shareholder approvals, certain regulatory, state and federal approvals, and the satisfaction or waiver of other customary closing conditions contained in the agreement and plan of merger. The failure to obtain the required approvals or to satisfy or waive the conditions to closing may result in the termination of the agreement and plan of merger. Fortis intends to complete the Acquisition as soon as practicable after obtaining the required shareholder, regulatory and governmental approvals, and satisfying the other required closing conditions. A substantial delay in obtaining regulatory approvals or the imposition of unfavourable terms and/or conditions in such approvals could have a material adverse effect on the Corporation’s ability to complete the Acquisition and on the Corporation’s business, financial condition or results of operations. If the closing of the acquisition of ITC does not take place as contemplated, the Corporation could suffer material adverse consequences. Failure to complete the Acquisition would, in certain circumstances, result in the Corporation being required to pay a termination fee of up to US$280 million and other potential costs.

Fortis expects that the Acquisition will provide benefits to the Corporation, including approximately 5% accretion to earnings per common share in the first full year following closing, excluding one-time acquisition-related expenses and assuming a stable currency exchange environment. There is a risk that some or all of the expected benefits of the Acquisition may fail to materialize, or may not occur within the time periods anticipated by the Corporation. The realization of such benefits may be affected by a number of factors, many of which are beyond the control of the Corporation. Failure to realize the anticipated benefits of the acquisition of ITC may impact the financial performance of the Corporation, the price of its common shares and the ability of Fortis to continue to pay dividends on its common shares at rates consistent with the Corporation’s dividend guidance, at current rates or at all.

Financing of the cash portion of the Acquisition is expected to be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. There can be no assurance that such financing sources will be available to Fortis at the desired time or at all, or on cost-efficient or commercially acceptable terms. As a result, there is no certainty that Fortis will reach a binding agreement with minority investors to complete the minority investment prior to closing of the Acquisition or at all. The Acquisition is not conditional upon Fortis securing one or more minority investors. Consummation of the Acquisition without completion of the contemplated minority investment could increase the consolidated indebtedness of the Corporation or result in the requirement for additional common

equity and may have a negative impact on the Corporation’s credit ratings and outlook and could result in additional financing costs and the failure to realize some, or all, of the expected benefits of the acquisition, including the extent to which the Acquisition is accretive. The Corporation obtained commitments for an aggregate of US$3.7 billion non-revolving term credit facilities. The commitments of the lenders to enter into these credit facilities is subject to certain customary conditions, which may result in such facilities becoming unavailable to Fortis in certain circumstances. If these credit facilities become unavailable, Fortis may not be able to complete the Acquisition.

While Fortis intends to become a U.S. Securities and Exchange Commission (“SEC”) registrant and list its common shares on the New York Stock Exchange, there is no guarantee that it will be successful in this regard. If the Corporation is successful in this regard, it will be subject to increased regulatory compliance and may be subject to a greater risk of litigation.

The operations of ITC are conducted in US dollars and, following the Acquisition, the consolidated earnings and cash flows of Fortis will be impacted to a greater extent by fluctuations in the US dollar-to-Canadian dollar exchange rate. In particular, any decrease in the value of the US dollar relative to the Canadian dollar following the Acquisition could negatively impact the Corporation’s net income as reported in Canadian dollars. Fortis may enter into forward foreign exchange contracts and utilize certain other derivatives as cash flow hedges of its exposure to foreign currency risk to a greater extent than in the past. There is no guarantee that such hedging strategies, if adopted, will be effective.

Fortis expects to incur a variety of costs in 2016 associated with completing the Acquisition. The majority of these costs will be non-recurring expenses related to financing and obtaining shareholder and regulatory approvals. Certain of these costs have already been incurred and other such costs will be incurred even if the Acquisition is ultimately not completed. Additional unanticipated acquisition-related costs may also be incurred in 2016.

Interest Rate Risk: Generally, allowed ROEs for regulated utilities in North America are exposed to changes in long-term interest rates. Such rates affect allowed ROEs directly when they are applied in formulaic ROE automatic adjustment mechanisms or indirectly through a regulatory process of what constitutes an appropriate rate of return on investment, which may consider the general level of interest rates as a factor for setting allowed ROEs. Uncertainty exists regarding the duration of the current environment of low interest rates and the effect it may have on allowed ROEs of the Corporation’s regulated utilities. If interest rates continue to remain at historically low levels, allowed ROEs could decrease. The continuation of a low interest rate environment could adversely affect the Corporation’s ability to earn a reasonable ROE, which could have a negative effect on the financial condition and results of operations of the Corporation’s regulated utilities. Also, if interest rates begin to climb, regulatory lag may cause a delay in any resulting increase in cost of capital and the regulatory allowed ROEs.

The Corporation and its subsidiaries may also be exposed to interest rate risk associated with borrowings under variable-rate credit facilities, variable-rate long-term debt and refinancing of long-term debt. Central Hudson, FortisBC Energy and FortisBC Electric, however, have regulatory approval to defer any increase or decrease in interest expense resulting from fluctuations in interest rates associated with variable-rate credit facilities for recovery from, or refund to, customers in future rates. There can be no assurance that such deferral mechanisms will exist in the future, as they are dependent on future regulatory decisions. UNS Energy and Central Hudson use interest rate swaps and interest rate caps on variable-rate long-term debt to reduce risk associated with interest rates, as permitted by the regulators. At the Corporation’s other regulated utilities, if the timing of issuance of, and the interest rates on, long-term debt are different from those forecast and approved in customer rates, the additional or lower interest costs incurred on the new long-term debt are not recovered from, or refunded to, customers in rates during the period that was covered by the approved customer rates. An inability to flow through interest costs to customers could have a material adverse effect on the results of operations and financial position of the utilities.

Excluding borrowings under long-term committed credit facilities, almost 90% of the Corporation’s consolidated long-term debt as at December 31, 2015 had maturities beyond five years. With a significant portion of the Corporation’s consolidated debt having long-term maturities, interest rate risk on debt refinancing has been reduced for the near and medium terms.

The following table outlines the nature of the Corporation’s consolidated debt as at December 31, 2015.

Total Debt
As at December 31, 2015	($ millions)	(%)
Short-term borrowings	511	4.4
Utilized variable-rate credit facilities classified as long term	551	4.7
Variable-rate long-term debt (including current portion)	333	2.8
Fixed-rate long-term debt (including current portion)	10,284	88.1
Total	11,679	100.0

In 2015 the Corporation’s regulated subsidiaries issued approximately $1 billion in long-term debt, all of which was at fixed interest rates ranging from 2.98% to 4.75%, with terms ranging from 10 to 30 years. The terms negotiated on new long-term debt demonstrate the ability of the Corporation and its utilities to raise long-term capital at attractive rates. Further information on the Corporation’s consolidated long-term debt issuances is provided in the “Liquidity and Capital Resources” section of this MD&A.

A change in the level of interest rates could materially affect the measurement and disclosure of the fair value of long-term debt. The fair value of the Corporation’s consolidated long-term debt, as at December 31, 2015, is provided in the “Financial Instruments” section of this MD&A.

Operating and Maintenance Risks: Storms and severe weather conditions, natural disasters, wars, terrorist acts, failure of critical equipment and other catastrophic events occurring both within and outside the service territories of the Corporation’s utilities could result in service disruptions, leading to lower earnings and/or cash flows if the situation is not resolved in a timely manner or the financial impacts of restoration are not alleviated through insurance policies or regulated rate recovery. UNS Energy, Central Hudson and FortisBC Energy are exposed to various operational risks, associated with natural gas, such as: pipeline leaks, accidental damage to mains and service lines, corrosion in pipes, pipeline or equipment failure, other issues that can lead to outages and/or leaks, and any other accidents involving natural gas that could result in significant operational disruptions and/or environmental liability.

The operation of UNS Energy’s electric generating stations involves certain risks, including equipment breakdown or failure, interruption of fuel supply and lower-than-expected levels of efficiency or operational performance. Unplanned outages, including extensions of planned outages due to equipment failure or other complications, occur from time to time and are an inherent risk of the generation business. There can be no assurance that the generation facilities of UNS Energy will continue to operate in accordance with expectations.

The operation of electricity T&D assets is also subject to risks, including the potential to cause fires, mainly as a result of equipment failure, falling trees and lightning strikes to lines or equipment. In addition, a significant portion of the utilities’ infrastructure is located in remote areas, which may make access to perform maintenance and repairs difficult if such assets become damaged. The FortisBC utilities operate in remote and mountainous terrain with a risk of loss or damage from forest fires, floods, washouts, landslides, avalanches and other acts of nature. UNS Energy, FortisBC Energy, FortisBC Electric and the Corporation’s operations in the Caribbean region are subject to risk of loss from earthquakes.

The Corporation and its subsidiaries have limited insurance that provides coverage for business interruption, liability and property damage. In the event of a large uninsured loss caused by severe weather conditions, natural disasters and certain other events beyond the control of the utility, an application would be made to the respective regulatory authority for the recovery of these costs through customer rates to offset any loss. However, there can be no assurance that the regulatory authorities would approve any such application in whole or in part. Refer to the “Business Risk Management - Insurance Coverage Risk” section of this MD&A for a further discussion on insurance.

The Corporation’s electricity and gas systems require ongoing maintenance, improvement and replacement. The utilities could experience service disruptions and increased costs if they are unable to maintain their asset base. The inability to recover, through approved customer rates, the expenditures the utilities believe are necessary to maintain, improve, replace and remove assets; the failure by the utilities to properly implement or complete approved capital expenditure programs; or the occurrence of significant unforeseen equipment failures, despite maintenance programs, could have a material adverse effect on the financial position and results of operations of the Corporation’s utilities.

Generally, the Corporation’s utilities have designed their electricity and natural gas systems to service customers under various contingencies in accordance with good utility practice. The utilities are responsible for operating and maintaining their assets in a safe manner, including the development and application of appropriate standards, processes and/or procedures to ensure the safety of employees and contractors, as well as the general public. Failure to do so may disrupt the ability of the utilities to safely distribute electricity and gas, which could have a material adverse effect on the operations of the utilities.

Economic Conditions: Typical of utilities, economic conditions, such as changes in employment levels, personal disposable income, energy prices and housing starts, in the Corporation’s service territories influence energy sales. Declines in energy sales could adversely impact the respective utilities’ results of operations, net earnings and cash flows.

The business of UNS Energy is concentrated in the State of Arizona. In recent years economic conditions in Arizona have contributed significantly to a reduction in retail customer growth and lower energy usage by the Company’s residential, commercial and industrial customers. While it is expected that economic conditions in Arizona will improve in the future, if they do not or if they should worsen, retail customer growth rates may stagnate or decline and customers’ energy usage may further decline.

FortisBC Energy is affected by the trend in housing starts from single-family dwellings to multi-family dwellings, for which natural gas has a lower penetration rate. The growth in new multi-family housing starts continues to significantly outpace that of new single-family homes, which may temper growth in gas distribution volumes.

Alberta’s economy is impacted by a number of factors, including the level of oil and gas activity in the province, which is influenced by the market prices of oil and gas. A general and extended decline in economic conditions in Alberta or in other jurisdictions where the Corporation’s utilities operate would be expected to have the effect of reducing demand for electricity over time. The regulated nature of utility operations, including various mitigating measures approved by certain regulators, helps reduce the impact that lower energy demand associated with poor economic conditions may have on the utilities’ earnings. Significantly reduced electricity demand in the Corporation’s service areas could materially reduce capital spending forecasts, and specifically capital spending related to new customer growth. A reduction in capital spending would, in turn, affect the Corporation’s rate base and earnings growth. A severe and prolonged downturn in economic conditions could have a material adverse effect on the Corporation’s results of operations, net earnings and cash flows despite regulatory measures, where applicable, available to compensate for reduced demand. In addition to the impact of reduced energy demand, an extended decline in economic conditions could also impair the ability of customers to pay for the electricity and gas they consume, thereby affecting the aging and collection of the utilities’ trade receivables.

The Corporation’s service territory in the Caribbean region has been impacted by challenging economic conditions over the past number of years. Activity in the tourism, real estate and construction sectors is closely tied to economic conditions in the region and changes in such activity affect customer electricity demand. Assets of Caribbean Regulated Electric Utilities comprise approximately 4% of the Corporation’s total assets as at December 31, 2015.

Capital Resources and Liquidity Risk: The Corporation’s financial position could be adversely affected if it and/or one of its larger subsidiaries fail to arrange sufficient and cost-effective financing to fund, among other things, capital expenditures, acquisitions and the repayment of maturing debt. The ability to arrange sufficient and cost-effective financing is subject to numerous factors, including the results of operations and financial position of the Corporation and its subsidiaries, the regulatory environment in which the utilities operate and the nature and outcome of regulatory decisions regarding capital structure and allowed ROEs, conditions in the capital and bank credit markets, ratings assigned by credit rating agencies, and general economic conditions. Funds generated from operations after payment of expected expenses, including interest payments on any outstanding debt, may not be sufficient to fund the repayment of all outstanding liabilities when due and anticipated capital expenditures. There can be no assurance that sufficient capital will continue to be available on acceptable terms to fund capital expenditures and repay existing debt.

Consolidated fixed-term debt maturities in 2016 are expected to total $313 million. The ability to meet long-term debt repayments when due will be dependent on the Corporation and its subsidiaries obtaining sufficient and cost-effective financing. The Corporation and its utilities have been successful at raising long-term capital at reasonable rates. Activity in the global capital markets may impact the cost and timing of issuance of long-term capital by the Corporation and its subsidiaries. While the future cost of raising capital could increase, the Corporation and its subsidiaries expect to continue to have reasonable access to capital in the near to medium terms.

The cost of renewed and extended credit facilities could increase going forward. Due to their regulated nature, any forecast changes in the cost of borrowing at the utilities are eligible to be reflected in customer rates.

Generally, the Corporation and its currently rated regulated utilities are subject to financial risk associated with changes in the credit ratings assigned to them by credit rating agencies. Credit ratings affect the level of credit risk spreads on new long-term debt and credit facilities. A change in the credit ratings could potentially affect access to various sources of capital and increase or decrease finance charges of the Corporation and its utilities.

In 2015 the following changes were made to debt credit ratings of the Corporation’s utilities: (i) in February 2015 Moody’s Investor Service (“Moody’s”) upgraded the debt credit ratings of UNS Energy to ‘Baa1’ from ‘Baa2’ and TEP, UNS Electric and UNS Gas to ‘A3’ from ‘Baa1’, and (ii) in July 2015 Fitch Ratings (“Fitch”) downgraded Central Hudson’s debt credit rating to ‘A-’ from ‘A’ and changed the rating outlook to stable from negative. Central Hudson’s debt continues to be rated ‘A’ by S&P and ‘A2’ by Moody’s, both with stable outlooks. In December 2015 DBRS confirmed FortisAlberta’s debt credit rating of A(low) but revised its outlook to stable from positive. Also, in August 2015 Fitch confirmed TEP’s credit rating of BBB+ but revised its outlook to positive from stable and in February 2016 Fitch withdrew its rating on TEP for commercial reasons at TEP’s request. In February 2016, after the announcement by Fortis that it had entered into an agreement to acquire ITC, S&P revised its outlook on TEP, Central Hudson, FortisAlberta, Maritime Electric and Caribbean Utilities to negative from stable. For details on the Corporation’s credit ratings, see the “Credit Ratings” section of this MD&A.

Additional information on the Corporation’s consolidated credit facilities, contractual obligations, including long-term debt maturities and repayments, and consolidated cash flow requirements is provided in the “Liquidity and Capital Resources” section of this MD&A.

Political Risk: The regulatory framework under which utilities operate is impacted by significant shifts in government policy and/or changes in governments, which create uncertainty about public policy priorities and directions, particularly around energy and environmental issues. For details related to environmental issues, refer to the “Business Risk Management - Environmental Risks” section of this MD&A.

Information Technology and Cyber-Security Risks: As operators of critical energy infrastructure, the Corporation’s utilities may face a heightened risk of cyber attacks. Information technology systems may be vulnerable to unauthorized access due to hacking, viruses, acts of war or terrorism, and other causes that can result in service disruptions, system failures, and the disclosure, deliberate or inadvertent, of confidential business and customer information. The ability of the Corporation’s utilities to operate effectively is dependent upon developing and maintaining complex information systems and infrastructure that support the operation of generation and T&D facilities; provide customers with billing, consumption and load settlement information, where applicable; and support the financial and general operating aspects of the business.

The Corporation’s subsidiaries have security measures, policies and controls designed to protect and secure the integrity of its information technology systems, and safeguard the confidentiality of corporate and customer information; however, cyber-security threats frequently change and require ongoing monitoring and detection capabilities. In the event the Corporation’s utilities’ information technology systems are breached, it could experience service disruptions, property damage, corruption or unavailability of critical data or confidential employee or customer information. If the breach is material in nature, it could adversely affect the financial performance of the Corporation, its reputation and standing with customers and regulators and expose it to claims of third-party damage. All of these factors could adversely affect the Corporation if not resolved in a timely manner, or if the financial impact of such adverse effects is not alleviated through insurance policies or, in the case of regulated utilities, through regulatory recovery.

Weather and Seasonality Risk: Fluctuations in the amount of electricity used by customers can vary significantly in response to seasonal changes in weather and could materially impact the operations, financial condition and results of operations of the electric utilities. In Canada, Arizona and New York State, cool summers may reduce air conditioning demand, while less severe winters may reduce electric heating load.

At FortisBC Energy and the gas operations of UNS Energy and Central Hudson, weather has a significant impact on gas distribution volumes as a major portion of the gas distributed is ultimately used for space heating for residential customers. Because of gas consumption patterns, the gas utilities normally generate quarterly earnings that vary by season and may not be an indicator of annual earnings. The earnings associated with regulated gas utilities are highest in the first and fourth quarters.

Regulatory deferral mechanisms are in place at certain of the Corporation’s regulated utilities, including Central Hudson, FortisBC Energy, FortisBC Electric and Newfoundland Power, to minimize the volatility in earnings that would otherwise be caused by variations in weather conditions. The absence of the above-noted regulatory deferral mechanisms could have a material adverse effect on the results of operations and financial position of the utilities.

Natural gas and coal-fired generating plants require continuous water flow for their operation. Shifts in weather or climate patterns, seasonal precipitation, the timing and rate of melting, run off, and other factors beyond the control of the Corporation, may reduce the water flow to UNS Energy’s generation facilities. Any material reduction in the water flow to UNS Energy’s generation facilities would limit the ability of the Company to produce and market electricity from those respective facilities and could have a material adverse effect on the results of operations and financial position of the Corporation. Any change in regulations or the level of regulation respecting the use, treatment and discharge of water, or respecting the licensing of water rights in the jurisdictions where UNS Energy operates could result in a material adverse effect on the results of operations and financial position of the Company.

Extreme climatic factors could potentially cause government authorities to adjust water flows on the Kootenay River, where FortisBC Electric’s dams and related facilities are located, in order to protect the environment. This adjustment could affect the amount of water available for generation at FortisBC Electric’s plants or at plants operated by parties contracted to supply energy to FortisBC Electric. Prolonged adverse weather conditions could lead to a significant and sustained loss of precipitation over the headwaters of the Kootenay River system, which could reduce the Company’s entitlement to capacity and energy under the Canal Plant Agreement.

Despite preparations for severe weather, hurricanes and other natural disasters will always remain a risk to the physical assets of utilities. Climate change, however, may have the effect of increasing the severity and frequency of weather-related natural disasters that could affect the Corporation’s service territories. Although physical utility assets have been constructed and are operated and maintained to withstand severe weather, there is no assurance that they will successfully do so in all circumstances.

The assets and earnings of Caribbean Utilities, Fortis Turks and Caicos and, to a lesser extent, Central Hudson, Newfoundland Power and Maritime Electric, are subject to hurricane risk. Certain of the Corporation’s utilities may also be subject to severe weather events, including ice, wind and snow storms. Weather risks are managed through insurance on generation assets, business-interruption insurance and self-insurance on T&D assets. Under its T&D licence, Caribbean Utilities may apply for a special additional customer rate in the event of a disaster such as a hurricane. Fortis Turks and Caicos does not have a specific hurricane cost-recovery mechanism; however, the Company may apply for an increase in customer rates in the following year if the actual ROA is lower than the allowed ROA due to additional costs resulting from a hurricane or other significant weather event. Central Hudson is authorized to request, and the PSC has typically approved, deferral account treatment for incremental storm restoration costs. To qualify for deferral, storm costs must meet certain criteria as stipulated by the PSC. In most cases, the Corporation’s other regulated utilities can apply to their respective regulators for relief from major uncontrollable expenses, including those related to significant weather-related events.

Earnings from non-regulated generation assets in Belize are sensitive to rainfall levels. The Waneta Expansion is included in the Canal Plant Agreement and will receive fixed energy and capacity entitlements based upon long-term average water flows, thereby significantly reducing the hydrologic risk associated with hydroelectric generation. Prolonged adverse weather conditions, however, could lead to a significant and sustained loss of precipitation over the headwaters of the Kootenay River system, which could reduce the Waneta Expansion’s entitlement to capacity and energy under the Canal Plan Agreement.

Commodity Price Risk: UNS Energy is exposed to commodity price risk associated with changes in the market price of gas, purchased power and coal. Central Hudson is exposed to commodity price risk associated with changes in the market prices of electricity and natural gas. FortisBC Energy is exposed to commodity price risk associated with changes in the market price of natural gas. The operation of regulator-approved deferral mechanisms to flow through in customer rates the cost of natural gas, purchased power and coal serves to mitigate the impact on earnings of commodity price volatility. The risks have also been reduced by entering into various price-risk management strategies to reduce exposure to commodity rates, including the use of derivative contracts that effectively fix the price of natural gas, power and electricity purchases. The absence of such hedging mechanism in the future could result in increased exposure to market price volatility.

Certain of the Corporation’s regulated electric utilities are exposed to commodity price risk associated with changes in world oil prices, which affect the cost of fuel and purchased power. The risk is substantially mitigated by the utilities’ ability to flow through to customers the cost of fuel and purchased power through base rates and/or the use of rate-stabilization and other mechanisms, as approved by the various regulatory authorities. The ability to flow through to customers the cost of fuel and purchased power alleviates the effect on earnings of the variability in the cost of fuel and purchased power.

There can be no assurance that the current regulator-approved mechanisms allowing for the flow through of the cost of natural gas, fuel, coal and purchased power will continue to exist in the future. Also, a severe and prolonged increase in such costs could materially affect FortisBC Energy, UNS Energy and Central Hudson, despite regulatory measures available to compensate for changes in these costs. The inability of the regulated utilities to flow through the full cost of natural gas, fuel and/or purchased power could have a material adverse effect on the utilities’ results of operations and financial position.

Foreign Exchange Risk: The Corporation’s earnings from, and net investments in, foreign subsidiaries are exposed to fluctuations in the US dollar-to-Canadian dollar exchange rate. The Corporation has decreased the above-noted exposure through the use of US dollar-denominated borrowings at the corporate level. The foreign exchange gain or loss on the translation of US dollar-denominated interest expense partially offsets the foreign exchange gain or loss on the translation of the Corporation’s foreign subsidiaries’ earnings, which are denominated in US dollars. The reporting currency of UNS Energy, Central Hudson, Caribbean Utilities, Fortis Turks and Caicos and BECOL is the US dollar.

As at December 31, 2015, the Corporation’s corporately issued US$1,535 million (December 31, 2014 - US$1,496 million) long-term debt had been designated as an effective hedge of a portion of the Corporation’s foreign net investments. As at December 31, 2015, the Corporation had approximately US$3,137 million (December 31, 2014 - US$2,762 million) in foreign net investments remaining to be hedged. Foreign currency exchange rate fluctuations associated with the translation of the Corporation’s corporately issued US dollar-denominated borrowings designated as effective hedges are recorded on the balance sheet in accumulated other comprehensive income and serve to help offset unrealized foreign currency exchange gains and losses on the net investments in foreign subsidiaries, which gains and losses are also recorded on the balance sheet in accumulated other comprehensive income.

On an annual basis, it is estimated that a 5 cent, or 5%, increase or decrease in the US dollar relative to the Canadian dollar exchange rate of US$1.00=CAD$1.38 as at December 31, 2015 would increase or decrease earnings per common share of Fortis by approximately 4 cents, before considering the impact of the pending acquisition of ITC. Management will continue to hedge future exchange rate fluctuations related to the Corporation’s foreign net investments and US dollar-denominated earnings streams, where possible, through future US dollar-denominated borrowings, and will continue to monitor the Corporation’s exposure to foreign currency fluctuations on a regular basis.

Counterparty Risk: UNS Energy, Central Hudson and FortisBC Energy may be exposed to credit risk in the event of non-performance by counterparties to derivative instruments. The above-noted utilities deal with credit quality institutions in accordance with established credit approval practices. These utilities did not experience any counterparty defaults in 2015 and do not expect any counterparties to fail to meet their obligations.

FortisAlberta has a concentration of credit risk as a result of its distribution service billings being to a relatively small group of retailers. As required under regulation, FortisAlberta minimizes its gross exposure associated with retailer billings by obtaining from the retailer either a cash deposit, bond, letter of credit or an investment-grade credit rating from a major rating agency, or a financial guarantee from an entity with an investment-grade credit rating.

Competitiveness of Natural Gas in British Columbia: In FortisBC Energy’s service territory, natural gas primarily competes with electricity for space and hot water heating load. Recently, there has been upward pressure on electricity rates in British Columbia, largely due to new investment required in the electricity generation and transmission sectors. In addition, the growth in North American natural gas supply, primarily from shale gas production, has resulted in a lower natural gas price environment. These factors have helped to improve natural gas competitiveness on an operating basis. Nevertheless, differences in upfront capital costs between electric and natural gas equipment for hot water and space heating applications continue to present challenges for the competitiveness of natural gas on a full-cost basis.

Government policy has also impacted the competitiveness of natural gas in British Columbia. The Government of British Columbia has introduced changes to energy policy, including greenhouse gas emission reduction targets and a consumption tax on carbon-based fuels. The Government of British Columbia has yet to introduce a carbon tax on imported electricity generated through the combustion of carbon-based fuels. The impact of these changes in energy policy may have a material impact on the competitiveness of natural gas relative to non-carbon-based energy sources or other energy sources.

There are other competitive challenges impacting the penetration of natural gas in new housing supply, such as the green attributes of the energy source and the type of housing being built. In recent years, FortisBC Energy has experienced a decline in the percentage of new homes installing natural gas compared with the total number of dwellings being built throughout British Columbia.

In the future, if natural gas becomes less competitive due to pricing or other factors, the ability of FortisBC Energy to add new customers could be impaired, and existing customers could reduce their consumption of natural gas or eliminate its usage altogether as furnaces, water heaters and other appliances are replaced. The above conditions may result in higher customer rates and, in an extreme case, could ultimately lead to an inability of FortisBC Energy to fully recover COS in rates charged to customers.

Natural Gas, Fuel and Electricity Supply: FortisBC Energy is dependent on a limited selection of pipeline and storage providers, particularly in the Lower Mainland, Interior and Vancouver Island service areas. Regional market prices, particularly at the Sumas market hub, have been higher than prices elsewhere in North America during peak winter periods, when regional pipeline and storage resources become constrained in serving the demand for natural gas in British Columbia and the U.S. Pacific Northwest. In addition, FortisBC Energy is highly dependent on a single-source transmission pipeline. In the event of a prolonged service disruption of the Spectra Pipeline System, residential customers of FortisBC Energy could experience outages, thereby affecting revenue and also resulting in costs to safely relight customers. The LNG storage facility on Vancouver Island helps to reduce this risk by providing short-term on-system supply during cold weather conditions or emergency situations.

Developments are occurring in the region that may increase the demand for gas supply from British Columbia. These include an increase in pipeline capacity to deliver gas from British Columbia to markets outside of British Columbia and the potential development of large-scale LNG facilities to export gas. British Columbia has significant natural gas resources that are expected to be sufficient to meet incremental demand requirements and to continue to supply existing markets. It is uncertain at this time, however, how the pace and location of infrastructure development to connect production to new and existing markets could impact the Corporation’s access to supply at fair market prices.

The UNS Utilities are dependent on third parties to supply fuel, including natural gas and coal. Disruption of fuel supply could impair the ability of the Companies to deliver electricity or gas or generate electricity and could adversely affect operations. In addition, a loss of coal suppliers or the inability to renew existing coal or natural gas contracts at favorable terms could significantly affect the ability to serve customers and adversely affect the financial condition and the results of operations of the UNS Utilities.

Newfoundland Power is dependent on Newfoundland Hydro for approximately 93% of its customers’ energy requirements and Maritime Electric is dependent on NB Power for approximately 75% of its customers’ energy requirements. The Corporation’s utilities in the Caribbean are dependent on third parties for the supply of all of their fuel requirements in the operation of their diesel-powered generating facilities. A shortage or interruption of the supply of electricity or fuel for the above utilities could have a material impact on their operations.

Newfoundland Power experienced losses of electricity supply from Newfoundland Hydro in January 2013 and January 2014, which disabled it from meeting all of its customers’ requirements. The PUB is conducting an inquiry and hearing into these system supply issues and related power interruptions. To the extent it is able, Newfoundland Power intends to participate in these reviews in 2016. As well, the Government of Newfoundland and Labrador engaged consultants to complete an independent review of the current electricity system in the province.

Future changes in energy supply costs at Newfoundland Power, including costs associated with Nalcor Energy’s Muskrat Falls hydroelectric generation development and associated transmission assets, may affect electricity prices in a manner that affects Newfoundland Power’s sales. The recovery of Muskrat Falls development costs are expected to materially increase customer electricity rates.

Power Purchase and Capacity Sale Contracts: FortisBC Electric’s indirect customers are served by the Company’s wholesale customers, who themselves are municipal utilities. The municipal utilities may be able to obtain alternate sources of energy supply, which would result in decreased demand, higher customer rates and, in extreme cases, could ultimately lead to an inability by FortisBC Electric to fully recover its COS in customer rates.

Additionally, the Corporation’s regulated electric utilities periodically enter into various power purchase contracts and resale contracts for excess capacity with third parties. Upon expiry of the contracts, there is a risk that the utilities may not be able to secure extensions of such contracts. If the contracts are not extended, there is a risk of the utilities not being able to obtain alternate supplies of similarly priced electricity or not being able to secure additional capacity resale contracts. The utilities are also exposed to risk in the event of non-performance by counterparties to the various power purchase and resale contracts.

Employee Future Benefit Plan Performance and Funding Requirements: Fortis and the majority of its subsidiaries maintain a combination of defined benefit pension and/or OPEB plans for certain of their employees. Approximately 63% of the Corporation’s total employees are members of defined benefit pension plans and approximately 72% of employees are members of OPEB plans.

The employee future benefit plans are subject to judgments utilized in the actuarial determination of the projected benefit obligation and related net benefit cost. The primary assumptions utilized by management are the expected long-term rate of return on assets, the discount rate and the health care trend rate used to value the projected benefit obligation. For a discussion of the critical accounting estimates associated with employee future benefit plans, refer to the “Critical Accounting Estimates - Employee Future Benefits” section of this MD&A.

The projected benefit obligation and related net benefit cost can be affected by changes in the global financial and capital markets. There is no assurance that the employee future benefit plan assets will earn the assumed long-term rates of return. Market-driven changes impacting the performance of the employee future benefit plan assets may result in material variations from the assumed long-term rates of return on the assets, which may cause material changes in future plan funding requirements from current estimates and future net benefit cost. Market-driven changes impacting the discount rates or the health care trend rate may also result in material changes in future plan funding requirements from current estimates and future net benefit cost.

There is also risk associated with measurement uncertainty inherent in the actuarial valuation process, as it affects the measurement of net benefit cost, future funding requirements and the projected benefit obligation.

Jointly Owned and Operated Generating Units: Certain of the generating stations from which TEP receives power are jointly owned with, or are operated by, third parties. TEP may not have the sole discretion or any ability to affect the management or operations at such facilities and, therefore, may not be able to ensure the proper management of the operations and maintenance of the plants. Further, TEP may have limited or no discretion in managing the changing regulations which may affect such facilities. In addition, TEP will not have sole discretion as to how to proceed with environmental compliance requirements which could require significant capital expenditures or the closure of such generating stations. A divergence in the interests of TEP and the co-owners or operators, as applicable, of such generating facilities could negatively impact the business and operations of TEP. In particular, TEP is subject to disagreement and litigation by third-party owners with respect to the existing agreements for Springerville Unit 1. As a result of these disagreements and pending litigation, the third-party owners have and may continue to refuse to pay some or all of their pro rata share of Springerville Unit 1 costs and expenses. For further details, refer to the “Critical Accounting Estimates - Contingencies” section of this MD&A.

Technology Developments and Energy Efficiency: New technology developments in distributed generation, particularly solar, and energy efficiency products and services, as well as the implementation of renewable energy and energy efficiency standards, will continue to have a significant impact on retail sales, which could negatively impact various utilities’ results of operations, net earnings and cash flows. Heightened awareness of energy costs and environmental concerns have increased demand for products intended to reduce consumers’ use of electricity. Utilities are promoting demand-side management programs designed to help customers reduce their energy usage.

Research and development activities are ongoing for new technologies that produce power, enable more efficient storage of energy, or reduce power consumption. These technologies include renewable energy, customer-owned generation, appliances, battery storage, equipment and control systems. Advances in these, or other technologies, could have a significant impact on retail sales which could negatively impact the results of operations, net earnings and cash flows of utilities.

Environmental Risks: The Corporation’s electric and gas utilities are subject to inherent environmental risks, as well as environmental laws and regulations, as discussed below.

Inherent Environmental Risks

The Corporation’s electric and gas utilities are subject to inherent risks, including fires, contamination of air, soil or water from hazardous substances, natural gas emissions and emissions from the combustion of fuel required in the generation of electricity. Risks associated with fire damage are related to weather, the extent of forestation, habitation and third-party facilities located on or near the land on which the utilities’ facilities are situated. The utilities may become liable for fire-suppression costs, regeneration and timber value costs, and third-party claims in connection with fires on land on which its facilities are located if it is found that such facilities were the cause of a fire, and such claims, if successful, could be material. Inherent risks also include the responsibility for remediation of contaminated properties, whether or not such contamination was actually caused by the property owner. The risk of contamination of air, soil and water at the electric utilities primarily relates to the transportation, handling and storage of large volumes of fuel, the use and/or disposal of petroleum-based products, mainly transformer and lubricating oil, in the utilities’ day-to-day operating and maintenance activities, and emissions from the combustion of fuel required in the generation of electricity. The risk of contamination of air, soil or water at the natural gas utilities primarily relates to natural gas and propane leaks and other accidents involving these substances. Additional risks include environmental reclamation associated with coal mines that supply generating stations in which the Corporation has an ownership interest.

The key environmental hazards related to hydroelectric generation operations include the creation of artificial water flows that may disrupt natural habitats and the storage of large volumes of water for the purpose of electricity generation.

While the Corporation and its subsidiaries maintain insurance, there can be no assurance that all possible types of liabilities that may arise related to environmental matters will be covered by insurance. For further information, refer to the “Business Risk Management - Insurance Coverage Risk” section of this MD&A.

Environmental Laws and Regulations

The Corporation’s electric and gas utilities are subject to numerous federal, state and provincial environmental laws and regulations that may increase its cost of operations or expose it to environmental litigation and liabilities. Existing environmental laws and regulations may be revised or new environmental laws and regulations may be adopted or become applicable to the Corporation’s operations. Increased compliance costs or additional operating restrictions from revised or additional regulation could have an adverse effect on the results of operations of the Corporation. The utilities would request that additional costs resulting from environmental laws and regulations be recovered from customers in future rates. In addition, the process of obtaining environmental permits and approvals, including any necessary environmental assessments, can be lengthy, contentious and expensive.

The trend in environmental regulation has been to impose more restrictions and limitations on activities that may impact the environment, including the generation and disposal of wastes, the use and handling of chemical substances, and the requirement for environmental impact assessments and remediation work. It is possible that other developments may lead to increasingly strict environmental laws and enforcement policies, and claims for damages to property or persons resulting from the operations of the Corporation’s subsidiaries, any one of which could result in substantial costs or liabilities to the subsidiaries.

The management of greenhouse gas emissions is a specific environmental concern of the Corporation’s regulated utilities in Canada and the United States, primarily due to new and emerging federal, provincial and state greenhouse gas laws, regulations and guidelines. In British Columbia, the Government of British Columbia’s Energy Plan, Carbon Tax Act, Clean Energy Act, Greenhouse Gas Reduction (Cap and Trade) Act and Greenhouse Gas Reduction Targets Act affect, or may potentially affect, the operations of FortisBC Energy and FortisBC Electric. The utilities continue to assess and monitor the impact that the Government’s Energy Plan and the Clean Energy Act may have on future operations.

In August 2015 the United States Environmental Protection Agency (“EPA”) issued the Clean Power Plan (“CPP”) limiting carbon emissions from existing and new fossil fuelled power plants. The CPP establishes state-level carbon emission rates and mass-based goals that apply to fossil fuel-fired generation. The plan targets carbon emissions reductions for existing facilities by 2030 and establishes interim goals that begin in 2022. The CPP will require a shift in generation from coal to natural gas and renewables and could lead to the early retirement of coal generation in Arizona within the 2022 to 2030 compliance time-frame. UNS Energy is currently in the process of transitioning its generation resource mix, as appropriate, in order to reduce carbon emissions. The Company will continue to work with the other Arizona and New Mexico utilities, as well as the appropriate regulatory agencies, to develop compliance strategies. UNS Energy is unable to determine how the final CPP rule will impact its facilities until state plans are developed and approved by the EPA. The Company cannot predict the ultimate outcome of these matters.

The EPA incorporated the compliance obligations for existing power plants located on Indian nations, including the Navajo Nation, in the existing sources rule and a newly proposed Federal Plan using a compliance method similar to that of the states. The proposed Federal Plan would be implemented for any Indian nation and/or state that does not submit a plan or that does not have an EPA or approved state plan. UNS Energy will work with the participants at Four Corners and Navajo to determine how this revision may impact compliance and operations at the facilities. The Company has submitted comments on the proposed Federal Plan impacting its facilities, including Four Corners and Navajo stating, among other things, that the EPA should not regulate the greenhouse gases on the Navajo Nation because it is not appropriate or necessary. The reduction of greenhouse gases achieved due to the shutdowns resulting from Regional Haze compliance will be equivalent to those required under the CPP rule. UNS Energy cannot predict the ultimate outcome of these matters.

If any of the coal-fired generation plants, or coal-handling facilities, from which UNS Energy obtains power are closed prior to the end of their useful life in response to recent or future changes in environmental regulation, the Company could be required to recognize a material impairment of its assets and incur added expenses relating to accelerated depreciation and amortization, decommissioning and cancellation of long-term coal contracts of such generating plants and facilities. Closure of any such generating stations may force UNS Energy to incur higher costs for replacement capacity and energy. The Company may not be permitted recovery of these costs in customer rates.

In addition, early closures of certain generating units could require UNS Energy to redeem some or all tax-exempt bonds associated with the respective generating units. As at December 31, 2015, approximately 43% of UNS Energy’s generating capacity was fuelled by coal.

Environmental laws and regulations have given rise to environmental liabilities at certain of the Corporation’s utilities. TEP is contractually obligated to pay a portion of the environmental reclamation costs incurred at generating stations in which it has an ownership interest and is obligated to pay similar costs at the coal mines that supply these generating stations. As at December 31, 2015, TEP has recognized approximately US$25 million in mine reclamation obligations, representing the present value of the estimated future liability. While TEP has recorded the portion of its obligations for such reclamation costs that can be determined at this time, the total costs and timing of final reclamation at these sites are unknown and could be substantial. TEP currently recovers final mine reclamation costs through regulator-approved mechanisms as costs are paid to the coal suppliers.

Central Hudson is exposed to environmental contingencies associated with manufactured gas plants (“MGPs”) that it and its predecessors owned and operated to serve their customers’ heating and lighting needs from the mid to late 1800s to the 1950s. The New York State Department of Environmental Conservation (“DEC”) regulates the timing and extent of remediation of MGP sites in New York State. As at December 31, 2015, Central Hudson has recognized approximately US$92 million in associated MGP environmental remediation liabilities. As approved by the PSC, the Company is currently permitted to recover MGP site investigation and remediation costs in customer rates.

The Corporation believes that it and its subsidiaries are materially compliant with the environmental laws, regulations and guidelines applicable to them in the various jurisdictions in which they operate. With the exception of the mine reclamation costs at TEP and the MGP remediation liabilities at Central Hudson, as noted above, as at December 31, 2015, there were no material environmental liabilities recognized in the Corporation’s 2015 Audited Consolidated Financial Statements. The regulated utilities would seek to recover in customer rates the costs associated with environmental protection, compliance or damages; however, there is no assurance that the regulators would agree with the utilities’ requests and, therefore, unrecovered costs, if substantial, could have a material adverse effect on the results of operations and financial position of the utilities.

Insurance Coverage Risk: The Corporation and its subsidiaries maintain insurance with respect to potential liabilities and the accidental loss of value of certain of their assets, for amounts and with such insurers as is considered appropriate, taking into account all relevant factors, including practices of owners of similar assets and operations. However, a significant portion of the Corporation’s regulated electric utilities’ T&D assets is not covered under insurance, as is customary in North America, as the cost of coverage is not considered economically viable. Insurance is subject to coverage limits as well as time-sensitive claims discovery and reporting provisions and there can be no assurance that the types of liabilities that may be incurred by the Corporation and its subsidiaries will be covered by insurance. The Corporation’s regulated utilities would likely apply to their respective regulatory authority to recover any loss or liability through increased customer rates. However, there can be no assurance that a regulatory authority would approve any such application in whole, or in part. Any major damage to the physical assets of the Corporation and its subsidiaries could result in repair costs, lost revenue and customer claims that are substantial in amount and which could have a material adverse effect on the Corporation’s results of operations, cash flows and financial position. In addition, the occurrence of significant uninsured claims, claims in excess of the insurance coverage limits maintained by the Corporation and its subsidiaries, or claims that fall within a significant self-insured retention could have a material adverse effect on the Corporation’s results of operations, cash flows and financial position.

It is anticipated that insurance coverage will be maintained. However, there can be no assurance that the Corporation and its subsidiaries will be able to obtain or maintain adequate insurance in the future at rates considered reasonable, or that insurance will continue to be available on terms as favourable as the existing arrangements, or that the insurance companies will meet their obligations to pay claims.

Loss of Licences and Permits: The acquisition, ownership and operation of electric and gas utilities and assets require numerous licences, permits, agreements, orders, approvals and certificates (“Approvals”) from various levels of government, government agencies and third parties. For various reasons, including increased stakeholder participation, the Corporation’s regulated utilities and non-regulated generation operations may not be able to obtain or maintain all required Approvals. If there is a delay in obtaining any required Approvals, or if there is a failure to obtain or maintain any required Approvals or to comply with any applicable law, regulation or condition of an approval, or there is a material change to any required Approval, the operation of the assets and the sale of electricity and gas could be prevented or become subject to additional costs, any of which could have a material adverse effect on the Corporation’s subsidiaries.

Loss of Service Area: FortisAlberta serves customers residing within various municipalities throughout its service areas. From time to time, municipal governments in Alberta give consideration to creating their own electric distribution utilities by purchasing the assets of FortisAlberta located within their municipal boundaries. Upon the termination, or in the absence, of a franchise agreement, a municipality has the right, subject to AUC approval, to purchase FortisAlberta’s assets within its municipal boundaries pursuant to the Municipal Government Act (Alberta), with the price to be as agreed by the Company and the municipality, failing which it is to be determined by the AUC. Additionally, under the Hydro and Electric Energy Act (Alberta), if a municipality that owns an electric distribution system expands its boundaries, it can acquire FortisAlberta’s assets in the annexed area. In such circumstances, the Hydro and Electric Energy Act (Alberta) provides that the AUC may determine that the municipality should pay compensation to the Company for any facilities transferred on the basis of replacement cost less depreciation. Given the historical population and economic growth of Alberta and its municipalities, FortisAlberta is affected by transactions of this type from time to time.

Within certain portions of the FortisAlberta’s service territory, REAs have been granted by the AUC the right to provide electric distribution service to their eligible members. Members eligible to receive electric distribution service from an REA are those who meet the specific eligibility criteria defined in the integrated operating agreements between the Company and REA. In general, this eligibility criteria has limited the provision of service to customers whose land is used for agricultural activity or as a rural estate property. This historical arrangement has been challenged by some self-operating REAs that are seeking to expand their services to a broader range of customers within the service area that overlaps that of the Company. FortisAlberta is actively resisting these efforts on the part of these self-operated REAs, as it believes the legislative scheme in Alberta does not support this type of competition between the regulated utility and these small rural electricity cooperatives. There is a risk that the efforts of these self-operating REAs to expand their services to a broader range of customers could increase their ability to serve customers in competition with the Company.

The consequence to FortisAlberta of a municipality purchasing its distribution assets or an REA serving more customers in its service territory would be an erosion of the Company’s rate base, which would reduce the capital upon which FortisAlberta could earn a regulated return. A significant reduction of rate base could have a material adverse effect on the results of operations and financial position of FortisAlberta.

Continued Reporting in Accordance with US GAAP: In January 2014 the Ontario Securities Commission (“OSC”) issued a relief order which permits the Corporation and its reporting issuer subsidiaries in Canada to continue to prepare their financial statements in accordance with US GAAP until the earliest of: (i) January 1, 2019; (ii) the first day of the financial year that commences after the Corporation or its reporting issuer subsidiaries ceases to have activities subject to rate regulation; or (iii) the effective date prescribed by the International Accounting Standards Board (“IASB”) for the mandatory application of a standard within International Financial Reporting Standards (“IFRS”) specific to entities with activities subject to rate regulation.

If the OSC relief does not continue as detailed above, the Corporation and its reporting issuer subsidiaries would then be required to become SEC registrants in order to continue reporting under US GAAP, or adopt IFRS. The IASB has released an interim, optional standard on Regulatory Deferral Accounts and continues to work on a project focusing on accounting specific to rate-regulated activities. It is not yet known when this project will be completed or whether IFRS will, as a result, include a permanent, mandatory standard to be applied by entities with activities subject to rate regulation. In the absence of a permanent standard for rate-regulated activities, the application of IFRS could result in volatility in the Corporation’s earnings and earnings per common share as compared to those which would otherwise be recognized under US GAAP. In connection with the pending acquisition of ITC, Fortis expects to become a registrant with the SEC. As an SEC registrant, Fortis would be entitled under applicable Canadian laws to continue to prepare its consolidated financial statements in accordance with US GAAP.

Changes in Tax Legislation: The Corporation and its subsidiaries are subject to changes in tax legislation in Canada, the United States and other international jurisdictions.

Canadian Tax Legislation

During 2015 there were elections at the federal level and several provincial jurisdictions in Canada. A change in government can result in the passing of new tax legislation, including a change in rates of taxation. The new federal and provincial budgets are expected to be delivered in early 2016 and any resulting changes could have an impact on the Corporation and its Canadian subsidiaries. Any changes in tax legislation could affect the Corporation’s results of operations, cash flows and financial position.

U.S. Tax Legislation

In 2015 the U.S. Congress enacted legislation approving the use of bonus depreciation through to 2019, subject to a phase out schedule reducing allowable rates to 50% in 2015 through 2017, 40% in 2018 and 30% in 2019. While this legislation provides greater certainty for planning purposes and reduces the cash tax burden of the Corporation’s subsidiaries in the United States, any changes in this or other tax legislation in the United States could affect the Corporation’s results of operations, cash flows and financial position.

International Tax Legislation

Fortis conducts business in certain tax-free jurisdictions, including certain countries in the Caribbean and Belize. Canada requires the governments of certain tax-free jurisdictions to enter a Tax Information Exchange Agreement (“TIEA”), which permits dividends paid from those jurisdictions to be exempt from tax when received in Canada. This legislation allows Fortis to receive a tax-free return of capital from the Caribbean. Certain legislation also provides a mechanism for the repayment of upstream loans that were previously used as a tax-deferred repatriation of earnings. The Corporation has approximately $79 million of upstream loans from its Caribbean subsidiaries, which are required to be repaid by August 2016. The Corporation expects to repay these loans, as required.

A TIEA has not yet been negotiated between Canada and Belize and there are no indications that Canada will conclude negotiations with the GOB in the near future. Until a TIEA is in place, active business earnings in Belize cannot be repatriated to Canada on a tax-free basis; however, the GOB has signed on to the Convention on Mutual Administrative Assistance in Tax Matter, which excludes Belize as a “non-qualifying country”. As a result, the Corporation is not required to accrue tax on its active business income from Belize, whether or not repatriated to Canada.

In October 2015 the Organization for Economic Co-operation and Development (“OECD”) released its final reports in connection with its action plan to address Base Erosion and Profit Sharing (“BEPS Action Plan”). The basis of the BEPS Action Plan is to identify and curb aggressive tax planning and practices, as well as monitor the international tax systems. Canada has not yet implemented the recommendations of the OECD report into tax treaties and domestic law; however, if it were to be enacted under Canadian tax legislation the Corporation would be required to assess the impacts and determine whether any changes to existing tax practices are required.

Access to First Nations’ Lands: FortisBC Energy and FortisBC Electric provide service to customers on First Nations’ lands and maintain gas facilities and electric generation and T&D facilities on lands that are subject to land claims by various First Nations. A treaty negotiation process involving various First Nations and the governments of British Columbia and Canada is underway, but the basis upon which settlements might be reached in the service areas of FortisBC Energy and FortisBC Electric is not clear. Furthermore, not all First Nations are participating in the process. To date, the policy of the Government of British Columbia has been to endeavour to structure settlements without prejudicing existing rights held by third parties, such as FortisBC Energy and FortisBC Electric. However, there can be no certainty that the settlement process will not have a material adverse effect on FortisBC Energy and FortisBC Electric’s results of operations and financial position.

The Supreme Court of Canada decided in 2010 that, before issuing regulatory approvals for the addition of new facilities, the BCUC must consider whether the Crown has a duty to consult and accommodate First Nations, if necessary, and if so, whether the consultation and accommodation by the Crown have been adequate. This may affect the timing, cost and likelihood of the BCUC’s approval of certain capital projects of FortisBC Energy and FortisBC Electric.

FortisAlberta has distribution assets on First Nations’ lands with access permits to these lands held by TransAlta Utilities Corporation (“TransAlta”). In order for FortisAlberta to acquire these access permits, both the Department of Aboriginal Affairs and Northern Development Canada and the individual First Nations band councils must grant approval. FortisAlberta may not be able to acquire the access permits from TransAlta and may be unable to negotiate land-use agreements with property owners or, if negotiated, such agreements may be on terms that are less than favourable to the Company and, therefore, may have a material adverse effect on FortisAlberta.

Labour Relations Risk: The Corporation’s subsidiaries employ members of labour unions or associations that have entered into collective bargaining agreements with the subsidiaries. The Corporation considers the relationships of its subsidiaries with their labour unions and associations to be satisfactory but there can be no assurance that current relations will continue in the future or that the terms under the present collective bargaining agreements will be renewed. The inability to maintain or renew the collective bargaining agreements on acceptable terms could result in increased labour costs or service interruptions arising from labour disputes that are not provided for in approved rate orders at the regulated utilities and which could have a material adverse effect on the results of operations, cash flows and financial position of the utilities.

Human Resources Risk: The ability of Fortis to deliver service in a cost-effective manner is dependent on the ability of the Corporation’s subsidiaries to attract, develop and retain skilled workforces. Like other utilities across Canada and in the United States and the Caribbean, the Corporation’s utilities are faced with demographic challenges relating to trades, technical staff and engineers. The growing size of the Corporation and a competitive job market present ongoing recruitment challenges. The Corporation’s significant consolidated capital expenditure program will present challenges to ensure the Corporation’s utilities have the qualified workforce necessary to complete the capital work initiatives.

CHANGES IN ACCOUNTING POLICIES

The new US GAAP accounting policies that are applicable to, and were adopted by, Fortis, effective during 2015, are described as follows.

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

The Corporation prospectively adopted Accounting Standards Update (“ASU”) No. 2014-08 that changes the criteria and disclosures for reporting discontinued operations. As a result, the sale of commercial real estate and hotel assets and the sale of non-regulated generation assets in 2015 did not meet the criteria for discontinued operations. The sales are consistent with the Corporation’s focus on its core utility business and, therefore, do not represent a strategic shift in operations.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period

The Corporation early adopted ASU No. 2014-12 that resolves diversity in practice for employee share-based payments with performance targets that can entitle an employee to benefit from an award regardless of if they are rendering services at the date the performance target is achieved. The adoption of this update was applied prospectively and did not have a material impact on the Corporation’s 2015 Audited Consolidated Financial Statements.

Simplifying the Presentation of Debt Issuance Costs

The Corporation early adopted ASU No. 2015-03 that requires debt issuance costs to be presented on the consolidated balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The adoption of this update was applied retrospectively and resulted in the reclassification of debt issuance costs of approximately $65 million from long-term other assets to long-term debt on the Corporation’s consolidated balance sheet as at December 31, 2014. Additionally, the Corporation early adopted ASU No. 2015-15 that clarifies the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The update permits an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this update was applied retrospectively and did not have a material impact on the Corporation’s consolidated financial statements.

Balance Sheet Classification of Deferred Taxes

The Corporation early adopted ASU No. 2015-17 that requires deferred tax assets and liabilities to be classified and presented as long term on the consolidated balance sheet. The adoption of this update was applied retrospectively and resulted in the reclassification of current deferred income taxes assets of $158 million, long-term deferred income tax assets of $62 million, and current deferred income tax liabilities of $9 million to long-term deferred income tax liabilities on the consolidated balance sheet as at December 31, 2014. As a result, the Corporation also reclassified current regulatory assets of $18 million, current regulatory liabilities of $19 million, and long-term regulatory liabilities of $91 million, to long-term regulatory assets on the consolidated balance sheet as at December 31, 2014, all associated with regulatory deferred income taxes.

FUTURE ACCOUNTING PRONOUNCEMENTS

Revenue from Contracts with Customers

ASU No. 2014-09 was issued in May 2014 and the amendments in this update create ASC Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the codification. This standard completes a joint effort by FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for US GAAP and IFRS that clarifies the principles for recognizing revenue and that can be applied consistently across various transactions, industries and capital markets. This standard was originally effective for annual and interim periods beginning after December 15, 2016 and is to be applied on a full retrospective or modified retrospective basis. ASU No. 2015-14 was issued in August 2015 and the amendments in this update defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the original effective date. The majority of the Corporation’s revenue is generated from energy sales to customers based on published tariff rates, as approved by the respective regulators, and is expected to be in the scope of ASU No. 2014-09. Fortis has not yet selected a transition method and is assessing the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. The Corporation plans to have this assessment substantially complete by the end of 2016.

Amendments to the Consolidation Analysis

FINANCIAL INSTRUMENTS

The carrying values of the Corporation’s consolidated financial instruments approximate their fair values, reflecting the short-term maturity, normal trade credit terms and/or nature of these instruments, except as follows.

Financial Instruments

	2015		2014
Liability as at December 31	Carrying	Estimated	Carrying	Estimated
($ millions)	Value	Fair Value	Value	Fair Value
Waneta Partnership promissory note	56	59	53	56
Long-term debt, including current portion	11,240	12,614	10,501	12,237

Financial Instruments Carried at Fair Value

As at December 31	Fair value
($ millions)	hierarchy	2015		2014
Assets
Energy contracts subject to regulatory deferral (1) (2) (3)	Levels 2/3	7		3
Energy contracts not subject to regulatory deferral (1) (2)	Level 3	2		1
Available-for-sale investment (4) (5)	Level 1	33		—
Assets held for sale	Level 2	9		—
Other investments (4)	Level 1	12		5
Total gross assets		63		9
Less: Counterparty netting not offset on the balance sheet (6)		(6	)	(3	)
Total net assets		57		6

Liabilities
Energy contracts subject to regulatory deferral (1) (2) (7)	Levels 1/2/3	78		72
Energy contracts not subject to regulatory deferral (1) (2)	Level 3	—		1
Energy contracts - cash flow hedges (2) (8)	Level 3	—		1
Interest rate swaps - cash flow hedges (8)	Level 2	5		5
Total gross liabilities		83		79
Less: Counterparty netting not offset on the balance sheet (6)		(6	)	(3	)
Total net liabilities		77		76

(3) Includes $2 million - level 2 and $5 million - level 3 (2014 - $3 million - level 3)

(4) Included in long-term other assets on the consolidated balance sheet

(6) Certain energy contracts are subject to legally enforceable master netting arrangements to mitigate credit risk and netted by counterparty where the intent and legal right to offset exists.

(7) Includes $1 million - level 1, $52 million - level 2 and $25 million - level 3 (2014 - $2 million - level 1, $35 million - level 2 and $35 million - level 3)

Derivative Instruments

Energy Contracts Subject to Regulatory Deferral

Energy Contracts Not Subject to Regulatory Deferral

Cash Flow Hedges

Cash flows associated with the settlement of all derivative instruments are included in operating activities on the Corporation’s consolidated statement of cash flows.

Volume of Derivative Activity

As at December 31, 2015, the following notional volumes related to electricity and natural gas derivatives that are expected to be settled are outlined below.

	Maturity Contracts							There-
Volume	(year)	(#)	2016	2017	2018	2019	2020	after
Energy contracts subject to regulatory deferral:
Electricity swap contracts (GWh)	2019	8	1,043	730	438	219	—	—
Electricity power purchase contracts (GWh)	2017	28	1,027	145	—	—	—	—
Gas swap and option contracts (PJ)	2018	154	40	10	4	—	—	—
Gas purchase contract premiums (PJ)	2024	89	91	42	38	22	22	64
Energy contracts not subject to regulatory deferral:
Long-term wholesale trading contracts (GWh)	2016	6	1,310	—	—	—	—	—

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Corporation’s consolidated financial statements in accordance with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates and judgments are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Due to changes in facts and circumstances, and the inherent uncertainty involved in making estimates, actual results may differ significantly from current estimates. Estimates and judgments are reviewed periodically and, as adjustments become necessary, are recognized in earnings in the period in which they become known. The Corporation’s critical accounting estimates are discussed as follows.

Regulation: Generally, the accounting policies of the Corporation’s regulated utilities are subject to examination and approval by the respective regulatory authority. Regulatory assets and regulatory liabilities arise as a result of the rate-setting process at the regulated utilities and have been recognized based on previous, existing or expected regulatory orders or decisions. Certain estimates are necessary since the regulatory environments in which the Corporation’s regulated utilities operate often require amounts to be recognized at estimated values until these amounts are finalized pursuant to regulatory decisions or other regulatory proceedings. The final amounts approved by the regulatory authorities for deferral as regulatory assets and regulatory liabilities and the approved recovery or settlement periods may differ from those originally expected. Any resulting adjustments to original estimates are recognized in earnings in the period in which they become known. In the event that a regulatory decision is received after the balance sheet date but before the consolidated financial statements are issued, the facts and circumstances are reviewed to determine whether or not it is a recognized subsequent event.

As at December 31, 2015, Fortis recognized a total of $2,532 million in regulatory assets (December 31, 2014 - $2,415 million) and $1,638 million in regulatory liabilities (December 31, 2014 - $1,445 million).

For a further discussion of the nature of regulatory decisions, refer to the “Material Regulatory Decisions and Applications” section of this MD&A.

Depreciation and Amortization: Depreciation and amortization are estimates based primarily on the useful life of assets. Estimated useful lives are based on current facts and historical information and take into consideration the anticipated physical life of the assets. As at December 31, 2015, the Corporation’s consolidated capital assets and intangible assets were approximately $20.1 billion, or approximately 70%, of total consolidated assets compared to approximately $18.3 billion, or approximately 70%, of total consolidated assets as at December 31, 2014. Depreciation and amortization was $873 million for 2015 compared to $688 million for 2014.

As required by their respective regulator, UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, Newfoundland Power and Maritime Electric accrue estimated non-asset retirement obligation (“ARO”) removal costs in depreciation, with the amount provided for in depreciation recorded as a long-term regulatory liability. Actual non-ARO removal costs are recorded against the regulatory liability when incurred. The estimate of non-ARO removal costs is based on historical experience and expected cost trends. The balance of this regulatory liability as at December 31, 2015 was $1,060 million, an increase of $109 million from $951 million as at December 31, 2014, mainly due to the impact of foreign exchange associated with the translation of US dollar-denominated non-ARO removal cost liabilities.

Changes in depreciation rates, resulting from a change in the estimated service life or removal costs, could have a significant impact on the Corporation’s consolidated depreciation and amortization expense.

As part of the customer rate-setting process at the Corporation’s regulated utilities, appropriate depreciation, amortization and removal cost rates, as applicable, are approved by the respective regulatory authority. The depreciation periods used and the associated rates are reviewed on an ongoing basis to ensure they continue to be appropriate. From time to time, third-party depreciation studies are performed at the regulated utilities. Based on the results of these depreciation studies, the impact of any over- or under-depreciation, as a result of actual experience differing from that expected and provided for in previous depreciation rates, is generally reflected in future depreciation rates and depreciation expense, when the differences are refunded or collected in customer rates, as approved by the regulator.

Effective January 1, 2015, FortisAlberta’s depreciation and amortization rates were changed as a result of a technical update to its last depreciation study, which was completed as of December 31, 2010. A technical update adjusts depreciation and amortization rates based on current capital asset balances, while retaining the depreciation parameters established in the last approved depreciation study. As a result, FortisAlberta’s depreciation and amortization expense were reduced by approximately $7 million in 2015.

Income Taxes: Income taxes are determined based on estimates of the Corporation’s current income taxes and estimates of deferred income taxes resulting from temporary differences between the carrying values of assets and liabilities in the consolidated financial statements and their tax values. A deferred income tax asset or liability is determined for each temporary difference based on enacted income tax rates and laws in effect when the temporary differences are expected to be recovered or settled. Deferred income tax assets are assessed for the likelihood that they will be recovered from future taxable income. To the extent recovery is not considered more likely than not, a valuation allowance is recognized against earnings in the period when the allowance is created or revised. Estimates of the provision for current income taxes, deferred income tax assets and liabilities, and any related valuation allowance, might vary from actual amounts incurred.

Assessment for Impairment of Goodwill and Indefinite-Lived Intangible Assets: The Corporation is required to perform, at least on an annual basis, an impairment test for goodwill and indefinite-lived intangible assets, and any impairment provision is charged to earnings. The annual impairment test is performed as at October 1. In addition, the Corporation also performs an impairment test if any event occurs or if circumstances change that would indicate that the fair value of a reporting unit was below its carrying value. No such event or change in circumstances occurred during 2015 or 2014.

As at December 31, 2015, consolidated goodwill totalled approximately $4.2 billion (December 31, 2014 - $3.7 billion). Indefinite-lived intangible assets, not subject to amortization, consist of certain land, transmission and water rights and totalled approximately $106 million as at December 31, 2015 (December 31, 2014 - $77 million).

Fortis performs an annual internal quantitative assessment for each reporting unit. For those reporting units where: (i) management’s assessment of quantitative and qualitative factors indicates that fair value is not 50% or more likely to be greater than carrying value; or (ii) the excess of estimated fair value over carrying value, as determined by an external consultant as of the date of the immediately preceding impairment test, was not significant, then fair value of the reporting unit will be estimated by an external consultant in the current year. Irrespective of the above-noted approach, a reporting unit to which goodwill has been allocated may have its fair value estimated by an external consultant as at the annual impairment date, as Fortis will, at a minimum, have fair value for each material reporting unit estimated by an external consultant once every five years.

In calculating goodwill impairment, Fortis determines those reporting units that will have fair value estimated by an external consultant, as described above, and such estimated fair value is then compared to the book value of the applicable reporting units. If the fair value of the reporting unit is less than the book value, then a second measurement step is performed to determine the amount of the impairment. The amount of the impairment is determined by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of the reporting unit to determine the implied fair value of goodwill, and then comparing that amount to the book value of the reporting unit’s goodwill. Any excess of the book value of the goodwill over the implied fair value is the impairment amount recognized.

The primary method for estimating fair value of the reporting units is the income approach, whereby net cash flow projections for the reporting units are discounted using an enterprise value approach. Under the enterprise value approach, sustainable cash flow is determined on an after-tax basis, prior to the deduction of interest expense, and is then discounted at the weighted average cost of capital to yield the value of the enterprise. An enterprise value approach does not assess the appropriateness of the reporting unit’s existing debt level. The estimated fair value of the reporting unit is then determined by subtracting the fair value of the reporting unit’s interest-bearing debt from the enterprise value of the reporting unit. A secondary valuation method, the market approach, is also performed by an external consultant as a check on the conclusions reached under the income approach. The market approach includes comparing various valuation multiples underlying the discounted cash flow analysis of the applicable reporting units to trading multiples of guideline entities and recent transactions involving guideline entities, recognizing differences in growth expectations, product mix and risks of those guideline entities with the applicable reporting units.

No impairment provisions were required in either 2015 or 2014 with respect to goodwill or indefinite-lived intangible assets.

Employee Future Benefits:

Defined Benefit Pension Plans

The Corporation’s and subsidiaries’ defined benefit pension plans are subject to judgments utilized in the actuarial determination of the net benefit cost and related obligation. The main assumptions utilized by management in determining the net benefit cost and obligation are the discount rate for the benefit obligation and the expected long-term rate of return on plan assets.

The expected weighted average long-term rate of return on the defined benefit pension plan assets, for the purpose of estimating net pension cost for 2016, is 6.17%, which is down from 6.25% used for 2015. The decrease in the average long-term rate of return reflects shifting of plan assets from equities to fixed income assets. The defined benefit pension plan assets experienced total positive returns of approximately $30 million in 2015 compared to expected positive returns of $140 million. The expected long-term rates of return on pension plan assets are developed by management with assistance from independent actuaries using best estimates of expected returns, volatilities and correlations for each class of asset. The best estimates are based on historical performance, future expectations and periodic portfolio rebalancing among the diversified asset classes.

The assumed weighted average discount rate used to measure the projected benefit obligations as at December 31, 2015, and to determine net pension cost for 2016, is 4.21%, compared to the assumed weighted average discount rate used to measure the projected benefit obligations as at December 31, 2014, and to determine net pension cost for 2015, of 4.00%. Discount rates reflect market interest rates on high-quality bonds with cash flows that match the timing and amount of expected pension payments. The methodology in determining the discount rates was consistent with that used to determine the discount rates in the previous year, except as follows for UNS Energy. UNS Energy adopted the spot rate methodology for determining net pension cost for 2016.

There was a $26 million increase in consolidated defined benefit net pension cost for 2015 compared to 2014, mainly due to the acquisition of UNS Energy in August 2014, and foreign currency translation impacts. Any increases in defined benefit net pension cost at the regulated utilities for 2016 are expected to be recovered from customers in rates, subject to regulatory lag and forecast risk at certain of the utilities.

The following table provides the sensitivities associated with a 100 basis point change in the expected long-term rate of return on pension plan assets and the discount rate on 2015 net benefit pension cost, and the related projected benefit obligation recognized in the Corporation’s 2015 Audited Consolidated Financial Statements.

Sensitivity Analysis of Changes in Rate of Return on Plan Assets and Discount Rate

Year Ended December 31, 2015
(Decrease) increase	Net pension		Projected benefit
($ millions)	benefit cost		obligation (1)
Impact of increasing the rate of return assumption by 100 basis points	(24	)	—
Impact of decreasing the rate of return assumption by 100 basis points	20		(44	)
Impact of increasing the discount rate assumption by 100 basis points	(44	)	(370	)
Impact of decreasing the discount rate assumption by 100 basis points	51		469

(1) At FortisBC Energy and FortisBC Electric, certain defined benefit pension plans have pension indexing provisions which provide for a portion of investment returns to be allocated in order to provide for indexing of pension benefits. Therefore, a change in the expected long-term rate of return on pension plan assets has an impact on the projected benefit obligation. The direction of the impact of a change in the rate of return assumption at FortisBC Energy and FortisBC Electric is also the result of the methodology for determining the pension indexing assumption.

Other assumptions applied in measuring net benefit pension cost and/or the projected benefit obligation include the average rate of compensation increase, average remaining service life of the active employee group, and employee and retiree mortality rates.

As approved by the regulator, the cost of defined benefit pension plans at FortisAlberta is recovered in customer rates based on the cash payments made. Any difference between the cash payments made during the year and the cost incurred during the year is deferred as a regulatory asset or regulatory liability. Therefore, changes in assumptions result in changes in regulatory assets and regulatory liabilities for FortisAlberta. Central Hudson, FortisBC Energy, FortisBC Electric and Newfoundland Power have regulator-approved mechanisms to defer variations in net pension cost from forecast net pension cost, used to set customer rates, as a regulatory asset or regulatory liability. There can be no assurance, however, that the above-noted deferral mechanisms will continue in the future as they are dependent on future regulatory decisions and orders.

As at December 31, 2015, for all defined benefit pension plans, the Corporation had consolidated projected benefit obligations of $2,828 million (December 31, 2014 - $2,604 million) and consolidated plan assets of $2,466 million (December 31, 2014 - $2,216 million), for a consolidated funded status in a liability position of $362 million (December 31, 2014 - $388 million). During 2015, the Corporation recognized consolidated net pension benefit cost of $97 million (2014 - $71 million).

OPEB Plans

The OPEB plans of the Corporation and its subsidiaries are also subject to judgments utilized in the actuarial determination of the cost and the accumulated benefit obligation. Similar assumptions as described above, except for the assumption of the expected long-term rate of return on pension plan assets, which is applicable only to the OPEB plans at UNS Energy and Central Hudson, along with the health care cost trend rate, were also utilized by management in determining net OPEB cost and accumulated benefit obligation.

The OPEB plan assets at UNS Energy and Central Hudson experienced no returns in 2015 compared to expected positive returns of approximately $12 million.

The following table provides the sensitivities associated with a 100 basis point change in the health care cost trend rate and the discount rate on 2015 net OPEB cost, and the related consolidated accumulated benefit obligation recognized in the Corporation’s 2015 Audited Consolidated Financial Statements.

Sensitivity Analysis of Changes in Health Care Cost Trend Rate and Discount Rate

Year Ended December 31, 2015
Increase (decrease)	Net OPEB		Accumulated
($ millions)	cost		benefit obligation
Impact of increasing the health care cost trend rate assumption by 100 basis points	7		51
Impact of decreasing the health care cost trend rate assumption by 100 basis points	(5	)	(43	)
Impact of increasing the discount rate assumption by 100 basis points	(6	)	(71	)
Impact of decreasing the discount rate assumption by 100 basis points	9		85

Central Hudson, FortisBC Energy, FortisBC Electric and Newfoundland Power have regulator-approved mechanisms to defer variations in net OPEB cost from forecast net OPEB cost, used to set customer rates, as a regulatory asset or regulatory liability. There can be no assurance, however, that the above-noted deferral mechanisms will continue in the future as they are dependent on future regulatory decisions and orders.

As at December 31, 2015, for all OPEB plans, the Corporation had consolidated accumulated benefit obligations of $574 million (December 31, 2014 - $564 million) and consolidated plan assets of $181 million (December 31, 2014 - $154 million), for a consolidated funded status in a liability position of $393 million (December 31, 2014 - $410 million). During 2015, the Corporation recognized consolidated net OPEB benefit cost of $27 million (2014 - $21 million).

AROs: The measurement of the fair value of AROs requires making reasonable estimates concerning the method of settlement and settlement dates associated with the legally obligated asset retirement costs. There are also uncertainties in estimating future asset retirement costs due to potential external events, such as changing legislation or regulations and advances in remediation technologies. While the Corporation has AROs associated with hydroelectric generating facilities, interconnection facilities, removal of certain distribution system assets from rights-of-way at the end of the life of the systems and the remediation of certain land, no amounts were recognized as at December 31, 2015 and 2014, with the exception of AROs recognized by UNS Energy, Central Hudson and FortisBC Electric.

The nature, amount and timing of costs associated with land and environmental remediation and/or removal of assets cannot be reasonably estimated at this time as the hydroelectric generation and T&D assets are reasonably expected to operate in perpetuity due to the nature of their operation; applicable licences, permits and interconnection facilities agreements are reasonably expected to be renewed or extended indefinitely to maintain the integrity of the related assets and ensure the continued provision of service to customers; a land-lease agreement is expected to be renewed indefinitely; and the exact nature and amount of land remediation is indeterminable. In the event that environmental issues are known and identified, assets are decommissioned or the applicable

licences, permits, agreements or leases are terminated, AROs will be recognized at that time provided the costs can be reasonably estimated and are material.

As at December 31, 2015, the Corporation’s total AROs were $49 million (December 31, 2014 - $37 million). UNS Energy’s AROs were primarily associated with TEP’s generation and photovoltaic assets; Central Hudson’s AROs were primarily associated with asbestos remediation; and FortisBC Electric’s AROs were associated with the removal of polychlorinated biphenyl (“PCB”)-contaminated oil from electrical equipment. The total ARO liability as at December 31, 2015 has been classified on the consolidated balance sheet as a long-term other liability with the offset to utility capital assets. All factors used in estimating the companies’ AROs represent management’s best estimate of the fair value of the costs required to meet existing legislation or regulations. It is reasonably possible that volumes of contaminated assets, inflation assumptions, cost estimates to perform the work and the assumed pattern of annual cash flows may differ significantly from the companies’ current assumptions. The AROs may change from period to period because of changes in the estimation of these uncertainties. Other subsidiaries also affected by AROs associated with the removal of PCB-contaminated oil from electrical equipment include Central Hudson, FortisAlberta, Newfoundland Power, FortisOntario and Maritime Electric. As at December 31, 2015, the AROs related to PCBs for the above-noted utilities were not material and, therefore, were not recognized.

Revenue Recognition: Revenue at the Corporation’s regulated utilities is generally recognized on an accrual basis. Electricity and gas consumption is metered upon delivery to customers and is recognized as revenue using approved rates when consumed. Meters are read periodically and bills are issued to customers based on these readings. At the end of each reporting period, a certain amount of consumed electricity and gas will not have been billed. Electricity and gas that is consumed but not yet billed to customers is estimated and accrued as revenue at each period end, as approved by the regulator. Effective July 1, 2015, Central Hudson is permitted by the regulator to accrue unbilled revenue for electricity consumed at each period end for all of its electricity customers. As at December 31, 2014, approximately $15 million (US$13 million) in unbilled revenue at Central Hudson, associated with certain electricity customers, was not accrued, as permitted by the regulator.

The unbilled revenue accrual for the period is based on estimated electricity and gas sales to customers for the period since the last meter reading at the rates approved by the respective regulatory authority. The development of the electricity and gas sales estimates generally requires analysis of consumption on a historical basis in relation to key inputs, such as the current price of electricity and gas, population growth, economic activity, weather conditions and system losses. The estimation process for accrued unbilled electricity and gas consumption will result in adjustments of electricity and gas revenue in the periods they become known, when actual results differ from the estimates. As at December 31, 2015, the amount of accrued unbilled revenue recognized in accounts receivable was approximately $404 million (December 31, 2014 - $365 million) on consolidated revenue of $6,727 million for 2015 (2014 - $5,401 million). The increase in accrued unbilled revenue from December 31, 2014 was primarily due to the impact of foreign exchange on the translation of US dollar-denominated unbilled revenue accruals.

Capitalized Overhead: As required by their respective regulator, UNS Energy, Central Hudson, FortisBC Energy, FortisAlberta, FortisBC Electric, Newfoundland Power, Maritime Electric, Caribbean Utilities and Fortis Turks and Caicos capitalize overhead costs that are not directly attributable to specific utility capital assets but relate to the overall capital expenditure program. The methodology for calculating and allocating capitalized general overhead costs to utility capital assets is established by the respective regulator. Any change in the methodology of calculating and allocating general overhead costs to utility capital assets could have a material impact on the amount recognized as operating expenses versus utility capital assets.

Contingencies: The Corporation and its subsidiaries are subject to various legal proceedings and claims associated with the ordinary course of business operations. Management believes that the amount of liability, if any, from these actions would not have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

The following describes the nature of the Corporation’s contingencies.

UNS Energy

Springerville Unit 1

In November 2015 TEP filed a petition to confirm the interim arbitration order in the Supreme Court of the State of New York naming owner trustee and co-trustee as respondents. The petition seeks an

order from the court confirming the interim arbitration order under the Federal Arbitration Act. In December 2015 the owner trustees filed an answer to the petition and a cross-motion to vacate the interim arbitration order.

Mine Reclamation Costs

TEP is permitted to fully recover these costs from retail customers and, accordingly, these costs are deferred as a regulatory asset.

Central Hudson

Site Investigation and Remediation Program

Central Hudson and its predecessors owned and operated MGPs to serve their customers’ heating and lighting needs. These plants manufactured gas from coal and oil beginning in the mid to late 1800s, with all sites ceasing operations by the 1950s. This process produced certain by-products that may pose risks to human health and the environment.

The New York State DEC, which regulates the timing and extent of remediation of MGP sites in New York State, has notified Central Hudson that it believes the Company or its predecessors at one time owned and/or operated MGPs at seven sites in Central Hudson’s franchise territory. The DEC has further requested that the Company investigate and, if necessary, remediate these sites under a Consent Order, Voluntary Clean-up Agreement or Brownfield Clean-up Agreement. Central Hudson accrues for remediation costs based on the amounts that can be reasonably estimated. As at December 31, 2015, an obligation of US$92 million (December 31, 2014 - US$105 million) was recognized in respect of site investigation and remediation and, based upon cost model analysis completed in 2014, it is estimated, with a 90% confidence level, that total costs to remediate these sites over the next 30 years will not exceed US$169 million.

Asbestos Litigation

FortisBC Electric

FHI

RELATED-PARTY TRANSACTIONS

Related-party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The significant related-party transactions for the years ended December 31, 2015 and 2014 are discussed below.

Upon completion of the Waneta Expansion in early April 2015, FortisBC Electric commenced purchasing capacity from the Waneta Expansion under terms of the 40-year WECA, as approved by the BCUC. Power purchased by FortisBC Electric from the Waneta Expansion in 2015 totalled approximately $30 million. In addition, the Waneta Expansion pays FortisBC Electric for management services associated with the generating station, which totalled approximately $7 million in 2015.

From time to time, the Corporation provides short-term financing to certain of its subsidiaries to support capital expenditure programs, acquisitions and seasonal working capital requirements, bearing interest at rates that approximate the Corporation’s cost of short-term borrowing. In addition, the Corporation provided long-term financing to certain of its subsidiaries, bearing interest at rates that approximate the Corporation’s cost of long-term debt. The majority of this long-term financing was repaid in 2015 as a result of the sale of commercial real estate and hotel assets. As at December 31, 2015, inter-segment loans outstanding totalled $48 million (December 31, 2014 - $402 million) and total interest charged in 2015 was $17 million (2014 - $27 million).

SELECTED ANNUAL FINANCIAL INFORMATION

The following table sets forth the annual financial information for the years ended December 31, 2015, 2014 and 2013.

Selected Annual Financial Information

Years Ended December 31
($ millions, except per share amounts)	2015	2014	2013
Revenue	6,727	5,401	4,047
Net earnings	840	390	420
Net earnings attributable to common equity shareholders	728	317	353
Basic earnings per common share	2.61	1.41	1.74
Diluted earnings per common share	2.59	1.40	1.73

Total assets	28,804	26,233	17,908
Long-term debt (excluding current portion)	10,784	9,911	6,424
Preference shares	1,820	1,820	1,229
Common shareholders’ equity	8,060	6,871	4,772

Dividends declared per common share	1.43	1.30	1.25
Dividends declared per First Preference Share, Series C (1)	—	—	0.4862
Dividends declared per First Preference Share, Series E	1.2250	1.2250	1.2250
Dividends declared per First Preference Share, Series F	1.2250	1.2250	1.2250
Dividends declared per First Preference Share, Series G (2)	0.9708	0.9708	1.1416
Dividends declared per First Preference Share, Series H (3)	0.7344	1.0625	1.0625
Dividends declared per First Preference Share, Series I (3)	0.3637	—	—
Dividends declared per First Preference Share, Series J	1.1875	1.1875	1.1875
Dividends declared per First Preference Share, Series K (4)	1.0000	1.0000	0.6233
Dividends declared per First Preference Share, Series M (5)	1.0250	0.4613	—

(1) In July 2013 the Corporation redeemed all of the issued and outstanding First Preference Shares, Series C.

(2) The annual fixed dividend per share for the First Preference Shares, Series G was reset from $1.3125 to $0.9708 for the five-year period from and including September 1, 2013 to but excluding September 1, 2018.

(3) On June 1, 2015, 2,975,154 of the 10,000,000 First Preference Shares, Series H were converted on a one-for-one basis into First Preference Shares, Series I. The annual fixed dividend per share for the First Preference Shares, Series H was reset from $1.0625 to $0.6250 for the five-year period from and including June 1, 2015 to but excluding June 1, 2020. The First Preference Shares, Series I are entitled to receive floating rate cumulative dividends, which rate will be reset every quarter based on the then current three-month Government of Canada Treasury Bill rate plus 1.45%.

(4) The Fixed Rate Reset First Preference Shares, Series K were issued in July 2013 and are entitled to receive cumulative dividends in the amount of $1.0000 per share per annum for the first six years.

(5) The Fixed Rate Reset First Preference Shares, Series M were issued in September 2014 and are entitled to receive cumulative dividends in the amount of $1.0250 per share per annum for the first five years.

2015/2014: Revenue increased $1,326 million, or 24.6%, from 2014 and net earnings attributable to common equity shareholders were $728 million, or $2.61 per common share, compared to $317 million, or $1.41 per common share, in 2014. For a discussion of the reasons for the changes in revenue, net earnings attributable to common equity shareholders, and earnings per common share, refer to the “Consolidated Results of Operations” and “Summary Financial Highlights” sections of this MD&A.

The growth in total assets reflects favourable foreign exchange on the translation of US dollar-denominated assets and continued investment in energy infrastructure, driven by capital spending at the regulated utilities, partially offset by the sale of commercial real estate and hotel assets in 2015. The increase in long-term debt was primarily due to the issuance of long-term debt at the Corporation’s regulated utilities, largely to finance energy infrastructure investment, and the impact of foreign exchange on the translation of US dollar-denominated long-term debt. The increase was partially offset by regularly scheduled debt repayments and net repayments under committed credit facilities, mainly at the Corporation, using net proceeds from the sale of commercial real estate and hotel assets.

2014/2013: Revenue increased $1,354 million, or 33.5%, from 2013. The increase in revenue was driven by the acquisition of UNS Energy in August 2014 and Central Hudson in June 2013. A higher commodity cost of natural gas charged to customers at FortisBC Energy, an increase in the base component of rates at most of the regulated utilities and higher electricity sales also contributed to the increase in revenue.

Net earnings attributable to common equity shareholders were $317 million in 2014 compared to $353 million in 2013. Results for both years were impacted by non-recurring items, largely associated with the acquisition of UNS Energy in 2014 and Central Hudson in 2013. Earnings for 2014 were reduced by $39 million due to acquisition-related expenses and customer benefits offered to obtain regulatory approval of the acquisition of UNS Energy, compared to $34 million associated with the acquisition of Central Hudson in 2013. Interest expense of $51 million after tax, including the make-whole payment, associated with convertible debentures issued to finance a portion of the acquisition of UNS Energy was recognized in 2014. In addition, earnings for 2013 were favourably impacted by an income tax recovery of $23 million due to the enactment of higher deductions associated with Part VI. 1 tax on the Corporation’s preference share dividends, an extraordinary gain of $20 million related to the settlement of expropriation matters associated with the Exploits River Hydro Partnership, and the release of income tax provisions of approximately $7 million. An $8 million foreign exchange gain was recognized in 2014 compared to $6 million in 2013. Earnings for 2014 included $5 million associated with Griffith to the date of sale, and earnings for 2013 were reduced by $5 million associated with Griffith.

Excluding the above-noted impacts, net earnings attributable to common equity shareholders for 2014 were $394 million, an increase of $58 million from $336 million for 2013. The increase was driven by $60 million of earnings contribution at UNS Energy from the date of acquisition and the first full year of earnings contribution from Central Hudson, which was acquired in June 2013. Rate base growth and an increase in the number of customers at FortisAlberta and electricity sales growth at Caribbean Regulated Electric Utilities also contributed to the increase. The increase was partially offset by lower earnings at FortisBC Electric, primarily due to the impact of lower-than-expected finance charges in 2013 and higher Corporate and Other expenses. The increase in Corporate and Other expenses was primarily due to higher finance charges, largely due to the acquisitions of UNS Energy and Central Hudson, and higher operating expenses, partially offset by a higher income tax recovery and interest income.

The growth in total assets reflects the Corporation’s acquisition of UNS Energy in August 2014 and continued investment in energy infrastructure, driven by capital spending at the regulated utilities in western Canada and the continued construction of the Waneta Expansion. The increase in long-term debt was primarily due to the financing of the acquisition of UNS Energy, including debt assumed on acquisition, and the financing of energy infrastructure investments.

Basic earnings per common share were $1.41 in 2014 compared to $1.74 in 2013. Excluding the above-noted non-recurring items in 2014 and 2013, basic earnings per common share were $1.75 for 2014, an increase of $0.09 from $1.66 for 2013. The increase was driven by accretion associated with the acquisition of UNS Energy.

FOURTH QUARTER RESULTS

The following tables set forth unaudited financial information for the fourth quarters ended December 31, 2015 and 2014.

Summary of Gas Volumes and Electricity and Energy Sales

Fourth Quarters Ended December 31 (Unaudited)	2015	2014	Variance
Regulated Electric & Gas Utilities - United States
UNS Energy - Electricity Sales (GWh)	3,562	3,583	(21	)
UNS Energy - Gas Volumes (PJ)	4	4	—
Central Hudson - Electricity Sales (GWh)	1,160	1,176	(16	)
Central Hudson - Gas Volumes (PJ)	5	5	—
Regulated Gas Utility - Canadian
FortisBC Energy (PJ)	62	59	3
Regulated Electric Utilities - Canadian
FortisAlberta (GWh)	4,188	4,446	(258	)
FortisBC Electric (GWh)	836	846	(10	)
Eastern Canadian (GWh)	2,189	2,203	(14	)
Regulated Electric Utilities - Caribbean (GWh)	201	187	14
Non-Regulated - Fortis Generation (GWh)	122	109	13

Gas Volumes

The increase in gas volumes at FortisBC Energy was mainly due to higher gas volumes for transportation customers due to certain customers switching to natural gas compared to alternative fuel sources.

Electricity and Energy Sales

The decrease in energy deliveries at FortisAlberta was primarily due to lower average consumption by oil and gas customers as a result of low commodity prices for oil and gas. At most of the other regulated electric utilities, the decrease was mainly due to lower average consumption due to warmer temperatures, which reduced heating requirements. At the Regulated Electric Utilities - Caribbean, the impact of warmer temperatures increased electricity sales, due to higher air conditioning load. The overall decrease was partially offset by higher non-regulated energy sales, driven by the Waneta Expansion.

Segmented Revenue and Net Earnings Attributable to Common Equity Shareholders

Fourth Quarters Ended December 31 (Unaudited)	Revenue						Net Earnings
($ millions, except per share amounts)	2015		2014		Variance		2015		2014		Variance
Regulated Electric & Gas Utilities - United States
UNS Energy	*482*		435		47		26		23		3
Central Hudson	*202*		186		16		15		4		11
	684		621		63		41		27		14
Regulated Gas Utility - Canadian
FortisBC Energy	411		432		(21	)	65		49		16
Regulated Electric Utilities - Canadian
FortisAlberta	*140*		132		8		29		25		4
FortisBC Electric	99		90		9		8		12		(4	)
Eastern Canadian Electric Utilities	*273*		266		7		15		14		1
	512		488		24		52		51		1
Regulated Electric Utilities - Caribbean	82		84		(2	)	9		6		3
Non-Regulated - Fortis Generation	30		8		22		11		4		7
Non-Regulated - Non-Utility	6		62		(56	)	1		7		(6	)
Corporate and Other	2		7		(5	)	(44	)	(31	)	(13	)
Inter-Segment Eliminations	(19	)	(9	)	(10	)	—		—		—
Total	1,708		1,693		15		135		113		22
Basic Earnings per Common Share ($)							0.48		0.44		0.04

Revenue

The increase in revenue was mainly due to favourable foreign exchange associated with the translation of US dollar-denominated revenue, contribution from the Waneta Expansion, and an increase in base electricity rates at the Canadian Regulated Electric Utilities. The increase was partially offset by the flow through in customer rates of lower energy supply costs at FortisBC Energy, Central Hudson and Caribbean Regulated Electric Utilities, and a decrease in non-utility revenue due to the sale of commercial real estate and hotel assets.

Earnings

The increase in earnings was primarily due to: (i) favourable foreign exchange impacts; (ii) an increase in base electricity rates at Central Hudson effective July 1, 2015, combined with the impact of storm restoration and other non-recurring expenses recognized in the fourth quarter of 2014; (iii) earnings contribution of approximately $6 million from the Waneta Expansion; (iv) rate base growth associated with capital expenditures and growth in the number of customers at FortisAlberta; and (v) a higher AFUDC at FortisBC Energy, partially offset by higher operating expenses. The timing of regulatory deferral mechanisms had a favourable impact on FortisBC Energy’s earnings for the quarter and an unfavourable impact on FortisBC Electric. The increase in earnings was partially offset by lower earnings contribution due to the sale of commercial real estate and hotel assets and higher Corporate and Other expenses. Corporate and Other expenses included $7 million in acquisition-related expenses in the fourth quarter of 2015 and in the fourth quarter of 2014 included $4 million in interest expense associated with the convertible debentures and a $3 million foreign exchange gain. Excluding these items, the increase in Corporate and Other expenses was mainly due to a lower income tax recovery and lower related-party interest income.

Summary of Consolidated Cash Flows

Fourth Quarters Ended December 31 (Unaudited)
($ millions)	2015		2014		Variance
Cash, Beginning of Period	347		458		(111	)
Cash Provided by (Used in):
Operating Activities	397		334		63
Investing Activities	(234	)	(829	)	595
Financing Activities	(280	)	257		(537	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	12		10		2
Cash, End of Period	242		230		12

Cash flow from operating activities was $63 million higher quarter over quarter. The increase was primarily due to higher cash earnings at the Corporation’s regulated utilities.

Cash used in investing activities was $595 million lower quarter over quarter. The decrease was mainly due to lower capital expenditures at the regulated utilities, largely due to UNS Energy’s purchase of Gila River Unit 3 generation station in December 2014 for approximately $252 million (US$219 million), and proceeds received from the sale of hotel assets in October 2015 for $365 million.

Cash provided by financing activities was $537 million lower quarter over quarter. The decrease was primarily due to the repayment of credit facility borrowings in the fourth quarter of 2015 using proceeds from the sale of hotel assets. In addition, lower proceeds from long-term debt and lower credit facility borrowings were partially offset by lower repayments of long-term debt. In the fourth quarter of 2014, proceeds from the second installment of the convertible debentures were received, which were used to repay acquisition credit facilities used initially to finance a portion of the acquisition of UNS Energy.

SUMMARY OF QUARTERLY RESULTS

The following table sets forth unaudited quarterly information for each of the eight quarters ended March 31, 2014 through December 31, 2015. The quarterly information has been obtained from the Corporation’s interim unaudited consolidated financial statements. These financial results are not necessarily indicative of results for any future period and should not be relied upon to predict future performance.

Summary of Quarterly Results

(Unaudited)

		Net Earnings
		Attributable to	Earnings per Common
		Common Equity	Share
	Revenue	Shareholders	Basic	Diluted
Quarter Ended	($ millions)	($ millions)	($)	($)
December 31, 2015	1,708	135	0.48	0.48
September 30, 2015	1,566	151	0.54	0.54
June 30, 2015	1,538	244	0.88	0.87
March 31, 2015	1,915	198	0.72	0.71
December 31, 2014	1,693	113	0.44	0.43
September 30, 2014	1,197	14	0.06	0.06
June 30, 2014	1,056	47	0.22	0.22
March 31, 2014	1,455	143	0.67	0.66

The summary of the past eight quarters reflects the Corporation’s continued organic growth, growth from acquisitions and associated acquisition-related expenses, and the impact of sale transactions, as well as the seasonality associated with its businesses. Interim results will fluctuate due to the seasonal nature of electricity and gas demand in different regions, as well as the timing and recognition of regulatory decisions. Revenue is also affected by the cost of fuel and purchased power and the cost of natural gas, which are flowed through to customers without markup. Given the diversified nature of the Corporation’s subsidiaries, seasonality may vary. Most of the annual earnings of FortisBC Energy are realized in the first and fourth quarters. Earnings for UNS Energy’s electric utilities are generally highest in the second and third quarters due to the use of air conditioning and other cooling equipment.

December 2015/December 2014: Net earnings attributable to common equity shareholders were $135 million, or $0.48 per common share, for the fourth quarter of 2015 compared to earnings of $113 million, or $0.44 per common share, for the fourth quarter of 2014. A discussion of the variances in financial results for the fourth quarter of 2015 and the fourth quarter of 2014 is provided in the “Fourth Quarter Results” section of this MD&A.

September 2015/September 2014: Net earnings attributable to common equity shareholders were $151 million, or $0.54 per common share, for the third quarter of 2015 compared to earnings of $14 million, or $0.06 per common share, for the third quarter of 2014. Earnings for the third quarter of 2015 were favourably impacted by a $5 million gain on the sale of non-regulated generation assets in Ontario and a $5 million positive adjustment associated with the sale of hotel assets, and were reduced by a $9 million loss on the settlement of expropriation matters related to the Corporation’s investment in Belize Electricity. Earnings for the third quarter of 2014 were reduced by a total of $58 million due to acquisition-related expenses associated with UNS Energy. Excluding these items, the increase in earnings was driven by contribution of $97 million at UNS Energy compared to $37 million for the third quarter of 2014. Earnings contribution of $5 million from the Waneta Expansion also contributed to the increase. Performance was also driven by the Corporation’s other regulated utilities, including rate base growth associated with capital expenditures and customer growth at FortisAlberta; improved performance at Central Hudson; and favourable foreign exchange associated with US dollar-denominated earnings. Earnings at FortisBC Energy and FortisBC Electric were impacted by the timing of regulatory deferral mechanisms; however, FortisBC Energy’s earnings were favourably impacted by lower operating expenses and higher AFUDC. The increase was partially offset by higher preference share dividends and finance charges in the Corporate and Other segment, largely associated with the acquisition of UNS Energy.

June 2015/June 2014: Net earnings attributable to common equity shareholders were $244 million, or $0.88 per common share, for the second quarter of 2015 compared to earnings of $47 million, or $0.22 per common share, for the second quarter of 2014. The increase was driven by a net gain of $123 million on the sale of commercial real estate, hotel and non-regulated generation assets. The increase was also due to earnings contribution of $52 million at UNS Energy and $12 million from the Waneta Expansion, representing the Corporation’s 51% controlling ownership. Performance was also driven by the Corporation’s regulated utilities, including rate base growth associated with capital expenditures, customer growth and a decrease in depreciation and amortization at FortisAlberta; increases at FortisBC Electric, largely due to timing of quarterly earnings compared to the same periods last year, resulting from the impact of regulatory deferral mechanisms; and improved performance at Central Hudson. The increase was partially offset by a $5 million decrease in earnings at FortisBC Energy due to the timing of regulatory flow-through deferral amounts, and higher preference share dividends and finance charges in the Corporate and Other segment associated with the acquisition of UNS Energy.

March 2015/March 2014: Net earnings attributable to common equity shareholders were $198 million, or $0.72 per common share, for the first quarter of 2015 compared to earnings of $143 million, or $0.67 per common share, for the first quarter of 2014. The increase in earnings was driven by the Corporation’s regulated utilities. UNS Energy contributed earnings of $20 million in the first quarter of 2015. FortisAlberta’s earnings were favourably impacted by higher capital tracker revenue, including approximately $10 million associated with 2013 and 2014, and customer growth. Earnings at FortisBC Energy and FortisBC Electric were $9 million and $5 million, respectively, higher quarter over quarter, largely due to timing of quarterly earnings compared to the same periods last

year resulting from the impact of regulatory deferral mechanisms. Central Hudson and Eastern Canadian Regulated Electric Utilities also reported improved performance. The increase in earnings at the regulated utilities was partially offset by lower earnings at the Corporation’s non-regulated subsidiaries, largely due to decreased production in Belize as a result of lower rainfall, costs at Fortis Properties associated with the strategic review, and approximately $5 million earnings contribution in the first quarter of 2014 from Griffith to the date of sale. Corporate and Other expenses were lower quarter over quarter, due to approximately $11 million in after-tax interest expense associated with the convertible debentures in the first quarter of 2014 and a higher foreign exchange gain, partially offset by higher preference share dividends and finance charges associated with the acquisition of UNS Energy.

MANAGEMENT’S EVALUATON OF DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure Controls and Procedures: The President and Chief Executive Officer (“CEO”) and the Executive Vice President, Chief Financial Officer (“CFO”) of Fortis, together with management, have established and maintain disclosure controls and procedures for the Corporation in order to provide reasonable assurance that material information relating to the Corporation is made known to them in a timely manner, particularly during the period in which the annual filings are being prepared. The CEO and CFO of Fortis, together with management, have evaluated the design and operating effectiveness of the Corporation’s disclosure controls and procedures as of December 31, 2015 and, based on that evaluation, have concluded that these controls and procedures are effective in providing such reasonable assurance.

Internal Controls over Financial Reporting: The CEO and CFO of Fortis, together with management, are also responsible for establishing and maintaining internal controls over financial reporting (“ICFR”) within the Corporation in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with US GAAP. The CEO and CFO of Fortis, together with management, have evaluated the design and operating effectiveness of the Corporation’s ICFR as of December 31, 2015 and, based on that evaluation, have concluded that the controls are effective in providing such reasonable assurance. During the fourth quarter of 2015, there was no change in the Corporation’s ICFR that has materially affected, or is reasonably likely to materially affect, the Corporation’s ICFR.

SUBSEQUENT EVENT

The closing of the Acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory, state and federal approvals including, among others, those of FERC, the Committee on Foreign Investment in the United States, and the United States Federal Trade Commission/Department of Justice under the Hart-Scott Rodino Antitrust Improvement Act. The closing of the Acquisition is expected to occur in late 2016.

The financing of the Acquisition has been structured to allow Fortis to maintain investment-grade credit ratings and is consistent with the Corporation’s existing capital structure. Financing of the cash portion of the Acquisition will be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. In addition, Fortis has obtained commitments of US$2.0 billion from Goldman Sachs Bank USA to bridge the long-term debt financing and US$1.7 billion from The Bank of Nova Scotia to primarily bridge the sale of the minority investment in ITC. These non-revolving term credit facilities are repayable in full on the first anniversary of their advance, and although syndication is not required, Fortis expects that these bridge facilities will be syndicated.

Upon completion of the Acquisition, ITC will become a subsidiary of Fortis and approximately 27% of the common shares of Fortis will be held by ITC shareholders. In connection with the Acquisition, Fortis will become a registrant with the SEC and will apply to list its common shares on the New York Stock Exchange and will continue to have its shares listed on the TSX.

OUTLOOK

Fortis is focused on closing the acquisition of ITC by the end of 2016. The Acquisition is in alignment with the Corporation’s business model and acquisition strategy, and is expected to provide approximately 5% accretion to earnings per common share in the first full year following closing, excluding one-time acquisition-related expenses and assuming a stable currency exchange environment. The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix.

Substantially all of Fortis’ assets are low-risk, regulated utilities and long-term contracted energy infrastructure. No single regulatory jurisdiction comprises more than one-third of total assets. Over the five-year period through 2020, excluding the acquisition of ITC, the Corporation’s highly executable capital program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase rate base to almost $21 billion in 2020 and produce a five-year compound annual growth rate in rate base of approximately 5%.

On a pro forma basis, 2016 forecast midyear rate base of Fortis is expected to increase by approximately $8 billion to approximately $26 billion, as a result of the acquisition of ITC. Following the Acquisition, Fortis will be one of the top 15 North American public utilities ranked by enterprise value, with an estimated enterprise value of $42 billion. Additionally, ITC’s midyear rate base, including construction work in progress, is expected to increase at a compound annual growth rate of approximately 7.5% through 2018, based on ITC’s planned capital expenditure program.

OUTSTANDING SHARE DATA

As at February 16, 2016, the Corporation had issued and outstanding 281.9 million common shares; 8.0 million First Preference Shares, Series E; 5.0 million First Preference Shares, Series F; 9.2 million First Preference Shares, Series G; 7.0 million First Preference Shares, Series H; 3.0 million First Preference Shares, Series I; 8.0 million First Preference Shares, Series J; 10.0 million First Preference Shares, Series K; and 24.0 million First Preference Shares, Series M. Only the common shares of the Corporation have voting rights. The Corporation’s First Preference Shares do not have voting rights unless and until Fortis fails to pay eight quarterly dividends, whether or not consecutive and whether such dividends have been declared.

The number of common shares of Fortis that would be issued if all outstanding stock options and First Preference Shares, Series E were converted as at February 16, 2016 is as follows.

Conversion of Securities into Common Shares

As at February 16, 2016 (Unaudited)

		Number of
		Common Shares
Security		(millions)
Stock Options		4.9
First Preference Shares, Series E		5.8
Total		10.7

Additional information, including the Fortis 2015 Annual Information Form, Management Information Circular and Audited Consolidated Financial Statements, is available on SEDAR at www.sedar.com and on the Corporation’s website at www.fortisinc.com.

Exhibit 99.4

May 5, 2016 Annual and Special Meeting

Notice of Annual and Special Meeting

and

Management Information Circular

March 18, 2016

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR ALL NOMINEES AND RESOLUTIONS AT THE MEETING, INCLUDING THE ACQUISITION SHARE ISSUANCE RESOLUTION

MESSAGE FROM BOARD CHAIR AND PRESIDENT AND CHIEF EXECUTIVE OFFICER

March 18, 2016

Dear Fellow Shareholders:

It is our pleasure to invite you to attend the Fortis annual and special meeting of shareholders on May 5, 2016 at 10:30 a.m. (Newfoundland Daylight Time) in Salon A, Holiday Inn, St. John’s, Newfoundland and Labrador.

The items of business for consideration at this meeting are outlined in the notice of annual and special meeting of shareholders of Fortis and the accompanying management information circular. The annual business of the meeting includes resolutions to elect the directors of Fortis, appoint our auditors and vote on executive compensation. The special business of the meeting includes a resolution to approve the issuance of shares by Fortis as partial consideration for its proposed acquisition of ITC Holdings Corp. The contents and delivery of the management information circular have been approved by the Board of Directors.

The ITC Acquisition

Fortis has successfully grown its business through strategic acquisitions that have contributed to strong organic growth over the past decade. On February 9, 2016, we entered into an agreement to acquire ITC. The acquisition of ITC represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. The acquisition is in alignment with the Fortis business model and is expected to be accretive in the first full year following closing, excluding one-time acquisition-related expenses. Following closing of the acquisition, Fortis will proudly remain a Newfoundland and Labrador company, unique among North American utilities in the diversity of its regulated utility businesses and low risk profile.

ITC is the largest independent electric transmission company in the United States. ITCs experienced and execution-focused management team, which will continue to operate independently under the ownership structure of Fortis, has a proven track record of strong earnings per share growth, total shareholder return, cash flow from operations and operational efficiencies. From its initial public offering in 2005 through November 2015, ITC has delivered more than double the annual shareholder returns of the S&P 500 Utilities Sector Index, the benchmark index in ITCs industry.

Fortis experienced considerable growth in 2015, and the acquisition of ITC presents an opportunity to accelerate our growth strategy. The acquisition will expand the Corporation’s regional diversity from its current operations in five Canadian provinces, the U.S. states of New York and Arizona and three Caribbean countries, to include a presence in eight additional U.S. states. The acquisition of ITC also affords Fortis the opportunity to capitalize upon market trends including historical under-investment in infrastructure, enhancements to power delivery reliability and clean energy initiatives in the United States.

We are excited to present this unique opportunity for Fortis to significantly grow and diversify its business to our Shareholders. Your Board of Directors has unanimously approved the acquisition and unanimously recommends that Shareholders vote FOR the resolution approving the issuance of Common Shares in connection with the acquisition. Please see “Reasons to Vote in Favour of the Acquisition Share Issuance Resolution” immediately following this letter and the Circular for more information on this important transaction and the reasons for the Board’s recommendation.

Fortis Today

Fortis currently serves over three million gas and electricity customers across North America and in the Caribbean. Our focus on service to our customers and operating in an environmentally responsible manner, together with the expected benefits flowing from our planned C$9 billion investment in our energy networks over the next five years, positions Fortis

to continue to deliver safe, reliable and efficient service to our customers while at the same time enhancing shareholder value.

Our 2015 financial results were strong, with earnings per share at C$2.61 and adjusted earnings per share at C$2.11, up 20.6 per cent from adjusted earnings per share of C$1.75 in 2014. Clearly, 2015 was an eventful year for our business with the successful integration of our newest utility UNS Energy Corporation in Arizona, the commissioning of the Waneta Expansion hydroelectric project ahead of schedule and on budget, the substantial gains realized on the sale of the hotel and commercial real estate business and other non-core businesses, the three-year rate settlement reached at Central Hudson Gas & Electric in New York State, and the reasonable settlement of matters related to the expropriation of Belize Electricity Limited. ITC had similarly strong results in 2015, with operating earnings of approximately US$324 million, or US$2.08 per diluted common share, compared to 2014 operating earnings of US$292 million, or US$1.85 per diluted common share.

In keeping with our record of raising our common share dividend to shareholders for 42 consecutive years, we increased our dividend twice in 2015 bringing quarterly dividends from C$0.32 per share to C$0.375 per share, representing a total increase of 17.2 per cent. These increases coupled with the initiation of dividend increase guidance of 6 per cent on average annually through 2020 demonstrate our confidence in the future of Fortis. The acquisition will support our average annual dividend growth target.

Your Board of Directors maintains a firm commitment to strong corporate governance principles. Through the course of 2015, we instituted a number of measures to reinforce our governance imperatives, including: (i) measures to enhance the annual assessment of the board and individual directors; (ii) ongoing board renewal through focused board succession planning, reflective of our competency and diversity objectives and resulting in a slate of nominees that includes four women; (iii) strengthening targets for executive short-term incentive payments; (iv) introducing non-financial corporate performance metrics to the executive compensation framework; (v) expanding disclosure related to annual incentive calculations and payments; (vi) revisions to the executive compensation structure to provide a proportionately larger component through long-term performance-based incentives; (vii) explanation of the key dynamics for the Corporation in the current risk environment; and (viii) providing disclosure on the Corporation’s approach to environmental sustainability. These measures enhance the understanding and the alignment of the policies and practices of Fortis with the interests of our shareholders.

Whether or not you plan to attend the annual and special meeting of shareholders in person or by viewing a live broadcast of the meeting at the Corporation’s website, www.fortisinc.com, we urge you to take some time to read and review this document, as well as the Annual Report and Annual Information Form, and then vote your common shares. Your Board of Directors unanimously recommends that Shareholders vote FOR all nominees and resolutions at the Meeting, including the resolution approving the issuance of Common Shares in connection with the acquisition.

We thank you for your support of our company, Fortis Inc.

Sincerely,

/s/ David G. Norris		/s/ Barry V. Perry
David G. Norris		Barry V. Perry
Chair, Board of Directors		President and Chief Executive Officer

REASONS TO VOTE IN FAVOUR OF THE ACQUISITION SHARE ISSUANCE RESOLUTION

The Acquisition presents a singular opportunity for Fortis to significantly grow and diversify its business through an accretive transaction consistent with our long-term strategy of profitable growth. The Board has approved the Acquisition and recommends that Shareholders vote FOR the resolution approving the issuance of Common Shares in connection with the Acquisition, the full text of which is set out in the accompanying management information circular and in the form of proxy. Capitalized terms used below have the meanings given to them in the “Glossary of Defined Terms” contained in Schedule A to this Circular.

A Premier Fully-Regulated Electric Transmission Utility	·	Acquisition of the largest independent fully-regulated electric transmission utility in the U.S. with rates regulated by FERC.
A Premier Fully-Regulated Electric Transmission Utility	·	Establishes scale and an additional platform for growth in the North American electric transmission sector.

Accretive to EPS	·	Accretive to EPS in the first full year following Closing, excluding one-time Acquisition-related expenses.
	·	Earnings accretion and cash flow expected to support the Corporation’s average annual dividend growth target of 6% through 2020.
	·	Financing strategy structured to allow Fortis to maintain an investment-grade credit rating.

Increases Diversification	·	Significantly enhances regulatory diversity and lowers overall rate regulatory risk.
	·	Increases regional economic diversity — large Midwest eight-state business footprint.
	·	Entry into a new business segment complementing electric and gas distribution with no commodity or fuel exposure.

Supportive FERC Regulation	·	FERC is a policy driven regulator committed to providing incentives for upgrading and expanding the electric transmission system.
	·	FERC has been one of the most consistently supportive utility regulators in North America, providing reasonable returns and equity ratios.
	·	Forward-looking rate-setting mechanism with true-up provides timely recovery and reduces regulatory lag.

Long-Term Rate Base Growth Prospects	·	Significant opportunity for investment across aging transmission assets.
Long-Term Rate Base Growth Prospects	·	Reliability enhancements required: federal regulatory-driven critical infrastructure protection, storm hardening and infrastructure replacements.
	·	Significant changes are occurring in the U.S. generation fleet, which will require substantial transmission investment in the form of renewables, interconnections and general infrastructure build-out.

Proven Management Team	·	Proven track record: superior total shareholder return and cash flow generation.
	·	Execution-oriented with a focus on safety, reliability and managing projects on time and on budget.
	·	Cultural similarities: track record of operational excellence and focus on regulated business.

iii

NOTICE OF ANNUAL AND SPECIAL MEETING

WHAT		The annual and special meeting of shareholders of Fortis Inc. (“Fortis” or the “Corporation”).

WHEN		May 5, 2016 at 10:30 a.m. (Newfoundland Daylight Time) (the “Meeting”).

WHERE		Salon A, Holiday Inn St. John’s, 180 Portugal Cove Road, St. John’s, Newfoundland and Labrador.

WEBCAST		A live webcast of the Meeting will be available on our website at www.fortisinc.com .

BUSINESS TO BE		The Meeting will be held for the following purposes:

CONDUCTED AT THE MEETING		1. to receive the Consolidated Financial Statements of Fortis for its financial year ended December 31, 2015, together with the Report of the Auditors thereon;

		2. to elect the directors of the Corporation;

		3. to appoint auditors and to authorize the directors to fix the auditors’ remuneration;

		4. to consider and, if supported, pass an advisory (non-binding) resolution on the approach to executive compensation of Fortis;

		5. to consider and, if deemed advisable, approve an ordinary resolution, the full text of which is set out in the accompanying management information circular (the “Circular”) under “Matters for Consideration of Shareholders — Acquisition of ITC Holdings Corp.”, approving the issuance of up to 117 million common shares of the Corporation (“Common Shares”) forming part of the consideration to be paid in connection with the acquisition by an indirect subsidiary of Fortis of all of the issued and outstanding common stock of ITC Holdings Corp. (“ITC”) pursuant to the terms of an agreement and plan of merger dated as of February 9, 2016 entered into between, among others, Fortis and ITC (the “Acquisition Share Issuance Resolution”); and

		6. to transact such other business as may properly be brought before the meeting or any adjournment(s) or postponement(s) thereof.

		Your Board of Directors unanimously recommends that Shareholders vote FOR all nominees and resolutions at the Meeting, including the Acquisition Share Issuance Resolution.

YOUR RIGHT TO VOTE		You are entitled to receive notice of and to vote at our Meeting, or any adjournment or postponement thereof, if you are a holder of Common Shares (a “Shareholder”) at the close of business on March 18, 2016. A Shareholder who acquires their Common Shares after March 18, 2016 may request, not later than ten days before the Meeting, that their name be included in the list of Shareholders eligible to vote at the Meeting, and upon establishing proper ownership, such Shareholder shall be entitled to vote such Common Shares at the Meeting.

		You have the right to vote your Common Shares on items 2 through 5 listed above and any other items that may properly come before the Meeting or any adjournment or postponement thereof.

ATTENDING THE MEETING		If you are a registered Shareholder and are attending the Meeting in person, you will need to register with our transfer agent Computershare Trust Company of Canada (“Computershare”) at the registration desk before entering the Meeting.

		If you are a non-registered Shareholder, you can only vote your Common Shares in person at the Meeting if you have previously appointed yourself as the proxyholder for your Common Shares by printing your name in the space provided on your voting instruction form and submitting it as directed on the form. You may also appoint someone else as the proxyholder for your Common Shares by printing their name in the space provided on your voting instruction form and submitting it as directed on the form. You or your proxyholder must see a representative of Computershare before entering the Meeting to register your attendance at the Meeting.

APPROVAL OF THIS CIRCULAR		The Board of Directors of the Corporation has approved the contents of this Notice and the Circular and the sending of this Notice and the Circular to our Shareholders and to each of our directors and our auditors.

DATED at St. John’s, Newfoundland and Labrador, March 18, 2016

	By Order of the Board of Directors
	David C. Bennett
	Vice President, Chief Legal Officer and Corporate Secretary

TABLE OF CONTENTS

MESSAGE FROM BOARD CHAIR AND PRESIDENT AND CHIEF EXECUTIVE OFFICER		i

REASONS TO VOTE IN FAVOUR OF THE ACQUISITION SHARE ISSUANCE RESOLUTION		iii

NOTICE OF ANNUAL AND SPECIAL MEETING		iv

QUESTIONS AND ANSWERS ABOUT THE MEETING AND ACQUISITION		1

NOTICE TO READERS		7

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		7

ADDITIONAL INFORMATION		10

PRESENTATION OF FINANCIAL INFORMATION		11

CAUTION REGARDING PRO FORMA FINANCIAL INFORMATION		11

CURRENCY AND EXCHANGE RATE INFORMATION		12

THIRD PARTY SOURCES		12

MATTERS FOR CONSIDERATION OF SHAREHOLDERS		13

FINANCIAL STATEMENTS		13
ELECTION OF DIRECTORS		13
APPOINTMENT OF AUDITORS AND AUTHORIZATION OF THE DIRECTORS TO FIX AUDITORS’ REMUNERATION		14
ADVISORY AND NON-BINDING RESOLUTION ON THE APPROACH TO EXECUTIVE COMPENSATION		14
ACQUISITION OF ITC HOLDINGS CORP		15
OTHER MATTERS		16

SPECIAL BUSINESS — THE ACQUISITION OF ITC HOLDINGS CORP		17

OVERVIEW		17
BACKGROUND AND RECOMMENDATION		18
THE ACQUISITION AGREEMENT		24
FINANCING THE ACQUISITION		34
CANADIAN AND U.S. SECURITIES LAW MATTERS		38

FORTIS		40

RECENT DEVELOPMENTS		40
CAPITALIZATION		41
CREDIT RATINGS		42

BOARD OF DIRECTORS		43

NOMINEES FOR ELECTION AS DIRECTORS		43
OVERALL ATTENDANCE IN 2015		55
ADDITIONAL DISCLOSURE RELATED TO DIRECTORS		55
MAJORITY VOTING FOR DIRECTORS		56

REPORT ON DIRECTOR COMPENSATION		57

DIRECTORS DEFERRED SHARE UNIT PLAN		60
DIRECTOR EQUITY OWNERSHIP		61
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE		61

REPORT ON CORPORATE GOVERNANCE		62

CORPORATE GOVERNANCE		62
BOARD COMPOSITION AND SUCCESSION		63
BOARD INDEPENDENCE AND OPERATION		65
STRATEGY OVERSIGHT		66
LEADERSHIP SUCCESSION OVERSIGHT		67
RISK MANAGEMENT AND GOVERNANCE OVERSIGHT		67
ENVIRONMENTAL AND SUSTAINABILITY OVERSIGHT		68
AUDIT COMMITTEE		69

HUMAN RESOURCES COMMITTEE		70
GOVERNANCE AND NOMINATING COMMITTEE		72
EDUCATION AND ORIENTATION		73

REPORT ON EXECUTIVE COMPENSATION		74

2015 REPORT OF THE HUMAN RESOURCES COMMITTEE OF THE BOARD		74
CHANGES TO NAMED EXECUTIVE OFFICERS		74
COMPENSATION DISCUSSION AND ANALYSIS		75
EXECUTIVE COMPENSATION POLICY		75
COMPENSATION RISK CONSIDERATIONS		77
PENSION PLAN BENEFITS		90
2015 EXECUTIVE COMPENSATION		91
SHARE OWNERSHIP GUIDELINES		103
COMPENSATION CONSULTANTS		104
PERFORMANCE GRAPH		105
SUMMARY COMPENSATION TABLE		107
INCENTIVE PLAN AWARDS		109
RETIREMENT PLAN TABLES		112
TERMINATION AND CHANGE OF CONTROL BENEFITS		113
INDEBTEDNESS OF EXECUTIVE OFFICERS, DIRECTORS AND EMPLOYEES		115

INTERESTS OF ADVISORS		116

AUDITORS OF ITC		116

CONTACTING THE BOARD		117

DIRECTORS’ APPROVAL		117

CONSENT OF GOLDMAN, SACHS & CO		118

SCHEDULE A — GLOSSARY OF DEFINED TERMS		A-1

SCHEDULE B — STATEMENT OF CORPORATE GOVERNANCE PRACTICES		B-1

SCHEDULE B1 — BOARD MANDATE		B1-1

SCHEDULE C — OPINION OF GOLDMAN, SACHS & CO		C-1

SCHEDULE D — INFORMATION CONCERNING ITC HOLDINGS CORP		D-1

SCHEDULE E — ITC HISTORICAL FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS		E-1

SCHEDULE F — SUPPLEMENTARY ITC INFORMATION		F-1

SCHEDULE G — RISK FACTORS		G-1

SCHEDULE H — PRO FORMA FINANCIAL STATEMENTS OF FORTIS AND ITC		H-1

MANAGEMENT INFORMATION CIRCULAR

QUESTIONS AND ANSWERS ABOUT THE MEETING AND ACQUISITION

The following is intended to answer certain key questions concerning the Meeting and the Acquisition and is qualified in its entirety by the more detailed information appearing elsewhere in this Circular. Capitalized terms used in this summary and elsewhere in this Circular and not otherwise defined have the meanings given to them in the “Glossary of Defined Terms” contained in Schedule A to this Circular.

Why did I receive this Circular?

This Circular was sent to Shareholders in advance of the Meeting to be held on May 5, 2016. In addition to electing directors, appointing auditors and the annual advisory vote on executive compensation, Shareholders will be asked to approve by a majority vote the issuance of Common Shares in connection with the proposed acquisition of ITC Holdings Corp. The consideration to be paid to shareholders of ITC is comprised of both cash and Fortis Common Shares.

Why am I being asked to approve the ITC Acquisition?

The Toronto Stock Exchange requires an acquiring company to obtain shareholder approval if the number of shares to be issued as purchase price consideration for an acquisition exceeds 25% of its outstanding shares. The Common Shares to be issued by Fortis as partial consideration will represent up to 41.5% of its currently outstanding Common Shares on a non-diluted basis. If Shareholder approval is not obtained, Fortis will not be able to complete this highly attractive acquisition.

Your Board of Directors has approved the Acquisition and recommends that you vote FOR the share issuance resolution.

Who is ITC?

ITC Holdings Corp. is the largest independent electric transmission company in the United States . Based in Novi, Michigan, ITC invests in transmission opportunities to improve reliability, expand access to markets, allow new generating resources to interconnect to transmission systems and lower the overall cost of delivered energy.

ITC owns and operates high voltage transmission facilities principally in Michigan, Iowa and Kansas, as well as Minnesota, Illinois, Missouri and Oklahoma, serving a combined peak load exceeding 26,000 megawatts in 2015, along approximately 15,600 circuit miles of transmission line. See “Schedule D — Information Concerning ITC Holdings Corp.” in this Circular.

Why should I vote FOR the resolution to issue Fortis Common Shares for the ITC Acquisition?

Reasons Shareholders should vote FOR the issuance of Fortis Common Shares as consideration for the Acquisition include:

· Strategic Fit: The Acquisition is in alignment with the Corporation’s business model and acquisition strategy. Upon completion of the deal, Fortis will be a unique, highly diversified, low-risk regulated energy transportation platform.

· Accretive to Shareholders: The deal is expected to contribute to the Corporation’s bottom line almost immediately and be accretive to earnings per Common Share in the first full year following Closing, excluding one-time Acquisition-related expenses.

· Supports Dividend Guidance: The projected earnings accretion from the Acquisition together with ITC’s strong, predictable cash flows is expected to support the Corporation’s average annual dividend growth target of 6% through 2020.

· Platform for Growth: There is significant need for capital investment in the U.S. electric transmission sector due to factors that include historical underinvestment in infrastructure, regulator-mandated reliability enhancements and clean energy initiatives. ITC’s average rate base is expected to increase at a compound annual growth rate of 7.5% through 2018.

Why is ITC such a good strategic fit for Fortis?

The most important aspects of strategic fit to Fortis include:

· Low-Risk Regulated Environment: Almost all of Fortis’ current footprint is in stable regulated markets. ITC’s rates are regulated by FERC, one of the most consistently supportive utility regulators in North America. FERC provides incentives for infrastructure investment and its simple rate-setting process with true-up reduces the regulatory lag found in some markets.

· Management Expertise: Our model is to find the best managed businesses and let them do what they do best with the benefit of our supportive corporate culture and capital structure. The ITC management team has a proven track record of strong earnings per share growth, total shareholder return, cash flow from operations, disciplined capital project execution and operational excellence.

· Increased Diversification: The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. Pro forma for the Acquisition, approximately 38% of our consolidated regulated operating earnings in 2015 would have been FERC-regulated. Fortis will expand its footprint from its current operations in five Canadian provinces, the U.S. states of New York and Arizona, and three Caribbean countries, to eight additional U.S. states.

· Better Together: Consistent with our model, this Acquisition is structured to preserve ITC’s considerable strengths and add Fortis’ capital strength and support. This approach seeks to preserve ITC’s relationships with important stakeholders including its shareholders, management team, employees, business partners, communities and regulators.

Will Fortis still be the same company following the Acquisition?

· What Stays the Same: Fortis will remain a Newfoundland and Labrador company headquartered in St. John’s. Our shares will continue to trade on the TSX and we will continue to file our public disclosure documents in Canada in accordance with Canadian rules. Most importantly, we will continue to be a regulated utility with a strong balance sheet and an investment-grade credit rating.

· What Fortis Gains: Virtually 100% of our business will be regulated, with about 60% of our regulated assets and earnings in the United States pro forma the Acquisition (which represents an increase from approximately 40% of regulated assets and earnings currently in the United States). Fortis will be more diversified and have significantly enhanced growth opportunities. In short, Fortis will be a unique utility in the North American market: a highly diversified, low-risk regulated energy transportation platform.

· By the Numbers: Fortis will be one of the top 15 North American public utilities ranked by enterprise value after giving effect to the Acquisition, with an estimated enterprise value of C$42 billion. The 2016 forecast midyear rate base of Fortis is expected to increase by approximately C$8 billion to approximately C$26 billion. ITC shareholders will hold up to 29.3% of Fortis’ Common Shares at closing.

Why is Fortis listing on the New York Stock Exchange?

· Fortis has Been Considering this Listing: Fortis has considered listing on the NYSE, in addition to the TSX, for several years. The benefits of an additional listing for both Fortis and its shareholders include access to a larger and more diverse market, including a much broader group of potential investors; enhanced ability to raise capital in the future; and an increased profile in the North American investment community, notably among U.S.-based utility analysts.

· Fortis is now Required to List on the NYSE: Under the Acquisition Agreement, Fortis is required to list its Common Shares on the NYSE. Fortis will also become a “reporting” company for purposes of U.S. federal securities laws and will become subject to ongoing reporting obligations in the United States and certain other requirements under SEC rules and regulations. ITC shareholders and other persons in the U.S. who wish to own Fortis shares will now be able to trade them on a U.S.-based stock exchange.

How does Fortis intend to finance the cash portion of the Acquisition?

In addition to issuing Common Shares, an aggregate of approximately US$3.5 billion (C$4.9 billion based on the US$/C$ exchange rate on February 8, 2016) will be paid to ITC shareholders in satisfaction of the Cash Purchase Price for the ITC shares acquired in the Acquisition. The Acquisition is not conditional on financing and Fortis has commitments for Acquisition Credit Facilities in place that would be sufficient, if necessary, to fund the full Cash Purchase Price for the Acquisition. Fortis does not expect to drawdown on the Acquisition Credit Facilities.

Financing of the Cash Purchase Price for the Acquisition is expected to be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure focused minority investors. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition” in this Circular.

The anticipated financing of the Acquisition has been structured to allow Fortis to maintain an investment-grade credit rating and is consistent with the Corporation’s existing capital structure.

Did the Board of Directors of Fortis receive a fairness opinion in connection with the Acquisition?

Yes. On February 8, 2016, Goldman, Sachs & Co. rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion dated as of February 9, 2016, that, as of the date of its opinion and based upon and subject to the factors, assumptions, considerations, limitations and other matters set forth in Goldman, Sachs & Co.’s written opinion, the Aggregate Consideration (as defined in the written opinion) to be paid by Fortis for each outstanding share of common stock, no par value, of ITC pursuant to the Acquisition Agreement was fair from a financial point of view to Fortis. See “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation” and “Schedule C — Opinion of Goldman, Sachs & Co.” in this Circular.

The full text of the written opinion of Goldman, Sachs & Co., dated February 9, 2016, is attached to this Circular at Schedule C. The summary of the Goldman, Sachs & Co. opinion provided in this Circular is qualified in its entirety by reference to the full text of Goldman, Sachs & Co.’s written opinion. Goldman, Sachs & Co.’s advisory services and opinion were provided for the information and assistance of the board of directors of Fortis in connection with its consideration of the Acquisition and the opinion does

not constitute a recommendation as to how any shareholder of Fortis should vote with respect to the resolutions described under “Matters for Consideration of Shareholders” or any other matter.

What are the voting approval levels required to pass the Meeting resolutions?

A simple majority of Shareholders represented in person or by proxy at the Meeting is required for each resolution described under “Matters for Consideration of Shareholders”. The Board has approved the Acquisition and recommends that Shareholders vote FOR each of the resolutions set out in this Circular, including the Acquisition Share Issuance Resolution .

Who is eligible to vote at or attend the Meeting?

The record date for determining the Shareholders entitled to receive notice of and vote at the Meeting is March 18, 2016. As of the record date, there were 283,042,758 Common Shares issued and outstanding. A Shareholder who acquires their Common Shares after the record date may request, not later than 10 days before the Meeting, that their name be included in the list of Shareholders eligible to vote at the Meeting, and upon establishing proper ownership, the Shareholder shall be entitled to vote their Common Shares at the Meeting. Any such request should be submitted to Computershare at the address provided in this Circular.

You may appoint a person or company other than the directors and officers designated by Fortis on your voting instruction form or form of proxy to represent you and vote on your behalf at the Meeting. To do so, write the name of the person you are appointing in the space provided on the corresponding form. Registered Shareholders must complete their voting instructions, date and sign the form, and return it to Computershare as instructed. Non-registered Shareholders must follow the instructions of their respective nominees.

I am a registered Shareholder. How can I vote my shares?

As a registered Shareholder, you can vote your shares in the following ways:

Internet		Go to www.investorvote.com. Enter the 15-digit control number printed on the form and follow the
		instructions on screen.
Phone		1.866.732.8683 (toll-free in North America) and enter the 15-digit control number printed on the
		form. Follow the interactive voice recording instructions to submit your vote.
Mail		Enter voting instructions, sign the proxy form and send your completed form of proxy to:
		Computershare Trust Company of Canada
		Attention: Proxy Department
		100 University Avenue, 8 th Floor
		Toronto, Ontario
		M5J 2Y1
In Person		Attend the Meeting and register with the transfer agent, Computershare Trust Company of Canada,
		upon your arrival. Do not fill out and return your form of proxy if you intend to vote in person at the
		Meeting.
Questions?		Call Kingsdale at 1.888.518.6828 (toll free within North America) or 416.867.2272 (collect call
		outside North America).

I am a non-registered shareholder. How can I vote my shares?

If your Common Shares are not registered in your name, they will be held in the name of a “nominee”, usually a bank, trust company, securities dealer or other financial institution and, as such, your nominee will be the entity legally entitled to vote your Common Shares and must seek your instructions as to how to vote your Common Shares. If you are a non-registered shareholder there are two ways, listed below, that you can vote your Common Shares:

· Give your Voting Instructions — Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive from your nominee either (i) a voting instruction form for completion and execution by you, or (ii) a form of proxy for completion by you executed by the nominee and restricted to the number of Common Shares you own. These procedures permit non-registered shareholders to provide instructions to their nominees on how their beneficially owned Common Shares should be voted at the Meeting. Please note that each nominee has its own procedures which should be carefully followed to ensure your Common Shares are voted at the Meeting. You may vote using any of the voting methods outlined on the voting instruction form or form of proxy, including over the internet, by phone, by fax or by simply mailing in your instrument of proxy.

· Voting in person — If you wish to vote in person at the Meeting, insert your name in the space provided on the voting instruction form or form of proxy to appoint yourself as a proxyholder and follow the instructions of your nominee. Non-registered Shareholders who appoint themselves as proxyholders should present themselves to a representative of the transfer agent at the Meeting. If you plan to attend the Meeting to vote in person, it is not necessary to submit your choice on the voting instruction form or form of proxy as your vote will be taken and counted in person at the Meeting.

Should I send in my proxy now?

Yes. Once you have carefully read and considered the information in this Circular, you need to complete and submit the enclosed voting instruction form or form of proxy. You are encouraged to vote well in advance of the proxy cut off at 10:30 a.m. (Newfoundland Daylight time) on May 3, 2016 to ensure your Common Shares are voted at the Meeting . If the Meeting is adjourned or postponed please ensure that your Common Shares are voted not later than 48 hours (excluding Saturdays, Sundays, and holidays) before the time for holding the adjourned or postponed meeting. The proxy cut-off may be waived or extended by the Chair of the Meeting at his discretion, without notice.

Can I change my vote after I have voted my proxy?

Yes. A Shareholder who has submitted a form of proxy may revoke it. You can revoke your vote by: (i) voting again on the Internet or by telephone before 10:30 a.m. (Newfoundland Daylight time) on May 3, 2016; (ii) completing a voting instruction form or proxy form that is dated later than the voting instruction form or proxy form you are changing and mailing it as instructed on your voting instruction form or proxy form, as the case may be, so that it is received before 10:30 a.m. (Newfoundland Daylight time) on May 3, 2016; (iii) sending a notice in writing from you or your authorized attorney to the Corporation’s Corporate Secretary so that it is received before 10:30 a.m. (Newfoundland Daylight time) on May 3, 2016; or (iv) any other means permitted by law.

Does any Shareholder beneficially own 10% or more of the Corporation’s Common Shares?

No. To the knowledge of the directors and officers of Fortis, as of March 18, 2016, no Shareholder beneficially owns, directly or indirectly, or exercises control or discretion over, voting securities carrying 10% or more of the voting rights attached to our outstanding Common Shares. In addition, based on current information available to Fortis, after the Acquisition no current shareholder of ITC will by virtue of the transaction own 10% or more of the Common Shares.

When does Fortis expect the Acquisition to close?

The Acquisition is expected to close in late 2016. Closing is conditional on Fortis obtaining Shareholder approval and the satisfaction of other closing conditions including the approval of ITC shareholders, FERC and certain state regulators. See “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement”.

Are there any risks I should consider in connection with the Acquisition?

Yes. There are a number of risk factors relating to the Acquisition and the potential failure by Fortis to complete the Acquisition, all of which should be carefully considered. See “Schedule D — Information Concerning ITC Holdings Corp.” and “Schedule G — Risk Factors” in this Circular.

Who is soliciting my proxy?

Your proxy is being solicited on behalf of the management of Fortis. Management will solicit proxies primarily by mail but proxies may also be solicited personally by telephone, e-mail, internet or facsimile by directors, officers or employees of Fortis, or by such agents as Fortis may appoint.

Fortis has retained Kingsdale Shareholder Services (“Kingsdale”) in connection with the solicitation of proxies at a cost of C$47,250 plus reimbursement of expenses related to the solicitation. The cost of solicitation will be borne by Fortis. The costs of preparing and distributing the Meeting materials and the cost of soliciting proxies will be borne by Fortis. The Corporation will reimburse brokers and other entities for costs incurred by them in mailing Meeting materials to beneficial owners of Common Shares.

Who can I contact if I have additional questions?

If you require assistance in completing your proxy, please consult our proxy solicitor, Kingsdale Shareholder Services by telephone at 1.888.518.6828 toll-free in North America or call collect at 416.867.2272 outside of North America or by e-mail at contactus@kingsdaleshareholder.com .

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FORTIS SHAREHOLDERS VOTE FOR ALL NOMINEES AND ALL RESOLUTIONS AT THE MEETING, INCLUDING THE ACQUISITION SHARE ISSUANCE RESOLUTION.

NOTICE TO READERS

This management information circular (this “Circular”) is furnished in connection with the solicitation of proxies by and on behalf of management of Fortis Inc. (“Fortis” or the “Corporation”) for use at the annual and special meeting of Fortis shareholders (the “Meeting”) and any adjournment(s) or postponement(s) thereof for the purposes set forth in the accompanying Notice of Annual and Special Meeting. As a shareholder (“Shareholder”), it is very important that you read this material carefully and then vote your common shares of Fortis (“Common Shares”).

In this Circular, you, your and Shareholder refer to the common Shareholders of Fortis. “We”, “us”, “our”, the “Corporation”, and “Fortis” refer to Fortis Inc., unless otherwise indicated. Information in this Circular is as of March 18, 2016, unless otherwise indicated. No person has been authorized to give any information or to make any representations in connection with the acquisition by Fortis (the “Acquisition”) of ITC Holdings Corp. (“ITC”) and the other matters discussed in this Circular other than those contained in this Circular and, if given or made, any such information or representation should be considered not to have been authorized by Fortis or ITC and should not be relied upon.

Certain information in this Circular pertaining to ITC, including, but not limited to, the information contained in Schedules D, E and F to this Circular, has been furnished by ITC. Although Fortis does not have any knowledge that would indicate that such information relating to ITC is untrue or incomplete, neither Fortis nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information or for the failure by ITC to disclose events or information regarding ITC that may affect the completeness or accuracy of such information.

This Circular contains defined terms. For a list of defined terms used herein, see “Schedule A — Glossary of Defined Terms”. For a list of defined terms used in Schedules D and E to this Circular, see “Schedule E — ITC Historical Financial Statements and Management’s Discussion and Analysis”. For a list of defined terms used in Schedule F to this Circular, see “Schedule F — Supplementary ITC Information”.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Please refer to “Schedule A — Glossary of Defined Terms” for a list of defined terms used herein.

This Circular, including the schedules attached hereto, contains forward-looking information which reflects management’s current expectations regarding: (i) the future growth, results of operations, performance, business prospects and opportunities of the Corporation and ITC; (ii) the Acquisition; (iii) the integration of ITC’s electric transmission business with the existing operations of the Corporation; (iv) the impact of the Acquisition, the Minority Investment and the Acquisition Credit Facilities on the financial position of the Corporation; and (v) the outlook for the Corporation’s and ITC’s respective businesses and the electric transmission industry based on information currently available. These expectations may not be appropriate for other purposes. All forward-looking information is given pursuant to the “safe harbour” provisions of applicable Canadian securities legislation. The words “anticipates”, “assumes”, “believes”, “budgets”, “can”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”, “opportunity”, “plans”, “projects”, “seeks”, “schedule”, “should”, “target”, “will”, “would” and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management’s current beliefs and is based on information currently available to the Corporation’s management.

The forward-looking information contained in this Circular pertaining to the Acquisition includes, but is not limited to, statements regarding: the terms and conditions of the Acquisition; the satisfaction of the conditions to Closing; the completion of the Acquisition; the timing of Closing; the combined company’s future business prospects and performance, growth potential, financial strength, market profile, revenues, proceeds, working capital, capital expenditures, investment valuations, liquidity, income and margins; the realization of the anticipated benefits of the Acquisition by Fortis, including that the Acquisition will be accretive in the first full year following Closing, excluding one-time Acquisition-related expenses; that

the Acquisition will support the average annual dividend growth target of Fortis; the attractive rate base growth opportunities in the ITC service areas; the accuracy of the pro forma combined financial information, which does not purport to be indicative of the financial information that will result from the operations of Fortis on a consolidated basis following the Acquisition; the expectation that Fortis will use a combination of one or more Prospective Offerings and effect the Minority Investment to fund the Cash Purchase Price payable in connection with the Acquisition, and may utilize the Acquisition Credit Facilities to pay the balance of the Cash Purchase Price; the completion of the Minority Investment; the maximum number and percentage of Common Shares to be held by ITC shareholders as a result of the Acquisition; the intention of the parties to the Acquisition to seek, and the expected timing for, shareholder approvals in relation to the Acquisition; the listing on the TSX of the Consideration Shares; the impact of the Acquisition on a consolidated basis on the Corporation’s operations, infrastructure, opportunities, financial condition, access to capital and overall strategy; the ability of Fortis to satisfy its liabilities and meet its debt service obligations following completion of the Acquisition; the expectation that the Corporation and its subsidiaries will remain compliant with debt covenants through the completion of the Acquisition and the repayment, if necessary, of the Acquisition Credit Facilities; the expectation that the Corporation will maintain an investment-grade credit rating following the Acquisition; the expectation that Fortis will receive investment-grade credit ratings from either of Moody’s Investors Service, Inc. or Fitch Ratings Inc. prior to Closing; the expectation that Fortis will become an SEC registrant and have its Common Shares listed on the NYSE in connection with the Acquisition; the expectation that Fortis will be able to access the capital markets prior to and following the Acquisition to obtain funds that will constitute part of the Cash Purchase Price and, if necessary, to effect the repayment of the Acquisition Credit Facilities in accordance with their terms; the expected receipt of consent to the Acquisition from the lenders under ITC’s revolving credit facilities; the expected Acquisition-Related Costs; the expected aggregate payments to be made to the executive officers of ITC as a result of the Acquisition; the amount of indebtedness of ITC expected to have been incurred as of Closing; the performance, business prospects and opportunities of ITC and its subsidiaries; the availability of future investment opportunities in the electrical transmission industry in the United States; the United States federal regulatory environment and expectations in respect of the continued support for investment in the transmission industry by FERC; the expectation that ITC will continue to operate independently under the ownership structure of Fortis following the Acquisition, will retain its current employees and will continue to be based in Novi, Michigan; the expectation that Fortis will retain key employees of ITC and its subsidiaries; the regulatory environment in the states in which the ITC Regulated Operating Subsidiaries operate; the nature, timing and expected costs of certain capital projects including, without limitation, the four MVPs; the actual monthly peak loads experienced by the MISO Regulated Operating Subsidiaries compared to those forecasted; the range of refunds required to be paid to customers of the MISO Regulated Operating Subsidiaries in respect of the base rate complaints; the potential that challenges may be initiated at FERC that will require the ITC Regulated Operating Subsidiaries to take bonus depreciation; the economic environment in each of the states in which the ITC Regulated Operating Subsidiaries operate; the impact of the CPP and other clean energy policies on the electrical transmission industry in the United States and on future rate base growth; the anticipated impact of current and future environmental regulations on the business and operations of ITC; the anticipated impact of current and future reductions in the base ROE rate by FERC; and expectations in respect of the operations of ITC and its subsidiaries.

The forecasts and projections that make up the forward-looking information included in this Circular are based on assumptions which include, but are not limited to: the completion of the Acquisition; the receipt of Fortis and ITC shareholder approvals; the receipt of regulatory approvals relating to the Acquisition on terms acceptable to Fortis; the completion of the Minority Investment; the realization of the anticipated benefits of the Acquisition; the ability of Fortis to successfully integrate the business and operations of ITC into the Fortis group of companies; the expectation that ITC will be able to obtain the consent of the lenders under ITC’s revolving credit facilities; the ability of Fortis to retain key employees of ITC and the ITC Regulated Operating Subsidiaries; the economic environment in each of the states in which the ITC Regulated Operating Subsidiaries operate; the amount of borrowings, if any, to be drawn down under the Acquisition Credit Facilities; the ability of Fortis to satisfy the conditions to drawdown under the Acquisition Credit Facilities; the ability of Fortis to access the capital markets on acceptable terms prior

to and following the Acquisition; the aggregate amount of the Acquisition-Related Costs; the aggregate payments to be made to the executive officers of ITC as a result of the Acquisition; the accuracy and completeness of the ITC public and other disclosure incorporated in this Circular; the absence of undisclosed liabilities of ITC; the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received, and the expectation of regulatory stability; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the electricity and gas systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; no material capital project and financing cost overrun related to any of the Corporation’s or ITC’s capital projects; sufficient liquidity and capital resources; the continuation of regulator-approved mechanisms to flow through the cost of energy supply in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, electricity prices and fuel prices; no significant counterparty defaults; the continued availability of natural gas, fuel, coal and electricity supply; continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long-term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans and environmental laws that may materially negatively affect the operations and cash flows of the Corporation and its subsidiaries; no material change in public policies and directions by governments that could materially negatively affect the Corporation and its subsidiaries; maintenance of adequate insurance coverage; the realization of additional opportunities in the transmission sector following Closing; the Board exercising its discretion to declare dividends, taking into account the business performance and financial conditions of the Corporation; the ability to obtain and maintain licences and permits; retention of existing service areas; continued maintenance of information technology infrastructure; continued favourable relations with First Nations; favourable labour relations; continued ability to rely on contract labour to maintain the transmission systems of the ITC Regulated Operating Subsidiaries following completion of the Acquisition; that the Corporation can reasonably assess the merit of and potential liability attributable to ongoing legal proceedings; and sufficient human resources to deliver service and execute the capital program.

The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Factors which could cause results or events to differ from current expectations include, but are not limited to: regulatory risk, including risks relating to pending and future changes in environmental regulations; interest rate risk, including the uncertainty of the impact that a continuation of a low interest rate environment may have on the ROE of the Corporation’s regulated utilities and of the ITC Regulated Operating Subsidiaries following completion of the Acquisition; risks associated with the continuation, renewal, replacement and/or regulatory approval of power supply and capacity purchase contracts; risks relating to energy prices; risks relating to the ability to obtain shareholder and regulatory approvals in connection with the Acquisition and the timing and terms thereof; state and federal regulatory legislative decisions and actions; interloper risk; risks relating to the inability to complete the Acquisition, including the negative impact such failure would have on the Corporation’s earnings per share and the reverse termination fee payable by Fortis to ITC in certain circumstances; the risk that conditions to the Acquisition may not be satisfied; risks relating to the focus of management time and attention on the Acquisition and other disruptions from the Acquisition making it more difficult to maintain business and operational relationships; the possibility that the anticipated benefits and value creation from the Acquisition will not be realized, or will not be realized within the expected time period; risks relating to any potential downgrade of the Corporation’s credit ratings; risks relating to the base rate complaints; risks relating to potential FERC challenges that could result in the ITC Regulated Operating Subsidiaries taking bonus depreciation; operating and maintenance risks, including the Corporation’s limited experience in the independent FERC-regulated transmission industry; the risk that ITC will not be integrated successfully; risks associated with a potential material decrease in the price of Common Shares, including the risk of such decrease negatively impacting the value of the consideration offered to ITC shareholders; risks associated with a failure to complete the Minority Investment; risks relating to the constraints that the Minority Investment may impose on Fortis’ ability to operate the ITC business in

accordance with its business plan following Closing; risks relating to the ability of Fortis to access capital markets on favourable terms or at all; the cost of debt and equity capital; risks associated with changes in economic conditions; changes in regional economic and market conditions which could affect customer growth and energy usage; capital project budget overrun, completion and financing risk in the Corporation’s long-term contracted generation business; risks associated with the administrative appeals of the denial of International Transmission Company’s claims of the industrial processing exemption from use tax; risks relating to the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labour shortages, material and equipment prices and availability; risks relating to ITC’s ability to obtain necessary financing for planned capital expenditures; the performance of the stock market and changing interest rate environment; risks associated with the limitations on the amount of construction that can be undertaken on the systems of the ITC Regulated Operating Subsidiaries at any one time; risks from regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery or other issues or as a result of legal proceedings; risks arising from variances between estimated and actual costs of construction contracts awarded and the potential for greater competition; risks based on investments in transmission network upgrades for generator interconnection projects significantly changing from prior estimates due to changes in the MISO queue for generation projects and other factors beyond the control of ITC; risks relating to the impairment of ITC’s material long-lived assets; insurance coverage risk; risk of loss of licences and permits; risk of loss of service area; risks relating to derivatives; the continued ability to hedge foreign exchange risk; counterparty risk; environmental risks; insurance risks; risks relating to human resources and labour relations; risk of unexpected outcomes of legal proceedings currently against the Corporation or ITC; risks relating to the use by ITC of contract workers; risk of not being able to access First Nations lands; weather and seasonality risk; commodity price risk; capital resources and liquidity risks; changes in critical accounting estimates; risks related to changes in tax legislation; the ongoing restructuring of the electric industry; changes to long-term contracts; risk of failure of information technology infrastructure and cyber-attacks or challenges to Fortis’ and ITC’s information security, and certain presently unknown or unforeseen risks, including, but not limited to, acts of terrorism. For additional information with respect to the Corporation’s risk factors and risk factors relating to the Acquisition, the failure to complete the Acquisition and the post-Acquisition business and operations of Fortis and ITC, reference should be made to “Schedule G — Risk Factors” and to the Corporation’s continuous disclosure materials filed from time to time with the Canadian securities regulatory authorities.

All forward-looking information in this Circular is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise.

ADDITIONAL INFORMATION

Additional information relating to Fortis is available under the Corporation’s profile on the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com . Financial information relating to Fortis is provided in its comparative financial statements and management discussion and analysis for the most recently completed financial year. A copy of the Corporation’s most recent consolidated financial statements, interim financial statements, management discussion and analysis and annual information form may be obtained by Shareholders, without charge, on SEDAR at www.sedar.com , on the Fortis website at www.fortisinc.com , or upon request from the Corporate Secretary of Fortis at the following address:

Fortis Inc.

Fortis Place, Suite 1100

5 Springdale Street

P. O. Box 8837

St. John’s, NL

A1B 3T2

Reference is made in this Circular to the agreement and plan of merger dated as of February 9, 2016 entered into between, among others, Fortis and ITC (the “Acquisition Agreement”). The Acquisition Agreement has not been reproduced in this Circular, but has been filed by Fortis on SEDAR and can be accessed at www.sedar.com . A summary of the Acquisition Agreement is included in this Circular under the heading “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement”.

Fortis has filed, and expects to file, additional documents in respect of the Acquisition on SEDAR. The information contained on, or accessible through, Fortis’ website or SEDAR is not incorporated by reference into this Circular and is not, and should not be considered to be, a part of this Circular.

PRESENTATION OF FINANCIAL INFORMATION

The unaudited pro forma condensed consolidated financial statements of the Corporation included in this Circular are reported in Canadian dollars and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All financial information of ITC and the historical financial statements of ITC included in this Circular are reported in U.S. dollars and have been prepared in accordance with U.S. GAAP. The assets and liabilities of ITC shown in the unaudited pro forma condensed consolidated balance sheet of the Corporation as at December 31, 2015 are reported in Canadian dollars and reflect the U.S.-to-Canadian dollar period-end closing exchange rate. The revenues and expenses of ITC shown in the unaudited pro forma condensed consolidated statement of earnings of the Corporation for the year ended December 31, 2015 are reported in Canadian dollars and reflect the average U.S.-to-Canadian dollar exchange rates for such periods. Financial information in this Circular that has been derived from such unaudited pro forma condensed consolidated financial statements has been translated to Canadian dollars on the same basis. Such pro forma financial information (which includes the unaudited pro forma condensed consolidated financial statements described above) does not reflect the impact of the proposed Minority Investment (as defined below).

Certain tables and other figures in this Circular may not add due to rounding.

CAUTION REGARDING PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma condensed consolidated financial statements included in this Circular give effect to the Acquisition and certain related adjustments described in the notes accompanying those financial statements, including an assumed financing of the Cash Purchase Price and the Acquisition-related expenses. The unaudited pro forma condensed consolidated balance sheet gives effect to the Acquisition as if it had closed on December 31, 2015. The unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 2015 gives effect to the Acquisition as if it had closed on January 1, 2015. The unaudited pro forma condensed consolidated financial statements are based on the respective historical audited consolidated financial statements of Fortis and ITC for the year ended December 31, 2015 included in this Circular. Pro forma financial information presented in this Circular has been derived from the unaudited pro forma condensed consolidated financial statements of Fortis included elsewhere in this Circular unless the context otherwise requires. Pro forma financial information presented in this Circular should be read together with those unaudited pro forma condensed consolidated financial statements and the respective audited historical consolidated financial statements of Fortis and ITC and related management’s discussion and analysis.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial conditions would have been had the Acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of the operations of the combined company. The actual financial position and results of operations of Fortis may differ significantly from the pro forma amounts reflected in the unaudited pro forma condensed consolidated financial statements due to a variety of factors. Among other things, the unaudited pro forma condensed consolidated financial statements assume that the Cash Purchase Price and the Acquisition-related expenses are initially fully funded from the proceeds of U.S. dollar denominated senior unsecured notes to be issued by Fortis. However, Fortis expects the Cash

Purchase Price and the Acquisition-related expenses will be financed from a combination of one or more Prospective Offerings, the purchase price paid by the Minority Investors in connection with the Minority Investment and, if and to the extent necessary, the proceeds of the Acquisition Credit Facilities. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition”.

The unaudited pro forma information and adjustments, including the allocation of the purchase price, are based upon preliminary estimates of fair values of assets acquired and liabilities assumed, current available information and certain assumptions that Fortis believes are reasonable in the circumstances, as described in the notes to the unaudited pro forma condensed consolidated financial statements. The actual adjustments to the consolidated financial statements of Fortis upon the Closing will depend on a number of factors, including, among others, how the Cash Purchase Price and the Acquisition-related expenses are actually funded, the net assets of ITC on Closing and other additional information that becomes available after the date of this Circular. As a result, it is expected that actual adjustments will differ from the pro forma adjustments, and the differences may be material. See “Special Note Regarding Forward-Looking Statements” and “Schedule G — Risk Factors”.

CURRENCY AND EXCHANGE RATE INFORMATION

In this Circular, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. References to “dollars”, “$” or “C$” are to lawful currency of Canada. References to “U.S. dollars” or “US$” are to lawful currency of the United States of America.

The following table sets forth, for each of the periods indicated, the period-end closing exchange rate, the average noon exchange rate and the high and low noon exchange rates of one U.S. dollar in exchange for Canadian dollars as reported by the Bank of Canada.

	Year ended December 31,
	2015	2014	2013
High	1.3990	1.1643	1.0697
Low	1.1728	1.0614	0.9839
Average	1.2787	1.1045	1.0299
Period End	1.3840	1.1601	1.0636

On February 8, 2016, the day immediately prior to the entering into of the Acquisition Agreement, the noon buying rate as reported by the Bank of Canada was US$1.00 = C$1.3921 or C$1.00 = US$0.7183. On March 18, 2016, the noon buying rate as reported by the Bank of Canada was US$1.00 = C$1.2982 or C$1.00 = US$0.7703.

THIRD PARTY SOURCES

This Circular contains information from publicly available third party sources as well as industry data prepared by management of Fortis on the basis of its knowledge of the regulated utility industry in which Fortis operates (including management’s estimates and assumptions relating to the industry based on that knowledge). Fortis management’s knowledge of the regulated utility industry has been developed through its experience and participation in the industry. Management of Fortis believes that its industry data is accurate and that its estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness of this data. Third party sources, which include the Edison Electric Institute (“EEI”), the Federal Energy Regulatory Commission (“FERC”), and the SGS Statistical Services Transmission Reliability Benchmarking Study, generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Although management of Fortis believes it to be reliable, Fortis has not independently verified any of the data from third party sources referred to in this Circular or analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying economic assumptions relied upon or referred to by such sources. Undue reliance should not be placed on such third party sources and industry data.

MATTERS FOR CONSIDERATION OF SHAREHOLDERS

FINANCIAL STATEMENTS

Fortis will place before the Meeting the Corporation’s Consolidated Financial Statements for the year ended December 31, 2015 together with the auditors’ report thereon. The Consolidated Financial Statements, and related Management’s Discussion and Analysis, can be found at pages 14 through 147 of the Corporation’s 2015 Annual Report, which has been mailed to all of the registered Shareholders and those beneficial Shareholders who have requested to receive the Annual Report. The 2015 Fortis Annual Report is also available on the Fortis website at www.fortisinc.com and on the SEDAR website at www.sedar.com .

ELECTION OF DIRECTORS

The Articles of Fortis provide for a minimum of 3 and a maximum of 15 directors. The Board of Directors of the Corporation (the “Board of Directors” or the “Board”) currently consists of 10 members. Shareholders will be asked to elect the 10 directors currently serving and two new nominees, Margarita K. Dilley and Jo Mark Zurel, to serve as the 12 members of the Board.

Additional details pertaining to each of the nominees can be found on pages 43 through 54 of this Circular. The 12 nominees proposed for election as directors are as follows:

Tracey C. Ball	Douglas J. Haughey
Pierre J. Blouin	R. Harry McWatters
Peter E. Case	Ronald D. Munkley
Maura J. Clark	David G. Norris
Margarita K. Dilley	Barry V. Perry
Ida J. Goodreau	Jo Mark Zurel

If any of the proposed nominees should for any reason be unable to serve as a director of Fortis, the persons named in the enclosed form of proxy reserve the right to nominate and vote for another nominee in their discretion unless the Shareholder has specified in its proxy that their Common Shares are to be withheld from voting in the election of directors.

In accordance with the Fortis Majority Voting Policy, if any nominee for director receives, from the Common Shares voted at the Meeting, a greater number of votes “withheld” than “for” his or her election, such director must immediately tender his or her resignation to the Chair. Any such resignation will take effect only on acceptance by the Board. The Board shall accept such resignation absent exceptional circumstances that would warrant the director to continue to serve on the Board, as determined by the Board in accordance with its fiduciary duties to the Corporation and its shareholders. Within 90 days of the Meeting, the Board will make a final decision on the proposed resignation and announce it by way of media release. If the Board declines to accept the resignation, the media release shall fully state the reasons for that decision. Any director who tenders his or her resignation will not participate in the related deliberations of the Governance and Nominating Committee or the Board. The Fortis Majority Voting Policy does not apply to a contested election of directors, that is, where the number of nominees exceeds the number of directors to be elected. For more information on the Majority Voting Policy, please see the section of this Circular titled “Majority Voting For Directors” on page 56 of this Circular.

Management of Fortis and the Board recommend that Shareholders vote FOR these nominees. The persons named in your Proxy intend to vote FOR the election of each of these nominees unless you specify that authority to do so is withheld.

APPOINTMENT OF AUDITORS AND AUTHORIZATION OF THE DIRECTORS TO FIX AUDITORS’

REMUNERATION

The Board, on the recommendation of its Audit Committee, proposes that the Shareholders appoint Ernst & Young LLP as the auditors of Fortis to hold office until the close of the next annual meeting of Shareholders.

The Board negotiates the fees paid to the auditors on an arm’s length basis. Such fees are based upon the complexity of the matters dealt with and the time expended by the auditors in providing services to Fortis. Management of Fortis believes that the fees negotiated in the past with the auditors of Fortis have been reasonable in all circumstances and would be comparable to fees charged by other auditors providing similar services.

Fees incurred by Fortis for work performed by its auditors, Ernst & Young LLP, during each of the last two financial years for audit, audit-related, tax and non-audit services were as follows:

External Auditor Service Fees

(C$000’s)

Ernst & Young LLP	2015	2014
Audit Fees	5,223	4,601
Audit-Related Fees	870	748
Tax Fees	475	119
Non-Audit Fees	—	48
Total	6,568	5,516

Audit fees were higher in 2015 than in 2014, mainly due to general increases in fees and the impact of foreign exchange on U.S. dollar-denominated audit fees. The increase in tax fees was largely due to additional work completed on the sale of non-core assets.

Management of Fortis and the Board recommend that Shareholders vote FOR the appointment of Ernst & Young LLP as the auditors of Fortis for 2016 and FOR the authorization of the Board to fix the remuneration of the auditors for 2016. The persons named in your Proxy intend to vote FOR the appointment and FOR the authorization of the Board to fix the remuneration of the auditors unless you specify that authority to do so is withheld.

ADVISORY AND NON-BINDING RESOLUTION ON THE APPROACH TO EXECUTIVE COMPENSATION

Compensation Objectives

As part of the Corporation’s commitment to strong corporate governance practices, the Board elected to put a non-binding advisory vote regarding the Corporation’s approach to executive compensation (“Say on Pay”) to the Meeting. The Board believes that the Corporation’s executive compensation policies and practices must closely align the interests of executives and Shareholders and be consistent with corporate governance best practices in Canada. The Say on Pay resolution (the “Advisory and Non-Binding Resolution on the Approach to Executive Compensation”) gives Shareholders an opportunity to indicate whether they support the disclosed objectives of the Corporation’s executive compensation policies and practices, discussed in more detail in the “Compensation Discussion and Analysis” section of this Circular.

Resolution

“RESOLVED THAT:

On an advisory basis and not to diminish the role and responsibilities of the board of directors of the Corporation, the Shareholders of the Corporation accept the approach to executive compensation as described in the “Compensation Discussion and Analysis” section of this Circular”.

The Board recommends that Shareholders vote FOR the Advisory and Non-Binding Resolution on the Approach to Executive Compensation and, unless otherwise instructed, the persons named in your Proxy intend to vote FOR the non-binding advisory vote on the Advisory and Non-Binding Resolution on the Approach to Executive Compensation.

Non-Binding Nature of Resolution

Shareholders have the opportunity to vote FOR or AGAINST the non-binding advisory vote on Say on Pay. As this is an advisory vote, the results of the vote will not be binding on the Board. The Board will take the results of the vote into account, as appropriate, when considering future compensation polices, practices and decisions and in determining whether there is a need to increase its engagement with Shareholders on compensation and related matters.

ACQUISITION OF ITC HOLDINGS CORP.

The Acquisition

On February 9, 2016, Fortis entered into an agreement and plan of merger pursuant to which it has agreed to acquire all of the issued and outstanding common stock of ITC. Under the terms of the Acquisition, ITC shareholders will receive US$22.57 in cash and 0.7520 of a Common Share per share of ITC common stock. See “Special Business — The Acquisition of ITC Holdings Corp.”.

There were approximately 152.7 million shares of ITC common stock outstanding as of February 8, 2016 and less than 155.6 million shares of ITC common stock are expected to be outstanding on closing of the Acquisition (“Closing”). If the maximum number of shares of ITC common stock are issued and outstanding on Closing, pursuant to the Acquisition Agreement, an aggregate of approximately US$3.5 billion (the “Cash Purchase Price”) will be paid to ITC shareholders in satisfaction of the cash portion of the purchase price for the ITC common stock acquired in the Acquisition (C$4.9 billion based on the US$/C$ exchange rate on February 8, 2016). In addition to the Cash Purchase Price, Fortis will issue up to 117 million Common Shares (the “Consideration Shares”) to ITC shareholders as partial consideration for the Acquisition, representing up to 41.5% of the issued and outstanding Common Shares as of March 18, 2016. The Consideration Shares are expected to represent no more than 29.3% of outstanding Common Shares on Closing. Based on the closing price of the Common Shares (being C$41.38) and the US$/C$ exchange rate on February 8, 2016, the aggregate value of the Cash Purchase Price and Consideration Shares to be paid to the shareholders of ITC would be approximately US$7.0 billion (C$9.8 billion).

The Toronto Stock Exchange (the “TSX”) requires that shareholder approval be obtained in those instances where the number of securities issued or issuable in payment of the purchase price for an acquisition exceeds 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis. Accordingly, Shareholders will be asked at the Meeting to vote on a resolution, the text of which is set out below, approving the issuance of the Consideration Shares to ITC shareholders as partial consideration for the Acquisition (the “Acquisition Share Issuance Resolution”). To be effective, the Acquisition Share Issuance Resolution must be approved by at least a simple majority of the votes cast by Shareholders present in person or represented by proxy at the Meeting. If Shareholder approval is obtained, Closing is expected to occur in late 2016, subject to the satisfaction of the other conditions to Closing. See “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement”.

The issuance of up to 117 million common shares of Fortis Inc. (“Fortis”), forming part of the consideration to be paid in connection with the acquisition by an indirect subsidiary of Fortis of all of the issued and outstanding common stock of ITC Holdings Corp. (“ITC”) pursuant to the terms of an agreement and plan of merger dated as of February 9, 2016 entered into between, among others, Fortis and ITC, is hereby authorized and approved”.

Management of Fortis and the Board recommend that Shareholders vote FOR the Acquisition Share Issuance Resolution. The persons named in your Proxy intend to vote FOR the Acquisition Share Issuance Resolution unless you specify that authority to do so is withheld.

OTHER MATTERS

Fortis did not receive any Shareholder proposal on or prior to February 6, 2016 and management of Fortis does not know of any matter to come before the Meeting other than the foregoing. However, if any other matters should be properly brought before the Meeting, the Common Shares represented by proxies in favour of Fortis management nominees will be voted on such matters in accordance with the best judgment of the proxy nominees.

Shareholders entitled to vote at the next annual meeting to be held in 2017 and who wish to submit proposals in respect of any matter to be raised at such meeting must ensure that Fortis receives their proposals not later than February 4, 2017 in accordance with the provisions of the Corporations Act (Newfoundland and Labrador).

SPECIAL BUSINESS — THE ACQUISITION OF ITC HOLDINGS CORP.

OVERVIEW

On February 9, 2016, Fortis and certain of its subsidiaries entered into the Acquisition Agreement with ITC which provides for, among other things, the acquisition by an indirect subsidiary of Fortis of all of the issued and outstanding common stock of ITC and the merger of the acquiring subsidiary of Fortis with and into ITC. Under the terms of the Acquisition Agreement, ITC shareholders will receive US$22.57 in cash and 0.7520 of a Common Share per share of ITC common stock. There were approximately 152.7 million shares of ITC common stock outstanding as of February 8, 2016 and less than 155.6 million shares of ITC common stock are expected to be outstanding on Closing. Fortis will issue up to 117 million Consideration Shares to ITC shareholders as partial consideration for the Acquisition, or up to 41.5% of its undiluted share count, and is seeking the approval of its Shareholders at the Meeting for the issuance of such Common Shares. See “Canadian and U.S. Securities Law Matters — TSX Approval”.

If the maximum number of shares of ITC common stock are issued and outstanding on Closing, and based on the closing price for the Common Shares and the US$/C$ exchange rate on February 8, 2016 (the day immediately prior to the entering into of the Acquisition Agreement):

· an aggregate of approximately US$3.5 billion will be paid to ITC shareholders in satisfaction of the Cash Purchase Price for the ITC common stock acquired in the Acquisition (C$4.9 billion);

· the aggregate value of the up to 117 million Consideration Shares to be issued to ITC shareholders would be approximately US$3.5 billion (C$4.9 billion);

· the aggregate value of the Cash Purchase Price and the Consideration Shares to be paid to the shareholders of ITC would be US$7.0 billion (C$9.8 billion); and

· the total aggregate purchase price for the Acquisition would be approximately US$11.5 billion (C$16.0 billion), including approximately US$4.5 billion (C$6.2 billion) of consolidated ITC indebtedness expected on Closing.

The actual number of Common Shares to be issued pursuant to the Acquisition Agreement will be determined at Closing based on the exchange ratio of 0.7520 Common Shares per share of ITC common stock and the number of shares of ITC common stock outstanding at such time. As required by the Acquisition Agreement, Fortis has applied to list the Consideration Shares on the TSX and will apply to list the Common Shares on the NYSE. Listing will be subject to the Corporation fulfilling all of the requirements of the TSX and the NYSE, respectively (the “Listing Conditions”). Fortis will not be able to satisfy the listing requirements of the TSX unless Shareholder Approval of the Acquisition Share Issuance Resolution is obtained at the Meeting or any adjournment or postponement thereof. See “Canadian and U.S. Securities Law Matters — TSX Approval”.

Closing of the Acquisition will not occur until the conditions contained in the Acquisition Agreement have been satisfied or waived. The Acquisition Agreement provides that all such conditions must be satisfied or waived by 5:00 pm Michigan local time on February 9, 2017 (the “End Date”), provided that the End Date may be extended for an additional six month period if the only conditions outstanding (other than those conditions which by their nature are to be satisfied at Closing) are the Required Regulatory Approvals or if there is at that time a Legal Restraint to Closing. The conditions to Closing include, among others, receipt by each of ITC and Fortis of the approval of their respective shareholders, receipt of the Required Regulatory Approvals, including, among others, those of FERC, the Committee on Foreign Investment in the United States, and the United States Federal Trade Commission/Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 , as amended (the “HSR Act”) and certain other regulatory approvals, satisfaction of the Listing Conditions (subject only to a

confirmatory official notice of issuance), the registration statement on Form F-4 filed by Fortis on March 17, 2016, which includes a prospectus of Fortis and a proxy statement of ITC (the “Registration Statement”), having been declared effective by the SEC under the United States Securities Act of 1933 , as amended, or otherwise having become effective, and other customary closing conditions. Closing is expected to occur in late 2016. See “The Acquisition Agreement” for a more detailed description of the conditions to Closing.

Fortis expects that, prior to Closing, one or more infrastructure-focused minority investors unrelated to Fortis (the “Minority Investors”) will have entered into binding commitments to acquire, directly or indirectly, on or after Closing, up to an aggregate of 19.9% of the issued and outstanding common stock of ITC as part of the Acquisition (the “Minority Investment”). However, there can be no assurance at this time that the Minority Investment will be completed at or prior to Closing, or at all. If completed at or prior to Closing, the consideration paid by the Minority Investors would be used by Fortis to finance part of the Cash Purchase Price. Completion of the Acquisition is not conditional on the completion of the Minority Investment. See “Financing the Acquisition — The Minority Investment” and “Schedule G — Risk Factors — Risk Factors Relating to the Acquisition”.

ITC is the largest independent electric transmission company in the United States and is rate regulated by FERC. ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 megawatts (“MW”) in 2015 along approximately 15,600 miles of transmission line. ITC Midwest LLC (“ITC Midwest”) is also a registered utility in Wisconsin. As of December 31, 2015, ITC had assets of approximately US$7.6 billion. More detailed disclosure with respect to ITC can be found at “Schedule D — Information Concerning ITC Holdings Corp.”, “Schedule E — ITC Historical Financial Statements and Management’s Discussion and Analysis” and “Schedule F — Supplementary ITC Information”.

The Corporation’s management expects that the Acquisition will be accretive to the Corporation’s earnings per Common Share in the first full year following Closing, excluding one-time Acquisition-related expenses. Management believes that the Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. On a combined basis, Fortis estimates that FERC-regulated operating earnings for 2015 would represent the Corporation’s highest proportion of regulated operating earnings at 38% and the consolidated 2016 midyear rate base of Fortis would increase by approximately C$8 billion to approximately C$26 billion. See “Background and Recommendation”.

BACKGROUND AND RECOMMENDATION

Background to the Acquisition

Fortis has successfully grown its business through strategic acquisitions that have contributed to strong organic growth over the past decade. As part of this growth strategy, Fortis has continuously evaluated opportunities to maximize shareholder value through strategic acquisitions that would enable Fortis to strengthen and diversify its business, while remaining committed to profitable growth. The proposed Acquisition results from such efforts, and is consistent with the Corporation’s disciplined growth strategy.

The proposed Acquisition and the provisions of the Acquisition Agreement are the result of arm’s length negotiations conducted among representatives of Fortis, ITC, the ITC administrative committee and their respective legal and financial advisors. The following is a brief summary of the negotiations, discussions and actions among the parties that preceded the execution and public announcement of the Acquisition Agreement.

In late October 2015, Fortis approached ITC regarding a potential acquisition and exploratory discussions occurred among members of Fortis management and members of ITC management regarding a potential acquisition. On November 30, 2015, ITC publicly announced that its board of directors would commence

a review of strategic alternatives, including a potential sale of the company or the pursuit of other initiatives to maximize value for its shareholders (the “Strategic Process”).

In the following two months management of Fortis, together with its external financial and legal advisors, continued to consider the merits, feasibility and parameters of a potential acquisition of ITC. During this time, Fortis conducted an in depth technical, financial and legal due diligence review of ITC.

After careful consideration and discussion, the Board of Directors, following discussions with the Corporation’s management, financial advisors and legal counsel, determined to submit a proposal for the acquisition of ITC in connection with the Strategic Process initiated by ITC. Ultimately, the Fortis proposal dated February 3, 2016 was determined by the independent members of the ITC board of directors on February 8, 2016 to be in the best interest of ITC and the ITC shareholders, at which point the parties commenced negotiations to finalize the terms of the Acquisition as set out in the Acquisition Agreement.

On February 8, 2016, the Board convened a special meeting (the “February 8 Board Meeting”) to consider the proposed transaction, including the status of negotiations with respect to the Acquisition Agreement. Also in attendance at the February 8 Board Meeting were members of Fortis’ management and representatives of the Corporation’s legal advisors, BNS and Goldman, Sachs & Co. Representatives of Goldman, Sachs & Co. reviewed its financial analyses of the aggregate consideration to be paid by Fortis pursuant to the Acquisition Agreement, and then rendered Goldman, Sachs & Co.’s oral opinion, subsequently confirmed in writing by delivery of a written opinion dated as of February 9, 2016, that, as of the date of its opinion and based upon and subject to the factors, assumptions, considerations, limitations and other matters set forth in its written opinion, the Aggregate Consideration (as defined in the written opinion) to be paid by Fortis for each outstanding share of common stock, no par value, of ITC pursuant to the Acquisition Agreement was fair from a financial point of view to Fortis. See “Schedule C — Opinion of Goldman, Sachs & Co.” Following this presentation, and after further consideration of the Acquisition and discussions with the Corporation’s management, financial advisors and legal counsel, the Board unanimously determined that the Acquisition is in the best interests of Fortis and approved the Acquisition, including the entering into of the Acquisition Agreement presented at the February 8 Board Meeting, subject to certain minor amendments to be addressed by management. At the February 8 Board Meeting, the Board of Directors also determined to recommend that Shareholders vote in favour of the Acquisition Share Issuance Resolution as set out in this Circular and in the form of proxy.

Immediately prior to the commencement of the February 8 Board Meeting, the Board accepted the resignation of Mr. Paul J. Bonavia as a director of the Corporation. Mr. Bonavia resigned in order to remain in compliance with the rules of another entity of which he is a director. These rules would not permit Mr. Bonavia to serve as a director of Fortis following the announcement by the Corporation that it had entered into the Acquisition Agreement.

The parties and their external advisors concluded negotiation of the final terms of the Acquisition Agreement in parallel to and following the February 8 Board Meeting, and the Acquisition Agreement was executed early in the morning of February 9, 2016. A joint press release of Fortis and ITC announcing the Acquisition was disseminated prior to the opening of markets that day.

As at February 8, 2016, being the day immediately prior to the announcement of the Acquisition, the value of the consideration to be paid to the shareholders of ITC represented a 33% premium to ITC’s unaffected closing share price on November 27, 2015 and a 37% premium to ITC’s 30-day average unaffected share price prior to November 27, 2015.

Recommendation of the Board

Having undertaken a review of, and carefully considered, the opinion of Goldman, Sachs & Co. attached hereto at Schedule C, information concerning ITC, the proposed Acquisition and alternatives, including in depth consultation with Fortis management and the Corporation’s financial advisors and legal counsel and

consideration of such other matters as the Board considered relevant, the Board unanimously determined that the Acquisition is in the best interests of Fortis and determined to recommend that Shareholders vote in favour of the resolution approving the issuance of the Consideration Shares in connection with the Acquisition. Accordingly, the Board unanimously approved and unanimously recommends that Shareholders vote FOR the Acquisition Share Issuance Resolution.

Reasons for the Recommendation

The Board, with the benefit of advice from Fortis management and following discussions with the Corporation’s financial and legal advisors, reviewed and considered a significant amount of information and considered a number of factors relating to the Acquisition. The following is a summary of the principal reasons for the unanimous conclusion of the Board that the Acquisition is in the best interests of Fortis.

Acquisition of a Premier Electric Transmission Utility

The Acquisition of ITC, the largest independent regulated electric transmission utility in the United States, represents a transformative and accretive transaction for Fortis. ITC has grown its average rate base at a compounded average growth rate of approximately 16% over the last three years and, as of December 31, 2015, ITC had assets of approximately US$7.6 billion. After giving effect to the Acquisition, Fortis will become one of the top 15 North American public utilities ranked by enterprise value, establishing scale and an additional platform for rate base growth and investment opportunity in a supportive FERC regulatory environment.

Accretive to Earnings per Common Share in First Full Year

The Acquisition aligns with the Corporation’s financial objectives and is expected to be accretive to earnings per Common Share in the first full year following Closing, excluding one-time Acquisition-related expenses. ITC has proven operational and development capabilities, generating predictable, reasonable returns on capital investments without commodity or fuel exposure. The projected earnings accretion together with ITC’s strong, predictable cash flows is expected to support the Corporation’s average annual dividend growth target of 6% through 2020.

Diversification of the Corporation’s Regulatory, Business and Regional Economic Mix

The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix.

Regulatory and Business . The Acquisition will significantly enhance the Corporation’s regulatory diversity and lower overall rate regulatory risk. Additionally, the FERC regulated electric transmission sector generates stable and predictable cash flows without commodity or fuel exposure. For the twelve months ended December 31, 2015, pro forma the Acquisition, ITC would have represented 38% of the Corporation’s consolidated regulated operating earnings and 38% of the Corporation’s regulated assets.

(1) Excluding one-time Acquisition-related expenses, Fortis’ “Long-term Contracted Generation”, “Non-Utility” and “Corporate and Other” segments and intercompany eliminations, ITC’s “ITC Holdings and other” segment and intercompany eliminations.

Regional Economic . The Acquisition will increase the Corporation’s regional economic diversity, which will further reduce the Corporation’s exposure to a downturn in any particular region served by the Fortis utilities. In addition to its current presence in five provinces, the U.S. states of New York and Arizona and three Caribbean countries, Fortis will gain a presence in eight additional U.S. states, being Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas, Oklahoma and Wisconsin (where ITC Midwest is a registered utility but does not currently carry on business).

Supportive FERC Regulation

ITC’s tariff rates are regulated by FERC, which has been one of the most consistently supportive utility regulators in North America, providing reasonable returns and equity ratios. Rates are set using a forward-looking rate-setting mechanism with an annual true-up, which provides timely cost recovery and reduces regulatory lag. The annual true-up accounts for any differences in projected load as well as differences in any other projected inputs in the formula (such as capital investments and operating expenses) and ensures that the ITC Regulated Operating Subsidiaries are appropriately compensated for the actual costs of service and receive their allowed return on common equity (“ROE”).

FERC also provides for ROE incentive “adders” for, among other things, the ownership and operation of transmission by independent transmission companies. FERC has historically allowed for a greater proportion of equity in target capital structures of transmission companies than is typical for provincial and state utility regulators. See “Schedule D — Information Concerning ITC Holdings Corp.”.

Significant Transmission Investment to Drive ITC’s Rate Base Growth

There is a significant need for capital investment in the aging U.S. electric transmission sector to improve reliability, expand access to power markets, allow new generating resources to interconnect to the transmission system and lower the overall cost of energy delivery. Investment in the transmission industry is required to address reliability standards established by NERC, including critical infrastructure protection, storm hardening and infrastructure replacement. Such investment also reduces transmission constraints and improves access to generation resources. ITC’s proven track record of successfully executing capital programs on time and on budget will help ensure Fortis is positioned to benefit from this need for capital investment. Based on ITC’s planned capital expenditure program, ITC’s average rate base and construction work in progress (“CWIP”) is expected to increase at a compounded average annual rate of approximately 7.5% through 2018. See “Schedule D — Information Concerning ITC Holdings Corp.” and “Schedule G — Risk Factors — Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation”.

ITC Average Rate Base & CWIP

Clean energy policies in the United States, including renewable portfolio standards, are driving the need for new transmission investment to facilitate the delivery of electricity from renewable energy resources to load-serving entities. With its economies of scale and geographic footprint, ITC is favourably positioned to participate in the significant transmission investment opportunity fostered by clean energy policies.

ITC Management Team has a Proven Track Record that Fits Well in the Fortis Ownership Model

The senior management team of ITC has consistently delivered safe, reliable and cost-efficient energy service while significantly increasing ITC’s scale and capabilities. The ITC management team has a proven track record of delivering strong earnings per share growth (delivering ITC shareholders a CAGR

of 16.5% over the last ten years), total shareholder return, cash flow from operations and operational efficiencies. From its initial public offering in 2005 through November 2015, ITC has delivered more than double the annual shareholder returns of the S&P 500 Utilities Sector Index.

In addition, EEI’s 2014 Safety Survey ranks ITC in the top 10% for safety performance. ITC’s transmission systems routinely perform among the top 25% of utilities nationally for reliability performance as measured by the average number of sustained outages and momentary outages per circuit, according to the annual SGS Statistical Services Transmission Reliability Benchmarking Study, a national benchmark.

The Corporation’s approach to utility management is based on creating value for customers that translates into long-term value for Shareholders. Fortis structures its operations as separate operating companies in each jurisdiction. ITC’s experienced and execution-focused management team will continue to operate independently under the ownership structure of Fortis, with the benefit of access to additional capital and the utility management experience and expertise of Fortis. See “Schedule G — Risk Factors — Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation”.

Proven Acquisition Track Record of Fortis

Fortis has substantial experience in successfully integrating newly acquired enterprises into the Fortis group, including the acquisitions of UNS Energy in 2014, CH Energy Group in 2013, FortisBC Holdings (formerly Terasen Inc.) in 2007, and FortisBC Electric (formerly Aquila Networks Canada (British Columbia) Ltd.) and FortisAlberta (formerly Aquila Networks Canada (Alberta) Ltd.) in 2004.

Risk Factors Considered by the Board

In connection with its deliberations relating to the Acquisition, the Board also considered potential risks and negative factors concerning the Acquisition and the other transactions contemplated by the Acquisition Agreement, including the following:

· the risk that the Acquisition might not be completed in a timely manner or at all;

· the risk that the regulatory approval process could result in undesirable conditions, impose burdensome terms, and/or result in increased pre-tax transaction costs;

· the potential length of the regulatory approval process and the related period of time during which Fortis will be subject to the restrictions in the Acquisition Agreement;

· the effect that the length of time from announcement until Closing could have on the market price of the Common Shares, the Corporation’s operating results (particularly in light of the significant costs incurred in connection with the Acquisition), and the relationships with the Corporation’s employees, Shareholders, customers, partners and others that do business with Fortis;

· the fact that the Acquisition Agreement provides for a fixed exchange ratio and that no adjustment will be made in the consideration to be received by ITC shareholders as a result of a possible increase in the trading price of the Common Shares following the announcement of the Acquisition, while noting that the significant Cash Purchase Price will reduce the impact of an increase in the trading price of Common Shares on the value of the Acquisition consideration;

· potential challenges associated with coordinating Fortis’ and ITC’s operations;

· the risk that any inability to maintain the current management team of ITC could affect the combined company, as Fortis recognizes the value of ITC’s management and expertise and the value that ITC’s local management brings to ITC’s utilities;

· potential negative regulatory outcomes and the impact on allowed ROE that may result from the base rate complaints against certain of the ITC Regulated Operating Subsidiaries;

· the risk that if the Acquisition Agreement is terminated, Fortis may be obligated to pay a termination fee under certain circumstances;

· the fact that the Acquisition Agreement provides for the ability of the ITC board of directors to, under certain circumstances, in a manner adverse to Fortis, withhold, withdraw, amend, modify or qualify its recommendation that ITC shareholders adopt the Acquisition Agreement;

· the enhanced regulatory burden and risk of exposure to litigation and regulatory action as a result of Fortis becoming a registrant with the SEC and having the Common Shares listed on the NYSE;

· the potential impact on the market price of the Common Shares as a result of the issuance of the Consideration Shares to ITC shareholders and the listing of the Common Shares on the NYSE;

· the fact that Fortis will incur substantial additional indebtedness in connection with the Acquisition that could adversely affect Fortis and its financial position, including its credit rating;

· the absence of a financing condition and ITC’s ability to specifically enforce Fortis’ obligations under the Acquisition Agreement;

· the potential that increases in interest rates could lead to the combined company’s growth opportunities being delayed or not pursued;

· the risk and likelihood of litigation arising against ITC and Fortis in connection with the Acquisition; and

· the fact that no material synergy savings are expected to result from the Acquisition.

See “Schedule G — Risk Factors” for a further discussion of the risk factors relating to the Acquisition and the post-Acquisition business and operations of the Corporation. In addition, Shareholders should carefully consider the risk factors which relate to ITC described in “Schedule D — Information Concerning ITC Holdings Corp.”.

The foregoing summary of the information and factors considered by the Board is not intended to be exhaustive. In reaching its decision to approve the Acquisition Agreement and the transactions contemplated thereby, the Board did not quantify or assign any relative weights to the factors considered, but rather based its approval and recommendation on the totality of the information presented to and considered by it. In addition, individual directors may have given different weight to different factors. The conclusions and recommendation of the Board was made after considering the totality of the information and factors involved.

The foregoing discussion of the information and factors considered by the Board contains forward-looking information and statements, all of which are subject to various risks and assumptions. This information should be read in light of the factors described under the sections entitled “Special Note Regarding Forward-Looking Statements” and “Schedule G — Risk Factors” in this Circular.

THE ACQUISITION AGREEMENT

The summary of the material provisions of the Acquisition Agreement below and elsewhere in this Circular is qualified in its entirety by reference to the Acquisition Agreement, a copy of which has been filed by Fortis under the Corporation’s profile on SEDAR, which can be accessed at www.sedar.com . This summary may not contain all of the information about the Acquisition Agreement that is important to you. We urge you to read carefully the Acquisition Agreement in its entirety as it is the legal document governing the Acquisition.

The Acquisition

The Acquisition Agreement provides that, subject to the terms and conditions of the Acquisition Agreement, at Closing, Element Acquisition Sub Inc. (“Merger Sub”) will be merged with and into ITC

and, as a result, the separate corporate existence of Merger Sub will cease, and ITC will continue as the surviving corporation and become a subsidiary of FortisUS Inc. (“FortisUS”).

Closing will occur on the third business day following the day on which the closing conditions set forth in the Acquisition Agreement and described under “— Conditions to the Acquisition” are satisfied or waived (other than those conditions that by their nature are to be satisfied at Closing, but subject to satisfaction or waiver of such conditions), or at such other time as ITC and Fortis agree in writing.

Acquisition Consideration

At Closing each share of ITC common stock issued and outstanding immediately prior to Closing (other than shares of ITC common stock held by Fortis, FortisUS, Merger Sub or any of Fortis’ direct or indirect wholly-owned subsidiaries or ITC or its wholly-owned subsidiaries and ITC restricted stock awards) will be converted into the right to receive (i) US$22.57 in cash; and (ii) 0.7520 of a Common Share.

The Acquisition consideration to be paid for each share of ITC common stock will be equitably adjusted (i) to reflect the effect of certain changes in the number of outstanding shares of common stock of ITC or the Common Shares (or securities convertible or exchangeable into or exercisable for shares of common stock of ITC or the Common Shares) that are issued and outstanding after the date of the Acquisition Agreement and prior to Closing or changes in the securities or classes of securities, including by reason of any reclassification, stock split (including a reverse stock split), stock dividend, recapitalization, merger, issuer tender or exchange offer, or other similar transaction; and (ii) where any cash dividend is declared or paid by Fortis on the Common Shares that are issued and outstanding after the date of the Acquisition Agreement and prior to Closing (other than declaration or payment of regular quarterly cash dividends on the Common Shares up to a specified maximum amount, with usual record and payment dates for such dividends). No adjustment in the consideration payable by Fortis in connection with the Acquisition will be required as a result of the payment by Fortis of regular quarterly dividends as currently forecasted in accordance with the Corporation’s average annual dividend growth target of 6% through 2020.

Treatment of Options, Restricted Stock and Performance Shares

Immediately prior to Closing, each outstanding option to purchase shares of ITC common stock and each outstanding ITC award of restricted stock will automatically become immediately vested and be cancelled and will only entitle the holder to receive (without interest) an amount in cash equal to: (i) in respect of options, the total number of shares of ITC common stock subject to the option multiplied by the excess, if any, of the Equity Award Consideration over the exercise price per share of ITC common stock under such option; and (ii) in respect of restricted stock, an amount in cash equal to the total number of shares of ITC common stock subject to such award immediately prior to Closing multiplied by the Equity Award Consideration, in each case less applicable withholding taxes.

Immediately prior to Closing, each outstanding award of performance shares under any ITC stock plan will automatically become vested at the higher of the target level of performance and the actual level of performance through Closing, and each performance share award will be cancelled and will only entitle its holder to receive (without interest) an amount in cash equal to the number of shares of ITC common stock subject to such award immediately prior to Closing multiplied by the Equity Award Consideration, less applicable withholding taxes. Furthermore, immediately prior to Closing, equivalent performance shares in respect of outstanding performance shares will vest in the same percentage as the performance shares underlying such equivalent performance shares (and, to the extent the percentage of the performance shares vesting exceeds 100%, additional equivalent performance shares will be deemed credited to each holder’s notional account and vested so that the number of equivalent performance shares deemed credited to such holder’s account and vested is equal to the number that would have been held in such account if the number of vested performance shares had been issued as of the grant date, rather than the target number of performance shares) and each equivalent performance share will be cancelled and will only entitle the holder of such equivalent performance share to receive (without interest) an amount in cash equal to the number of such equivalent performance shares deemed credited to such holder’s

notional account as set forth above multiplied by the Equity Award Consideration, less applicable withholding taxes. See “Financing the Acquisition — Acquisition-Related Costs”.

Representations and Warranties

In the Acquisition Agreement, Fortis, FortisUS, Merger Sub and ITC have each made representations and warranties regarding matters which are customary in transactions such as the Acquisition. Certain of the representations and warranties in the Acquisition Agreement are subject to exceptions or qualifications, including, in certain cases, knowledge qualifications, which means that those representations and warranties would not be deemed untrue or incorrect as a result of matters of which certain executives of the party making the representation did not have actual knowledge after reasonable inquiry, and materiality or Material Adverse Effect qualifications.

The representations and warranties contained in the Acquisition Agreement, or in any instrument delivered pursuant thereto, including any rights arising out of any breach of such representations and warranties, will not survive Closing.

Covenants Regarding Conduct of Business by ITC Pending the Acquisition

Except as required pursuant to or permitted by the Acquisition Agreement, required by applicable law or consented to in writing by FortisUS (which consent may not be unreasonably withheld, conditioned or delayed), from the date of the Acquisition Agreement until the earlier of Closing or the termination of the Acquisition Agreement (with certain exceptions), ITC has agreed to, and to cause each of its subsidiaries to, conduct its business in the ordinary course of business consistent with past practice and good utility practice and to other customary operating covenants, including, among others, not to:

· directly or indirectly, take any action (including any action with respect to a third party) that would, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Acquisition or the other transactions contemplated by the Acquisition Agreement or the ability of ITC or its affiliates to satisfy their obligations thereunder;

· issue, pledge, transfer, encumber or dispose of any equity securities of ITC or any of its subsidiaries except for: (i) the issuance of shares of ITC common stock upon the exercise, vesting or settlement of certain outstanding equity securities as of February 8, 2016 or pursuant to the employee stock purchase plans; (ii) issuances to ITC or to a wholly-owned subsidiary of ITC by any subsidiary of ITC; (iii) the grant of certain restricted stock; (iv) the issuance into notional accounts of certain additional performance shares in accordance with the terms of the grant agreements relating to performance shares outstanding as of February 8, 2016; or (v) pledges or liens relating to any indebtedness otherwise permitted to be incurred pending the Acquisition;

· except as explicitly permitted, sell or otherwise dispose of any business organization or division thereof or otherwise sell, assign, exclusively licence, allow to expire or dispose of any material assets, rights or properties;

· declare or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock other than (i) payment of ITC’s regular quarterly cash dividends, not to exceed certain specified amounts, with usual record and payment dates in accordance with past dividend practice; and (ii) any dividend or distribution by an ITC subsidiary to ITC or to a wholly-owned subsidiary of ITC;

· except as explicitly permitted (including, among others, for borrowings in the ordinary course of business under certain of ITC’s and its subsidiaries’ credit facilities), incur, repay or modify in any material respect any indebtedness, or guarantee the obligations of another person’s indebtedness (other than a wholly-owned subsidiary of ITC);

· except as required by the existing terms of a material ITC employee benefit plan, (i) increase the compensation or benefits of any of its officers (except in the ordinary course of business); (ii) grant

any severance or termination pay to any of its officers (except in the ordinary course of business); (iii) enter into, amend, change or revise any employment, change in control, consulting or severance agreement or arrangement with certain officers and employees of ITC or terminate any such person other than for cause; or (iv) make certain changes or take certain actions in respect of any material ITC employee benefit plan; or

· waive, release, assign, discharge, settle, satisfy or compromise any material litigation, other than where the amount paid does not exceed US$25,000,000 in the aggregate or, if greater, does not materially exceed the total incurred case reserve amount for such matter maintained by ITC and/or its subsidiaries prior to February 9, 2016.

In addition, ITC has agreed to, and to cause its subsidiaries to, give any notices to third parties, and ITC and FortisUS have agreed to each use, and cause their respective subsidiaries to use, their reasonable best efforts to obtain certain third-party consents and ITC and FortisUS agree to coordinate and cooperate in identifying certain required consents.

Covenants Regarding Conduct of Business by Fortis, FortisUS and Merger Sub Pending the Acquisition

Except as required pursuant to or permitted by the Acquisition Agreement, required by applicable law or consented to in writing by ITC (which consent may not be unreasonably withheld, conditioned or delayed), from the date of the Acquisition Agreement until the earlier of Closing or the termination of the Acquisition Agreement (with certain exceptions), Fortis has agreed to, and to cause each of its subsidiaries to, conduct its business in the ordinary course of business consistent with past practice and, where applicable, good utility practice and to other customary operating covenants, including, among others not to:

· directly or indirectly, take any action (including any action with respect to a third party) that would, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Acquisition or the other transactions contemplated by the Acquisition Agreement or the ability of Fortis or its affiliates to satisfy their obligations thereunder;

· make any acquisition of, or make any investment in any interest in, any business organization or division thereof or any assets, except for (i) purchases of equipment, inventory and other assets or pursuant to construction, operation and/or maintenance contracts, in each case in the ordinary course of business and good utility practice or pursuant to existing contracts; and (ii) acquisitions or investments that do not exceed US$500,000,000 individually;

· reclassify, combine, split, subdivide or amend the terms of any shares of capital stock of Fortis or any of its significant subsidiaries; or

· incur indebtedness for borrowed money that would reasonably be expected to cause the credit rating of Fortis to drop below investment grade.

No Solicitation

ITC has agreed not to and to cause its subsidiaries and their respective directors, officers and employees not to, and to use its reasonable best efforts to cause their respective representatives not to: (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries with respect to or that could reasonably be expected to lead to, or the making, submission or announcement of, any acquisition proposal; (ii) participate or engage in any negotiations or discussions concerning, or furnish or provide access to its properties, books and records or any confidential information or data to, any person relating to an acquisition proposal, or any inquiry or proposal that could reasonably be expected to lead to any acquisition proposal; (iii) approve, endorse or recommend, or propose publicly to approve, endorse or recommend, any acquisition proposal; or (iv) execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement or other similar agreement for any acquisition proposal.

ITC has agreed to and to cause its subsidiaries and their respective directors, officers and employees to, and to use its reasonable best efforts to cause their respective representatives to: (i) immediately cease and cause to be terminated any solicitations, discussions or negotiations with any person (other than the parties to the Acquisition Agreement) in connection with an acquisition proposal that exists as of the date of the Acquisition Agreement, and (ii) promptly request each person that has, prior to the date of the Acquisition Agreement, executed a confidentiality agreement or similar agreement in connection with its consideration of acquiring ITC to return or destroy all confidential information furnished to such person by or on behalf of it or any of its subsidiaries prior to the date of the Acquisition Agreement.

ITC is required to promptly (and in any event within 24 hours) notify FortisUS if it receives an acquisition proposal, including a summary of the material terms of the proposal (including the identity of the person making such proposal). ITC is also required to keep FortisUS informed on a prompt basis of the status and material terms of such acquisition proposal, including any material changes in respect of any such proposal and to provide FortisUS with a summary of any material changes to any such acquisition proposal.

ITC may grant a waiver, amendment or release under any confidentiality or standstill agreement to the extent necessary to allow for a confidential acquisition proposal to be made to ITC or its board of directors if the ITC board of directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action could be reasonably likely to be inconsistent with its fiduciary duties under applicable law and so long as ITC promptly notifies FortisUS thereof (including the identity of such counterparty) after granting any such waiver, amendment or release and, if requested by FortisUS, grants FortisUS a waiver, amendment or release of any similar provision under the confidentiality agreement between ITC and Fortis.

The Acquisition Agreement does not prohibit ITC or the ITC board of directors from disclosing to its shareholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the United States Securities Exchange Act of 1934, as amended (or any similar communication to shareholders). See “— ITC Board Recommendation”.

Prior to obtaining the approval of the ITC shareholders, ITC and the ITC board of directors may: (i) contact and engage in discussions with any person or group and their respective representatives who makes an acquisition proposal after the date of the Acquisition Agreement solely for the purpose of clarifying such acquisition proposal and the terms thereof; (ii) provide access to its properties, books and records and provide information or data in response to a request therefor by a person or group who makes a bona fide written acquisition proposal after the date of the Acquisition Agreement if the ITC board of directors has (a) determined in good faith, after consultation with its outside legal counsel and financial advisors, that such acquisition proposal could reasonably be expected to constitute, result in or lead to a superior proposal, and (b) received from such person or group an executed confidentiality agreement on terms no less favourable in the aggregate to ITC, as determined by ITC in good faith, to those contained in the confidentiality agreement between ITC and Fortis (except for such changes specifically necessary in order for ITC to be able to comply with its obligations under the Acquisition Agreement); or (iii) participate and engage in any negotiations or discussions with any person or group who makes a bona fide written acquisition proposal after the date of the Acquisition Agreement (which negotiations or discussions need not be solely for clarification purposes) if the ITC board of directors has determined in good faith, after consultation with its outside legal counsel and financial advisors, that such acquisition proposal could reasonably be expected to constitute, result in or lead to a superior proposal.

“Acquisition proposal” means any proposal, inquiry, indication of interest or offer from any person or group of persons (other than Fortis, FortisUS, Merger Sub or their respective affiliates) relating to any transaction or series of transactions, involving (i) any direct or indirect acquisition or purchase of (a) a business or assets that constitute 20% or more of the net revenues, net income or assets of ITC and its subsidiaries, taken as a whole, or (b) 20% or more of the total voting power of the equity securities of ITC; (ii) any tender offer, exchange offer or similar transaction that if consummated would result in any person or group of persons beneficially owning 20% or more of the total voting power of the equity

securities of ITC; or (iii) any merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving ITC (or any subsidiary or subsidiaries of ITC whose business constitutes 20% or more of the net revenues, net income or assets of ITC and its subsidiaries, taken as a whole).

“Superior proposal” means an acquisition proposal involving (i) assets that generate more than 50% of the consolidated total revenues of ITC and its subsidiaries, taken as a whole; (ii) assets that constitute more than 50% of the consolidated total assets of ITC and its subsidiaries, taken as a whole; or (iii) more than 50% of the total voting power of the equity securities of ITC, in each case, that the ITC board of directors in good faith determines, after consultation with its outside counsel and financial advisor, would, if consummated, result in a transaction that is more favourable from a financial point of view to the shareholders of ITC than the transactions contemplated by the Acquisition Agreement after taking into account all such factors and matters considered appropriate in good faith by the ITC board of directors (including, to the extent considered appropriate by the ITC board of directors, (a) all strategic considerations, including whether such acquisition proposal is more favourable from a long-term strategic standpoint, (b) financial provisions and the payment of a termination fee by ITC to FortisUS under the Acquisition Agreement, (c) legal and regulatory conditions and other undertakings relating to ITC’s and its subsidiary’s customers, suppliers, regulators, lenders, partners, employees and other constituencies, (d) probable timing, (e) likelihood of consummation, and (f) with respect to which the cash consideration and other amounts (including costs associated with the acquisition proposal) payable at closing are subject to fully committed financing from recognized financial institutions), and after taking into account any changes to the terms of the Acquisition Agreement committed to in writing by Fortis and FortisUS in response to such superior proposal.

ITC Board Recommendation

Subject to the provisions described below, neither the ITC board of directors nor any committee thereof shall: (i) withhold, withdraw, qualify or modify, or resolve to or propose to withhold, withdraw, qualify or modify its recommendation that the ITC shareholders vote in favour of approving the Acquisition and the Acquisition Agreement in a manner adverse to Fortis or FortisUS; (ii) make any public statement inconsistent with such recommendation; (iii) approve, adopt or recommend any acquisition proposal, or any inquiry or proposal that would reasonably be expected to lead to any acquisition proposal; (iv) fail to reaffirm or re-publish such recommendation within ten business days of being requested by FortisUS to do so (provided, that FortisUS will not be entitled to request such a reaffirmation or re-publishing more than one time with respect to any single acquisition proposal other than in connection with an amendment to any financial terms of such acquisition proposal or any other material amendment to such acquisition proposal); (v) fail to announce publicly, within ten business days after a tender offer or exchange offer relating to any securities of ITC has been commenced, that the ITC board of directors recommends rejection of such tender or exchange offer; (vi) authorize, cause or permit ITC to enter into a merger agreement, letter of intent, agreement in principle, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar contract (other than an acceptable confidentiality agreement) or recommend any tender offer providing for, with respect to, or in connection with, any acquisition proposal or requiring ITC to abandon, terminate, delay or fail to consummate the Acquisition or any other transaction contemplated by the Acquisition Agreement; or (vii) take any action pursuant to which any person (other than Fortis, FortisUS, Merger Sub or their respective affiliates) or acquisition proposal would become exempt from or not otherwise subject to any take-over statute or articles of incorporation provision relating to an acquisition proposal.

However, at any time prior to obtaining approval of the ITC shareholders, the ITC board of directors may (i) change its recommendation in respect of the Acquisition in response to an Intervening Event; or (ii) change its recommendation in respect of the Acquisition and/or terminate the Acquisition Agreement in order to enter into a definitive agreement with respect to a superior proposal where the ITC board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that such acquisition proposal constitutes a superior proposal and such acquisition proposal is not withdrawn, and the ITC board of directors determines, after consultation with its financial advisors and

outside legal counsel, that the failure to make such a change of recommendation in respect of the Acquisition or to terminate the Acquisition Agreement would be reasonably likely to be inconsistent with the ITC board of directors’ fiduciary duties under applicable laws.

The ITC board of directors may not change its recommendation in respect of the Acquisition or terminate the Acquisition Agreement in order to enter into a definitive agreement with respect to a superior proposal, unless (i) ITC provides prior written notice to FortisUS, specifying the material details of the Intervening Event or the material terms and conditions of the superior proposal and attaching a copy of the most current draft of any written agreement relating to the superior proposal; (ii) at or after 5:00 p.m., New York City time, three business days following the day on which ITC delivered such notice, the ITC board of directors reaffirms in good faith, after consultation with its outside counsel and financial advisors, that the failure to make a change of recommendation in respect of the Acquisition, or to terminate the Acquisition Agreement in order to enter into a definitive agreement with respect to a superior proposal, would be reasonably likely to be inconsistent with its fiduciary duties under applicable laws, and, in the case of an acquisition proposal, such acquisition proposal continues to constitute a superior proposal; and (iii) if requested by FortisUS, ITC has negotiated in good faith with FortisUS during the period from the delivery of the notice described above until 5:00 p.m., New York City time, three business days following the day on which such notice was delivered (and in the case of a superior proposal where Fortis or FortisUS has committed to any changes to the terms of the Acquisition Agreement and there is a subsequent amendment to any material term of the superior proposal, for an additional three business days following the delivery by ITC to FortisUS of a new notice with respect to such amendment) to make such adjustments to the terms and conditions of the Acquisition Agreement so that, in the case of an acquisition proposal, such acquisition proposal would cease to be a superior proposal, or (b) in the case of an Intervening Event, the failure of the ITC board of directors to make a change of recommendation in respect of the Acquisition would not be reasonably likely to be inconsistent with its fiduciary duties under applicable laws.

Please see “— Termination of the Acquisition Agreement” and “— Termination Fees”.

Efforts to Obtain Required Shareholder Votes

The Acquisition Agreement requires ITC to promptly, but no more than 20 business days after the Registration Statement is declared effective by the SEC or after the SEC declares that it has no further comments on or will not review the Registration Statement, take all reasonable action necessary to duly call, give notice of, convene and hold a shareholders’ meeting for the purpose of obtaining ITC shareholder approval of the Acquisition Agreement. Unless ITC’s board of directors has modified its recommendation regarding the Acquisition as permitted under the Acquisition Agreement, as further discussed in “— ITC Board Recommendation”, ITC will include in the proxy statement its recommendation that its shareholders approve and adopt the Acquisition Agreement and the Acquisition and, subject to the consent of ITC’s financial advisors, such financial advisors’ respective written opinions that, as of the date of the Acquisition Agreement, the per share Acquisition consideration is fair, from a financial point of view, to ITC shareholders (other than the excluded holders with respect to certain of the financial opinions). The Acquisition Agreement requires the ITC board of directors to use reasonable best efforts to obtain ITC shareholder approval of the Acquisition Agreement.

The Acquisition Agreement also requires Fortis to take all reasonable action necessary to duly call, give notice of, convene and hold, the Meeting for the purpose of obtaining Shareholder approval of the Acquisition Share Issuance Resolution.

ITC Financing Cooperation

ITC has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange the financing to be undertaken by Fortis in connection with the Acquisition and transactions related to such financing, including, among other things, using reasonable best efforts to (i) negotiate and enter into definitive agreements with respect

thereto, (ii) satisfy (or obtain a waiver of) on a timely basis of all conditions to obtaining such financing, and (iii) consummate the financing at or prior to Closing.

ITC has agreed to use its reasonable best efforts to, and to cause its representatives to, on a timely basis, provide all customary cooperation that is reasonably requested by FortisUS to assist in connection with obtaining the financing to be undertaken by Fortis in connection with the Acquisition. ITC has agreed to use its reasonable best efforts to obtain an amendment to certain of its credit facilities so that, after giving effect to the Acquisition, no default or event of default exists under such credit facilities. See “Schedule D — Information Concerning ITC Holdings Corp. — Outstanding Indebtedness”.

In connection with the Minority Investment, binding commitments for such Minority Investment are required to be in place no later than 90 days after the date of the Acquisition Agreement (which date may be extended for 30 days with the consent of ITC (which may not be unreasonably withheld, conditioned or delayed), which consent will not be required where such Minority Investor would not reasonably be expected to delay any Required Regulatory Approval) and prior to such date Fortis has agreed to provide written notice to ITC which such notice will contain the identity of each Minority Investor, the amount that such Minority Investor will invest in the Minority Investment and all of the other material terms and conditions of such Minority Investment. Minority Investors will not be permitted to have direct or indirect beneficial ownership of ITC (on, prior to or immediately following Closing) (i) that exceeds 19.9% in the aggregate; or (ii) that would prevent FortisUS from meeting certain tax requirements with respect to its ownership of ITC after Closing (taking into account any agreement relating to the rights of the third party investors to nominate or appoint directors to the board of directors of ITC after Closing). No Minority Investor will, at any time from the date of the Acquisition Agreement until the earlier of Closing and the termination of the Acquisition Agreement, impair the incentives granted by FERC to subsidiaries of ITC as a result of ITC’s independence from Market Participants. Fortis has agreed not to undertake any Minority Investment that would reasonably be expected to materially delay, materially impede or otherwise prevent the consummation of the transactions contemplated by the Acquisition Agreement, including as a result of any consents of any governmental entity necessary to consummate the transactions contemplated by the Acquisition Agreement.

Other Covenants and Agreements

Fortis, FortisUS and ITC have made certain other covenants to and agreements regarding various other matters including, among others: (i) indemnification of directors and officers of ITC and ITC’s subsidiaries for certain acts occurring at or prior to Closing; (ii) the maintenance of ITC’s existing Novi, Michigan headquarters as well as the regional headquarters of ITC’s operating subsidiaries in the metropolitan areas where they are located immediately prior to Closing, for ten years from Closing; (iii) for a period of one year after Closing, the provision of charitable contributions and community support within the communities in which ITC and its subsidiaries operate at a level comparable in the aggregate to ITC’s levels of contribution and support on the date of the Acquisition Agreement; (iv) an agreement not to implement certain initiatives that would result in ITC and its subsidiaries employing substantially fewer individuals in the aggregate than immediately prior to Closing, (v) the use of reasonable best efforts to arrange and obtain the committed financing in connection with the Acquisition and to (a) keep ITC reasonably informed concerning the status of the financing to be undertaking by Fortis in connection with the Acquisition, (b) at all times prior to Closing, keep and maintain any committed financing that is funded in advance of Closing available to fund the transactions contemplated by the Acquisition Agreement, and (c) agree to certain restrictions on amending, supplementing, modifying, terminating or reducing, or granting any waiver of any condition or remedy under the Acquisition Credit Facilities without ITC’s prior written consent; (vi) the use of reasonable best efforts to cause the Consideration Shares to be listed on the NYSE and the TSX and ITC’s agreement to use reasonable best efforts to cooperate in connection with the foregoing; and (vii) the chief executive officer of ITC’s attendance at meetings of the Board of Directors after Closing and the Corporation’s reasonable efforts to cause the chief executive officer (or, in certain circumstances, another person mutually agreed upon by the ITC board of directors and the Board of Directors in consultation with the chief executive

officer of ITC) to be elected to the Board of Directors at the first annual general meeting of Shareholders following Closing and at the following such meeting.

Consents and Approvals

FortisUS, Fortis, Merger Sub and ITC have agreed to use their best efforts and to cooperate to obtain all required consents and make all required filings, which consents include, among others, the approval of FERC, the Committee on Foreign Investment in the United States (“CFIUS”), the United States Federal Trade Commission/Department of Justice under the HSR Act and state and local public utility commission approvals (or disclaimer of jurisdiction or similar action) in each of Wisconsin, Illinois, Oklahoma, Missouri and Kansas (collectively, the “Required Regulatory Approvals”). In addition, the approval of the Federal Communications Commission will be obtained in connection with the Acquisition.

Prior to Closing, Fortis, FortisUS and Merger Sub have agreed not to and to cause their affiliates not to permit any action which would reasonably be expected to materially and adversely impact the ability of the Fortis, FortisUS and Merger Sub to secure all required consents and filings with or from any governmental entity to consummate the transactions contemplated by the Acquisition Agreement, or take any action with any governmental entity relating to the foregoing, or agree, in writing or otherwise, to do any of the foregoing, in each case which would reasonably be expected to materially delay or prevent the consummation of the transactions contemplated by the Acquisition Agreement or result in the failure to satisfy any condition to consummation of the transactions contemplated by the Acquisition Agreement.

Conditions to the Acquisition

Conditions to the Obligations of Fortis, FortisUS, Merger Sub and ITC . The respective obligations of Fortis, FortisUS, Merger Sub and ITC to consummate the Acquisition are subject to the satisfaction or waiver of the following mutual conditions: (i) approval of the Acquisition Agreement by an affirmative vote of the holders of at least a majority of the outstanding shares of ITC common stock entitled to vote at the special meeting; (ii) absence of any law (whether temporary, preliminary or permanent) which prohibits, restrains or enjoins the consummation of the Acquisition (a “Legal Restraint”); (iii) all required consents and filings have been obtained, made or given and are in full force and effect and not subject to appeal, and all applicable waiting periods imposed by any government entity (including the HSR Act) are terminated or have expired; (iv) the approval by Shareholders of the Acquisition Share Issuance Resolution; (v) the Consideration Shares having been approved for listing on the NYSE and the TSX, subject to official notice of issuance; (vi) the Registration Statement having been declared effective by the SEC and no stop order suspending the effectiveness of the Registration Statement having been issued by the SEC and no proceedings for that purpose having been initiated or threatened by the SEC; and (vii) there not having occurred since the date of the Acquisition Agreement any event that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect in respect of either of ITC or Fortis. There are also additional customary conditions under the Acquisition Agreement relating to the performance by the parties of their respective obligations thereunder.

Termination of the Acquisition Agreement

The Acquisition Agreement may be terminated and the Acquisition may be abandoned at any time prior to Closing, notwithstanding the adoption of the Acquisition Agreement by the shareholders of ITC, under the following circumstances:

· by mutual written consent of Fortis and ITC;

· by either Fortis or ITC: (i) if any court of competent jurisdiction or other governmental entity has issued an order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Acquisition and such order, decree, ruling or other action is or will have become final and non-appealable (and the party seeking to terminate the Acquisition Agreement has used such

standard of effort as may be required by the Acquisition Agreement to prevent, oppose and remove such restraint, injunction or other prohibition); (ii) if the Acquisition has not been completed on or before the End Date and the failure of Closing to occur on or before the End Date was not primarily caused by the breach of the obligations under the Acquisition Agreement of the party seeking to terminate the Acquisition Agreement (provided that the End Date is subject to an extension to August 9, 2017 if the only closing conditions outstanding are the conditions relating to Legal Restraints or the Required Regulatory Approvals); (iii) ITC shareholder approval of the Acquisition Agreement is not obtained at the special meeting of ITC shareholders; or (iv) Shareholder approval of the Acquisition Share Issuance Resolution is not obtained at the Meeting;

· by ITC: (i) if Fortis, FortisUS or Merger Sub has breached or failed to perform its representations, warranties, covenants or agreements contained in the Acquisition Agreement, which breach or failure to perform (a) would cause certain of the conditions to ITC’s obligation to consummate the Acquisition to not be satisfied, and (b) cannot be cured or has not been cured by the earlier of 30 days after written notice thereof has been given by ITC to Fortis or three business days prior to the End Date, but only if ITC is not in material breach of any covenant or agreement in the Acquisition Agreement; (ii) in order to enter into a definitive agreement with respect to a superior proposal, if such termination occurs before ITC shareholders approve the Acquisition Agreement and so long as ITC complies with its obligations with respect to a superior proposal, if prior to or concurrently with such termination, ITC pays the applicable termination fee to FortisUS (as described below); or (iii) if the Board of Directors (a) changes its recommendation in respect of the Acquisition prior to obtaining Shareholder approval of the Acquisition Share Issuance Resolution, (b) fails to include such recommendation in the Circular, or (c) formally resolves to effect or publicly announces an intention to effect any of the foregoing, prior to obtaining Shareholder approval of the Acquisition Share Issuance Resolution;

· by Fortis: (i) if ITC has breached or failed to perform its representations, warranties, covenants or agreements contained in the Acquisition Agreement, which breach or failure to perform (a) would cause certain of the conditions to Fortis, FortisUS or Merger Sub’s obligation to consummate the Acquisition to not be satisfied, and (b) cannot be cured or has not been cured by the earlier of 30 days after written notice thereof has been given by Fortis to ITC or three business days prior to the End Date, but only if each of Fortis, FortisUS and Merger Sub is not in material breach of any covenant or agreement in the Acquisition Agreement; or (ii) if the ITC board of directors (a) changes its recommendation in respect of the Acquisition prior to obtaining ITC shareholder approval of the Acquisition Agreement, (b) fails to include such recommendation in the proxy statement distributed to ITC shareholders, (c) recommends an acquisition proposal other than the Acquisition to ITC shareholders prior to obtaining ITC shareholder approval of the Acquisition Agreement, or (d) formally resolves to effect or publicly announces an intention to effect any of the foregoing, prior to obtaining ITC shareholder approval of the Acquisition Agreement.

Termination Fees

ITC has agreed to pay a termination fee of US$245 million to FortisUS if: (i) the Acquisition Agreement is terminated by ITC in order to enter into a definitive agreement with respect to a superior proposal, if such termination occurs before ITC shareholders approve the Acquisition Agreement; (ii) the Acquisition Agreement is terminated by Fortis because the ITC board of directors (a) changes its recommendation in respect of the Acquisition prior to obtaining ITC shareholder approval of the Acquisition Agreement, (b) fails to include such recommendation in the proxy statement distributed to ITC shareholders, (c) recommends an acquisition proposal other than the Acquisition to ITC shareholders prior to obtaining ITC shareholder approval of the Acquisition Agreement or (d) formally resolves to effect or publicly announces an intention to effect any of the foregoing, prior to obtaining ITC shareholder approval of the Acquisition Agreement; or (iii) the Acquisition Agreement is terminated by either Fortis or ITC (a) because Closing does not occur on or before the End Date where the primary cause of the failure of Closing to occur on or before the End Date was not the breach of the obligations under the Acquisition Agreement of the party seeking to terminate the Acquisition Agreement or (b) because of a failure to

obtain ITC shareholder approval of the Acquisition Agreement at the special meeting of ITC shareholders, and, in each case, an acquisition proposal is made to ITC, its board of directors or shareholders or otherwise becomes publicly known, at any time after the date of the Acquisition Agreement and prior to the vote to approve the Acquisition Agreement at the special meeting of ITC shareholders and within 12 months of such termination, ITC enters into a definitive agreement with respect to such acquisition proposal, which is subsequently consummated, or consummates an acquisition proposal. In the case of item (iii), all references in the definition of “acquisition proposal” set forth above in “— No Solicitation” to “20% or more” will be deemed to be references to “more than 50%”).

Fortis has agreed to pay to ITC a termination fee of US$245 million if the Acquisition Agreement is terminated by ITC because the Board of Directors (i) changes its recommendation in respect of the Acquisition prior to obtaining Fortis shareholder approval of the Acquisition Share Issuance Resolution; (ii) fails to include such recommendation in the Circular; or (iii) formally resolves to effect or publicly announces an intention to effect any of the foregoing, prior to obtaining Shareholder approval of the Acquisition Share Issuance Resolution.

Fortis has agreed to pay ITC a termination fee of US$280 million if all other conditions to the obligations of each party to effect the Acquisition and conditions to the obligations of Fortis, FortisUS and Merger Sub to effect the Acquisition have been satisfied or waived and the Acquisition Agreement is terminated (i) by either Fortis or ITC because a court of competent jurisdiction or other governmental entity has issued an order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Acquisition and such order, decree, ruling or other action is or will have become final and non-appealable (and the party seeking to terminate the Acquisition Agreement has used such standard of effort as may be required by the Acquisition Agreement to prevent, oppose and remove such restraint, injunction or other prohibition) and such Legal Restraint arises in connection with the Required Regulatory Approvals; (ii) by either Fortis or ITC because Closing does not occur on or before the End Date and the primary cause of the failure of Closing to occur on or before the End Date was not the breach of the obligations under the Acquisition Agreement of the party seeking to terminate the Acquisition Agreement, and at the time of such termination, any Required Regulatory Approval has not been obtained or any Legal Restraint to Closing in connection therewith has not been removed; or (iii) by ITC where Fortis or FortisUS has breached or failed to perform its covenants or agreements set forth in the Acquisition Agreement with respect to obtaining Required Regulatory Approvals, which breach or failure to perform would cause certain of the conditions to ITC’s obligation to consummate the Acquisition to not be satisfied, and such breach cannot be cured or has not been cured in accordance with the terms of the Acquisition Agreement.

Modification, Amendment or Waiver

At any time prior to Closing, the Acquisition Agreement may be amended by written agreement among Fortis, FortisUS, Merger Sub and ITC, subject to applicable law. With respect to certain specified provisions, no amendment, waiver or other modification adverse to any financing source will be effective as to such financing source without its prior written consent.

FINANCING THE ACQUISITION

Fortis has agreed to pay US$22.57 in cash and 0.7520 of a Common Share per share of ITC common stock on Closing. There were approximately 152.7 million shares of ITC common stock outstanding as of February 8, 2016 and less than 155.6 million shares of ITC common stock are expected to be outstanding on Closing. Fortis will issue up to 117 million Consideration Shares to ITC shareholders as partial consideration for the Acquisition, or up to 41.5% of its undiluted share count as of March 18, 2016, and is seeking the approval of its Shareholders at the Meeting for the issuance of such Common Shares. If the maximum number of shares of ITC common stock are issued and outstanding on Closing, and based on the closing price for the Common Shares and the US$/C$ exchange rate on February 8, 2016, an aggregate of approximately US$3.5 billion will be paid to ITC shareholders in satisfaction of the Cash Purchase Price for the ITC common stock acquired in the Acquisition (C$4.9 billion) and the aggregate

value of the Cash Purchase Price and Consideration Shares to be paid to the shareholders of ITC would be US$7.0 billion (C$9.8 billion).

At Closing, the Cash Purchase Price and the Acquisition-related expenses are expected to be financed from: (i) the issuance of approximately US$2 billion of Fortis debt, (ii) a combination of one or more offerings of equity securities, equity-linked securities, first preference shares, second preference shares and/or hybrid debt-equity securities to be completed by Fortis on or prior to Closing (items (i) and (ii) being collectively referred to herein as the “Prospective Offerings”); (iii) the purchase price paid by the Minority Investors in connection with the Minority Investment; and (iv) if and to the extent necessary, borrowings under the Acquisition Credit Facilities. The debt securities are expected to be denominated primarily in U.S. dollars in order to provide a significant natural currency hedge for the Corporation’s U.S. dollar earnings. See “— The Minority Investment”. Any aggregate amount outstanding under the Acquisition Credit Facilities following Closing will be reduced as described below under “— Acquisition Credit Facilities”.

The Minority Investment

Fortis expects that, prior to Closing, one or more Minority Investors will have entered into binding commitments to acquire, directly or indirectly, at or after Closing, up to an aggregate of 19.9% of the issued and outstanding common stock of ITC as part of the Acquisition. The Minority Investment will reduce the aggregate Cash Purchase Price payable by Fortis in connection with the Acquisition. Fortis has undertaken a competitive auction process to solicit bids on the Minority Investment from a number of interested parties and is currently in discussions with potential Minority Investors. If and when the Corporation agrees to terms regarding the Minority Investment, Fortis will announce that it has entered into one or more binding agreements providing for the Minority Investment. However, there can be no assurance at this time that the Minority Investment will be completed at or prior to Closing, or at all. Completion of the Acquisition is not conditional on completion of the Minority Investment.

The Acquisition Agreement provides that binding commitments with respect to the Minority Investment must be in place no later than 90 days after the date of the Acquisition Agreement, which date may be extended by 30 days with the consent of ITC (which consent may not be unreasonably withheld, conditioned or delayed) and which consent shall not be required where the applicable Minority Investor(s) would not reasonably be expected to delay receipt of any Required Regulatory Approvals. If the Minority Investment cannot be completed prior to the deadline imposed by the Acquisition Agreement, Fortis expects to proceed with the Minority Investment following Closing. The Acquisition Agreement also imposes restrictions on the identity of the Minority Investors by providing that such Minority Investors shall not impair the incentives granted by FERC to subsidiaries of ITC as a result of ITC’s independence from Market Participants. Fortis has also covenanted in the Acquisition Agreement not to permit any Minority Investment that could materially delay, materially impede or otherwise prevent the consummation of the Acquisition or that would prevent FortisUS from meeting certain U.S. tax requirements with respect to its ownership of ITC after Closing (taking into account any agreement relating to the rights of the Minority Investors to nominate or appoint directors to the board of directors of ITC after Closing). The execution of a binding agreement with respect to the Minority Investment will result in the permanent reduction in the commitments under the Acquisition Credit Facilities. See “The Acquisition Agreement” and “Schedule G — Risk Factors — Risk Factors Relating to the Acquisition”.

Acquisition Credit Facilities

For purposes of financing the Acquisition, on February 9, 2016, Fortis obtained: (i) a commitment letter from The Bank of Nova Scotia (“BNS”), pursuant to which BNS committed to provide to Fortis, upon the terms and subject to the conditions set forth therein, an aggregate amount of US$1.7 billion in non-revolving term senior unsecured equity bridge facilities, repayable in full 364 days following their advance (the “Equity Bridge Facilities”); and (ii) a commitment letter from Goldman Sachs Bank USA (“Goldman Sachs Bank”), pursuant to which Goldman Sachs Bank committed to provide to Fortis, upon the terms and subject to the conditions set forth therein, a US$2.0 billion non-revolving term senior

unsecured debt bridge facility (the “Debt Bridge Facility” and together with the Equity Bridge Facilities, the “Acquisition Credit Facilities”), repayable in full 364 days following its advance. Goldman Sachs Bank has syndicated 60% of the Debt Bridge Facility to three other financial institutions, each of which have agreed to provide 20% of such facility. BNS may syndicate a portion of the Equity Bridge Facilities.

The Acquisition Credit Facilities would be sufficient, if necessary, to fund the full Cash Purchase Price for the Acquisition and estimated Acquisition-related expenses. However, Fortis does not expect to draw on the Acquisition Credit Facilities, as it expects to use a combination of one or more Prospective Offerings and to effect the Minority Investment to fund the Cash Purchase Price payable in connection with the Acquisition. If such financing sources are unavailable to Fortis on terms acceptable to Fortis on or prior to Closing, Fortis will borrow amounts under the Acquisition Credit Facilities, the material terms of which are summarized below, to finance the necessary portion of the Cash Purchase Price. If any amount is drawn under the Acquisition Credit Facilities at Closing, Fortis expects to refinance the borrowing using the net proceeds from a combination of one or more offerings of equity securities, equity-linked securities, first preference shares, second preference shares, medium-term debt and/or hybrid debt-equity securities or from amounts extended under other debt financings.

Following Closing, if any amounts are borrowed under the Equity Bridge Facilities: (i) the net proceeds obtained by Fortis from certain equity offerings, including the Minority Investment, if any; and (ii) a pro rata proportion (based on the ratio of the outstanding commitments or loans outstanding under the Equity Bridge Facilities on the one hand and the Debt Bridge Facility on the other hand) of the net cash proceeds of certain dispositions by Fortis or its subsidiaries to third parties of property or assets where the net cash proceeds of such disposition exceed US$100 million, will in each case be required to be used to prepay the Equity Bridge Facilities (each, an “Equity Prepayment Obligation”).

The commitments available to be drawn under the Equity Bridge Facilities will be reduced by the amount of the net proceeds arising as a result of the occurrence of any Equity Prepayment Obligation prior to any drawdown of the Equity Bridge Facilities. In addition, following payment, prepayment or effective reduction to zero of the Debt Bridge Facility, the net proceeds (or the commitments) obtained in respect of certain bank loans or credit facilities, or the net proceeds obtained in respect of certain other long-term debt financing by Fortis or its subsidiaries (the “Permanent Debt”), will result in a reduction in the outstanding commitments or prepayment of the outstanding loans, as applicable, under the Equity Bridge Facilities, subject to certain exclusions. Any reduction in the outstanding commitments under the Equity Bridge Facilities will be irreversible and any loans prepaid thereunder may not be re-borrowed.

Following Closing, if any amounts are borrowed under the Debt Bridge Facility: (i) the net proceeds (or, in the case of certain bank loans or credit facilities, the commitments) obtained by Fortis or any of its subsidiaries from Permanent Debt; (ii) the net cash proceeds obtained by Fortis from certain equity offerings by Fortis and its subsidiaries, including, for greater certainty, the Minority Investment, completed after the Equity Bridge Facilities have been reduced (or offerings have been commenced in an aggregate amount sufficient to reduce the Equity Bridge Facilities) to an agreed threshold amount; and (iii) a pro rata proportion (based on the ratio of the outstanding commitments or loans outstanding under the Debt Bridge Facility on the one hand and the Equity Bridge Facilities on the other hand) of the net cash proceeds of certain dispositions by Fortis or its subsidiaries to third parties of property or assets where the net cash proceeds of such disposition exceed US$100 million, will in each case be required to be used to prepay the Debt Bridge Facility (each, a “Debt Prepayment Obligation”).

The commitments available to be drawn under the Debt Bridge Facility will be reduced by the amount of the net proceeds arising as a result of the occurrence of any Debt Prepayment Obligation prior to drawdown of the Debt Bridge Facility. Any reduction in the outstanding commitments under the Debt Bridge Facility will be irreversible and any loans prepaid thereunder may not be re-borrowed.

Each of the credit agreements pursuant to which the Acquisition Credit Facilities will be provided, if necessary, would contain customary representations and warranties, affirmative and negative covenants and events of default that will be substantially similar to those in the Corporation’s acquisition credit

agreement dated as of March 28, 2014 with BNS, as administrative agent, and the lending institutions from time to time party thereto. Pursuant to these covenants, Fortis would be required to maintain a consolidated debt to consolidated capitalization ratio of not more than 0.70:1, which is the current consolidated debt to consolidated capitalization ratio in Fortis’ existing revolving corporate credit facility with BNS, as administrative agent, and the lending institutions from time to time party thereto (the “Revolving Facility”). Fortis would also be required to obtain an unsecured debt credit rating from either of Moody’s Investors Service, Inc. (“Moody’s”) or Fitch Ratings Inc. (“Fitch”), neither of which currently rates Fortis or its debt securities.

The Equity Bridge Facilities and the Debt Bridge Facility are subject to customary conditions to funding including, among others, that the Acquisition is consummated on the terms set forth in the Acquisition Agreement, without any amendments, supplements or waivers or other modifications that are materially adverse to the applicable lenders, unless made with the prior written consent of BNS or Goldman Sachs Bank, as applicable (such consent not to be unreasonably withheld, delayed or conditioned); that no Material Adverse Effect in respect of ITC shall have occurred; and, in the case of the Equity Bridge Facilities, that Fortis shall have received gross cash proceeds from Permanent Debt and/or borrowings under the Debt Bridge Facility of not less than US$2.0 billion and, in the case of the Debt Bridge Facility, that Fortis shall have received a minimum amount of gross cash proceeds from certain offerings including, for greater certainty, the Minority Investment, and/or borrowings under the Equity Bridge Facilities (or any replacement facility) of not less than US$1.2 billion.

Customary fees are payable by Fortis in respect of the Acquisition Credit Facilities and amounts outstanding under the Acquisition Credit Facilities will bear interest at market rates.

As of March 18, 2016, Fortis and its subsidiaries had consolidated credit facilities of approximately C$3.5 billion, of which C$2.4 billion was unused, including an unused amount of approximately C$590 million under the Corporation’s C$1.0 billion committed Revolving Facility. Fortis also has the ability to request that the lenders under the Revolving Facility increase the credit under the Revolving Facility by up to an additional C$300 million pursuant to an accordion feature in its Revolving Facility; however, Fortis does not expect to seek such increase in connection with the financing of the Acquisition. As of December 31, 2015, on a pro forma basis after giving effect to the Acquisition and the initial financing plans in connection with the Acquisition (as assumed in the unaudited pro forma condensed consolidated financial statements included in Schedule H to this Circular), Fortis would have approximately C$23.6 billion of total indebtedness outstanding (on a consolidated basis), including an expected C$6.2 billion of debt of ITC (on a consolidated basis). The Corporation expects to maintain an investment-grade credit rating following the Acquisition. See “Fortis — Credit Ratings” and “Schedule G — Risk Factors”.

Acquisition-Related Costs

Fortis (on a consolidated basis) expects to incur up to US$219 million in estimated non-recurring costs in connection with the Acquisition (the “Acquisition-Related Costs”), calculated on a pro forma basis as of December 31, 2015, composed of (i) approximately US$133 million of costs related to ITC options, restricted stock and performance shares as described below under “— Costs Relating to Options, Restricted Stock and Performance Shares” and (ii) expenses of approximately US$86 million associated with financial advisory, consulting, accounting, tax, legal and other professional services, bridge facility commitment fees, debt refinancing fees, costs associated with change of control and integration, listing and registration expenses, underwriting and agency fees, out-of-pocket costs and other costs of a non-recurring nature. When incurred, approximately US$119 million of the Acquisition-Related Costs are expected to be fully expensed and approximately US$100 million are expected to form part of the Acquisition purchase price in accordance with U.S. GAAP. In addition to these estimated Acquisition-Related Costs expected to be incurred by Fortis, ITC expects to incur estimated expenses of approximately US$18 million associated with employee retention arrangements and approximately US$3 million associated with the accelerated vesting of options and restricted stock. See “— Costs Relating to

Options, Restricted Stock and Performance Shares” and “Schedule G — Risk Factors — Risk Factors Relating to the Acquisition”.

Costs Relating to Options, Restricted Stock and Performance Shares

Immediately prior to Closing, each outstanding option to purchase shares of ITC common stock and each award of restricted stock will automatically become immediately vested and be cancelled and will only entitle the holder to receive an amount in cash. In addition, each outstanding award of performance shares under any ITC stock plan will automatically become vested immediately prior to Closing at the higher of the target level of performance and the actual level of performance through Closing, and each performance share award will be cancelled and will only entitle its holder to receive an amount in cash. See “The Acquisition Agreement — Treatment of Options, Restricted Stock and Performance Shares”. Incremental costs expected to be incurred by Fortis and ITC as a result of the foregoing are approximately US$136 million. See “— Acquisition-Related Costs”.

CANADIAN AND U.S. SECURITIES LAW MATTERS

TSX Approval

Pursuant to Section 611(c) of the Toronto Stock Exchange Company Manual (the “TSX Manual”), security holder approval is required in those instances where the number of securities issued or issuable in payment of the purchase price for an acquisition exceeds 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis. There were approximately 152.7 million shares of ITC common stock outstanding as of February 8, 2016. ITC is permitted under the Acquisition Agreement to issue common stock upon (i) the exercise, vesting or settlement of ITC options, restricted stock, performance shares or equivalent performance shares outstanding on February 8, 2016 or (ii) pursuant to the ITC employee share purchase plan. As a result of the restrictions on the issuance of stock by ITC contained in the Acquisition Agreement, less than 155.6 million shares of ITC common stock are expected to be outstanding on Closing. Therefore, if the Acquisition is completed, up to 117 million Common Shares will be issued as partial payment of the purchase price for the Acquisition, representing up to 41.5% of the current issued and outstanding Common Shares. Accordingly, the TSX requires that the Acquisition Share Issuance Resolution must be approved by an ordinary resolution of Shareholders, which requires a majority of the votes (50% + 1) cast by or on behalf of Shareholders, either in person or by proxy, at the Meeting or any adjournment or postponement thereof (“Shareholder Approval”).

The proposed Acquisition and the provisions of the Acquisition Agreement are the result of arm’s length negotiations conducted among representatives of Fortis, ITC, the ITC administrative committee and their respective legal and financial advisors. Based on current information available to Fortis, after the Acquisition no current shareholder of ITC will by virtue of the transaction own 10% or more of the Common Shares, and the Acquisition will not materially affect control of Fortis.

The TSX Manual and applicable Canadian securities legislation provide in certain instances that certain insiders or related parties are not entitled to vote on transactions that are required to be approved by a company’s security holders. To the knowledge of the directors and executive officers of Fortis, after reasonable inquiry, no votes attached to the Common Shares will be excluded in determining whether Shareholder Approval of the Acquisition Share Issuance Resolution has been obtained.

Fortis has applied to list the Consideration Shares on the TSX. Listing will be subject to Fortis fulfilling all of the requirements of the TSX. As described above, Fortis will not be able to satisfy the listing requirements of the TSX unless Shareholder Approval of the Acquisition Share Issuance Resolution is obtained.

New York Stock Exchange Listing and SEC Registration

It is a condition to the completion of the Acquisition that Fortis become a registrant with the United States Securities and Exchange Commission (the “SEC”) and have the Consideration Shares listed on the New York Stock Exchange (the “NYSE”). The issuance of the Consideration Shares to ITC shareholders requires Fortis to file the Registration Statement. Fortis will apply to list its Common Shares on the NYSE. Listing will be subject to the Corporation fulfilling all of the listing requirements of the NYSE. Fortis expects that its Common Shares will commence trading on the NYSE at or prior to Closing under the symbol “FTS”.

Upon the effectiveness of the Registration Statement, Fortis will be a “reporting” company for purposes of U.S. federal securities laws and will become subject to ongoing reporting obligations in the United States and certain other requirements under SEC rules and regulations. On Closing, Fortis expects to continue to qualify as a “foreign private issuer” under applicable U.S. federal securities laws and satisfy the other eligibility requirements of the multi-jurisdictional disclosure system (“MJDS”) adopted by the SEC; however, Fortis could subsequently lose its status as a “foreign private issuer” and, consequently, its eligibility to use MJDS. For so long as it is eligible to use MJDS, Fortis will be entitled to substantially satisfy its U.S. reporting obligations by filing its Canadian continuous disclosure documents with the SEC under the cover of the applicable MJDS form. By listing its Common Shares, Fortis will also become subject to certain NYSE standards and rules, which impose additional corporate governance and other obligations on listed companies; however, as a foreign private issuer, Fortis would be permitted to instead follow Canadian governance practices to the extent that they differ. Despite its status as a foreign private issuer and eligibility to report using the MJDS forms, Fortis will be subject to a number of the disclosure and other requirements mandated by the U.S. Sarbanes-Oxley Act of 2002 and the rules and regulations adopted to effect these requirements. Among other things, these rules and regulations will require the Corporation’s auditor to attest to the effectiveness of the Corporation’s internal control over financial reporting (starting with the second annual report that Fortis files with the SEC after the effectiveness of the Registration Statement). This auditor’s attestation report is not required under Canadian securities laws. For a discussion of some of the associated risks, see “Schedule G — Risk Factors — Risk Factors Relating to the Acquisition”.

FORTIS

RECENT DEVELOPMENTS

Registration Statement Filed with the SEC

On March 17, 2016, Fortis filed the Registration Statement on Form F-4 with the SEC to register the issuance of Common Shares to ITC shareholders in connection with the Acquisition. The Registration Statement has not yet been declared effective by the SEC and is subject to review and comment by the SEC. The Registration Statement has been filed by Fortis on SEDAR and can be accessed at www.sedar.com , and any subsequent amendment to the Registration Statement will also be filed by Fortis on SEDAR. Fortis intends to issue a news release upon the Registration Statement having been declared effective by the SEC.

Litigation Relating to the Acquisition

Following announcement of the Acquisition, three putative class actions were filed by purported shareholders of ITC on behalf of a purported class of ITC shareholders in Oakland County Circuit Court, State of Michigan. Paolo Guerra v. Albert Ernst, et al. , was filed on February 26, 2016, Harvey Siegelman v. Joseph L. Welch, et al. , was filed on March 2, 2016, and Alan Poland v. Fortis Inc., et al. , was filed on March 4, 2016 (the “Complaints”). The Complaints name as defendants a combination of ITC and the individual members of the ITC board of directors, Fortis, FortisUS and Merger Sub. The Complaints generally allege, among other things, that (i) ITC’s directors breached their fiduciary duties in connection with the Acquisition Agreement (including, but not limited to, various alleged breaches of duties of good faith, loyalty, care and independence), (ii) ITC’s directors failed to take appropriate steps to maximize shareholder value and claims that the Acquisition Agreement contains several deal protection provisions that are unnecessarily preclusive and (iii) a combination of ITC, Fortis, FortisUS and Merger Sub aided and abetted the purported breaches of fiduciary duties. The Complaints seek class action certification and a variety of relief including, among other things, enjoining defendants from completing the proposed Acquisition, unspecified rescissory and costs, including compensatory damages, and attorneys’ fees and expenses.

On March 8, 2016, the ITC board of directors received a demand letter from a fourth purported shareholder demanding that the board remedy the same claimed breaches of fiduciary duty asserted in the Complaints. On March 14, 2016, the Guerra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Paolo Guerra v. Albert Ernst, et al . The federal complaint names the same defendants (plus FortisUS), asserts the same general allegations and seeks the same types of relief as in the state court case.

Fortis, ITC and the ITC board of directors believe the lawsuits are without merit and intend to vigorously defend against them. Additional lawsuits arising out of or relating to the Acquisition Agreement or the Acquisition may be filed in the future.

Executive Appointment

On March 15, 2016, the Board approved the appointment of Mr. Jim Laurito to the position of Executive Vice President, Business Development effective April 1, 2016.

CAPITALIZATION

The following table sets out the consolidated cash and cash equivalents and the consolidated capitalization of Fortis as at December 31, 2015:

· on an actual basis; and

· on a pro forma basis, to give effect to the Acquisition (as if it had closed on December 31, 2015) and certain related adjustments.

The following table should be read together with the unaudited pro forma condensed consolidated financial statements, the respective historical audited consolidated financial statements of Fortis and ITC and the related management’s discussion and analysis.

The pro forma financial information in the table is derived from the unaudited pro forma condensed consolidated financial statements included in this Circular. This pro forma information is provided for illustrative purposes only and does not necessarily reflect what the consolidated capitalization of Fortis would have been on December 31, 2015 if the Acquisition had closed on that date. The pro forma adjustments applied to this information are based upon preliminary estimates, current available information and certain assumptions. It is expected that the actual adjustments will differ from these pro forma adjustments, and the differences may be material. See “Caution Regarding Pro Forma Financial Information”, “Special Note Regarding Forward-Looking Statements” and “Schedule G — Risk Factors”.

	As at December 31, 2015
	Actual		Pro Forma (1)(2)
	(in millions of Canadian dollars)

Cash and cash equivalents	$	242	$	261

Total debt and capital lease and finance obligations (3)	$	12,192	$	23,553
Shareholders’ equity
Common Shares (4)	5,867		10,636
Preference shares	1,820		1,820
Additional paid-in capital	14		14
Accumulated other comprehensive income	791		791
Retained earnings	1,388		1,256
Total capitalization (5)	$	22,072	$	38,070

(1) After giving effect to the Acquisition and the related adjustments described in the notes accompanying the unaudited pro forma condensed consolidated financial statements, including the issuance by Fortis to shareholders of ITC of 113.8 million Consideration Shares and assumed funding of the Cash Purchase Price and the Acquisition-related expenses entirely from the proceeds of U.S. dollar-denominated senior unsecured notes to be issued by Fortis. ITC debt, which was approximately C$6.2 billion as at December 31, 2015, will become part of the consolidated indebtedness of Fortis on Closing. For purposes of this table, the assets and liabilities of ITC, which has a U.S. dollar functional currency, and the additional assumed U.S. dollar denominated financing have been translated at the exchange rate on December 31, 2015 set out in the unaudited pro forma condensed consolidated financial statements.

(2) Does not reflect the Minority Investment or any other alternative financing for funding of the Cash Purchase Price and the Acquisition- related expenses. Fortis expects the Cash Purchase Price and the Acquisition-related expenses will be financed from a combination of one or more Prospective Offerings, the purchase price paid by the Minority Investors in connection with the Minority Investment and, if and to the extent necessary, the borrowing under the Acquisition Credit Facilities. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition”. In addition, this column does not give effect to any changes in the Common Shares, long-term debt or capital lease and finance obligations of Fortis between January 1, 2016 and March 18, 2016.

(3) Includes long-term debt and capital lease and finance obligations, including the current portion, and short-term borrowings.

(4) As at December 31, 2015, on an actual basis, there were 281.6 million Common Shares issued and outstanding. Fortis will issue up to 117 million Common Shares to ITC shareholders as partial consideration for the Acquisition. During the period from January 1, 2016 up to but excluding March 18, 2016, Fortis issued an aggregate of 1,480,139 Common Shares pursuant to the Corporation’s Dividend Reinvestment Plan, Consumer Share Purchase Plan, 2012 ESPP and upon the exercise of options granted pursuant to the 2012, 2006 and 2002 Stock Option Plans, for aggregate consideration of approximately C$48 million. An aggregate of 4,650,830 Common Shares were issuable upon the exercise of options outstanding at March 18, 2016.

(5) Excludes non-controlling interests.

There have been no material changes to the share or loan capital of Fortis since December 31, 2015.

CREDIT RATINGS

In February 2016, following the announcement by Fortis that it had entered into the Acquisition Agreement with ITC, S&P affirmed the Corporation’s long-term corporate credit rating of A-, revised its unsecured debt credit rating to BBB+ from A- and revised its outlook on the Corporation to negative from stable. Similarly, in February 2016 DBRS placed the Corporation’s issuer rating and unsecured debt credit rating of A (low) under review with negative implications. The capital structure of Fortis is not expected to materially change as a result of the Acquisition; however, no assurance can be provided that a further ratings downgrade will not occur. Fortis expects that it will continue to have an investment-grade credit rating following completion of the Acquisition.

The credit ratings accorded to the Corporation and its unsecured debt by rating agencies are not a recommendation to buy, hold or sell the Corporation’s debt, since such ratings do not comment as to its market price or suitability for a particular investor. Credit ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities and are intended to be indicators of the likelihood of payment and of the capacity and willingness of the issuer to meet its financial commitment on an obligation in accordance with the terms of the obligation.

S&P’s long-term issuer credit ratings are on a scale that ranges from AAA to D, which represents the range from highest to lowest quality of the issuers rated. S&P’s A- rating category is the third highest of the ten major rating categories used by S&P. According to the S&P rating system, an issuer rated A has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than issuers in higher-rated categories. S&P’s long-term debt credit ratings use a similar scale. According to the S&P rating system, debt securities rated BBB exhibit adequate protection parameters; however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the issuer to meet its financial commitment on the obligation. Ratings designations may be modified by the addition of a plus or minus. A plus or minus designation indicates the relative standing of the issuer or the debt, as applicable, within a category. S&P’s rating outlook assesses the potential direction that a rating may be headed over the immediate to longer-term, with outlooks falling into one of five categories: positive, negative, stable, developing or not meaningful. A negative outlook indicates that a rating may be lowered.

DBRS’ credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of the securities rated. The A rating category is the third highest of the ten major ratings categories used by DBRS. According to the DBRS rating system, debt securities rated A are of good credit quality and indicate that the capacity for the payment of financial obligations is considered substantial but that the instrument may be vulnerable to future events. The assignment of a “(high)” or “(low)” modifier within each rating category indicates relative standing within such category. The “high” and “low” grades are not used for the AAA category.

There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant and, if any such rating is so revised or withdrawn, Fortis is under no obligation to update this Circular. See “Schedule G — Risk Factors — Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation”.

BOARD OF DIRECTORS

NOMINEES FOR ELECTION AS DIRECTORS

This section provides information on each of the 12 persons nominated for election as director at the Meeting, including the background, experience, meeting attendance, other public board memberships and Fortis securities held. Based on questionnaires completed by each of the proposed nominees, the Board has determined that other than Mr. Perry, each nominee has no material relationship with Fortis and is, therefore, independent of Fortis. Mr. Perry is not independent because he is the President and Chief Executive Officer of Fortis. Each of the nominees was elected to his or her present term of office at the annual meeting of Shareholders held on May 7, 2015, with the exception of Mr. Zurel and Ms. Dilley, who are each being nominated for the first time.

There are no contracts, arrangements or understandings between any director or executive officer or any other person pursuant to which any of the nominees has been nominated for election as a director of the Corporation.

TRACEY C. BALL

Corporate Director
Edmonton, Alberta	Expertise/Experience:
		· Finance/Accounting
Age: 58		· Capital Markets
Director since: May 2014		· Governance and Risk
		· Legal/Regulatory
Independent		· Senior Executive

Ms. Ball retired in September 2014 as Executive Vice President and Chief Financial Officer of Canadian Western Bank Group. Prior to joining a predecessor to Canadian Western Bank Group in 1987, she worked in public accounting and consulting. Ms. Ball has served on several private and public sector boards, including the Province of Alberta Audit Committee and the Financial Executives Institute of Canada. She currently serves on the City of Edmonton LRT Governance Board.

Ms. Ball graduated from Simon Fraser University with a Bachelor of Arts (Commerce). She is a member of the Canadian Chartered Professional Accountants of Canada, the Institute of Chartered Accountants of Alberta, and the Association of Chartered Professional Accountants of British Columbia. Ms. Ball was elected as a Fellow of the Institute of Chartered Accountants of Alberta in 2007. She holds an ICD.D designation from the Institute of Corporate Directors.

Ms. Ball was appointed to the Audit Committee on May 14, 2014. Ms. Ball serves as Chair of FortisAlberta Inc.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	11 of 12
Audit	5 of 5	2014	99.76	%	0.24	%
		2015	99.75	%	0.25	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	350	3,234	C$	139,525	Applicable 2018
March 2016	4,950	7,284	C$	477,248	Yes (3.1x)

PIERRE J. BLOUIN

Corporate Director
Ile Bizard, Quebec	Expertise/Experience:
		· Finance/Accounting
Age: 58		· Capital Markets
Director since: May 2015		· Public Policy and Government Relations
		· Senior Executive
Independent		· Executive Compensation
		· Legal/Regulatory

Mr. Blouin served as the Chief Executive Officer of Manitoba Telecom Services, Inc. until his retirement in December 2014. Prior to joining Manitoba Telecom Services, Inc. as its Chief Executive Officer in 2005, Mr. Blouin held various executive positions in the Bell Canada Entreprises group of companies, including Group President, Consumer Markets for Bell Canada, Chief Executive Officer of BCE Emergis, Inc. and Chief Executive Officer of Bell Mobility.

Mr. Blouin graduated from Hautes Etudes Commerciales with a Bachelor of Commerce in Business Administration. He is a Fellow of the Purchasing Management Association of Canada and a Fellow of the Institute of Canadian Bankers.

Mr. Blouin was appointed to the Human Resources Committee on May 7, 2015.

		Voting Results of 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	9 of 9 (3)
Human Resources	4 of 4 (4)	2015	99.81	%	0.19	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	1,750	—	C$	68,128	Applicable 2019
March 2016	2,380	3,294	C$	221,343	Applicable 2019

PETER E. CASE

Corporate Director
Kingston, Ontario	Expertise/Experience:
		· Finance/Accounting
Age: 61		· Capital Markets
Director since: May 2005		· Utilities/Energy
		· Legal/Regulatory
Independent

Mr. Case retired in February 2003 as Executive Director, Institutional Equity Research at CIBC World Markets. During his 17 year career as senior investment analyst with CIBC World Markets and BMO Nesbitt Burns and its predecessors, Mr. Case’s coverage of Canadian and selected U.S. pipeline and energy utilities was consistently rated among the top in that sector.

Mr. Case graduated from Queen’s University with a Bachelor of Arts and an MBA and from Wycliffe College, University of Toronto, with a Master of Divinity.

Mr. Case was appointed Chair of the Audit Committee in March 2011 and was appointed to the Governance and Nominating Committee in May 2013. Mr. Case served on the Board of FortisOntario Inc. from 2003 through 2010 and as Chair of that Board from 2009 through 2010.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
Audit (Chair)	5 of 5	2014	99.73	%	0.27	%
Governance & Nominating	3 of 3	2015	99.03	%	0.97	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	18,500	18,425	C$	1,437,490	Yes (6.4x)
March 2016	16,500	21,924	C$	1,498,920	Yes (8.6x)

MAURA J. CLARK

Corporate Director

New York, New York

Age: 57

Director since: May 2015

Independent

Expertise/Experience:

· Finance/Accounting

·    Capital Markets
·    Utilities/Energy
·    Senior Executive
·    International Business
·    Legal/Regulatory
·    Mergers and Acquisitions

Ms. Clark retired from Direct Energy, a subsidiary of Centrica plc, in March 2014 where she was President of Direct Energy Business, a leading energy retailer in Canada and the United States. Previously Ms. Clark was Executive Vice President of North American Strategy and Mergers and Acquisitions for Direct Energy. Ms. Clark’s prior experience includes investment banking and serving as Chief Financial Officer of an independent oil refining and marketing company.

Ms. Clark graduated from Queen’s University with a Bachelor of Arts in Economics. She is a member of the Association of Chartered Professional Accountants of Ontario.

Ms. Clark was appointed to the Audit Committee on May 7, 2015.

		Voting Results of 2015
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	9 of 9 (3)
Audit	3 of 3 (5)	2015	99.82	%	0.18	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	—	—	—		Applicable 2019
March 2016	—	2,115	C$	82,506	Applicable 2019

MARGARITA K. DILLEY

Corporate Director

Washington, D.C.

Age: 58

Director since: New Nominee

Independent

Expertise/Experience:

· Finance/Accounting

· Governance and Risk Management

· Capital Markets

· Utilities/Energy

· Senior Executive

· International Business

· Mergers and Acquisitions

Ms. Dilley retired from ASTROLINK International LLC in 2004, an international wireless broadband telecommunications company, where she was Vice President and Chief Financial Officer. Ms. Dilley’s prior experience includes serving as Director, Strategy & Corporate Development as well as Treasurer for Intelsat.

Ms. Dilley graduated from Cornell University with a Bachelor of Arts, from Columbia University with a Master of Arts and from Wharton Graduate School, University of Pennsylvania with an MBA.

Ms. Dilley serves as the Chair of the Board of CH Energy Group, Inc.

Board / Committee Membership		Attendance
New Nominee		N/A

Securities Held (1) and Total Market Value as at March 18, 2016 (2)

Year		Common Shares		DSUs		Market Value of Securities		Meets Share Ownership Target
2016		—		—		—		Applicable 2020

IDA J. GOODREAU

Corporate Director
Vancouver, British Columbia	Expertise/Experience:
		· Senior Executive
Age: 64		· Executive Compensation
Director since: May 2009		· Governance and Risk Management

Independent

Ms. Goodreau is past President and Chief Executive Officer of LifeLabs. Prior to joining LifeLabs in March 2009, Ms. Goodreau served as President and Chief Executive Officer of Vancouver Coastal Health Authority from 2002. She has held senior leadership roles in several Canadian and international pulp and paper and natural gas companies.

Ms. Goodreau graduated from the University of Windsor with a Bachelor of Commerce, Honours, and an MBA, and from the University of Western Ontario with a Bachelor of Arts (English and Economics).

Ms. Goodreau serves on the Human Resources Committee and was appointed to the Governance and Nominating Committee in May 2015. She serves as a director of FortisBC Energy Inc. and FortisBC Inc. and is Chair of those companies’ Governance Committees.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
Human Resources	8 of 8	2014	98.92	%	1.08	%
Governance and Nominating	2 of 2 (6)	2015	97.94	%	2.06	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	—	21,451	C$	835,087	Yes (5.8x)
March 2016	—	25,068	C$	977,903	Yes (6.3x)

DOUGLAS J. HAUGHEY

Corporate Director
Calgary, Alberta	Expertise/Experience:
		· Finance/Accounting
Age: 59		· Utilities/Energy
Director since: May 2009		· Senior Executive
		· Executive Compensation
Independent		· Governance and Risk Management
		· Mergers and Acquisitions

From August 2012 through May 2013, Mr. Haughey was Chief Executive Officer of The Churchill Corporation, a commercial construction and industrial services company focused on the western Canadian market. From 2010 through its successful sale to Pembina Pipeline in April 2012, he served as President and Chief Executive Officer of Provident Energy Ltd., an owner/operator of natural gas liquids midstream facilities. From 1999 through 2008, Mr. Haughey held several executive roles with Spectra Energy and predecessor companies. He had overall responsibility for its western Canadian natural gas midstream business, was President and Chief Executive Officer of Spectra Energy Income Fund and also led Spectra’s strategic development and mergers and acquisitions teams based in Houston, Texas.

Mr. Haughey graduated from the University of Regina with a Bachelor of Administration and from the University of Calgary with an MBA. He holds an ICD.D designation from the Institute of Corporate Directors.

Mr. Haughey serves on the Audit Committee and the Human Resources Committee and was appointed chair of the Human Resources Committee in March 2015. He serves on the Board of Directors of FortisAlberta Inc. and served as Chair of that Board from 2003 to February 2016.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
Audit	5 of 5	2014	99.70	%	0.30	%
Human Resources (Chair)	8 of 8	2015	98.67	%	1.33	%

Securities Held (1) and Total Market Value as at March 20, 2015and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	10,000	13,261	C$	905,551	Yes (6.2x)
March 2016	10,000	16,559	C$	1,036,067	Yes (6.2x)

R. HARRY McWATTERS

President,
Vintage Consulting Group Inc.
Summerland, British Columbia	Expertise/Experience:
		· Public Policy and Government Relations
Age: 70		· Senior Executive
Director since: May 2007		· Governance and Risk Management

Independent

Mr. McWatters is President of Vintage Consulting Group Inc., Harry McWatters Inc., and Encore Vineyards Ltd., all of which are engaged in various aspects of the British Columbia wine industry. He is the founder and past President of Sumac Ridge Estate Wine Group.

Mr. McWatters serves on the Governance and Nominating Committee. He is a former director of FortisBC Holdings Inc. and FortisBC Inc., where he served as Chair from 2006 through 2010.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
Governance & Nominating	3 of 3	2014	99.41	%	0.59	%
		2015	99.69	%	0.31	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	1,100	25,588	C$	1,038,964	Yes (7.2x)
March 2016	1,100	29,367	C$	1,188,518	Yes (7.7x)

RONALD D. MUNKLEY

Corporate Director
Mississauga, Ontario	Expertise/Experience:
		· Finance/Accounting
Age: 70		· Capital Markets
Director since: May 2009		· Utilities/Energy
		· Senior Executive
Independent		· Executive Compensation
		· Governance and Risk Management
		· Legal/Regulatory
		· Mergers and Acquisitions

Mr. Munkley retired in April 2009 as Vice Chairman and Head of the Power and Utility Business of CIBC World Markets. While there he acted as lead advisor on over 175 capital markets and strategic and advisory assignments for North American Utility clients. Prior to that he was COO at Enbridge Inc. and Chairman of Enbridge Consumer Gas. Previously he was President and CEO of Consumer Gas where he led the company through deregulation and restructuring in the 1990s.

Mr. Munkley graduated from Queen’s University with a Bachelor of Science (Engineering), Honours. He is a professional engineer and has completed the Executive and Senior Executive Programs of the University of Western Ontario and the Partners, Directors and Senior Officers Certificate of the Canadian Securities Institute.

Mr. Munkley was appointed Chair of the Governance and Nominating Committee on May 14, 2014 and also serves on the Human Resources Committee.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
Human Resources	8 of 8	2014	99.64	%	0.36	%
Governance & Nominating (Chair)	3 of 3	2015	98.67	%	1.33	%

Securities Held (1) and Total Market Value as at March 20, 2015 and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	12,000	13,261	C$	983,411	Yes (6.8x)
March 2016	12,000	16,559	C$	1,114,087	Yes (6.6x)

DAVID G. NORRIS

Corporate Director
St. John’s, Newfoundland and
Labrador	Expertise/Experience:
		· Finance/Accounting
Age: 68		· Public Policy and Government Relations
		· Senior Executive
Director since: May 2005		· Executive Compensation
		· Governance and Risk Management
Independent		· Mergers and Acquisitions

Mr. Norris was a financial and management consultant from 2001 until his retirement in December 2013. Prior to that he was Executive Vice President, Finance and Business Development of Fishery Products International Limited. Previously, he held Deputy Minister positions with the Department of Finance and Treasury Board of the Government of Newfoundland and Labrador.

Mr. Norris graduated from Memorial University of Newfoundland with a Bachelor of Commerce, Honours, and from McMaster University with an MBA.

Mr. Norris was appointed Chair of the Board of Fortis in December 2010 and serves on all Board Committees. He served as Chair of the Audit Committee from May 2006 through March 2011. He served as a director of Newfoundland Power Inc. from 2003 through 2010 and served as Chair of that Board from 2006 through 2010. Mr. Norris served as a director of Fortis Properties Corporation from 2006 through 2010.

		Voting Results of 2014 and 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors (Chair)	12 of 12
Audit	5 of 5	2014	99.57	%	0.43	%
Human Resources	8 of 8	2015	97.89	%	2.11	%
Governance & Nominating	3 of 3

Securities Held (1) and Total Market Value as at March 20, 2015and March 18, 2016 (2)

Date	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
March 2015	13,265	41,055	C$	2,114,678	Yes (7.3x)
March 2016	13,477	46,603	C$	2,343,721	Yes (7.1x)

	BARRY V. PERRY

	President and Chief Executive Officer Fortis Inc.
	St. John’s, Newfoundland and Labrador

	Age: 51
	Director since: January 2015

	Not Independent

Mr. Perry is President and Chief Executive Officer of Fortis. Prior to his current position at Fortis, Mr. Perry served as President from June 30, 2014 to December 31, 2014 and prior to that served as Vice President, Finance and Chief Financial Officer of the Corporation since 2004. Mr. Perry joined the Fortis organization in 2000 as Vice President, Finance and Chief Financial Officer of Newfoundland Power Inc.

He graduated from Memorial University of Newfoundland with a Bachelor of Commerce and is a member of the Association of Chartered Professional Accountants of Newfoundland and Labrador.

Mr. Perry serves as a director of Fortis utility subsidiaries in Alberta, British Columbia, Arizona, and New York.

		Voting Results of 2015 Annual Meeting
Board / Committee Membership	2015 Attendance	Year	For		Withheld
Board of Directors	12 of 12
		2015	99.44	%	0.56	%
Securities Held (7)

JO MARK ZUREL

President,
Stonebridge Capital Inc.	Expertise/Experience:
St. John’s, Newfoundland and Labrador		· Finance/Accounting · Capital Markets · Senior Executive · Governance and Risk Management · Mergers and Acquisitions

Age: 52
Director since: New Nominee

Independent

Mr. Zurel is President of Stonebridge Capital Inc., a private investment company, and a Corporate Director. From 1998 to 2006, Mr. Zurel was Senior Vice-President and Chief Financial Officer of CHC Helicopter Corporation. Mr. Zurel has served on several private and public sector boards, including Major Drilling Group International Inc., the Canada Pension Plan Investment Board and Fronteer Gold Inc. He also serves on the boards of a private company and several not for profit organizations.

Mr. Zurel graduated from Dalhousie University with a Bachelor of Commerce. He is a Fellow of the Association of Chartered Professional Accountants of Newfoundland and Labrador. He holds an ICD.D designation from the Institute of Corporate Directors.

He has served as a director of Newfoundland Power Inc. since 2008 and as Chair of that Board since 2012.

Board / Committee Membership		Attendance
New Nominee		N/A

Securities Held (1) and Total Market Value as at March 18, 2016 (2)

Year	Common Shares	DSUs	Market Value of Securities		Meets Share Ownership Target
2016	9,949	0	C$	388,110	N/A

(1) Represents Common Shares and/or Deferred Share Units (“DSUs”), beneficially owned, controlled or directed, directly or indirectly. This information has been furnished by the respective nominee. Additional details can be found in the “Report On Director Compensation” section starting on page 57 of this Circular.

(2) Calculated using the closing price of Common Shares on the TSX as at March 20, 2015 of C$38.93 and as at March 18, 2016 of C$39.01.

(3) There were three meetings of the Board in 2015 prior to Ms. Clark and Messrs. Blouin and Bonavia being elected to the Board.

(4) There were four meetings of the Human Resource Committee in 2015 prior to Mr. Blouin being appointed to that Committee. Mr. Blouin has attended all meetings of the Human Resource Committee since his appointment.

(5) There were two meetings of the Audit Committee in 2015 prior to Ms. Clark being appointed to the Committee. Ms. Clark has attended all meetings of the Audit Committee since her appointment.

(6) There was one meeting of the Governance and Nominating Committee in 2015 prior to Ms. Goodreau being appointed to that Committee. Ms. Goodreau has attended all meetings of the Governance and Nominating Committee since her appointment.

(7) Options are granted to Mr. Perry in his capacity as President and CEO of Fortis and are detailed on page 100 of this Circular. Mr. Perry does not receive any compensation for his role as a director of the Corporation.

OVERALL ATTENDANCE IN 2015

Below is a summary of attendance by all directors at Board and Committee meetings held during 2015. The Meeting attendance for each current nominee is reported above in their respective biographies under the heading “Nominees for Election as Directors” and summarized below in the table “2015 Attendance Record of Non-Executive Directors Standing for Re-Election”.

	Number of	Attendance at
Board/Committee	Meetings	all Meetings
Board	12	96	%
Audit Committee	5	97	%
Human Resources Committee	8	100	%
Governance and Nominating Committee	3	100	%
Total number of meetings held	28	97	%

Fortis believes that an active board governs more effectively. We expect that directors attend all regularly scheduled meetings of the Board, all regularly scheduled meetings of committees of which they are members, and the annual meeting of Shareholders. While we recognize that the short notice of special Board meetings may sometimes conflict with directors’ schedules, the directors are expected to use reasonable efforts to attend all special meetings of the Board. Directors may participate by teleconference if they are unable to attend in person.

The tables below summarizes the number of Board and committee meetings attended by each non-executive director during 2015.

2015 Attendance Record of Non -Executive Directors Standing for Re-Election

							Total Board and
	Board Meetings			Committee Meetings			Committee Meetings
Director	No. of Meetings	Attended		No. of Meetings	Attended		No. of Meetings	Attended
T.C. Ball	11 of 12	92	%	5 of 5	100	%	16 of 17	94	%
P.J. Blouin	9 of 9	100	%	4 of 4	100	%	13 of 13	100	%
P.E. Case	12 of 12	100	%	8 of 8	100	%	20 of 20	100	%
M.J. Clark	9 of 9	100	%	3 of 3	100	%	12 of 12	100	%
I.J. Goodreau	12 of 12	100	%	10 of 10	100	%	22 of 22	100	%
D.J. Haughey	12 of 12	100	%	13 of 13	100	%	25 of 25	100	%
R.H. McWatters	12 of 12	100	%	3 of 3	100	%	15 of 15	100	%
R.D. Munkley	12 of 12	100	%	11 of 11	100	%	23 of 23	100	%
D.G. Norris	12 of 12	100	%	16 of 16	100	%	28 of 28	100	%

2015 Attendance Record of Non-Executive Directors Not Standing for Re-Election

Total Board and

Board Meetings

Committee Meetings (1)

Committee Meetings

Director

No. of Meetings

Attended

No. of Meetings

Attended

No. of Meetings

Attended

P.J. Bonavia

11 of 12

—

11 of 12

(1) Mr. Bonavia was not a member of any committee as he was considered non-independent.

ADDITIONAL DISCLOSURE RELATED TO DIRECTORS

Within the 10-year period ended March 18, 2016, Fortis is not aware of any proposed director of Fortis who had been a director or executive officer of any issuer which, while that person was acting in that capacity or within a year of ceasing to act in that capacity, (i) became bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets or (ii) was subject to an order that was issued while the director was acting in such

capacity, or that was issued after the director ceased to be acting in such capacity and which resulted from an event that occurred while the director was acting in such capacity.

MAJORITY VOTING FOR DIRECTORS

Fortis has adopted a Majority Voting Policy which stipulates that if any nominee for director receives, from the Common Shares voted at an annual meeting, a greater number of votes “withheld” than “for” his or her election, such director must immediately tender his or her resignation to the Chair. Any such resignation will take effect on acceptance by the Board. The Governance and Nominating Committee will expeditiously consider the director’s offer to resign and recommend to the Board whether such resignation should be accepted. The Board shall accept such resignation absent exceptional circumstances that would warrant the director to continue to serve on the Board, as determined by the Board in accordance with its fiduciary duties to the Corporation and its shareholders. Within 90 days of the annual meeting, the Board will make a final decision on the proposed resignation and announce it by way of media release. If the Board declines to accept the resignation, the media release shall fully state the reasons for that decision. Any director who tenders his or her resignation will not participate in the deliberations of the Governance and Nominating Committee or the Board relating to his or her resignation. This Majority Voting Policy does not apply to a contested election of directors, that is, where the number of nominees exceeds the number of directors to be elected.

REPORT ON DIRECTOR COMPENSATION

Principles of Director Compensation

The compensation of non-executive directors is intended to attract and retain highly qualified individuals with the capability to meet the responsibilities of the Board and to closely align directors’ interests with those of shareholders. Non-executive directors receive a significant portion of their compensation in the form of DSUs and are subject to minimum share ownership requirements to promote long-term alignment with shareholder interest. Non-executive directors have not received stock options since 2006.

Benchmarking

Non-executive director compensation is reviewed annually by the Governance and Nominating Committee to ensure that it is reasonable in light of the time required from directors and aligns directors’ interests with those of shareholders. When reviewing director compensation in 2014, the Governance and Nominating Committee engaged Willis Towers Watson (“Towers Watson”) to assess the Corporation’s compensation of non-executive directors against a comparator group of 36 publicly traded North American utility companies having regard to the workload, responsibilities and expectations on directors, and trends in director compensation. Having regard to these considerations, Towers Watson concluded that the Corporation’s total non-executive director compensation was positioned below the 50 th percentile of the Corporation’s peer group. Based on the Governance and Nominating Committee’s input and recommendation, the Board approved the following changes in director compensation for 2015 and 2016.

Approved changes for

2014

2015

2016

Position

Retainer

DSU grant

Retainer

DSU grant

Retainer

DSU grant

Non-Executive Board Chair

170,000

120,000

190,000

140,000

205,000

155,000

Directors

50,000

95,000

55,000

100,000

60,000

105,000

Following the above changes, the Corporation’s non-executive director compensation remains below the 50 th percentile of the Corporation’s peer group.

Components of Director Compensation

During 2015, annual compensation for directors, other than Mr. Perry, consisted of:

(i) an annual cash retainer;

(ii) meeting attendance fees (other than Mr. Norris as independent Chair of the Board); and

(iii) a grant of DSUs.

Each of these components of director compensation is described in more detail below. Fortis does not provide option-based compensation, non-equity based incentive compensation or a pension program to its directors. The following table summarizes the director fee schedule for 2015 as compared to the previous two years:

Compensation Type	2015		2014		2013

Annual Non-Executive Board Chair Retainer (cash or optional DSUs)	C$	190,000	C$	170,000	C$	170,000
Annual Director Retainer (cash or optional DSUs) (1)	C$	55,000	C$	50,000	C$	50,000
Annual Audit Committee Chair Retainer (cash or optional DSUs)	C$	20,000	C$	20,000	C$	20,000
Annual Human Resources and Governance and Nominating Committee Chair Retainers (cash or optional DSUs)	C$	15,000	C$	15,000	C$	15,000
Annual Non-Executive Board Chair Share-Based Compensation (mandatory DSUs)	C$	140,000	C$	120,000	C$	120,000
Annual Share-Based Compensation (mandatory DSUs)	C$	100,000	C$	95,000	C$	95,000
Board and Committee Meeting Attendance Fee (cash) (1)(2)	C$	1,500	C$	1,500	C$	1,500

(1) US resident directors are paid in US$.

(2) Since January 1, 2013, the Chair of the Board has not received meeting fees.

The following table details the director compensation for 2015:

Individual Director Compensation — 2015

		Share-Based
	Fees	Awards	All Other
	Earned (1)	(DSUs) (2)	Compensation (3)		Total
	C$	C$	C$		C$
Tracey C. Ball	24,000	155,000	57,764		236,764
Pierre J. Blouin	29,310	77,500	1,173		107,983
Paul J. Bonavia	27,523	77,500	7,401	(4)	112,424
Peter E. Case	105,000	100,000	27,272		232,272
Maura J. Clark	71,803	50,000	757		122,560
Frank J. Crothers (5)	25,341	50,000	29,542		104,883
Ida J. Goodreau	88,000	100,000	97,014		285,014
Douglas J. Haughey	105,000	100,000	95,032		300,032
R. Harry McWatters	77,500	100,000	37,315		214,815
Ronald D. Munkley	104,500	100,000	20,032		224,532
David G. Norris	190,000	140,000	59,576		389,576
Michael A. Pavey (6)	17,750	25,000	37,210		79,690
Barry V. Perry (7)	—	—	—		—
Total	865,727	1,075,000	470,088		2,410,545

(1) These amounts include all cash fees earned for services as a director of Fortis, including annual director and committee chair retainers and meeting fees, where applicable. For US resident directors, all cash fees are paid in U.S. dollars and reported in Canadian dollar equivalent.

(2) These amounts represent the annual share-based compensation in the form of DSUs granted to a director of Fortis. These include both the mandatory equity component of the annual retainer of C$100,000 for a director and C$140,000 for the Chair of the Board and an optional component of the annual director retainer or committee chair retainer paid in DSUs rather than in cash at the election of the director. The amounts represent the cash equivalent at the time of issue. The cumulative DSU holdings of participants also increased through the notional reinvestment of dividends on their outstanding DSUs.

(3) These amounts include the value of notional reinvestment of dividends earned on outstanding DSUs on dividend payment dates, as well as all fees paid or payable by a subsidiary of Fortis to a director in his or her capacity as a director of the payor subsidiary and other amounts paid to or for the benefit of directors. In the case of Mr. Crothers, director fees of US$7,000 were paid by Caribbean Utilities Company, Ltd. in U.S. dollars and converted into Canadian dollars at an average annual exchange rate of US$1.00 = C$1.2788.

(4) Mr. Bonavia was paid US$5,000 prior to joining the Board pursuant to an engagement with the Corporation.

(5) Mr. Crothers retired from the Board on May 7, 2015.

(6) Mr. Pavey passed away in February 2015.

(7) In his role as CEO, Mr. Perry did not receive compensation as a director of Fortis. Director fees paid to Mr. Perry from subsidiaries of Fortis are reported in footnote (5) of the Summary Compensation Table on page 107 of this Circular.

The following table details the share-based awards held by each director as at December 31, 2015:

Outstanding Share-Based Awards Table (1)

(as at December 31, 2015)

			Market or payout
	Number of shares or	Market or payout value of	value of vested share-
	units that have not	share-based awards that have	based awards not paid
	vested (2)	not vested (2) (3)	out or distributed
Name	(#)	(C$)	(C$)

Tracey C. Ball	6,517	243,816	—
Pierre J. Blouin	2,169	81,136
Paul J. Bonavia	2,169	81,136
Peter E. Case	21,015	786,153	—
Maura J. Clark	1,399	52,346
Frank J. Crothers (4)	—	—	—
Ida J. Goodreau	24,127	902,607	—
Douglas J. Haughey	15,702	587,414	—
R. Harry McWatters	28,385	1,061,869	—
Ronald D. Munkley	15,702	587,414	—
David G. Norris	45,121	1,687,960	—
Michael A. Pavey (5)	—	—	204,127
Barry V. Perry (6)	—	—	—
Total	162,306	6,071,851	204,127

(1) Stock options and related option-based share-based awards have not been granted to directors since 2006. As of December 31, 2015, no director other than Mr. Perry holds Fortis stock options.

(2) The DSUs are vested upon being granted but are not redeemable until the director has ceased to be a director.

(3) Calculated by multiplying the number of share-based awards that have not vested by the closing price of the Common Shares on the TSX as at December 31, 2015 of C$37.41.

(4) Mr. Crothers retired from the Board on May 7, 2015. As of December 31, 2015, he no longer held DSUs.

(5) Mr. Pavey passed away in February 2015.

(6) In his role as CEO, Mr. Perry did not receive compensation as a director of Fortis. Director fees paid to Mr. Perry from subsidiaries of Fortis are reported in footnote (5) of the Summary Compensation Table on page 107 of this Circular.

DIRECTORS DEFERRED SHARE UNIT PLAN

The Board introduced a Directors Deferred Share Unit Plan in 2004 as a vehicle for directors to elect to receive their annual retainer in DSUs rather than cash. Each DSU represents a notional interest in a Common Share and no payment or other redemption of a DSU may be made prior to the retirement of the holder from the Board, or any other role with Fortis. This plan also allowed the Board to determine, from time to time, that special circumstances exist to justify the grant of DSUs to a director as compensation in addition to any regular retainer or fee to which the director is entitled.

During 2006, the Board elected to discontinue the grant of stock options to directors and initiated an annual grant of DSUs as the equity component of director compensation to more closely align director interests with those of Shareholders. Effective January 1, 2013, the Board adopted an amended and restated DSU Plan (“DSU Plan”), which provides for equal quarterly grants of the equity component of director compensation (“Mandatory DSUs”) and any optional DSUs received in lieu of their cash Board retainer at the election of the individual director (“Optional DSUs”). The DSU Plan also extended the final date for payout upon retirement from 15 March to 15 December of the year following retirement or termination of any other relationship with Fortis and increased the maximum number of payouts to a retiring director from two to four.

Mandatory DSUs and Optional DSUs are credited, as applicable, on the first day of each calendar quarter during the year by dividing one fourth of the applicable retainer by the Market Price of Common Shares on the date of the grant. The “Market Price” of a Common Share is the volume weighted average trading price of Common Shares determined by dividing the total value of the Common Shares traded on the TSX during the five trading days immediately preceding the determination date by the total volume of the Common Shares traded on the TSX on the relevant trading days. Directors also receive DSUs on each dividend payment date, as each DSU entitles the holder to a notional dividend which is notionally reinvested in additional DSUs pursuant to the terms of the plan.

On January 1, 2016, the Chair of the Board and each of the independent directors were granted 1,027 and 696 Mandatory DSUs, respectively, at a Market Price of C$37.7229. In 2015, three directors elected to receive Optional DSUs and received DSUs equivalent to their respective annual Board retainer as described in the following table.

		Optional DSUs
Director		equivalent received in 2015
T.C. Ball		1,464
P.J. Blouin		758
P.J. Bonavia		758

Upon retirement from the Board or other relationship with the Corporation, a director will receive cash payment(s) in respect of the redemption of DSUs in their DSU account in up to four instalments. All such redemptions must be made prior to December 15 th of the first calendar year following the year of retirement. Directors are entitled to elect a percentage of their DSUs to be redeemed on each elected redemption date. The amount of any payment is determined by multiplying the number of DSUs redeemed on such date by the Market Price as of such date. DSUs continue to attract notional dividends until redeemed.

DIRECTOR EQUITY OWNERSHIP

The Board has a policy requiring directors to acquire Common Shares and/or DSUs equivalent in value to three times their annual retainer (inclusive of Mandatory DSUs) within four years from the date of first election to the Board. As of the date of this Circular, all of the nominees meet the Corporation’s share ownership requirements of the policy. First-time nominees Margarita K. Dilley and Jo Mark Zurel, if elected, will each have until 2020 to satisfy the share ownership requirement. Maura J. Clark and Pierre J. Blouin were each elected as a director on May 7, 2015 and have until 2019 to satisfy the share ownership requirement. Tracey C. Ball was elected as a director on May 14, 2014 and had until 2018 to satisfy the share ownership requirement, but reached the requirement in 2015.

The following table shows the Common Share and DSU holdings of each of the director nominees as at March 18, 2016 and their comparable holdings for the previous year:

										Multiple of
	Equity Ownership		Equity Ownership		Net Change in			Market Value		2015	Year to Meet
	March 18, 2016		March 20, 2015		Equity Ownership			of Equity		Annual	Share
	Common		Common		Common			Ownership		Retainer	Ownership
Director (1)	Shares	DSUs	Shares	DSUs	Shares		DSUs	March 18, 2016 (2)		(x)	Requirement
T.C. Ball (3)	4,950	7,284	350	3,234	4,600		4,050	C$	477,248	3.1	2018
P.J. Blouin (4)	2,380	3,294	1,750	—	630		3,294	C$	221,343	2.6	2019
P.E. Case	16,500	21,924	18,500	18,425	(2,000	)	3,499	C$	1,498.920	8.6	—
M.J. Clark (4)	—	2,115	—	—	—		2,115	C$	82,506	1.0	2019
M.K. Dilley (5)	—	—	—	—	—		—	—		—	2020
I.J. Goodreau	—	25,068	—	21,450	—		3,168	C$	977,903	6.3	—
D.J. Haughey	10,000	16,559	10,000	13,261	—		3,298	C$	1,036,067	6.2	—
R.H. McWatters	1,100	29,367	1,100	25,588	—		3,779	C$	1,188,518	7.7	—
R.D. Munkley	12,000	16,559	12,000	13,261	—		3,298	C$	1,114,087	6.6	—
D.G. Norris	13,477	46,603	13,265	41,055	212		5,548	C$	2,343,721	7.1	—
J.M. Zurel (5)	9,949	—	—	—	9,949		—	C$	388,110	—	2020

(1) Mr. Perry’s equity ownership is not reported here as he does not receive compensation as a director of Fortis. Mr. Perry is compensated as President and CEO of Fortis and his Common Share ownership value as a multiple of his 2015 base salary is outlined on page 103 of this Circular.

(2) Calculated using the closing price of Common Shares on the TSX as at March 18, 2016 of C$39.01.

(3) Ms. Ball was elected as a director on May 14, 2014.

(4) Mr. Blouin and Ms. Clark were each elected as a director on May 7, 2015.

(5) Mr. Zurel and Ms. Dilley are first-time nominees to the Board.

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE

Directors’ and officers’ liability insurance has been purchased for the benefit of the directors and officers of Fortis. This policy is renewable effective 1 July each year. The premium for such insurance for 2015 was C$342,505. The insurance coverage obtained under the current policy is C$125,000,000 in respect of any one incident, subject to a C$250,000 deductible for securities claims and a C$100,000 deductible for other claims.

REPORT ON CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

The Board and the management of Fortis acknowledge the critical importance of good corporate governance practices in the proper conduct of the affairs of the Corporation. The Corporation’s governance framework is routinely reviewed and examined against evolving best practices and to ensure that the Board continues to effectively oversee the management and business affairs of the Corporation. The Corporation’s corporate governance practices comply with the Corporate Governance Guidelines promulgated in National Policy 58-201 — Corporate Governance Guidelines .

Schedule B of this Circular contains a detailed description of the Corporation’s corporate governance practices in accordance with the applicable rules and standards of the Canadian Securities Administrators and the Toronto Stock Exchange.

A list of the Corporation’s key corporate governance policies and strengths include the following:

BOARD AND GOVERNANCE INFORMATION

Size of Board		12*
Number of Independent Directors		11 (92%)*
Fully Independent Audit, Human Resources and Governance and Nominating Committees		YES
Annual Election of Directors		YES
Directors Elected Individually (not by slate)		YES
Majority Voting Policy for Directors		YES
Separate Board Chair & CEO		YES
Independent Chair		YES
In Camera Sessions of Independent Directors		YES
Share Ownership Policies for Directors and Executives		YES
Board Education Program		YES
Code of Business Conduct and Ethics		YES
Annual Advisory Vote on Executive Compensation		YES
Formal Board Evaluation Process		YES
Dual-Class Shares		NO
Compensation Claw-back Policy		YES
Diversity Policy		YES

* Effective following the Meeting, assuming the election of all director nominees.

BOARD COMPOSITION AND SUCCESSION

The Governance and Nominating Committee annually reviews the current profile of the Board, including average age and tenure of individual directors and the representation of various areas of expertise, experience and diversity. The objective is to have a sufficient range of skills, expertise and experience to ensure that the Board can carry out its responsibilities effectively. The Board is focused on striking a balance between the need to have experienced directors that have a depth of institutional knowledge while also understanding the need for renewal and new perspectives.

The table below summarizes information regarding the age, tenure and areas of expertise of the director nominees set out in the “Nominees For Election As Director” section of this Circular, commencing on page 43. These factors, together with experience, gender, ethnic background, geographic representation and other personal characteristics that contribute to diversity among Board members are considered by the Governance and Nominating Committee when assessing issues related to Board composition and renewal.

Age

Tenure
at
Fortis

Areas of Expertise

Name

Under 60

60-65

66-72

1-6 Years

7-12 Years

Finance/
Accounting

Capital
Markets

Utilities/
Energy

Public
Policy &
Government
Relations

Senior
Executive

Executive
Compensation

Governance &
Risk
Management

International
Business

Legal /
Regulatory

Mergers &
Acquisitions

T.C. Ball

P.J. Blouin

P.E. Case

M.J. Clark

M. Dilley (1)

I.J. Goodreau

D.J. Haughey

R.H. McWatters

R.D. Munkley

D.G. Norris (Chair)

J. M. Zurel (1)

(1) New nominee

Diversity

In 2015, Fortis adopted a Diversity Policy that describes the principles underlying the Corporation’s approach to diversity and its objectives with respect to diversity among its leadership team at the Board and executive level. The Corporation believes that having a diverse Board enhances Board operations, and diversity is among the factors that the Corporation considers when evaluating the composition of the Board. The Diversity Policy does not establish fixed targets regarding gender representation on the Board or in executive officer positions. It is the Board’s belief that establishing quotas or a formulaic approach does not necessarily result in the identification or selection of the best candidates. Rather, selection is made per the criteria set out above, with a commitment to increase female representation on the Board and at the executive level. The Corporation believes that the current nominees reflect a diverse group of talented individuals, which includes four females who collectively represent 33% of the nominees for election as directors. The Corporation is committed to continuing to consider diversity issues in evaluating the composition of the Board and the Governance and Nominating Committee is responsible for regularly reviewing and monitoring performance with the Diversity Policy.

Additional information on the Diversity Policy is also provided in the section titled “Leadership Succession Oversight” on page 67.

Director Tenure Policy

The Board believes that it is in the best interests of the Corporation to limit the term of directors, helping to ensure independence, a diversity of views and fresh insight. In 2015, the Board reviewed its director tenure policy and elected to extend the policy’s upper age limit from 70 to 72 years old, consistent with the median upper age limit among TSX 60 companies that have a similar age limit policy. The Board policy in respect of the tenure of directors provides that directors are elected for a term of one year and, except in exceptional circumstances as determined by the Board, will be eligible for re-election until the annual meeting of Shareholders next following the earlier of the date on which they achieve age 72 or the 12 th anniversary of their initial election to the Board. The policy does not apply to Mr. Perry whose service on the Board is related to his tenure as President and CEO.

Director Assessment

In addition to its policy in respect of tenure of directors which facilitates timely Board renewal, the Board also carries out a robust annual assessment process of the Board and for each director. Led by the Governance and Nominating Committee, together with the Chair of the Board, an annual assessment is carried out on the Board, the committees, the Chair and each director. The annual assessment process includes a survey to be completed by each director on the effectiveness of the Board, its members, the committees, and the Board’s relationship with management. The annual assessment also includes one-on-one meetings with the Chair, during which the Chair conducts peer evaluation interviews and solicits general feedback. A meeting of the directors without the Chair present is held to discuss the Chair’s performance. This assessment process augments the structured renewal process afforded by the Corporation’s policy in respect of tenure of directors. See “Governance and Nominating Committee” on page 72 for a further discussion on the annual director assessment process undertaken by the Corporation.

Board Succession

In identifying new candidates for nomination to the Board, the Governance and Nominating Committee reviews the skill, experience and diversity characteristics of the directors, having regard to the Corporation’s policies and projected retirements, and oversees a director recruitment search and nomination process. In 2014, the Governance and Nominating Committee engaged SpencerStuart to aid in the identification of potential director candidates. In addition, since Fortis requires that boards of its significant utility subsidiaries be comprised of a majority of diverse independent directors, the Corporation has a pool of prospective nominees in a comparable environment in which it is able to observe the performance and assess the suitability for service on the Board. Subsidiary boards have been the source of seven of our nominees for election as directors, including the new nominees Margarita K. Dilley and Jo Mark Zurel.

BOARD INDEPENDENCE AND OPERATION

The Articles of Fortis provide for a minimum of 3 and a maximum of 15 directors. There are currently 12 nominees for election as directors. The Board has concluded that 11 of the 12 nominees for election as directors as outlined in the “Board of Directors” section of this Circular are independent under the applicable definition in National Instrument 52-110 — Audit Committees . Mr. Norris, the current Chair of the Board, is an independent director. He is responsible for providing leadership that enhances the effectiveness and independence of the Board. Mr. Perry is not independent because he is the President and Chief Executive Officer of Fortis.

Currently, there are no instances where directors of Fortis jointly serve as directors on the same board of another reporting issuer, other than a subsidiary of Fortis. The following table lists directors who serve on the boards of reporting issuers, other than subsidiaries of Fortis, together with their committee involvement on such boards:

Director	Reporting Issuer	Committee
M.J. Clark	Elizabeth Arden, Inc. Agrium Inc.	Audit (Chair); Nominating and Corporate Governance
D.J. Haughey	Keyera Corporation (Lead Director)	Compensation and Governance
R.D. Munkley	Bird Construction Inc.	Audit; Personnel and Safety
J.M. Zurel	Highland Copper Company Inc.	Audit (Chair), Compensation
	Major Drilling Group International Inc.	Audit (Chair), Compensation

The Board has three standing committees, appointed from amongst its independent members: the Audit Committee, the Human Resources Committee, and the Governance and Nominating Committee. Fortis does not have an executive committee of the Board. Each of the committees has a written mandate which sets out the activities or areas of Fortis business to which the committee is required to devote its attention. All committees are currently composed of independent and unrelated directors.

Mr. Perry attends Committee meetings in his capacity as President and CEO of Fortis at the invitation of the Committees and is not a member of any of the committees. The Board and each of the Committees meet in camera, without the attendance of members of management, at each meeting.

The Committee mandates authorize each Fortis committee to, in its sole discretion, engage external advisors as necessary at the expense of Fortis. Each committee regularly reviews its mandate to ensure it reflects best practices and applicable regulatory requirements. All changes to committee mandates from time to time are approved by both the Governance and Nominating Committee and the Board. The mandate of each Committee was reviewed in 2014 and amendments were made effective January 1, 2015. The Human Resources Committee Mandate was further reviewed in 2015 and amended effective January 1, 2016. The review and amendments to the Human Resources Committee Mandate aim to improve executive compensation oversight and enhances the effective operation of the Human Resources Committee.

The stewardship of the Corporation is primarily the responsibility of the Board and three standing Committees of the Board, which work closely with the President and Chief Executive Officer who has primary responsibility for executive leadership and operational management of the Corporation. The Board is responsible for ensuring effective leadership, and for providing oversight in several key areas, including strategy, leadership and succession planning, risk management and corporate governance. The Board is assisted in carrying out its stewardship of the Corporation by the corporate structure of Fortis as a holding company of substantially autonomous operating subsidiaries. Each of the significant operating subsidiaries is governed by its own board of directors composed of a majority of independent directors. Subsidiary boards also generally include the subsidiary’s CEO to contribute operating expertise and one or more directors or officers of Fortis. This structure ensures that subsidiary boards exercise effective independent oversight and administration of their governance and operations with regard to their particular customer needs, regulatory environment and business objectives, while operating within the broad parameters of Fortis policies and best practices.

Most of the Corporation’s significant operating subsidiaries, including FortisBC Energy Inc., FortisBC Inc., FortisAlberta Inc., Newfoundland Power Inc., Caribbean Utilities Company, Limited and Tucson Electric Power Company are reporting issuers with independent governance and reporting obligations under applicable Canadian or U.S. securities laws. Accordingly, each of these subsidiaries has established or made arrangements for audit and human resources committees in accordance with applicable rules and policies regarding such matters as independence and financial literacy. The boards and relevant committees of each subsidiary also independently prepare and publicly file continuous disclosure documents in accordance with securities rules and form requirements which include, among other things, financial statements, management discussion and analysis and executive compensation. The public filings of each, or on behalf of each, reporting issuer subsidiary can be accessed at www.sedar.com or, in the case of Tucson Electric Power Company, at www.sec.gov/edgar .

STRATEGY OVERSIGHT

The Board oversees the Corporation’s annual strategy planning process to develop and monitor the strategic direction of the Corporation. The Board holds a strategy session each year to ensure that the Corporation’s strategy aligns with Shareholder interests and to facilitate clear communication between the Board and senior management in respect of the Corporation’s strategy and risk profile. Discussions also occur at regularly scheduled Board meetings throughout the year to update the Corporation’s strategy and to address and prioritize developments, opportunities and issues that may arise throughout the year. The general purpose of the annual strategy session is to allow the Board to set expectations for strategic growth, identify and consider strategic growth opportunities, provide input with respect to risk mitigation measures and provide support for senior management in respect of implementing the Corporation’s five year strategic plan. The annual strategy session typically involves external speakers’ views on trends and issues that may impact the Corporation’s strategy and risk profile.

LEADERSHIP SUCCESSION OVERSIGHT

The Board considers succession planning for the CEO and other executive positions in the Corporation as a continual process and one of its most critical functions. Mr. Perry was appointed President and CEO effective January 1, 2015. This followed from a formal process initiated in 2013 by the Human Resources Committee, assisted by Korn Ferry International (“Korn Ferry”). This process included an assessment of the executive talent within the Corporation and identification of leadership strengths, capabilities and any relevant gaps within the senior management structure.

In addition, in 2015 the Corporation implemented a talent management program across the Corporation and its subsidiaries. This talent management program enhances the Corporation’s ability to identify, develop, evaluate and promote individuals who may be candidates for executive positions in the future. The talent management program supports and enhances the work of the Human Resources Committee and the Board in the ongoing succession planning process.

The Corporation recognizes the value of having a diverse executive and is committed to considering diversity issues in evaluating the composition of its executive team. The Human Resources Committee is responsible for ensuring that the objectives of the Diversity Policy are applied in identifying and evaluating candidates for executive leadership positions. In identifying and considering potential candidates for executive appointments, the Corporation looks first to individuals within the Corporation and its subsidiaries and considers diversity, as well as factors such as years of service, competencies, mobility, merit, experience and qualification. The Board does not set specific gender representation targets when identifying potential candidates for executive officer positions, but does consider diversity and seeks to ensure that a representative list of females is included among the group of prospective candidates for executive positions. Emphasis on this key function was reinforced during the year with the appointment of Ms. Nora Duke to the new position of Executive Vice President of Corporate Services and Chief Human Resources Officer.

One of the Corporation’s five named executive officers is female and there were also three females appointed to the position of Vice President in 2015. As such, taking into account the appointment of Mr. Jim Laurito to the position of Executive Vice President, Business Development effective April 1, 2016, four of the eleven executives of Fortis, or 36%, will be female.

RISK MANAGEMENT AND GOVERNANCE OVERSIGHT

The Board is responsible for oversight of risk management and corporate governance. The Board uses a common process throughout the Corporation and its subsidiaries to identify and evaluate enterprise risks, being risks that have the potential to significantly affect the Corporation’s ability to achieve its corporate objectives or strategic plan. As mentioned on page 66, the Board is assisted in carrying out its oversight of risk management by the operating philosophy of Fortis as a holding company with each of the significant operating subsidiaries governed by its own independent board of directors. This structure provides a focused, primary level of risk management oversight and governance, while operating within the broad parameters of Fortis’ policies and best practices. Given the regulated nature of the utility industry, the governance policies and compliance reporting of the operating subsidiaries are subject to robust regulatory scrutiny in each of the respective jurisdictions.

The Corporation is focused on achieving long-term benefits and ensuring that potential risks are considered and mitigated. The Board oversees the development by management of the Corporation’s enterprise risk management program (“ERM”). It is responsible for understanding the material risks of the business, its mitigation strategies and taking reasonable steps to ensure that management has an effective risk management structure in place relative to its risk profile. As part of the Corporation’s ERM, senior management and corporate functions at the Corporation and its subsidiaries seek to identify and manage

all material risks facing the business. Each year at the strategy session the Board reviews all identified categories of risk at the Corporation and its subsidiaries. As well, the Board reviews and receives reports throughout the year of changes to matters related to enterprise risk. Once identified, risks and related mitigation strategies are evaluated, documented and reviewed.

During 2015, in addition to its annual risk review, the Board focused on the risks and risk mitigation attributes of the Corporation’s recent acquisitions in the United States, as well as the disruptive threats facing the utility industry, including those threats arising from advancement in technology and changes to the regulatory construct. As well, the Board focused on the impact to the Corporation of the slow economic recovery in North America, the low interest rate environment and the impact of currency fluctuations, and the associated pressures on return on equity.

A more comprehensive description of risk management oversight is provided in the Corporation’s 2015 Management and Discussion and Analysis from pages 49 to 62 of the 2015 Annual Report.

ENVIRONMENTAL AND SUSTAINABILITY OVERSIGHT

Fortis is committed to conducting business in an environmentally responsible manner. The key goals of the Corporation’s regulated operating subsidiaries are to deliver safe, reliable and cost efficient energy to customers while conducting business in an environmentally responsible manner. The Corporation and its subsidiaries regularly monitor and review environmental management systems and protocols, strive for continual performance improvement and regularly set and review environmental objectives, targets and programs.

Each of the Corporation’s significant operating subsidiaries has an environmental management system or comprehensive set of environmental protocols which outline their commitments to conduct business in a safe and environmentally responsible manner. The Corporation and its operating subsidiaries: (i) meet and comply with applicable laws, legislation, policies, regulations and accepted standards of environmental standards; (ii) manage activities consistent with industry practice and in support of the environmental policies of all levels of government; (iii) identify and manage risks to prevent or reduce adverse consequences from operations, including preventing pollution and conserving natural resources; (iv) regularly conduct environmental monitoring and audits of their environmental management systems and protocols and strive for continual improvement in environmental performance; (v) regularly set and review environmental objectives, targets and programs; (vi) communicate openly with stakeholders, including making available the applicable environmental policy and knowledge of environmental issues to customers, employees, contractors and the general public; (vii) support and participate in community-based projects that focus on the environment; (viii) provide training for employees and those working on behalf of the utility to enable them to fulfill their duties in an environmentally responsible manner; and (ix) work with industry associations, government and other stakeholders to establish appropriate environmental standards for the utility’s business.

In 2015, the Corporation and the operating subsidiaries implemented a number of programs to help customers increase their energy efficiency. As well, the operating subsidiaries undertook a number of projects and initiatives to deliver cost-effective, clean energy sources. A significant milestone for Fortis was achieved in 2015, with the grand opening of the 335 MW Waneta hydroelectric generation expansion in British Columbia, which provides clean, renewable hydroelectric power for the region. As well, in 2015, Tucson Electric Power ended the use of coal at its H. Wilson Sundt Generating Station more than two years ahead of schedule. Tucson Electric Power’s coal-fired generating capacity and greenhouse gas emissions will be reduced further by the planned 2017 closure of Unit 2 at the San Juan Generating Station in New Mexico. Tucson Electric Power plans to offset reductions in its coal-fired capacity with highly efficient gas-fired combined-cycle generation, renewables and energy efficiency measures.

AUDIT COMMITTEE

The Audit Committee provides assistance to the Board by overseeing the external audit of the annual financial statements and the accounting and financial reporting and disclosure processes of Fortis. Details regarding the Audit Committee and its mandate can be found in Section 11 of the Fortis 2015 Annual Information Form which can be viewed at either www.fortisinc.com or on SEDAR at www.sedar.com . The Audit Committee is responsible for administration of the following Fortis polices: Policy on Hiring from Independent Auditing Firms; Policy on Internal Audit Function; Policy on Pre-approval of Audit and Non-Audit Services; Policy on Reporting Allegations of Suspected Improper Conduct and Wrongdoing (i.e. Whistleblower Policy); and the Disclosure Policy (together with the Governance and Nominating Committee).

The Audit Committee mandate requires the committee to, among other things:

(i) oversee the external audit;

(ii) oversee the internal audit function;

(iii) oversee the accounting and financial reporting and disclosure processes of the Corporation;

(iv) oversee the appropriateness of material financing and tax structures;

(v) oversee the Audit Committee mandate and policies; and

(vi) monitor and report on the development of the enterprise risk management program.

The members of the Audit Committee during 2015, who are all independent, were Peter E. Case (Chair), David G. Norris, Tracey C. Ball, Maura J. Clark, Douglas J. Haughey, and Michael A. Pavey. Mr. Pavey served on the Audit Committee until his death in February 2015. Ms. Clark was appointed to the Audit Committee following the annual meeting of Shareholders on May 7, 2015.

Members of the Audit Committee bring significant financial expertise to the function of the committee. During his career as a financial analyst, Mr. Case was regularly involved in evaluating the financial performance of utilities and other public companies. Ms. Ball served as the Chief Financial Officer of Canadian Western Bank Group until her retirement in September 2014 and is a chartered accountant. Ms. Clark served as Chief Financial Officer and Chief Executive Officer of several companies and is a chartered accountant. Both Messrs. Norris and Pavey served as Chief Financial Officers of public companies. Mr. Haughey has held several Chief Executive Officer positions of public companies.

The Audit Committee held five meetings during 2015.

HUMAN RESOURCES COMMITTEE

The Human Resources Committee provides assistance to the Board in developing, implementing and monitoring sound human resources policies of the Corporation. The Human Resources Committee oversees and administers the following policies: the Executive Compensation Policy; the Statement of Investment Policy and Principles; the Advisory Vote on Executive Compensation Policy; and the Diversity Policy (together with the Governance and Nominating Committee). The Human Resources Committee also oversees and administers the following Fortis compensation plans: the 2012 Stock Option Plan; the Restricted Share Unit Plan; the Performance Share Unit Plans; and the Employee Share Purchase Plan.

The Human Resources Committee mandate requires the committee to, among other things, assist and advise the Board in relation to:

(i) the appointment of officers of the Corporation;

(ii) the ongoing evaluation of the CEO;

(iii) human resources planning, including the development and succession of senior management; and

(iv) the compensation and benefits program provided by Fortis to its senior management.

The members of the Human Resources Committee during 2015, who are all independent, were Douglas J. Haughey (Chair), Michael A. Pavey (Chair), David G. Norris, Pierre J. Blouin, Ida J. Goodreau and Ronald D. Munkley. Mr. Pavey served as chair of the Human Resources Committee until his death in February 2015. Mr. Blouin was appointed to the Human Resources Committee following the annual general meeting of shareholders on May 7, 2015.

Fortis recognizes the importance of appointing knowledgeable and experienced individuals to its Human Resources Committee. All members of the Human Resources Committee have the necessary background and skills to provide effective oversight of executive compensation and ensure that sound compensation risk management principles are being adhered to in order to align management and Shareholder interests. All Committee members have significant senior leadership experience from their tenures at large organizations, as well as direct operational or functional experience overseeing executive compensation at large organizations similar in complexity to Fortis.

One of the Committee’s most important responsibilities is its oversight of the development of succession plans for each executive role. Please see “Report on Corporate Governance — Leadership Succession Oversight” on page 67 for a description of the process undertaken by the Human Resources Committee and the Board with respect to succession planning at the executive level.

In fulfilling its responsibilities, the Human Resources Committee seeks advice from external independent compensation consultants:

· Hay Group Limited (“Hay Group”) has served as the primary external independent advisor to the Corporation on matters relating to executive compensation since 1997. Hay Group reports directly to the Human Resources Committee. Hay Group provides Fortis management and certain subsidiaries with market compensation data from its national database. During 2015 Hay Group was acquired by Korn Ferry. Korn Ferry occasionally provides the Corporation with executive search services. The Human Resources Committee has examined the nature and magnitude of services provided by Hay Group and Korn Ferry, concluding that Hay Group continues to be independent of the management of the Corporation.

· Towers Watson was retained by the Human Resources Committee in 2014, together with Hay Group, for a biennial review of its executive compensation policies and practices and

establishment of its 2015 Executive Compensation Policy. Towers Watson reported directly to the Human Resources Committee and is considered independent of Corporation management.

Acting in the best interests of the Corporation, the Human Resources Committee applies its own judgment and retains discretion in its executive compensation decisions and is not bound by the input, advice and/or recommendations received from external consultants.

The Human Resources Committee held eight meetings during 2015.

GOVERNANCE AND NOMINATING COMMITTEE

The Governance and Nominating Committee provides assistance to the Board by overseeing the governance structure and practices of the Corporation. The Governance and Nominating Committee reviews all policies of the Corporation and advises the Board with respect to any recommended additions or amendments thereto. In addition, it is responsible for direct oversight and administration of the following Fortis polices: the Code of Business Conduct and Ethics; the Director Governance Guidelines; the Diversity Policy (together with the Human Resources Committee); the Insider Trading Policy; the Disclosure Policy (together with the Audit Committee); the Majority Voting Policy; and the Privacy Policy.

The mandate of the Governance and Nominating Committee requires the Committee, among other things, to:

(i) develop and recommend an approach to corporate governance issues to the Board;

(ii) propose new nominees for election to the Board;

(iii) advise the Board on committee membership, the appointment of committee chairs and board chair succession planning;

(iv) carry out procedures specified by the Board for assessing the effectiveness of the Board, the directors and each Board committee;

(v) approve any engagement of an outside expert, or experts, by the Committee or any director at the expense of the Corporation; and

(vi) review and make recommendations to the Board with respect to the compensation of directors.

The members of the Governance and Nominating Committee during 2015, who are all independent, were Ronald D. Munkley (Chair), David G. Norris, Peter E. Case, Frank J. Crothers, Ida J. Goodreau and Harry McWatters. Mr. Crothers served on the Committee until his retirement from the Board on May 7, 2015. Ms. Goodreau was appointed to the Governance and Nominating Committee following the annual meeting of shareholders on May 7, 2015.

The Governance and Nominating Committee, together with the Chair of the Board, carries out an annual assessment of the Board, the committees, the Chair and each director, as required by the Governance and Nominating Committee Mandate. The evaluation process assists the Committee and the Board in assessing overall Board performance and measuring the contributions made by the Board, each committee and each individual director. This annual assessment also assists the Committee by identifying gaps in skills and educational opportunities for the Board and individual directors in the coming year and developing the Board’s succession plan and recruitment efforts. The annual assessment process includes:

(i) a survey completed by each director in which the directors rate the effectiveness of the Board and its members, the effectiveness of each committee on which they sit, the effectiveness of the Board and committee processes, the effectiveness of the Chair, and the Board’s relationship with management, and, in each case as appropriate, provide suggestions for improvement;

(ii) a self-evaluation survey completed by each director;

(iii) one-on-one meetings with the Chair, during which the Chair conducts peer evaluation interviews and solicits general feedback; and

(iv) a Board meeting held without the Chair present, during which feedback on the Chair is collected.

Following the surveys and one-on-one interviews, a summary of the results is prepared and presented to the Governance and Nominating Committee for review, discussion and subsequent presentation to the full

Board. Any approved recommendations are implemented and tracked by the Governance and Nominating Committee and the Chair.

The Governance and Nominating Committee held three meetings during 2015.

EDUCATION AND ORIENTATION

The Governance and Nominating Committee is responsible for the orientation of new directors and the continuing education of all directors. The expectations of a new director on the Board, including specific responsibilities, nature of committees and potential appointments, workload and time commitments, are reviewed in advance with potential Board candidates. New directors are provided with a copy of the Corporation’s director’s manual which includes the Board and Committee mandates, corporate governance guidelines, code of conduct and other company policies, and extensive information related to the Corporation and the industry. New directors attend an orientation session at which senior management review the Corporation’s business, corporate strategy, financial profile, governance structure and systems, culture and key issues. As well, the Chair of the Board and the Chair of the Governance and Nominating Committee participate in the director orientation session and provide direct insight into the role and functioning of the Board and its current priorities. The orientation session also allows new directors to review the information and materials provided and better understand the role of the Board and the Committees in the context of the business.

Continuing education is provided through a number of methods, including site visits, an annual dedicated strategy session, presentations from senior management, employees, and outside experts to the Board and its Committees on topics of interest and developing issues, as well as the ongoing distribution of relevant information. The Governance and Nominating Committee, in consultation with senior management and the Chair of the Board regularly discuss continuing education topics. In 2015, in addition to numerous internal presentations and updates on a broad range of topics, the Board received presentations from, and dialogued with senior managers of the Corporation and its subsidiaries at the group-wide strategic planning session held on July 29, 2015 and conducted specific briefing sessions as follows:

DATE	LOCATION	DESCRIPTION	ATTENDEES

February 18, 2015	Toronto, ON	Presentation and working session on the structure and platform for Board and Committee materials.	All Directors
May 6, 2015	St. John’s, NL	Presentation on shareholder rights and shareholder access from external consultant.	All Directors
July 29, 2015	St. John’s, NL	Presentation on trends in the utility industry from external consultants. Attended strategy session and met with executives of Fortis and its subsidiaries.	All Directors
September 29, 2015	Tucson, AZ	Presentation on operations of UNS Energy Corporation and tour of operating facilities. Presentation on solar generation, the U.S. Clean Energy Plan, plans to reduce reliance on coal generation and broader environmental protection initiatives. Met with executives of UNS Energy Corporation.	All Directors
December 16. 2015	Vancouver, BC	Tour of LNG facilities of FortisBC. Presentation on the regulatory jurisdiction of the Federal Energy Regulatory Commission (U.S.).	All Directors

REPORT ON EXECUTIVE COMPENSATION

2015 REPORT OF THE HUMAN RESOURCES COMMITTEE OF THE BOARD

The “Compensation Discussion and Analysis” that follows summarizes the Corporation’s executive compensation programs and policies. The primary elements of the Human Resources Committee’s mandate are set out on page 70 of this Circular. As a function of its role in overseeing executive compensation, the Human Resources Committee participated in the preparation of the “Compensation Discussion and Analysis” which follows and has recommended to the Board the inclusion of the “Compensation Discussion and Analysis” in this Circular.

Human Resources Committee Members in 2015 were as follows:

	Douglas J. Haughey (Chair)	Ida J. Goodreau

	David G. Norris	Ronald D. Munkley

	Pierre J. Blouin	Michael A. Pavey

The following discussion pertains to the following five Named Executive Officers (“NEOs”) of Fortis for fiscal year 2015:

1. Barry V. Perry — President and Chief Executive Officer (“President & CEO”);

2. Karl W. Smith — Executive Vice President, Chief Financial Officer (“EVP CFO”);

3. John C. Walker — Executive Vice President, Western Canadian Operations (“EVP Western Canada”);

4. Earl A. Ludlow — Executive Vice President, Eastern Canadian and Caribbean Operations (“EVP Eastern Canada and Caribbean”); and

5. Nora M. Duke — Executive Vice President, Corporate Services and Chief Human Resource Officer (“EVP CHRO”).

Say On Pay

In 2014 and 2015, Fortis undertook Shareholder advisory votes on its approach to executive compensation and received a 95.83% and 94.87% endorsement, respectively. In 2016, Fortis is again requesting the input of the Shareholders by holding an advisory vote on the approach to executive compensation which is more particularly described on page 14 of this Circular.

CHANGES TO NAMED EXECUTIVE OFFICERS

Mr. Barry Perry was appointed President effective June 30, 2014 and President & CEO effective January 1, 2015. This appointment was the result of the Corporation’s continuing succession planning process and a formal review initiated in 2013 by the Human Resources Committee, assisted by Korn Ferry.

Ms. Nora Duke was appointed Executive Vice-President, Corporate Services and Chief Human Resource Officer effective August 1, 2015.

Mr. John Walker retired effective June 30, 2015 after 32 years of service with the Corporation.

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE COMPENSATION POLICY

Objectives

Executive compensation practices at Fortis are specifically designed to:

· motivate executives to deliver strong business performance;

· attract and retain highly qualified executives;

· align the interests of executives and Shareholders;

· position executive compensation competitively at the approximate median target of compensation for comparable companies;

· ensure that a significant portion of executive compensation is dependent upon individual and corporate performance while contributing to increasing Shareholder value;

· balance executive compensation paid for short-term, medium-term and long-term results;

· mitigate any potential risks inherent in the Corporation’s compensation structure; and

· keep the executive compensation program simple to communicate and administer.

Compensation Review Framework

Annual Review

The Human Resources Committee evaluates the executive compensation program of the Corporation annually to ensure that it is competitive and effective. There are three primary components:

· With respect to the annual compensation review process, the Human Resources Committee engages Hay Group, its primary compensation consultant, to provide comparative analysis of market compensation data reflecting the pay levels and practices of the Corporation’s peer group. Hay Group then provides compensation recommendations on the basis of pay competitiveness, emerging trends and best practices. Based on that information, the Human Resources Committee makes compensation adjustment recommendations to the Board.

· With respect to prior year incentive compensation payments, the Human Resources Committee assesses actual corporate performance against annual objectives. It reviews appropriate quantitative and qualitative adjustments to normalize for uncontrollable events or special circumstances. Based on this information and input from Hay Group, the Human Resources Committee makes incentive compensation payment recommendations to the Board.

· With respect to incentive compensation targets for the following year, the Human Resources Committee reviews targets in the context of alignment with stakeholder interests, taking into account the challenges and risks related to target achievement. Based on this information and input from Hay Group, the Human Resources Committee makes incentive target recommendations to the Board.

It is important to note that, acting in the best interests of the Corporation, the Human Resources Committee and the Board may exercise discretion when making compensation decisions such that, in appropriate circumstances, judgemental deviations above or below prescribed incentive award formulas may be made.

Biennial Review

Biennially, Fortis conducts a comprehensive executive compensation review that includes:

· relative ranking of jobs by value;

· assessment of the newly established executive positions;

· comparator group relevance and appropriateness;

· compensation mix review;

· annual and long-term incentive plan design and performance measurement;

· compensation risk; and

· other policies and provisions.

In 2014 the Corporation engaged Hay Group, as primary consultant, and Towers Watson, as an additional advisor. The Human Resources Committee conducted a thorough analysis of the executive compensation policies and practices of the Corporation and identified areas where material improvements could be achieved.

Effective January 1, 2015, there were a number of changes to the executive compensation program designed to enhance alignment of the executive compensation policies and practices with the interests of Shareholders, including:

· a broader and more relevant comparator group that better represents the size, complexity and scope of Fortis today;

· inclusion of important non-financial performance metrics in annual incentive targets;

· a re-evaluation of the performance band required to achieve maximum payout having regard to the challenges and opportunities to the Corporation;

· increased emphasis on rewarding NEOs for longer-term performance based on measures more aligned with Shareholder interests over time and more consistent with market practice; and

· an overall improvement in the relative proportion of at risk executive compensation.

Competitive Positioning

As a general policy, Fortis compensates executives at the approximate median total compensation level of the designated comparator group. Following the biennial review, the Board approved the comparator group of the NEOs for base salary as being comprised of two groups of similarly-sized Canadian industrial companies and U.S. utility companies, weighted two-thirds and one-third, respectively (the “Comparator Group”). This Comparator Group was established by the Human Resources Committee after extensive research and consultation with its independent human resources advisor. Each group includes 18 companies for a total of 36 comparators. The 36 companies considered as the comparator group for the purpose of assessing the 2015 compensation of the NEOs were as follows:

Canadian Industrial Companies		U.S. Utility Companies
Atco Ltd/Canadian Utilities Ltd.	First Quantum Minerals Ltd.	AGL Resources Inc.	CenterPoint Energy Inc.
Emera Inc.	Goldcorp Inc.	Atmos Energy Corp.	CMS Energy Corp.
TransAlta Corp.	Methanex Corp.	New Jersey Resources Corp.	MDU Resources Group Inc.
Enbridge Inc.	Potash Corp of Saskatchewan Inc.	UGI Corp.	NiSource Inc.
Encana Corp.	Teck Resources Ltd.	Pinnacle West Capital Corp.	Public Service Enterprise Group Inc.
Gibson Energy Inc.	Canadian Pacific Railway Ltd.	Eversource Energy	SCANA Corp.
Pembina Pipeline Corp.	Canadian National Railway Co.	PPL Corp.	Sempra Energy
Talisman Energy Inc.	Finning International Inc.	Alliant Energy Corp.	TECO Energy Inc.
TransCanada Corp.	SNC-Lavalin Group Inc.	Ameren Corp.	Wisconsin Energy Corp.

For the Corporation’s other executives, the comparator group is a broad reference group of Canadian Commercial Industrial companies from the Hay Group database.

COMPENSATION RISK CONSIDERATIONS

The Board annually reviews and approves the Corporation’s strategic plan, considering business opportunities, earnings forecasts, and the level of risk faced by the Corporation and the financial implications associated with those risks. Cross-committee membership is in place to facilitate information sharing and ensures that issues of mutual interest are appropriately addressed by the committees and the Board.

Compensation risk is considered throughout the Fortis annual and biennial compensation review processes to ensure that compensation design and practices mitigate the perceived risks both at the parent and at the subsidiary levels. The Human Resources Committee has identified the external and internal risk mitigating controls within the Fortis executive compensation program set out below.

External Compensation Risk-Mitigating Controls

Extensive regulatory frameworks govern the operation of electric and gas regulated utility subsidiaries. At the corporate level, the Corporation’s ongoing compliance with existing regulatory requirements and

emerging best practices helps to ensure that risks within its compensation program are being continually identified, monitored and controlled.

Internal Compensation Risk-Mitigating Controls

The Fortis executive compensation program is designed such that risk is taken into consideration throughout the compensation review process:

Annual Salary		· Annual salaries are targeted approximately at market median levels.

Annual Incentives		· Board Discretion : The Board, following the recommendation of The Human Resources Committee, retains the discretion to adjust upward or downward the prescribed incentive payout formulas and actual payouts based on its assessment of the risk assumed to generate financial results, and circumstances that may have influenced individual performance, as well as external factors that may have impacted the Corporation’s financial performance.

		· *Award Cap* : Annual Incentives awarded to executives are capped at 150% of targeted annual incentive. The Board, acting in the best interests of the Corporation and following the recommendation of the Human Resources Committee retains the discretion to award up to a maximum of 200% of targeted annual incentive in recognition of individual response to exceptional challenges or opportunities.

		· *Multiple-Performance Factors and Prudent Financial Metrics* : Fortis uses multiple performance factors that provide a balanced and broader perspective of Fortis annual incentive and align with the interests of the Corporation and Shareholders. These performance factors are: (i) earnings per Common Share (“EPS”), (ii) safety and reliability excellence, (iii) individual performance; and (iv) subsidiary performance for certain operational Executive Vice-Presidents. Based on market conditions expected for 2015, the Human Resources Committee and the Board concluded that it was appropriate to use an EPS-based annual target performance measure with no payout if less than 95% of target and maximum payout if greater than 108% of target performance range is appropriate. It is felt that this structure incentivizes performance without encouraging excessive risk taking and/or short-term decision making. Acting in the best interests of the Corporation, the Human Resources Committee and the Board will apply discretion to adjust upward or downward the prescribed incentive payout formulas and actual payouts based on its assessment of the risk assumed to generate financial results, and circumstances that may have influenced individual performance, as well as external factors that may have impacted the Corporation’s financial performance.

Medium - and Long-Term Incentives		· *Performance Share Units (“PSUs”)* : The Corporation grants PSUs to executives and certain management of Fortis and its subsidiaries to promote greater alignment of interests between senior management and Shareholders. Executives, including the NEOs, are eligible to receive PSU grants under the 2015 Performance Share Unit Plan (“PSUP”), which links pay directly to the Corporation’s performance evaluated against its primary business objectives. More detail on the PSUP can be found on page 86 of this Circular.

		· *Restricted Share Units (“RSUs”)* : The Corporation grants RSUs to certain executives to assist the Corporation in attracting and retaining senior management. Executives, typically excluding the NEOs, are eligible to receive RSU grants under the 2015 Restricted Share Unit Plan (“RSUP”). More detail on the RSUP can be found on page 88 of this Circular.

		· *Stock Option Grants* : Stock options are awarded to all NEOs and certain senior management of Fortis to encourage ownership of Common Shares and enhance the Corporation’s ability to attract, retain and motivate key personnel and reward significant performance achievements. Executives, including the NEOs, are eligible to receive stock option grants under the 2012 Stock Options Plan. More detail on the 2012 Stock Option Plan can be found on page 87 of this Circular.

		· *Awarding* : Awarding PSUs, RSUs and stock options provides a material portion of deferred compensation in the overall pay mix. The deferred component provides for an appropriate alignment between incentive compensation payouts at different time intervals in which the Human Resources Committee can evaluate whether the relevant incentive compensation was earned through undue risk to the Corporation.

Share Ownership and Anti-Hedging Requirements		· *Share Ownership Policy:* Fortis’ executive share ownership policy requires executives, including all NEOs, to hold a number of Common Shares and RSUs equivalent in value to a specified multiple of base salary within 5 years of appointment to an applicable position.
		· Equity awards are linked directly to the share ownership policy of the Corporation such that any executive that fails to comply with the share ownership policy shall not be eligible for future equity-based compensation until the later of the end of the one-year period commencing on the date of the failure or such time as the executive is again in compliance with the share ownership policy. Additional detail on the share ownership policy as it applies to the Corporation’s NEOs in 2015 as well as their current holdings can be found on page 103 of this Circular.

		· Anti-Hedging Policy : Executive officers are not permitted to hedge against declines in the market value of equity securities received from the Corporation as compensation.

Compensation Recoupment Policy

The Corporation has a compensation recoupment policy as an element of its 2015 Executive Compensation Policy. In the event of a material restatement of the financial results of the Corporation caused by the fraud or intentional misconduct of one or more employees of the Corporation or a subsidiary of the Corporation, the Human Resources Committee may determine to recoup or require repayment of any compensation linked to the financial or Common Share performance of the Corporation that was paid, awarded or granted to any employee of the Corporation or any of its subsidiaries over such time period as the Human Resources Committee determines to be appropriate in the specific circumstances.

Compensation Risk Review

As part of the Corporation’s review of executive compensation, a compensation risk review was conducted by Hay Group in 2012. This assessment was conducted for Fortis and a representative selection of significant subsidiaries. The review affirmed that executive compensation programs and practices at Fortis and the representative subsidiaries are well designed and do not tend to promote significant risks that are likely to have a material adverse effect on the Corporation or its subsidiaries. The Human Resources Committee will continue to undertake regular periodic compensation risk reviews to ensure appropriate recognition and effective management of compensation risks. The next such review will coincide with the Corporation’s 2016 biennial compensation review.

Elements of 2015 Total Compensation

With the goal of placing a material portion of compensation “at risk” for the individual NEO, NEOs are rewarded for performance through the following three components of compensation:

Current-Year Performance

Compensation
Element

Description

Compensation Objectives

Annual Base Salary

Salary is a market competitive, fixed level of compensation.

Attract and retain highly qualified executives.

Motivate strong business performance.

Annual Incentive

Combined with salary, the target level of annual incentive is intended to provide executives with a market-competitive total cash opportunity.

Annual Incentive payouts depend on individual and corporate performance.

EPS is the most significant corporate performance metric. Other metrics include measures of safety and reliability relative to target as well as metrics related to subsidiary earnings performance which are used in determining a portion of the annual incentive for certain operational NEOs.

Align executive and Shareholder interests.

Motivate strong business performance.

Simple to communicate and administer.

Medium-Term Performance

Compensation
Element

Description

Compensation Objectives

PSUs

PSU grant value is based on competitive positioning and level of the executive.

Grant value is converted to a number of units by dividing the grant value by the market price of a Common Share calculated as the volume weighted average price of the Common Shares for five trading days preceding the January 1 st grant date.

At the end of the three-year performance period, the Human Resources Committee assesses the Corporation’s performance in respect of total shareholder return (“TSR”) and cumulative EPS against established targets. Further details in respect of the predefined metrics are found on page 87.

Payable in cash and subject to the Corporation’s performance upon completion of the three-year performance period.

Align executive and Shareholder interests by tying incentive compensation to the value of the Common Shares.

Encourage sustained longer-term business performance.

Balance compensation for short- and longer-term results.

Compensation dependent on sustained corporate performance.

Simple to communicate and administer.

RSUs

Although RSUs are available to certain executives, the NEOs do not normally receive them as part of annual compensation.

Grant value is converted to a number of units by dividing the grant value by the market price of a Common Share calculated as the volume weighted average price of the Common Share for five trading days preceding the January 1 st grant date.

At the end of the three-year period the RSUs are redeemed by the Participant and paid in cash.

Align executive and Shareholder interests by tying incentive compensation to the value of the Common Shares.

Encourages sustained, medium-term growth by linking a portion of compensation to medium-term performance.

Simple to communicate and administer.

Long-Term Performance

Compensation
Element

Description

Compensation Objectives

Stock Options

The amount of each annual grant is based on competitive positioning and level of the executive.

Planned grant value is converted to a number of options by dividing the grant value by a price per share derived pursuant to the plan and based on the Black-Scholes Option Pricing Model.

Options have a term of ten years and vest at a rate of twenty-five percent (25%) per annum over a four-year period such that at the end of four years all options are vested.

Align executive and Shareholder interests by encouraging share ownership.

Attract and retain highly qualified executives.

Encourage strong longer-term business performance.

Simple to communicate and administer.

Full-Career Performance

Compensation
Element

Description

Compensation Objectives

Employee Share Purchase Plan

NEOs can participate in the Employee Share Purchase Plan under the same terms and conditions as other employees.

Align executive and Shareholder interests by encouraging share ownership.

Attract and retain highly qualified executives.

Self-directed Registered Retirement Savings Plan (“RRSP”) and Defined Contribution Supplemental Employee Retirement Plan (“DC SERP”)

RRSP:

Fortis contributes on a matching basis to self-directed RRSPs for each NEO, other than Ms. Duke and Mr. Walker, up to the maximum RRSP contribution limit.

DC SERP:

Accrual of 13% of base salary and annual incentive in excess of the maximum RRSP contribution limit, or in the case of Ms. Duke and Mr. Walker 13% of base salary and annual incentive in excess of the maximum allowed by the Income Tax Act (Canada) for pension benefits.

Notionally accrues interest at the 10-year Government of Canada bond yield rate plus a premium of 1% to 3% dependent upon years of service.

At time of retirement, paid in one lump sum or in equal payments over a period not exceeding 15 years.

Attract and retain highly qualified executives.

Simple to communicate and administer.

Full-Career Performance

Compensation
Element

Description

Compensation Objectives

Defined Benefit Registered Pension Plan (“DB RPP”) (Only Ms. Duke and Mr. Walker)

DB RPP :

Annual accrual of 1.33% up to a final average years maximum pensionable earnings (“YMPE”) as defined under the Canada Pension Plan and 2% in excess of the final average YMPE up to the NEO’s best 36 month average earnings.

Legacy plans to retain highly qualified executives. Both DB RPP and DB PUP are closed to new members.

Pension Uniformity Plan (“DB PUP”) (Only Mr. Walker)

DB PUP :

Provides the portion of the calculated pension that cannot be provided under the DB RPP due to limits prescribed by the Income Tax Act (Canada). Recognizes earnings are limited to the base earnings rate that was in effect December 31, 1999.

Annual Base Salary

Annual base salaries for the NEOs are reviewed by the Human Resources Committee and established annually in the context of total compensation and by reference to the range of salaries paid by the Comparator Group as described on page 77 of this Circular. It is the policy of Fortis to pay executives at approximately the median of the salaries paid to executives in the Comparator Group.

Annual Incentive

Fortis uses an annual incentive plan that provides for cash payouts to reward NEOs for performance during each calendar year. The amount of each NEO’s annual incentive is determined by the Board upon recommendation of the Human Resources Committee following an annual assessment of corporate, subsidiary and individual performance against pre-determined targets. The incentive plan is reviewed annually by the Board, upon recommendation from the Human Resources Committee, with payouts premised upon meeting and exceeding the current year’s corporate performance targets and individual performance objectives.

Considerations relevant to the determination of corporate performance targets include general economic factors and business conditions, anticipated regulatory proceedings, and the derivation of and relative contribution to earnings of particular business segments. It is recognized that year-over-year earnings growth can be affected by acquisitions, utility regulatory decisions, foreign exchange, general economic factors and the relative earnings mix between regulated and non-regulated activities.

Acting in the best interests of the Corporation, the Board has full discretion in respect of the operation of the annual incentive plan and is required to take into account all relevant circumstances in the exercise of judgment regarding the amounts and terms of annual incentive plan payments.

The sequential process for setting and determining the annual incentive payout is as follows:

Target Setting

1. Weightings are assigned between corporate, subsidiary, and individual performance.

· The relative ability of each executive to impact corporate performance is reflected in the weighting of the corporate component, with 80% of the President & CEO’s, EVP CFO’s and EVP CHRO’s and 40% of the EVP Western Canada’s and EVP Eastern Canada and Caribbean’s annual incentive primarily dependent upon corporate performance.

· To reflect additional responsibility with regard to the performance of specific Fortis subsidiaries, 40% of the annual incentive for each of the EVP Western Canada and the EVP Eastern Canada and Caribbean is dependent on the performance of such subsidiaries in their respective territories.

2015 Corporate, Subsidiary and Individual Performance Mix

	Corporate	Subsidiary	Individual
	Performance	Performance	Performance	Total
Position	%	%	%	%
President & CEO/EVP CFO/EVP CHRO	80	0	20	100
EVP Western Canada/EVP Eastern Canada and Caribbean	40	40	20	100

2. Target and maximum annual incentive payouts are delineated as a percentage of base salary.

· In 2015, the targeted annual incentive for the President & CEO was set at 100% of his base salary and the targeted annual incentives for the EVP CFO, the EVP Western Canadian and the EVP Eastern Canadian and Caribbean were set at 70% of their respective annual base salaries, and the targeted annual incentive for the EVP CHRO was set at 60% of her base salary.

· Annual incentive payouts are earned for meeting expected corporate, subsidiary and individual performance targets, as adjusted for factors determined to be beyond the reasonable control of management or matters specifically approved by the Board, all of which will be reviewed by the Audit Committee and approved by the Human Resources Committee.

· The annual incentive plan contemplates a maximum payment at 150% of target (normal maximum) when superior performance is achieved, with an additional 50% of target available to be awarded at the Board’s discretion in recognition of individual response to exceptional challenges or opportunities.

· Acting in the best interests of the Corporation, the Board retains discretion to make deviations from the prescribed payout formulas in appropriate circumstances, having regard to the overall performance of the individual NEO, the Corporation and external considerations.

· Generally, no payments will be made in respect of the corporate component where corporate performance is below a minimum threshold predetermined by the Board.

· Where individual performance is judged to be unsatisfactory during the year, no annual incentive payment will be made, notwithstanding that certain thresholds/targets were met.

Determinations

1. 80% of the corporate performance is determined by reference to EPS results compared to the Corporation’s annual Business Plan as approved by the Board.

· The target EPS range is developed by the Human Resources Committee and recommended to the Board for adoption with reference to the Corporation’s Business Plan.

· Events beyond the reasonable control of management or other matters specifically authorized by the Board, are identified and adjusted, either upward or downward, by the Human Resources Committee when assessing measurement of actual EPS against target EPS. For 2015 this is described on page 91 of this Circular.

· The Audit Committee reviews the proposed adjustments to actual EPS for events beyond the reasonable control of management and confirms the financial implications of such events to the Human Resources Committee for its assessment in developing a recommendation for Board approval.

· For 2015, the Board adopted a range of + 8% and — 5% of the target EPS projected in the Business Plan (with a projected US$/C$ foreign exchange rate of 1.1300) for the purpose of setting the maximum target and minimum acceptable corporate performance for the corporate EPS component of the annual incentive payout. Payout is as follows:

Adjusted EPS Performance		Payout of the Corporate EPS Component of the
versus Business Plan		Annual Incentive Plan
Below 95%		0%
Between 95% and 100%		Interpolated payout between 50% and 100%
Between 100% and 108%		Interpolated payout between 100% and 150%
In excess of 108%		150%

2. 20% of the corporate performance is determined with reference to safety and reliability results compared to pre-established targets as approved by the Board.

· The target ranges for safety and reliability are set using the prior three-year average as follows:

Actual Performance		Payout of the Corporate Safety and Reliability
versus Prior Three Year Average		Component of the Annual Incentive Plan
In excess of 105%		0%
Between 105% and 95%		Interpolated payout between 50% and 150%
Below 95%		150%

· Safety, electrical system and gas system performance are weighted 10%, 6% and 4%, respectively.

· The target ranges for safety and reliability are set with reference to utility industry standard measures.

· For safety, the target is set as the average of the results from the past three-years for All Injury Frequency Rate, as calculated using an industry standard methodology.

· The electrical system reliability target is set as the average of the past three years’ results for the System Average Interruption Duration of Outages per Customer Index (“SAIDI”), as calculated using the Electrical and Electronics Engineers methodology.

· The gas system performance target is set as the average from the past three-years results for the Total Gas Excavation Damage Rate, as calculated using an industry standard methodology.

3. Subsidiary performance is determined by measuring results against predetermined subsidiary objectives.

4. Individual performance is determined by measuring results against individual executive performance objectives approved by the Human Resources Committee.

5. Each NEO’s annual incentive payment is determined by the Board upon recommendation from the Human Resources Committee.

A summary of the performance metrics, weightings, and potential payout range for each NEO is shown below.

Corporate Performance

Subsidiary Performance

Individual Performance

Targets (1)

Payout

Position

Weight

Metric

Range

Weight

Metric

Range

Weight

Metric

Range

President &CEO/ EVP CFO/EVP CHRO

EPS Safety & Reliability

0 - 150%

Not Applicable

Multiple

0 - 150%

EVPs Western Canada & Eastern Canada and Caribbean

Multiple

0 - 150%

Multiple

0 -150%

(1) The Corporate Performance payout percentage plus the Subsidiary and the Individual Performance payout percentages can range from 0% to 150%. The final incentive percentage can be increased up to a maximum of 200% at the Board’s discretion based on the NEO’s response to exceptional challenges or opportunities.

Medium- and Long-Term Performance

Medium- and Long-Term Incentives

Medium- and long-term incentives are granted to align executives’ interests with those of Shareholders. Fortis grants longer term incentive compensation to NEOs under two plans: PSUs are granted under the PSUP; and stock options are granted under the 2012 Stock Option Plan. Descriptions of these two plans, together with the Restricted Share Unit Plan are set out below. Per the Executive Compensation Policy, all executives are eligible to receive RSU grants, however, NEOs typically do not receive RSUs.

1. 2015 Performance Share Unit Plan (“PSUP”)

Effective January 1, 2015, the Corporation approved the PSUP for a broad group of Fortis and subsidiary management. The PSUP replaces the former 2013 Performance Share Unit Plan and, as such, there will be no further grants under the 2013 Performance Share Unit Plan.

The PSUP is administered by the Human Resources Committee which awards PSUs having a value equal to a specified percentage of the participant’s annual base salary. The number of PSUs granted to a participant is obtained by dividing the aggregate value of the grant as a percentage of base salary, as prescribed in the Corporation’s Executive Compensation Policy and the PSUP, by the volume weighted average trading price of the Common Shares for five trading days preceding January 1 st in the year of the grant.

Payments under the PSUP will be made three years after the grant in an amount of 0-150% of the value of PSUs accumulated (inclusive of PSUs accruing on reinvestment of notional dividends to accumulated PSUs), as determined appropriate by the Human Resources Committee. In determining the payout percentage under the PSUP, the Human Resources Committee evaluates the performance of the

Corporation over such three-year period against predetermined measures. These measures include the Corporation’s TSR as compared against the peer group TSR for the period, and the Corporation’s cumulative earnings per share (“Cumulative EPS”) performance compared against a target EPS for the period established by the Human Resources Committee based on the Corporation’s business plan.

In respect of TSR, the performance of Fortis is compared to the results of a pre-determined comparator group of 25 publicly traded North American gas and electric utilities (the “PSU Peer Group”) and the payout percentage is determined in accordance with the following table:

Fortis Inc. Percentile Performance
as Compared to Peer Group TSR	TSR Payout
Less than P30	0	%
P30	50	%
P50	100	%
P75 or higher	150	%

If the Corporation’s performance is between the 30 th and 75 th percentile of the PSU Peer Group TSR (inclusive of the 30 th and 75 th percentiles), payout percentage is determined using linear interpolation.

In respect of Cumulative EPS, the Corporation’s Cumulative EPS is calculated and compared to target EPS for the period established having regard to the Corporation’s business plan for that period. If the performance falls within the minimum and maximum payout thresholds as established by the Human Resources Committee in respect of target EPS, in each case expressed as a percentage of the target EPS, payout percentage is determined using linear interpolation, such percentage being between 50% and 150%.

The minimum payout of 50% occurs if the Corporation’s EPS is at the minimum threshold for target EPS and no payout occurs if the Corporation’s EPS is below the minimum threshold for target EPS. The maximum payout of 150% occurs if the Corporation’s EPS is at or above the maximum threshold for target EPS. Payouts under the PSUP are also contingent on Fortis maintaining a corporate credit rating consistent with the median credit rating of the PSU Peer Group.

2. 2012 Stock Option Plan

Options may be granted under the 2012 Stock Option Plan to all NEOs and senior management of Fortis and its subsidiaries (the “Eligible Persons”). No options shall be granted under the 2012 Stock Option Plan if, together with any other security-based compensation arrangement established or maintained by Fortis, such granting of options could result in: (i) the number of Common Shares issuable to insiders of Fortis, at any time, exceeding 10% of the issued and outstanding Common Shares; or (ii) the number of Common Shares issued to insiders of Fortis, within any one-year period, exceeding 10% of the issued and outstanding Common Shares.

The 2012 Stock Option Plan is administered by the Human Resources Committee. Pursuant to the 2012 Stock Option Plan, the determination of the exercise price of options is made by the Human Resources Committee at a price not less than the volume weighted average trading price of the Common Shares of Fortis determined by dividing the total value of the Common Shares traded on the TSX during the last five trading days immediately preceding the date of grant by the total volume of the Common Shares traded on the TSX during such five trading days. The Human Resources Committee determines: (i) which Eligible Persons are granted options; (ii) the number of Common Shares covered by each option grant; (iii) the price per share at which Common Shares may be purchased using options

granted under the 2012 Stock Option Plan; (iv) the time when the options will be granted; (v) the time when the options will vest; and (vi) the time at which the options will expire.

Options granted under the 2012 Stock Option Plan are personal to the grantee and not assignable, except on death of the grantee. The grant of options does not confer any right upon a grantee to continue employment or to continue to provide services to Fortis.

If the term of an option granted pursuant to the 2012 Stock Option Plan expires during a blackout period (being a period during which the Eligible Person is prohibited from trading in the securities of Fortis pursuant to securities regulatory requirements or then applicable written policies of the Corporation), the term of such option, or unexercised portion thereof, shall be extended and shall expire 10 business days after the end of the blackout period.

Options granted pursuant to the 2012 Stock Option Plan have a maximum term of 10 years from the date of grant. Options granted pursuant to the 2012 Stock Option Plan vest at a rate of twenty-five percent (25%) of the grant per annum over a four year period from the date of grant. Options granted pursuant to the 2012 Stock Option Plan will expire no later than three years after the termination (other than for cause), death or retirement of an Eligible Person. Loans to Eligible Persons for the exercise of options are prohibited by the 2012 Stock Option Plan.

The 2012 Stock Option Plan provides that, notwithstanding any provision in the plan to the contrary, no option may be amended to reduce the exercise price below the exercise price set on the date of grant. Under the 2012 Stock Option Plan, Shareholder approval is required for amongst other matters, increasing the plan limit, extending the period during which an option may be exercised or amending limits on insider participation.

3. Restricted Share Unit Plan

Effective January 1, 2015, the Corporation adopted a restricted share unit plan (“RSUP”) for a broad group of Fortis and subsidiary executives. Per the Corporation’s Executive Compensation Policy, NEOs do not typically receive RSUs.

The RSUP is administered by the Human Resources Committee which awards RSUs having a value equal to a specified percentage of the participant’s annual base salary. The number of RSUs granted to a participant is obtained by dividing the aggregate value of the grant as a percentage of base salary, as prescribed in the Corporation’s Executive Compensation Policy and RSUP, by the volume weighted average trading price of the Common Shares for five trading days preceding January 1 st in the year of the grant.

Payments under the RSUP will be made three years after the grant in an amount equal to the value of RSUs accumulated (inclusive of RSUs accruing on reinvestment of notional dividends to accumulated RSUs), as determined appropriate by the Human Resources Committee.

4. Other Security Based Arrangements

In addition to the incentive plans discussed above, Fortis previously maintains the 2006 Stock Option Plan.

No further awards were made under the 2006 Stock Option Plan upon adoption of the 2012 Stock Option Plan. The 2006 Stock Option Plan will terminate when all of the outstanding options granted under the plan are exercised or expire on or before March 2, 2018.

Full-Career Performance

Employee Share Purchase Plan

Shareholders of Fortis approved adoption of the 2012 Employee Share Purchase Plan (“2012 ESPP”) at the annual meeting of Shareholders held on May 4, 2012.

Employees of Fortis and its subsidiaries who are Canadian residents are encouraged to become Shareholders through the 2012 ESPP and its predecessor plans. The 2012 ESPP is available on an optional basis to permanent employees, including retirees who were participants in the plan at the time of their retirement (“Retirees”). As at December 31, 2015, the total number of Common Shares outstanding under the 2012 ESPP and its predecessors was 2,925,210. This represents 1.04% of the total number of issued and outstanding Common Shares.

Permanent employees wishing to participate in the 2012 ESPP may opt into the plan by completing an employee participation form. The proposed investment in Common Shares cannot, in any calendar year, be less than C$100 and cannot exceed, in the aggregate, 10% of the permanent employee’s annual base salary for the year. A Retiree’s participation is limited to the reinvestment of dividends on Common Shares in the Retiree’s account in the 2012 ESPP and its predecessors. The benefits of the plan are not assignable by participants.

Each employee’s contribution under the plan represents 90% of the purchase price of the Common Shares under the 2012 ESPP. The employee’s employer contributes the remaining 10% of the Common Share purchase price. Common Shares purchased under the plan are either acquired in the open market by Computershare, the trustee under the 2012 ESPP, or issued from treasury. The Corporation can elect by notice to the trustee at least 15 business days prior to a share purchase date, whether it will issue the Common Shares from treasury or purchase the number of Common Shares required on the secondary market. Commencing September 1, 2012, the Corporation has issued new Common Shares to satisfy employee purchases under the plan.

Where payments received by the employer from the employee are less than the amounts directed to be invested by the employee through the 2012 ESPP, the Employer will make a loan (an “Employee Loan”) to the employee for the amount of the balance. The employee must repay any Employee Loan amount, without interest, over a term not exceeding 52 weeks immediately following the date of the loan. The full amount of an Employee Loan outstanding becomes due and payable immediately upon termination of employment, when any compensation owing to the employee will be applied to repayment of the Employee Loan.

All Common Shares purchased and retained under the 2012 ESPP are registered in the name of Computershare, as trustee, for the benefit of the employees participating in the plan. Certificates for Common Shares purchased through an Employee Loan will not be provided to the permanent employee until their Employee Loan is repaid in full. Otherwise, certificates for Common Shares held by an employee under the 2012 ESPP are provided on termination of the employee’s participation in the 2012 ESPP.

Fortis has allocated 2,044,664 Common Shares for issuance from treasury under the 2012 ESPP while retaining flexibility to satisfy share delivery requirements through secondary market purchases. The balance in the 2012 ESPP reserve as at December 31, 2015 is 803,743.

PENSION PLAN BENEFITS

Self-Directed Registered Retirement Savings Plan

In 2015, Fortis contributed to self-directed RRSPs for Messrs. Perry, Smith and Ludlow, which contribution was matched by them up to the maximum RRSP contribution limit as allowed by the Income Tax Act (Canada).

Defined Contribution Supplemental Employee Retirement Plan

All NEOs participate in the DC SERP. The DC SERP provides for the accrual by Fortis of an amount equal to 13% of the annual base salary and annual cash incentive of the participant in excess of the allowed maximum annual contribution to an RRSP, to an account which accrues interest equal to the rate of a 10-year Government of Canada bond yield plus a premium of 1% to 3% dependent upon years of service. At the time of retirement, a participant may elect to receive the notional amounts accumulated under the DC SERP from the Corporation in one lump sum or in equal payments over a period not exceeding 15 years.

The Corporation ceased its notional contributions under the DC SERP in respect of Mr. Walker upon his retirement.

Defined Benefit Plans

In 2015, Ms. Duke participated in a defined benefit registered pension plan (“DB RPP”) with provisions for a maximum benefit of C$2,819 per year of service to a maximum of 35 years of service. For 2015, this would equate to an annual benefit of C$82,253.

Up until his retirement, Mr. Walker participated in a DB RPP and the Corporation’s Pension Uniformity Plan (the “DB PUP”), with provisions for an annual accrual of 1.33% up to the final average YMPE as defined under the Canada Pension Plan and 2% in excess of the final average YMPE up to Mr. Walker’s best average earnings (limited to C$182,000 per year). The DB PUP provides the portion of the calculated pension that cannot be provided under the DB RPP due to limits prescribed by the Income Tax Act (Canada). These plans provide a combined payout upon retirement based on the number of years of credited service to a maximum of 35 years and actual pensionable earnings. For the purposes of the DB PUP, the recognized earnings are limited to the base earnings rate that was in effect at December 31, 1999.

Messrs. Perry, Smith, and Ludlow do not participate in a defined benefit pension plan with the Corporation.

2015 EXECUTIVE COMPENSATION

Objective Setting

Following approval of the Business Plan by the Board, the President & CEO recommends a range of the EPS to be used to assess corporate performance by the Human Resources Committee. In addition, the President & CEO recommends safety and reliability targets to be used to assess corporate performance by the Human Resources Committee. Corporate performance objectives for Fortis subsidiaries are assessed and approved by the Board of Directors of the relevant subsidiary. Each NEO also has individual performance objectives that support the Business Plan. The President & CEO submits his individual performance objectives directly to the Human Resources Committee and reviews the individual performance objectives for the other NEOs with the Human Resources Committee. The Human Resources Committee then reviews and submits its recommended corporate and individual performance objectives to the Board for approval.

Annual Base Salary

In accordance with the executive compensation philosophy, the Human Resources Committee adjusts annual base salaries for each NEO referenced against the market medians for the applicable comparator group as described on page 77.

The 2015 base salaries for Messrs. Perry, Smith, Walker and Ludlow were C$1,025,000, C$570,000, C$650,000 and C$515,000, respectively and for Ms. Duke was C$490,000 after her appointment as EVP CHRO, on August 1, 2015.

2015 Annual Incentive

During 2015, annual incentive payouts were determined based on a combination of performance on both corporate and individual objectives. In respect of identification and analysis of the impact of matters beyond the reasonable control of management, and matters approved by the Board subsequent to the business plan targets, the Human Resources Committee, with the assistance of the Audit Committee, performed an assessment of the performance of the Corporation and individual NEOs against their predetermined corporation, subsidiary (where applicable), and individual performance metrics to develop its recommendation to the Board for the 2015 annual incentive payments.

EPS

In respect of a portion of the corporate EPS performance, which is weighted at 80%, Fortis used EPS, adjusted either upward or downward for matters beyond the reasonable control of management or other matters specifically authorized by the Board, to determine part of the corporate performance component of annual incentive payouts for 2015. Accordingly, for the purpose of calculating annual incentive payments, actual EPS of the Corporation of C$2.61 was adjusted to exclude the following:

(i) Gains from the sale of the entire property portfolio of Fortis Properties Corporation which created a gain of C$0.36 EPS;

(ii) Gains from the sale of non-core generation assets in Ontario and New York which created a gain of C$0.11 EPS;

(iii) Capital tracker revenue adjustments at FortisAlberta Inc. related to prior years which created a gain of C$0.03 EPS;

(iv) Impact of settlement of Belize Electricity Limited expropriation matters, including associated foreign exchange impacts, which created a net gain of C$0.02 EPS; and

(v) Costs associated with corporate development opportunities which created a loss of (C$0.02) EPS.

In the aggregate, the above adjustments amount to C$139 million, lowering the EPS by C$0.50 per share, and resulted in a net adjusted EPS of C$2.11. The business plan was also adjusted to reflect the actual average US$/C$ foreign exchange rate of 1.2788 versus the original business plan US$/C$ foreign exchange rate of 1.1300. On this basis the Human Resources Committee determined actual corporate financial performance relative to target for the purpose of annual incentive, which is set out in the table below.

Corporate EPS Performance Targets

	Annual
	Incentive
	Payout			Adjusted
	(% of			Target			Adjusted	Payout
	Target)		Target EPS	EPS		Actual EPS	EPS	%
95% of Business Plan	50	%	1.80	1.89		2.61	2.11	139.94
Business Plan	100	%	1.89	1.98	(1)
108% or more of Business Plan	150	%	2.04	2.15

(1) Adjusted upward by C$0.12 to reflect the actual average US$/C$ exchange rate for 2015 of 1.2788 from 1.13 and downward by C$0.03 to reflect timing impacts associated with divesture of non-core assets.

Safety and Reliability

In addition, in respect of the remaining portion of the corporate performance, which is weighted at 20%, Fortis uses pre-established targets for safety, electrical system performance and gas system performance having regard for industry recognized safety and reliability measures. For 2015, the safety and reliability targets and performance relative to target are set out in the table below.

Corporate Safety & Reliability Targets

			Annual Incentive
			Result	Payout
	Target	Actual Result	(% of Target)	%
All Injury Frequency Rate	2.38	2.07	150	105
SAIDI	1.92	2.14	0
Total Gas Excavation Damage Rate	8.94	6.73	150

The resultant corporate performance from combining the weighted percentage of the EPS and safety and reliability performance was 132.95%.

Individual Performance

The individual performance metrics established for 2015 were intended to manage functional performance priorities.

President & CEO Individual Performance Metrics

In addition to general performance against his position description, individual metrics for the President & CEO included strategically positioning Fortis and its subsidiaries for continued profitable growth by:

· strengthening executive succession and human resources function;

· realizing opportunities for growth;

· completing the divestiture of non-core assets; and

· completing integration of UNS Energy Corporation.

EVP CFO Individual Performance Metrics

In addition to general performance against his position description, individual metrics for Mr. Smith in his role as EVP CFO included:

· establishing corporate planning and forecasting functions;

· strengthening the business planning process;

· enhancing investor relations function; and

· completing divestiture of non-core assets.

EVP CHRO Performance Metrics

Individual Performance Metrics

For her tenure in 2015 as Executive Vice President, Corporate Services and Chief Human Resource Officer, the individual metrics for Ms. Duke included:

· establishing corporate service function;

· strengthening the Human Resource function and supporting the Human Resource Committee on key initiatives;

· advancing talent management strategy; and

· completing post-closing matters related to Fortis Properties Corporation.

For her tenure in 2015 as President and Chief Executive Officer of Fortis Properties Corporation, Ms. Duke’s individual metrics were considered by the Board of Fortis Properties Corporation. The Board of Fortis Properties Corporation awarded Ms. Duke 150% of target for 2015 to recognize her leadership and ability to maintain operations during the strategic review process.

In addition, Ms. Duke entered into an agreement with Fortis Properties Corporation upon commencement of a strategic review process and resulting determination to exit the hotel and real estate business. Under this agreement, Ms. Duke was mandated to conduct a divestiture of the entire property portfolio of Fortis Properties Corporation while continuing to maintain hotel and real estate service operations during the process. The agreement provided a transaction bonus payable upon the conclusion of the disposition process that was incentivized on the achievement of pre-established performance outcomes linked to sale price obtained for the portfolio. During the year, the continuity of operations was successfully preserved and all of the properties were successfully divested through a combination of two transactions totalling C$795 million and resulting in a net after-tax gain to Fortis of C$101 million. As a result of this

arrangement, Ms. Duke received a sum of C$931,000, reflective of the pre-determined sale price thresholds set out in the agreement.

With the sale of the entire property portfolio of Fortis Properties Corporation, a change of control event was triggered under the Fortis Properties Corporation 2013 performance share unit plan and all outstanding performance share units granted to Ms. Duke under that plan became redeemable at 100% payout percentage. As such, Ms. Duke received payment of C$211,225 from the redemption of her 2013 and 2014 performance share unit grants pursuant to her service as President and Chief Executive Officer of Fortis Properties Corporation.

EVP Western Canada Performance Metrics

Individual Performance Metrics

In addition to general performance against his position description, individual metrics for Mr. Walker in his role as EVP Western Canada included:

· completing the Waneta expansion project;

· progressing LNG opportunities, including expansion of the Tilbury LNG facility and the Woodfibre pipeline project;

· progressing acquisition opportunities in Alberta; and

· strenthening the finance function at Western Canadian subsidiaries.

The board specifically recognized the leadership of Mr. Walker in developing the Waneta expansion project, from project initiation and approval in 2010 through the five-year construction period to the commissioning. This C$900 million project was brought in on budget and ahead of schedule. The project augmented earnings by C$0.08 per share in 2015 and is projected to continue to provide a meaningful long-term contribution to annual earnings. A portion of Mr. Walker’s annual incentive, C$200,000, was awarded and paid in May 2015 in recognition of this accomplishment. In addition, he was granted 5,142 RSUs at that time, which are redeemable in three years subject to the Waneta expansion project satisfactorily meeting prescribed performance criteria.

In June 2015, the Corporation entered into an agreement with Mr. Walker which led to his retirement from the Corporation effective June 30, 2015. The terms of the agreement included a payment to Mr. Walker totaling C$2,016,141.

Subsidiary Performance Metrics

The EVP Western Canada’s annual incentive calculation takes subsidiary performance into account along with Fortis’ corporate performance. The performance of each subsidiary is measured using a scorecard approach with multiple metrics calculated and weighted based on the relative earnings contribution of each subsidiary as follows:

Subsidiary	Weighting
FortisBC Gas and Electric	60	%
FortisAlberta	40	%
Total	100	%

EVP Eastern Canada and Caribbean Performance Metrics

Individual Performance Metrics

In addition to general performance against his position description, individual metrics for Mr. Ludlow in his role as EVP Eastern Canada and Caribbean included:

· leading safety and reliability monitoring and initiatives;

· effectively managing Belize Electricity Company Limited operations;

· progressing consolidation opportunities at FortisOntario; and

· positioning Newfoundland Power Inc. for further investment in Newfoundland.

Subsidiary Performance Metrics

The EVP Eastern Canadian and Caribbean’s annual incentive calculation takes subsidiary performance into account along with Fortis’ corporate performance. The performance of each subsidiary is measured using a scorecard with multiple metrics calculated and weighted based on the earnings contribution of each subsidiary as follows:

Subsidiary	Weighting
Newfoundland Power	45	%
Maritime Electric	15	%
Caribbean Utilities	15	%
Fortis Turks and Caicos	15	%
FortisOntario	10	%
Total	100	%

The assessment of the Human Resources Committee was as follows:

President & CEO (Barry V. Perry):

Target Design					Resultant Payout
					Actual Result as
Type of Metric	Metric	Target	Weighting		% of Target		Results
Corporate (80%)	EPS	Business Plan EPS (adjusted)	64	%	140	%	89.6	%


	Safety & Reliability	Pre-Established Targets	16	%	105	%	16.8	%
	Safety & Reliability	Pre-Established Targets	16	%	105	%	16.8	%
Individual (20%)	Multiple	Achievement	20	%	145	%	29.0	%
Total			100	%			135.4	%

EVP CFO (Karl W. Smith):

Target Design					Resultant Payout
					Actual Result as
Type of Metric	Metric	Target	Weighting		% of Target		Results
Corporate (80%)	EPS	Business Plan EPS (adjusted)	64	%	140	%	89.6	%


	Safety & Reliability	Pre-Established Targets	16	%	105	%	16.8	%
	Safety & Reliability	Pre-Established Targets	16	%	105	%	16.8	%
Individual (20%)	Multiple	Achievement	20	%	140	%	28.0	%
Total			100	%			134.4	%

EVP CHRO (Nora M. Duke):

Target Design					Resultant Payout
					Actual Result as
Type of Metric	Metric	Target	Weighting		% of Target		Results
Metrics as EVP CHRO (August 1– December 31, 2015)
Corporate (80%)	EPS	Business Plan EPS (adjusted)	64	%	140	%	89.6	%
Corporate (80%)	Safety & Reliability	Pre-Established Targets	16	%	105	%	16.8	%
Individual (20%)	Multiple	Achievement	20	%	120	%	24.0	%
Total			100	%			130.4	%
Metrics as President & CEO, Fortis Properties Corporation (January 1 – July 31, 2015)
Corporate (70%)	EPS	Business Plan EPS (adjusted)	56	%	140	%	78.4	%
Corporate (70%)	Operations	Various	14	%	105	%	14.7	%
Individual (30%)	Divestiture Process	Achievement	30	%	150	%	45.0	%
Total			100	%			138.1	%

EVP Western Canada (John C. Walker):

Target Design					Resultant Payout
					Actual Result as
Type of Metric	Metric	Target	Weighting		% of Target		Results
Corporate (40%)	EPS	Business Plan EPS (adjusted)	32	%	100	%	32	%


	Safety & Reliability	Pre-Established Targets	8	%	100	%	8	%
Subsidiary (40%)	Multiple	Achievement	40	%	100	%	40	%
Individual (20%)	Multiple	Achievement	20	%	100	%	20	%
Total			100	%			100	% (1)

(1) Short-term incentive paid at 100% of target, pro-rated for June 30, 2015 retirement date. An additional payment of C$200,000 was made to Mr. Walker in respect of his accomplishments in completing the Waneta expansion project. The resultant blended payout represents 187.1% of the target result.

EVP Eastern Canada and Caribbean (Earl A. Ludlow):

Target Design					Resultant Payout
					Actual Result as
Type of Metric	Metric	Target	Weighting		% of Target		Results
Corporate (40%)	EPS	Business Plan EPS (adjusted)	32	%	140	%	44.8	%


	Safety & Reliability	Pre-Established Targets	8	%	105	%	8.4	%
Subsidiary (40%)	Multiple	Achievement	40	%	119	%	47.7	%
Individual (20%)	Multiple	Achievement	20	%	135	%	27.0	%
Total			100	%			127.9	%

The Board did not exercise its discretion in respect of the annual incentive for any of the NEOs. Based on performance against the corporate and individual objectives described above the Board awarded the following annual incentive payments in 2016.

	2015 Actual Annual	Percentage of
	Incentive Payment	Target Payout
	(C$)	(%)
Barry V. Perry	1,387,440	135.4
Karl W. Smith	536,096	134.4
John C. Walker	425,630	187.1
Earl A. Ludlow	460,935	127.9
Nora M. Duke	368,222	134.8	(1)

(1) Ms. Duke’s annual incentive was calculated with reference to her performance as EVP CHRO and President and Chief Executive Officer of Fortis Properties Corporation.

Medium- and Long-Term Incentives

Performance Share Units

PSUP - 2015 Grant

PSUs granted in 2015 will be assessed against the payout criteria mandated by the PSUP which are:

· The Corporation’s TSR for the relevant period compared to the PSU Peer Group TSR for the same period. This metric will be used to determine 50% of the payout criteria;

· The Corporation’s Cumulative EPS for the relevant period compared to the target EPS for the same period. This metric will be used to determine 50% of the payout criteria;

· The Human Resources Committee may, in its discretion, take into account the impact of extraordinary items during the three-year period in which the PSUs granted in 2015 are outstanding (the “Payment Criteria Period”) in determining EPS in respect of such period; and

· Unless the Human Resources Committee determines that the circumstances warrant otherwise, no payment in respect of a unit grant will be payable if the Corporation’s long-term credit rating is below that of the median corporate long-term credit rating for the peer group as of the final business day of the Payment Criteria Period.

The Human Resources Committee did not set any additional payment criteria for any of the NEOs in respect of the 2015 PSU grant. The 2015 PSU grant was determined as a percentage of base salary divided by the volume weighted average trading price of the Common Shares traded on the TSX during the last five trading days immediately preceding January 1, 2015 of C$38.90.

Regular PSU grant

The date of the 2015 PSU grant was January 1, 2015, with grant value based on the role held by the individual at the time. Messrs. Perry, Smith, Walker, and Ludlow received 2015 PSU grant values based on the applicable percentages of base salary prescribed by the PSUP, which were 221%, 113%, 113%, and 94%, respectively. In the case of Ms. Duke, the base salary used and the grant value was based on the applicable percentages prescribed by the PSUP in her role as President and Chief Executive Officer of Fortis Properties Corporation.

PSU grant in connection with Nora M. Duke

In respect of Ms. Duke, an additional grant of PSUs was made to her at the time of her appointment as EVP CHRO to ensure her total PSU opportunity for the year was aligned with the provisions of the PSUP in accordance with the two roles she held during the year and the relative proportion of time she held the roles.

PSU Peer Group

The PSU Peer Group against whom the Corporation’s performance will be measured on the above-noted criteria consists of the following 25 publicly traded North American utility companies:

AGL Resources	Emera Inc.	PPL Corp.
Alliant Energy	Eversource Energy	Public SVC Enterprise Group
Ameren Corp.	Great Plains Energy	SCANA Corp.
Atmos Energy Corp.	MDU Resources Group Inc.	Sempra Energy
CMS Energy Corp.	New Jersey Resources Corp.	TECO Energy Inc.
Canadian Utilities Ltd.	NiSource Inc.	Westar Energy Inc.
CenterPoint Energy Inc.	OGE Energy Corp.	Wisconsin Energy Corp
DTE Energy Co.	Pinnacle West Capital Corp.	UGI Corp.
		Xcel Energy Inc.

As noted on page 99, the actual value of the PSUs at the payment date is dependent on meeting the corporate performance objectives and the payment criteria in the PSUP.

The number and value of PSUs granted to NEOs under the PSUP in 2015 was:

	Number		Value of PSUs
	of	Grant	on the Grant Date
NEO	PSUs	Date	(C$)
Barry V. Perry	58,300	January 1, 2015	2,267,813
Karl W. Smith	16,485	January 1, 2015	641,250
John C. Walker	18,799	January 1, 2015	731,250
Earl A. Ludlow	12,412	January 1, 2015	482,813
Nora M. Duke	2,210	January 1, 2015	85,967
Nora M. Duke	6,671	August 1, 2015	244,201

Stock Options

The number of options granted to NEOs is based upon each NEO’s annual base salary. Options granted in 2015 have a maximum term of ten years from the date of grant and the options will vest at a rate of twenty-five percent (25%) per annum over four years from the date of grant. No options will vest immediately upon being granted. Options will expire no later than three-years after the termination (other than termination for cause), death or retirement of the NEO.

Regular grant

On March 2, 2015, Messrs. Perry, Smith, Walker, and Ludlow and Ms. Duke received option grants based on the roles held by the individuals at that time.

Based on the Black-Scholes Option Pricing Model, the value of the grants as a percentage of annual base salary are equivalent to an economic value of 73.75%, 37.50%, 37.50%, 31.30% and 28.40%, respectively, for Messrs. Perry, Smith, Walker and Ludlow and Ms. Duke. Additional details are provided in the table entitled “Outstanding Option-based and Share-based Awards” on page 109 of this Circular.

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2015 Total Direct Compensation Components

(Base Salary + Annual Incentive + PSUs + Stock Options)

The Fortis approach to total direct compensation is to provide a comprehensive compensation package that links to the Corporation’s overall corporate strategy by rewarding individual performance based on Fortis corporate performance. A significant portion of total direct compensation is “at risk” — meaning it will vary annually based on corporate and individual performance with the portion of compensation not “at risk” being derived from salary. In 2015, the portion of total direct compensation “at risk” for the President & CEO, EVP CFO, EVP Western Canada, EVP Eastern Canada and Caribbean and EVP CHRO was approximately 81%, 71%, 71%, 68% and 65%, respectively.

This level of “at risk” compensation encourages the alignment of executive and Shareholder interests. The Corporation’s executive compensation regime is structured in a manner that emphasizes the greater ability of the President & CEO to affect corporate performance by making a greater portion of the President & CEO’s compensation dependent upon corporate performance. A breakdown of the components of 2015 Total Direct Compensation for each NEO is shown below.

	Base		Annual		Stock			Percentage
	Salary (1)		Incentive		Options (2)	PSUs (3)		At Risk
NEO	(C$)		(C$)		(C$)	(C$)		(%)
President & CEO	1,025,000		1,387,440		755,938	2,267,813		81	%
EVP CFO	570,000		536,096		213,750	641,250		71	%
EVP Western Canada (5)	650,000	(4)	425,630	(5)	243,750	931,250	(5)	71	%
EVP Eastern Canada
and Caribbean	515,000		460,935		160,938	482,813		68	%
EVP CHRO	455,000	(6)	368,222		129,007	330,168		65	%

(1) The base salary for the President and CEO, EVP CFO, EVP Eastern Canada and Caribbean and EVP CHRO are the salaries earned. The base salary for the EVP Western Canada represents Mr. Walker’s annual base salary. Mr. Walker’s actual salary earned in 2015 was C$325,000, as he retired effective June 30, 2015.

(2) The value of the stock options are dependent on corporate performance.

(3) As noted on page 99, the actual value of the PSUs at the payment date is dependent on meeting the payment criteria and corporate performance.

(4) Reflects Mr. Walker’s base salary for 2015. Mr. Walker retired as of June 30, 2015 and received a pro-rated portion of this base salary.

(5) Includes an additional C$200,000 in RSUs relating to the commissioning of the Waneta expansion project, and payment is dependent on the Waneta expansion project meeting certain prescribed financial performance.

(6) Ms. Duke served as President & CEO of Fortis Properties Corporation from January 1, 2015 to July 31, 2015, and has served as EVP CHRO since August 1, 2015. Ms. Duke’s base salary reflects amounts paid in respect of each of these roles.

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(1) In respect of the EVP, Western Canada, the compensation mix assumes an annual base salary for a full year and not the actual salary received by the EVP, Western Canada for half a year.

Retirement Plans

In 2015 the Corporation contributed to self-directed individual RRSPs for Messrs. Perry, Smith and Ludlow, which contributions were matched by them up to the maximum RRSP contribution limit of C$24,930 as allowed by the Income Tax Act (Canada).

Additional amounts were accrued into DC SERP accounts equal to 13% of the annual base salary and annual cash incentive above the threshold required to meet the maximum RRSP contribution or pension limit for each NEO in the amounts of C$245,990, C$114,170, C$350,752, C$94,020, and C$67,864 for Messrs. Perry, Smith, Walker, Ludlow and Ms. Duke, respectively.

A detailed breakdown of retirement plans for each NEO is provided in the Retirement Plan Tables at page 112 of this Circular.

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SHARE OWNERSHIP GUIDELINES

The Board has a share ownership policy that requires executives to own, directly and indirectly, a minimum number of Common Shares and RSUs based on targets varying by position level. Minimum share ownership targets must be achieved within five years of appointment to the corresponding position. Each NEO exceeds the minimum shareholding guidelines for the NEOs which are as follows:

		Current Share Ownership as a
Position	Share Ownership Guideline	Percentage of Target (1)(2)
President & CEO	5 times annual base salary	145.5	%
EVP CFO	3 times annual base salary	253.9	%
EVP Eastern Canada and Caribbean	3 times annual base salary	268.6	%
EVP CHRO	3 times annual base salary	352.0	%

(1) Represents both direct and indirect ownership of Common Shares and RSUs as reported by each NEO.

(2) Determined using annual base salary at December 31, 2015 and the closing price of a Common Share on the TSX as at March 18, 2016 of C$39.01.

The Board also encourages share ownership through the 2012 ESPP. Any executive that fails to comply with the share ownership policy shall not be eligible for future equity-based compensation until the later of the end of the one-year period commencing on the date of the failure or such time as the executive is again in compliance with the share ownership policy.

The current Common Share ownership of the NEOs expressed as a multiple of their 2015 annual base salary as at March 18, 2016 is as follows:

Common Share Ownership of Named Executive Officers

			Common Share Value
	Shares Owned at	Value of	as a Multiple of 2015
	March 18, 2016 (1)	Shares (2)	Base Salary (3)
Name	(#)	(C$)	(x)
Barry V. Perry	191,122	7,455,669	7.27
Karl W. Smith	111,277	4,340,916	7.62
Earl A. Ludlow	106,373	4,149,611	8.06
Nora M. Duke	123,167	4,804,745	10.56

(1) Represents both direct and indirect ownership of Common Shares as reported by each NEO.

(2) Calculated using the closing price of Common Shares on the TSX as at March 18, 2016 of C$39.01.

(3) Base salary used in this chart is the annual base salary of the NEO at December 31, 2015 and not the actual salary received by the NEO during 2015.

Note on Trading Restrictions

Fortis prohibits employees, officers and directors from entering into short sales, calls and puts of any of its securities. Directors and officers of Fortis and its subsidiaries are also required to pre-clear any buying or selling of Fortis securities, and the exercise of stock options, with the EVP CFO or the Vice-President, Chief Legal Officer and Corporate Secretary.

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COMPENSATION CONSULTANTS

The Human Resources Committee assists the Board in respect of executive compensation matters and may engage outside advisors that have special expertise to help fulfill this role. The Human Resources Committee currently engages Hay Group as its primary compensation consultant. As previously discussed, Hay Group also provides Fortis subsidiaries with job evaluation services and market compensation data from its national database. The engagement of Hay Group by the subsidiaries is solely subject to the direction and decision of the respective subsidiary boards of directors, which operate autonomously from the Corporation. The Human Resources Committee is satisfied with this working structure, which has been in place for years, and does not require pre-approval of such services as long as they are consistent with the broad parameters of Fortis policy.

The Hay Group is the primary consultant on Executive Compensation retained by the Human Resources Committee. In that regard, Hay Group was paid fees of C$224,209 in 2015 for work on behalf of the Human Resources Committee. In addition, subsidiaries paid a total of C$224,905 in 2015 for work done by the Hay Group on behalf of subsidiary boards. A majority of the subsidiary fees incurred in 2015 by the Hay Group were in respect of work related to CH Energy Group, Inc. and are not expected to be repeated.

Mercer is retained to provide general pension consulting and actuarial advice to the Corporation including plans related to the NEOs. Fees paid in respect of NEOs were C$165,253 in 2015. In addition, subsidiaries paid a total of C$1,813,936 in 2015 to Mercer primarily for pension consulting services at subsidiaries.

Towers Watson was retained as the secondary consultant for the biennial review in 2014, but was not retained by the Human Resources Committee for additional work in 2015. In 2015, Towers Watson was paid fees of C$15,369 by the Corporation in relation to finalizing work on the biennial review. In addition, subsidiaries paid a total of C$1,173,359 in 2015 to Towers Watson primarily for actuarial consulting services at UNS Energy Corporation and FortisBC Holdings Inc.

	Executive Compensation
	Related Fees		All Other Fees
	(C$)		(C$)
	2015	2014	2015	2014
Hay Group Limited (1) — Job evaluation, compensation data, consulting, biennial executive compensation review	224,209	396,811	—	—
Mercer — Pension Consulting	165,253	117,270	—	—
Towers Watson & Co. (1) — Executive compensation, biennial executive compensation review	—	427,071	15,369	44,115	(2)

(1) Hay Group and Towers Watson were engaged in 2014 as part of the Corporation’s biennial review referred to on page 76 of this Circular.

(2) Towers Watson was engaged in 2014 as part of a review of director compensation.

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PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder return for C$100 invested in Common Shares on December 31, 2010 with the cumulative total return of the S&P/TSX Composite Index and the S&P/TSX Capped Utilities Index for the five most recently completed financial years. Dividends declared on the Common Shares are assumed to be reinvested at the closing share price of the Common Shares on each dividend payment date. The S&P/TSX Composite Index and S&P/TSX Capped Utilities Index are total return indices and include reinvested dividends.

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Five-Year Cumulative Total Return on C$100 Investment

Fortis Inc. Common Shares, S&P/TSX Composite Index and S&P/TSX Capped Utilities Index

(December 31, 2010 – December 31, 2015)

	2010	2011	2012	2013		2014	2015
Fortis Inc. Common Shares (C$)	100	102	108	100		132	131
S&P/TSX Composite Index (C$)	100	91	98	111		122	112
S&P/TSX Capped Utilities Index (C$)	100	106	111	106		123	119
Increase in total shareholder return from prior year - Fortis Inc. Common Shares (%)	—	2.0	5.9	(7.4	)	32.0	(0.8	)

The Corporation’s executive compensation programs are designed to reward NEOs at approximately the median of its comparator group. As TSR is only one of the factors considered by the Human Resources Committee during its executive compensation deliberations, a direct correlation between the five-year TSR performance and the trend in executive compensation levels over any given period is not always to be expected. Another important factor considered by the Human Resources Committee during its executive compensation deliberations is the executive team’s success in executing on a long-term growth strategy to create sustained shareholder value. For more than a decade, Fortis has pursued a strategy of growing its regulated utility business across Canada and recently in the United States, including acquisitions of well-run regulated utilities and investment in its utility businesses.

Over the last five years the Corporation has more than doubled in size with total assets of Fortis increasing by 124% from C$12.9 billion as at December 31, 2010 to C$28.8 billion as at December 31, 2015. This increase in assets was largely influenced by the acquisitions of UNS Energy Corporation in August 2014 and CH Energy Group, Inc. in June 2013.

In 2015, the Corporation fully integrated and realized the earnings from its recent acquisitions in the United States and its earnings grew to C$589 million on an adjusted basis. This increase in adjusted earnings to Shareholders represented an increase of approximately 115% from adjusted earnings to Shareholders in 2010 of C$274 million. Growth in annual revenue from 2010 to 2015 was approximately 84%. As demonstrated in the graph above, Fortis TSR increased 31% since December 31, 2010 outperforming the S&P/TSX Composite and S&P/Capped Utilities Indices by 158% and 63%, respectively.

NEO total compensation in 2015 was 2.33% of 2015 earnings compared to 2.31% of 2010 earnings. During this period there was: (i) an increase in the number of NEOs from three in 2010 to five in 2015, (ii) the creation of new Executive Vice President positions in 2014 in response to growth, (iii) the extension of PSU grants to other NEOs commencing January 1, 2013, which is consistent with the Corporation’s focus on longer-term performance and providing compensation at approximately the median of applicable comparator group.

The component of at-risk longer-term compensation (PSUs + Stock Options) for the President & CEO, when compared to Total Direct Compensation (Base Salary + STI + PSUs + Stock Options) for the President & CEO, increased from 47% in 2010 to 56% in 2015.

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SUMMARY COMPENSATION TABLE

Compensation of Named Executive Officers

The following table sets forth information concerning the annual and long-term compensation earned for services rendered during the last financial year by the President & CEO of Fortis and each of the other NEOs as defined in National Instrument 51-102F6 — Statement of Executive Compensation , with comparative information for the two previous financial years. Throughout the period the roles of the various NEOs changed and the comparative year over year numbers should be read in the context of the changed roles.

Summary Compensation Table

			Share-		Option-	Annual
			Based		Based	Incentive	Pension	All Other		Total
Name and		Salary	Awards		Awards	Plan	Value	Compensation		Compensation
Principal Position	Year	(C$)	(C$) (1)		(C$) (2)	(C$) (3)	(C$) (4)	(C$) (5)		(C$)

BARRY V. PERRY (6)	2015	1,025,000	2,267,813		755,938	1,387,440	245,990	340,138		6,022,319
President & CEO	2014	737,500	1,115,625		318,465	1,059,000	136,605	232,355		3,599,550
President & CEO	2013	520,000	389,997		242,201	500,000	98,380	168,920		1,919,498
KARL W. SMITH (7)	2015	570,000	641,250		213,750	536,096	114,170	184,053		2,259,319
Executive Vice President, Chief Financial Officer	2014	522,500	330,000		236,634	500,000	89,292	146,906		1,825,332
Executive Vice President, Chief Financial Officer	2013	475,000	237,500		221,243	350,000	79,790	125,862		1,489,395
JOHN C. WALKER (8)	2015	325,000	931,250	(9)	243,750	425,630	374,183	2,080,473	(10)	4,380,286
Executive Vice President, Western Canadian Operations	2014	581,250	435,938		261,958	500,000	142,426	107,919		2,029,491
Executive Vice President, Western Canadian Operations	2013	535,600	401,713		249,458	400,000	138,773	105,677		1,831,221
EARL A. LUDLOW (8)	2015	515,000	482,813		160,938	460,935	94,020	142,898		1,856,604
Executive Vice President, Eastern Canadian and Caribbean Operations	2014	465,000	207,583		172,570	400,000	74,400	97,835		1,417,388
	2013	420,000	83,983		146,719	294,000	67,180	75,182		1,087,064
NORA M. DUKE (11)	2015	455,000	330,168		129,007	368,222	114,693	1,056,455		2,453,545
Executive Vice President, Corporate Services and Chief Human Resource Officer	2014	415,000	83,000		143,021	225,000	106,086	20,808		992,915
	2013	395,000	79,000		137,992	275,000	99,802	25,827		1,012,621

(1) Represents the PSUs awarded in 2013, 2014 and 2015 — see “Report on Executive Compensation — 2015 Executive Compensation — Performance Share Units” commencing on page 99 of this Circular. The value of the PSUs awarded was determined using the underlying value of Common Shares as of the grant date. The values used were C$33.96, C$30.42, C$32.23, C$33.44, C$38.90, and C$36.61 per PSU for January 1, 2013, January 1, 2014, June 30, 2014, August 1, 2014, January 1, 2015 and August 1, 2015 respectively. For accounting purposes, the awards for 2013, 2014 and 2015 were measured at fair value, which was determined as the volume weighted average price of Common Shares traded on the TSX for the five trading days immediately preceding the date of the grant. This value was determined to be C$33.96, C$30.42 and C$38.90 per PSU for 2013, 2014 and 2015 respectively.

(2) Represents the fair value of stock options to acquire Common Shares. In 2013, the fair value of C$3.91 per option was determined at the date of grant using the Black-Scholes Option Pricing Model. In 2014, the fair values at C$3.53, C$2.69 and C$2.47 per option were determined at the date of grant using the Black-Scholes Option Pricing Model on February 24, 2014, June 30, 2014 and August 1, 2014 respectively. In 2015, the fair value of C$3.925 per option was determined at the date of grant using the Black-Scholes Option Pricing Model on March 2, 2015. The key assumptions used to determine the stock option value included: a weighted average expected 5.5-year maturity period, which is based on the vesting policy under the stock option plan; dividend yield, which is based on the average dividends paid/average share prices over the historical maturity period; interest rate, which is the Government of Canada bond yield to match the maturity period of the options; and volatility, which is the variation of the Common Share price over the historical maturity period. Compensation fair value of the stock option is different than the accounting value disclosed in the Corporation’s financial statements because different assumptions are used. The key difference in the assumptions is in respect of the expected life of the options. For compensation purposes, the fair value calculation uses the full 10-year term of the options for the expected life assumption which is more representative of the compensation opportunity. For accounting fair value, a 5.5 year life expectancy is used based on historical experience.

(3) Represents amounts earned under the Corporation’s annual short-term incentive program in the form of cash bonus related to the 2013, 2014 and 2015 financial years.

(4) The amount reported for Pension Value is comprised of the compensatory charge in the DC SERP and the RPP.

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(5) Includes the Canadian dollar value of insurance premiums paid by Fortis with respect to term life and disability insurance; imputed interest benefits of loans provided to NEOs in respect of the acquisition of Common Shares under the 2012 ESPP; vehicle benefits; transportation costs; share discount benefits; employer contributions to the self-directed RRSP of the NEO; and amounts paid by subsidiaries of Fortis as directors’ fees to Messrs. Perry, Smith, Walker and Ludlow and Ms. Duke. In respect of director fees paid to Messrs. Perry, Smith, Walker and Ludlow and Ms. Duke, in 2015 the fees were C$295,820, C$142,372, C$55,750, C$87,859, and C$98,883, respectively, in 2014 the fees were C$127,522, C$68,624, C$36,250, C$35,587 and C$28,350, respectively; and in 2013 the fees were C$106,000, C$52,750, C$37,500, C$25,689 and C$27,200, respectively.

(6) Appointed President effective June 30, 2014 and President & CEO effective January 1, 2015. Prior to June 30, 2014, Mr. Perry served as Vice President, Finance and Chief Financial Officer of the Corporation since 2004. Historical compensation for 2014 and 2013 reflect the prior roles as President and Vice President, Finance and Chief Financial Officer at Fortis.

(7) Appointed to current role and became an NEO of Fortis on June 30, 2014. Historical compensation for 2014 and 2013 reflect the Executive Vice President, Chief Financial Officer’s prior role as President and Chief Executive Officer of FortisAlberta Inc. The compensation in respect of 2014 reflects the full year compensation actually earned by the Executive Vice President, Chief Financial Officer, both in his role as President and Chief Executive Officer of FortisAlberta Inc. and as the Executive Vice President, Chief Financial Officer.

(8) Appointed to current role and became NEO of Fortis on August 1, 2014. Historical compensation for 2014 and 2013 reflect the Executive Vice President, Western Canadian Operations and the Executive Vice President, Eastern Canadian and Caribbean Operations, prior roles as President and Chief Executive Officer of FortisBC and President and Chief Executive Officer of Newfoundland Power, respectively. The compensation in respect of 2014 reflects the full year compensation actually earned by the Executive Vice President, Western Canadian Operations both in his role as President and Chief Executive Officer of FortisBC and Executive Vice President, Western Canadian Operations, and by the Executive Vice President, Eastern Canadian and Caribbean Operations, both in his role as President and Chief Executive Officer of Newfoundland Power and Executive Vice President, Eastern Canadian and Caribbean Operations. The Executive Vice President, Western Canadian Operations retired effective June 30, 2015.

(9) Included in this amount is the value of 5,142 RSUs, granted to Mr. Walker in recognition of his efforts in respect of the Waneta Expansion Project and which are redeemable in 2018 subject to the satisfaction of established Waneta performance criteria. These remain outstanding following his retirement.

(10) In June 2015, the Corporation entered into an agreement with Mr. Walker which led to his retirement from the Corporation effective June 30, 2015. The terms of the agreement included a payment to Mr. Walker totaling C$2,016,141, which amount is included in this table.

(11) Ms. Duke was appointed Executive Vice President, Corporate Services and Chief Human Resource Officer on August 1, 2015. Prior to this appointment she served as President and Chief Executive Officer of Fortis Properties Corporation. She received a bonus of C$931,000 related to the strategic review and sale of the commercial real estate and hotel properties per an agreement with Fortis Properties Corporation. Please see page 93 for further detail.

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INCENTIVE PLAN AWARDS

The following tables set forth details of all long-term incentive awards as at December 31, 2015. The medium-and long-term incentive plans are described beginning on page 86 of the “Report on Executive Compensation”.

Outstanding Option-Based and Share-Based Awards Table

(as at December 31, 2015)

		Option Based Awards				Share Based Awards
		Number of				Number of	Market or payout	Market or payout
		securities			Value of	shares or	value of share-	value of vested
		underlying	Option		unexercised	units that	based awards	share-based
		unexercised	exercise	Option	in-the-money	have not	that have not	awards not paid
	Year Option	options	price	expiration	options (1)	vested	vested (2)	out or distributed
Name	Granted	(#)	(C$)	Date	(C$)	(#)	(C$)	(C$)

BARRY V. PERRY President & CEO	2015	192,596	39.25	2-Mar-25	—	60,501	2,263,360
	2014	20,168	32.23	30-Jun-24	104,470	22,883	856,040	—
	2014	74,848	30.73	24-Feb-24	499,985	15,279	571,585	—
	2013	61,944	33.58	19-Mar-23	237,246	12,863	481,206	—
	2012	56,612	34.27	4-May-22	177,762	—	—	—
	2011	57,056	32.95	2-Mar-18	254,470	—	—	—
	2010	12,336	27.36	1-Mar-17	123,977	—	—	—
Total		475,560			1,397,910	111,526	4,172,191	—
KARL W. SMITH Executive Vice President, Chief Financial Officer	2015	54,460	39.25	2-Mar-25	—	17,107	639,991
	2014	3,416	32.23	30-Jun-24	17,695	2,758	103,191	—
	2014	64,432	30.73	24-Feb-24	430,406	8,769	328,051	—
	2013	56,584	33.58	19-Mar-23	216,717	7,834	293,072	—
	2012	53,692	34.27	4-May-22	168,593	—	—	—
	2011	54,024	32.95	2-Mar-18	240,947	—	—	—
	2010	36,800	27.36	1-Mar-17	369,840	—	—	—
Total		323,408			1,444,198	36,468	1,364,305	—
JOHN C. WALKER Executive Vice President, Western Canadian Operations	2015	62,104	39.25	30-Jun-18	—	24,650	922,157
	2014	2,805	33.44	30-Jun-18	11,136	755	28,263
	2014	53,694	30.73	30-Jun-18	358,676	14,615	546,739	—
	2013	31,900	33.58	30-Jun-18	122,177	13,249	495,649	—
	2012	15,174	34.27	30-Jun-18	47,646	—	—	—
Total		165,677			539,635	53,269	1,992,808	—
EARL A. LUDLOW Executive Vice President, Eastern Canadian and Caribbean Operations	2015	41,004	39.25	2-Mar-25	—	12,881	481,863
	2014	8,476	33.44	1-Aug-24	33,650	3,854	144,187
	2014	42,956	30.73	24-Feb-24	286,946	3,117	116,624	—
	2013	37,524	33.58	19-Mar-23	143,717	2,770	103,618	—
	2012	35,016	34.27	4-May-22	109,950	—	—	—
	2011	35,056	32.95	2-Mar-18	156,350
	2010	40,572	27.36	1-Mar-17	407,749	—	—	—
Total		240,604			1,138,362	22,622	846,292	—
NORA M. DUKE Executive Vice President, Corporate Services and Chief Human Resource Officer	2015	32,868	39.25	2-Mar-25	—	2,294	85,831	—
	2015	—	—	—	—	6,923	258,976
	2014	40,516	30.73	24-Feb-24	270,647			—
	2013	35,292	33.58	19-Mar-23	135,168			—
	2012	33,484	34.27	4-May-22	105,140			—
	2011	33,688	32.95	2-Mar-18	150,248			—
	2010	38,380	27.36	1-Mar-17	385.719			—
	2009	38,096	22.29	11-Mar-16	576,012			—
	2006	13,470	22.94	28-Feb-16	194,911			—
		265,794			1,817,845	9,217	344,807	—

109

(1) The value of unexercised in-the-money options as at December 31, 2015 is the difference between the option exercise price and the closing price of Common Shares as at December 31, 2015 on the TSX of C$37.41 applied to outstanding options. Where the exercise price is greater than the closing price, no value is assigned.

(2) Market or payout value of share-based awards that have not vested is the payout value of outstanding PSUs based on the closing price of Common Shares on the TSX as at December 31, 2015 of C$37.41.

Incentive Plan Awards - Value Vested or Earned — 2015

			Non-equity incentive plan
	Option-based awards - Value	Share-based awards - Value	compensation - Value earned
	vested during the year (1)	vested during the year (2)	during the year (3)
Name	(C$)	(C$)	(C$)
BARRY V. PERRY
President & CEO	418,827	—	1,387,440
KARL W. SMITH
Executive Vice President, Chief Financial Officer	368,664	—	536,096
JOHN C. WALKER
Executive Vice President, Western Canadian Operations	414,251	—	425,630
EARL A. LUDLOW
Executive Vice President, Eastern Canadian and Caribbean Operations
	249,958	—	460,935
NORA M. DUKE (4)
Executive Vice President, Corporate Services and Chief Human Resource Officer	229,121	211,225	368,222

(1) Represents the aggregate value that would have been realized if options that vested during the year had been exercised on the vesting date. The value is calculated as the difference between the closing price of the Common Shares on the TSX on the vesting date and the grant price of the respective grant.

(2) Represents the value of PSUs that were realized and paid in 2015.

(3) Represents the annual incentive earned for 2015. See the Summary Compensation Table on page 107 of this Circular.

(4) Appointed to current position and became an NEO of Fortis on August 1, 2015 and includes options received in previous positions.

In 2015, Fortis granted 667,244 options pursuant to the 2012 Stock Option Plan which represents 0.24% of the total number of issued and outstanding Common Shares of the Corporation.

Equity Compensation Plan Information as at December 31, 2015

			Number of securities
			remaining available for
			future issuance under equity
	Number of securities to be		compensation plans
	issued upon exercise of	Weighted average exercise	(excluding options issued and
	outstanding options	price of outstanding options	outstanding)
Plan Category	(#)	(C$)	(#)
Equity compensation plans approved by security holders	4,416,454	32.12	6,840,193

110

Stock Options Outstanding

	Options Outstanding	Options Outstanding	% of Common Shares Issued
	December 31, 2015	March 18, 2016 (1)	and Outstanding
Option Plan	(#)	(#)	December 31, 2015	March 18, 2016

2012 Stock Option Plan	2,950,912	3,713,470	1.05	1.31
2006 Stock Option Plan	1,322,125	937,360	0.47	0.33
2002 Stock Option Plan	143,417	Nil	0.05	0.00
Total	4,416,454	4,650,830	1.57	1.64

(1) Shares remaining in reserve for options to be issued under the Fortis stock option plans are limited to 6,840,193 Common Shares, which represents 2.43% of the total number of issued and outstanding Common Shares and are all issuable pursuant to the 2012 Stock Option Plan. In aggregate, options granted and outstanding, combined with shares remaining in reserve for issuance of stock options pursuant to Fortis stock options plans are limited to 11,256,647 Common Shares, which represents 4.0% of the total number of issued and outstanding Common Shares.

NEO Stock Options Exercised - 2015

			Monetary Gain of
		Number of Options	Exercised Options (1)
Name	Grant Year	Exercised	(C$)
BARRY V. PERRY	—	—	—
President & CEO

KARL W. SMITH	2006	34,329	560,490
Executive Vice President, Chief Financial Officer	2009	32,280	548,437
		66,609	1,108,927

JOHN C. WALKER	2011	60,700	324,745
Executive Vice President, Western Canadian Operations	2012	45,522	143,850
	2013	31,900	122,815
	2014	17,898	128,687
	2014	935	4,189
		156,955	724,286

EARL A. LUDLOW	2009	49,800	868,661
Executive Vice President, Eastern Canadian and Caribbean Operations


NORA M. DUKE	—	—	—
Executive Vice President,
Corporate Services and
Chief Human Resource Officer

(1) Monetary gain of exercised options is the difference between the option price and the share price at time of exercise.

111

RETIREMENT PLAN TABLES

The following tables set out the estimated annual pension for the NEOs from the defined benefit and the defined contribution pension arrangements.

Defined Benefit Plans Table

Number of

years of

Annual Benefits Payable

Accrued

credited

At year-end

obligation at

Non-

obligation at

service

2015

At age 65 (1)

start of year

Compensatory

Compensatory (2)

year end

Name

(#)

(C$)

JOHN C. WALKER

32.16

94,347

1,483,644

23,431

1,541

1,508,616

Executive Vice President, Western Canadian Operations

NORA M. DUKE

29.18

82,253

98,661

1,339,316

46,829

(69,150

)

1,316,995

Executive Vice President, Corporate Services and Chief Human Resource Officer

(1) This is a pension payable at age 65 based on service and earnings to December 31, 2015. An immediate unreduced pension is not available as at December 31, 2015 for Ms. Duke. Mr. Walker retired effective June 30, 2015. His projected benefit at age 65 will therefore be equal to his December 31, 2015 benefit.

(2) Reflects the impact on the obligation of the change in the discount rate as at the measurement date of December 31, 2015. The discount rate used as at December 31, 2015 was 4.40% compared to 4.0% as at December 31, 2014.

Defined Contribution Plans Table (1)

	Accumulated
	value						Accumulated value
	at start of year	Compensatory		Non-Compensatory	Benefits Paid		at year end
Name	(C$)	(C$)		(C$)	(C$)		(C$)
BARRY V. PERRY
President & CEO	1,085,250	245,990		41,505			1,372,745
KARL W. SMITH
Executive Vice President, Chief Financial Officer	1,108,759	114,170		62,913			1,285,842
JOHN C. WALKER
Executive Vice President, Western Canadian Operations	1,470,564	350,752	(2)	61,101	(103,748	)	1,778,669
EARL A. LUDLOW
Executive Vice President, Eastern Canadian and Caribbean Operations	887,829	94,020		50,444			1,032,293
NORA M. DUKE
Executive Vice President, Corporate Services and Chief Human Resource Officer	716,753	67,864		40,066			824,684

(1) All payments to be made under the DC SERP will be paid from the operating funds of the Corporation.

(2) An amount of C$200,000 was credited to Mr. Walker’s SERP upon his retirement.

112

TERMINATION AND CHANGE OF CONTROL BENEFITS

The Corporation has employment agreements with each NEO which provide, in effect, that in the event the employment of any such individual is terminated by the Corporation, for other than just cause, the Corporation shall pay to such individual an amount equal to an established multiple of base salary and target annual incentive. If such agreements had become operative as at December 31, 2015, the amounts payable by the Corporation thereunder to each of Messrs. Perry, Smith, and Ludlow and Ms. Duke would have been C$4,100,000, C$1,453,500, C$1,313,250 and C$1,176,000, respectively.

In addition, in respect of change of control of the Corporation, the agreements entered into with Messrs. Perry, Smith, and Ludlow and Ms. Duke include provisions for termination amounts in the event that employment is terminated with good reason or without cause within twelve months following a defined change of control of the Corporation.

The 2012 and 2006 Stock Option Plans provide for an immediate vesting of options granted thereunder upon the happening of a defined change of control event. If such an event had occurred as at December 31, 2015, the gross amounts potentially realizable by each of Messrs. Perry, Smith, and Ludlow and Ms. Duke upon the exercise of outstanding options that have not vested would have been C$1,397,910, C$1,444,198, C$1,138,362 and C$1,817,845 respectively.

The PSUP provides that in the event of a change of control all performance share units are deemed at 100% and redeemable on the date immediately before the change of control. If such an event had occurred as at December 31, 2015, the gross amounts realizable by each of Messrs. Perry, Smith, and Ludlow and Ms. Duke would have been C$4,172,191, C$1,364,305, C$846,292, and C$344,807, respectively. In the event of termination, any amounts payable under the PSUP would be dependent on applicable notice period and as such the termination date and the notice period would be relevant considerations of the Human Resources Committee.

In 2014 in conjunction with their new roles and the unique circumstances Messrs. Smith and Ludlow entered into new employment agreements that included a retention arrangement. The purpose of the retention arrangement was to ensure the core leadership remained in place and the Corporation was positioned for ongoing success and growth. Per their employment agreements, each of Messrs. Smith and Ludlow is eligible for a retention incentive in the form of a one-time payment of C$1,870,000 and C$850,000, respectively, to be paid out on the last day of the relevant prescribed employment terms which are December 31, 2018 and December 31, 2017, respectively. In respect of Mr. Smith, the value of the one-time retention incentive is equal to two times the sum of the respective base salary and annual incentive and in respect of Mr. Ludlow the retention incentive is one time the sum of the base salary and annual incentive. The retention incentives are payable on the respective vesting dates, with payment subject to continued employment. By the terms of the retention incentive Messrs. Smith and Ludlow are entitled to pro-rata payment, in the event the employment of any such individual is terminated by the Corporation, for other than just cause, based on the proportion of time lapsed from the effective date of the employment agreement to the termination date.

Mr. Walker retired from the Corporation effective June 30, 2015. As such, provisions previously applying to Mr. Walker in termination and change of control situations have been excluded from discussion.

The following table outlines key severance and change-of-control provisions for Messrs. Perry, Smith, and Ludlow and Ms. Duke.

113

TERMINATION AND CHANGE OF CONTROL BENEFITS

	Voluntary	Retirement	Termination	Termination	Change of Control
	Resignation	(Early or Normal)	With Cause	Without Cause	(Double Trigger)
Annual Salary	Ceases on termination date	Ceases on retirement date	Ceases on termination date	Ceases on termination date	Ceases on termination date
Annual Incentive for the applicable year	Forfeited	Target annual incentive for the fiscal year pro-rated to the date of retirement	Forfeited	Target annual incentive for the fiscal year pro-rated to the date of termination	Target annual incentive for the fiscal year in which termination occurs (or if greater, the fiscal year immediately preceding the fiscal year in which Change of Control occurs)
Cash Severance	None	None	None	Mr. Perry: Two times the sum of annual base salary and target annual incentive for the fiscal year in which termination occurs	Mr. Perry: Two times the sum of annual base salary and target annual incentive for the fiscal year in which termination occurs (or if greater, the fiscal year immediately preceding the fiscal year in which the Change of Control occurs)

				Ms. Duke and Messrs. Smith and Ludlow: One and a half times the sum of annual base salary and target annual incentive for the fiscal year in which termination occurs	Ms. Duke and Messrs. Smith and Ludlow: One and a half times the sum of annual base salary and target annual incentive for the fiscal year in which termination occurs (or if greater, the fiscal year immediately preceding the fiscal year in which the Change of Control occurs)
Stock Options	All unexercised options expire after 90 days from resignation date	All unvested options continue to vest per normal schedule for two years after retirement; all remaining unvested options after the second year vest immediately. Options expire on the earlier of the original expiry date or three years from the date of retirement	All vested and unvested options immediately expire and are forfeited on the termination date	All unexercised options expire after 90 days from termination date. All unvested options immediately expire and are forfeited	All unvested options vest immediately and become exercisable
Performance Share Units	All PSUs shall be cancelled	Continue per normal schedule	All PSUs shall be cancelled	PSUs whose payment date is prior to the expiration of the notice period will be paid. Others will be cancelled	All PSUs are deemed at 100% and redeemable on the date immediately before Change of Control
Restricted Share units	All RSUs shall be cancelled	All RSUs become vested and redeemed on date of retirement	All RSUs shall be cancelled	RSUs whose payment date is prior to notice period will be paid. Others will be cancelled.	All RSUs are deemed 100% redeemable on the date immediately before the Change of Control
Retention Incentive	Forfeited	Forfeited	Forfeited	Messrs. Smith and Ludlow: Awarded on a pro-rated basis based on the proportion of time lapsed from effective date of employment to termination date relative to time from effective date of employment agreement to vesting date	Messrs. Smith and Ludlow: Awarded on a pro-rated basis based on the proportion of time lapsed from effective date of employment to termination date relative to time from effective date of employment agreement to vesting date
Retirement Benefits	Entitled to accrued pension	Entitled to accrued pension and retiree health benefits	Entitled to accrued pension	Entitled to accrued pension and retiree health benefits	Entitled to accrued pension and retiree health benefits
Perquisites	Ceases immediately	Ceases immediately	Ceases immediately	Ceases immediately	Ceases immediately

114

INDEBTEDNESS OF EXECUTIVE OFFICERS, DIRECTORS AND EMPLOYEES

The following table sets forth details of the aggregate indebtedness of all executive officers, directors, employees and former executive officers, directors and employees outstanding as at March 18, 2016 to Fortis and its subsidiaries.

Aggregate Indebtedness

	To Fortis
	and its Subsidiaries	To Another Entity
Purpose	(C$)	(C$)
Share Purchases	4,530,912	Nil
Other	1,708,822	Nil

The above table discloses the aggregate indebtedness of all employees of Fortis and its subsidiaries to their respective employers. The primary indebtedness is incurred for share purchases pursuant to the 2012 ESPP. Other loans made to employees arise in connection with relocation or housing assistance and purchase of home computers.

No loans are made to directors by Fortis or any of its subsidiaries.

As of March 18, 2016 there is no indebtedness of NEOs to Fortis. The table below sets forth the details of indebtedness of NEOs under the securities purchase program in 2015. The loans reported therein arise under the 2012 ESPP, open for participation by employees, whereby interest free loans repayable by payroll deduction over 12 months from the date of advance to a maximum of 10% of the employee’s base annual salary may be utilized to acquire Common Shares. Directors do not participate in the 2012 ESPP and therefore do not receive loans for the purposes of acquiring Common Shares. Except as disclosed, there is no indebtedness to Fortis by executive officers, directors, employees, or former executive officers for any purpose.

Indebtedness of Directors and Executive Officers

Under Securities Purchase Programs (1)

		Largest	Amount	Financially
		Amount	Outstanding	Assisted Securities
	Involvement of	Outstanding	as at	Purchased During
	Corporation or	During 2015	March 18, 2016	2015	Security for
Name and Principal Position	Subsidiary	(C$)	(C$)	(#)	Indebtedness
BARRY V. PERRY	Fortis Inc.	—	—	—	—
President & CEO	As Lender
KARL W. SMITH Executive Vice President, Chief Financial Officer	Fortis Inc. As Lender	9.519	—	—	The securities purchased
	Fortis Inc. As Lender	9.519	—	—	The securities purchased
JOHN C. WALKER Executive Vice President, Western Canadian Operations	Fortis Inc. As Lender	—	—	—	—
EARL A. LUDLOW Executive Vice President, Eastern Canadian and Caribbean Operations	Fortis Inc. As Lender	51,500	—	1,423	The securities purchased
	Fortis Inc. As Lender	51,500	—	1,423	The securities purchased
NORA M. DUKE Executive Vice President, Corporate Services and Chief Human Resource Officer	Fortis Inc. As Lender	—	—	—

(1) No amounts were outstanding as at March 18, 2016.

115

INTERESTS OF ADVISORS

Goldman, Sachs & Co. provided the opinion described under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation”. Goldman, Sachs & Co. and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman, Sachs & Co. and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Fortis, ITC and any of their respective affiliates and third parties, or any currency or commodity that may be involved in the Acquisition. Goldman, Sachs & Co. expects to receive fees for its services in connection with the Acquisition, a significant portion of which is contingent upon consummation of the Acquisition, and Fortis has agreed to reimburse certain of its expenses arising, and indemnify it against certain liabilities that may arise, out of its engagement. At Fortis’ request, an affiliate of Goldman, Sachs & Co. has entered into a commitment letter to provide Fortis with a bridge loan facility in connection with the consummation of the Acquisition, subject to the terms and conditions set forth in such commitment letter and for which such affiliate has received and expects to receive compensation. See “Special Business — The Acquisition of ITC Holdings Corp.” and “Schedule C — Opinion of Goldman, Sachs & Co.” in this Circular.

AUDITORS OF ITC

The auditors of ITC are Deloitte & Touche LLP, located in Detroit, Michigan. Deloitte & Touche LLP has audited the financial statements of ITC included in Schedule E of this Circular. Deloitte & Touche LLP, certified public accountants, are independent with respect to ITC within the meaning of the United States Securities Act of 1933 , as amended, and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States) (PCAOB).

116

CONTACTING THE BOARD

Shareholders, employees and other interested parties may communicate directly with the Board through the Chair of the Board as follows:

Chair of the Board of Directors

Fortis Inc.

Fortis Place, Suite 1100

5 Springdale Street

P. O. Box 8837

St. John’s, NL

A1B 3T2

Tel: 709.737.2800

Fax: 709.737.5307

Email: dnorris@fortisinc.com

DIRECTORS’ APPROVAL

The contents and the sending of this Circular have been approved by the Board of Fortis.

St. John’s, Newfoundland and Labrador

March 18, 2016

	/s/ David C. Bennett
	David C. Bennett
	Vice President, Chief Legal Officer and Corporate Secretary

117

CONSENT OF GOLDMAN, SACHS & CO.

March 18, 2016

Board of Directors

Fortis Inc.

Fortis Place, Suite 1100, 5 Springdale Street

PO Box 8837

St. John’s, NL A1B 3T2

Canada

Re: Notice of Annual and Special Meeting and Management Information Circular of Fortis Inc., dated March 18, 2016

Ladies and Gentlemen:

Reference is made to our opinion letter, dated February 9, 2016 (“Opinion Letter”), with respect to the fairness from a financial point of view to Fortis Inc. (the “Company”) of the Aggregate Consideration (as defined in the Opinion Letter) to be paid by the Company for each outstanding share of common stock, no par value, of ITC Holdings Corp. (“ITC”) pursuant to the Agreement and Plan of Merger, dated as of February 9, 2016, by and among the Company, FortisUS Inc., a wholly owned subsidiary of the Company, Element Acquisition Sub Inc., a wholly owned indirect subsidiary of the Company, and ITC.

The Opinion Letter is provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the transaction contemplated therein. We understand that the Company has determined to include our Opinion Letter in the Notice of Annual and Special Meeting and Management Information Circular of the Company, dated March 18, 2016 (the “Circular”). In that regard, we hereby consent to the reference to our Opinion Letter under the captions “Questions and Answers About the Meeting and Acquisition” and “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation” and to the inclusion of the Opinion Letter in the Circular. Notwithstanding the foregoing, it is understood that our consent is being delivered solely in connection with the filing of the Circular and that our Opinion Letter is not to be used, circulated, quoted or otherwise referred to, for any other purpose, nor is it to be filed with, included in or referred to in whole or in part in any registration statement, prospectus, proxy statement, information circular (including any subsequent amendments to the Circular) or any other document, except in accordance with our prior written consent. Very truly yours,

(signed) GOLDMAN, SACHS & CO.
(GOLDMAN, SACHS & CO.)

118

SCHEDULE A — GLOSSARY OF DEFINED TERMS

In this Circular, unless the context otherwise requires or as otherwise provided for purposes of Schedules D, E and F, the following terms have the meanings set forth below.

“ 2012 ESPP ” means the Employee Share Purchase Plan adopted at the annual meeting of Shareholders held on May 4, 2012.

“ Acquisition ” means the acquisition by an indirect wholly owned subsidiary of Fortis of all of the issued and outstanding common stock of ITC pursuant to the terms of the Acquisition Agreement.

“ Acquisition Agreement ” means the agreement and plan of merger dated as of February 9, 2016 entered into between, among others, Fortis and ITC.

“ Acquisition Credit Facilities ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ Acquisition-Related Costs ” means the estimated non-recurring costs, including related income tax effects and any governmental and other imposed costs, that may be incurred by Fortis (on a consolidated basis) to consummate the Acquisition and in connection with the financing of the Acquisition. Such costs, which will be fully expensed when incurred in accordance with U.S. GAAP, include but are not limited to fees associated with financial advisory, consulting, accounting, tax, legal and other professional services, bridge facility commitment fees, debt refinancing fees, costs associated with change of control and integration, out-of-pocket costs and other costs of a non-recurring nature.

“ Acquisition Share Issuance Resolution ” has the meaning ascribed thereto under the heading “Matters for Consideration of Shareholders — Acquisition of ITC Holdings Corp. — The Acquisition”.

“ Board of Directors ” or “ Board ” means the board of directors of Fortis.

“ bonus depreciation ” means U.S. federal bonus tax depreciation.

“ BNS ” means The Bank of Nova Scotia.

“ CAGR ” means compound annual growth rate.

“ Cash Purchase Price ” has the meaning ascribed thereto under the heading “Matters for Consideration of Shareholders — Acquisition of ITC Holdings Corp. — The Acquisition”.

“ CFIUS ” means the Committee on Foreign Investment in the United States.

“ Circular ” means the Management Information Circular (including all the schedules thereto) of which this Schedule A forms a part.

“ Closing ” means the closing of the Acquisition.

“ Common Shares ” means the common shares of Fortis.

“ Comparator Group ” has the meaning ascribed thereto under the heading “Report on Executive Compensation — Compensation Discussion and Analysis Executive Compensation Policy — Competitive Positioning”.

A- 1

“ Complaints ” has the meaning ascribed thereto under the heading “Fortis — Recent Developments -Litigation Relating to the Acquisition”.

“ Computershare ” means Computershare Trust Company of Canada.

“ Consideration Shares ” has the meaning ascribed thereto under the heading “Matters for Consideration of Shareholders — Acquisition of ITC Holdings Corp. — The Acquisition”.

“ Corporation ” means Fortis Inc.

“ CPP ” means the United States Environmental Protection Agency Clean Power Plan.

“ CWIP ” means construction work in progress.

“ DBRS ” means DBRS Limited.

“ DB PUP ” means a defined benefit pension uniformity plan.

“ DB RPP ” means a defined benefit registered pension plan.

“ DC SERP ” means a defined contribution supplemental employee retirement plan.

“ Debt Bridge Facility ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ Debt Prepayment Obligation ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ DSU ” means a deferred share unit.

“ DSU Plan ” has the meaning ascribed thereto under the heading “Report on Director Compensation — Directors Deferred Share Unit Plan”.

“ EEI ” means the Edison Electric Institute.

“ Eligible Persons ” has the meaning ascribed thereto under the heading “Report on Executive Compensation — Compensation Risk Considerations — Medium- and Long-Term Performance”.

“ EPS ” means earnings per share.

“ Employee Loan ” has the meaning ascribed thereto under the heading “Report on Executive Compensation — Compensation Risk Considerations — Full Career Performance”.

“ End Date ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Overview”.

“ Equity Award Consideration ” means the sum of (i) US$22.57 plus (ii) the product of (x) 0.7520 of a Common Share multiplied by (y) the average of the volume weighted average price of the Common Shares on the TSX on the five consecutive days ending on the second complete trading day prior to Closing multiplied by (z) the conversion rate of Canadian dollars to U.S. dollars obtained using the spot exchange rate for each such day reported by Bloomberg L.P. (or such other authoritative source mutually selected by ITC and FortisUS).

A- 2

“ Equity Bridge Facilities ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ Equity Prepayment Obligation ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ ERM ” means Enterprise Risk Management.

“ February 8 Board Meeting ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation — Background to the Acquisition”.

“ FERC ” means the United States Federal Energy Regulatory Commission.

“ Fitch ” means Fitch Ratings Inc.

“ Fortis ” means Fortis Inc.

“ FortisUS ” means FortisUS Inc.

“ Hay Group ” means Hay Group Limited.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 , as amended.

“ Interstate Power ” means Interstate Power and Light Company.

“ Intervening Event ” means any event, development, change, effect or occurrence that affects or would reasonably be expected to affect (i) the business, financial condition or continuing results of operation of ITC and its subsidiaries, taken as a whole or (ii) the shareholders of ITC (including the benefits of the Acquisition to the ITC shareholders) in either case that (a) is material, (b) was not known to the ITC board of directors as of the date of the Acquisition Agreement (and which could not have become known through any further reasonable investigation, discussion, inquiry or negotiation with respect to any event, fact, circumstance, development or occurrence known to ITC as of the date of the Acquisition Agreement), (c) becomes known to the ITC board of directors prior to obtaining the approval of ITC shareholders of the Acquisition and (d) does not relate to or involve any acquisition proposal; provided, that no event, fact, circumstance, development or occurrence that has had or would reasonably be expected to have an adverse effect on the business, financial condition or continuing results of operations of, or the market price of the securities (including the Common Shares) of, Fortis or any of its subsidiaries will constitute an “Intervening Event” unless such event, fact, circumstance, development or occurrence has had or would reasonably be expected to have a Material Adverse Effect on Fortis; provided, further, that an intervening event will not include: (i) any action taken by any party to the Acquisition Agreement pursuant to and in compliance with certain affirmative covenants in the Acquisition Agreement relating to obtaining regulatory approvals, or the consequences of any such action, and (ii) the receipt, existence or terms of an acquisition proposal, or the consequences thereof.

“ ITC ” means ITC Holdings Corp.

“ ITC Midwest ” means ITC Midwest LLC.

“ ITC Regulated Operating Subsidiaries ” means International Transmission Company, Michigan Electric Transmission Company, LLC, ITC Midwest and ITC Great Plains, LLC.

“ Kingsdale ” means Kingsdale Shareholder Services.

A- 3

“ Korn Ferry ” means Korn Ferry International.

“ Legal Restraint ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement — Conditions to the Acquisition”.

“ Listing Conditions ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Overview”.

“ Mandatory DSUs ” has the meaning ascribed thereto under the heading “Report on Director Compensation — Directors Deferred Share Unit Plan”.

“ Market Participant ” has the meaning ascribed to that term under FERC regulations at 18 C.F.R. §35.34(b)(2), including any entity that, either directly or through an affiliate, sells or brokers electric energy, or provides ancillary services to a Regional Transmission Organization.

“ Market Price ” means the volume weighted average trading price of Common Shares determined by dividing the total value of the Common Shares traded on the TSX during the five trading days immediately preceding the determination date by the total volume of the Common Shares traded on the TSX on the relevant trading days.

“ Material Adverse Effect ” means, with respect to any person, any event, development, change, effect or occurrence that, individually or in the aggregate with all other events, developments, changes, effects or occurrences, has a material adverse effect on or with respect to the business, results of operation or financial condition of such person and its subsidiaries taken as a whole, excluding any event, development, change, effect or occurrence relating to, arising out of or in connection with or resulting from any of the following: (i) general changes or developments in the economy or the financial, debt, capital, credit, commodities or securities markets in the United States, Canada or elsewhere in the world, including as a result of changes in geopolitical conditions; (ii) any changes in the international, national, regional, state, provincial or local wholesale or retail markets for electric power, capacity or fuel or related products; (iii) any changes in the national, regional, state, provincial or local electric transmission or distribution systems or increases or decreases in planned spending with respect thereto; (iv) the negotiation, execution and delivery of the Acquisition Agreement or the public announcement or pendency of the Acquisition or other transactions contemplated thereby, including any impact thereof on relationships, contractual or otherwise, with customers, suppliers, regulators, lenders, partners or employees of such person and its subsidiaries; (v) any action taken or omitted to be taken by such person at the written request of or with the written consent of the other parties; (vi) any consent or filing, with respect to ITC and with respect to Fortis, FortisUS and Merger Sub, required under applicable laws for the consummation of the Acquisition and other transactions contemplated therein, including any actions required under the Acquisition Agreement to obtain any such consent; (vii) any changes or prospective or anticipated changes, occurring after the date hereof, in any applicable laws or applicable accounting regulations or principles or interpretation or enforcement thereof; (viii) any hurricane, tornado, earthquake, flood, tsunami, natural disaster, act of God or other comparable events or outbreak or escalation of hostilities or war (whether or not declared), military actions or any act of sabotage, terrorism, or national or international political or social conditions; (ix) any change in the market price or trading volume of the shares of any party or the credit rating of such person or any of its subsidiaries; (x) any failure by such person to meet any published analyst estimates or expectations of such person’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by such person to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations, in and of itself; (xi) any matter set forth on the relevant section of the company disclosure schedule to the Acquisition Agreement made by ITC to Fortis; or (xii) any litigation or claim threatened or initiated by shareholders, ratepayers, customers or suppliers of such person or representatives thereof against such person, any of its subsidiaries, or any of their respective officers or directors, in each case arising out of the execution of the

A- 4

Acquisition Agreement or the transactions contemplated thereby; except in the cases of clauses (i), (ii), (iii) or (viii), to the extent that ITC or Fortis, as applicable, and the applicable party’s subsidiaries, taken as a whole, are disproportionately affected as compared with other participants in the industry in which ITC or Fortis, as applicable, operates in the United States and Canada (in which case solely the incremental disproportionate impact or impacts may be taken into account in determining whether there has been a material adverse effect) and in the cases of clauses (ix) and (x), the facts, events or circumstances giving rise to or contributing to such change or failure may be deemed to constitute, and may be taken into account in determining whether there has been a material adverse effect.

“ Meeting ” means the annual and special meeting of shareholders of Fortis Inc. to be held on May 5, 2016.

“ Merger Sub ” means Element Acquisition Sub Inc.

“ Minority Investment ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Overview”.

“ Minority Investors ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Overview”.

“ MISO ” means the Midcontinent Independent System Operator.

“ MJDS ” means the multi-jurisdictional disclosure system adopted by the SEC.

“ MISO Regulated Operating Subsidiaries ” means ITC Midwest, International Transmission Company and Michigan Electric Transmission Company, LLC, all of which are direct or indirect wholly owned subsidiaries of ITC and members of MISO.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Multi-Value Project ” means a regional transmission infrastructure project that meets certain MISO criteria.

“ MVP ” means a Multi-Value Project.

“ MW ” means megawatts.

“ NEO ” means a named executive officer.

“ NERC ” means the North American Electric Reliability Corporation.

“ NYSE ” means the New York Stock Exchange.

“Optional DSUs ” has the meaning ascribed thereto under the heading “Report on Director Compensation — Directors Deferred Share Unit Plan”.

“ Payment Criteria Period ” has the meaning ascribed thereto under the heading “Report on Executive Compensation — 2015 Executive Compensation — Medium- and Long-Term Incentives — Performance Share Units”.

“ Permanent Debt ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

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“ Prospective Offerings ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition”.

“ PSU ” means a performance share unit.

“ PSUP ” means the Performance Share Unit Plan of Fortis.

“ PSU Peer Group ” has the meaning ascribed thereto under the heading “Report on Executive Compensation — Compensation Risk Considerations — Medium- and Long-Term Performance”.

“ Registration Statement ” means the registration statement on Form F-4 filed by Fortis on March 17, 2016, which includes a prospectus of Fortis and a proxy statement of ITC.

“ Required Regulatory Approvals ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement — Consents and Approvals”.

“ Revolving Facility ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

“ ROE ” means return on common equity.

“ RRSP ” means a registered retirement savings plan.

“ RSU ” means a restricted share unit.

“ RSUP ” means the 2015 Restricted Share Unit Plan of Fortis.

“ S&P ” means the Standard & Poor’s Ratings Services.

“ SAIDI ” means System Average Interruption Duration of Outages per Customer Index.

“ SEC ” means the United States Securities and Exchange Commission.

“ SEDAR ” means the Canadian System for Electronic Document Analysis and Retrieval.

“ Shareholder ” means a holder of Common Shares of the Corporation.

“ Shareholder Approval ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Canadian and U.S. Securities Law — TSX Approval”.

“ Strategic Process ” has the meaning ascribed thereto under the heading “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation — Background to the Acquisition”.

“ Towers Watson ” means Willis Towers Watson.

“ TSR ” means total shareholder return.

“ TSX ” means the Toronto Stock Exchange.

“ TSX Manual ” means the Toronto Stock Exchange Company Manual.

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“ U.S. dollars ” has the meaning ascribed thereto under the heading “Currency and Exchange Rate Information”.

“ U.S. GAAP ” means generally accepted and accounting principles in the United States.

“ YMPE ” means years maximum pensionable earnings.

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SCHEDULE B — STATEMENT OF CORPORATE GOVERNANCE PRACTICES

FORM 58-101F1

DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

All page references in this Schedule B are to the Management Information Circular dated March 18, 2016.

				GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT			COMPLIANCE	FOR FORTIS INC.

1.	Board of Directors

	(a)	Disclose the identity of directors who are independent.	Yes	Eleven of the twelve directors proposed for nomination on pages 43 through 54 of this Circular are independent in accordance with the Meaning of Independence set out in Section 1.4 of National Instrument 52-110 — Audit Committees . The Board considers Mmes. Ball, Clark, Dilley and Goodreau and Messrs. Norris, Blouin, Case, Haughey, McWatters, Munkley and Zurel to be independent. The directors the Board considers not to be independent are Mr. Perry, the President and CEO of Fortis.
	(b)	Disclose the identity of directors who are not independent and describe the basis for that determination.	Yes
	(c)	Disclose whether or not a majority of directors are independent.	Yes

	(d)	If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both the director and the other issuer.	Yes	All of the directorships of the nominee directors with other reporting issuers are set out on page 65 of this Circular.

	(e)	Disclose whether or not the independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held since the beginning of the issuer’s most recently completed financial year. If the independent directors do not hold such meetings, describe what the board does to facilitate open and candid discussion among its independent directors.	Yes	The directors regularly meet without the President and CEO and other management present at meetings of the Board and its committees. Private sessions during meetings conducted by telephone are held when circumstances warrant. During 2015, the directors of the Board and committees held meetings without management present at every meeting of the Board and at each Committee meeting. The number of meetings involving periods without the President and CEO and other management present during 2015 were as follows:

				Board	12
				Audit	5
				Governance and Nominating	3
				Human Resources	8

	(f)	Disclose whether or not the chair of the board is an independent director. If the board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and	Yes	David G. Norris was appointed non-executive Chair effective December 14, 2010. Mr. Norris is an independent director. He is responsible for the management and effective functioning of the Board by providing leadership in every aspect of its work. Mr. Norris serves as a member of all committees and is the link between the Board and management on all

B- 1

					GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT				COMPLIANCE	FOR FORTIS INC.
		describe his or her role and responsibilities.			matters concerning the Board.

	(g)	Disclose the attendance record of each director for all board meetings held since the beginning of the issuer’s most recently completed financial year.	Yes		The attendance record of each director for Board and committee meetings during 2015 is disclosed in the tables on pages 43 through 54 and summarized on page 55 of this Circular.

2.	Board Mandate

	Disclose the text of the board’s written mandate.		Yes		The text of the Board Mandate is disclosed in Schedule B1 of this Circular.

3.	Position Descriptions

	(a)	Disclose whether or not the board has developed written position descriptions for the chair and the chair of each board committee. If the board has not developed written position descriptions for the chair and/or the chair of each board committee, briefly describe how the board delineates the role and responsibilities of each such position.	Yes		The Board, with the assistance of the Governance and Nominating Committee, has developed a written position description for the Chair of the Board. There are no specific position descriptions for the chair of each Committee; however, there are written mandates for each Committee which delineate the responsibilities of each Committee with which the chair thereof is responsible to comply.

	(b)	Disclose whether or not the board and CEO have developed a written position description for the CEO. If the board and CEO have not developed such a position description, briefly describe how the board delineates the role and responsibilities of the CEO.	Yes		The Board has developed a written position description for the CEO.

B- 2

					GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT				COMPLIANCE	FOR FORTIS INC.
4.	Orientation and Continuing Education

	(a)	Briefly describe what measures the board takes to orient new directors regarding: (i) the role of the board, its committees and its directors, and (ii) the nature and operation of the issuer’s business.	Yes		Each new recruit to the Board meets with the Chair of the Board and the Chair of the Governance and Nominating Committee. New directors attend an orientation information session at which senior management review the Corporation’s business, corporate strategy, financial profile, governance structure and systems, culture and key issues. As well, the Chair of the Board and the Chair of the Governance and Nominating Committee participate in the director orientation session and provide direct insight into the role and functioning of the Board and its current priorities. New directors are provided with a copy of the Corporation’s director’s manual which includes the Board and Committee mandates, corporate governance guidelines, code of conduct and other company policies and materials related to the Corporation and the industry. The orientation session also allows new directors to review the information and materials provided and better understand the role of the Board and the Committees in the context of the business.

	(b)	Briefly describe what measures, if any, the board takes to provide continuing education for its directors. If the board does not provide continuing education, describe how the board ensures that its directors maintain the skill and knowledge necessary to meet their obligations as directors.	Yes		Continuing education is provided through a number of methods, including site visits, an annual dedicated strategy session, presentations from senior management, employees, and outside experts to the Board and its Committees on topics of interest and developing issues, as well as the ongoing distribution of relevant information. Presentations are made to the Board on developments in the business and regulatory environment impacting upon Fortis and its subsidiaries. Board meetings are periodically held at the business locations of Fortis subsidiaries which, in addition to presentations from management of each company regarding the specific business, affords directors the opportunity to observe operations and meet employees of the operating subsidiaries. Each subsidiary CEO is present for an annual presentation to the Board on matters affecting their subsidiary’s operation. Fortis also sponsors director attendance at appropriate educational seminars.

5.	Ethical Business Conduct

	(a)	Disclose whether or not the board has adopted a written code for the directors, officers and employees. If the board has adopted a written code:	Yes		The Board has adopted a written code of business conduct and ethics for Fortis.

		(i) disclose how a person or company may obtain a copy of the code;	Yes		The code is available on the Fortis website at www.fortisinc.com (under Corporate Governance) and on SEDAR at www.sedar.com.

B- 3

					GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT				COMPLIANCE	FOR FORTIS INC.
		(ii) describe how the board monitors compliance with its code or, if the board does not monitor compliance, explain whether and how the board satisfies itself regarding compliance with its code; and	Yes		The Board, through the Audit Committee, receives reports on compliance with the code.

		(iii) provide a cross reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.	Yes		The Board has not granted any waiver of the code in favour of a director or executive officer during the past 12 months and for all of 2015. Accordingly, no material change report has been required to be filed.

	(b)	Describe any steps the board takes to ensure directors exercise independent judgement in considering transactions and agreements in respect of which a director or executive officer has a material interest.	Yes		The Board does not nominate for election any candidate who has an interest in any business conducted with Fortis, or its subsidiaries, and requires directors to disclose any potential conflict of interest which may develop. Directors do not undertake any consulting activities for, or receive any remuneration from Fortis other than compensation for serving as a director.

	(c)	Describe any other steps the board takes to encourage and promote a culture of ethical business conduct.	Yes		The Board encourages a culture of ethical conduct by appointing officers of high integrity and monitoring their performance so as to set an example for all employees.

6 .	Nomination of Directors

	(a)	Describe the process by which the board identifies new candidates for board nomination.	Yes		The Governance and Nominating Committee is responsible for identifying new candidates for the Board. It annually identifies director skill, experience and diversity characteristics, having regard to projected retirements, and oversees a director recruitment search and nomination process leading to recommendations to the Board for consideration and recommendation for election by the Shareholders. The Governance and Nominating Committee has previously engaged SpencerStuart to aid in identifying new candidates for the Board. Fortis has a Diversity Policy which describes the principles underlying the Corporation’s approach to diversity. All of Fortis reporting issuer utility subsidiaries operate with boards composed of a majority of independent members which affords Fortis an opportunity to observe the performance and assess suitability of prospective nominees to the Board in an appropriate environment. Subsidiary boards have been the source of seven of the current nominees.

	(b)	Disclose whether or not the board has a nominating	Yes		The Governance and Nominating Committee is composed of five independent directors as disclosed

B- 4

				GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT			COMPLIANCE	FOR FORTIS INC.
		committee composed entirely of independent directors.		on page 72 of this Circular.

	(c)	Describe the responsibilities, powers and operation of the nominating committee.	Yes	Please see the section “Governance and Nominating Committee” on page 72 of this Circular.

7 .	Compensation

	(a)	Describe the process by which the board determines the compensation for the issuer’s directors and officers.	Yes	The Governance and Nominating Committee reviews the compensation of directors on a periodic basis in relation to published surveys and private polls of other comparable corporations and recommends adjustments thereto for adoption by the Board. The Human Resources Committee makes recommendations to the Board in respect of compensation of officers as more particularly described in the “Compensation Discussion and Analysis” section of this Circular. Commencing with the annual meeting of Shareholders held on May 4, 2012, the Corporation has conducted an annual advisory vote on its approach to executive compensation, the results of which are considered by the Human Resources Committee.

	(b)	Disclose whether or not the board has a compensation committee composed entirely of independent directors. If the board does not have a compensation committee composed entirely of independent directors, describe what steps the board takes to ensure an objective process for determining such compensation.	Yes	The Human Resources Committee acts as a compensation committee in respect of executive compensation and is composed entirely of independent directors. The Human Resources Committee makes recommendations to the Board following its review of compensation having regard to published material and consultation with appropriate consultants.

	(c)	Describe the skills and experience that enable the compensation committee to make decisions of the suitability of the company’s compensation policies and practices.	Yes	Fortis recognizes the importance of appointing knowledgeable and experienced individuals to its Human Resources Committee. All members of the Human Resources Committee have the necessary background and skills to provide effective oversight of executive compensation and ensure that sound compensation risk management principles are being adhered to in order to align management and Shareholder interests. More specifically, all Committee members have significant senior leadership experience from their tenures at large organizations, as well as direct operational or functional experience overseeing executive compensation at large organizations similar in size and complexity to Fortis.

B- 5

				GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT			COMPLIANCE	FOR FORTIS INC.
	(d)	Describe the responsibilities, powers and operation of the compensation committee.	Yes	The Human Resources Committee is responsible for monitoring the compensation practices and policies of Fortis and making recommendations to the Board with respect thereto as more particularly described on page 75 of this Circular. Administration and management of the 2012 Stock Option Plan and predecessor option plans, including the authority to grant options to employees, is the responsibility of the Human Resources Committee which also administers the PSUP and predecessor plan for the CEO.

	(e)	If a compensation consultant or advisor has been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.	Yes	Fortis retains Hay Group and Mercer to advise in respect of executive compensation and pension matters. Hay Group undertakes a rating of positions within Fortis and its subsidiaries and provides reports of median compensation levels applicable to such ratings. Mercer provides consulting advice in respect of pension matters and management support to pension plan administration. In 2014, Fortis also retained Towers Watson to review executive compensation benefits and Korn Ferry to assist in an executive development and succession planning initiative. Fees paid to the compensation consultants are disclosed on page 104 of this Circular.

8.	Other Board Committees

	If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.		Yes	The three standing committees of the Board are: Audit Committee, Governance and Nominating Committee and Human Resources Committee.

9.	Assessments

	Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the board satisfies itself that the board, its committees and its individual directors are performing effectively.		Yes	The Governance and Nominating Committee is responsible for regular assessment of the effectiveness and contribution of the Board, its committees and individual directors. It carries out this responsibility through a periodic confidential survey of each director regarding his or her views on the effectiveness of the Board and the committees, the effectiveness of the Chair, which are summarized and reported to the Committee and Chair of the Board. The review includes a section on individual issues which the Committee believes would disclose any concerns relating to an individual director. A review was carried out and considered by the Governance and Nominating Committee. In addition to the formal review process, the Chair of the Board conducts individual private interviews with each director, during which each directors’ assessment of the Board’s performance and any concerns in respect of the performance of the Board or other individual directors is discussed.

B- 6

				GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT			COMPLIANCE	FOR FORTIS INC.
10.		Term Limits and Board Renewal

		Disclose whether or not the issuer has adopted term limits for the directors on its board or other mechanisms of board renewal and, if so, include a description of those director term limits or other mechanisms of board renewal. If the issuer has not adopted director term limits or other mechanisms of board renewal, disclose why it has not done so.	Yes	The Board has adopted term limits of directors on its board. Directors are elected for a term of one year and except in exceptional circumstances will be eligible for re-election at the annual meeting of shareholders next following the earlier of the date on which they achieve age 72 or the 12 th anniversary of their initial election to the Board.

11.		Representation of Women on Board

	(a)	Disclose whether the issuer has adopted a written policy relating to the identification and nomination of women directors. If the issuer has not adopted such a policy, disclose why it has not done so.	Yes	The Corporation has adopted a written Diversity Policy.

	(b)	If the issuer has adopted a policy referred to in (a), disclose the following in respect of the policy: (i) short summary of its objectives and key provisions (ii) the measures taken to ensure that the policy has been effectively implemented (iii) annual and cumulative progress by the issuer in achieving the objectives of the policy; and (iv) whether and, if so, how the board or its nominating committee measures the effectiveness of the policy.	Yes	The Diversity Policy describes the principles underlying the Corporation’s approach to diversity and its objectives in respect of diversity among its leadership team at the Board and executive level. The Board has committed to increasing female representation on the Board and at the executive level. The Governance and Nominating Committee is responsible for regularly reviewing and monitoring performance under the Diversity Policy and the Human Resources Committee is responsible for ensuring that the objectives of the Diversity Policy are applied in identifying and evaluating candidates for executive leadership positions. The Corporation believes that the current nominees reflect a diverse group of talented individuals, which include four females who collectively represent 33% of the nominees for election as directors.

B- 7

			GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT		COMPLIANCE	FOR FORTIS INC.
12.	Consideration of the Representation of Women in the Director Identification and Selection Process

	Disclose whether and, if so, how the board or nominating committee considers the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board. If the issuer does not consider the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board, disclose the issuer’s reasons for not doing so.	Yes	In accordance with the Diversity Policy, the Governance and Nominating Committee considers candidates on merit against objective criteria, with due regard for the benefits of diversity. It considers diversity within the context of the Corporation’s needs and objectives, its diverse customer base and its domestic and international operations. Accordingly in searches for potential new directors, the Governance and Nominating Committee considers the level of female representation and diversity on the Board as one of several factors in its search and identification process. In 2014 the Governance and Nominating Committee engaged SpencerStuart to help identify potential Board nominees and requested SpencerStuart to consider diversity, including female representation, in bringing forward candidates for consideration.

13.	Consideration Given to the Representation of Women in Executive Officer Appointments

	Disclose whether and, if so, how the issuer considers the level of representation of women in executive officer positions when making executive officer appointments. If the issuer does not consider the level of representation of women in executive officer positions when making executive officer appointments, disclose the issuer’s reasons for not doing so.	Yes	In identifying and considering potential candidates for executive appointments, the Corporation looks first to individuals within the Corporation and its subsidiaries and considers diversity, as well as, factors such as years of service, regional background, merit, experience and qualification. The Board does not set specific gender representation targets when identifying potential candidates to executive officer positions, but does consider diversity and seeks to ensure a representative list of women is included among the group of prospective candidates for executive positions. The Human Resources Committee is responsible for ensuring that the objectives of the Diversity Policy are applied in identifying and evaluating candidates for executive leadership positions.

B- 8

					GOVERNANCE PROCEDURES
DISCLOSURE REQUIREMENT				COMPLIANCE	FOR FORTIS INC.
14.		Issuer’s Targets Regarding the Representation of Women in Executive Officer Appointments

	(a)		For purposes of this Item, a “target” means a number or percentage, or a range of numbers or percentages, adopted by the issuer of women on the issuer’s board or in executive officer positions of the issuer by a specific date.

	(b)		Disclose whether the issuer has adopted a target regarding women on the issuer’s board. If the issuer has not adopted a target, disclose why it has not done so.	Yes	The Corporation’s Diversity Policy does not establish fixed targets regarding gender representation on the Board or for executive officer positions. The Board believes that establishing quotas or formulaic approaches do not necessarily result in the identification or selection of the best candidates. Rather, the Board is committed to increasing female representation on the Board and at the executive level and considers diversity when evaluating candidates. In searches for new directors, the Governance and Nominating Committee does consider the level of female representation and diversity on the Board. The Board seeks to ensure a representative list of females is included among the group of prospective candidates for executive positions.

	(c)		Disclose whether the issuer has adopted a target regarding women in executive officer positions of the issuer. If the issuer has not adopted a target, disclose why it has not done so.	Yes

	(d)		If the issuer has adopted a target referred to in either (b) or (c), disclose:	Yes	The Diversity Policy does not set forth targets.
			(i) short summary of its objectives and key provisions
			(ii) the measures taken to ensure that the policy has been effectively implemented.

15.			Number of Women on the Board and in Executive Officer Positions

	(a)		Disclose the number and proportion (in percentage terms) of directors on the issuer’s board who are women.	Yes	Four of the current twelve director nominees are women which represents 33% of the director nominees. In 2015, the Corporation had three female directors which collectively represented 27% of the Board.

	(b)		Disclose the number and proportion (in percentage terms) of executive officers of the issuer, including all major subsidiaries of the issuer, who are women.	Yes	One of the named executive officers of Fortis is female and three other Vice-Presidents are female. As at April 1, 2016, following the appointment of Mr. Laurito as an officer of the Corporation, 36% of the executive of Fortis will be female.

B- 9

SCHEDULE B1 — BOARD MANDATE

Board of Directors Mandate

The board of directors (the “Board”) of Fortis Inc. (the “Corporation”) is responsible for the stewardship of the Corporation. The Board will supervise the management of the business and affairs of the Corporation and, in particular, will:

A. Strategic Planning and Risk Management

1) Adopt a strategic planning process and approve, on an annual basis, a strategic plan for the Corporation which considers, among other things, the opportunities and risks of the business;

2) Monitor the implementation and effectiveness of the approved strategic and business plan;

3) Assist the CEO in identifying the principal risks of the Corporation’s business and the implementation of appropriate systems to manage such risks;

B. Management and Human Resources

1) Select, appoint and evaluate on an ongoing basis, the CEO, and determine the terms of the CEO’s employment with the Corporation;

2) In consultation with the CEO, appoint all officers of the Corporation and determine the terms of employment, training, development and succession of senior management (including the processes for appointing, training and evaluating senior management);

3) To the extent feasible, satisfy itself as to the integrity of the CEO and other officers and the creation of a culture of integrity throughout the Corporation;

4) Having regard to recommendations of the Human Resources Committee, and in consultation with the CEO, the Board shall adopt a position description for the CEO which:

a. defines the scope of management’s responsibilities; and

b. sets out the overall corporate goals and objectives that the CEO is responsible for meeting.

C. Finances, Controls and Internal Systems

1) Review and approve all material transactions including acquisitions, divestitures, dividends, capital allocations, expenditures and other transactions which exceed threshold amounts set by the Board;

2) Evaluate the Corporation’s internal controls relating to financial and management information systems;

B1- 1

D. Communications

1) Adopt a communication policy that seeks to ensure that effective communications, including statutory communication and disclosure, are established and maintained with employees, shareholders, the financial community, the media, the community at large and other security holders of the Corporation;

2) Establish procedures to receive feedback from stakeholders of the Corporation and communications to the independent directors as a group;

E. Governance

1) Develop the Corporation’s approach to corporate governance issues, principles practices and disclosure;

2) Establish appropriate procedures to evaluate director independence standards and allow the Board to function independently of management;

3) Appoint from among the directors an audit committee and such other committees of the Board as deemed appropriate and delegate responsibilities thereto in accordance with their mandates;

4) Develop and monitor policies governing the operation of subsidiaries through exercise of the Corporation’s shareholder positions in such subsidiaries;

5) Develop and monitor compliance with the Corporation’s code of conduct, including the consideration of any waiver granted to a director or senior officer of the Corporation from complying with such code of conduct and approve or reject such waiver as it deems appropriate;

6) Set expectations and responsibilities of directors, including attendance at, preparation for and participation in meetings, as set out at Section F hereof;

7) Evaluate and review the performance of the Board, each of its committees and its members;

F. Duties and Responsibilities of Directors

1) In exercising his or her powers and discharging his or her responsibilities to the Corporation, each Director has a statutory obligation to:

a. act in good faith with a view to the best interests of the Corporation (the fiduciary duty); and

b. exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (the duty of care);

2) Each Director must also comply with all policies of the Corporation applicable to members of the Board, including the Code of Business Conduct and Ethics adopted by the Corporation, which is designed to promote honest, ethical and lawful conduct by all employees, officers and directors of the Corporation;

3) A Director shall review and participate in the work of the Board necessary in order for the Board to discharge its duties and responsibilities as set out in this Mandate and the Board of Directors Governance Guidelines;

B1- 2

4) A Director shall participate in any orientation and continuing education programs developed by the Corporation for the Directors;

5) In connection with each meeting of the Board and each meeting of a committee of the Board of which the Director is a member, a Director shall:

a. respond promptly to management requests in respect of availability for proposed meetings;

b. review thoroughly the material provided to the Director by management in connection with the meeting; and

c. attend each meeting in person to the extent practicable (unless the meeting is scheduled to be held by phone or video-conference).

6) A Director shall participate in such processes as may be established by the Board for assessing the Board, its committees and individual Directors; and

7) A Director shall perform such other functions as may be delegated to that Director by the Board or any committee of the Board from time to time.

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SCHEDULE C — OPINION OF GOLDMAN, SACHS & CO.

See attached.

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200 West Street | New York. NY 10282-2198

Tel: 212-902-1000 | Fax: 212-902-3000

PERSONAL AND CONFIDENTIAL

February 9, 2016

Board of Directors

Fortis Inc.

Fortis Place, Suite 1100, 5 Springdale Street

PO Box 8837

St. John’s, NLA1B3T2

Canada

Ladies and Gentlemen:

You have requested our opinion as to the fairness from a financial point of view to Fortis Inc. (the “Company”) of the Aggregate Consideration (as defined below) to be paid by the Company for each outstanding share of common stock, no par value (the “ITC Common Stock”), of ITC Holdings Corp. (“ITC”) pursuant to the Agreement and Plan of Merger, dated as of February 9, 2016 (the “Agreement”), by and among the Company, FortisUS Inc., a wholly owned subsidiary of the Company (“Fortis U.S.”), Element Acquisition Sub Inc., a wholly owned indirect subsidiary of the Company (“Acquisition Sub”), and ITC. Pursuant to the Agreement, Acquisition Sub will be merged with and into ITC and each outstanding share of ITC Common Stock (other than shares of ITC Common Stock owned by the Company, Fortis U.S., Acquisition Sub or any other direct or indirect wholly owned subsidiary of the Company and shares of ITC Common Stock owned by ITC or any of its wholly owned subsidiaries, and in each case not held on behalf of third parties, and the Restricted Stock (as defined in the Agreement)) will be converted into $22.57 in cash (the “Cash Consideration”) and 0.7520 of a common share, no par value (the “Company Common Shares”), of the Company (the “Stock Consideration”; taken in the aggregate with the Cash Consideration, the “Aggregate Consideration”).

Goldman, Sachs & Co. and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman, Sachs & Co. and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, ITC and any of their respective affiliates and third parties, or any currency or commodity that may be involved in the transaction contemplated by the Agreement (the “Transaction”). We have acted as financial advisor to the Company in connection with, and have participated in certain of the negotiations leading to, the Transaction. We expect to receive fees for our services in connection with the Transaction, a significant portion of which is contingent upon consummation of the Transaction, and the Company has agreed to reimburse certain of our expenses arising, and indemnify us

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against certain liabilities that may arise, out of our engagement. At your request, affiliates of Goldman, Sachs & Co. have entered into financing commitments and agreements to provide the Company with bridge loan facilities in connection with the consummation of the Transaction, in each case subject to the terms of such commitments and agreements and for which we expect to receive compensation. In addition, at your request, an affiliate of Goldman, Sachs & Co. expects to enter into interest rate hedging or similar such agreements with the Company in connection with the consummation of the Transaction, in each case subject to the terms of such agreements and pursuant to which such affiliate of Goldman, Sachs & Co. will act as counterparty as principal for its own account. We also have provided certain financial advisory and/or underwriting services to ITC and/or its affiliates from time to time for which our Investment Banking Division has received, and may receive, compensation, including having acted as administrative agent, sole lead arranger, sole bookrunner and lender with respect to a term loan credit agreement (aggregate principal amount $50,000,000) entered into by Michigan Electric Transmission Company, LLC, a subsidiary of ITC, in January 2014. We may also in the future provide financial advisory and/or underwriting services to the Company, ITC and their respective affiliates for which our Investment Banking Division may receive compensation.

In connection with this opinion, we have reviewed, among other things, the Agreement; annual reports to shareholders and Annual Information Forms of the Company for the five fiscal years ended December 31, 2014; annual reports to stockholders and Annual Reports on Form 10-K of ITC for the five fiscal years ended December 31, 2014; certain interim reports to shareholders of the Company; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of ITC; certain other communications from the Company and ITC to their shareholders and stockholders, respectively; certain publicly available research analyst reports for the Company and ITC; certain internal financial analyses and forecasts for ITC prepared by its management; and certain internal financial analyses and forecasts for the Company and certain financial analyses and forecasts for ITC, in each case as prepared by the management of the Company and approved for our use by the Company (the “Forecasts”), including certain operating synergies projected by the management of the Company to result from the Transaction, as approved for our use by the Company (the “Synergies”). We have also held discussions with members of the senior managements of the Company and ITC regarding their assessment of the past and current business operations, financial condition and future prospects of ITC and with the members of senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company and the strategic rationale for, and the potential benefits of, the Transaction; reviewed the reported price and trading activity for the Company Common Shares and the shares of ITC Common Stock; compared certain financial and stock market information for the Company and ITC with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the utility industry and in other industries; and performed such other studies and analyses, and considered such other factors, as we deemed appropriate.

For purposes of rendering this opinion, we have, with your consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, us, without assuming any responsibility for independent verification thereof. In that regard, we have assumed with your consent that the Forecasts, including the Synergies, have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. We have not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of

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the Company or ITC or any of their respective subsidiaries and we have not been furnished with any such evaluation or appraisal. We have assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the Company, Fortis U.S. or ITC or on the expected benefits of the Transaction in any way meaningful to our analysis. We also have assumed that the Transaction will be consummated on the terms set forth in the Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to our analysis.

Our opinion does not address the underlying business decision of the Company to engage in the Transaction, or the relative merits of the Transaction as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. This opinion addresses only the fairness from a financial point of view to the Company, as of the date hereof, of the Aggregate Consideration to be paid by the Company for each share of ITC Common Stock pursuant to the Agreement. We do not express any view on, and our opinion does not address, any other term or aspect of the Agreement or Transaction or any term or aspect of any other agreement or instrument contemplated by the Agreement or entered into or amended in connection with the Transaction, including, the fairness of the Transaction to, or any consideration received in connection therewith by, the holders of any class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, Fortis U.S., ITC, or any class of such persons in connection with the Transaction, whether relative to the Aggregate Consideration to be paid by the Company for each share of ITC Common Stock pursuant to the Agreement or otherwise. We are not expressing any opinion as to the prices at which the Company Common Shares will trade at any time or as to the impact of the Transaction on the solvency or viability of the Company, Fortis U.S. or ITC or the ability of the Company, Fortis U.S. or ITC to pay their respective obligations when they come due. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof and we assume no responsibility for updating, revising or reaffirming this opinion based on circumstances, developments or events occurring after the date hereof. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the Transaction and such opinion does not constitute a recommendation as to how any holder of Company Common Shares should vote with respect to such Transaction or any other matter. This opinion has been approved by a fairness committee of Goldman, Sachs & Co.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Aggregate Consideration to be paid by the Company for each share of ITC Common Stock pursuant to the Agreement is fair from a financial point of view to the Company.

Very truly yours,

/s/ GOLDMAN, SACHS & CO.
(GOLDMAN, SACHS & CO.)

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SCHEDULE D — INFORMATION CONCERNING ITC HOLDINGS CORP.

For purposes of this Schedule D, references to “we”, “our”, “us” and the “Company” refer to ITC Holdings Corp., together with all of its subsidiaries. The disclosure in this Schedule D has been prepared without giving effect to the Acquisition. Please refer to “Definitions” in Schedule E to this Circular for a list of defined terms used in this Schedule D. The information in this Schedule D has been furnished by ITC Holdings. Although Fortis does not have any knowledge that would indicate that such information relating to ITC Holdings is untrue or incomplete, neither Fortis nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information or for the failure by ITC Holdings to disclose events or information regarding ITC Holdings that may affect the completeness or accuracy of such information.

We are the largest independent electric transmission company in the United States. Based in Novi, Michigan, we own and operate high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma through our four regulated operating subsidiaries International Transmission Company, Michigan Electric Transmission Company, LLC, ITC Midwest LLC and ITC Great Plains, LLC. ITC Midwest LLC is also a registered utility in Wisconsin. Our principal executive office is located at 27175 Energy Way, Novi, Michigan 48377 and our registered office is located at 30600 Telegraph Road Ste. 2345, Bingham Farms, Michigan 48025. The Regulated Operating Subsidiaries served a combined peak load exceeding 26,000 MW in 2015 along approximately 15,600 miles of transmission line, transmitting electricity from generating stations to local distribution facilities connected to its transmission systems. The shares of our common stock trade on the NYSE under the symbol “ITC”. The following corporate organizational chart shows ITC Holdings and its subsidiaries. Each of the subsidiaries listed below, other than Conjuction LLC and Empire Connection LLC, are wholly-owned by ITC Holdings. 1

1 As of December 31, 2015, New York Transmission Holdings Corp., a wholly-owned subsidiary of ITC Holdings, held a 71.7% interest in each of Conjunction LLC and Empire Connection LLC. The remaining 28.3% interest was held by Conjunction Management LLC.

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The Business of ITC Holdings

Overview

Our business consists primarily of the electric transmission operations of our Regulated Operating Subsidiaries. In 2002, ITC Holdings was incorporated in the State of Michigan for the purpose of acquiring ITCTransmission. ITCTransmission was originally formed in 2001 as a subsidiary of DTE Electric, an electric utility subsidiary of DTE Energy, and was acquired in 2003 by ITC Holdings. METC was originally formed in 2001 as a subsidiary of Consumers Energy, an electric and gas utility subsidiary of CMS Energy Corporation, and was acquired in 2006 by ITC Holdings. ITC Midwest was formed in 2007 by ITC Holdings to acquire the transmission assets of IP&L in December 2007. ITC Great Plains was formed in 2006 by ITC Holdings and became a FERC-jurisdictional entity in 2009. We own and operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our systems.

Our business strategy is to own, operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and allow new generating resources to interconnect to our transmission systems. We also are pursuing development projects not within our existing systems, which are also intended to improve overall grid reliability, reduce transmission constraints and facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

As electric transmission utilities with rates regulated by the FERC, our Regulated Operating Subsidiaries earn revenues through tariff rates charged for the use of their electric transmission systems by our customers, which include investor-owned utilities, municipalities, cooperatives, power marketers and alternative energy suppliers. As independent transmission companies, our Regulated Operating Subsidiaries are subject to rate regulation only by the FERC. The rates charged by our Regulated Operating Subsidiaries are established using cost-based formula rate templates as

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discussed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2015 and 2014 (the “MD&A”), attached to this Circular at Schedule E.

In February 2015, we announced an internal reorganization and executive changes to support our core business focus and increase dedicated resources for grid development activities.

Development of Business

We are actively developing transmission infrastructure required to meet reliability needs and energy policy objectives. Our long-term growth plan includes continued investment in current transmission systems, generator interconnections and our ongoing development projects. See the MD&A attached to this Circular at Schedule E for additional details about our long-term capital investments. Refer to the discussion of risks associated with our strategic development opportunities in “Risk Factors” below.

Current Transmission Systems

We expect to invest approximately US$1.5 billion from 2016 through 2018 at our Regulated Operating Subsidiaries in order to maintain and replace the current transmission infrastructure, enhance system integrity and reliability and accommodate load growth.

Regional Infrastructure

We expect to invest approximately US$530 million from 2016 through 2018 to develop and build regional transmission infrastructure to address system needs. Included in this amount are the portions of the four North Central Multi-Value Projects (“MVPs”) approved by MISO in December 2011 that we will build, own and operate, as well as the Thumb Loop Project. The four MVPs are located in south central Minnesota, northern and southeast Iowa, southwest Wisconsin, and northeast Missouri and will be constructed by ITC Midwest. We currently estimate we will invest approximately US$500 million in our portions of these four MVPs from 2016 through 2018. The Thumb Loop Project, which was placed in service in May 2015, is located in ITCTransmission’s region and consists of a 140-mile, double-circuit 345 kV transmission line and related substations that are the backbone of the transmission system needed to accommodate future wind development projects in Michigan. Through December 31, 2015, ITCTransmission has invested US$501.4 million in the Thumb Loop Project and any further investment to complete this project is not expected to be material.

Based on the anticipated growth of generating resources, we also foresee the need to construct additional transmission facilities that will provide interconnection opportunities for generating facilities. These investments may include, but are not limited to, the backbone transmission network, transmission for renewable resources and transmission for interconnection of other generating facilities.

Development Projects

Through our regulated grid development and merchant and international activities, we are actively pursuing projects to upgrade the existing transmission grid and regional transmission facilities, primarily to improve overall grid reliability, reduce transmission constraints, enhance competitive markets and facilitate interconnections of new generating resources, including wind generation and other renewable resources necessary to achieve state and federal policy goals. Additionally, we may pursue other non-traditional transmission investment opportunities not described above.

Segments

We have one reportable segment consisting of our Regulated Operating Subsidiaries. Additionally, we have other subsidiaries focused primarily on business development activities and a holding company whose activities include corporate debt and equity financings and certain other corporate activities. A more detailed discussion of our reportable segment, including financial information

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about the segment, is included in Note 18 to the audited consolidated financial statements of ITC Holdings, attached to this Circular at Schedule E.

Operations

As transmission-only companies, our Regulated Operating Subsidiaries function as conduits, allowing for power from generators to be transmitted to local distribution systems either entirely through their own systems or in conjunction with neighboring transmission systems. Third parties then transmit power through these local distribution systems to end-use consumers. The transmission of electricity by our Regulated Operating Subsidiaries is a central function to the provision of electricity to residential, commercial and industrial end-use consumers. The operations performed by our Regulated Operating Subsidiaries fall into the following categories:

· asset planning;

· engineering, design and construction;

· maintenance; and

· real time operations.

Asset Planning

The Asset Planning group uses detailed system models and load forecasts to develop our system expansion capital plans. Expansion capital plans identify projects that would address potential future reliability issues and/or produce economic savings for customers by eliminating constraints.

The Asset Planning group works closely with MISO and SPP in the development of our system expansion capital plans by performing technical evaluations and detailed studies. As the regional planning authorities, MISO and SPP approve regional system improvement plans which include projects to be constructed by their members, including our Regulated Operating Subsidiaries.

Engineering, Design and Construction

The Engineering, Design and Construction group is responsible for design, equipment specifications, maintenance plans and project engineering for capital, operation and maintenance work. We work with outside contractors to perform various aspects of our engineering, design and construction, but retain internal technical experts who have experience with respect to the key elements of the transmission system such as substations, lines, equipment and protective relaying systems.

Maintenance

We develop and track preventive maintenance plans to promote safe and reliable systems. By performing preventive maintenance on our assets, we can minimize the need for reactive maintenance, resulting in improved reliability. Our Regulated Operating Subsidiaries contract with Utility Lines Construction Services, Inc. (“ULCS”), which is a division of Asplundh Tree Expert Co., to perform the majority of their maintenance. The agreement with ULCS provides us with access to an experienced and scalable workforce with knowledge of our system at an established rate.

Real Time Operations

System Operations : From our operations facility in Novi, Michigan, transmission system operators continuously monitor the performance of the transmission systems of our Regulated Operating Subsidiaries, using software and communication systems to perform analysis to plan for contingencies and maintain security and reliability following any unplanned events on the system. Transmission system operators are also responsible for the switching and protective tagging function, taking equipment in and out of service to ensure capital construction projects and maintenance programs can be completed safely and reliably.

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Local Balancing Authority Operator : Under the functional control of MISO, ITCTransmission and METC operate their electric transmission systems as a combined Local Balancing Authority (“LBA”) area, known as the Michigan Electric Coordinated Systems (“MECS”). From our operations facility in Novi, Michigan, our employees perform the LBA functions as outlined in MISO’s Balancing Authority Agreement. These functions include actual interchange data administration and verification as well as MECS LBA area emergency procedure implementation and coordination. ITC Midwest and ITC Great Plains are not responsible for LBA functions for their respective assets.

Operating Contracts

Our Regulated Operating Subsidiaries have various operating contracts, including numerous interconnection agreements with generation and transmission providers that address terms and conditions of interconnection. The following significant agreements exist at our Regulated Operating Subsidiaries:

ITCTransmission

DTE Electric operates the electric distribution system to which ITCTransmission’s transmission system connects. A set of three operating contracts sets forth the terms and conditions related to DTE Electric’s and ITCTransmission’s ongoing working relationship. These contracts include the following:

Master Operating Agreement : The Master Operating Agreement (the “MOA”), dated as of February 28, 2003, governs the primary day-to-day operational responsibilities of ITCTransmission and DTE Electric and will remain in effect until terminated by mutual agreement of the parties (subject to any required FERC approvals) unless earlier terminated pursuant to its terms. The MOA identifies the control area coordination services that ITCTransmission is obligated to provide to DTE Electric. The MOA also requires DTE Electric to provide certain generation-based support services to ITCTransmission.

Generator Interconnection and Operation Agreement : DTE Electric and ITCTransmission entered into the Generator Interconnection and Operation Agreement (the “GIOA”), dated as of February 28, 2003, in order to establish, re-establish and maintain the direct electricity interconnection of DTE Electric’s electricity generating assets with ITCTransmission’s transmission system for the purposes of transmitting electric power from and to the electricity generating facilities. Unless otherwise terminated by mutual agreement of the parties (subject to any required FERC approvals), the GIOA will remain in effect until DTE Electric elects to terminate the agreement with respect to a particular unit or until a particular unit ceases commercial operation.

Coordination and Interconnection Agreement : The Coordination and Interconnection Agreement (the “CIA”), dated as of February 28, 2003, governs the rights, obligations and responsibilities of ITCTransmission and DTE Electric regarding, among other things, the operation and interconnection of DTE Electric’s distribution system and ITCTransmission’s transmission system, and the construction of new facilities or modification of existing facilities. Additionally, the CIA allocates costs for operation of supervisory, communications and metering equipment. The CIA will remain in effect until terminated by mutual agreement of the parties (subject to any required FERC approvals).

METC

Consumers Energy operates the electric distribution system to which METC’s transmission system connects. METC is a party to a number of operating contracts with Consumers Energy that govern the operations and maintenance of its transmission system. These contracts include the following:

Amended and Restated Easement Agreement : Under the Amended and Restated Easement Agreement (the “Easement Agreement”), dated as of April 29, 2002 and as further supplemented, Consumers Energy provides METC with an easement to the land, which we refer to as premises, on which a majority of METC’s transmission towers, poles, lines and other transmission facilities used to transmit electricity at voltages of at least 120 kV are located, which we refer to collectively as the

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facilities. Consumers Energy retained for itself the rights to, and the value of activities associated with, all other uses of the premises and the facilities covered by the Easement Agreement, such as for distribution of electricity, fiber optics, telecommunications, gas pipelines and agricultural uses. Accordingly, METC is not permitted to use the premises or the facilities covered by the Easement Agreement for any purposes other than to provide electric transmission and related services, to inspect, maintain, repair, replace and remove electric transmission facilities and to alter, improve, relocate and construct additional electric transmission facilities. The easement is further subject to the rights of any third parties that had rights to use or occupy the premises or the facilities prior to April 1, 2001 in a manner not inconsistent with METC’s permitted uses.

METC pays Consumers Energy annual rent of US$10.0 million, in equal quarterly installments, for the easement and related rights under the Easement Agreement. Although METC and Consumers Energy share the use of the premises and the facilities covered by the Easement Agreement, METC pays the entire amount of any rentals, property taxes, inspection fees and other amounts required to be paid to third parties with respect to any use, occupancy, operations or other activities on the premises or the facilities and is generally responsible for the maintenance of the premises and the facilities used for electric transmission at its expense. METC also must maintain commercial general liability insurance protecting METC and Consumers Energy against claims for personal injury, death or property damage occurring on the premises or the facilities and pay for all insurance premiums. METC is also responsible for patrolling the premises and the facilities by air at its expense at least annually and to notify Consumers Energy of any unauthorized uses or encroachments discovered. METC must indemnify Consumers Energy for all liabilities arising from the facilities covered by the Easement Agreement.

METC must notify Consumers Energy before altering, improving, relocating or constructing additional transmission facilities covered by the Easement Agreement. Consumers Energy may respond by notifying METC of reasonable work and design restrictions and precautions that are needed to avoid endangering existing distribution facilities, pipelines or communications lines, in which case METC must comply with these restrictions and precautions. METC has the right at its own expense to require Consumers Energy to remove and relocate these facilities, but Consumers Energy may require payment in advance or the provision of reasonable security for payment by METC prior to removing or relocating these facilities, and Consumers Energy need not commence any relocation work until an alternative right-of-way satisfactory to Consumers Energy is obtained at METC’s expense.

The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals after that time unless METC provides one year’s notice of its election not to renew the term. Consumers Energy may terminate the Easement Agreement 30 days after giving notice of a failure by METC to pay its quarterly installment if METC does not cure the non-payment within the 30-day notice period. At the end of the term or upon any earlier termination of the Easement Agreement, the easement and related rights terminate and the transmission facilities revert to Consumers Energy.

Amended and Restated Operating Agreement : Under the Amended and Restated Operating Agreement (the “Operating Agreement”), dated as of April 29, 2002, METC agrees to operate its transmission system to provide all transmission customers with safe, efficient, reliable and nondiscriminatory transmission service pursuant to its tariff. Among other things, METC is responsible under the Operating Agreement for maintaining and operating its transmission system, providing Consumers Energy with information and access to its transmission system and related books and records, administering and performing the duties of control area operator (that is, the entity exercising operational control over the transmission system) and, if requested by Consumers Energy, building connection facilities necessary to permit interaction with new distribution facilities built by Consumers Energy. Consumers Energy has corresponding obligations to provide METC with access to its books and records and to build distribution facilities necessary to provide adequate and reliable transmission services to wholesale customers. Consumers Energy must cooperate with

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METC as METC performs its duties as control area operator, including by providing reactive supply and voltage control from generation sources or other ancillary services and reducing load. The Operating Agreement is effective through 2050 and is subject to 10 automatic 50-year renewals after that time, unless METC provides one year’s notice of its election not to renew.

Amended and Restated Purchase and Sale Agreement for Ancillary Services : The Amended and Restated Purchase and Sale Agreement for Ancillary Services (the “Ancillary Services Agreement”) is dated as of April 29, 2002. Since METC does not own any generating facilities, it must procure ancillary services from third party suppliers, such as Consumers Energy. Currently, under the Ancillary Services Agreement, METC pays Consumers Energy for providing certain generation based services necessary to support the reliable operation of the bulk power grid, such as voltage support and generation capability and capacity to balance loads and generation. METC is not precluded from procuring these ancillary services from third party suppliers when available. The Ancillary Services Agreement is subject to rolling one-year renewals starting May 1, 2003, unless terminated by either METC or Consumers Energy with six months prior written notice.

Amended and Restated Distribution-Transmission Interconnection Agreement : The Amended and Restated Distribution-Transmission Interconnection Agreement (the “DT Interconnection Agreement”), dated April 1, 2001 and most recently amended and restated effective as of January 1, 2015, provides for the interconnection of Consumers Energy’s distribution system with METC’s transmission system and defines the continuing rights, responsibilities and obligations of the parties with respect to the use of certain of their own and the other party’s properties, assets and facilities. METC agrees to provide Consumers Energy interconnection service at agreed-upon interconnection points, and the parties have mutual responsibility for maintaining voltage and compensating for reactive power losses resulting from their respective services. The DT Interconnection Agreement is effective so long as any interconnection point is connected to METC, unless it is terminated earlier by mutual agreement of METC and Consumers Energy.

Amended and Restated Generator Interconnection Agreement : The Amended and Restated Generator Interconnection Agreement (the “Generator Interconnection Agreement”), dated as of April 29, 2002 and most recently amended effective as of October 1, 2015, specifies the terms and conditions under which Consumers Energy and METC maintain the interconnection of Consumers Energy’s generation resources and METC’s transmission assets. The Generator Interconnection Agreement is effective either until it is replaced by any MISO-required contract, or until mutually agreed by METC and Consumers Energy to terminate, but not later than the date that all listed generators cease commercial operation.

ITC Midwest

IP&L operates the electric distribution system to which ITC Midwest’s transmission system connects. ITC Midwest is a party to a number of operating contracts with IP&L that govern the operations and maintenance of its transmission system. These contracts include the following:

Distribution-Transmission Interconnection Agreement : The Distribution-Transmission Interconnection Agreement (the “DTIA”), dated as of December 17, 2007 and amended and restated effective as of February 21, 2015, governs the rights, responsibilities and obligations of ITC Midwest and IP&L, with respect to the use of certain of their own and the other parties’ property, assets and facilities and the construction of new facilities or modification of existing facilities. Additionally, the DTIA sets forth the terms pursuant to which the equipment and facilities and the interconnection equipment of IP&L will continue to connect ITC Midwest’s facilities through which ITC Midwest provides transmission service under the MISO Transmission and Energy Markets Tariff. The DTIA will remain in effect until terminated by mutual agreement by the parties (subject to any required FERC approvals) or as long as any interconnection point of IP&L is connected to ITC Midwest’s facilities, unless modified by written agreement of the parties.

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Large Generator Interconnection Agreement : ITC Midwest, IP&L and MISO entered into the Large Generator Interconnection Agreement (the “LGIA”), dated as of December 20, 2007 and amended as of August 6, 2013, in order to establish, re-establish and maintain the direct electricity interconnection of IP&L’s electricity generating assets with ITC Midwest’s transmission system for the purposes of transmitting electric power from and to the electricity generating facilities. The LGIA will remain in effect until terminated by ITC Midwest or until IP&L elects to terminate the agreement if a particular unit ceases commercial operation for three consecutive years.

Operations Services Agreement For 34.5 kV Transmission Facilities : ITC Midwest and IP&L entered into the Operations Services Agreement for 34.5 kV Transmission Facilities (the “OSA”), effective as of January 1, 2011, under which IP&L performs certain operations functions for ITC Midwest’s 34.5 kV transmission system on behalf of ITC Midwest. The OSA provides that when ITC Midwest upgrades 34.5 kV facilities to higher operating voltages it may notify IP&L of the change and the OSA is no longer applicable to those facilities. The OSA will remain in full force and effect until December 31, 2015 and will extend automatically from year to year thereafter until terminated by either party upon not less than one year prior written notice to the other party.

ITC Great Plains

Amended and Restated Maintenance Agreement : Mid-Kansas Electric Company LLC (“Mid-Kansas”) and ITC Great Plains have entered into a Maintenance Agreement (the “Mid-Kansas Agreement”), dated as of August 24, 2010, and most recently amended effective as of June 1, 2015, pursuant to which Mid-Kansas has agreed to perform various field operations and maintenance services related to certain ITC Great Plains facilities. The Mid-Kansas Agreement has an initial term of 10 years and automatic 10-year renewals unless terminated (1) due to a breach by the non-terminating party following notice and failure to cure, (2) by mutual consent of the parties, or (3) by ITC Great Plains under certain limited circumstances. Services must continue to be provided for at least six months subsequent to the termination date in any case.

Regulatory Environment

Many regulators and public policy makers support the need for further investment in the transmission grid. The growth and changing mix of electricity generation, wholesale power sales and consumption combined with historically inadequate transmission investment have resulted in significant transmission constraints across the United States and increased stress on aging equipment. These problems will continue without increased investment in transmission infrastructure. Transmission system investments can also increase system reliability and reduce the frequency of power outages. Such investments can reduce transmission constraints and improve access to lower cost generation resources, resulting in a lower overall cost of delivered electricity for end-use consumers. After the 2003 blackout that affected sections of the Northeastern and Midwestern United States and Ontario, Canada, the Department of Energy (the “DOE”) established the Office of Electric Transmission and Distribution (now the Office of Electricity Delivery and Energy Reliability), focused on working with reliability experts from the power industry, state governments and their Canadian counterparts to improve grid reliability and increase investment in the country’s electric infrastructure. In addition, the FERC has signaled its desire for substantial new investment in the transmission sector by implementing various financial and other incentives.

The FERC has also issued orders to promote non-discriminatory transmission access for all transmission customers. In the United States, electric transmission assets are predominantly owned, operated and maintained by utilities that also own electricity generation and distribution assets, known as vertically integrated utilities. The FERC has recognized that the vertically-integrated utility model inhibits the provision of non-discriminatory transmission access and, in order to alleviate this potential discrimination, the FERC has mandated that all transmission systems over which it has jurisdiction must be operated in a comparable, non-discriminatory manner such that any seller of electricity affiliated with a transmission owner (“TO”) or operator is not provided with preferential treatment. The FERC has also indicated that independent transmission companies can

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play a prominent role in furthering its policy goals and has encouraged the legal and functional separation of transmission operations from generation and distribution operations.

The FERC requires compliance with certain reliability standards by transmission owners and may take enforcement actions for violations, including the imposition of substantial fines. NERC is responsible for developing and enforcing these mandatory reliability standards. We continually assess our transmission systems against standards established by NERC, as well as the standards of applicable regional entities under NERC that have been delegated certain authority for the purpose of proposing and enforcing reliability standards. Finally, utility holding companies are subject to FERC regulations related to access to books and records in addition to the requirement of the FERC to review and approve mergers and consolidations involving utility assets and holding companies in certain circumstances.

Federal Regulation

As electric transmission companies, our Regulated Operating Subsidiaries are regulated by the FERC. The FERC is an independent regulatory commission within the DOE that regulates the interstate transmission and certain wholesale sales of natural gas, the transmission of oil and oil products by pipeline and the transmission and wholesale sales of electricity in interstate commerce. The FERC also administers accounting and financial reporting regulations and standards of conduct for the companies it regulates. In 1996, in order to facilitate open access transmission for participants in wholesale power markets, the FERC issued Order No. 888. The open access policy promulgated by the FERC in Order No. 888 was upheld in a United States Supreme Court decision, State of New York vs. FERC, issued on March 4, 2002. To facilitate open access, among other things, FERC Order No. 888 encouraged investor owned utilities to cede operational control over their transmission systems to ISOs, which are not-for-profit entities.

As an alternative to ceding operating control of their transmission assets to ISOs, certain investor owned utilities began to promote the formation of for-profit transmission companies, which would assume control of the operation of the grid. In December 1999, the FERC issued Order No. 2000, which strongly encouraged utilities to voluntarily transfer operational control of their transmission systems to RTOs. RTOs, as envisioned in Order No. 2000, would assume many of the functions of an ISO, but the FERC permitted greater flexibility with regard to the organization and structure of RTOs than it had for ISOs. RTOs could accommodate the inclusion of independently owned, for-profit companies that own transmission assets within their operating structure. Independent ownership would facilitate not only the independent operation of the transmission systems, but also the formation of companies with a greater financial interest in maintaining and augmenting the capacity and reliability of those systems. RTOs such as MISO and SPP monitor electric reliability and are responsible for coordinating the operation of the wholesale electric transmission system and ensuring fair, non-discriminatory access to the transmission grid.

FERC Order No. 1000 (“Order 1000”) amends certain existing transmission planning and cost allocation requirements to ensure that FERC-jurisdictional services are provided at just and reasonable rates and on a basis that is just and reasonable and not unduly discriminatory or preferential. With respect to transmission planning, Order 1000: (1) requires that each public utility transmission provider participate in a regional transmission planning process that produces a regional transmission plan; (2) requires that each public utility transmission provider amend its Open Access Transmission Tariff to describe procedures that provide for the consideration of transmission needs driven by public policy requirements in the local and regional transmission planning processes; (3) removes a federal right of first refusal for certain new transmission facilities from FERC-approved tariffs and agreements; and (4) improves coordination between neighboring transmission planning regions for new interregional transmission facilities. MISO and SPP are compliant with the regional requirements of Order 1000 after making multiple compliance filings at FERC; however, MISO and SPP must make further compliance filings to comply with interregional Order 1000 requirements.

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Order 1000 could potentially lead to greater competition for certain future transmission projects, including within our current operating areas. We are currently exploring opportunities resulting from Order 1000 within MISO and SPP as well as other RTOs.

Revenue Requirement Calculations and Cost Sharing for Projects with Regional Benefits

The cost based formula rates used by our Regulated Operating Subsidiaries include revenue requirement calculations for various types of projects. Network revenues continue to be the largest component of revenues recovered through our formula rates. However, regional cost sharing revenues are growing as a result of projects that have been identified by MISO or SPP as having regional benefits, and therefore eligible for regional cost recovery under their tariffs. Separate calculations of revenue requirement are performed for projects that have been approved for regional cost sharing and impact only which parties ultimately pay for the transmission services related to these projects and do not impact our financial results.

We have projects that are eligible for regional cost sharing under the MISO tariff, such as certain network upgrade projects, and the MVPs, including the four North Central MVPs and the Thumb Loop Project. Additionally, certain projects at ITC Great Plains are eligible for recovery through a region-wide charge in the SPP tariff, including the Kansas V-Plan Project. Certain of these projects are described in more detail in the MD&A attached to this Circular at Schedule E.

State Regulation

The regulatory agencies in the states where our Regulated Operating Subsidiaries’ assets are located do not have jurisdiction over our rates or terms and conditions of service. However, they typically have jurisdiction over siting of transmission facilities and related matters as described below. Additionally, we are subject to the regulatory oversight of various state environmental quality departments for compliance with any state environmental standards and regulations.

ITCTransmission and METC

Michigan

The MPSC has jurisdiction over the siting of certain transmission facilities. Additionally, ITCTransmission and METC have the right as independent transmission companies to condemn property in the state of Michigan for the purposes of building or maintaining transmission facilities.

ITCTransmission and METC are also subject to the regulatory oversight of the Michigan Department of Environmental Quality, the Michigan Department of Natural Resources and certain local authorities for compliance with all environmental standards and regulations.

ITC Midwest

Iowa

The IUB has the power of supervision over the construction, operation and maintenance of transmission facilities in Iowa by any entity, which includes the power to issue franchises. Iowa law further provides that any entity granted a franchise by the IUB is vested with the power of condemnation in Iowa to the extent the IUB approves and deems necessary for public use. A city has the power, pursuant to Iowa law, to grant a franchise to erect, maintain and operate transmission facilities within the city, which franchise may regulate the conditions required and manner of use of the streets and public grounds of the city and may confer the power to appropriate and condemn private property.

ITC Midwest also is subject to the regulatory oversight of certain state agencies (including the Iowa Department of Natural Resources) and certain local authorities with respect to the issuance of environmental, highway, railroad and similar permits.

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Minnesota

The MPUC has jurisdiction over the construction, siting and routing of new transmission lines or upgrades of existing lines through Minnesota’s Certificate of Need and Route Permit Processes. Transmission companies are also required to participate in the State’s Biennial Transmission Planning Process and are subject to the state’s preventative maintenance requirements. Pursuant to Minnesota law, ITC Midwest has the right as an independent transmission company to condemn property in the State of Minnesota for the purpose of building new transmission facilities.

ITC Midwest is also subject to the regulatory oversight of the Minnesota Pollution Control Agency, the Minnesota Department of Natural Resources, the MPUC in conjunction with the Department of Commerce and certain local authorities for compliance with applicable environmental standards and regulations.

Illinois

The ICC exercises jurisdiction over siting of new transmission lines through its requirements for Certificates of Public Convenience and Necessity and Right-Of-Way acquisition that apply to construction of new or upgraded facilities.

ITC Midwest also is subject to the regulatory oversight of the Illinois Environmental Protection Agency, the Illinois Department of Natural Resources, the Illinois Pollution Control Board and certain local authorities for compliance with all environmental standards and regulations.

Missouri

Because ITC Midwest is a “public utility” and an “electrical corporation” under Missouri law, the MOPSC has jurisdiction to determine whether ITC Midwest may operate in such capacity. The MOPSC also exercises jurisdiction with regard to other non-rate matters affecting this Missouri asset such as transmission substation construction, general safety and the transfer of the franchise or property.

ITC Midwest is also subject to the regulatory oversight of the Missouri Department of Natural Resources for compliance with all environmental standards and regulations relating to this transmission line.

Wisconsin

ITC Midwest is a “public utility” and independent transmission owner in Wisconsin. The PSCW in a May 2014 order granted ITC Midwest a certificate of authority to transact public utility business in the state. In a separate May 2014 order, the PSCW also recognized ITC Holdings Corp. as a public utility holding company under Wisconsin statutes.

The PSCW exercises jurisdiction over the siting of new transmission lines through the issuance of certificates of authority and certificates of public convenience and necessity. Upon receipt of such certificates for a transmission project, ITC Midwest has condemnation authority as a foreign transmission provider under Wisconsin law. ITC Midwest is also subject to the jurisdiction of certain local and state agencies, including the Wisconsin Department of Natural Resources, relating to environmental and road permits.

ITC Great Plains

Kansas

ITC Great Plains is a “public utility” in Kansas and an “electric utility” pursuant to state statutes. The KCC issued an order approving the issuance of a limited certificate of convenience to ITC Great Plains for the purposes of building, owning and operating SPP transmission projects in Kansas. In addition to its certificate of authority, the KCC has jurisdiction over the siting of electric transmission lines.

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ITC Great Plains is also subject to the regulatory oversight of the Kansas Department of Health and Environment for compliance with all environmental standards and regulations relating to the construction phase of any transmission line.

Oklahoma

ITC Great Plains has approval from the OCC to operate in Oklahoma, pursuant to Oklahoma Statutes as an electric public utility providing only transmission services. The OCC does not exercise jurisdiction over the siting of any transmission lines.

ITC Great Plains may be subject to the regulatory oversight of Oklahoma Department of Environmental Quality for compliance with environmental standards and regulations relating to construction of proposed transmission lines.

Sources of Revenue

See the MD&A attached to this Circular at Schedule E for a discussion of our principal sources of revenue.

Seasonality

The cost-based formula rates with a true-up mechanism in effect for all our Regulated Operating Subsidiaries, as discussed in the MD&A attached to this Circular at Schedule E, mitigate the seasonality of net income for our Regulated Operating Subsidiaries. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. For example, to the extent that amounts billed are less than our revenue requirement for a reporting period, a revenue accrual is recorded for the difference and the difference results in no net income impact.

Operating cash flows are seasonal at our MISO Regulated Operating Subsidiaries, in that cash received for revenues is typically higher in the summer months when peak load is higher.

Principal Customers

Our principal transmission service customers are DTE Electric, Consumers Energy and IP&L, which accounted for approximately 20.8%, 21.9% and 26.8%, respectively, of our consolidated billed revenues for the year ended December 31, 2015. One or more of these customers together have consistently represented a significant percentage of our operating revenue. These percentages of total billed revenues of DTE Electric, Consumers Energy and IP&L include the collection of 2013 revenue accruals and deferrals and exclude any amounts for the 2015 revenue accruals and deferrals that were included in our 2015 operating revenues, but will not be billed to our customers until 2017. Refer to the MD&A attached to this Circular at Schedule E for a discussion on the difference between billed revenues and operating revenues. Our 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. Nearly all of our revenues are from transmission customers in the United States. Although we may recognize allocated revenues from time to time from Canadian entities reserving transmission over the Ontario or Manitoba interface, these revenues have not been and are not expected to be material to us.

Billing

MISO and SPP are responsible for billing and collecting the majority of our transmission service revenues as well as independently administer the transmission tariff in their respective service territory. As the billing agents for our Regulated Operating Subsidiaries, MISO and SPP independently bill DTE Electric, Consumers Energy, IP&L and other customers on a monthly basis and collect fees for the use of our transmission systems.

See the MD&A attached to this Circular at Schedule E for discussion of our credit policies.

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Competition

Each of our MISO Regulated Operating Subsidiaries operates the primary transmission system in its respective service area and has limited competition for certain projects. However, the competitive environment is evolving due to the implementation of Order 1000. See further discussion of Order 1000 above under “Regulatory Environment — Federal Regulation”. For our subsidiaries focused on development opportunities for transmission investment in other service areas, the incumbent utilities or other entities with transmission development initiatives may compete with us by seeking approval to be named the party authorized to build new capital projects that we are also pursuing. Because our Regulated Operating Subsidiaries are currently the only transmission companies that are independent from electricity market participants, we believe that we are best able to develop these projects in a non-discriminatory manner. However, there are no assurances that we will be selected to develop projects other entities are also pursuing.

Employees

As of December 31, 2015, we had 637 employees. We consider our relations with our employees to be good.

Environmental Matters

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

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

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

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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 electric transmission and distribution lines. While we do not believe that a causal link between electromagnetic field exposure and injury has been generally established and accepted in the scientific community, the liabilities and costs imposed on our business could be significant if such a relationship is established or accepted. We are not aware of any pending or threatened claims against us for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields and electric transmission and distribution lines that entail costs likely to have a material adverse effect on our results of operations, financial position or liquidity.

Risk Factors

Risks Related to Our Business

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

Our Regulated Operating Subsidiaries provide transmission service under rates regulated by the FERC. The FERC has approved the cost-based formula rate templates used by our Regulated Operating Subsidiaries to calculate their respective annual revenue requirements, but it has not expressly approved the amount of actual capital and operating expenditures to be used in the formula rates. All aspects of our Regulated Operating Subsidiaries’ rates approved by the FERC, including the formula rate templates, the rates of return on the actual equity portion of their respective capital structures and the approved targeted capital structures, are subject to challenge by interested parties at the FERC, or by the FERC on its own initiative in a proceeding under Section 206 of the FPA. In addition, interested parties may challenge the annual implementation and calculation by our Regulated Operating Subsidiaries of their projected rates and formula rate true up pursuant to their approved formula rate templates under the Regulated Operating Subsidiaries’ formula rate implementation protocols. End-use consumers and entities supplying electricity to end-use consumers may also attempt to influence government and/or regulators to change the rate setting methodologies that apply to our Regulated Operating Subsidiaries, particularly if rates for delivered electricity increase substantially. If a challenger can establish that any of these aspects are unjust, unreasonable, unduly discriminatory or preferential, then the FERC will make appropriate prospective adjustments to them and/or disallow any of our Regulated Operating Subsidiaries’ inclusion of those aspects in the rate setting formula. This could result in lowered rates and/or refunds of amounts collected, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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base return on equity rate for all MISO transmission owners, including for our MISO Regulated Operating Subsidiaries, to 8.67%. A decision from FERC on the February 2015 complaint is anticipated in 2017. In each case, if any refunds are required, the refund effective date would be the date on which the related complaint was filed. In 2015 and 2014, we adjusted revenues downward to accrue for the refund liability based on our estimate of the outcome of these complaints. An unfavorable resolution of these complaints in excess of the amount accrued for the refund liability could significantly reduce our future revenues and net income and therefore could have a material adverse effect on our future results of operations, cash flows and financial condition.

Our actual capital investment may be lower than planned, which would cause a lower than anticipated rate base and would therefore result in lower revenues and earnings compared to our current expectations. In addition, we expect to invest in strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot provide assurance that we will be able to initiate or complete any of these investments. In addition, we expect to incur expenses related to the pursuit of development opportunities, which may be higher than forecasted.

Each of our operating subsidiaries’ rate base, revenues and earnings are determined in part by additions to property, plant and equipment and when those additions are placed in service. We anticipate making significant capital investments over the next several years; however, the amounts could change significantly due to factors beyond our control. If our operating subsidiaries’ capital investment and the resulting in-service property, plant and equipment are lower than anticipated for any reason, our operating subsidiaries will have a lower than anticipated rate base, thus causing their revenue requirements and future earnings to be lower than anticipated.

We are pursuing broader strategic development investment opportunities including those related to building regional transmission facilities and interconnections for generating resources, among others. Incumbent utilities or other transmission development entities may compete with us for regulatory approval to develop capital projects that we are pursuing. If we are unable to compete successfully for approval of these projects, our opportunities to expand our rate base and increase our revenues and earnings may become limited.

Any capital investment at our operating subsidiaries or as a result of our broader strategic development initiatives may be lower than our published estimates due to, among other factors, the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment 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 or transmission systems owned by others at any one time, regulatory requirements relating to our rate construct, environmental issues, siting, regional planning, cost recovery or other issues, or as a result of legal proceedings and variances between estimated and actual costs of construction contracts awarded and the potential for greater competition. Our ability to engage in construction projects resulting from pursuing these initiatives is subject to significant uncertainties, including the factors discussed above, and will depend on obtaining any necessary regulatory and other approvals for the project and for us to initiate construction, our achieving status as the builder of the project in some circumstances and other factors. Therefore, we can provide no assurance as to the actual level of investment we may achieve at our operating subsidiaries or as a result of the broader strategic development initiatives.

In addition, we expect to incur expenses to pursue strategic development investment opportunities. If these expenses are higher than anticipated, our future results of operations, cash flows and financial condition could be materially and adversely affected.

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

Each of our Regulated Operating Subsidiaries is a “public utility” under the FPA and, accordingly, is subject to regulation by the FERC. Approval of the FERC is required under Section 203 of the FPA

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for a disposition or acquisition of regulated public utility facilities, either directly or indirectly through a holding company. Such approval is also required to acquire a significant interest in securities of a public utility. Section 203 of the FPA also provides the FERC with explicit authority over utility holding companies’ purchases or acquisitions of, and mergers or consolidations with, a public utility. Finally, each of our Regulated Operating Subsidiaries must also seek approval by the FERC under Section 204 of the FPA for issuances of its securities (including debt securities).

We are also pursuing development projects for construction of transmission facilities and interconnections with generating resources. These projects may require regulatory approval by Federal agencies, including the FERC, applicable RTOs and state and local regulatory agencies. Failure to secure such regulatory approval for new strategic development projects could adversely affect our ability to grow our business and increase our revenues. If we fail to obtain these approvals when necessary, we may incur liabilities for such failure.

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

Each of our Regulated Operating Subsidiaries is regulated by the FERC as a “public utility” under the FPA and is a transmission owner in MISO or SPP. We cannot predict whether the approved rate methodologies for any of our Regulated Operating Subsidiaries will be changed. In addition, the U.S. Congress periodically considers enacting energy legislation that could assign new responsibilities to the FERC, modify provisions of the FPA or provide the FERC or another entity with increased authority to regulate transmission matters. We cannot predict whether, and to what extent, our Regulated Operating Subsidiaries may be affected by any such changes in federal energy laws, regulations or policies in the future. While our Regulated Operating Subsidiaries are subject to FERC’s exclusive jurisdiction for purposes of rate regulation, changes in state laws affecting other matters, such as transmission siting and construction, could limit investment opportunities available to us.

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

If amounts billed for transmission service are lower than expected, which could result from lower network load or point-to-point transmission service on our Regulated Operating Subsidiaries’ transmission systems due to a weak economy, changes in the nature or composition of the transmission assets of our Regulated Operating Subsidiaries and surrounding areas, poor transmission quality of neighboring transmission systems, or for any other reason, the timing of the collection of our revenue requirement would likely be delayed until such circumstances are adjusted through the true-up mechanism in our Regulated Operating Subsidiaries’ formula rate templates. In addition, if the revenue requirements of our Regulated Operating Subsidiaries are higher than expected, due to higher actual expenditures compared to the forecasted expenditures used to develop their billing rates or for any other reason, the timing of the collection of our Regulated Operating Subsidiaries’ revenue requirements would likely be delayed until such circumstances are reflected through the true-up mechanism in our Regulated Operating Subsidiaries’ expected, formula rate templates. The effect of such under-collection would be to reduce the amount of our available cash resources from what we had expected, until such under-collection is corrected through the true-up mechanism in the formula rate template, which may require us to increase our outstanding indebtedness, thereby reducing our available borrowing capacity, and may require us to pay interest at a rate that exceeds the interest to which we are entitled in connection with the operation of the true-up mechanism.

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

ITCTransmission derives a substantial portion of its revenues from the transmission of electricity to DTE Electric’s local distribution facilities. DTE Electric accounted for approximately 60.3% of ITCTransmission’s total billed revenues for the year ended December 31, 2015 and is expected to constitute the majority of ITCTransmission’s revenues for the foreseeable future. DTE Electric is rated BBB+/stable and A2/stable by Standard and Poor’s Ratings Services (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), respectively. Similarly, Consumers Energy accounted for approximately 74.6% of METC’s total billed revenues for the year ended December 31, 2015 and is expected to constitute the majority of METC’s revenues for the foreseeable future. Consumers Energy is rated BBB+/stable and A3/stable by S&P and Moody’s, respectively. Further, IP&L accounted for approximately 78.5% of ITC Midwest’s total billed revenues for the year ended December 31, 2015 and is expected to constitute the majority of ITC Midwest’s revenues for the foreseeable future. IP&L is rated A-/stable and A3/negative by S&P and Moody’s, respectively. These percentages of total billed revenues of DTE Electric, Consumers Energy and IP&L include the collection of 2013 revenue accruals and deferrals and exclude any amounts for the 2015 revenue accruals and deferrals that were included in our 2015 operating revenues, but will not be billed to our customers until 2017.

Any material failure by DTE Electric, Consumers Energy or IP&L to make payments for transmission services could have an adverse effect on our business, financial condition, results of operations and cash flows.

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

METC does not own the majority of the land on which its electric transmission assets are located. Instead, under the provisions of an Easement Agreement with Consumers Energy, METC pays annual rent of US$10.0 million to Consumers Energy in exchange for rights-of-way, leases, fee interests and licenses which allow METC to use the land on which its transmission lines are located. Under the terms of the Easement Agreement, METC’s easement rights could be eliminated if METC fails to meet certain requirements, such as paying contractual rent to Consumers Energy in a timely manner. Additionally, a significant amount of the land on which our other subsidiaries’ assets are located is subject to easements, mineral rights and other similar encumbrances. As a result, they must comply with the provisions of various easements, mineral rights and other similar encumbrances, which may adversely impact their ability to complete their construction projects in a timely manner.

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

We enter into various agreements and arrangements with third parties to provide services for construction, maintenance and operations of certain aspects of our business, which, if terminated, could result in a shortage of a readily available workforce to provide these services. If any of these agreements or arrangements is terminated for any reason, we may face difficulty finding a qualified replacement work force to provide such services, which could have an adverse effect on our ability to carry on our business and on our results of operations.

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

Our 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, towers and lines or losses caused by outages.

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

We are subject to federal, state and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of solid and hazardous wastes and hazardous materials, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities relating to investigation and remediation of contamination, as well as other liabilities concerning hazardous materials or contamination such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as properties we currently own or operate. 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.

We have incurred expenses in connection with environmental compliance, and we anticipate that we will continue to do so in the future. Failure to comply with the extensive environmental laws and regulations applicable to us could result in significant civil or criminal penalties and remediation costs. Our assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Some of our facilities and properties are located near environmentally sensitive areas such as wetlands and habitats of endangered or threatened species. In addition, certain properties in which we operate are, or 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 electric transmission and distribution lines. We cannot provide assurance that such claims will not be asserted against us or that, if determined in a manner adverse to our interests, such claims would not have a material effect on our business, financial condition and results of operations.

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

The various regulatory requirements to which we are subject include reliability standards established by the NERC, which acts as the nation’s Electric Reliability Organization approved by the FERC in accordance with Section 215 of the FPA. These standards address operation, planning and security

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of the bulk power system, including requirements with respect to real-time transmission operations, emergency operations, vegetation management, critical infrastructure protection and personnel training. Failure to comply with these requirements can result in monetary penalties as well as non-monetary sanctions. Monetary penalties vary based on an assigned risk factor for each potential violation, the severity of the violation and various other circumstances, such as whether the violation was intentional or concealed, whether there are repeated violations, the degree of the violator’s cooperation in investigating and remediating the violation and the presence of a compliance program, and such penalties can be substantial. Non-monetary sanctions include potential limitations on the violator’s activities or operation and placing the violator on a watchlist for major violators. Despite our best efforts to comply and the implementation of a compliance program intended to ensure reliability, there can be no assurance that violations will not occur that would result in material penalties or sanctions. If any of our subsidiaries were to violate the NERC reliability standards, even unintentionally, in any material way, any penalties or sanctions imposed against us could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Certain of our subsidiaries are also subject to requirements under Sections 203 and 205 of the FPA for approval of transactions; reporting, recordkeeping and accounting requirements; and for filing contracts related to the provision of jurisdictional services. Under FERC policy, failure to file jurisdictional agreements on a timely basis may result in foregoing the time value of revenues collected under the agreement, but not to the point where a loss would be incurred. The failure to obtain timely approval of transactions subject to FPA Section 203, or to comply with applicable reporting, recordkeeping or accounting requirements under FPA Section 205, could subject us to penalties that could have a material adverse effect on our financial condition, results of operations and cash flows.

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

Acts of war, terrorist attacks, cyber attacks, natural disasters, severe weather and other catastrophic events may negatively affect our business, financial condition and cash flows in unpredictable ways, such as increased security measures and disruptions of markets. Energy related assets, including, for example, our transmission facilities and DTE Electric’s, Consumers Energy’s and IP&L’s generation and distribution facilities that we interconnect with, may be at risk of acts of war, terrorist attacks and cyber attacks, as well as natural disasters, severe weather and other catastrophic events. In addition to any physical damage caused by such events, cyber attacks targeting our information systems could impair our records, networks, systems and programs, or transmit viruses to other systems. Such events or the threat of such events may increase costs associated with heightened security requirements. In addition, such events or threats may have a material effect on the economy in general and could result in a decline in energy consumption, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Relating to our Corporate and Financial Structure

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

As a holding company with no business operations, our material assets consist primarily of the stock and membership interests in our subsidiaries. Our only sources of cash to pay dividends to our shareholders are dividends and other payments received by us from time to time from our subsidiaries, proceeds raised from the sale of our debt and equity securities and borrowings under our various credit agreements. Each of our subsidiaries, however, is legally distinct from us and has no obligation, contingent or otherwise, to make funds available to us for the payment of dividends to ITC Holdings’ shareholders or otherwise. The ability of each of our Regulated Operating

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Subsidiaries and our other subsidiaries to pay dividends and make other payments to us 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 FERC and the FPA. Our Regulated Operating Subsidiaries target a FERC-approved capital structure of 60% equity and 40% debt that may limit the ability of our Regulated Operating Subsidiaries to use net assets for the payment of dividends to ITC Holdings. While we currently intend to continue to pay quarterly dividends on our common stock, we have no obligation to do so. The payment of dividends is 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 deems relevant.

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

We have a considerable amount of debt and our consolidated indebtedness includes various debt securities and borrowings, which utilize indentures, and revolving and term loan credit agreements and commercial paper, that we rely on as sources of capital and liquidity. This financing strategy can have several important consequences, including but not limited to, the following:

· If future cash flows are insufficient, we may not be able to make principal or interest payments on our debt obligations, which could result in the occurrence of an event of default under one or more of those debt instruments.

· We may need to increase our indebtedness in order to make the capital expenditures and other expenses or investments planned by us.

· Our indebtedness has the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition and, therefore, may pose substantial risk to our shareholders. A substantial portion of the dividends and payments in lieu of taxes we receive from our subsidiaries will be dedicated to the payment of interest on our indebtedness, thereby, reducing the funds available for working capital, capital expenditures and the payment of dividends on our common stock.

· In the event of bankruptcy, reorganization or liquidation, our senior or subordinated creditors and the senior or subordinated creditors of our subsidiaries will be entitled to payment in full prior to any distributions to the holders of shares of our common stock.

· We currently have debt instruments outstanding with short-term maturities or relatively short remaining maturities. Our ability to secure additional financing prior to or after these facilities mature, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments. Additionally, the interest rates at which we might secure additional financings may be higher than our currently outstanding debt instruments or higher than forecasted at any point in time, which could adversely affect our business, financial condition, results of operations and cash flows.

· Market conditions could affect our access to capital markets, restrict our ability to secure financing to make the capital expenditures and investments and pay other expenses planned by us which could adversely affect our business, financial condition, cash flows and results of operations.

We may incur substantial additional indebtedness in the future. The incurrence of additional indebtedness would increase the risks described above.

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

Our debt instruments on a consolidated basis, including senior notes, secured notes, first mortgage bonds, revolving and term loan credit agreements and commercial paper, contain 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;

· create and acquire subsidiaries; and

· pay dividends or make distributions on our stock or on the stock or member capital of our subsidiaries.

Our debt instruments also require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios. Our ability 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 any of our debt instruments could result in acceleration of related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions.

Adverse changes in our credit ratings may negatively affect us.

Our ability to access capital markets is important to our ability to operate our business. Increased scrutiny of the energy industry and the impact of regulation, as well as changes in our financial performance and unfavorable conditions in the capital markets could result in credit agencies re-examining our credit ratings. A downgrade in our credit ratings could restrict or discontinue our ability to access capital markets at attractive rates and increase our borrowing costs. A rating downgrade could also increase the interest we pay on commercial paper and under our revolving and term loan credit agreements.

Risks Relating to ITC Holdings as a Result of the Acquisition

The announcement and pendency of the Acquisition could adversely affect our business, results of operations and financial condition.

The announcement and pendency of the Acquisition could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the Acquisition is completed. In particular, we could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Acquisition. We could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, we have expended, and continue to expend, significant management resources in an effort to complete the Acquisition, which are being diverted from our day-to-day operations.

We are subject to restrictions on our business activities while the Acquisition Agreement is in effect.

Under the agreement and plan of merger dated February 9, 2016 entered into between, among others, Fortis and ITC Holdings (the “Acquisition Agreement”), we are subject to certain restrictions on the conduct of our business and generally must operate our business in the ordinary course in all material respects prior to completing the Acquisition unless we obtain the consent of FortisUS Inc., which may

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restrict our ability to exercise certain of our business strategies. These restrictions may prevent us from pursuing otherwise attractive business opportunities, making certain investments or acquisitions, selling assets, engaging in capital expenditures in excess of certain agreed limits, incurring indebtedness or making changes to our business prior to the completion of the Acquisition or termination of the Acquisition Agreement. These restrictions could have an adverse effect on our business, financial condition and results of operations. See “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement — Covenants Regarding Conduct of Business by ITC Pending the Acquisition”.

We may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Acquisition from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into acquisition agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs to us and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Acquisition, then that injunction may delay or prevent the Acquisition from being completed.

Properties

Our Regulated Operating Subsidiaries’ transmission facilities are located in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. Our MISO Regulated Operating Subsidiaries have agreements with other utilities for the joint ownership of specific substations and transmission lines. See Note 15 to the audited consolidated financial statements of ITC Holdings, attached to this Circular at Schedule E.

ITCTransmission owns the assets of a transmission system and related assets, including:

· approximately 3,100 circuit miles of overhead and underground transmission lines rated at voltages of 120 kV to 345 kV;

· approximately 18,700 transmission towers and poles;

· station assets, such as transformers and circuit breakers, at 182 stations and substations which either interconnect ITCTransmission’s transmission facilities or connect ITCTransmission’s facilities with generation or distribution facilities owned by others;

· other transmission equipment necessary to safely operate the system (e.g., monitoring and metering equipment);

· warehouses and related equipment;

· associated land held in fee, rights-of-way and easements;

· an approximately 188,000 square-foot corporate headquarters facility and operations control room in Novi, Michigan, including furniture, fixtures and office equipment; and

· an approximately 40,000 square-foot facility in Ann Arbor, Michigan that includes a back-up operations control room.

ITCTransmission’s First Mortgage Bonds are issued under ITCTransmission’s first mortgage and deed of trust. As a result, the bondholders have the benefit of a first mortgage lien on substantially all of ITCTransmission’s property.

METC owns the assets of a transmission system and related assets, including:

· approximately 5,600 circuit miles of overhead transmission lines rated at voltages of 120 kV to 345 kV;

· approximately 36,900 transmission towers and poles;

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· station assets, such as transformers and circuit breakers, at 101 stations and substations which either interconnect METC’s transmission facilities or connect METC’s facilities with generation or distribution facilities owned by others;

· other transmission equipment necessary to safely operate the system (e.g., monitoring and metering equipment); and

· warehouses and related equipment.

METC’s Senior Secured Notes are issued under METC’s first mortgage indenture. As a result, the noteholders have the benefit of a first mortgage lien on substantially all of METC’s property.

METC does not own the majority of the land on which its assets are located, but under the provisions of its Easement Agreement with Consumers Energy, METC has an easement to use the land, rights-of-way, leases and licenses in the land on which its transmission lines are located that are held or controlled by Consumers Energy. See “The Business of ITC Holdings — Operating Contracts — METC — Amended and Restated Easement Agreement”.

ITC Midwest owns the assets of a transmission system and related assets, including:

· approximately 6,600 circuit miles of transmission lines rated at voltages of 34.5 kV to 345 kV;

· transmission towers and poles;

· station assets, such as transformers and circuit breakers, at approximately 273 stations and substations which either interconnect ITC Midwest’s transmission facilities or connect ITC Midwest’s facilities with generation or distribution facilities owned by others;

· other transmission equipment necessary to safely operate the system (e.g., monitoring and metering equipment);

· warehouses and related equipment; and

· associated land held in fee, rights-of-way and easements.

ITC Midwest’s First Mortgage Bonds are issued under ITC Midwest’s first mortgage and deed of trust. As a result, the bondholders have the benefit of a first mortgage lien on substantially all of ITC Midwest’s property.

ITC Great Plains owns transmission and related assets including:

· approximately 440 miles of transmission lines rated at a voltage of 345 kV;

· approximately 1,910 transmission towers and poles;

· station assets, such as transformers and circuit breakers, at 8 stations and substations which either interconnect ITC Great Plains’ transmission facilities or connect ITC Great Plains’ facilities with transmission, generation or distribution facilities owned by others;

· other transmission equipment necessary to safely operate the system (e.g., monitoring and metering equipment); and

· associated land held in fee, rights-of-way and easements.

ITC Great Plains’ First Mortgage Bonds are issued under ITC Great Plains’ first mortgage and deed of trust. As a result, the bondholders have the benefit of a first mortgage lien on substantially all of ITC Great Plains’ property.

The assets of our Regulated Operating Subsidiaries are suitable for electric transmission and adequate for the electricity demand in our service territory. We prioritize capital spending based in

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part on meeting reliability standards within the industry. This includes replacing and upgrading existing assets as needed.

Legal Proceedings

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

Refer to Notes 4 and 16 to the audited consolidated financial statements of ITC Holdings, attached to this Circular at Schedule E for a description of certain pending legal proceedings.

Share Capitalization and Dividend Policy

Share Capitalization

As of December 31, 2015, ITC Holdings’ authorized capital stock consisted of (i) 300 million shares of common stock, without par value; and (ii) 10 million shares of preferred stock, without par value. As of December 31, 2015, there were 152,699,077 shares of ITC Holdings common stock outstanding (some of which are restricted stock awards and performance shares) and no shares of preferred stock outstanding. The transfer agent for shares of ITC Holdings common stock is Computershare Trust Company, N.A., PO Box 30170 College Station, TX 77842-3170. See Note 13 to the audited consolidated financial statements of ITC Holdings as of December 31, 2015 and 2014, attached to this Circular at Schedule E, for a description of the material attributes and characteristics of the shares of ITC Holdings common stock and preferred stock. There have been no material changes to the share capital, on a consolidated basis, since December 31, 2015 to the date of this Circular.

Trading Prices and Volumes

The following table sets forth, for the periods indicated, the reported high and low daily trading prices and the aggregate trading volume of the shares of ITC Holdings common stock on the NYSE for the referenced periods.

	NYSE
	High	Low	Volume
	(US$)	(US$)	(#)
2015
February	42.80	38.29	24,644,471
March	38.65	35.54	29,781,589
April	37.12	34.94	31,572,708
May	36.42	34.69	20,105,735
June	35.61	30.64	43,699,893
July	35.10	32.00	25,346,818
August	35.68	31.74	22,183,708
September	34.11	31.16	26,355,093
October	34.16	31.42	35,390,675
November	38.28	30.33	43,177,687
December	39.60	37.09	52,639,818
2016
January	40.74	36.53	35,769,093
February	41.49	37.14	111,120,259
March 1 to 18	43.29	40.68	26,478,373

Security Ownership of Management and Principal Shareholders

The following table sets forth certain information regarding the ownership of common stock of ITC Holdings as of March 18, 2016, except as otherwise indicated, by (i) each current director of ITC Holdings, (ii) each current executive officer of ITC Holdings and (iii) all current directors and executive officers of ITC Holdings as a group. According to publicly available disclosure in respect of ITC

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Holdings shareholders, as of March 18, 2016 no shareholder owns, or controls or directs, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to the common stock of ITC Holdings.

The number of shares beneficially owned is determined under rules of the Securities and Exchange Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire on March 18, 2016 or within 60 days thereafter through the exercise of any stock option or other right. Unless otherwise indicated, each holder has sole investment and voting power with respect to the shares set forth in the following table:

Table 1

	Number of Shares	Percent of
Name of Beneficial Owner	Beneficially Owned (1)	Class
Joseph L. Welch (2)	2,570,205	1.68	%
Linda H. Blair	734,204	*
Rejji P. Hayes	75,463	*
Jon E. Jipping	590,367	*
Daniel J. Oginsky	373,871	*
Albert Ernst (3)	11,839	*
Christopher H. Franklin	10,958	*
Edward G. Jepsen	185,756	*
David R. Lopez	3,131	*
Hazel R. O’Leary	21,650	*
Thomas G. Stephens	7,199	*
G. Bennett Stewart, III	32,495	*
Lee C. Stewart	35,240	*
All current directors and executive officers as a group (14 persons)	4,711,302	3.05	%

* Less than one percent

(1) Includes unvested restricted stock and performance share grants and shares that may be acquired upon exercise of options that are exercisable as of March 18, 2016 or within 60 days thereafter set out in Table 2 below. The number of performance shares issued to the NEOs was based on target performance. Shares set forth in Table 2 are not subject to any pledge arrangements.

(2) The amount shown in the table does not include 377,700 shares beneficially owned by the spouse of Mr. Welch, 49,200 of which are subject to a standard pledge account. Mr. Welch has no voting or dispositive power with respect to, and disclaims beneficial ownership of, such shares.

(3) Includes 2,940 shares owned by the spouse of Mr. Ernst.

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Table 2

	Restricted	Performance	Option
Name	Stock	Shares	Shares
Joseph L. Welch	68,993	40,279	661,829
Linda H. Blair	25,347	16,266	626,624
Rejji P. Hayes	23,590	10,596	40,034
Jon E. Jipping	20,720	13,299	465,387
Daniel J. Oginsky	16,079	11,206	254,057
Albert Ernst	3,131	—	—
Christopher H. Franklin	6,836	—	—
Edward G. Jepsen	6,836	—	—
David R. Lopez	3,131	—	—
Hazel R. O’Leary	6,836	—	—
Thomas G. Stephens	6,836	—	—
G. Bennett Stewart, III	6,836	—	—
Lee C. Stewart	6,836	—	—
All current directors and executive officers as a group (14 persons)	210,151	100,918	2,069,899

Dividend Policy

The following table sets forth the cash dividends declared per share of ITC Holdings common stock during ITC Holdings’ three most recently completed financial years.

	2015	2014	2013
	Dividend (US$)	Dividend (US$)	Dividend (US$)
Quarter ended December 31	0.1875	0.1625	0.1417
Quarter ended September 30	0.1875	0.1625	0.1417
Quarter ended June 30	0.1625	0.1425	0.1258
Quarter ended March 31	0.1625	0.1425	0.1258

The declaration and payment of dividends is subject to the discretion of the board of directors of ITC Holdings and depends on various factors, including ITC Holdings’ net income, financial condition, cash requirements, future prospects and other factors deemed relevant by the board of directors of ITC Holdings. As a holding company with no business operations, ITC Holdings’ material assets consist primarily of the common stock or ownership interests in its subsidiaries. ITC Holdings’ material cash inflows are only from dividends and other payments received from time to time from its subsidiaries, proceeds raised from the sale of debt and equity securities, issuances under its commercial paper program and borrowings under its revolving credit agreement. ITC Holdings may not be able to access cash generated by its subsidiaries in order to pay dividends to shareholders. The ability of ITC Holdings’ subsidiaries to make dividend and other payments to ITC Holdings is subject to the availability of funds after considering the subsidiaries’ funding requirements and the terms of their indebtedness, the regulations of FERC under the Federal Power Act and applicable state laws. The debt agreements to which ITC Holdings is a party contain numerous financial covenants that could limit ITC Holdings’ ability to pay dividends, as well as covenants that prohibit ITC Holdings from paying dividends if in default under its term loan credit agreement. Further, each of ITC Holdings’ subsidiaries is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to ITC Holdings.

For further details on the restrictions on ITC Holdings’ ability to pay dividends, including restrictions arising from and related to the Acquisition, please see Note 13 and Note 20 to the audited consolidated financial statements of ITC Holdings as of December 31, 2015 and 2014, attached to this Circular at Schedule E.

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Directors and Executive Officers

Set forth below are the names, ages and titles of ITC Holdings’ current executive officers and a description of their business experience. For further information concerning the directors and executive officers of ITC Holdings, as well as information concerning ITC Holdings’ historical approach to executive compensation and corporate governance, see “Schedule F — Supplementary ITC Information”.

Joseph L. Welch, 67. Mr. Welch has been a Director and the President and Chief Executive Officer of the Company since it began operations in 2003 and served as its Treasurer until April 2009. Mr. Welch has also served as Chairman of the Board of Directors of the Company since May 2008. As the founder of ITCTransmission, Mr. Welch has had overall responsibility for the Company’s vision, foundation and transformation into the first independently owned and operated electricity transmission company in the United States. Mr. Welch worked for Detroit Edison Company, or Detroit Edison, and subsidiaries of DTE Energy Company, which we refer to collectively as DTE Energy, from 1971 to 2003. During that time, he held positions of increasing responsibility in the electricity transmission, distribution, rates, load research, marketing and pricing areas, as well as regulatory affairs that included the development and implementation of regulatory strategies. The Board selected Mr. Welch to serve as a director because he is the Company’s President and Chief Executive Officer and he possesses unparalleled expertise in the electric transmission business.

Linda H. Blair, 46. Ms. Blair was named Executive Vice President, Chief Business Unit Officer and President, ITC Michigan on February 4, 2015. Ms. Blair is responsible for leading all aspects of the financial and operational performance of the Company’s four regulated operating companies and also serves as the business unit head and president of the ITCTransmission and METC operating companies. Ms. Blair previously served as Executive Vice President and Chief Business Officer of the Company since June 2007. In this role, Ms. Blair was responsible for managing each of our regulated operating companies and the necessary business support functions, including regulatory strategy, federal and state legislative affairs, community government affairs, human resources, and marketing and communications. Prior to this appointment, Ms. Blair served as our Senior Vice President - Business Strategy and was responsible for managing regulatory affairs, policy development, internal and external communications, community affairs and human resource functions. Ms. Blair was Vice President - Business Strategy from March 2003 until she was named Senior Vice President in February 2006. Prior to joining the Company, Ms. Blair was the Manager of Transmission Policy and Business Planning at ITCTransmission for two years when it was a subsidiary of DTE Energy and was a supervisor in Detroit Edison’s regulatory affairs department for two years.

Rejji P. Hayes, 41. Mr. Hayes has served as Senior Vice President and Chief Financial Officer since August 2014. In this position, Mr. Hayes is responsible for the Company’s accounting, finance, treasury, internal audit, investor relations and other related financial functions. Prior to this appointment, Mr. Hayes served as our Vice President, Treasurer and interim Chief Financial Officer beginning in June 2014 and previously served as our Vice President, Finance and Treasurer since February 2012 and served as Treasurer until November 2015. Prior to joining the Company, Mr. Hayes served from 2009 to 2012 as Assistant Treasurer and Director, Corporate Finance and Financial Strategy at Exelon Corporation in Chicago, Illinois, where he was responsible for developing the company’s financial strategy, and planning, structuring and executing all debt and equity financings. Prior to his employment with Exelon Corporation, Mr. Hayes served from 2007 to 2009 as Vice President, Mergers and Acquisitions at Lazard Freres & Co. LLC, where he provided strategic and corporate finance advisory services for corporate clients and private equity firms. Previously, Mr. Hayes served for a total of 8 years in a variety of financial leadership roles with financial institutions and investment banks. Mr. Hayes currently serves as an Alumni Trustee of Phillips Andover Academy and is a Board Member of the Cranbrook Institute of Science.

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Jon E. Jipping, 50. Jon E. Jipping has served as our Executive Vice President and Chief Operating Officer since June 2007. In this position, Mr. Jipping is responsible for transmission system planning, system operations, engineering, supply chain, field construction and maintenance, facilities and safety functions. From June 2007 to February 2015, Mr. Jipping was also responsible for information technology. Prior to this appointment, Mr. Jipping served as our Senior Vice President -Engineering and was responsible for transmission system design, project engineering and asset management. Mr. Jipping joined us as Director of Engineering in March 2003, was appointed Vice President - Engineering in 2005 and was named Senior Vice President in February 2006. Prior to joining the Company, Mr. Jipping was with DTE Energy for thirteen years. He was Manager of Business Systems & Applications in DTE Energy’s Service Center Organization, responsible for implementation and management of business applications across the distribution business unit, and held positions of increasing responsibility in DTE Energy’s Transmission Operations and Transmission Planning department. Mr. Jipping currently serves as a member of the Advisory Board of the Michigan Technological University College of Engineering.

Christine Mason Soneral, 43. Christine Mason Soneral was named Senior Vice President and General Counsel in April 2015 and served as Vice President and General Counsel from February 2015 through this appointment. In this position she is responsible for all corporate legal affairs and the leadership of our Legal Department. Prior to this role, Ms. Mason Soneral was Vice President and General Counsel-Utility Operations since 2007 and was responsible for legal matters connected with the operations, capital projects, contract, regulatory, property and litigation issues of our four regulated transmission company subsidiaries. Ms. Mason Soneral joined us in 2007 from Dykema Gossett PLLC, a national law firm where she was a member. While in private practice at Dykema from 1998 through 2007, Ms. Mason Soneral represented clients before state and federal trial courts, appellate courts and regulatory agencies. In 2014, Ms. Mason Soneral was appointed to the board of Citizens Research Council, a privately funded, not-for-profit public affairs research organization. Ms. Mason Soneral also currently serves as an officer of the State Bar of Michigan’s Council of Administrative and Regulatory Law Section and as a member of the Michigan State University Department of Political Science’s External Advisory Board.

Daniel J. Oginsky, 43. Mr. Oginsky was named Executive Vice President, U.S. Regulated Grid Development on February 4, 2015. In this role Mr. Oginsky is responsible for leading the Company’s growth and expansion through new investments in regulated electric transmission infrastructure across the United States. Mr. Oginsky joined us as our Vice President and General Counsel in November 2004, served as Senior Vice President and General Counsel since May 2009 and was named Executive Vice President and General Counsel in May 2014. In these roles, Mr. Oginsky was responsible for the legal affairs of the Company and oversaw the legal department, which included the legal, corporate secretary, real estate, contract administration and corporate compliance functions. Mr. Oginsky also served as the Company’s Secretary from November 2004 until June 2007. Prior to joining the Company, Mr. Oginsky was an attorney in private practice for five years with various firms, where his practice focused primarily on representing ITCTransmission and other energy clients on regulatory, administrative litigation, transactional, property tax and legislative matters. Mr. Oginsky currently serves as a member of the Advisory Board of Directors of Belle Tire, Inc., a member of the Board of Directors of GearUp2Lead, and a member of the Board of Visitors for James Madison College at Michigan State University.

Each of the executive officers of ITC Holdings listed above, and certain other officers and employees of ITC Holdings, will be entitled to certain payments in addition to their regular compensation as a result of the Acquisition. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Costs Relating to Options, Restricted Stock and Performance Shares”.

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Indebtedness of Directors and Executive Officers

As of the date of this Circular, none of the executive officers, directors, employees and former executive officers, directors and employees of ITC Holdings are indebted to ITC Holdings.

Outstanding Indebtedness

See Note 8 to the audited consolidated financial statements of ITC Holdings, attached to this Circular at Schedule E, for information concerning our consolidated outstanding indebtedness. There have been no material changes in our loan capital, on a consolidated basis, since December 31, 2015 to the date of this Circular.

Credit Ratings

Credit ratings by nationally recognized statistical rating agencies are an important component of the ITC Holdings liquidity profile. The cost of borrowing by ITC Holdings and the Regulated Operating Subsidiaries is impacted by their respective credit ratings, but such ratings should not be viewed as an indication of the future performance of ITC Holdings’ business. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. The current credit ratings of ITC Holdings and the Regulated Operating Subsidiaries are displayed in the following

		Standard and Poor’s	Moody’s Investors
Issuer	Issuance	Ratings Services (a)	Service, Inc. (a)
ITC Holdings	Senior Unsecured Notes	BBB+	Baa2
ITC Holdings	Commercial Paper	A-2	Prime-2
ITCTransmission	First Mortgage Bonds	A	A1
METC	Senior Secured Notes	A	A1
ITC Midwest	First Mortgage Bonds	A	A1
ITC GP	First Mortgage Bonds	A	A1

(a) S&P’s outlook for ITC’s issuer ratings is negative. Moody’s outlook for ITC’s ratings is stable.

The issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries were assigned a developing outlook by S&P due to the announcement by ITC Holdings on November 30, 2015 that it would explore strategic alternatives including a sale of the company or the pursuit of other initiatives to maximize value for its shareholders. On February 9, 2016, S&P revised the outlook of the issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries to negative from developing, subsequent to the announcement of the Acquisition. It is currently expected that the strategic review commenced by ITC Holdings will culminate in the Acquisition. The credit ratings of ITC Holdings and the Regulated Operating Subsidiaries may change as a result of the Acquisition.

S&P Credit Ratings

S&P’s long-term issuer credit ratings are on a scale that ranges from AAA to D, which represents the range from highest to lowest quality of the issuers rated. S&P’s A rating category is the third highest of the ten major rating categories used by S&P. According to the S&P rating system, an issuer rated A has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than issuers in higher-rated categories. S&P’s long-term debt credit ratings use a similar scale. According to the S&P rating system, debt securities rated BBB exhibit adequate protection parameters; however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the issuer to meet its financial commitment on the obligation.

S&P’s short-term issuer credit ratings are on a scale that ranges from A-1 to D, which represents the range

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from highest to lowest quality of the issuers rated. S&P’s A-2 rating is the second highest of the six short-term rating categories used by S&P. According to the S&P short-term issue credit ratings scale, debt securities rated A-2 are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories; however, the issuer’s capacity to meet its financial commitment on the obligation is satisfactory.

S&P ratings designations may be modified by the addition of a plus or minus. A plus or minus designation indicates the relative standing of the issuer or the debt, as applicable, within a category. S&P’s rating outlook assesses the potential direction that a rating may be headed over the immediate to longer-term, with outlooks falling into one of five categories: positive, negative, stable, developing or not meaningful. A negative outlook indicates that a rating may be lowered.

Moody’s Credit Ratings

Moody’s credit ratings are on a long-term debt rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities rated. A rating of Baa is the fourth highest of nine major categories used by Moody’s. According to the Moody’s rating system, debt securities rated Baa are subject to moderate credit risk. They are considered medium grade obligations and as such may possess certain speculative characteristics. Moody’s long-term debt rating scale applies numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

Moody’s credit ratings are on a short-term debt rating scale that ranges from P-1 to NP, which represents the range from highest to lowest quality of such securities rated. A rating of P-2, or Prime-2, is the second highest of the four major categories used by Moody’s. According to the Moody’s rating system, issuers rated Prime-2 have a strong ability to repay short-term debt obligations.

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SCHEDULE E — ITC HISTORICAL FINANCIAL STATEMENTS AND MANAGEMENT’S

DISCUSSION AND ANALYSIS

For purposes of this Schedule E, references to “we”, “our” and “us” refer to ITC Holdings Corp., together with all of its subsidiaries. Please refer to “Definitions” below for a list of defined terms used in this Schedule E. The information contained in this Schedule E has been furnished by ITC Holdings. Although Fortis does not have any knowledge that would indicate that such information relating to ITC Holdings is untrue or incomplete, neither Fortis nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information or for the failure by ITC Holdings to disclose events or information regarding ITC Holdings that may affect the completeness or accuracy of such information. References in this Schedule E to the consolidated financial statements are to the consolidated financial statements of ITC Holdings included in this schedule, and references to “dollars” or “$” are to lawful currency of the United States of America. The share and per share data in this Schedule E reflect the three-for-one stock split that occurred on February 28, 2014.

DEFINITIONS

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

ITC Holdings Corp. and its subsidiaries

· “ ITC Great Plains ” are references to ITC Great Plains, LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;

· “ ITC Grid Development ” are references to ITC Grid Development, LLC, a wholly-owned subsidiary of ITC Holdings;

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

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

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

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

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

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

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

· “ We ,” “ our ”, “ us ” and the “ Company ” are references to ITC Holdings together with all of its subsidiaries.

Other definitions

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

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

· “ DTE Energy ” are references to DTE Energy Company;

· “ Entergy Transaction ” are references to the transaction whereby the electric transmission business of Entergy Corporation was to be separated and subsequently merged with a wholly-owned subsidiary of ITC Holdings. The proposed transaction was terminated in December 2013;

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

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

· “ ICC ” are references to the Illinois Commerce Commission;

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

· “ ISO ” are references to Independent System Operators;

· “ IUB ” are references to the Iowa Utilities Board;

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

· “ kV ” are references to kilovolts (one kilovolt equaling 1,000 volts);

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

· “ LIBOR ” are references to the London Interbank Offered Rate;

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

· “ MOPSC ” are references to the Missouri Public Service Commission;

· “ MPSC ” are references to the Michigan Public Service Commission;

· “ MPUC ” are references to the Minnesota Public Utilities Commission;

· “ MW ” are references to megawatts (one megawatt equaling 1,000,000 watts);

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

· “ NOLs ” are references to net operating loss carryforwards for income taxes;

· “ OCC ” are references to Oklahoma Corporation Commission;

· “ PSCW ” are references to the Public Service Commission of Wisconsin;

· “ RTO ” are references to Regional Transmission Organizations; and

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

ITC HOLDINGS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Through our Regulated Operating Subsidiaries, we operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our systems. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and upgrade the transmission networks to support new generating resources interconnecting to our transmission systems. We also are pursuing development projects not within our existing systems, which are likewise intended to improve overall grid reliability, reduce transmission constraints and

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facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

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

We derive nearly all of our revenues from providing electric transmission service over our Regulated Operating Subsidiaries’ transmission systems to investor-owned utilities, such as DTE Electric, Consumers Energy and IP&L, and other entities, such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers as well as from transaction-based capacity reservations on our transmission systems.

Significant recent matters that influenced our financial position and results of operations and cash flows for the year ended December 31, 2015 or that may affect future results include:

· Our capital investments of $767.2 million at our Regulated Operating Subsidiaries ($189.6 million, $174.8 million, $388.4 million and $14.4 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively) during the year ended December 31, 2015, resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources;

· Debt issuances as described in Note 8 to the consolidated financial statements and borrowings under our revolving and term loan credit agreements in 2015 and 2014 to fund capital investment at our Regulated Operating Subsidiaries and for general corporate purposes, resulting in higher interest expense;

· Debt maturing within one year and the potentially higher interest rates associated with the additional financing required to repay this debt as discussed in Note 8 to the consolidated financial statements;

· Establishment of a commercial paper program as described in Note 8 to the consolidated financial statements, which provides an additional source of liquidity for our working capital needs;

· Recognition of the refund liabilities in 2015 and 2014 for the refund relating to the formula rate template modifications filing and the potential refund relating to the rate of return on equity complaints (“ROE complaints”) described in Notes 4 and 16 to the consolidated financial statements, respectively, which resulted in an estimated after-tax reduction to net income of $79.4 million and $28.9 million for the years ended December 31, 2015 and 2014, respectively;

· Recognition of the contingent liability, including interest, relating to the Michigan sales and use tax audit of ITCTransmission as described in Note 16 to the consolidated financial statements, which primarily resulted in an increase to property, plant and equipment; and

· Repurchases of common stock of $115.0 million and $130.0 million during 2015 and 2014, respectively, under accelerated share repurchase agreements as described in Note 13 to the consolidated financial statements.

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

On February 9, 2016, we entered into the Acquisition Agreement with Fortis Inc., FortisUS Inc. and Element Acquisition Sub Inc. We expect the total fees and costs related to the Acquisition will be material to our results

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of operations in 2016. For further explanation, refer to Note 20 to the consolidated financial statements. The discussion below excludes any impact that may result from the Acquisition.

Cost-Based Formula Rates with True-Up Mechanism

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

Under these formula rate templates, our Regulated Operating Subsidiaries recover expenses and earn a return on and recover investments in property, plant and equipment on a current basis, rather than lagging. The formula rate templates for a given year initially utilize forecasted expenses, property, plant and equipment, point-to-point revenues, network load at our MISO Regulated Operating Subsidiaries and other items for the upcoming calendar year to establish projected revenue requirements for each of our Regulated Operating Subsidiaries that are used as the basis for billing for service on their systems from January 1 to December 31 of that year. Our cost-based formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue. The over- or under-collection typically results from differences between the projected revenue requirement used as the basis for billing and actual revenue requirement at each of our Regulated Operating Subsidiaries, or from differences between actual and projected monthly peak loads at our MISO Regulated Operating Subsidiaries. In the event billed revenues in a given year are more or less than actual revenue requirements, which are calculated primarily using information from that year’s FERC Form No. 1, our Regulated Operating Subsidiaries will refund or collect additional revenues, with interest, within a two-year period such that customers pay only the amounts that correspond to actual revenue requirements for that given period. This annual true-up ensures that our Regulated Operating Subsidiaries recover their allowed costs and earn their allowed returns.

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Illustration of Formula Rate Setting

Line	Item	Instructions	Amount
1	Rate base (a)		$	1,000,000
2	Multiply by 13-month weighted average cost of capital (b)		9.43		%
3	Allowed return on rate base	(Line 1 x Line 2)	$	94,300
4	Recoverable operating expenses (including depreciation and amortization)		$	150,000
5	Income taxes		50,000
6	Gross revenue requirement	(Line 3 + Line 4 + Line 5)	$	294,300

(a) Consists primarily of in-service property, plant and equipment, net of accumulated depreciation.

(b) The weighted average cost of capital for purposes of this illustration is calculated as follows:

				Weighted
				Average
	Percentage of			Cost of
	Total Capitalization		Cost of Capital	Capital
Debt	40.00	%	5.00% =	2.00	%
Equity	60.00	%	12.38% =	7.43	%
	100.00	%		9.43	%

Revenue Accruals and Deferrals — Effects of Monthly Peak Loads

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

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

Capital Investment and Operating Results Trends

We expect a long-term upward trend in revenues and earnings, subject to the impact of any rate changes and required refunds as a result of the resolution of the ROE complaints as described in Note 16 to the consolidated financial statements. The primary factor that is expected to continue to increase our revenues and earnings in future years is increased rate base that would result from our anticipated capital investment, in excess of depreciation, from our Regulated Operating Subsidiaries’ long-term capital investment programs to improve reliability, increase system capacity and upgrade the transmission network to support new generating resources. In addition, our capital investment efforts relating to development initiatives are based on establishing an ongoing pipeline of projects that would position us for long-term growth. Investments in property, plant and

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equipment, when placed in-service upon completion of a capital project, are added to the rate base of our Regulated Operating Subsidiaries.

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

We also assess our transmission systems against our own planning criteria that are filed annually with the FERC. Based on our planning studies, we see needs to make capital investments to (1) rebuild existing property, plant and equipment; (2) upgrade the system to address demographic changes that have impacted transmission load and the changing role that transmission plays in meeting the needs of the wholesale market, including accommodating the siting of new generation or increasing import capacity to meet changes in peak electrical demand; (3) relieve congestion in the transmission systems; and (4) achieve state and federal policy goals, such as renewable generation portfolio standards.

During the year ended December 31, 2015, we made capital investments of $767.2 million at our Regulated Operating Subsidiaries (in amounts of $189.6 million, $174.8 million, $388.4 million and $14.4 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively). The following table shows our actual and expected capital investments at our Regulated Operating Subsidiaries:

					Forecasted
	Actual Capital Investment				Capital		Total Capital
	Year Ended December 31,				Investment		Investment
Source of Investment	2014 (a)		2015 (a)		2016 — 2018		2014 — 2018
(In millions)
Current Transmission Systems	$	468.1	$	569.1	$	1,523	$	2,560
Regional Infrastructure	325.4		198.1		530		1,054
Total Regulated Operating Subsidiaries	$	793.5	$	767.2	$	2,053	$	3,614

(a) Capital investment amounts differ from cash expenditures for property, plant and equipment included in our consolidated statements of cash flows due in part to differences in construction costs incurred compared to cash paid during that period, as well as payments for major equipment inventory that are included in cash expenditures, but not included in capital investment until transferred to construction work in progress, among other factors.

Refer to “Schedule D — Information Concerning ITC Holdings Corp. — The Business of ITC Holdings — Development of Business — Development Projects” for a discussion of our development projects. We are pursuing projects that could result in a significant amount of capital investment, but are not able to estimate the amounts we ultimately expect to achieve or the timing of such investments. During the year ended December 31, 2015 and 2014, we made capital investments of $4.2 million and $0.5 million, respectively, relating to development activities.

Investments in property, plant and equipment could vary due to, among other things, the impact of actual loads, forecasted loads, regional economic conditions, weather conditions, union strikes, labor shortages, material and equipment prices and availability, our ability to obtain any necessary financing for such expenditures, limitations on the amount of construction that can be undertaken on our systems at any one time, regulatory approvals for reasons relating to rate construct, environmental, siting, regional planning, cost recovery or other issues or as a result of legal proceedings, variances between estimated and actual costs of construction contracts awarded and the potential for greater competition for new development projects. In addition, investments in

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transmission network upgrades for generator interconnection projects could change from prior estimates significantly due to changes in the MISO queue for generation projects and other factors beyond our control.

Capital Project Updates and Other Recent Developments

Thumb Loop Project

The Thumb Loop Project, constructed by ITCTransmission, consists of a 140-mile, double-circuit 345 kV transmission line and related substations that will serve as the backbone of the transmission system needed to accommodate future wind development projects in the Michigan counties of Tuscola, Huron, Sanilac and St. Clair. The final phase of the Thumb Loop Project was placed in-service in May 2015. Through December 31, 2015, ITCTransmission has invested $501.4 million in the Thumb Loop Project and any further investment to complete this project is not expected to be material.

ITC Great Plains

ITC Great Plains made a filing with the FERC, under Section 205 of the FPA, in May 2013 to recover start-up, development and pre-construction expenses, including associated debt and equity carrying charges, in future rates as discussed in Note 4 of the consolidated financial statements. These expenses included certain costs incurred by ITC Great Plains for the Kansas Electric Transmission Authority Project (placed in service in 2012) and the Kansas V-Plan Project (placed in service in 2014) prior to their construction. On March 26, 2015, FERC accepted ITC Great Plains’ request to commence amortization of the authorized regulatory assets, subject to refund, as well as set the matter for hearing and settlement judge procedures. During the third quarter of 2015, ITC Great Plains and the settling parties reached an uncontested settlement agreement, which was certified by the presiding administrative law judge, but remained subject to acceptance by FERC. On December 18, 2015, the FERC issued an order accepting the uncontested settlement agreement, which authorized ITC Great Plains to recover $24.4 million of these expenses and associated carrying costs, including the equity component not recognized under accounting principles generally accepted in the United States of America (“GAAP”). See Note 4 to the consolidated financial statements for additional detail on these ITC Great Plains regulatory assets.

North Central Region Development

In December 2011, MISO approved a portfolio of MVPs which includes portions of four MVPs that we will construct, own and operate. The four MVPs are located in south central Minnesota, northern and southeast Iowa, southwest Wisconsin, and northeast Missouri and are in various stages of construction and included in ITC Midwest’s capital investment amounts. We currently estimate ITC Midwest will invest approximately $500 million in the four MVPs from 2016 through 2018.

Development Bonuses

During 2015, 2014 and 2013, we recognized general and administrative expenses of $10.5 million, $2.7 million and $3.4 million, respectively, for bonuses for certain development projects, including the successful completion of certain milestones relating to projects at ITC Great Plains. It is reasonably possible that future development-related bonuses may be authorized and awarded for other development projects.

Rate of Return on Equity and Capital Structure Complaints

On November 12, 2013, certain parties filed a joint complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current 12.38% MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in our MISO Regulated Operating Subsidiaries’ formula transmission rates to 9.15%, reducing the equity component of our capital structure from the FERC approved 60% to 50% and terminating the ROE adders currently approved for certain ITC Holdings operating companies, including adders currently utilized by ITCTransmission and METC.

We believe that the current ROE encourages transmission investment and offsets the burdens associated with maintaining the independent transmission business model and RTO membership. ITCTransmission, METC and ITC Midwest filed responses during the first quarter of 2014, separately and together with other MISO TOs, that

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sought dismissal of the Initial Complaint for its failure to satisfy the requirements of FPA Section 206 and the FERC’s accompanying Rules, or denial of the Initial Complaint on the merits, with prejudice.

On October 16, 2014, FERC granted the complainants’ request in part by setting the base ROE for hearing and settlement procedures, while denying all other aspects of the Initial Complaint. FERC found that the complainants failed to show that the use of actual or FERC-approved capital structures that include more than 50% equity is unjust and unreasonable. FERC also denied the request to terminate ITCTransmission’s and METC’s ROE incentives. The order reiterated that any TO’s total ROE rate is limited by the top end of a zone of reasonableness and the TO’s ability to implement the full amount of previously granted ROE adders may be affected by the outcome of the hearing. FERC set the refund effective date as November 12, 2013.

During the fourth quarter of 2014, the MISO TOs engaged in the ordered FERC settlement procedures with the complainants, but were not able to reach resolution. On January 5, 2015, the Chief Judge of FERC issued an order which terminated settlement procedures and set the matter for hearing, with an initial decision due within 47 weeks of the order. On April 6, 2015, the MISO TOs filed expert witness testimony in the Initial Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that FERC elects to change the base ROE, the testimony included a recommendation of 11.39% base ROE for the period of November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). On December 22, 2015, the presiding administrative law judge issued an initial decision on the Initial Complaint, which recommends a base ROE of 10.32% for the Initial Refund Period, with a maximum ROE of 11.35%. The initial decision is a non-binding recommendation to FERC on the Initial Complaint and may be contested by the MISO TOs and/or the complainants. In resolving the Initial Complaint, we expect FERC to establish a new base ROE to determine any potential refund liability for the Initial Refund Period. The new base ROE as well as any ROE adders, subject to the limitations of the top end of any zone of reasonableness that is established, are expected to be used to calculate the refund liability for the Initial Refund Period. We anticipate a FERC order on the Initial Complaint by the end of 2016.

On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by separate complainants, seeking a FERC order to reduce the base ROE used in our MISO Regulated Operating Subsidiaries’ formula transmission rates to 8.67%, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, FERC accepted the Second Complaint and set it for hearing and settlement procedures. FERC also set the refund effective date for the Second Complaint as February 12, 2015.

On October 20, 2015, the MISO TOs filed expert witness testimony in the Second Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that FERC elects to change the base ROE, the testimony included a recommendation of 10.75% base ROE for the period of February 12, 2015 through May 11, 2016 (the “Second Refund Period”). Updated data to be considered in establishing any new base ROE was filed by the parties to the Second Complaint in January 2016. In resolving the Second Complaint, we expect FERC to establish a new base ROE to determine any potential refund liability for the Second Refund Period. The base ROE established by FERC for the Second Complaint as well as any ROE adders, subject to the limitations of the top end of any zone of reasonableness established, are expected to be used to calculate the refund liability for the Second Refund Period. The initial decision on the Second Complaint is expected by June 30, 2016, with the related FERC order anticipated in 2017.

We believe it is probable that refunds will be required for these matters and as of December 31, 2015, the estimated range of refunds on a pre-tax basis is expected to be from $168.0 million to $212.4 million for the period from November 12, 2013 through December 31, 2015. As of December 31, 2015 and 2014, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $168.0 million and $47.8 million, respectively, representing the low end of the range of potential refunds as of those dates, as there is no best estimate within the range of refunds. The recognition of this estimated liability resulted in a reduction in revenues of $115.1 million and $46.9 million and an increase in interest expense of $5.1 million and $0.9 million for the years ended December 31, 2015 and 2014, respectively. This resulted in an estimated after-tax reduction to net income of $73.2 million and $28.9 million for the years ended December 31, 2015 and 2014,

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respectively. No amounts related to these complaints were recorded as of or for the year ended December 31, 2013.

Based on the estimated range of refunds identified above, we believe that it is reasonably possible that these matters could result in an additional estimated pre-tax refund of up to $44.4 million (or a $27.3 million estimated after-tax reduction of net income) in excess of the amount recorded as of December 31, 2015. It is also possible the outcome of these matters could differ from the estimated range of losses and materially affect our consolidated results of operations due to the uncertainty of the calculation of an authorized base ROE along with the zone of reasonableness under the newly adopted two-step DCF methodology, which is subject to significant discretion by the FERC. As of December 31, 2015, our MISO Regulated Operating Subsidiaries had a total of approximately $2.9 billion of equity in their collective capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately $2.9 million.

In a separate but related matter, in November 2014, METC, ITC Midwest and other MISO TOs filed a request with FERC, under FPA Section 205, for authority to include a 50 basis point incentive adder for RTO participation in each of the TOs’ formula rates. On January 5, 2015, FERC approved the use of this incentive adder, effective January 6, 2015. Additionally, ITC Midwest filed a request with FERC, under FPA Section 205, in January 2015 for authority to include a 100 basis point incentive adder for independent transmission ownership, which is currently authorized for ITCTransmission and METC. On March 31, 2015, FERC approved the use of a 50 basis point incentive adder for independence, effective April 1, 2015. On April 30, 2015, ITC Midwest filed a request with FERC for rehearing on the approved incentive adder for independence. On January 6, 2016, the request for rehearing was denied by FERC. The RTO participation incentive adder will be applied to METC’s and ITC Midwest’s base ROEs and the independence incentive adder will be applied to ITC Midwest’s base ROE in establishing their total authorized ROE rates, subject to the limitations of the top end of any zone of reasonableness that is established. Collection of these recently approved incentive adders is being deferred pending the outcome of the ROE complaints.

Accelerated Share Repurchase Program

In April 2014, our board of directors authorized and ITC Holdings announced a share repurchase program for up to $250.0 million, which expired on December 31, 2015. Pursuant to such authorization, on June 19, 2014, ITC Holdings entered into an accelerated share repurchase agreement with JP Morgan Chase (“2014 ASR Program”) for up to $150.0 million, with a minimum commitment of $130.0 million, under which ITC Holdings was delivered 2.9 million shares with a fair market value of $104.0 million at the commencement of the 2014 ASR Program. On December 22, 2014, the 2014 ASR Program was settled for $130.0 million and ITC Holdings received an additional 0.7 million shares as determined by the volume-weighted average share price during the term of the 2014 ASR Program less an agreed upon discount and adjusted for the initial share delivery.

On September 30, 2015, ITC Holdings entered into another accelerated share repurchase agreement (the “2015 ASR Program”) with Barclays Bank PLC (“Barclays”) for $115.0 million pursuant to the board of directors’ authorization in April 2014. Under the 2015 ASR Program, ITC Holdings paid $115.0 million to Barclays on September 30, 2015 and received an initial delivery of 2.8 million shares on October 1, 2015. The fair market value of the initial delivery of shares was $92.0 million, based on the closing market price of $33.34 per share at the commencement of the 2015 ASR Program. The 2015 ASR Program was settled on November 5, 2015 and ITC Holdings received an additional 0.8 million shares as determined by the volume-weighted average share price during the term of the 2015 ASR Program, less an agreed upon discount and adjusted for the initial share delivery. See further discussion in Notes 9 and 13 to the consolidated financial statements.

MISO Formula Rate Template Modifications Filing

On October 30, 2015, ITCTransmission, METC and ITC Midwest (collectively, the “joint applicants”) requested modifications, pursuant to Section 205 of the FPA, to certain aspects of the joint applicants’ respective formula rate templates which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. The joint applicants requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which

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was made on February 8, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. The recognition of this refund liability in 2015 resulted in a reduction in revenues of $9.5 million, which includes amounts recovered for all historical periods through December 31, 2015, and an increase in interest expense of $0.9 million for the year ended December 31, 2015. This resulted in an estimated after-tax reduction to net income of $6.2 million for the year ended December 31, 2015. We do not expect the final resolution of this matter will differ materially from the amounts recorded in 2015.

Significant Components of Results of Operations

Revenues

We derive nearly all of our revenues from providing transmission, scheduling, control and dispatch services and other related services over our Regulated Operating Subsidiaries’ transmission systems to DTE Electric, Consumers Energy, IP&L and other entities, such as alternative electricity suppliers, power marketers and other wholesale customers that provide electricity to end-use consumers, as well as from transaction-based capacity reservations on our transmission systems. MISO and SPP are responsible for billing and collecting the majority of transmission service revenues. As the billing agent for our Regulated Operating Subsidiaries, MISO and SPP collect fees for the use of our transmission systems, invoicing DTE Electric, Consumers Energy, IP&L and other customers on a monthly basis.

Network Revenues are generated from network customers for their use of our electric transmission systems and are based on the actual revenue requirements as a result of our accounting under our cost-based formula rates that contain a true-up mechanism. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Revenue Recognition under Cost-Based Formula Rates with True-Up Mechanisms” for a discussion of revenue recognition relating to network revenues.

Network revenues from ITC Great Plains include the annual revenue requirements specific to projects that are charged exclusively within one pricing zone within SPP or are classified as direct assigned network upgrades under the SPP tariff, and contain a true-up mechanism.

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 and SPP transmission tariffs. Point-to-point revenues are treated as a revenue credit to network or regional customers and are a reduction to gross revenue requirement when calculating net revenue requirement under our cost-based formula rates.

Regional Cost Sharing Revenues are generated from transmission customers throughout RTO regions for their use of our MISO Regulated Operating Subsidiaries’ network upgrade projects that are eligible for regional cost sharing under provisions of the MISO tariff, including MVP projects such as the Thumb Loop Project. Regional cost sharing revenue also includes revenues collected by transmission customers from other RTOs outside of MISO to allocate costs of certain transmission plant investments. Additionally, certain projects at ITC Great Plains are eligible for recovery through a region-wide charge under provisions of the SPP tariff. A portion of regional cost sharing revenues is treated as a revenue credit to regional or network customers and is a reduction to gross revenue requirement when calculating net revenue requirement under our cost-based formula rates.

Scheduling, Control and Dispatch Revenues are allocated to our MISO Regulated Operating Subsidiaries by MISO as compensation for the services performed in operating the transmission system. Such services include monitoring of reliability data, current and next day analysis, implementation of emergency procedures and outage coordination and switching.

Other Revenues consist of rental revenues, easement revenues, revenues relating to utilization of jointly owned assets under our transmission ownership and operating agreements and amounts from providing ancillary services to customers. The majority of other revenues are treated as a revenue credit and taken as a reduction to gross revenue requirement when calculating net revenue requirement under our cost-based formula rates.

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Operating Expenses

Operation and Maintenance Expenses consist primarily of the costs for contractors that operate and maintain our transmission systems as well as our personnel involved in operation and maintenance activities.

Operation expenses include activities related to control area operations, which involve balancing loads and generation and transmission system operations activities, including monitoring the status of our transmission lines and stations. Rental expenses relating to land easements, including METC’s Easement Agreement, are also recorded within operation expenses.

Maintenance expenses include preventive or planned maintenance, such as vegetation management, tower painting and equipment inspections, as well as reactive maintenance for equipment failures.

General and Administrative Expenses consist primarily of costs for personnel in our legal, information technology, finance, regulatory, human resources and business development organizations, general office expenses and fees for professional services. Professional services are principally composed of outside legal, consulting, audit and information technology services.

Depreciation and Amortization Expenses consist primarily of depreciation of property, plant and equipment using the straight-line method of accounting. Additionally, this consists of amortization of various regulatory and intangible assets.

Taxes Other than Income Taxes consist primarily of property taxes and payroll taxes.

Other Items of Income or Expense

Interest Expense consists primarily of interest on debt at ITC Holdings and our Regulated Operating Subsidiaries. Additionally, the amortization of debt financing expenses is recorded to interest expense. An allowance for borrowed funds used during construction is included in property, plant and equipment accounts and treated as a reduction to interest expense. The amortization of gains and losses on settled and terminated derivative financial instruments is also recorded to interest expense.

Allowance for Equity Funds Used During Construction (“AFUDC equity”) is recorded as an item of other income and is included in property, plant and equipment accounts. The allowance represents a return on equity at our Regulated Operating Subsidiaries used for construction purposes in accordance with FERC regulations. The capitalization rate applied to the construction work in progress balance is based on the proportion of equity to total capital (which currently includes equity and long-term debt) and the allowed return on equity for our Regulated Operating Subsidiaries.

Income Tax Provision

Income tax provision consists of current and deferred federal and state income taxes.

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Results of Operations

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

	Year Ended									Percentage		Year Ended						Percentage
	December 31,						Increase			Increase		December 31,			Increase			Increase
(In thousands)	2015			2014			(Decrease)			(Decrease)		2013			(Decrease)			(Decrease)

OPERATING REVENUES	$	1,044,768		$	1,023,048		$	21,720		2.1	%	$	941,272		$	81,776		8.7	%
OPERATING EXPENSES
Operation and maintenance	113,123			111,623			1,500			1.3	%	112,821			(1,198		)	(1.1	)%
General and administrative	144,919			115,031			29,888			26.0	%	149,109			(34,078		)	(22.9	)%
Depreciation and amortization	144,672			128,036			16,636			13.0	%	118,596			9,440			8.0	%
Taxes other than income taxes	82,354			76,534			5,820			7.6	%	65,824			10,710			16.3	%
Other operating income and expenses — net	(1,017		)	(1,005		)	(12		)	1.2	%	(1,139		)	134			(11.8	)%
Total operating expenses	484,051			430,219			53,832			12.5	%	445,211			(14,992		)	(3.4	)%
OPERATING INCOME	560,717			592,829			(32,112		)	(5.4	)%	496,061			96,768			19.5	%
OTHER EXPENSES (INCOME)
Interest expense — net	203,779			186,636			17,143			9.2	%	168,319			18,317			10.9	%
Allowance for equity funds used during construction	(28,075		)	(20,825		)	(7,250		)	34.8	%	(30,159		)	9,334			(30.9	)%
Loss on extinguishment of debt	—			29,205			(29,205		)	(100.0	)%	—			29,205			n/a
Other income	(2,071		)	(1,103		)	(968		)	87.8	%	(1,038		)	(65		)	6.3	%
Other expense	3,207			4,511			(1,304		)	(28.9	)%	6,571			(2,060		)	(31.3	)%
Total other expenses (income)	176,840			198,424			(21,584		)	(10.9	)%	143,693			54,731			38.1	%
INCOME BEFORE INCOME TAXES	383,877			394,405			(10,528		)	(2.7	)%	352,368			42,037			11.9	%
INCOME TAX PROVISION	141,471			150,322			(8,851		)	(5.9	)%	118,862			31,460			26.5	%
NET INCOME	$	242,406		$	244,083		$	(1,677	)	(0.7	)%	$	233,506		$	10,577		4.5	%

Operating Revenues

Year ended December 31, 2015 compared to year ended December 31, 2014

The following table sets forth the components of and changes in operating revenues:

														Percentage
	2015					2014					Increase			Increase
(In thousands)	Amount			Percentage		Amount			Percentage		(Decrease)			(Decrease)
Network revenues	$	802,337		76.8	%	$	763,954		74.7	%	$	38,383		5.0	%
Regional cost sharing revenues	327,349			31.3	%	265,294			25.9	%	62,055			23.4	%
Point-to-point	15,381			1.5	%	17,788			1.7	%	(2,407		)	(13.5	)%
Scheduling, control and dispatch	13,163			1.3	%	12,466			1.2	%	697			5.6	%
Other	11,298			1.1	%	10,456			1.0	%	842			8.1	%
Recognition of refund liabilities	(124,760		)	(12.0	)%	(46,910		)	(4.5	)%	(77,850		)	166.0	%
Total	$	1,044,768		100.0	%	$	1,023,048		100.0	%	$	21,720		2.1	%

Network revenues increased due primarily to higher net revenue requirements at our Regulated Operating Subsidiaries, partially offset by higher regional revenue requirements, during the year ended December 31, 2015 as compared to 2014. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and equipment in-service in 2015.

Regional cost sharing revenues increased primarily due to additional capital projects identified by MISO and SPP as eligible for regional cost sharing and these projects being placed in-service, in addition to higher

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accumulated investment for the Thumb Loop Project and Kansas V-Plan Project during the year ended December 31, 2015 as compared to the same period in 2014. We expect to continue to receive regional cost sharing revenues and the amounts could increase in the near future, including revenues associated with projects that have been or are expected to be approved for regional cost sharing.

The recognition of the refund liabilities for the refund relating to the formula rate template modifications and the potential refund relating to the ROE complaints described in Notes 4 and 16 to the consolidated financial statements, respectively, resulted in a reduction to operating revenues totaling $124.8 million and $46.9 million during the years ended December 31, 2015 and 2014, respectively. We are not able to estimate whether any required refunds would be applied to all components of revenue listed in the table above or only certain components.

Operating revenues for the years ended December 31, 2015 and 2014 include revenue accruals and deferrals as described in Note 4 to the consolidated financial statements.

Year ended December 31, 2014 compared to year ended December 31, 2013

The following table sets forth the components of and changes in operating revenues:

										Percentage
	2014				2013			Increase		Increase
(In thousands)	Amount		Percentage		Amount	Percentage		(Decrease)		(Decrease)
Network revenues	$763,954		74.7	%	$726,161	77.1	%	$37,793		5.2	%
Regional cost sharing revenues	265,294		25.9	%	177,364	18.8	%	87,930		49.6	%
Point-to-point	17,788		1.7	%	17,312	1.8	%	476		2.7	%
Scheduling, control and dispatch	12,466		1.2	%	12,226	1.3	%	240		2.0	%
Other	10,456		1.0	%	8,209	1.0	%	2,247		27.4	%
Recognition of refund liability	(46,910	)	(4.5	)%	—	—	%	(46,910	)	n/a
Total	$1,023,048		100.0	%	$941,272	100.0	%	$81,776		8.7	%

Network revenues increased due primarily to higher net revenue requirements at our Regulated Operating Subsidiaries during the year ended December 31, 2014 as compared to 2013. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and equipment in-service in 2014.

Regional cost sharing revenues increased due primarily to additional capital projects that have been identified by MISO and SPP as eligible for regional cost sharing and these projects being placed in-service.

The recognition of the refund liability for the potential refund relating to the ROE complaints resulted in a reduction to operating revenues of $46.9 million during the fourth quarter of 2014 as described in Note 16 to the consolidated financial statements. We are not able to estimate whether any required refund would be applied to all components of revenues listed in the table above or only certain components.

Operating revenues for the years ended December 31, 2014 and 2013 include revenue accruals and deferrals as described in Note 4 to the consolidated financial statements.

Operating Expenses

Operation and maintenance expenses

Year ended December 31, 2015 compared to year ended December 31, 2014

Operation and maintenance expenses increased due primarily to higher operating expenses for transmission system monitoring and control activities at our MISO Regulated Operating Subsidiaries of $1.5 million.

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Year ended December 31, 2014 compared to year ended December 31, 2013

Operation and maintenance expenses decreased due primarily to lower vegetation management requirements of $1.4 million.

General and administrative expenses

Year ended December 31, 2015 compared to year ended December 31, 2014

General and administrative expenses increased due primarily to higher compensation-related expenses of $17.4 million, mainly due to additional development bonuses described above under “Capital Project Updates and Other Recent Developments — Development Bonuses” of $7.8 million, and higher professional services such as legal and advisory services fees primarily for various development initiatives of $9.5 million.

Year ended December 31, 2014 compared to year ended December 31, 2013

General and administrative expenses decreased by $42.7 million due to legal, advisory and financial services fees incurred in the prior period relating to the terminated Entergy Transaction. The decrease was partially offset by higher professional services such as legal, advisory and financial services fees primarily for various development initiatives of $8.2 million unrelated to the Entergy Transaction.

Depreciation and amortization expenses

Year ended December 31, 2015 compared to year ended December 31, 2014

Depreciation and amortization expenses increased due primarily to a higher depreciable base resulting from property, plant and equipment in-service additions.

Year ended December 31, 2014 compared to year ended December 31, 2013

Depreciation and amortization expenses increased due primarily to a higher depreciable base resulting from property, plant and equipment in-service additions.

Taxes other than income taxes

Year ended December 31, 2015 compared to year ended December 31, 2014

Taxes other than income taxes increased due to higher property tax expenses primarily due to our Regulated Operating Subsidiaries’ 2014 capital additions, which are included in the assessments for 2015 property taxes.

Year ended December 31, 2014 compared to year ended December 31, 2013

Taxes other than income taxes increased due to higher property tax expenses primarily due to our Regulated Operating Subsidiaries’ 2013 capital additions, which are included in the assessments for 2014 property taxes.

Other expenses (income)

Year ended December 31, 2015 compared to year ended December 31, 2014

Interest expense increased due primarily to additional interest expense associated with the net issuance of $300.0 million in long-term debt securities subsequent to September 30, 2014 and the refund liabilities described in Notes 4 and 16 to the consolidated financial statements. These increases were partially offset by an increase in the allowance for borrowed funds used during construction (“AFUDC debt”), which is a reduction to interest expense, due primarily to higher balances of construction work in progress eligible for AFUDC debt during the period.

AFUDC equity increased due primarily to higher balances of construction work in progress eligible for AFUDC equity during the period.

Year ended December 31, 2014 compared to year ended December 31, 2013

Interest expense increased primarily due to interest associated with the long-term debt issuances at ITC Holdings and the Regulated Operating Subsidiaries which were used for refinancing of current debt maturities and general corporate purposes as described in Note 8 to the consolidated financial statements.

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AFUDC equity decreased due primarily to lower balances of construction work in progress eligible for AFUDC equity during the period.

The loss on extinguishment of debt in 2014 related to the partial tender and retirement of $115.6 million of the 5.875% ITC Holdings Senior Notes and $54.7 million of the 6.375% ITC Holdings Senior Notes as described in Note 8 to the consolidated financial statements.

Income Tax Provision

Year ended December 31, 2015 compared to year ended December 31, 2014

Our effective tax rates for the years ended December 31, 2015 and 2014 are 36.9% and 38.1%, respectively. Our effective tax rate in both periods exceeded our 35% statutory federal income tax rate due primarily to state income taxes, partially offset by the tax effects of AFUDC equity. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision.

Year ended December 31, 2014 compared to year ended December 31, 2013

Our effective tax rates for the years ended December 31, 2014 and 2013 are 38.1% and 33.7%, respectively. Our effective tax rate differs from our 35% statutory federal income tax rate due primarily to state income taxes as well as the tax effects of AFUDC equity. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision. Additionally, during the fourth quarter of 2013, due to the cancellation of the Entergy Transaction, we recognized tax benefits for expenses that were previously deemed non-deductible for tax purposes, including a decrease to the tax provision of $5.6 million for expenses that were incurred in 2012 and 2011.

Liquidity and Capital Resources

We expect to maintain our approach to fund our future capital requirements with cash from operations at our Regulated Operating Subsidiaries, our existing cash and cash equivalents, issuances under our commercial paper program and amounts available under our revolving credit agreements (the terms of which are described in Note 8 to the consolidated financial statements). In addition, we may from time to time secure debt and equity funding in the capital markets, although we can provide no assurance that we will be able to obtain financing on favorable terms or at all. As market conditions warrant, we may also from time to time repurchase debt or equity securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. We expect that our capital requirements will arise principally from our need to:

· Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard to property, plant and equipment investments are described in detail above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Investment and Operating Results Trends”.

· Fund business development expenses and related capital expenditures. We are pursuing development activities for transmission projects that will continue to result in the incurrence of development expenses and could result in significant capital expenditures.

· Fund working capital requirements.

· Fund our debt service requirements including principal repayments and periodic interest payments, which are further described in detail below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations”. We expect our interest payments to increase each year as a result of additional debt expected to be incurred to fund our capital expenditures and for general corporate purposes.

· Fund contributions to our retirement benefit plans, as described in Note 11 to the consolidated financial statements. We expect to contribute up to $12.0 million to these plans in 2016.

In addition to the expected capital requirements above, any adverse determinations relating to the regulatory matters or contingencies described in Notes 4 and 16 to the consolidated financial statements would result in additional capital requirements.

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We believe that we have sufficient capital resources to meet our currently anticipated short-term needs. We rely on both internal and external sources of liquidity to provide working capital and fund capital investments. ITC Holdings’ sources of cash are dividends and other payments received by us from our Regulated Operating Subsidiaries and any of our other subsidiaries as well as the proceeds raised from the sale of our debt and equity securities. Each of our Regulated Operating Subsidiaries, while wholly owned by ITC Holdings, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us.

We expect to continue to utilize our commercial paper program and revolving credit agreements as well as our cash and cash equivalents as needed to meet our short-term cash requirements. As of December 31, 2015, we had consolidated indebtedness under our revolving and term loan credit agreements of $680.9 million, with unused capacity under the revolving credit agreements of $680.1 million. Additionally, ITC Holdings had $95.0 million of commercial paper issued and outstanding as of December 31, 2015 with the ability to issue an additional $305.0 million under the commercial paper program. See Note 8 to the consolidated financial statements for a detailed discussion of the commercial paper program and our revolving credit agreements as well as the debt activity during the years ended December 31, 2015 and 2014.

As of December 31, 2015, we had approximately $395.3 million of debt maturing within one year, which we expect to refinance with long-term debt. To address our long-term capital requirements as well as repay debt maturing within one year, we expect that we will need to obtain additional debt financing. Certain of our capital projects could be delayed if we experience difficulties in accessing capital. We expect to be able to obtain such additional financing as needed, in amounts and upon terms that will be reasonably satisfactory to us due to our strong credit ratings and our historical ability to obtain financing.

Credit Ratings

Credit ratings by nationally recognized statistical rating agencies are an important component of our liquidity profile. Credit ratings relate to our ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell or hold securities. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. Our current credit ratings are displayed in the following table. An explanation of these ratings may be obtained from the respective rating agency.

		Standard and Poor’s	Moody’s Investor
Issuer	Issuance	Ratings Services (a)	Service, Inc. (b)
ITC Holdings	Senior Unsecured Notes	BBB+	Baa2
ITC Holdings	Commercial Paper	A-2	Prime-2
ITCTransmission	First Mortgage Bonds	A	A1
METC	Senior Secured Notes	A	A1
ITC Midwest	First Mortgage Bonds	A	A1
ITC Great Plains	First Mortgage Bonds	A	A1

(a) On June 8, 2015, Standard and Poor’s Ratings Services (“Standard and Poor’s”) assigned a short-term issuer credit rating to ITC Holdings, which applies to the commercial paper program discussed in Note 8 to the consolidated financial statements. Additionally, on December 3, 2015, Standard and Poor’s reaffirmed the senior unsecured credit rating of ITC Holdings and the secured credit ratings of the Regulated Operating Subsidiaries. On February 9, 2016, Standard and Poor’s revised the outlook of the issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries to negative from developing, subsequent to the announcement of the Acquisition.

(b) On April 15, 2015, Moody’s Investors Service, Inc. (“Moody’s”) reaffirmed the credit ratings for ITC Holdings and the Regulated Operating Subsidiaries. Additionally, on June 9, 2015, Moody’s assigned a short-term commercial paper rating to ITC Holdings, which applies to the commercial paper program discussed in Note 8 to the consolidated financial statements. All of the credit ratings have a stable outlook.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions as well as require us to meet certain financial ratios, which are described in Note 8 to the consolidated financial statements. As of December 31, 2015, we were not in violation of any debt covenant. In the event of a downgrade in our credit ratings, none of the covenants would be directly impacted, although the borrowing costs under our revolving and term loan credit agreements would increase.

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Cash Flows

The following table summarizes cash flows for the periods indicated:

	Year Ended December 31,
(In thousands)	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	242,406		$	244,083		$	233,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	144,672			128,036			118,596
Recognition of and refund and collection of revenue accruals and deferrals — including accrued interest	(53,539		)	(4,093		)	(11,972		)
Deferred income tax expense	77,371			90,373			76,703
Tax benefit for excess tax deductions of share-based compensation	(11,707		)	(7,767		)	(4,302		)
Other	156,542			50,869			36,665
Net cash provided by operating activities	555,745			501,501			449,196
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(684,140		)	(733,145		)	(821,588		)
Other	(15,205		)	(1,556		)	(4,700		)
Net cash used in investing activities	(699,345		)	(734,701		)	(826,288		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net issuance/repayment of debt (including commercial paper and revolving and term loan credit agreements)	351,730			462,639			464,425
Issuance of common stock	13,635			20,713			10,042
Dividends on common and restricted stock	(108,275		)	(95,595		)	(84,129		)
Refundable deposits from and repayments to generators for transmission network upgrades — net	931			(22,850		)	(5,955		)
Repurchase and retirement of common stock	(137,081		)	(134,284		)	(4,885		)
Tax benefit for excess tax deductions of share-based compensation	11,707			7,767			4,302
Other	(2,929		)	(11,724		)	1,380
Net cash provided by financing activities	129,718			226,666			385,180
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(13,882		)	(6,534		)	8,088
CASH AND CASH EQUIVALENTS — Beginning of period	27,741			34,275			26,187
CASH AND CASH EQUIVALENTS — End of period	$	13,859		$	27,741		$	34,275

Cash Flows From Operating Activities

Year ended December 31, 2015 compared to year ended December 31, 2014

Net cash provided by operating activities increased $54.2 million in 2015 compared to 2014. The increase in cash provided by operating activities was due primarily to an increase in cash received from operating revenues of $70.3 million during 2015 compared to 2014. This increase was partially offset by an increase in payments of operating expenses of $25.4 million.

Year ended December 31, 2014 compared to year ended December 31, 2013

Net cash provided by operating activities increased $52.3 million in 2014 compared to 2013. The increase in cash provided by operating activities was due primarily to an increase in cash received from operating revenues of $132.7 million during 2014 compared to 2013. This increase was partially offset by higher interest payments (net of interest capitalized) of $30.2 million, higher income taxes paid of $24.4 million and an increase in payments of operating expenses of $12.1 million.

Cash Flows From Investing Activities

Year ended December 31, 2015 compared to year ended December 31, 2014

Net cash used in investing activities decreased $35.4 million in 2015 compared to 2014. The decrease in cash used in investing activities was due primarily to the timing of payments for investments in property, plant and equipment during the year ended December 31, 2015 compared to the same period in 2014.

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Year ended December 31, 2014 compared to year ended December 31, 2013

Net cash used in investing activities decreased $91.6 million in 2014 compared to 2013. The decrease in cash used in investing activities was due primarily to lower investments in property, plant and equipment during 2014 as we executed our capital investment plan described above under “— Overview — Capital Investment and Operating Results Trends”.

Cash Flows From Financing Activities

Year ended December 31, 2015 compared to year ended December 31, 2014

Net cash provided by financing activities decreased $96.9 million in 2015 compared to 2014. The decrease in cash provided by financing activities was due primarily to a decrease in long-term debt issuances of $573.7 million during 2015 compared to 2014. This decrease was partially offset by a net increase of $244.5 million in amounts outstanding under our revolving and term loan credit agreements, a decrease in payments of $123.6 million to retire long-term debt, the $94.6 million in net proceeds from the issuance of commercial paper under our commercial paper program during the year ended December 31, 2015 and lower net payments of $23.8 million associated with refundable deposits for transmission network upgrades. See Note 8 to the consolidated financial statements for detail on the issuances and retirements of debt.

Year ended December 31, 2014 compared to year ended December 31, 2013

Net cash provided by financing activities decreased $158.5 million in 2014 compared to 2013. The decrease in cash provided by financing activities was due primarily to a decrease in long-term debt issuances of $134.4 million during 2014 compared to 2013 as well as the net payment of $130.0 million for the 2014 ASR Program as described in Note 13 to the consolidated financial statements. Additionally, there was a net decrease of $20.8 million in amounts outstanding under our revolving and term loan credit agreements and lower net proceeds of $16.9 million associated with refundable deposits for transmission network upgrades. These decreases were partially offset by a decrease in payments of $153.4 million to retire long-term debt. See Note 8 to the consolidated financial statements for detail on the issuances and retirements of long-term debt.

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Contractual Obligations

The following table details our contractual obligations as of December 31, 2015:

			Less Than		1-3		4-5		More Than
(In thousands)	Total		1 Year		Years		Years		5 Years
Debt:
ITC Holdings Senior Notes	$	1,924,684	$	139,344	$	435,000	$	200,000	$	1,150,340
ITC Holdings revolving credit agreement	137,700		—		137,700		—		—
ITC Holdings commercial paper program	95,000		95,000		—		—		—
ITC Holdings term loan credit agreement	161,000		161,000		—		—		—
ITCTransmission First Mortgage Bonds	585,000		—		100,000		—		485,000
ITCTransmission revolving credit agreement	48,300		—		48,300		—		—
METC Senior Secured Notes	275,000		—		—		—		275,000
METC revolving credit agreement	2,500		—		2,500		—		—
METC term loan credit agreement	200,000		—		200,000		—		—
ITC Midwest First Mortgage Bonds	750,000		—		40,000		35,000		675,000
ITC Midwest revolving credit agreement	72,300		—		72,300		—		—
ITC Great Plains First Mortgage Bonds	150,000		—		—		—		150,000
ITC Great Plains revolving credit agreement	59,100		—		59,100		—		—
Interest payments:
ITC Holdings Senior Notes	1,006,043		96,922		220,665		107,221		581,235
ITCTransmission First Mortgage Bonds	601,161		29,326		65,107		38,613		468,115
METC Senior Secured Notes	345,264		12,090		36,270		24,180		272,724
ITC Midwest First Mortgage Bonds	771,184		31,286		101,672		63,321		574,905
ITC Great Plains First Mortgage Bonds	180,353		6,240		18,720		12,480		142,913
Operating leases	4,972		932		2,069		955		1,016
Purchase obligations	61,368		60,088		1,280		—		—
Regulatory liabilities — revenue deferrals, including accrued interest	42,970		36,639		6,331		—		—
Regulatory liabilities — refund related to the formula rate template modifications, including accrued interest	10,424		8,154		2,270		—		—
METC Easement Agreement	349,680		10,041		30,123		20,082		289,434
Total obligations	$	7,834,003	$	687,062	$	1,579,407	$	501,852	$	5,065,682

Interest payments included above relate only to our fixed-rate long-term debt outstanding at December 31, 2015. We also expect to pay interest and commitment fees under our variable-rate revolving and term loan credit agreements that have not been included above due to varying amounts of borrowings and interest rates under the facilities. In 2015, we paid $6.4 million of interest and commitment fees under our revolving and term loan credit agreements.

Operating leases include leases for office space, equipment and storage facilities. Purchase obligations represent commitments primarily for materials, services and equipment that had not been received as of December 31, 2015, primarily for construction and maintenance projects for which we have an executed contract. The majority of the items relate to materials and equipment that have long production lead times. See Note 16 to the consolidated financial statement for more information on our operating leases and purchases obligations.

The regulatory liabilities — revenue deferrals, including accrued interest, in the table above represents the over-recovery of revenues resulting from differences between the amounts billed to customers and actual revenue requirement at each of our Regulated Operating Subsidiaries, as described in Note 4 to the consolidated financial statements. These amounts will offset future revenue requirement for purposes of calculating our formula rates as part of the true-up mechanism in our rate construct.

The Easement Agreement provides METC with an easement for transmission purposes and rights-of-way, leasehold interests, fee interests and licenses associated with the land over which the transmission lines cross. The cost for use of the rights-of-way is $10.0 million per year. The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals thereafter unless METC gives

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notice of nonrenewal of at least one year in advance. Payments to Consumers Energy under the Easement Agreement are charged to operation and maintenance expense.

The contractual obligations table above excludes certain items, including contingent liabilities and other long-term liabilities, due to uncertainty on the final outcome in addition to the timing and amount of future cash flows necessary to settle these obligations. The amount of cash flows to be paid for pension and other postretirement obligations and settle regulatory liabilities related to asset removal costs and liabilities to refund deposits from generators for transmission network upgrades, which are recorded in other current and long term liabilities, are not known with certainty. As a result, cash obligations for these items are excluded from the contractual obligations table above.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies requires judgments regarding future events.

These estimates and judgments, in and of themselves, could materially impact the consolidated financial statements and disclosures based on varying assumptions, as future events rarely develop exactly as forecasted, and even the best estimates routinely require adjustment.

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

Regulation

Nearly all of our Regulated Operating Subsidiaries’ business is subject to regulation by the FERC. As a result, we apply accounting principles in accordance with the standards set forth by the Financial Accounting Standards Board (“FASB”) for accounting for the effects of certain types of regulation. Use of this accounting guidance results in differences in the application of GAAP between regulated and non-regulated businesses and requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as expense or revenue in non-regulated businesses. As described in Note 5 to the consolidated financial statements, we had regulatory assets and liabilities of $248.1 million and $299.8 million, respectively, as of December 31, 2015. Future changes in the regulatory and competitive environments could result in discontinuing the application of the accounting standards for the effects of certain types of regulations. If we were to discontinue the application of this guidance on our Regulated Operating Subsidiaries’ operations, we may be required to record losses relating to certain regulatory assets or gains relating to certain regulatory liabilities. We also may be required to record losses of $45.6 million relating to intangible assets at December 31, 2015 that are described in Note 6 to the consolidated financial statements.

We believe that currently available facts support the continued applicability of the standards for accounting for the effects of certain types of regulation and that all regulatory assets and liabilities are recoverable or refundable under our current rate environment.

Revenue Recognition under Cost-Based Formula Rates with True-Up Mechanism

Our Regulated Operating Subsidiaries recover expenses and earn a return on and recover investments in property, plant and equipment on a current, rather than lagging, basis, under their forward-looking cost-based formula rates with a true-up mechanism.

Under their formula rates, our Regulated Operating Subsidiaries use forecasted expenses, property, plant and equipment, point-to-point revenues and other items for the upcoming calendar year to establish their projected revenue requirement and for the MISO Regulated Operating Subsidiaries, their component of the billed network rates for service on their systems from January 1 to December 31 of that year. The cost-based formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year in order to subsequently collect or refund any under-recovery or over-recovery of revenues, as appropriate. The under- or over-collection typically results from differences between the projected revenue requirement used as the basis for billing and actual revenue

E- 20

requirement at each of our Regulated Operating Subsidiaries, and from differences between actual and projected monthly peak loads at our MISO Regulated Operating Subsidiaries.

The true-up mechanism under our formula rates meet the GAAP requirements for accounting for rate-regulated utilities and the effects of certain alternative revenue programs. Accordingly, revenue is recognized during each reporting period based on actual revenue requirements calculated using the cost-based formula rate. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that their actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The true-up amount is automatically reflected in customer bills within two years under the provisions of the formula rates. See Note 4 to the consolidated financial statements for the regulatory assets and liabilities recorded at our Regulated Operating Subsidiaries’ as a result of the formula rate revenue accruals and deferrals.

Valuation of Goodwill

We have goodwill resulting from our acquisitions of ITCTransmission and METC and ITC Midwest’s acquisition of the IP&L transmission assets. We perform an impairment test annually at the reporting unit level or whenever events or circumstances indicate that the value of goodwill may be impaired. In order to perform these impairment tests, we compare the fair value of each reporting unit with their respective carrying value. Our reporting units are ITCTransmission, METC and ITC Midwest as each of them represents an individual operating segment. We determine fair value using valuation techniques based on discounted future cash flows under various scenarios. We also consider estimates of market-based valuation multiples for companies within the peer group of our reporting units. 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 goodwill, which would adversely impact earnings.

As of December 31, 2015 and 2014, consolidated goodwill totaled $950.2 million. We completed our annual goodwill impairment test for our reporting units as of October 1, 2015 and determined that no impairment exists. There were no events subsequent to October 1, 2015 that indicated impairment of our goodwill. We do not believe there is a material risk of our goodwill being impaired in the near term for any of our reporting units given that their fair values are substantially in excess of their carrying values.

Contingent Obligations

We are subject to a number of federal and state laws and regulations, as well as other factors and conditions that potentially subject us to environmental, litigation, income tax and other contingencies. Additionally, we have other contingent obligations that may be required to be paid to developers based on achieving certain milestones relating to development initiatives. We periodically evaluate our exposure to such contingencies and record liabilities for those matters where a loss is considered probable and reasonably estimable in accordance with GAAP. Our liabilities exclude any estimates for legal costs not yet incurred associated with handling these matters, which could be material. The adequacy of liabilities recorded can be significantly affected by external events or conditions that can be unpredictable; thus, the ultimate outcome of such matters could materially affect our consolidated financial statements. These events or conditions include, without limitation, the following:

· Changes in existing state or federal regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances, hazardous and solid wastes and other environmental matters.

· Changes in existing federal income tax laws or Internal Revenue Service (“IRS”) regulations.

· Identification and evaluation of lawsuits or complaints in which we may be or have been named as a defendant.

· Resolution or progression of existing matters through the legislative process, the courts, the FERC, the NERC, the IRS or the Environmental Protection Agency.

· Completion of certain milestones relating to development initiatives.

E- 21

Refer to Note 16 to the consolidated financial statements for discussion on contingencies, including the ROE complaints.

Pension and Postretirement Costs

We sponsor certain retirement benefits for our employees, which include retirement pension plans and certain postretirement health care, dental and life insurance benefits. Our periodic costs and obligations associated with these plans are developed from actuarial valuations derived from a number of assumptions, including rates of return on plan assets, the discount rates, the rate of increase in health care costs, the amount and timing of plan sponsor contributions and demographic factors such as retirements, mortality and turnover, among others. We evaluate these assumptions annually and update them periodically to reflect our actual experience. Three critical assumptions in determining our periodic costs and obligations are discount rate, expected long-term return on plan assets and the rate of increases in health care costs. The discount rate represents the market rate for synthesized AA-rated zero-coupon bonds with durations corresponding to the expected durations of the benefit obligations and is used to calculate the present value of the expected future cash flows for benefit obligations under our plans. In determining our long-term rate of return on plan assets, we consider the current and expected asset allocations, as well as historical and expected long-term rates of return on those types of asset classes. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans as described in Note 11 to the consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition.

Recent Accounting Pronouncements

See Note 3 to the consolidated financial statements.

E- 22

ITC HOLDINGS CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements and schedules are included herein:

	Page
Report of Independent Registered Public Accounting Firm	E-24
Consolidated Statements of Financial Position as of December 31, 2015 and 2014	E-25
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013	E-26
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013	E-27
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013	E-28
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013	E-29
Notes to Consolidated Financial Statements	E-30
Schedule I — Condensed Financial Information of Registrant	E-73

E- 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ITC Holdings Corp.:

Novi, Michigan

We have audited the accompanying consolidated statements of financial position of ITC Holdings Corp. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule included herein. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ITC Holdings Corp. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

February 25, 2016

E- 24

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	December 31,
(In thousands, except share data)	2015		2014
ASSETS
Current assets
Cash and cash equivalents	$	13,859	$	27,741
Accounts receivable	104,262		100,998
Inventory	25,777		30,892
Regulatory assets	14,736		5,393
Prepaid and other current assets	10,608		7,281
Total current assets	169,242		172,305
Property, plant and equipment (net of accumulated depreciation and amortization of $1,487,713 and $1,388,217, respectively)	6,109,639		5,496,875
Other assets
Goodwill	950,163		950,163
Intangible assets (net of accumulated amortization of $28,242 and $24,917, respectively)	45,602		48,794
Regulatory assets	233,376		223,712
Deferred financing fees (net of accumulated amortization of $17,515 and $15,972, respectively)	29,298		30,311
Other	44,802		37,418
Total other assets	1,303,241		1,290,398
TOTAL ASSETS	$	7,582,122	$	6,959,578
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	124,331	$	107,969
Accrued payroll	24,123		23,502
Accrued interest	52,577		50,538
Accrued taxes	44,256		41,614
Regulatory liabilities	44,964		39,972
Refundable deposits from generators for transmission network upgrades	2,534		10,376
Debt maturing within one year	395,334		175,000
Other	31,034		14,043
Total current liabilities	719,153		463,014
Accrued pension and postretirement liabilities	61,609		69,562
Deferred income taxes	735,426		642,051
Regulatory liabilities	254,788		160,070
Refundable deposits from generators for transmission network upgrades	18,077		9,384
Other	23,075		17,354
Long-term debt	4,060,923		3,928,586
Commitments and contingent liabilities (Notes 4 and 16)
STOCKHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 152,699,077 and 155,140,967 shares issued and outstanding at December 31, 2015 and 2014, respectively	829,211		923,191
Retained earnings	875,595		741,550
Accumulated other comprehensive income	4,265		4,816
Total stockholders’ equity	1,709,071		1,669,557
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,582,122	$	6,959,578

See notes to consolidated financial statements.

E- 25

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
(In thousands, except per share data)	2015			2014			2013
OPERATING REVENUES	$	1,044,768		$	1,023,048		$	941,272
OPERATING EXPENSES
Operation and maintenance	113,123			111,623			112,821
General and administrative	144,919			115,031			149,109
Depreciation and amortization	144,672			128,036			118,596
Taxes other than income taxes	82,354			76,534			65,824
Other operating income and expense — net	(1,017		)	(1,005		)	(1,139		)
Total operating expenses	484,051			430,219			445,211
OPERATING INCOME	560,717			592,829			496,061
OTHER EXPENSES (INCOME)
Interest expense — net	203,779			186,636			168,319
Allowance for equity funds used during construction	(28,075		)	(20,825		)	(30,159		)
Loss on extinguishment of debt	—			29,205			—
Other income	(2,071		)	(1,103		)	(1,038		)
Other expense	3,207			4,511			6,571
Total other expenses (income)	176,840			198,424			143,693
INCOME BEFORE INCOME TAXES	383,877			394,405			352,368
INCOME TAX PROVISION	141,471			150,322			118,862
NET INCOME	$	242,406		$	244,083		$	233,506

Basic earnings per common share	$	1.57		$	1.56		$	1.49
Diluted earnings per common share	$	1.56		$	1.54		$	1.47
Dividends declared per common share	$	0.700		$	0.610		$	0.535

See notes to consolidated financial statements.

E- 26

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
(In thousands)	2015			2014			2013
NET INCOME	$	242,406		$	244,083		$	233,506
OTHER COMPREHENSIVE (LOSS) INCOME
Derivative instruments, net of tax (Note 13)	(375		)	(1,479		)	24,304
Available-for-sale securities, net of tax (Note 13)	(176		)	(32		)	71
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX	(551		)	(1,511		)	24,375
TOTAL COMPREHENSIVE INCOME	$	241,855		$	242,572		$	257,881

See notes to consolidated financial statements.

E- 27

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS ‘EQUITY

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(In thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2012	156,745,542		$	989,334		$	443,569		$	(18,048	)	$	1,414,855
Net income	—		—			233,506			—			233,506
Repurchase and retirement of common stock	(163,320	)	(4,885		)	—			—			(4,885		)
Dividends declared on common stock ($0.535 per share)	—		—			(84,129		)	—			(84,129		)
Stock option exercises	499,014		8,165			—			—			8,165
Shares issued under the Employee Stock Purchase Plan	77,097		1,877			—			—			1,877
Issuance of restricted stock	384,576		—			—			—			—
Forfeiture of restricted stock	(42,114	)	—			24			—			24
Share-based compensation, net of forfeitures	—		15,642			—			—			15,642
Tax benefit for excess tax deductions of share-based compensation	—		4,302			—			—			4,302
Other comprehensive income, net of tax (Note 13)	—		—			—			24,375			24,375
BALANCE, DECEMBER 31, 2013	157,500,795		$	1,014,435		$	592,970		$	6,327		$	1,613,732
Net income	—		—			244,083			—			244,083
Repurchase and retirement of common stock	(3,673,226	)	(134,284		)	—			—			(134,284		)
Dividends declared on common stock ($0.610 per share)	—		—			(95,595		)	—			(95,595		)
Stock option exercises	1,011,750		18,650			—			—			18,650
Shares issued under the Employee Stock Purchase Plan	69,230		2,063			—			—			2,063
Issuance of restricted stock	321,139		—			—			—			—
Forfeiture of restricted stock	(88,721	)	—			92			—			92
Share-based compensation, net of forfeitures	—		14,560			—			—			14,560
Tax benefit for excess tax deductions of share-based compensation	—		7,767			—			—			7,767
Other comprehensive loss, net of tax (Note 13)	—		—			—			(1,511		)	(1,511		)
BALANCE, DECEMBER 31, 2014	155,140,967		$	923,191		$	741,550		$	4,816		$	1,669,557
Net income	—		—			242,406			—			242,406
Repurchase and retirement of common stock	(4,201,847	)	(137,081		)	—			—			(137,081		)
Dividends declared ($0.700 per share)	—		—			(108,425		)	—			(108,425		)
Stock option exercises	1,203,376		11,352			—			—			11,352
Shares issued under the Employee Stock Purchase Plan	76,041		2,283			—			—			2,283
Issuance of restricted stock	259,039		—			—			—			—
Forfeiture of restricted stock	(58,209	)	—			64			—			64
Issuance of performance shares	287,464		—			—			—			—
Forfeiture of performance shares	(7,754	)	—			—			—			—
Share-based compensation, net of forfeitures	—		17,609			—			—			17,609
Tax benefit for excess tax deductions of share-based compensation	—		11,707			—			—			11,707
Other comprehensive loss, net of tax (Note 13)	—		—			—			(551		)	(551		)
Other	—		150			—			—			150
BALANCE, DECEMBER 31, 2015	152,699,077		$	829,211		$	875,595		$	4,265		$	1,709,071

See notes to consolidated financial statements.

E- 28

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(In thousands)	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	242,406		$	244,083		$	233,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	144,672			128,036			118,596
Recognition of and refund and collection of revenue accruals and deferrals — including accrued interest	(53,539		)	(4,093		)	(11,972		)
Deferred income tax expense	77,371			90,373			76,703
Allowance for equity funds used during construction	(28,075		)	(20,825		)	(30,159		)
Loss on extinguishment of debt	—			29,205			—
Other	22,031			17,697			17,864
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable	(501		)	(11,869		)	(16,312		)
Inventory	5,140			1,094			5,371
Prepaid and other current assets	(3,214		)	5,089			16,891
Accounts payable	(7,263		)	(19,061		)	17,638
Accrued payroll	463			525			1,619
Accrued interest	2,039			(2,511		)	8,341
Accrued taxes	14,783			19,756			6,113
Tax benefit on the excess tax deduction of share-based compensation	(11,707		)	(7,767		)	(4,302		)
Other current liabilities	5,587			(2,314		)	1,630
Estimated potential refund related to return on equity complaints	120,197			47,780			—
Other non-current assets and liabilities, net	25,355			(13,697		)	7,669
Net cash provided by operating activities	555,745			501,501			449,196
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(684,140		)	(733,145		)	(821,588		)
Proceeds from sale of marketable securities	673			495			20,844
Purchases of marketable securities	(10,422		)	(6,091		)	(22,250		)
Other	(5,456		)	4,040			(3,294		)
Net cash used in investing activities	(699,345		)	(734,701		)	(826,288		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	225,000			798,664			933,025
Borrowings under revolving credit agreements	2,832,100			1,660,000			1,090,100
Borrowings under term loan credit agreements	200,000			110,000			675,000
Net issuance of commercial paper, net of discount	94,630			—			—
Retirement of long-term debt — including extinguishment of debt costs	(175,000		)	(298,625		)	(452,000		)
Repayments of revolving credit agreements	(2,825,000		)	(1,618,400		)	(1,146,700		)
Repayments of term loan credit agreements	—			(189,000		)	(635,000		)
Issuance of common stock	13,635			20,713			10,042
Dividends on common and restricted stock	(108,275		)	(95,595		)	(84,129		)
Refundable deposits from generators for transmission network upgrades	12,956			5,833			32,281
Repayment of refundable deposits from generators for transmission network upgrades	(12,025		)	(28,683		)	(38,236		)
Repurchase and retirement of common stock	(137,081		)	(134,284		)	(4,885		)
Tax benefit on the excess tax deduction of share-based compensation	11,707			7,767			4,302
Advance for forward contract of accelerated share repurchase program	—			(20,000		)	—
Return of unused advance for forward contract of accelerated share repurchase program	—			20,000			—
Other	(2,929		)	(11,724		)	1,380
Net cash provided by financing activities	129,718			226,666			385,180
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(13,882		)	(6,534		)	8,088
CASH AND CASH EQUIVALENTS — Beginning of period	27,741			34,275			26,187
CASH AND CASH EQUIVALENTS — End of period	$	13,859		$	27,741		$	34,275

See notes to consolidated financial statements.

E- 29

ITC HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

ITC Holdings Corp. (“ITC Holdings,” and together with its subsidiaries, “we,” “our” or “us”) and its subsidiaries are engaged in the transmission of electricity in the United States. Through our operating subsidiaries, ITCTransmission, METC, ITC Midwest and ITC Great Plains (together, our “Regulated Operating Subsidiaries”), we operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our systems. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and allow new generating resources to interconnect to our transmission systems. We also are pursuing transmission development projects not within our existing systems, which are intended to improve overall grid reliability, lower electricity congestion and facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

Our Regulated Operating Subsidiaries are independent electric transmission utilities, with rates regulated by the FERC and established on a cost-of-service model. ITCTransmission’s service area is located in southeastern Michigan, while METC’s service area covers approximately two-thirds of Michigan’s Lower Peninsula and is contiguous with ITCTransmission’s service area. ITC Midwest’s service area is located in portions of Iowa, Minnesota, Illinois and Missouri and ITC Great Plains currently owns assets located in Kansas and Oklahoma. The Midcontinent Independent System Operator, Inc. (“MISO”) bills and collects revenues from ITCTransmission, METC and ITC Midwest (“MISO Regulated Operating Subsidiaries”) customers. The Southwest Power Pool, Inc. (“SPP”) bills and collects revenue from ITC Great Plains customers.

2. SIGNIFICANT ACCOUNTING POLICIES

A summary of the major accounting policies followed in the preparation of the accompanying consolidated financial statements, which conform to accounting principles generally accepted in the United States of America (“GAAP”), is presented below:

Principles of Consolidation — ITC Holdings consolidates its majority owned subsidiaries. We eliminate all intercompany balances and transactions.

Use of Estimates — The preparation of the consolidated financial statements in accordance with GAAP requires us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

Regulation — Our Regulated Operating Subsidiaries are subject to the regulatory jurisdiction of the FERC, which issues orders pertaining to rates, recovery of certain costs, including the costs of transmission assets and regulatory assets, conditions of service, accounting, financing authorization and operating-related matters. The utility operations of our Regulated Operating Subsidiaries meet the accounting standards set forth by the Financial Accounting Standards Board (“FASB”) for the accounting effects of certain types of regulation. These accounting standards recognize the cost based rate setting process, which results in differences in the application of GAAP between regulated and non-regulated businesses. These standards require the recording of regulatory assets and liabilities for certain transactions that would have been recorded as revenue and expense in non-regulated businesses. Regulatory assets represent costs that will be included as a component of future tariff rates and regulatory liabilities represent amounts provided in the current tariff rates that are intended to recover costs expected to be incurred in the future or amounts to be refunded to customers.

Cash and Cash Equivalents — We consider all unrestricted highly-liquid temporary investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

E- 30

Consolidated Statements of Cash Flows — The following table presents certain supplementary cash flows information for the years ended December 31, 2015, 2014 and 2013:

	Year Ended December 31,
(In thousands)	2015		2014		2013
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	191,041	$	185,288	$	155,112
Income taxes paid — net	55,722		44,524		20,092
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment and other long-lived assets (a)	$	110,354	$	90,949	$	68,276
Allowance for equity funds used during construction	28,075		20,825		30,159

(a) Amounts consist of current liabilities for construction labor and materials that have not been included in investing activities. These amounts have not been paid for as of December 31, 2015, 2014 or 2013, respectively, but have been or will be included as a cash outflow from investing activities for expenditures for property, plant and equipment when paid.

Excess tax benefits are recognized as an addition to common stock pursuant to the share-based compensation accounting standards. Cash retained as a result of those excess tax benefits are presented in the statement of cash flows as cash inflows from financing activities and cash outflows from operating activities.

Accounts Receivable — We recognize losses for uncollectible accounts based on specific identification of any such items. As of December 31, 2015 and 2014, we did not have an accounts receivable reserve.

Inventories — Materials and supplies inventories are valued at average cost. Additionally, the costs of warehousing activities are recorded here and included in the cost of materials when requisitioned.

Property, Plant and Equipment — Depreciation and amortization expense on property, plant and equipment was $135.5 million, $118.9 million and $109.4 million for 2015, 2014 and 2013, respectively.

Property, plant and equipment in service at our Regulated Operating Subsidiaries is stated at its original cost when first devoted to utility service. The gross book value of assets retired less salvage proceeds is charged to accumulated depreciation. The provision for depreciation of transmission assets is a significant component of our Regulated Operating Subsidiaries’ cost of service under FERC-approved rates. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes. The composite depreciation rate for our Regulated Operating Subsidiaries included in our consolidated statements of operations was 2.1%, 2.1% and 2.2% for 2015, 2014 and 2013, respectively. The composite depreciation rates include depreciation primarily on transmission station equipment, towers, poles and overhead and underground lines that have a useful life ranging from 48 to 60 years. The portion of depreciation expense related to asset removal costs is added to regulatory liabilities or deducted from regulatory assets and removal costs incurred are deducted from regulatory liabilities or added to regulatory assets. Our Regulated Operating Subsidiaries capitalize to property, plant and equipment an allowance for the cost of equity and borrowings used during construction (“AFUDC”) in accordance with FERC regulations. AFUDC represents the composite cost incurred to fund the construction of assets, including interest expense and a return on equity capital devoted to construction of assets. The AFUDC debt of $6.8 million, $5.1 million and $8.0 million was a reduction to interest expense for 2015, 2014 and 2013, respectively. Certain projects at ITC Great Plains have been granted an incentive to include construction work in progress balances in rate base and we do not record AFUDC on those projects.

For acquisitions of property, plant and equipment greater than the net book value (other than asset acquisitions accounted for under the purchase method of accounting that result in goodwill), the acquisition premium is recorded to property, plant and equipment and amortized over the estimated remaining useful lives of the assets using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes.

Property, plant and equipment includes capital equipment inventory stated at original cost consisting of items that are expected to be used exclusively for capital projects.

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Property, plant and equipment at ITC Holdings and non-regulated subsidiaries is stated at its acquired cost. Proceeds from salvage less the net book value of the disposed assets is recognized as a gain or loss on disposal. Depreciation is computed based on the acquired cost less expected residual value and is recognized over the estimated useful lives of the assets on a straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes.

Generator Interconnection Projects and Contributions in Aid of Construction — Certain capital investment at our Regulated Operating Subsidiaries relates to investments made under generator interconnection agreements. The generator interconnection agreements typically consist of both transmission network upgrades, which are a category of upgrades deemed by FERC to benefit the transmission system as a whole, as well as direct connection facilities, which are necessary to interconnect the generating facility to the transmission system and primarily benefit the generating facility.

Our investments in transmission facilities are recorded to property, plant and equipment, and are recorded net of any contribution in aid of construction. Contributions in aid of construction of $17.4 million, $19.7 million and $2.6 million were recorded as reductions to property, plant and equipment during the years ended December 31, 2015, 2014 or 2013, respectively, and are included as reductions of expenditures for property, plant and equipment in our consolidated statements of cash flows when received. We also receive refundable deposits from the generator for certain investment in network upgrade facilities in advance of construction, which are recorded to current or non-current liabilities depending on the expected refund date.

Available-For-Sale Securities — We have certain investments in debt and equity securities that are classified as available-for-sale securities. These investments currently fund our two supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees as described in Note 11. Unrealized gains recorded for the investments are recognized, net of tax, in the accumulated other comprehensive income component of equity. Any unrealized losses (where cost exceeds fair market value) on the investments will also be recorded in the accumulated other comprehensive income component of equity, unless the unrealized loss is other than temporary, in which case it would be recorded as an investment loss in the consolidated statements of operations.

Impairment of Long-Lived Assets — Other than goodwill, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted future cash flows generated by the asset, the asset is written down to its estimated fair value and an impairment loss is recognized in our consolidated statements of operations.

Goodwill — Under the FASB standards, goodwill is not subject to amortization. However, goodwill is subject to fair value-based rules for measuring impairment, and a resulting write-down, if any, is to be reflected in operating expense. We have goodwill recorded relating to our acquisitions of ITCTransmission and METC and ITC Midwest’s acquisition of the IP&L transmission assets. These accounting standards require that goodwill be reviewed at the reporting unit level at least annually for impairment and whenever facts or circumstances indicate that the value of goodwill may be impaired. In order to perform these impairment tests, we compare the fair value of our reporting units with their respective carrying value. Our reporting units are ITCTransmission, METC and ITC Midwest as each of them represents an individual operating segment. We determine fair value using valuation techniques based on discounted future cash flows under various scenarios as well as consider estimates of market-based valuation multiples for companies within the peer group of our reporting units.

We completed our annual goodwill impairment test for our reporting units as of October 1, 2015 and determined that no impairment exists. There were no events subsequent to October 1, 2015 that indicated impairment of our goodwill. Our intangible assets have finite lives and are amortized over their useful lives. Refer to Note 6 for additional discussion on our goodwill and intangible assets.

Deferred Financing Fees and Discount or Premium on Debt — The costs related to the issuance of long-term debt are recorded to deferred financing fees and amortized over the life of the debt issue. The debt discount or premium related to the issuance of long-term debt is recorded to long-term debt and amortized over the life of the debt issue. We recorded $4.2 million, $4.1 million and $4.1 million to interest expense for the amortization

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of deferred financing fees and debt discounts during the years ended December 31, 2015, 2014 and 2013, respectively.

Asset Retirement Obligations — We comply with the standards set forth by the FASB for asset retirement obligations. As defined in the standards, a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within our control. We have identified conditional asset retirement obligations primarily associated with the removal of equipment containing polychlorinated biphenyls (“PCBs”) and asbestos. We record a liability at fair value for a legal asset retirement obligation in the period in which it is incurred. When a new legal obligation is recorded, we capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. We accrete the liability to its present value each period and depreciate the capitalized cost over the useful life of the related asset. At the end of the asset’s useful life, we settle the obligation for its recorded amount. The standards for asset retirement obligations applied to our Regulated Operating Subsidiaries require us to recognize regulatory assets for the timing differences between the incurred costs to settle our legal asset retirement obligations and the recognition of such obligations under the standards set forth by the FASB. There were no significant changes to our asset retirement obligations in 2015. Our asset retirement obligations as of December 31, 2015 and 2014 of $5.4 million and $5.9 million, respectively, are included in other liabilities.

Financial Instruments — We comply with the standards set forth by the FASB for derivatives and hedging in accounting for financial instruments. For derivative instruments that have been designated and qualify as hedges of the exposure to variability in expected future cash flows, the gain or loss on the derivative is initially reported as a component of other comprehensive income (loss) and reclassified to the consolidated statement of operations when the underlying hedged transaction affects net income. Any hedge ineffectiveness is recognized in net income immediately at the time the gain or loss on the derivative instruments is calculated. Refer to Note 8 for additional discussion regarding derivative instruments.

Contingent Obligations — We are subject to a number of federal and state laws and regulations, as well as other factors and conditions that potentially subject us to environmental, litigation and other risks. We periodically evaluate our exposure to such risks and record liabilities for those matters when a loss is considered probable and reasonably estimable in accordance with GAAP. Our liabilities exclude any estimates for legal costs not yet incurred associated with handling these matters. The adequacy of liabilities can be significantly affected by external events or conditions that can be unpredictable; thus, the ultimate outcome of such matters could materially affect our consolidated financial statements.

Revenues — Revenues from the transmission of electricity are recognized as services are provided based on FERC-approved cost-based formula rate templates. We record a reserve for revenue subject to refund when such refund is probable and can be reasonably estimated. This reserve is recorded as a reduction to operating revenues.

The cost-based formula rate templates at our Regulated Operating Subsidiaries include a true-up mechanism, whereby they compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue requirements and record a revenue accrual or deferral for the difference. Refer to Note 4 under “Cost-Based Formula Rates with True-Up Mechanism” for a discussion of our revenue accounting under our cost-based formula rate templates.

Share-Based Payment — We have a Second Amended and Restated 2006 Long-Term Incentive Plan (“2006 LTIP”) and a 2015 Long-Term Incentive Plan (“2015 LTIP”), pursuant to which various share-based awards are granted, including options, restricted stock and performance shares. Compensation cost is recorded over the expected vesting period for restricted stock awards that are expected to vest based on their fair value at grant date. We recognize compensation cost for performance shares that are expected to vest based on their fair value at grant date over the expected vesting period. However, the compensation cost for the portion of the performance share awards subject to an adjusted diluted earnings per share growth condition is recognized based on the probable payout (net of any estimated forfeitures), which is reassessed each reporting period and subject to change. Compensation cost is recorded for stock options that are expected to vest based on their fair value at grant date, and amortized on a straight-line basis over the requisite service period and not for each

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separately vesting portion of the award. For certain stock option awards, expense is recognized in the period when the service condition is met upon retirement eligibility. The grant date is the date at which our commitment to issue share-based awards to an employee or a director arises, which is generally the later of the board approval date or the date of hire or promotion of the employee.

We also have an Employee Stock Purchase Plan (“ESPP”), which is a compensatory plan. Compensation cost is recorded based on the fair value of the purchase options at the grant date, which corresponds to the first day of each purchase period, and is amortized over the purchase period.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in common stockholders’ equity during a period arising from transactions and events from non-owner sources, including net income, any gain or loss recognized for the effective portion of our interest rate swaps and any unrealized gain or loss associated with our available-for-sale securities.

Income Taxes — Deferred income taxes are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax bases of various assets and liabilities, using the tax rates expected to be in effect for the year in which the differences are expected to reverse.

The accounting standards for uncertainty in income taxes prescribe a recognition threshold and a measurement attribute for tax positions taken, or expected to be taken, in a tax return that may not be sustainable. As of December 31, 2015, we did not have any uncertain income tax positions.

We file income tax returns with the Internal Revenue Service and with various state and city jurisdictions. We are no longer subject to U.S. federal tax examinations for tax years 2011 and earlier. State and city jurisdictions that remain subject to examination range from tax years 2011 to 2014. In the event we are assessed interest or penalties by any income tax jurisdictions, interest and penalties would be recorded as interest expense and other expense, respectively, in our consolidated statements of operations.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Revenue Recognition

In May 2014, the FASB issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five-step model to determine when a customer obtains control of a transferred good or service. The guidance is effective for annual reporting periods beginning after December 15, 2017 and may be adopted using a full or modified retrospective application. We do not expect the guidance to have a material impact on our consolidated results of operations, cash flows, or financial position.

Going Concern

In August 2014, the FASB issued authoritative guidance on (1) how to perform a going concern assessment and (2) when going concern disclosures are required under GAAP. The guidance extends the responsibility for performing a going concern assessment to company management; previously, this requirement existed only in auditing literature. The standard is expected to enhance the timeliness, clarity and consistency of going concern disclosures. The guidance is effective for the annual period ending after December 15, 2016, and for interim periods and annual periods thereafter. Early application is permitted. We do not expect the standard to have a material impact on our consolidated financial statements, including our disclosures.

Amendments to the Consolidation Analysis

In February 2015, the FASB issued authoritative guidance that amends the variable interest entity consolidation analysis under GAAP. The new standard was issued to improve targeted areas of consolidation guidance. Although the FASB’s deliberations were largely focused on the investment management industry, the standard is applicable for reporting entities across industries. Specifically, the guidance amends the consolidation analysis for limited partnerships, clarifies when fees paid to a decision maker should be a factor in the consolidation analysis and amends how variable interests held by related parties affect consolidation. The guidance is

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effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

Amendment to the Balance Sheet Presentation of Debt Issuance Costs

In April 2015, the FASB issued authoritative guidance that amends the balance sheet presentation of debt issuance costs. This new standard requires debt issuance costs to be shown as a direct deduction from the carrying amount of the related debt, consistent with debt discounts. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015 and will be applied retrospectively. Early adoption is permitted. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. We are currently assessing the impact this guidance may have on our consolidated statements of financial position and disclosures. The standard will not impact our consolidated statements of operations or cash flows.

Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued authoritative guidance which simplifies the presentation of deferred income taxes by requiring entities to net deferred tax assets and deferred tax liabilities and present as non-current in a classified balance sheet. Though the guidance is not effective until annual periods beginning after December 15, 2016 (and interim periods within those years), we elected to early adopt the guidance as of this Form 10-K. In addition, we applied the requirements retrospectively and therefore comparative balance sheet amounts have been adjusted. We have accounted for this as a change in accounting principle that is required based on a change in the authoritative accounting guidance. This standard did not impact our consolidated statements of operations or cash flows. Refer to Note 10 for more information on the balance sheet impacts of the change, including the quantitative effects of the change on prior balance sheets presented.

4. REGULATORY MATTERS

Order on Formula Rate Protocols

In 2012, the FERC issued an order initiating a proceeding pursuant to Section 206 of the FPA to determine whether the formula rate protocols under the MISO Tariff are sufficient to ensure just and reasonable rates. Our MISO Regulated Operating Subsidiaries were named in the order. In May 2013, the FERC issued an order that determined the formula rate protocols are insufficient to ensure just and reasonable rates and directed MISO and its member transmission owners (“TOs”) to file revised formula rate protocols. In September 2013, MISO and its TOs, including our MISO Regulated Operating Subsidiaries, filed revised formula rate protocols, which require our MISO Regulated Operating Subsidiaries to provide additional information for certain aspects of the formula rates used to calculate their respective annual revenue requirements. In March 2014, the FERC issued an order conditionally accepting MISO and its TOs’ September 2013 filing and required a further compliance filing, which MISO and its TOs made in May 2014. On January 22, 2015, the FERC conditionally accepted the May 2014 compliance filing, subject to a further compliance filing, which was made on February 13, 2015. On August 21, 2015, the FERC issued an order accepting the February 13, 2015 compliance filing, effective January 2014. We do not expect these revised formula rate protocols to materially impact our consolidated results of operations, cash flows or financial condition.

Rate of Return on Equity and Capital Structure Complaints

See “Rate of Return on Equity and Capital Structure Complaints” in Note 16 for a discussion of the complaints.

Cost-Based Formula Rate Templates with True-Up Mechanism

The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually, using FERC-approved formula rate templates (“formula rate templates”), and remain in effect for a one-year period. By completing their formula rate templates on an annual basis, our Regulated Operating Subsidiaries are able to make adjustments to reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The

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formula rate templates do not require further action or FERC filings each year, although the template inputs remain subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rate templates to calculate their respective annual revenue requirements unless the FERC determines any template to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable. See “Rate of Return on Equity and Capital Structure Complaints” in Note 16 for detail on ROE matters including incentive adders approved by FERC in 2015.

Our formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue requirements. Revenue is recognized for services provided during each reporting period based on actual revenue requirements calculated using the formula rate templates. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The amount of accrued or deferred revenues is reflected in future revenue requirements and thus flows through to customer bills within two years under the provisions of the formula rate templates.

The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, were as follows during the year ended December 31, 2015:

(In thousands)	Total
Net regulatory liability as of December 31, 2014	$	(56,103	)
Net refund of 2013 revenue deferrals and accruals, including accrued interest	35,156
Net revenue accrual for the year ended December 31, 2015	19,876
Net accrued interest payable for the year ended December 31, 2015	(1,493		)
Net regulatory liability as of December 31, 2015	$	(2,564	)

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, are recorded in the consolidated statements of financial position at December 31, 2015 as follows:

(In thousands)	Total
Current assets	$	14,736
Non-current assets	25,670
Current liabilities	(36,639		)
Non-current liabilities	(6,331		)
Net regulatory liability as of December 31, 2015	$	(2,564	)

ITC Great Plains Start-Up, Development and Pre-Construction Regulatory Assets

In May 2013, ITC Great Plains made a filing with the FERC, under Section 205 of the FPA, to recover start-up, development and pre-construction expenses, including associated debt and equity carrying charges, in future rates. These expenses included certain costs incurred by ITC Great Plains for the Kansas Electric Transmission Authority (“KETA”) Project and the Kansas V-Plan Project prior to construction.

On March 26, 2015, FERC accepted ITC Great Plains’ request to commence amortization of the authorized regulatory assets, subject to refund, as well as set the matter for hearing and settlement judge procedures. During the third quarter of 2015, ITC Great Plains and the settling parties reached an uncontested settlement agreement, which was certified by the presiding administrative law judge, but remained subject to acceptance by the FERC. On December 18, 2015, the FERC issued an order accepting the uncontested settlement agreement. As of December 31, 2015, we had a total of $12.6 million (net of accumulated amortization of $1.0 million) of regulatory assets for these expenses, including the associated carrying charges. ITC Great Plains has included the unamortized balance of the regulatory assets in its rate base and commenced amortization over a

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10-year period during the second quarter of 2015. The amortization expense is recorded to general and administrative expenses and will be recovered through ITC Great Plains’ cost-based formula rate template.

The start-up, development and pre-construction regulatory assets began accruing carrying charges in March 2009, at a rate equivalent to ITC Great Plains’ weighted average cost of capital, adjusted annually based on ITC Great Plains’ actual weighted average cost of capital calculated in its formula rate template for that year, and continued until the regulatory assets were included in rate base. The equity component of these carrying charges including applicable taxes, totaling $9.9 million as of December 31, 2015, is not recorded for GAAP accounting and reporting as the equity return does not meet the recognition criteria of incurred costs eligible for deferral under GAAP.

MISO Funding Policy for Generator Interconnections

On June 18, 2015, FERC issued an order initiating a proceeding, pursuant to Section 206 of the FPA, to examine MISO’s funding policy for generator interconnections, which allows a transmission owner to unilaterally elect to fund network upgrades and recover such costs from the interconnection customer. In this order, FERC suggested the MISO funding policy be revised to require mutual agreement between the interconnection customer and transmission owner to utilize the election to fund network upgrades. On July 20, 2015, MISO and its TOs filed a request for a rehearing of the FERC order to examine MISO’s funding policy for generator interconnections, which was subsequently denied by FERC on December 29, 2015. On January 8, 2016, MISO made a compliance filing to revise its funding policy to adopt the FERC suggestion to require mutual agreement between the customer and TO, with an effective date of June 24, 2015. We do not expect the resolution of this proceeding to have a material impact on our consolidated results of operations, cash flows or financial condition.

MISO Formula Rate Template Modifications Filing

On October 30, 2015, our MISO Regulated Operating Subsidiaries requested modifications, pursuant to Section 205 of the FPA, to certain aspects of their respective formula rate templates which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. Our MISO Regulated Operating Subsidiaries requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which was made on February 8, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. In 2015, our MISO Regulated Operating Subsidiaries recognized a refund liability for the excess amounts recovered for all historical periods through December 31, 2015, which resulted in a reduction in revenues of $9.5 million and an increase in interest expense of $0.9 million for the year ended December 31, 2015. This resulted in an estimated after-tax reduction to net income of $6.2 million for the year ended December 31, 2015. We do not expect the final resolution of this matter will differ materially from the amounts recorded in 2015.

ITC Midwest’s Rate Discount

As part of the orders by the Iowa Utility Board and the Minnesota Public Utilities Commission approving ITC Midwest’s asset acquisition, ITC Midwest agreed to provide a rate discount of $4.1 million per year to its customers for eight years, beginning in the first year customers experience an increase in transmission charges following the consummation of the ITC Midwest asset acquisition. Beginning in 2009 and extending through 2016, ITC Midwest’s net revenue requirement was or will be reduced by $4.1 million for each year. The rate discount is recognized in revenues when we provide the service and charge the reduced rate that includes the rate discount.

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5. REGULATORY ASSETS AND LIABILITIES

Regulatory Assets

The following table summarizes the regulatory asset balances at December 31, 2015 and 2014:

(In thousands)	2015		2014
Regulatory Assets:
Current:
Revenue accruals (including accrued interest of $265 and $120 as of December 31, 2015 and 2014, respectively) (a)	$	14,736	$	5,393
Non-current:
Revenue accruals (including accrued interest of $153 and $75 as of December 31, 2015 and 2014, respectively) (a)	25,670		12,387
ITCTransmission ADIT Deferral (net of accumulated amortization of $38,886 and $35,856 as of December 31, 2015 and 2014, respectively)	21,716		24,746
METC ADIT Deferral (net of accumulated amortization of $21,228 and $18,869 as of December 31, 2015 and 2014, respectively)	21,228		23,587
METC Regulatory Deferrals (net of accumulated amortization of $6,943 and $6,172 as of December 31, 2015 and 2014, respectively)	8,486		9,257
Income taxes recoverable related to AFUDC equity	103,465		87,168
ITC Great Plains start-up, development and pre-construction (b)	12,577		14,054
Pensions and postretirement	18,981		34,151
Income taxes recoverable related to implementation of the Michigan Corporate Income Tax	8,869		8,869
Accrued asset removal costs	12,117		7,337
Other	267		2,156
Total non-current	233,376		223,712

Total	$	248,112	$	229,105

(a) Refer to discussion of revenue accruals in Note 4 under “Cost-Based Formula Rates with True-Up Mechanism”. Our Regulated Operating Subsidiaries do not earn a return on the balance of these regulatory assets, but do accrue interest carrying costs, which are subject to rate recovery along with the principal amount of the revenue accrual.

(b) Refer to discussion of ITC Great Plains start-up, development and pre-construction in Note 4 under “ITC Great Plains Start-Up, Development and Pre-Construction Regulatory Assets”.

ITCTransmission ADIT Deferral

The carrying amount of the ITCTransmission Accumulated Deferred Income Tax (“ADIT”) Deferral is the remaining unamortized balance of the portion of ITCTransmission’s purchase price in excess of the fair value of net assets acquired approved for inclusion in future rates by the FERC. ITCTransmission earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. The original amount recorded for this regulatory asset of $60.6 million is recognized in rates and amortized on a straight-line basis over 20 years. ITCTransmission recorded amortization expense of $3.0 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through ITCTransmission’s cost-based formula rate template.

METC ADIT Deferral

The carrying amount of the METC ADIT Deferral is the remaining unamortized balance of the portion of METC’s purchase price in excess of the fair value of net assets acquired from Consumers Energy approved for inclusion in future rates by the FERC. The original amount recorded for this regulatory asset of $42.5 million is recognized in rates and amortized on a straight-line basis over 18 years beginning January 1, 2007. METC earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. METC recorded amortization expense of $2.4 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through METC’s cost-based formula rate template.

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METC Regulatory Deferrals

METC has deferred, as a regulatory asset, depreciation and related interest expense associated with new transmission assets placed in service from January 1, 2001 through December 31, 2005 that were included on METC’s balance sheet at the time Michigan Transco Holdings, LLC (“MTH”) acquired METC from Consumers Energy (the “METC Regulatory Deferrals”). The original amount recorded for this regulatory asset of $15.4 million is recognized in rates and amortized over 20 years beginning January 1, 2007. METC earns a return on the remaining unamortized balance of this regulatory asset that is included in rate base. METC recorded amortization expense of $0.8 million annually during 2015, 2014 and 2013, which is included in depreciation and amortization and recovered through METC’s cost-based formula rate template.

Income Taxes Recoverable Related to AFUDC Equity

Accounting standards for income taxes provide that a regulatory asset be recorded if it is probable that a future increase in taxes payable, relating to the book depreciation of AFUDC equity that has been capitalized to property, plant and equipment, will be recovered from customers through future rates. The regulatory asset for the tax effects of AFUDC equity is recovered over the life of the underlying book asset in a manner that is consistent with the depreciation of the AFUDC equity that has been capitalized to property, plant and equipment. We do not earn a return on this regulatory asset and the related deferred tax liabilities do not reduce rate base.

Pensions and Postretirement

Accounting standards for defined benefit pension and other postretirement plans for rate-regulated entities allow for amounts that otherwise would have been charged and/or credited to AOCI to be recorded as a regulatory asset or liability. As the unrecognized amounts recorded to this regulatory asset are recognized, expenses will be recovered from customers in future rates under our cost based formula rates. Our Regulated Operating Subsidiaries do not earn a return on the balance of this regulatory asset.

Income Taxes Recoverable Related to Implementation of the Michigan Corporate Income Tax

In May 2011, the Michigan Business Tax (“MBT”) was repealed and replaced with the Michigan Corporate Income Tax (“CIT”), effective January 1, 2012. Under the CIT, we are taxed at a rate of 6.0% on federal taxable income attributable to our operations in the state of Michigan, subject to certain adjustments. In addition to the traditional income tax, the MBT had also included a modified gross receipts tax that allowed for deductions and credits for certain activities, none of which are part of the CIT. The change in Michigan tax law required us in 2011 to remove deferred income tax balances recognized under the MBT and establish new deferred income tax balances under the CIT, and the net result was incremental deferred state income tax liabilities at both ITCTransmission and METC. Under our cost-based formula rate, the future taxes receivable as a result of the tax law change has resulted in the recognition of a regulatory asset, which will be collected from customers for the 23-year period and the 32-year period for ITCTransmission and METC, respectively, beginning in 2016. ITCTransmission and METC do not earn a return on the balance of this regulatory asset and the related net deferred tax liabilities do not reduce rate base.

Accrued Asset Removal Costs

The carrying amount of the accrued asset removal costs represents the difference between incurred costs to remove property, plant and equipment and the estimated removal costs included in rates. The portion of depreciation expense included in our depreciation rates related to asset removal costs reduces this regulatory asset and removal costs incurred are added to this regulatory asset. In addition, this regulatory asset has also been adjusted for timing differences between incurred costs to settle legal asset retirement obligations and the recognition of such obligations under the standards set forth by the FASB. Our Regulated Operating Subsidiaries include this item, excluding the cost component related to the recognition of our legal asset retirement obligations under the standards set forth by the FASB, as a reduction to accumulated depreciation for rate-making purposes, which is an increase to rate base.

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Regulatory Liabilities

The following table summarizes the regulatory liability balances at December 31, 2015 and 2014:

(In thousands)	2015		2014
Regulatory Liabilities:
Current:
Revenue deferrals (including accrued interest of $1,698 and $1,853 as of December 31, 2015 and 2014, respectively) (a)	$	36,639	$	39,972
Refund related to the formula rate template modifications (including accrued interest of $864 as of December 31, 2015) (b)	8,154		—
Other	171		—
Total current	44,964		39,972
Non-current:
Revenue deferrals (including accrued interest of $101 and $541 as of December 31, 2015 and 2014, respectively) (a)	6,331		33,911
Accrued asset removal costs	70,233		70,705
Refund related to the formula rate template modifications (including accrued interest of $36 as of December 31, 2015) (b)	2,270		—
Estimated potential refund related to return on equity complaints (including accrued interest of $5,979 and $870 as of December 31, 2015 and 2014, respectively) (c)	167,977		47,780
Excess state income tax deductions	7,823		7,504
Other	154		170
Total non-current	254,788		160,070

Total	$	299,752	$	200,042

(a) Refer to discussion of revenue deferrals in Note 4 under “Cost-Based Formula Rates with True-Up Mechanism”. Our Regulated Operating Subsidiaries accrue interest on the true-up amounts which will be refunded through rates along with the principal amount of revenue deferrals in future periods.

(b) Refer to discussion of the refund in Note 4 under “MISO Formula Rate Template Modifications Filing”.

(c) Refer to discussion of the estimated potential refund in Note 16 under “Rate of Return on Equity and Capital Structure Complaints”.

Accrued Asset Removal Costs

Excess State Income Tax Deductions

We have taken income tax deductions associated with property additions that exceed the tax basis of property, and the unrealized income tax benefits resulting from these deductions are expected to be refunded to customers through future rates when the income tax benefits are realized. This regulatory liability and the related deferred tax assets do not affect rate base.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

At December 31, 2015 and 2014, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $453.8 million and $323.0 million, respectively, which resulted from the ITCTransmission and METC acquisitions and ITC Midwest’s asset acquisition, respectively.

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Intangible Assets

Pursuant to the METC acquisition in October 2006, we have identified intangible assets with finite lives derived from the portion of regulatory assets recorded on METC’s historical FERC financial statements that were not recorded on METC’s historical GAAP financial statements associated with the METC Regulatory Deferrals and the METC ADIT Deferral. The carrying amounts of the intangible asset for the METC Regulatory Deferrals and the METC ADIT Deferral were $21.8 million and $9.4 million, respectively, as of December 31, 2015, and $23.7 million and $10.5 million, respectively, as of December 31, 2014. The amortization periods for the METC Regulatory Deferrals and the METC ADIT Deferral are 20 years and 18 years, respectively, beginning January 1, 2007. METC earns an equity return on the remaining unamortized balance of both intangible assets and recovers the amortization expense through METC’s cost-based formula rate template.

ITC Great Plains has recorded intangible assets for payments made by and obligations of ITC Great Plains to certain TOs to acquire rights, which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including the KETA Project and the Kansas V-Plan Project. The carrying amount of these intangible assets was $14.4 million and $14.6 million (net of accumulated amortization of $1.0 million and $0.7 million, respectively) as of December 31, 2015 and 2014, respectively. The amortization period for these intangible assets is 50 years.

During each of the years ended December 31, 2015, 2014 and 2013, we recognized $3.3 million, $3.3 million and $3.2 million, respectively, of amortization expense of our intangible assets. We expect the annual amortization of our intangible assets that have been recorded as of December 31, 2015 to be as follows:

(In thousands)
2016	$	3,334
2017	3,334
2018	3,334
2019	3,334
2020	3,334
2021 and thereafter	28,932
Total	$	45,602

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment — net consisted of the following at December 31, 2015 and 2014:

(In thousands)	2015			2014
Property, plant and equipment
Regulated Operating Subsidiaries:
Property, plant and equipment in service	$	7,085,818		$	6,396,449
Construction work in progress	425,594			391,788
Capital equipment inventory	54,781			68,170
Other	12,550			13,151
ITC Holdings and other	18,609			15,534
Total	7,597,352			6,885,092
Less: Accumulated depreciation and amortization	(1,487,713		)	(1,388,217		)
Property, plant and equipment — net	$	6,109,639		$	5,496,875

Additions to property, plant and equipment in service and construction work in progress during 2015 and 2014 were due primarily for projects to upgrade or replace existing transmission plant to improve the reliability of our transmission systems as well as transmission infrastructure to support generator interconnections and investments that provide regional benefits such as our Multi-Value Projects.

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8. DEBT

The following amounts were outstanding at December 31, 2015 and 2014:

(Amounts in thousands)	2015		2014
ITC Holdings 5.875% Senior Notes, due September 30, 2016 (net of discount of $3 and $6, respectively) (a) (b)	$	139,341	$	139,338
ITC Holdings 6.23% Senior Notes, Series B, due September 20, 2017	50,000		50,000
ITC Holdings 6.375% Senior Notes, due September 30, 2036 (net of discount of $159 and $166, respectively) (a)	200,181		200,174
ITC Holdings 6.05% Senior Notes, due January 31, 2018 (net of discount of $329 and $487, respectively)	384,671		384,513
ITC Holdings 5.50% Senior Notes, due January 15, 2020 (net of discount of $521 and $654, respectively)	199,479		199,346
ITC Holdings 4.05% Senior Notes, due July 1, 2023 (net of discount of $534 and $606, respectively)	249,466		249,394
ITC Holdings 3.65% Senior Notes, due June 15, 2024 (net of discount of $1,124 and $1,258, respectively)	398,876		398,742
ITC Holdings 5.30% Senior Notes, due July 1, 2043 (net of discount of $737 and $763, respectively)	299,263		299,237
ITC Holdings Term Loan Credit Agreement, due September 30, 2016 (b)	161,000		161,000
ITC Holdings Revolving Credit Agreement, due March 28, 2019	137,700		53,500
ITC Holdings Commercial Paper Program (net of discount of $10) (b)	94,990		—
ITCTransmission 6.125% First Mortgage Bonds, Series C, due March 31, 2036 (net of discount of $74 and $79, respectively)	99,926		99,921
ITCTransmission 5.75% First Mortgage Bonds, Series D, due April 1, 2018 (net of discount of $26 and $37, respectively)	99,974		99,963
ITCTransmission 4.625% First Mortgage Bonds, Series E, due August 15, 2043 (net of discount of $422 and $437, respectively)	284,578		284,563
ITCTransmission 4.27% First Mortgage Bonds, Series F, due June 10, 2044	100,000		100,000
ITCTransmission Revolving Credit Agreement, due March 28, 2019	48,300		14,300
METC 5.75% Senior Secured Notes, due December 10, 2015 (b)	—		175,000
METC 5.64% Senior Secured Notes, due May 6, 2040	50,000		50,000
METC 3.98% Senior Secured Notes, due October 26, 2042	75,000		75,000
METC 4.19% Senior Secured Notes, due December 15, 2044	150,000		150,000
METC Term Loan Credit Agreement, due December 7, 2018	200,000		—
METC Revolving Credit Agreement, due March 28, 2019	2,500		—
ITC Midwest 6.15% First Mortgage Bonds, Series A, due January 31, 2038 (net of discount of $388 and $405, respectively)	174,612		174,595
ITC Midwest 7.12% First Mortgage Bonds, Series B, due December 22, 2017	40,000		40,000
ITC Midwest 7.27% First Mortgage Bonds, Series C, due December 22, 2020	35,000		35,000
ITC Midwest 4.60% First Mortgage Bonds, Series D, due December 17, 2024	75,000		75,000
ITC Midwest 3.50% First Mortgage Bonds, Series E, due January 19, 2027	100,000		100,000
ITC Midwest 4.09% First Mortgage Bonds, Series F, due April 30, 2043	100,000		100,000
ITC Midwest 3.83% First Mortgage Bonds, Series G, due April 7, 2055	225,000		—
ITC Midwest Revolving Credit Agreement, due March 28, 2019	72,300		191,200
ITC Great Plains 4.16% First Mortgage Bonds, Series A, due November 26, 2044	150,000		150,000
ITC Great Plains Revolving Credit Agreement, due March 28, 2019	59,100		53,800
Total debt	$	4,456,257	$	4,103,586

(a) The debt obligations were partially retired prior to maturity date through the cash tender offer described below.

(b) As of December 31, 2015 and 2014, there was $395.3 million and $175.0 million, respectively, of debt included within debt maturing within one year that is classified as a current liability in the consolidated statements of financial position.

The annual maturities of debt as of December 31, 2015 are as follows:

(In thousands)
2016	$	395,344
2017	90,000
2018	685,000
2019	319,900
2020	235,000
2021 and thereafter	2,735,340
Total	$	4,460,584

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ITC Holdings

Commercial Paper Program

On June 8, 2015, ITC Holdings established an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed $400.0 million outstanding at any one time. As of December 31, 2015, ITC Holdings had approximately $95.0 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 0.8% and weighted average remaining days to maturity of 6 days. The proceeds from the issuances under the program were used for general corporate purposes, including the repayment of borrowings under ITC Holdings’ revolving credit agreement. The amount outstanding as of December 31, 2015 was classified as debt maturing within one year in the consolidated statements of financial position.

Cash Tender Offer

In May 2014, ITC Holdings commenced a cash tender offer for any and all of the outstanding $255.0 million ITC Holdings 5.875% Senior Notes due September 30, 2016 and $255.0 million ITC Holdings 6.375% Senior Notes due September 30, 2036, under which $115.6 million of the 5.875% Senior Notes and $54.7 million of the 6.375% Senior Notes were validly tendered on May 30, 2014. All of the Senior Notes validly tendered were subsequently retired with the proceeds from the $400.0 million 3.65% Senior Notes described below. ITC Holdings incurred a loss on extinguishment of debt of $29.2 million related to the tender premium, the write-off of deferred debt issuance costs and other related expenses.

Senior Unsecured Notes

On June 4, 2014, ITC Holdings issued $400.0 million aggregate principal amount of 3.65% Senior Notes, due June 15, 2024. The proceeds from the issuance were used for the cash tender offer described above and for general corporate purposes, primarily the repayment of borrowings under the ITC Holdings revolving credit agreement. These ITC Holdings Senior Notes were issued under its 2013 indenture. All issuances of ITC Holdings Senior Notes are unsecured.

ITCTransmission

On June 10, 2014, ITCTransmission issued $75.0 million of the total face amount of $100.0 million of 4.27% First Mortgage Bonds, Series F, due June 10, 2044 (“First Mortgage Bonds, Series F”). ITCTransmission issued the remaining $25.0 million of First Mortgage Bonds, Series F on August 22, 2014. The proceeds from both issuances were used for general corporate purposes, primarily the repayment of borrowings under the ITCTransmission revolving credit agreement. ITCTransmission’s First Mortgage Bonds are issued under its first mortgage and deed of trust and secured by a first mortgage lien on substantially all of its property.

METC

Term Loan Credit Agreements

On December 8, 2015, METC entered into an unsecured, unguaranteed term loan credit agreement due December 7, 2018, under which METC borrowed the maximum of $200.0 million available under the agreement. The proceeds were used to repay the $175.0 million of 5.75% Senior Secured Notes, due December 10, 2015, and for general corporate purposes. The weighted-average interest rate on the borrowing outstanding under this agreement was 1.3% at December 31, 2015.

On January 31, 2014, METC entered into an unsecured, unguaranteed term loan credit agreement, due February 2, 2015, under which METC borrowed the maximum of $50.0 million available under the agreement. The proceeds were used for general corporate purposes, primarily the repayment of borrowings under the METC revolving credit agreement. This borrowing was repaid in full in the fourth quarter of 2014.

Senior Secured Notes

On December 17, 2014, METC issued $150.0 million of 4.19% Senior Secured Notes, due December 15, 2044. The proceeds were used to repay the $50.0 million of 6.63% Senior Secured Notes, due December 18, 2014, and the $50.0 million borrowed under METC’s term loan credit agreement described above and for general

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corporate purposes, including the repayment of borrowings under METC’s revolving credit agreement. The METC Senior Secured Notes are issued under its first mortgage indenture and secured by a first mortgage lien on substantially all of its real property and tangible personal property.

ITC Midwest

On April 7, 2015, ITC Midwest issued $225.0 million aggregate principal amount of 3.83% First Mortgage Bonds, Series G, due April 7, 2055. The proceeds from the issuance were used for general corporate purposes, including the repayment of borrowings under ITC Midwest’s revolving credit agreement. ITC Midwest’s First Mortgage Bonds are issued under its first mortgage and deed of trust and secured by a first mortgage lien on substantially all of its property.

ITC Great Plains

First Mortgage Bonds

On November 26, 2014, ITC Great Plains issued $150.0 million of 4.16% First Mortgage Bonds, Series A, due November 26, 2044. The proceeds were used to repay the $100.0 million borrowed under a term loan credit agreement entered into by ITC Great Plains and for general corporate purposes, including the repayment of borrowings under the ITC Great Plains’ revolving credit agreement. ITC Great Plains’ First Mortgage Bonds are issued under its first mortgage and deed of trust and secured by a first mortgage lien on substantially all of its property.

Derivative Instruments and Hedging Activities

We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 5.875% Senior Notes, due September 30, 2016 (“5.875% Senior Notes”). As of December 31, 2015, ITC Holdings had $139.3 million outstanding under the 5.875% Senior Notes.

Interest Rate Swaps (Amounts in millions)	Notional Amount		Fixed Rate		Original Term	Effective Date
August 2014 swap	$	25.0	3.217	%	10 years	September 2016
October 2014 swap	25.0		3.075	%	10 years	September 2016
January 2015 swap	25.0		2.301	%	10 years	September 2016
Total	$	75.0

The 10-year term interest rate swaps call for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and pay interest semi-annually at various fixed rates effective for the 10-year period beginning September 30, 2016 after the agreements have been terminated. The agreements include a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swaps of September 30, 2016. The interest rate swaps have been determined to be highly effective at offsetting changes in the fair value of the forecasted interest cash flows associated with the expected debt issuance, resulting from changes in benchmark interest rates from the trade date of the interest rate swaps to the issuance date of the debt obligation. ITC Holdings entered into two additional 10-year interest rate swap contracts in February 2016 with notional amounts of $25.0 million each and fixed rates of 1.770% and 1.619%. These additional interest rate swaps also manage interest rate risk associated with the expected refinancing of the 5.875% Senior Notes and have terms comparable to the interest rate swaps described above.

As of December 31, 2015, there has been no material ineffectiveness recorded in the consolidated statement of operations. The interest rate swaps qualify for hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date for the effective portion of the hedge is recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be accumulated and amortized as a component of interest expense over the life of the related forecasted debt issuance. As of December 31, 2015,

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the fair value of the derivative instruments was an asset of $0.1 million recorded to other current assets and a liability of $3.5 million recorded to other current liabilities. None of the interest rate swaps contain credit-risk-related contingent features. Refer to Note 12 for additional fair value information.

Revolving Credit Agreements

At December 31, 2015, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:

	Total							Weighted Average
	Available		Outstanding		Unused			Interest Rate on		Commitment
(Amounts in millions)	Capacity		Balance (a)		Capacity			Outstanding Balance		Fee Rate (b)
ITC Holdings	$	400.0	$	137.7	$	262.3	(c)	1.6	% (d)	0.175	%
ITCTransmission	100.0		48.3		51.7			1.4	% (e)	0.10	%
METC	100.0		2.5		97.5			1.4	% (e)	0.10	%
ITC Midwest	250.0		72.3		177.7			1.4	% (e)	0.10	%
ITC Great Plains	150.0		59.1		90.9			1.4	% (e)	0.10	%
Total	$	1,000.0	$	319.9	$	680.1

(a) Included within long-term debt.

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

(c) ITC Holdings’ revolving credit agreement may be used for general corporate purposes, including to repay commercial paper issued pursuant to the commercial paper program described above, if necessary. While outstanding commercial paper does not reduce available capacity under ITC Holdings’ revolving credit agreement, the unused capacity under this agreement adjusted for the commercial paper outstanding was $167.3 million as of December 31, 2015.

(d) Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.

(e) Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and maintaining certain interest coverage ratios. As of December 31, 2015, we were not in violation of any debt covenant.

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9. EARNINGS PER SHARE

We report both basic and diluted EPS. Our restricted stock contain rights to receive nonforfeitable dividends and thus, are participating securities requiring the two-class method of computing EPS. A reconciliation of both calculations for the years ended December 31, 2015, 2014 and 2013 is presented in the following table (see additional information below under “Stock Split” for the recast share and per share data for the year ended December 31, 2013 as a result of the three-for-one stock split):

	Year Ended December 31,
(In thousands, except share, per share data and percentages)	2015			2014			2013
Numerator:
Net income	$	242,406		$	244,083		$	233,506
Less: dividends declared and paid — common and restricted shares	(108,211		)	(95,503		)	(84,104		)
Undistributed earnings	134,195			148,580			149,402
Percentage allocated to common shares (a)	99.3		%	99.2		%	99.1		%
Undistributed earnings — common shares	133,256			147,391			148,057
Add: dividends declared and paid — common shares	107,520			94,824			83,351
Numerator for basic and diluted earnings per common share	$	240,776		$	242,215		$	231,408
Denominator:
Basic earnings per common share — weighted average common shares outstanding	153,670,087			155,363,848			155,736,384
Incremental shares for stock options, ESPP shares and performance shares — weighted average assumed conversion	1,031,034			1,453,804			1,288,620
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	154,701,121			156,817,652			157,025,004
Per common share net income:
Basic	$	1.57		$	1.56		$	1.49
Diluted	$	1.56		$	1.54		$	1.47

(a) Weighted average common shares outstanding	153,670,087		155,363,848		155,736,384
Weighted average restricted shares (participating securities)	1,102,051		1,277,128		1,472,967
Total	154,772,138		156,640,976		157,209,351
Percentage allocated to common shares	99.3	%	99.2	%	99.1	%

The incremental shares for stock options and the ESPP shares are included in the diluted EPS calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. Additionally, the performance shares discussed in Note 14 are included in the diluted EPS calculation using the treasury stock method when the performance metric is substantively measurable as of the end of the reporting period and has been met under the assumption the end of the reporting period was the end of the performance period. The outstanding stock options, ESPP shares and performance shares and the anti-dilutive stock options and ESPP shares excluded from the diluted EPS calculations were as follows:

	2015	2014	2013
Outstanding stock options, ESPP shares and performance shares (as of December 31)	4,096,910	4,603,292	5,169,828
Anti-dilutive stock options and ESPP shares (for the year ended December 31)	1,056,250	550,178	912,570

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Stock Split

Below are the effects of the stock split on earnings per share for the year ended December 31, 2013:

(In thousands, except per share and share data)	Reported		Adjustment			Adjusted
For the year ended December 31, 2013
Numerator for basic and diluted earnings per common share	$	231,408	$	—		$	231,408
Denominator:
Basic earnings per common share — weighted average common shares	51,912,128		103,824,256			155,736,384
Incremental shares for stock options and employee stock purchase plan	429,540		859,080			1,288,620
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	52,341,668		104,683,336			157,025,004
Per common share net income:
Basic	$	4.46	$	(2.97	)	$	1.49
Diluted	$	4.42	$	(2.95	)	$	1.47

Below are the effects of the stock split on other disclosures included for earnings per share for the year ended December 31, 2013:

Percentage Allocated to Common Shares

	Reported		Adjustment		Adjusted
For the year ended December 31, 2013
Weighted-average common shares outstanding	51,912,128		103,824,256		155,736,384
Weighted-average restricted shares (participating securities)	490,989		981,978		1,472,967
Total	52,403,117		104,806,234		157,209,351
Percentage allocated to common shares	99.1	%	—	%	99.1	%

Outstanding and Anti-dilutive Stock Options and ESPP Shares

The outstanding stock options and the ESPP shares as of December 31, 2013 and the anti-dilutive stock options and ESPP shares excluded from the diluted earnings per share calculations for the year ended December 31, 2013 was as follows:

	Reported	Adjustment	Adjusted
As of and for the year ended December 31, 2013
Outstanding stock options and ESPP shares	1,723,276	3,446,552	5,169,828
Anti-dilutive stock options and ESPP shares	304,190	608,380	912,570

Impacts of the Accelerated Share Repurchase Program

The basic shares outstanding as of December 31, 2015 and 2014 include the impact of the aggregate 7.2 million and 3.6 million shares, respectively, received under the ASR programs described in Note 13.

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10. INCOME TAXES

Our effective tax rate varied from the statutory federal income tax rate due to differences between the book and tax treatment of various transactions as follows:

(In thousands)	2015			2014			2013
Income tax expense at 35% statutory rate	$	134,357		$	138,042		$	123,329
State income taxes (net of federal benefit)	13,366			16,054			9,110
AFUDC equity	(8,469		)	(6,201		)	(9,715		)
Entergy Transaction expenses (a)	—			—			(5,614		)
Other — net	2,217			2,427			1,752
Total income tax provision	$	141,471		$	150,322		$	118,862

(a) See Note 17 for discussion of the Entergy Transaction.

Components of the income tax provision were as follows:

(In thousands)	2015		2014		2013
Current income tax expense	$	64,100	$	59,949	$	42,159
Deferred income tax expense	76,833		90,313		76,094
Benefits of operating loss carryforward	538		60		609
Total income tax provision	$	141,471	$	150,322	$	118,862

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the financial statements.

Deferred income tax assets (liabilities) consisted of the following at December 31:

(In thousands)	2015			2014
Property, plant and equipment	$	(678,567	)	$	(560,960	)
METC regulatory deferral (a)	(11,629		)	(12,721		)
Acquisition adjustments — ADIT deferrals (a)	(15,300		)	(15,164		)
Goodwill	(147,894		)	(133,138		)
Net revenue accruals and deferrals, including accrued interest (a)	961			22,047
Refund liabilities (a)	70,234			18,878
Pension and postretirement liabilities	18,508			14,196
State income tax NOLs (net of federal benefit)	20,375			20,004
Share-based compensation	13,661			12,211
Other — net	(5,775		)	(7,404		)
Net deferred tax liabilities	$	(735,426	)	$	(642,051	)
Gross deferred income tax liabilities	$	(888,727	)	$	(810,141	)
Gross deferred income tax assets	153,301			168,090
Net deferred tax liabilities	$	(735,426	)	$	(642,051	)

(a) Described in Note 5.

We have state income tax net operating losses (“NOLs”) as of December 31, 2015, all of which we expect to use prior to their expiration. Our state income tax NOLs would expire beginning in 2022. In addition to the estimated state income tax NOL deferred tax assets in the table above, we have additional estimated state income tax NOLs of $8.6 million and $7.1 million tax effected, net of federal benefit, as of December 31, 2015 and 2014, respectively, that have not been recognized in the consolidated statements of financial position relating to tax deductions for share-based payment. The accounting standards for share-based payment require that a tax deduction that exceeds book value be recognized only if that deduction reduces taxes payable as a result of a realized cash benefit from the deduction.

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Balance Sheet Classification of Deferred Taxes

As described in Note 3, we adopted accounting guidance that requires deferred tax assets and deferred tax liabilities to be presented as non-current in our balance sheet and have applied this change to all amounts presented in our consolidated statements of financial position. The following shows the impact of this adoption on our previously reported consolidated statement of financial position as of December 31, 2014:

(In thousands)	Reported		Adjustment			Adjusted
Current assets — Deferred income taxes	$	14,511	$	(14,511	)	$	—
Non-current liabilities — Deferred income taxes	656,562		(14,511		)	642,051

11. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Pension Plan Benefits

We have a qualified defined benefit pension plan (“retirement plan”) for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the retirement plan is to contribute amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as we determine appropriate. We made contributions of $4.1 million, $3.8 million and $6.9 million to the retirement plan in 2015, 2014 and 2013, respectively. We expect to contribute up to $2.8 million to the retirement plan in 2016.

We also have two supplemental nonqualified, noncontributory, defined benefit pension plans for selected management employees (the “supplemental benefit plans” and collectively with the retirement plan, the “pension plans”). The supplemental benefit plans provide for benefits that supplement those provided by the retirement plan. The obligations under these supplemental benefit plans are included in the pension benefit obligation calculations below. The investments held in trust for the supplemental benefit plans of $35.6 million and $26.5 million at December 31, 2015 and 2014, respectively, are not included in the plan asset amounts presented below, but are included in other assets on our consolidated statement of financial position. For the years ended December 31, 2015, 2014 and 2013, we contributed $9.4 million, $5.1 million and $0.6 million, respectively, to these supplemental benefit plans.

Our investments held for the supplemental benefit plans are classified as available-for-sale securities and the net unrealized loss of $0.2 million through December 31, 2015 and net unrealized gain of $0.1 million through December 31, 2014 were recognized in the accumulated other comprehensive income component of equity.

The plan assets of the retirement plan consisted of the following assets by category:

Asset Category	2015		2014
Fixed income securities	50.4	%	48.8	%
Equity securities	49.6	%	51.2	%
Total	100.0	%	100.0	%

Net periodic benefit cost for the pension plans during 2015, 2014 and 2013 was as follows by component:

(In thousands)	2015			2014			2013
Service cost	$	6,496		$	5,066		$	5,261
Interest cost	3,696			3,603			2,792
Expected return on plan assets	(3,838		)	(3,541		)	(2,868		)
Amortization of prior service credit	(42		)	(42		)	(42		)
Amortization of unrecognized loss	4,243			1,545			2,714
Net pension cost	$	10,555		$	6,631		$	7,857

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The following table reconciles the obligations, assets and funded status of the pension plans as well as the presentation of the funded status of the pension plans in the consolidated statements of financial position as of December 31, 2015 and 2014:

(In thousands)	2015			2014
Change in Benefit Obligation:
Beginning projected benefit obligation	$	(95,740	)	$	(73,468	)
Service cost	(6,496		)	(5,066		)
Interest cost	(3,696		)	(3,603		)
Actuarial net gain (loss)	5,869			(14,937		)
Benefits paid	2,747			1,334
Other	128			—
Ending projected benefit obligation	$	(97,188	)	$	(95,740	)
Change in Plan Assets:
Beginning plan assets at fair value	$	56,390		$	48,894
Actual return on plan assets	(129		)	4,851
Employer contributions	4,102			3,822
Benefits paid	(2,108		)	(1,177		)
Other	(128		)	—
Ending plan assets at fair value	$	58,127		$	56,390
Funded status, underfunded	$	(39,061	)	$	(39,350	)
Accumulated benefit obligation:
Retirement plan	$	(49,169	)	$	(48,571	)
Supplemental benefit plans	(40,830		)	(35,962		)
Total accumulated benefit obligation	$	(89,999	)	$	(84,533	)
Amounts recorded as:
Funded Status:
Accrued pension liabilities	$	(45,322	)	$	(44,033	)
Other non-current assets	6,408			4,683
Other current liabilities	(147		)	—
Total	$	(39,061	)	$	(39,350	)
Unrecognized Amounts in Non-current Regulatory Assets:
Net actuarial loss	$	18,724		$	24,868
Prior service credit	66			25
Total	$	18,790		$	24,893

The unrecognized amounts that otherwise would have been charged and/or credited to accumulated other comprehensive income in accordance with the FASB guidance on accounting for retirement benefits are recorded as a regulatory asset on our consolidated statements of financial position as discussed in Note 5. The amounts recorded as a regulatory asset represent a net periodic benefit cost to be recognized in our operating income in future periods.

The actuarial net loss in 2014 includes the impact of a change in our mortality assumption, which generally assumes longer life expectancies for plan participants as compared with our prior assumption. Additionally the reduction in our discount rate assumption contributed to the actuarial net loss in 2014. The actuarial net gain in 2015 resulted primarily from an increase in discount rates.

Actuarial assumptions used to determine the benefit obligation for the pension plans at December 31, 2015, 2014 and 2013 are as follows:

	2015	2014	2013
Discount rate	4.01 - 4.44%	3.75 - 4.05%	4.60 - 5.10%
Annual rate of salary increases	4.00%	4.00%	4.00 - 6.00%

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Actuarial assumptions used to determine the benefit cost for the pension plans for the years ended December 31, 2015, 2014 and 2013 are as follows:

	2015	2014	2013
Discount rate	3.75 - 4.05%	4.60 - 5.10%	3.70 - 4.45%
Annual rate of salary increases	4.00%	4.00 - 6.00%	5.00 - 6.00%
Expected long-term rate of return on plan assets	6.70%	6.75%	7.00%

At December 31, 2015, the projected benefit payments for the pension plans calculated using the same assumptions as those used to calculate the benefit obligation described above are as follows:

(In thousands)
2016	$	1,716
2017	5,259
2018	5,548
2019	5,878
2020	6,551
2021 through 2025	38,681

Investment Objectives and Fair Value Measurement

The general investment objectives of the retirement plan include maximizing the return within reasonable and prudent levels of risk and controlling administrative and management costs. The targeted asset allocation is weighted equally between equity and fixed income investments. Investment decisions are made by our retirement benefits board as delegated by our board of directors. Equity investments may include various types of U.S. and international equity securities, such as large-cap, mid-cap and small-cap stocks. Fixed income investments may include cash and short-term instruments, U.S. Government securities, corporate bonds, mortgages and other fixed income investments. No investments are prohibited for use in the retirement plan, including derivatives, but our exposure to derivatives currently is not material. We intend that the long-term capital growth of the retirement plan, together with employer contributions, will provide for the payment of the benefit obligations.

We determine our expected long-term rate of return on plan assets based on the current and expected target allocations of the retirement plan investments and considering historical and expected long-term rates of returns on comparable fixed income investments and equity investments.

The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the years ended December 31, 2015 and 2014, there were no transfers between levels.

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The fair value measurement of the retirement plan assets as of December 31, 2015, was as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
(In thousands)	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Mutual funds — U.S. equity securities	$	23,427	$	—	$	—
Mutual funds — international equity securities	5,409		—		—
Mutual funds — fixed income securities	29,291		—		—
Total	$	58,127	$	—	$	—

The fair value measurement of the retirement plan assets as of December 31, 2014, was as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
(In thousands)	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Mutual funds — U.S. equity securities	$	23,770	$	—	$	—
Mutual funds — international equity securities	5,096		—		—
Mutual funds — fixed income securities	23,783		—		—
Guaranteed deposit fund	—		3,741		—
Total	$	52,649	$	3,741	$	—

The mutual funds consist primarily of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. The guaranteed deposit fund was a group annuity contract and was valued at estimated fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations that were quoted in active markets, which represented the net asset value as of December 31, 2014. As of December 31, 2014, there were no unfunded commitments for the guaranteed deposit fund and the investment allowed a daily redemption with a one day notice.

Other Postretirement Benefits

We provide certain postretirement health care, dental and life insurance benefits for eligible employees. We contributed $9.1 million, $6.3 million and $1.5 million to the postretirement benefit plan in 2015, 2014 and 2013, respectively. We expect to contribute up to $9.2 million to the plan in 2016.

The plan assets consisted of the following assets by category:

Asset Category	2015		2014
Fixed income securities	50.0	%	57.2	%
Equity securities	50.0	%	42.8	%
Total	100.0	%	100.0	%

Our measurement of the accumulated postretirement benefit obligation as of December 31, 2015 and 2014 does not reflect the potential receipt of any subsidies under the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

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Net postretirement benefit plan cost for 2015, 2014 and 2013 was as follows by component:

(In thousands)	2015			2014			2013
Service cost	$	8,486		$	5,846		$	5,774
Interest cost	2,477			1,991			1,562
Expected return on plan assets	(1,852		)	(1,361		)	(1,415		)
Amortization of unrecognized loss	499			—			220
Net postretirement cost	$	9,610		$	6,476		$	6,141

The following table reconciles the obligations, assets and funded status of the plan as well as the amounts recognized as accrued postretirement liability in the consolidated statements of financial position as of December 31, 2015 and 2014:

(In thousands)	2015			2014
Change in Benefit Obligation:
Beginning accumulated postretirement obligation	$	(57,927	)	$	(42,706	)
Service cost	(8,486		)	(5,846		)
Interest cost	(2,477		)	(1,991		)
Actuarial net gain (loss)	10,265			(7,695		)
Benefits paid	662			311
Other	8			—
Ending accumulated postretirement obligation	$	(57,955	)	$	(57,927	)
Change in Plan Assets:
Beginning plan assets at fair value	$	32,397		$	24,004
Actual return on plan assets	155			2,107
Employer contributions	9,122			6,286
Employer provided retiree premiums	662			311
Benefits paid	(662		)	(311		)
Other	(6		)	—
Ending plan assets at fair value	$	41,668		$	32,397
Funded status, underfunded	$	(16,287	)	$	(25,530	)
Amounts recorded as:
Funded Status:
Accrued postretirement liabilities	$	(16,287	)	$	(25,530	)
Total	$	(16,287	)	$	(25,530	)
Unrecognized Amounts in Non-current Regulatory Assets:
Net actuarial loss	$	191		$	9,258
Total	$	191		$	9,258

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Actuarial assumptions used to determine the benefit obligation at December 31, 2015, 2014 and 2013 are as follows:

	2015		2014		2013
Discount rate	4.62	%	4.20	%	5.15	%
Annual rate of salary increases	4.00	%	4.00	%	4.00	%
Health care cost trend rate assumed for next year	7.15	%	7.25	%	7.50	%
Rate to which the cost trend rate is assumed to decline	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2022		2022		2022
Annual rate of increase in dental benefit costs	5.00	%	5.00	%	5.00	%

Actuarial assumptions used to determine the benefit cost for the years ended December 31, 2015, 2014 and 2013 are as follows:

	2015		2014		2013
Discount rate	4.20	%	5.15	%	4.20	%
Annual rate of salary increases	4.00	%	4.00	%	5.00	%
Health care cost trend rate assumed for next year	7.25	%	7.50	%	8.00	%
Rate to which the cost trend rate is assumed to decline	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2022		2022		2017
Expected long-term rate of return on plan assets	5.20	%	5.50	%	7.00	%

At December 31, 2015, the projected benefit payments for the postretirement benefit plan calculated using the same assumptions as those used to calculate the benefit obligations listed above are as follows:

(In thousands)
2016	$	636
2017	734
2018	967
2019	1,241
2020	1,603
2021 through 2025	13,245

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase or decrease in assumed health care cost trend rates would have the following effects on costs for 2015 and the postretirement benefit obligation at December 31, 2015:

	One-Percentage-		One-Percentage-
(In thousands)	Point Increase		Point Decrease
Effect on total of service and interest cost	$	3,288	$	(2,282	)
Effect on postretirement benefit obligation	13,452		(9,869		)

Investment Objectives and Fair Value Measurement

The general investment objectives of the other postretirement benefit plan include maximizing the return within reasonable and prudent levels of risk and controlling administrative and management costs. The targeted asset allocation is weighted equally between equity and fixed income investments. Investment decisions are made by our retirement benefits board as delegated by our board of directors. Equity investments may include various types of U.S. and international equity securities, such as large-cap, mid-cap and small-cap stocks. Fixed income investments may include cash and short-term instruments, U.S. Government securities, corporate bonds, mortgages and other fixed income investments. No investments are prohibited for use in the other postretirement benefit plan, including derivatives, but our exposure to derivatives currently is not material. We

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intend that the long-term capital growth of the other postretirement benefit plan, together with employer contributions, will provide for the payment of the benefit obligations.

We determine our expected long-term rate of return on plan assets based on the current target allocations of the retirement plan investments as well as consider historical returns on comparable fixed income investments and equity investments.

The fair value measurement of the other postretirement benefit plan assets as of December 31, 2015, was as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
(In thousands)	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents	$	30	$	—	$	—
Mutual funds — U.S. equity securities	19,981		—		—
Mutual funds — international equity securities	863		—		—
Mutual funds — fixed income securities	20,794		—		—
Total	$	41,668	$	—	$	—

The fair value measurement of the other postretirement benefit plan assets as of December 31, 2014, was as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
(In thousands)	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents	$	5,099	$	—	$	—
Mutual funds — U.S. equity securities	13,070		—		—
Mutual funds — international equity securities	785		—		—
Mutual funds — fixed income securities	12,790		—		—
Guaranteed deposit fund	—		653		—
Total	$	31,744	$	653	$	—

Our investments included in cash equivalents consist of money market mutual funds and common and collective trusts that are administered similar to money market funds recorded at cost plus accrued interest to approximate fair value. Our mutual fund investments consist primarily of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. The guaranteed deposit fund was a group annuity contract and was valued at estimated fair value based on the underlying assets of the fund by discounting the related cash flows based on current yields of similar instruments with comparable durations, which represented the net asset value as of December 31, 2014. As of December 31, 2014, there were no unfunded commitments for the guaranteed deposit fund and the investment allowed a daily redemption with a one day notice.

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Defined Contribution Plan

We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was $4.6 million, $4.5 million and $4.5 million in 2015, 2014 and 2013, respectively.

12. FAIR VALUE MEASUREMENTS

Our assets and liabilities measured at fair value subject to the three-tier hierarchy at December 31, 2015, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant			Significant
	Active Markets for		Other Observable			Unobservable
(In thousands)	Identical Assets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	49	$	—		$	—
Mutual funds — fixed income securities	35,813		—			—
Mutual funds — equity securities	976		—			—
Interest rate swap derivative	—		112			—
Financial liabilities measured on a recurring basis:
Interest rate swap derivatives	—		(3,548		)	—
Total	$	36,838	$	(3,436	)	$	—

Our assets and liabilities measured at fair value subject to the three-tier hierarchy at December 31, 2014, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant			Significant
	Active Markets for		Other Observable			Unobservable
(In thousands)	Identical Assets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	5,452	$	—		$	—
Mutual funds — fixed income securities	26,715		—			—
Mutual funds — equity securities	667		—			—
Financial liabilities measured on a recurring basis:
Interest rate swap derivatives	—		(1,934		)	—
Total	$	32,834	$	(1,934	)	$	—

As of December 31, 2015 and 2014, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets included in the table consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental

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nonqualified, noncontributory, retirement benefit plans for selected management employees. Our cash and cash equivalents consist of money market funds that are recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value. Gain and losses are recorded in earnings for investments classified as trading securities and other comprehensive income for investments classified as available-for-sale.

The asset and liability related to derivatives consist of interest rate swaps as discussed in Note 8. The fair value of our interest rate swap derivatives is determined based on a discounted cash flow (“DCF”) method using LIBOR swap rates, which are observable at commonly quoted intervals.

Fair Value of Financial Assets and Liabilities

Fixed Rate Debt

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper, was $3,879.7 million and $3,985.6 million at December 31, 2015 and 2014, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, net of discount and excluding revolving and term loan credit agreements and commercial paper, was $3,680.4 million and $3,629.8 million at December 31, 2015 and 2014, respectively.

Revolving and Term Loan Credit Agreements

At December 31, 2015 and 2014, we had a consolidated total of $680.9 million and $473.8 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.

Other Financial Instruments

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

13. STOCKHOLDERS’ EQUITY

Common Stock

General — At December 31, 2015, ITC Holdings’ authorized capital stock consisted of:

· 300 million shares of common stock, without par value; and

· 10 million shares of preferred stock, without par value.

As of December 31, 2015, there were 152,699,077 shares of our common stock outstanding (some of which are restricted stock awards and performance shares), no shares of preferred stock outstanding and 838 holders of record of our common stock.

Stock Split — On February 6, 2014, the board of directors declared a three-for-one split of our common stock to be accomplished by means of a stock distribution on February 28, 2014 to shareholders of record on February 18, 2014. All unvested restricted stock awards and outstanding stock option awards were adjusted under the

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terms of the respective agreements for this three-for-one split. The share and per share data in this Form 10-K reflects the three-for-one stock split effective February 28, 2014, unless otherwise noted.

Accelerated Share Repurchase Program — In April 2014, our board of directors authorized and ITC Holdings announced a share repurchase program for up to $250.0 million, which expired on December 31, 2015.

Pursuant to such authorization, on June 19, 2014, ITC Holdings entered into an accelerated share repurchase agreement (the “2014 ASR Program”) with JP Morgan Chase (“JP Morgan”) for up to $150.0 million, with a minimum commitment of $130.0 million. Under the 2014 ASR Program, ITC Holdings advanced $150.0 million to JP Morgan in June 2014 and received an initial delivery of 2.9 million shares with a fair market value of $104.0 million, based on the closing market price of $35.80 per share at the commencement of the 2014 ASR Program. On December 22, 2014, the 2014 ASR Program was settled for $130.0 million and ITC Holdings received an additional 0.7 million shares as determined by the volume-weighted average share price during the term of the 2014 ASR Program, less an agreed upon discount and adjusted for the initial share delivery. Additionally, ITC Holdings received a repayment of the unused advance of $20.0 million. ITC Holdings recorded the net $130.0 million payment as a reduction to common stock as of December 31, 2014.

On September 30, 2015, ITC Holdings entered into another accelerated share repurchase agreement (the “2015 ASR Program”) with Barclays Bank PLC (“Barclays”) for $115.0 million, which is part of the share repurchase program described above. Under the 2015 ASR Program, ITC Holdings paid $115.0 million to Barclays on September 30, 2015 and received an initial delivery of 2.8 million shares on October 1, 2015. The fair market value of the initial delivery of shares was $92.0 million, based on the closing market price of $33.34 per share at the commencement of the 2015 ASR Program. The 2015 ASR Program was settled on November 5, 2015 and ITC Holdings received an additional 0.8 million shares as determined by the volume-weighted average share price during the term of the 2015 ASR Program, less an agreed upon discount and adjusted for the initial share delivery. ITC Holdings recorded the $115.0 million payment as a reduction to common stock as of December 31, 2015.

Voting Rights — Each holder of ITC Holdings’ common stock, including holders of our common stock subject to restricted stock and performance share awards, is entitled to cast one vote for each share held of record on all matters submitted to a vote of shareholders, including the election of directors. Holders of ITC Holdings’ common stock have no cumulative voting rights.

Dividends — Holders of our common stock, including holders of common stock subject to restricted stock and performance share awards, are entitled to receive dividends or other distributions declared by the board of directors. However, performance shares earn and accumulate dividend equivalents, which are settled in the form of additional shares upon vesting of the related award. Dividend equivalents paid on performance shares that do not vest will be forfeited. The right of the board of directors to declare dividends is subject to the right of any holders of ITC Holdings’ preferred stock, to the extent that any preferred stock is authorized and issued, and the availability under the Michigan Business Corporation Act of sufficient funds to pay dividends. We have not issued any shares of preferred stock. The declaration and payment of dividends is subject to the discretion of ITC Holdings’ board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by ITC Holdings’ board of directors.

As a holding company with no business operations, ITC Holdings’ assets consist primarily of the stock and membership interests in its subsidiaries, deferred tax assets and cash on hand. ITC Holdings’ only sources of cash to pay dividends to our stockholders are dividends and other payments received by us from our Regulated Operating Subsidiaries and any of our other subsidiaries as well as the proceeds raised from the sale of our debt and equity securities. Each of our Regulated Operating Subsidiaries, however, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us for the payment of dividends to ITC Holdings’ shareholders or otherwise. The ability of each of our Regulated Operating Subsidiaries and any of our other subsidiaries to pay dividends and make other payments to ITC Holdings is subject to, among other things, the availability of funds, after considering the capital expenditure requirements, the terms of its indebtedness, applicable state laws and regulations of the FERC and the FPA.

The debt agreements to which we are a party impose restrictions on ITC Holdings and its subsidiaries’ respective abilities to pay dividends if an event of default has occurred under the relevant agreement, and thus,

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ITC Holdings’ ability to pay dividends on its 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 and term loan credit facilities and our other debt instruments. ITC Holdings’ 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 ITC Holdings’ board of directors.

Pursuant to SEC requirements, Schedule I included in this Schedule E is required due to restrictions that limit the payment of dividends to ITC Holdings by its subsidiaries. Each of our Regulated Operating Subsidiaries as of December 31, 2015 are limited in using net assets for dividends based on management’s intent to maintain the FERC-approved capital structure targeting 60% equity and 40% debt for each of our Regulated Operating Subsidiaries. These net assets are included in Schedule I as the line-item “Investments in subsidiaries”. Management does not expect that maintaining this targeted capital structure will have an impact on our ability to pay dividends at the current level in the foreseeable future.

Liquidation Rights — If ITC Holdings is dissolved, the holders of our common stock will share ratably in the distribution of all assets that remain after we pay all of our liabilities and satisfy our obligations to the holders of any of ITC Holdings’ preferred stock, to the extent that any preferred stock is authorized and issued.

Preemptive and Other Rights — Holders of our common stock have no preemptive rights to purchase or subscribe for any of our stock or other securities of our company and there are no conversion rights or redemption or sinking fund provisions with respect to our common stock.

Repurchases — In 2015, 2014 and 2013, we repurchased 4,201,847, 3,673,226 and 163,320 shares of common stock for an aggregate of $137.1 million, $134.3 million and $4.9 million, respectively, which represented shares of common stock delivered to us by employees as payment of tax withholdings due upon the vesting of restricted stock and shares delivered under the ASR programs described above.

Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI for the years ended December 31, 2015, 2014 and 2013:

	Year Ended December 31,
(In thousands)	2015			2014			2013
Balance at the beginning of period	$	4,816		$	6,327		$	(18,048	)
Derivative instruments
Reclassification of net loss (gain) relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $342, $349 and $436 for the years ended December 31, 2015, 2014 and 2013, respectively)	501			445			(25		)
Reclassification of loss relating to interest rate cash flow hedges from AOCI to loss on extinguishment of debt (net of tax of $83 for the year ended December 31, 2014)	—			117			—
(Loss) gain on interest rate swaps relating to interest rate cash flow hedges (net of tax of $625, $1,465 and $15,652 for the years ended December 31, 2015, 2014 and 2013, respectively)	(876		)	(2,041		)	24,329
Derivative instruments, net of tax	(375		)	(1,479		)	24,304
Available-for-sale securities
Unrealized (loss) gain on available-for-sale securities (net of tax of $126, $18 and $46 for the years ended December 31, 2015, 2014 and 2013, respectively)	(176		)	(32		)	71
Available-for-sale securities, net of tax	(176		)	(32		)	71
Total other comprehensive (loss) income, net of tax	(551		)	(1,511		)	24,375
Balance at the end of period	$	4,265		$	4,816		$	6,327

The amount of net loss relating to interest rate cash flow hedges to be reclassified from AOCI to interest expense for the 12-month period ending December 31, 2016 is not expected to be material.

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14. SHARE-BASED COMPENSATION

The share and per share data below reflects the three-for-one stock split effective February 28, 2014. See Note 13 for discussion on the stock split. Our 2015 LTIP, which was adopted by our board and approved by shareholders in 2015, permits the compensation committee to make grants of a variety of share-based awards (such as options, restricted stock, restricted stock units and performance shares) for a cumulative amount of up to 6,500,000 shares to employees, directors and consultants. The 2015 LTIP provides that no more than 4,600,000 of the shares may be granted as awards to be settled in shares of common stock other than options or stock appreciation rights. Under the 2015 LTIP agreement, no awards would be permitted after March 26, 2025. Prior to the adoption of the 2015 LTIP, we made various share-based awards under the 2006 LTIP, including options, restricted stock, deferred stock units and performance shares. In addition, our board of directors and shareholders approved a new ESPP in 2015, which replaced the previous ESPP, and allows for the issuance of an aggregate of 1,000,000 shares of our common stock. Participation in this plan is available to substantially all employees. ITC Holdings issues new shares to satisfy option exercises, restricted stock and performance share grants, employee ESPP purchases and settlement of deferred stock units. As of December 31, 2015, 11,276,238 shares were available for future issuance under our 2006 LTIP, 2015 LTIP and ESPP, including 3,817,200 shares issuable upon the exercise of outstanding stock options, of which 2,718,865 were vested.

We recorded share-based compensation in 2015, 2014 and 2013 as follows:

(In thousands)	2015		2014		2013
Operation and maintenance expenses	$	1,672	$	1,444	$	1,617
General and administrative expenses	10,546		8,549		9,318
Amounts capitalized to property, plant and equipment	5,391		4,659		4,731
Total share-based compensation	$	17,609	$	14,652	$	15,666
Total tax benefit recognized in the consolidated statement of operations	$	5,087	$	4,182	$	4,557

Tax deductions that exceed the cumulative compensation cost recognized for options exercised, restricted shares that vested or deferred stock units that are settled are recognized as common stock only if the tax deductions reduce taxes payable as a result of a realized cash benefit from the deduction. For the years ended December 31, 2015, 2014 and 2013, we recognized the tax effects of the excess tax deductions as an increase in common stock of $11.7 million, $7.8 million and $4.3 million, respectively, as the deductions have resulted in a reduction of taxes payable.

Options

Our option grants vest in equal annual installments over a 3 year period from the date of grant, or as a result of other events such as death or disability of the option holder. The options have a term of 10 years from the grant date.

Stock option activity for 2015 was as follows:

			Weighted
	Number of		Average
	Options		Exercise Price
Outstanding at January 1, 2015 (3,198,528 exercisable with a weighted average exercise price of $15.98)	4,603,292		$	20.71
Granted	473,200		35.91
Exercised	(1,203,376	)	9.44
Forfeited	(55,916	)	34.65
Outstanding at December 31, 2015 (2,718,865 exercisable with a weighted average exercise price of $22.38)	3,817,200		$	25.94

Grant date fair value of the stock options awards granted during 2015, 2014 and 2013 was determined using a Black-Scholes option pricing model. The following assumptions were used in determining the weighted average fair value per option:

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	2015			2014			2013
	Option Grants			Option Grants			Option Grants
Weighted average grant date fair value per option	$	6.05		$	8.92		$	7.06
Weighted average expected volatility (a)	18.6		%	27.2		%	29.3		%
Weighted average risk-free interest rate	1.8		%	1.8		%	1.1		%
Weighted average expected term (b)	6 years			6 years			6 years
Weighted average expected dividend yield	1.59		%	1.55		%	1.72		%
Estimated fair value of underlying shares	$	35.91		$	36.73		$	29.31

(a) We estimated volatility using the historical volatility of our stock.

(b) The expected term represents the period of time that options granted are expected to be outstanding. We have utilized the simplified method permitted under share-based award accounting standards in determining the expected term for all option grants as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited number of awards of equity shares that have reached expiration.

At December 31, 2015, the aggregate intrinsic value and the weighted average remaining contractual term for all outstanding options were approximately $50.8 million and 6.2 years, respectively. At December 31, 2015, the aggregate intrinsic value and the weighted average remaining contractual term for exercisable options were $45.9 million and 5.2 years, respectively. The aggregate intrinsic value of options exercised during 2015, 2014 and 2013 was $28.1 million, $18.5 million and $53.2 million, respectively. At December 31, 2015, the total unrecognized compensation cost related to the unvested options awards was $4.2 million and the weighted average period over which it is expected to be recognized was 1.6 years.

We estimate that 3,741,114 of the options outstanding at December 31, 2015 will vest, including those already vested. The weighted average exercise price, aggregate intrinsic value and the weighted average remaining contractual term for options shares that are vested and expected to vest as of December 31, 2015 was $25.76 per share, $50.5 million and 6.2 years, respectively.

Restricted Stock Awards

Holders of restricted stock awards have all the rights of a holder of common stock of ITC Holdings, including dividend and voting rights. The holder becomes vested as a result of certain events such as death or disability of the holder, but not later than the vesting date of the awards. Holders of restricted shares may not sell, transfer or pledge their restricted shares until the shares vest and the restrictions lapse. Restricted stock awards are recorded at fair value at the date of grant, which is based on the closing share price on the grant date. Awards that were granted for future services are treated as unearned compensation, with amounts amortized over the vesting period.

Restricted stock award activity for 2015 was as follows:

	Number of		Weighted
	Restricted		Average
	Stock		Grant Date
	Awards		Fair Value
Unvested restricted stock awards at January 1, 2015	1,223,819		$	28.37
Granted	259,039		36.30
Vested	(400,239	)	23.63
Forfeited	(58,209	)	26.65
Unvested restricted stock awards at December 31, 2015	1,024,410		$	32.10

The weighted average grant date fair value of restricted stock awarded during 2014 and 2013 was $36.75 and $29.42 per share, respectively. The aggregate fair value of restricted stock awards as of December 31, 2015 was $40.2 million. The aggregate fair value of restricted stock awards that vested during 2015, 2014 and 2013 was $14.5 million, $14.4 million and $15.8 million, respectively. At December 31, 2015, the total unrecognized compensation cost related to the restricted stock awards was $16.3 million and the weighted average period over which that cost is expected to be recognized was 2.2 years.

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As of December 31, 2015, we estimate that 907,864 shares of the restricted shares outstanding at December 31, 2015 will vest. The weighted average fair value, aggregate intrinsic value and the weighted average remaining contractual term for restricted shares that are expected to vest is $31.83 per share, $35.6 million and 1.4 years, respectively.

Performance Share Awards

Holders of performance share awards have all the rights of a holder of common stock of ITC Holdings, including dividend and voting rights. However, performance shares earn and accumulate dividend equivalents, which are settled in the form of additional shares upon vesting of the related award. Dividend equivalents paid on performance shares that do not vest will be forfeited. The performance share awards generally vest three years after the grant date, or as a result of certain events such as death or disability of the performance share award holder. Holders of performance shares may not sell, transfer or pledge their shares until the shares vest.

Approximately one-half of the performance share awards will be earned based on an external measure for total shareholder return (“TSR”) relative to a predetermined peer group (“TSR condition”) and the remainder will be earned based on adjusted diluted EPS growth (“EPS condition”). Payout of the performance share awards will range from 0% to 200% of the target number of shares granted, plus additional dividend equivalent shares on the earned portion of the performance share awards. The performance share awards with the EPS condition are recorded at fair value based on the closing price of ITC Holdings’ common stock on the grant date.

We recognize the fair value of the performance share awards on a straight-line basis (net of any estimated forfeitures) over the requisite service period of the awards. However, the compensation cost for the portion of the performance share awards subject to the EPS condition is recognized based on the probable payout (net of any estimated forfeitures), which is reassessed each reporting period and subject to change.

	Number of		Weighted
	Performance		Average
	Share		Grant Date
	Awards		Fair Value
Unvested performance share awards at January 1, 2015	—		$	—
Granted	287,464		32.55
Vested	—		—
Forfeited	(7,754	)	32.55
Unvested performance share awards at December 31, 2015	279,710		$	32.55

Grant date fair value of the portion of the performance share awards subject to the TSR condition granted during 2015 was determined using a Monte Carlo simulation valuation model. The following assumptions were used in determining the weighted average fair value per performance share with the TSR condition:

	2015
	Performance
	Share Grants
Weighted average grant date fair value per performance share	$	29.19
Weighted average expected volatility (a)	17.7		%
Weighted average risk-free interest rate	0.87		%
Estimated fair value of underlying shares	$	35.91

(a) We estimated volatility using the historical volatility of our stock.

The aggregate fair value of performance share awards as of December 31, 2015 was $11.0 million. At December 31, 2015, the total unrecognized compensation cost related to the performance share awards was $9.2 million and the weighted average period over which that cost is expected to be recognized was 2.4 years.

As of December 31, 2015, we estimate that 229,994 shares of the performance shares outstanding at December 31, 2015 will vest. The weighted average fair value, aggregate intrinsic value and the weighted

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average remaining contractual term for performance shares that are expected to vest is $32.55 per share, $9.0 million and 2.4 years, respectively.

Employee Stock Purchase Plan

The ESPP is a compensatory plan accounted for under the expense recognition provisions of the share-based payment accounting standards. Compensation cost is recorded based on the fair market value of the purchase options at the grant date, which corresponds to the first day of each purchase period and is amortized over the purchase period. During 2015, 2014 and 2013, employees purchased 76,041, 69,230 and 77,097 shares, respectively, resulting in proceeds from the sale of our common stock of $2.3 million, $2.1 million and $1.9 million, respectively, under the ESPP. The total share-based compensation amortization for the ESPP was $0.5 million, $0.5 million and $0.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.

15. JOINTLY OWNED UTILITY PLANT/COORDINATED SERVICES

Our Regulated Operating Subsidiaries have agreements with other utilities for the joint ownership of substation assets and transmission lines. We account for these jointly owned assets by recording property, plant and equipment for our percentage of ownership interest. Various agreements provide the authority for construction of capital improvements and the operating costs associated with the substations and lines. Generally, each party is responsible for the capital, operation and maintenance and other costs of these jointly owned facilities based upon each participant’s undivided ownership interest. Our Regulated Operating Subsidiaries’ participating share of expenses associated with these jointly held assets are primarily recorded within operation and maintenance expenses on our consolidated statement of operations.

We have investments in jointly owned utility assets as shown in the table below as of December 31, 2015:

	Net		Construction
(In thousands)	Investments (a)		Work in Progress
Substations	$	31,640	$	4,455
Lines	102,703		2,718
Total	$	134,343	$	7,173

(a) Amount represents our investment in jointly held plant, which has been reduced by the ownership interest amounts of other parties.

ITCTransmission

ITCTransmission has joint ownership in two 345 kV transmission lines with a municipal power agency that has a 50.4% ownership interest in the transmission lines. ITCTransmission’s net investment in these two lines totaled $28.8 million as of December 31, 2015. The municipal power agency’s ownership portion entitles them to approximately 234 MW of network transmission service from the ITCTransmission system. An Ownership and Operating Agreement with the municipal power agency provides ITCTransmission with authority for construction of capital improvements and for the operation and management of the transmission lines. The municipal power agency is responsible for the capital and operation and maintenance costs allocable to their ownership interest.

METC

METC has joint sharing of several assets within various substations with Consumers Energy, other municipal distribution systems and other generators. The rights, responsibilities and obligations for these jointly owned assets are documented in the Amended and Restated Distribution — Transmission Interconnection Agreement with Consumers Energy and in numerous interconnection facilities agreements with various municipalities and other generators. As of December 31, 2015, METC had net investments in jointly owned substation facilities totaling $13.9 million (including less than $0.1 million of jointly owned substation assets under construction) of which METC’s ownership percentages for these jointly owned substation assets ranged from 6.3% to 92.0%. In addition, other municipal power agencies and cooperatives have an ownership interest in several METC 345 kV transmission lines. This ownership entitles these municipal power agencies and cooperatives to approximately 608 MW of network transmission service from the METC transmission system. As of December 31, 2015,

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METC had net investments in jointly shared transmission lines totaling $41.0 million of which METC’s ownership percentages for these jointly owned lines ranged from 1.0% to 41.9%.

ITC Midwest

ITC Midwest has joint sharing of several substations and transmission lines with various parties. As of December 31, 2015, ITC Midwest had net investments in jointly shared substation facilities totaling $18.4 million (including $0.7 million of jointly owned substation assets under construction) of which ITC Midwest’s ownership percentages for these jointly owned substations facilities ranged from 28.0% to 80.0%. As of December 31, 2015, ITC Midwest had net investments in jointly shared transmission lines totaling $32.9 million (including less than $0.1 million of jointly owned lines under construction) of which ITC Midwest’s ownership percentage for these jointly owned lines ranged from 48.0% to 80.0%.

ITC Great Plains

In May 2014, ITC Great Plains entered into a joint ownership agreement with an electric cooperative that has a 49.0% ownership interest in the transmission project. ITC Great Plains will construct and operate the project and the electric cooperative will be responsible for their ownership percentage of capital and operation and maintenance costs. As of December 31, 2015, ITC Great Plains had net investment in the project that is currently under construction of $6.5 million of which ITC Great Plains’ ownership percentage was 51.0%.

16. COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

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

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Litigation

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

Michigan Sales and Use Tax Audit

The Michigan Department of Treasury has conducted sales and use tax audits of ITCTransmission for the audit periods April 1, 2005 through June 30, 2008 and October 1, 2009 through September 30, 2013. The Michigan Department of Treasury has denied ITCTransmission’s claims of the industrial processing exemption from use tax that it has taken beginning January 1, 2007. The exemption claim denials resulted in use tax assessments against ITCTransmission. ITCTransmission filed administrative appeals to contest these use tax assessments.

In a separate, but related case involving a Michigan-based public utility that made similar industrial processing exemption claims, the Michigan Supreme Court ruled in July 2015 that the electric system, which involves altering voltage, constitutes an exempt, industrial processing activity. However, the ruling further held the electric system is also used for other functions that would not be exempt, and remanded the case to the Michigan Court of Claims to determine how the exemption applies to assets that are used in electric distribution activities. ITCTransmission is assessing the recent ruling in light of its specific facts, but cannot estimate the timing of any potential tax assessments or refunds.

The amount of use tax associated with the exemptions taken by ITCTransmission through December 31, 2015 is estimated to be approximately $18.0 million, including interest. This amount includes approximately $10.4 million, including interest, assessed for the audit periods noted above. ITCTransmission believes it is probable that portions of the use tax assessments could be sustained upon resolution of this matter. ITCTransmission has recorded $5.9 million for this contingent liability, including interest, as of December 31, 2015, primarily as an increase to property, plant and equipment, which is a component of revenue requirement in our cost-based formula rate.

METC has also taken the industrial processing exemption, estimated to be approximately $10.5 million for periods still subject to audit. METC has not been assessed any use tax liability and has not recorded any contingent liability as of December 31, 2015 associated with this matter. In the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission and METC would record the additional use tax primarily as an increase to the cost of property, plant and equipment, as the majority of purchases for which the exemption was taken relate to equipment purchases associated with capital projects.

Rate of Return on Equity and Capital Structure Complaints

On November 12, 2013, the Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group and Wisconsin Industrial Energy Group (collectively, the “complainants”) filed a complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current 12.38% MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest, to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in our MISO Regulated Operating Subsidiaries’ formula transmission rates to 9.15%. The Initial Complaint also alleged that the rates of any MISO TO using a capital structure with greater than 50% for the equity component are likewise not just and reasonable (our MISO Regulated Operating

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Subsidiaries use their actual capital structures, which target 60% equity, as FERC had previously authorized). The Initial Complaint also alleged the ROE adders currently approved for certain ITC Holdings operating companies, including an adder currently charged by ITCTransmission for being a member of an RTO and adders charged by ITCTransmission and METC for being independent TOs, are no longer just and reasonable, and sought to have them eliminated.

On June 19, 2014, in a separate Section 206 complaint against the regional base ROE rate for ISO New England TOs, FERC adopted a new methodology for establishing base ROE rates for electric transmission utilities. The new methodology is based on a two-step DCF analysis (“two-step DCF”) that uses both short-term and long-term growth projections in calculating ROE rates for a proxy group of electric utilities. The previous methodology used only short-term growth projections. FERC also reiterated that it can apply discretion in determining how ROE rates are established within a zone of reasonableness and reiterated its policy for limiting the overall ROE rate for any company, including the base and all applicable adders, at the high end of the zone of reasonableness set by the two-step DCF methodology. The new method presented in the ISO New England ROE case will be used in resolving the MISO ROE case.

During the fourth quarter of 2014, the MISO TOs engaged in the ordered FERC settlement procedures with the complainants, but were not able to reach resolution. On January 5, 2015, the Chief Judge for FERC issued an order which terminated settlement procedures and set the matter for hearing, with an initial decision due within 47 weeks of the order. On April 6, 2015, the MISO TOs filed expert witness testimony in the Initial Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that FERC elects to change the base ROE, the testimony included a recommendation of 11.39% base ROE for the period of November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). On December 22, 2015, the presiding administrative law judge issued an initial decision on the Initial Complaint, which recommends a base ROE of 10.32% for the Initial Refund Period, with a maximum ROE of 11.35%. The initial decision is a non-binding recommendation to FERC on the Initial Complaint and may be contested by the MISO TOs and/or the complainants. In resolving the Initial Complaint, we expect FERC to establish a new base ROE to determine any potential refund liability for the Initial Refund Period. The new base ROE as well as any ROE adders, subject to the limitations of the top end of any zone of reasonableness that is established, are expected to be used to calculate the refund liability for the Initial Refund Period. We anticipate a FERC order on the Initial Complaint by the end of 2016.

On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by Arkansas Electric Cooperative Corporation, Mississippi Delta Energy Agency, Clarksdale Public Utilities Commission, Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative, Inc., seeking a FERC order to reduce the base ROE used in our MISO Regulated Operating Subsidiaries’ formula transmission rates to 8.67%, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, FERC accepted the Second Complaint and set it for hearing and settlement procedures. FERC also set the refund effective date for the Second Complaint as February 12, 2015.

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adders, subject to the limitations of the top end of any zone of reasonableness established, are expected to be used to calculate the refund liability for the Second Refund Period. The initial decision on the Second Complaint is expected by June 30, 2016, with the related FERC order anticipated in 2017.

We believe it is probable that refunds will be required for these matters and as of December 31, 2015, the estimated range of refunds on a pre-tax basis is expected to be from $168.0 million to $212.4 million for the period from November 12, 2013 through December 31, 2015. As of December 31, 2015 and 2014, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $168.0 million and $47.8 million, respectively, representing the low end of the range of potential refunds as of those dates, as there is no best estimate within the range of refunds. The recognition of this estimated liability resulted in a reduction in revenues of $115.1 million and $46.9 million and an increase in interest expense of $5.1 million and $0.9 million for the years ended December 31, 2015 and 2014, respectively. This resulted in an estimated after-tax reduction to net income of $73.2 million for the year ended December 31, 2015 (which includes a $28.4 million effect on net income for revenue initially recognized in 2014 and 2013) and $28.9 million for the year ended December 31, 2014 (which includes a $2.9 million effect on net income for revenue initially recognized in 2013). No amounts related to these complaints were recorded as of or for the year ended December 31, 2013.

Purchase Obligations and Leases

At December 31, 2015, we had purchase obligations of $61.4 million representing commitments for materials, services and equipment that had not been received as of December 31, 2015, primarily for construction and maintenance projects for which we have an executed contract. The purchase obligations are expected to be paid in 2016, with the majority of the items related to materials and equipment that have long production lead times.

We have operating leases for office space, equipment and storage facilities. We recognize expenses relating to our operating lease obligations on a straight-line basis over the term of the lease. We recognized rent expense of $1.1 million, $1.0 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively, recorded in general and administrative expenses as well as operation and maintenance expenses. These amounts and the amounts in the table below do not include any expense or payments to be made under the METC Easement Agreement described below under “Other Commitments — METC — Amended and Restated Easement Agreement with Consumers Energy”.

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Future minimum lease payments under the leases at December 31, 2015 were:

(In thousands)
2016	$	932
2017	824
2018	700
2019	545
2020 and thereafter	1,971
Total minimum lease payments	$	4,972

Other Commitments

METC

Amended and Restated Purchase and Sale Agreement for Ancillary Services with Consumers Energy. Under the Purchase and Sale Agreement for Ancillary Services with Consumers Energy (the “Ancillary Services Agreement”), Consumers Energy provides reactive power, balancing energy, load following and spinning and supplemental reserves that are needed by METC and MISO. These ancillary services are a necessary part of the provision of transmission service. This agreement is necessary because METC does not own any generating facilities and therefore must procure ancillary services from third party suppliers, including Consumers Energy. The Ancillary Services Agreement establishes the terms and conditions under which METC obtains ancillary services from Consumers Energy. Consumers Energy will offer all ancillary services as required by FERC Order No. 888 at FERC-approved rates. METC is not precluded from procuring these services from third party suppliers and is free to purchase ancillary services from unaffiliated generators located within its control area or neighboring jurisdictions on a non-preferential, competitive basis. This one-year agreement became effective on May 1, 2002 and is automatically renewed each year for successive one-year periods. The Ancillary Services Agreement can be terminated by either party with six months prior written notice. Services performed by Consumers Energy under the Ancillary Services Agreement are charged to operation and maintenance expenses.

Amended and Restated Easement Agreement with Consumers Energy. The Easement Agreement with Consumers Energy (the “Easement Agreement”) provides METC with an easement for transmission purposes and rights-of-way, leasehold interests, fee interests and licenses associated with the land over which the transmission lines cross. Consumers Energy has reserved for itself the rights to other uses of the infrastructure (such as for fiber optics, telecommunications and gas pipelines), along with the value of activities associated with such uses. The cost for use of the rights-of-way is $10.0 million per year. The term of the Easement Agreement runs through December 31, 2050 and is subject to 10 automatic 50-year renewals thereafter. Payments to Consumers Energy under the Easement Agreement are charged to operation and maintenance expenses.

ITC Midwest

Operations Services Agreement For 34.5 kV Transmission Facilities. ITC Midwest and IP&L have entered into the Operations Services Agreement For 34.5 kV Transmission Facilities (the “OSA”), effective as of January 1, 2011, under which IP&L performs certain operations of ITC Midwest’s 34.5 kV transmission system. The OSA will remain in full force and effect until December 31, 2015 and will extend automatically from year to year thereafter until terminated by either party upon not less than one year prior written notice to the other party.

ITC Great Plains

Amended and Restated Maintenance Agreement. Mid-Kansas Electric Company LLC (“Mid-Kansas”) and ITC Great Plains have entered into a Maintenance Agreement (the “Mid-Kansas Agreement”), dated as of August 24, 2010, and most recently amended effective as of June 1, 2015, pursuant to which Mid-Kansas has agreed to perform various field operations and maintenance services related to certain ITC Great Plains assets. The Mid-Kansas Agreement has an initial term of 10 years and automatic 10-year renewal terms unless terminated (1) due to a breach by the non-terminating party following notice and failure to cure, (2) by mutual consent of the parties, or (3) by ITC Great Plains under certain limited circumstances. Services must continue to be provided for at least six months subsequent to the termination date in any case.

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Concentration of Credit Risk

Our credit risk is primarily with DTE Electric, Consumers Energy and IP&L, which were responsible for approximately 20.8%, 21.9% and 26.8%, respectively, or $232.6 million, $244.6 million and $299.9 million, respectively, of our consolidated billed revenues for the year ended December 31, 2015. These percentages and amounts of total billed revenues of DTE Electric, Consumers Energy and IP&L include the collection of 2013 revenue accruals and deferrals and exclude any amounts for the 2015 revenue accruals and deferrals that were included in our 2015 operating revenues, but will not be billed to our customers until 2017. Any financial difficulties experienced by DTE Electric, Consumers Energy or IP&L could negatively impact our business. MISO, as our MISO Regulated Operating Subsidiaries’ billing agent, bills DTE Electric, Consumers Energy, IP&L and other customers on a monthly basis and collects fees for the use of our transmission systems. SPP bills customers of ITC Great Plains on a monthly basis and collects fees for the use of ITC Great Plains’ assets. MISO and SPP have implemented strict credit policies for its members’ customers, which include customers using our transmission systems. Specifically, MISO and SPP require a letter of credit or cash deposit equal to the credit exposure, which is determined by a credit scoring model and other factors, from any customer using a member’s transmission system.

17. ENTERGY TRANSACTION

In 2011, Entergy and ITC Holdings executed definitive agreements under which Entergy would divest and then merge its electric transmission business with a wholly-owned subsidiary of ITC Holdings. Completion of the transaction was subject to the satisfaction of certain closing conditions, including the receipt of necessary approvals of Entergy’s retail regulators. On December 10, 2013, the Mississippi Public Service Commission issued an order denying permission to transfer ownership and control of Entergy Mississippi Inc.’s transmission assets to a subsidiary of ITC Holdings. On December 13, 2013, ITC Holdings and Entergy mutually agreed to terminate the Entergy Transaction.

For the years ended December 31, 2014 and 2013, we expensed external legal, advisory and financial services fees related to the terminated Entergy Transaction of $0.4 million and $43.1 million, respectively, and certain internal labor and associated costs related to the terminated Entergy Transaction of $0.7 million and $7.8 million, respectively. Due to the cancellation of the Entergy Transaction, we recognized tax benefits of $5.6 million during the fourth quarter of 2013 for expenses that were previously deemed non-deductible for tax purposes. The external and internal costs related to the Entergy Transaction were not included as components of revenue requirement at our Regulated Operating Subsidiaries as they were incurred at ITC Holdings.

18. SEGMENT INFORMATION

Regulated Operating Subsidiaries

We aggregate ITCTransmission, METC, ITC Midwest and ITC Great Plains into one reportable operating segment based on their similar regulatory environment and economic characteristics, among other factors. They are engaged in the transmission of electricity within the United States, earn revenues from the same types of customers and are regulated by the FERC. Their tariff rates are established using cost-based formula rates.

ITC Holdings and Other

Information below for ITC Holdings and Other consists of a holding company whose activities include debt and equity financings and general corporate activities and all of ITC Holdings’ other subsidiaries, excluding the Regulated Operating Subsidiaries, which are focused primarily on business development activities.

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	Regulated
2015	Operating		ITC Holdings			Reconciliations/
(In thousands)	Subsidiaries		and Other			Eliminations			Total

Operating revenues	$	1,044,311	$	1,057		$	(600	)	$	1,044,768
Depreciation and amortization	143,956		716			—			144,672
Interest expense — net	97,337		106,442			—			203,779
Income (loss) before income taxes	529,484		(145,607		)	—			383,877
Income tax provision (benefit)	200,582		(59,111		)	—			141,471
Net income	328,902		242,406			(328,902		)	242,406
Property, plant and equipment — net	6,093,499		16,140			—			6,109,639
Goodwill	950,163		—			—			950,163
Total assets (a)	7,479,286		4,158,986			(4,056,150		)	7,582,122
Capital expenditures	687,988		3,428			(7,276		)	684,140

	Regulated
2014	Operating		ITC Holdings			Reconciliations/
(In thousands)	Subsidiaries		and Other			Eliminations			Total

Operating revenues	$	1,023,170	$	605		$	(727	)	$	1,023,048
Depreciation and amortization	127,320		716			—			128,036
Interest expense — net	81,225		105,418			(7		)	186,636
Income (loss) before income taxes	548,704		(154,299		)	—			394,405
Income tax provision (benefit)	210,914		(60,592		)	—			150,322
Net income	337,790		244,083			(337,790		)	244,083
Property, plant and equipment — net	5,483,093		13,782			—			5,496,875
Goodwill	950,163		—			—			950,163
Total assets (a) (b)	6,854,387		3,944,318			(3,839,127		)	6,959,578
Capital expenditures	736,751		1,471			(5,077		)	733,145

	Regulated
2013	Operating		ITC Holdings			Reconciliations/
(In thousands)	Subsidiaries		and Other			Eliminations			Total

Operating revenues	$	941,571	$	567		$	(866	)	$	941,272
Depreciation and amortization	117,924		672			—			118,596
Interest expense — net	70,239		98,660			(580		)	168,319
Income (loss) before income taxes	515,327		(162,959		)	—			352,368
Income tax provision (benefit)	193,764		(74,902		)	—			118,862
Net income	321,563		233,506			(321,563		)	233,506
Property, plant and equipment — net	4,833,545		12,981			—			4,846,526
Goodwill	950,163		—			—			950,163
Total assets (a) (b)	6,159,153		3,619,759			(3,513,894		)	6,265,018
Capital expenditures	824,165		2,208			(4,785		)	821,588

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

(b) Amounts reflect the change in the authoritative guidance on the presentation of deferred income taxes on the balance sheet. Refer to Notes 3 and 10 for more information.

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19. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly earnings per share amounts may not sum to the totals for each of the years, since quarterly computation are based on weighted average common shares outstanding during each quarter.

	First		Second		Third		Fourth
(In thousands, except per share data)	Quarter		Quarter		Quarter		Quarter		Year
2015
Operating revenues (a)(b)	$	272,487	$	275,058	$	273,189	$	224,034	$	1,044,768
Operating income (a)(b)	149,452		158,408		149,644		103,213		560,717
Net income (a)(b)	67,132		72,336		65,573		37,365		242,406
Basic earnings per share	$	0.43	$	0.47	$	0.42	$	0.25	$	1.57
Diluted earnings per share	$	0.43	$	0.46	$	0.42	$	0.24	$	1.56
2014
Operating revenues (a)	$	258,603	$	263,214	$	270,134	$	231,097	$	1,023,048
Operating income (a)	153,441		158,928		161,432		119,028		592,829
Net income (a)(c)	69,136		54,336		73,873		46,738		244,083
Basic earnings per share	$	0.44	$	0.34	$	0.47	$	0.30	$	1.56
Diluted earnings per share	$	0.43	$	0.34	$	0.47	$	0.30	$	1.54

(a) During the year ended December 31, 2015 and the fourth quarter of 2014, we recognized an aggregate estimated regulatory liability for the potential refunds relating to the ROE complaints as described in Note 16, which resulted in a reduction in operating revenues and operating income of $115.1 million and $46.9 million and an estimated $73.2 million and $28.9 million reduction to net income for the years ended December 31, 2015 and 2014, respectively.

(b) During the third and fourth quarters of 2015, we recognized an aggregate regulatory liability for the refund relating to the formula rate template modifications filing as described in Note 4, which resulted in a reduction in operating revenues and operating income of $9.5 million and an estimated $6.2 million reduction to net income for the year ended December 31, 2015.

(c) During the second quarter of 2014, we incurred a loss on extinguishment of debt of $29.2 million related to the tender of ITC Holdings Senior Notes as described in Note 8, which resulted in an estimated reduction to net income of $18.2 million.

20. SUBSEQUENT EVENTS

The closing of the Acquisition, expected to occur in late 2016, is subject to approval by ITC Holdings’ shareholders and the shareholders of Fortis, the satisfaction of other customary closing conditions and certain regulatory, state and federal approvals including, among others, those of the FERC, the Committee on Foreign Investment in the U.S., the U.S. Federal Trade Commission, the U.S. Department of Justice and various state utilities regulators. Many of these conditions are outside our control, and we cannot provide any assurance as to whether or when the Acquisition will be consummated or whether our shareholders will realize the anticipated benefits of completing the Acquisition. Also, if the Acquisition does not receive timely regulatory approval or if an event occurs that delays or prevents the Acquisition, such delay or failure to complete the Acquisition may cause uncertainty and other negative consequences that may materially and adversely affect our business, financial position and results of operations.

The Acquisition Agreement contains certain termination rights, including the right of ITC Holdings to terminate the Acquisition Agreement to accept a superior proposal (subject to compliance with certain notice and other requirements). In addition, subject to certain exceptions and limitations, ITC Holdings or Fortis may terminate

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the Acquisition Agreement if the Acquisition is not consummated by February 9, 2017 (as such date may be extended pursuant to the terms of the Acquisition Agreement). The Acquisition Agreement provides that, in connection with termination of the Acquisition Agreement by ITC Holdings or Fortis upon specified conditions, a termination fee of $245 million may be required to be paid by ITC Holdings or Fortis. If the Acquisition Agreement is terminated as a result of the failure to obtain certain regulatory approvals or due to a legal prohibition related to regulatory matters, a termination fee of $280 million will be payable by Fortis to ITC Holdings, subject to certain limitations.

In 2016, through the date of this filing, we have incurred an estimated amount of external legal, advisory and financial services fees and certain internal labor and associated costs related to the Acquisition of approximately $10 million. Amounts expensed during the year ended December 31, 2015 related to the Acquisition were not material. The external and internal costs related to the Acquisition will not be included as components of revenue requirement at our Regulated Operating Subsidiaries as they were incurred at ITC Holdings.

Per the Acquisition Agreement, prior to completion of the Acquisition, there are certain restrictions on our ability to pay dividends other than those paid in the ordinary course of business with record dates and payment dates consistent with our past practice. Management does not expect the restrictions to have an impact on our ability to pay dividends at the current level for the foreseeable future.

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SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

CONDENSED STATEMENTS OF FINANCIAL POSITION (PARENT COMPANY ONLY)

	December 31,
(In thousands, except share data)	2015		2014
ASSETS
Current assets
Cash and cash equivalents	$	8,185	$	6,305
Accounts receivable from subsidiaries	38,010		42,665
Prepaid and other current assets	1,674		1,655
Total current assets	47,869		50,625
Other assets
Investment in subsidiaries	4,010,767		3,784,609
Deferred income taxes	21,241		25,887
Deferred financing fees (net of accumulated amortization of $6,670 and $4,700, respectively)	12,322		14,117
Other	64,098		67,376
Total other assets	4,108,428		3,891,989
TOTAL ASSETS	$	4,156,297	$	3,942,614
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	3,421	$	2,431
Accrued payroll	24,123		23,502
Accrued interest	34,836		34,815
Debt maturing within one year	395,334		—
Other	7,084		4,266
Total current liabilities	464,798		65,014
Accrued pension and postretirement liabilities	61,609		69,562
Other	1,186		3,237
Long-term debt (net of discounts of $3,404 and $3,940, respectively)	1,919,633		2,135,244
STOCKHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 152,699,077 and 155,140,967 shares issued and outstanding at December 31, 2015 and 2014, respectively	829,211		923,191
Retained earnings	875,595		741,550
Accumulated other comprehensive income	4,265		4,816
Total stockholders’ equity	1,709,071		1,669,557
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,156,297	$	3,942,614

See notes to condensed financial statements (parent company only).

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SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY ONLY)

	Year Ended December 31,
(In thousands)	2015			2014			2013
Other income	$	996		$	786		$	1,487
General and administrative expense	(5,526		)	(7,336		)	(56,707		)
Interest expense	(106,442		)	(105,411		)	(98,660		)
Loss on extinguishment of debt	—			(29,205		)	—
Other expense	(163		)	(196		)	(3,609		)
LOSS BEFORE INCOME TAXES	(111,135		)	(141,362		)	(157,489		)
INCOME TAX BENEFIT	(45,652		)	(55,646		)	(72,798		)
LOSS AFTER TAXES	(65,483		)	(85,716		)	(84,691		)
EQUITY IN SUBSIDIARIES’ NET EARNINGS	307,889			329,799			318,197
NET INCOME	$	242,406		$	244,083		$	233,506

See notes to condensed financial statements (parent company only).

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SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (PARENT COMPANY ONLY)

	Year Ended December 31,
(In thousands)	2015			2014			2013
NET INCOME	$	242,406		$	244,083		$	233,506
OTHER COMPREHENSIVE (LOSS) INCOME
Derivative instruments (net of tax of $967, $1,897 and $16,087 for the years ended December 31, 2015, 2014 and 2013, respectively)	(375		)	(1,479		)	24,304
Available-for-sale securities (net of tax of $126, $18 and $46 for the years ended December 31, 2015, 2014 and 2013, respectively)	(176		)	(32		)	71
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX	(551		)	(1,511		)	24,375
TOTAL COMPREHENSIVE INCOME	$	241,855		$	242,572		$	257,881

See notes to condensed financial statements (parent company only).

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SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

	Year Ended December 31,
(In thousands)	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	242,406		$	244,083		233,506
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in subsidiaries’ earnings	(307,889		)	(329,799		)	(318,197		)
Dividends from subsidiaries	185,303			224,167			169,973
Deferred and other income taxes	(116,243		)	(122,413		)	(117,956		)
Loss on extinguishment of debt	—			29,205			—
Intercompany tax payments from subsidiaries	120,863			124,315			112,008
Share-based compensation expense	17,674			14,652			15,667
Other	3,108			2,852			(226		)
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable from subsidiaries	3,158			1,304			(979		)
Prepaid and other current assets	92			4,154			16,948
Accounts payable	990			(3,869		)	(2,294		)
Accrued payroll	621			1,572			1,190
Accrued interest	21			(2,671		)	6,501
Accrued taxes	8,996			11,147			(179		)
Tax benefit on the excess tax deduction of share-based compensation	(11,707		)	(7,767		)	(4,302		)
Other current liabilities	2,416			(2,425		)	2,278
Other non-current assets and liabilities, net	6,006			3,078			12,465
Net cash provided by operating activities	155,815			191,585			126,403
CASH FLOWS FROM INVESTING ACTIVITIES
Equity contributions to subsidiaries	(263,150		)	(348,661		)	(339,770		)
Return of capital from subsidiaries	161,075			126,900			96,120
Proceeds from sale of marketable securities	673			495			20,844
Purchases of marketable securities	(10,422		)	(6,091		)	(22,250		)
Other	(750		)	(984		)	—
Net cash used in investing activities	(112,574		)	(228,341		)	(245,056		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	—			398,664			548,484
Borrowings under revolving credit agreement	838,900			533,900			222,800
Borrowings under term loan credit agreements	—			60,000			390,000
Net issuance of commercial paper, net of discount	94,630			—			—
Retirement of long-term debt - including extinguishment of debt costs	—			(248,625		)	(267,000		)
Repayments of revolving credit agreement	(754,700		)	(480,400		)	(252,400		)
Repayments of term loan credit agreements	—			(39,000		)	(450,000		)
Issuance of common stock	13,635			20,713			10,042
Dividends on common and restricted stock	(108,275		)	(95,595		)	(84,129		)
Repurchase and retirement of common stock	(137,081		)	(134,284		)	(4,885		)
Tax benefit on the excess tax deduction of share-based compensation	11,707			7,767			4,302
Advance for forward contract of accelerated share repurchase program	—			(20,000		)	—
Return of unused advance for forward contract of accelerated share repurchase program	—			20,000			—
Other	(177		)	(6,932		)	5,746
Net cash (used in) provided by financing activities	(41,361		)	16,208			122,960
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,880			(20,548		)	4,307
CASH AND CASH EQUIVALENTS — Beginning of period	6,305			26,853			22,546
CASH AND CASH EQUIVALENTS — End of period	$	8,185		$	6,305		$	26,853

Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	103,915		$	105,817		$	90,224
Income taxes paid — net	55,722			44,524			20,092
Supplementary non-cash investing and financing activities:
Equity transfers to subsidiaries	1,497			6,227			6,213

See notes to condensed financial statements (parent company only).

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SCHEDULE I — Condensed Financial Information of Registrant

ITC HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

1. GENERAL

For ITC Holdings Corp’s (“ITC Holdings,” “we,” “our” and “us”) presentation (Parent Company only), the investment in subsidiaries is accounted for using the equity method. The condensed parent company financial statements and notes should be read in conjunction with the consolidated financial statements and notes of ITC Holdings appearing in this Annual Report on Form 10-K.

As a holding company with no business operations, ITC Holdings’ assets consist primarily of investments in our subsidiaries. ITC Holdings’ material cash inflows are only from dividends and other payments received from our subsidiaries, the proceeds raised from the sale of debt and equity securities, issuances under our commercial paper program and borrowings under our revolving credit agreement. ITC Holdings may not be able to access cash generated by our subsidiaries in order to fulfill cash commitments or pay dividends to shareholders. The ability of our subsidiaries to make dividend and other payments to us is subject to the availability of funds after taking into account their respective funding requirements, the terms of their respective indebtedness, the regulations of the FERC under the FPA and applicable state laws. In addition, there are practical limitations on using the net assets of each of our Regulated Operating Subsidiaries as of December 31, 2015 for dividends based on management’s intent to maintain the FERC-approved capital structure targeting 60% equity and 40% debt for each of our Regulated Operating Subsidiaries. Management does not expect maintaining this targeted capital structure to have an impact on our ability to pay dividends at the current level in the foreseeable future. Each of our subsidiaries, however, is legally distinct from us and has no obligation, contingent or otherwise, to make funds available to us.

2. DEBT

As of December 31, 2015, the maturities of our debt outstanding were as follows:

(In thousands)
2016	$	395,344
2017	50,000
2018	385,000
2019	137,700
2020	200,000
2021 and thereafter	1,150,340
Total	$	2,318,384

Refer to Note 8 to the consolidated financial statements for a description of the ITC Holdings Senior Notes, the ITC Holdings Revolving and Term Loan Credit Agreements, the ITC Holdings Commercial Paper Program and related items.

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of the ITC Holdings Senior Notes was $2,059.4 million and $2,126.1 million at December 31, 2015 and 2014, respectively. The total book value of the ITC Holdings Senior Notes, net of discount, was $1,921.3 million and $1,920.7 million at December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, we had a total of $298.7 million and $214.5 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described in Note 12 to the consolidated financial statements. At December 31, 2015, ITC Holdings had $95.0 million of commercial paper issued and outstanding under the commercial paper

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program established in 2015. Due to the short-term nature of these financial instruments, the carrying value approximates fair value.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios. At December 31, 2015, we were not in violation of any debt covenant.

3. RELATED-PARTY TRANSACTIONS

Our related-party transactions during 2015, 2014 and 2013 were as follows:

	Year Ended December 31,
(In millions)	2015		2014		2013
Equity contributions to subsidiaries	$	263.2	$	348.7	$	339.8
Dividends from subsidiaries (a)	185.3		224.2		170.0
Return of capital from subsidiaries (a)	161.1		126.9		96.1

Income taxes paid to ITC Holdings from: (b)
ITCTransmission	$	36.4	$	38.1	$	39.1
MTH	39.0		41.4		30.0
ITC Midwest	31.0		34.3		33.6
ITC Great Plains	14.5		10.6		9.4

(a) Includes ITCTransmission, MTH, ITC Midwest and other subsidiaries.

(b) The income tax payments to ITC Holdings from subsidiaries were pursuant to intercompany tax sharing arrangements and the total of these tax payments is presented as a cash inflow from operating activities in the condensed parent company statements of cash flows. Other reconciling items between the parent company and the consolidated tax liabilities are presented as deferred and other income taxes in the adjustments to reconcile net income to net cash provided by operating activities.

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SCHEDULE F — SUPPLEMENTARY ITC INFORMATION

This Schedule F has been prepared using selected extracts from ITC’s definitive Proxy Statement dated April 9, 2015 relating to (i) the directors of ITC, (ii) ITC’s approach to corporate governance, and (iii) ITC’s approach to executive and director compensation. For purposes of this Schedule F references to “we”, “our” and “us” refer to ITC Holdings Corp. Please refer to “Glossary” below for a list of defined terms used in this Schedule F. The information contained in this Schedule F has been furnished by ITC . Although Fortis does not have any knowledge that would indicate that such information relating to ITC is untrue or incomplete, neither Fortis nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information or for the failure by ITC to disclose events or information regarding ITC that may affect the completeness or accuracy of such information. References in this Schedule F to “dollars” or “$” are to lawful currency of the United States of America.

GLOSSARY

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

“ Board ”, “ Board of Directors ” and “ our Board ” are references to the ITC board of directors.

“ Company ”, are references to ITC.

“ DTE Energy ” are references to DTE Energy Company.

“ Fortis ” are references to Fortis Inc.

“ ITC ” are references to ITC Holdings Corp.

“ ITC Midwest ” are references to ITC Midwest LLC.

“ ITCTransmission ” are references to International Transmission Company.

“ Management ” are references to ITC management.

“ METC ” are references to Michigan Electric Transmission Company, LLC.

“ NYSE ” are references to the New York Stock Exchange.

“ SEC ” are references to the United States Securities and Exchange Commission.

“ Shareholder ” and “ Shareholders ” are references to the shareholders of ITC.

F- 1

DIRECTORS OF ITC

Albert Ernst, 66. Mr. Ernst became a Director of the Company in August 2014. Mr. Ernst is a retired member of the law firm of Dykema Gossett PLLC, where he served as director of Dykema’s Energy Industry Group. His experience with companies in the public utility, energy, transmission, telecommunications and rural electric cooperative fields spans more than three decades. With Dykema, Mr. Ernst worked with leading energy clients including International Transmission Company and Michigan Electric Transmission Company. Prior to joining Dykema in 1979, Mr. Ernst was an assistant attorney general for the State of Michigan. He also served as a consultant on utility-related matters to the U.S. Department of Defense, the Department of Energy and the General Services Administration. The Board selected Mr. Ernst to serve as a director due to his lifelong career in the energy industry, as well as his invaluable experience with public utility and energy matters and decades of experience in the practice of law.

Christopher H. Franklin, 49. Mr. Franklin became a Director of the Company in August 2011. Mr. Franklin currently serves as President and Chief Operating Officer, Regulated Operations at Aqua America, Inc., a water and wastewater utility holding company, a position he has held since December 2011. Prior to this appointment, Mr. Franklin served as Regional President, Midwest and Southern Operations and Senior Vice President of Corporate and Public Affairs from 2010 to 2011 and Regional President, Southern Operations and Senior Vice President of Customer Operations & Public Affairs from 2007 to 2010 and has served in a variety of other operations, customer service and public affairs positions since joining Aqua America, Inc. in 1993. Prior to joining Aqua America, Inc., Mr. Franklin served as Regional Civic and Economic Development Officer for Peco Energy (Exelon) from 1990 to 1992. He began his career in 1987 as Congressional Aide to U.S. Congressman Richard Schulze. Mr. Franklin currently sits on the Board of the Magee Rehabilitation Hospital and the Walnut Street Theatre. He also has served as a Director on the Southeastern Pennsylvania Transportation Authority. The Board selected Mr. Franklin to serve as a director due to his significant experience in the utility industry, as well as his knowledge of public policy matters.

Edward G. Jepsen, 71. Mr. Jepsen became a Director of the Company in July 2005. Since December 2010, Mr. Jepsen has served as the Chairman and CEO of Coburn Technologies, Inc., a privately held manufacturer and servicer of ophthalmic lens processing equipment. Mr. Jepsen currently serves as a director and is chair of the audit committee and a member of the nominating and corporate governance committee of the board of directors of Amphenol Corporation, a publicly traded manufacturer of electrical, electronic and fiber optic connectors, interconnect systems and cable. Until December 2010, Mr. Jepsen served as a director and chairman of the audit and finance committee and member of the compensation committee of Gerber Scientific, Inc. Mr. Jepsen served as Executive Vice President and Chief Financial Officer of Amphenol Corporation from 1989 to 2004. Prior to joining Amphenol Corporation, Mr. Jepsen worked at Price Waterhouse LLP from 1969 to 1988, ultimately attaining the position of partner. The Board selected Mr. Jepsen to serve as a director because of the expansive financial and accounting experience he obtained as a chief financial officer and Certified Public Accountant. Mr. Jepsen is an “audit committee financial expert” as defined in applicable SEC and NYSE rules.

David R. Lopez, 63. Mr. Lopez became a Director of the Company in August 2014. Mr. Lopez currently serves as a director and a member of the Independent Directors’ committee of BancFirst Corporation. Mr. Lopez served as interim superintendent of Oklahoma City Public Schools from 2013 to 2014. Mr. Lopez served as Oklahoma’s Secretary of Commerce and Tourism from 2011 to 2013 and as the Executive Director of the Oklahoma Department of Commerce from 2011 to 2012 where he was responsible for overseeing the state’s economic development efforts while serving on the governor’s cabinet. Mr. Lopez served as the president of the American Fidelity Foundation, a private foundation, from 2006 to 2011 and was President of Downtown Oklahoma City, Inc., a non-profit organization, from 2004 to 2006. In 2003, he served as Vice President of Development for the Oklahoma Arts Institute and from 1979 to 2001 Mr. Lopez held various officer positions with SBC Communications, Inc., now

F- 2

AT&T, including President of SBC’s Oklahoma and Texas operations. The Board selected Mr. Lopez to serve as director due to his experience in local government in one of our markets and his familiarity with the South Central states in which the Company operates and conducts business.

Hazel R. O’Leary, 78. Ms. O’Leary became a Director of the Company in July 2007. Ms. O’Leary served as the President of Fisk University in Nashville, Tennessee from 2004 through February 2013 and currently serves on the boards of directors of the Nashville Alliance for Public Education, Nashville Business Community for the Arts, World Wildlife Fund, Arms Control Association and CAMAC Energy Inc. Ms. O’Leary served as an Assistant Attorney General and Assistant Prosecutor in the state of New Jersey and was appointed to the Federal Energy Administration under President Gerald Ford and to the United States Department of Energy under President Jimmy Carter. Ms. O’Leary worked in the private sector as a principal at the independent public accounting firm of Coopers and Lybrand from 1977 to 1979. In 1981 she was named Vice President and General Counsel of O’Leary and Associates, a company focused on international economics as related to energy issues. She served in that capacity until 1989 and then returned as President from 1997 to 2001. In 1989, she became Executive Vice President for Environmental and Public Affairs for the Minnesota Northern States Power Company and in 1992 she was promoted to President of the holding company’s gas distribution subsidiary. Ms. O’Leary served as the United States Secretary of Energy from 1993 to 1997 and as President and Chief Operating Officer for the investment banking firm Blaylock and Partners in New York from 2000 to 2002. Ms. O’Leary also served on the board of directors of UAL Corporation from 1999 to 2005. The Board selected Ms. O’Leary to serve as a director due to her unique combination of experience in government and in the utility industry.

Thomas G. Stephens, 66 . Mr. Stephens became a Director of the Company in November 2012. Mr. Stephens retired in April 2012 from General Motors Company, a designer, manufacturer and marketer of vehicles and automobile parts, after 43 years with the company. Prior to his retirement, Mr. Stephens served as Vice Chairman and Chief Technology Officer from February 2011 to April 2012, Vice Chairman, Global Product Operations from 2009 to 2011, Vice Chairman, Global Product Development in 2009, Executive Vice President, Global Powertrain and Global Quality from 2008 to 2009, Group Vice President, Global Powertrain and Global Quality from 2007 to 2008, Group Vice President, General Motors Powertrain from 2001 to 2007 and has served in a variety of other engineering and operations positions. Mr. Stephens currently is Vice Chairman of the Board of FIRST (For Inspiration and Recognition of Science and Technology in Michigan Robotics), Chairman of the Board of the Michigan Science Center and sits on the Board of Managers of Warehouse Technologies LLC and Board of Directors of xF Technologies Inc. The Board selected Mr. Stephens to serve as a director because of his strong technical and engineering background as well as his experience and proven leadership capabilities assisting a large organization to achieve its business objectives.

G. Bennett Stewart, III, 62.* Mr. Stewart became a Director of the Company in July 2006. In 1982, he co-founded Stern Stewart & Co., a global management consulting firm, where he served as Senior Partner until March 2006. Since then, Mr. Stewart has served as Chief Executive Officer of EVA Dimensions, a firm that offers corporate financial benchmark data, software tools for corporate financial intelligence, performance management, valuation modeling and executive decision support, and equity research services. Mr. Stewart has written and lectured widely in his 30 year professional career on topics such as accounting for value and management incentive plans. The Board selected Mr. Stewart to serve as a director because of his vast experience with executive compensation valuation and his unique insight into corporate governance matters.

Lee C. Stewart, 66.* Mr. Stewart, an independent financial consultant, became a Director of the Company in August 2005. Mr. Stewart currently serves as a director, chair of the compensation committee and a member of the finance committee of P.H. Glatfelter Company, as a director, chair of the compensation committee and member of the audit committee of AEP Industries, Inc. From May 2013 to October 2014, Mr. Stewart served as a director, chair of the conflicts committee and a member of the audit committee of

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Momentive Performance Materials Inc. Mr. Stewart also served as director, chair of the human resources and compensation committee and member of the audit committee of Marsulex, Inc. from 2000 to 2011 when the company was sold and ceased to exist. Previously, Mr. Stewart was Executive Vice President and Chief Financial Officer of Foamex International, Inc., a publicly traded manufacturer of flexible polyurethane and advanced polymer foam products, in 2001 and was Vice President responsible for all areas of Treasury at Union Carbide Corp., a chemicals and polymers company, from 1996 to 2001. Prior to that, Mr. Stewart was an investment banker for over 25 years. The Board selected Mr. Stewart to serve as a director due to his extensive knowledge of finance and capital raising through his experience as a treasury officer and an investment banker, which are critical elements in the execution of our business strategy. Mr. Stewart is also an “audit committee financial expert” as defined in applicable SEC and NYSE rules.

Joseph L. Welch, 66. Mr. Welch has been a Director and the President and Chief Executive Officer of the Company since it began operations in 2003 and served as its Treasurer until April 2009. Mr. Welch has also served as Chairman of the Board of Directors of the Company since May 2008. As the founder of ITCTransmission, Mr. Welch has had overall responsibility for the Company’s vision, foundation and transformation into the first independently owned and operated electricity transmission company in the United States. Mr. Welch worked for Detroit Edison Company, or Detroit Edison, and subsidiaries of DTE Energy Company, which we refer to collectively as DTE Energy, from 1971 to 2003. During that time, he held positions of increasing responsibility in the electricity transmission, distribution, rates, load research, marketing and pricing areas, as well as regulatory affairs that included the development and implementation of regulatory strategies. The Board selected Mr. Welch to serve as a director because he is the Company’s President and Chief Executive Officer and he possesses unparalleled expertise in the electric transmission business.

EXPERIENCE,

QUALIFICATIONS, ATTRIBUTES

BENNETT

LEE

AND SKILLS

WELCH

ERNST

FRANKLIN

JEPSEN

LOPEZ

O’LEARY

STEPHENS

STEWART

Utility Industry Experience is a positive attribute as it greatly increases a director’s understanding of our business and its management.

Regulatory/Energy Policy Experience is beneficial given the heavily regulated industry in which we operate.

Financial Expertise is important given our use of financial targets as measures of success and the importance of accurate financial reporting and robust internal auditing.

Legal/Government Experience is useful in our industry as we are in a highly regulated industry directly affected by governmental actions.

Leadership Experience is critical because we want directors with the experience and knowledge to advise our management team on a wide range of issues.

* G. Bennett Stewart, III and Lee C. Stewart are not related.

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Biographical information regarding Mr. Museler who is not standing for reelection is set forth below.

William J. Museler, 74. Mr. Museler is an independent energy consultant. He became a Director of the Company in November 2006. Previously, he served as President and CEO of the New York Independent System Operator from 1999 to 2005. Prior to his service at NYISO, Mr. Museler held senior positions at the Tennessee Valley Authority from 1991 to 1999, Long Island Lighting Company from 1973 to 1991 and Brookhaven National Laboratory from 1967 to 1973. He has served as a federal representative for the North American Electric Reliability Council and as chairman of the Southeastern Electric Reliability Council. He was a member of the Secretary of Energy’s Energy Advisory Board from 2001 to 2005 and is currently a director of the Independent Electric System Operator in Toronto, Ontario, Canada. The Board selected Mr. Museler to serve as a director due to his lifelong career in the utility industry, as well as his invaluable experience with electric reliability matters.

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CORPORATE GOVERNANCE

Director Independence

Based on the absence of any material relationship between them and us, other than their capacities as directors and shareholders, the Board has determined that Ms. O’Leary and Messrs. Ernst, Franklin, Jepsen, Lopez, Museler, Stephens, Bennett Stewart, and Lee Stewart are “independent” under applicable NYSE and SEC rules for board members. In addition, our Board has determined that, as the committees are currently constituted, all of the members of the Audit and Finance Committee, the Compensation Committee and the Nominating/Corporate Governance Committee are “independent” under applicable NYSE and SEC rules. None of the directors determined to be independent is or ever has been employed by us. The Company has made charitable contributions of less than $1 million each to organizations with which certain of our directors have affiliations. The Board determined that these contributions would not interfere with the exercise of independent judgment by these directors in carrying out their responsibilities.

Mr. Ernst, who became a director of the Company on August 13, 2014, was a member of the law firm Dykema Gossett PLLC until he retired in August 2014. We made payments for legal services to the Dykema law firm amounting to less than 5% of its gross revenues during each of the last three calendar years. However, as a former member of Dykema who has no consulting or employment relationship with that firm, Mr. Ernst has no financial or other interest in payments made to that firm following his retirement. Our Board considered this former relationship when determining that Mr. Ernst is independent and determined that this relationship was not material and was unlikely to affect his ability to act as an independent board member.

Meetings and Committees of the Board of Directors

During 2014, our Board held eight meetings. Each director attended 75% or more of the total number of meetings of the Board and committees of which he or she was a member in 2014. Mr. Lee Stewart was selected by our Board as Lead Director and to chair its executive sessions. These sessions were held several times throughout the year.

Our policy is that all members of our Board are expected, absent a valid reason, to attend our annual shareholders’ meetings. All directors who were serving as such at the time of last year’s annual shareholders’ meeting attended the meeting.

Our Board has several standing committees, including but not limited to an Audit and Finance Committee, Compensation Committee, Nominating/Corporate Governance Committee and Operations Committee. The Board has adopted a written charter for each of these committees. The charters and our corporate governance guidelines are accessible on our website at www.itc-holdings.com through the “Corporate Governance” link on the “Investors” page.

Audit and Finance Committee

The Audit and Finance Committee met 8 times during 2014. The members of the Audit and Finance Committee are Messrs. Ernst, Franklin, Jepsen, Bennett Stewart and Lee Stewart, with Mr. Bennett Stewart serving as Chair. Mr. Ernst was appointed to Audit and Finance Committee on November 6, 2014. The Board has determined that Messrs. Jepsen and Lee Stewart are “audit committee financial experts,” as that term is defined under SEC rules, and that all members of the Audit and Finance Committee satisfy all independence and other qualifications for Audit and Finance Committee members set forth in applicable NYSE and SEC rules. Our Audit and Finance Committee is responsible for, among other things, (1) selecting our independent public accountants, (2) approving the overall scope of the audit, (3) assisting our Board in monitoring the integrity of our financial statements, the independent public accountant’s qualifications and independence, the performance of the independent public

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accountants and our internal audit function and our compliance with legal and regulatory requirements, (4) annually reviewing a report of our independent public accountants describing the firm’s internal quality-control procedures and any material issues raised by the most recent internal quality-control review, or peer review, of the firm, (5) discussing our annual audited and quarterly unaudited financial statements with management and our independent public accountants, (6) meeting separately and periodically with our management, internal auditors and independent public accountants, (7) reviewing with our independent public accountants any audit problems or difficulties and management’s response, (8) setting clear hiring policies for employees or former employees of our independent public accountants, and (9) handling such other matters that are specifically delegated to the Audit and Finance Committee by our Board from time to time, as well as other matters as set forth in the committee’s charter.

Audit and Finance Committee Report

In accordance with its written charter, the Audit and Finance Committee provides assistance to our Board in fulfilling the Board’s responsibility to our shareholders, potential shareholders and investment community relating to independent registered public accounting firm oversight, corporate accounting, reporting practices and the quality and integrity of the financial reports, including our internal controls over financial reporting.

The Audit and Finance Committee received and reviewed a formal written statement from Deloitte & Touche LLP, our independent registered public accounting firm, describing all relationships between Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, to whom we refer collectively as Deloitte, and us that might bear on Deloitte’s independence consistent with applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, discussed with Deloitte any relationships that may impact their objectivity and independence, and satisfied itself as to Deloitte’s independence.

The Audit and Finance Committee discussed with Deloitte the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board, and, with and without management present, discussed and reviewed the results of Deloitte’s examination of the consolidated financial statements.

The Audit and Finance Committee reviewed and discussed with management and Deloitte our consolidated audited financial statements as of and for the year ended December 31, 2014.

Based on the above-mentioned reviews and discussions with management and Deloitte, the Audit and Finance Committee approved the inclusion of our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014 for filing with the SEC.

ALBERT ERNST CHRISTOPHER H. FRANKLIN EDWARD G. JEPSEN

G. BENNETT STEWART LEE C. STEWART

Compensation Committee

The Compensation Committee met seven times during 2014. The current members of the Compensation Committee are Ms. O’Leary and Messrs. Lopez, Museler, and Stephens, with Mr. Museler serving as Chair. Mr. Lopez was appointed to the Compensation Committee on November 6, 2014. Until January 9, 2014, the members of the Compensation Committee were Ms. O’Leary and Messrs. Museler, Stephens and former director J.C. Watts, Jr., with Mr. Museler serving as Chair. All members of the Compensation Committee satisfy all independence and other qualifications for Compensation Committee members set forth in applicable NYSE rules. The Compensation Committee is responsible for (1) reviewing employee

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compensation policies, plans and programs, (2) reviewing and approving the compensation of our executive officers, (3) reviewing and recommending to the full Board of Directors the compensation of our Chief Executive Officer, (4) reviewing and approving employment contracts and other similar arrangements between us and our executive officers, (5) reviewing and consulting with the chief executive officer on the selection of officers and evaluation of executive performance and other related matters, (6) administration of stock plans and other incentive compensation plans and (7) such other matters that are specifically delegated to the Compensation Committee by our Board from time to time. The Compensation Committee has the sole authority to retain or receive advice from an advisor or consultant but only after taking into consideration, to the extent required by NYSE rules, all factors the Committee deems relevant to such advisor’s independence from management. With respect to any advisor or consultant retained by the Committee, the Committee is directly responsible for such appointment, determining the terms and fees of any such retention and overseeing the work performed by the advisor or consultant. The Compensation Committee is entitled to delegate any or all of its responsibilities to a subcommittee of the Committee.

Nominating/Corporate Governance Committee

The Nominating/Corporate Governance Committee met five times during 2014. Until February 2014, the members of the Nominating/Corporate Governance Committee were Ms. O’Leary, and Mr. Jepsen, with Ms. O’Leary serving as Chair. From February 2014 until November 2014, the members of the Nominating/Corporate Governance Committee were Ms. O’Leary, and Messrs. Jepsen and Bennett Stewart, with Ms. O’Leary serving as Chair. The current members of the Nominating/Corporate Governance Committee are Ms. O’Leary, and Messrs. Jepsen, Lopez and Bennett Stewart, with Ms. O’Leary serving as Chair. The Nominating/Corporate Governance Committee is responsible for (1) developing and recommending criteria for selecting new directors, (2) screening and recommending to our Board individuals qualified to become directors, (3) overseeing evaluations of our Board, its members and its committees and (4) handling such other matters that are specifically delegated to it by our Board from time to time. In identifying candidates for director, the Nominating/Corporate Governance Committee considers suggestions from incumbent directors, management or others, including shareholders. The committee also may retain the services of a consultant from time to time to identify qualified candidates for director. The committee reviews all candidates in the same manner without regard to who suggested the candidate. The committee selects candidates to meet with management and conduct an initial interview with the committee. Candidates whom the committee believes would be valuable additions to the Board are recommended to the full Board for election. Individuals recommended by shareholders for nomination as a director should be submitted to our Corporate Secretary and, if submitted in accordance with the procedures set forth in our annual proxy statement, will be forwarded to the Nominating/Corporate Governance Committee for consideration.

As stated in the committee’s charter, in selecting candidates, the committee will consider all factors it believes appropriate, which may include (1) ensuring that the Board of Directors, as a whole, is diverse and consists of individuals with various and relevant career experience, technical skill, industry knowledge and experience, financial expertise, local or community ties, and (2) individual qualifications, including strength of character, mature judgment, familiarity with our business and industry, independence of thought and an ability to work collegially. Although it has no formal policy with regard to diversity, the Nominating/Corporate Governance Committee believes that the Board will function best when its members possess a broad range of backgrounds and expertise so that the Board as a whole reflects diverse but complementary skills and viewpoints.

Operations Committee

The Operations Committee met four times during 2014. The current members of the Operations Committee are Messrs. Ernst, Franklin, Museler, Stephens and Lee Stewart, with Mr. Franklin serving as Chair. Mr. Ernst was appointed to the Operations Committee on November 6, 2014. The Operations Committee is responsible for (1) determining whether the Company has appropriate policies and management systems in

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place with respect to security, safety, environmental, health and reliability matters, (2) ensuring that the policies and their implementation support the Company’s overall business objectives and meet the Company’s obligations to its shareholders, employees and regulators, (3) monitoring and reviewing compliance with applicable laws, rules, regulations and industry standards, and management’s criteria for determining compliance of the Company’s security, safety, environmental, health and reliability policies and procedures, and reviewing performance against these criteria annually, (4) investigating any matter of interest or concern that the Committee deems appropriate while having sole authority to retain and terminate advisors, outside counsel or other experts for this purpose, (5) overseeing and reviewing issues and concerns which affect or could affect the Company’s security, safety, environmental, health and reliability practices, (6) reviewing the scope, effectiveness, cost, objectivity and independence of security, safety, environmental, health and reliability related audits, reviewing any significant findings of internal and external audits and investigations and making recommendations to the Board of Directors as the Committee deems appropriate, (7) monitoring the adequacy of the Company’s operational risk management process and reviewing the operational contingency planning process within the Company to ensure all security, safety, environmental, health and reliability risks are identified and that appropriate risk management processes are in place, (8) reviewing actions taken by the Company’s management with respect to any security, safety, environmental, health and reliability deficiencies identified or improvements recommended, (9) reviewing periodically reports from the Company’s management regarding (i) the Company’s performance with respect to security, safety, environmental, health and reliability matters and compliance with applicable laws, (ii) significant risks to, and the physical and cyber security of, the Company’s facilities and IT systems, (iii) significant security, safety, environmental, health and reliability related litigation and regulatory proceedings in which the Company is or may become involved and (iv) significant legislation or regulations, judicial decisions or other agreements, public policies or other developments involving security, safety, environmental, health and reliability matters in the electricity transmission sector that will or may have a material effect on the Company’s business, (10) reporting regularly to the Board of Directors and (11) carrying out any other responsibilities and duties delegated to it by the Board of Directors from time to time related to the purposes of the committee.

Board Leadership Structure / Role in Risk Oversight and Management

The Board believes that Mr. Welch, the Company’s President and Chief Executive Officer, is best situated to serve as Chairman of the Board because he is ultimately responsible for overseeing the day-to-day operation of the Company, identifying Company priorities and opportunities, and executing the Company’s strategic plan. The Board also believes having Mr. Welch as Chairman better promotes the flow of information between management and the Board than would a chairman who is an outside director. The Board further believes that independent oversight of management is an important component of an effective board of directors and is essential to effective governance and has therefore appointed Mr. Lee Stewart as Lead Director of the Board. The roles and responsibilities of the Lead Director include:

· Providing general leadership of the affairs of the independent directors;

· Presiding over all executive sessions of the Board and all other meetings at which the Chairman is not present, including summarizing discussions and communicating the same back to the Chairman;

· Serving as primary liaison between the independent directors and the Chairman, including facilitating organization and communication among the independent directors;

· In conjunction with the Chair of the Nominating/Corporate Governance Committee, identifying underperforming directors and providing appropriate counseling for improvement;

· Participating in performance evaluations of the CEO;

· Providing advice and consultation to the Chairman and CEO;

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· Being available to consult with Committee Chairs;

· Being available to discuss with any director any concerns that s/he may have regarding the Board, the Company, or the management team;

· Being available as appropriate for consultation and direct communications with shareholders, customers, and other key constituents of the Company;

· Providing leadership of the independent directors in anticipating and responding to crisis; and

· Fulfilling such other duties as the Board may provide from time to time.

The Board believes the combined role of Chairman and Chief Executive Officer, together with an independent Lead Director, is appropriate and in the best interest of shareholders because it provides the appropriate balance between company-specific expertise and independent management and risk oversight.

The Board and its Committees play an active role in overseeing management of the Company’s risks. The Audit and Finance Committee reviews financial risks including those related to internal controls and the annual financial audit, financial reporting, credit and liquidity. The Compensation Committee oversees the management of risks associated with the Company’s executive compensation plans and arrangements. The Nominating/Corporate Governance Committee reviews and manages risks related to director independence and corporate governance. The Operations Committee oversees the risks associated with reliability compliance obligations, Company security plans, safety programs and environmental regulations. The full Board is regularly informed of and consulted about such risks through quarterly Committee reports as well as quarterly reports provided by members of the Company’s senior management team.

Shareholder Communications

Shareholder Proposals. Any proposal by a shareholder of the Company to be considered for inclusion in the proxy statement for the 2016 annual meeting must be received by Wendy McIntyre, our Corporate Secretary, by the close of business on December 11, 2015. Such proposals should be addressed to her at our principal executive offices and should satisfy the informational requirements applicable to shareholder proposals contained in the relevant SEC rules. If the date for the 2016 Annual Meeting is significantly different than the first anniversary of the 2015 Annual Meeting, SEC Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provides for an adjustment to the notice period described above.

For shareholder proposals not sought to be included in our proxy statement, Section 4.11 of our Bylaws provides that, in order to be properly brought before the 2016 Annual Meeting, written notice of such proposal, along with the information required by Section 4.11, must be received by our Corporate Secretary at our principal executive offices no earlier than the close of business on January 21, 2016 and no later than February 20, 2016. If the 2016 annual meeting date has been significantly advanced or delayed from the first anniversary of the date of the 2015 annual meeting, then notice of such proposal must be given not earlier than the close of business on the 120 th day before the meeting and not later than the 90 th day before the meeting or, if later, the 10 th day after the first public disclosure of the date of the annual meeting. A proponent must also update the information provided in or with the notice at the times specified in our Bylaws.

Only persons who are shareholders both as of the giving of notice and the date of the shareholder meeting and who are eligible to vote at the shareholder meeting are eligible to propose business to be brought before a shareholder meeting. The proposing shareholder (or his qualified representative) must attend the shareholder meeting in person and present the proposed business in order for the proposed business to be considered.

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Nominees. Shareholders proposing director nominees at the 2016 annual meeting of shareholders must provide written notice of such intention, along with the other information required by Section 4.11 of our Bylaws, to our Corporate Secretary at our principal executive offices no earlier than the close of business on January 21, 2016 and no later than the close of business on February 20, 2016. If the 2016 annual meeting date has been significantly advanced or delayed from the first anniversary of the date of the 2015 annual meeting, then the notice and information must be given not earlier than the close of business on the 120 th day before the meeting and not later than the 90 th day before the meeting or, if later, the 10 th day after the first public disclosure of the date of the annual meeting. Notwithstanding the foregoing, if the number of directors to be elected is increased and there is no public disclosure regarding such increase or naming all of the nominees for director at least 100 days prior to the first anniversary of the prior year’s annual meeting, then shareholder notice with regard to nomination of directors shall be considered timely if received by our Corporate Secretary no later than the tenth day following public disclosure of the increase in the number of directors to be elected. A proponent must also update the information provided in or with the notice at the times specified by our Bylaws. Nomination notices which do not contain the information required by our Bylaws or which are not delivered in compliance with the procedure set forth in our Bylaws will not be considered at the shareholder meeting.

Only persons who are shareholders both as of the giving of notice and the date of the shareholder meeting and who are eligible to vote at the shareholder meeting are eligible to nominate directors. The nominating shareholder (or his qualified representative) must attend the shareholder meeting in person and present the proposed nominee in order for the proposed nominee to be considered.

The Nominating/Corporate Governance Committee’s policy is to review the qualifications of candidates submitted for nomination by shareholders and evaluate them using the same criteria used to evaluate candidates submitted by the Board for nomination.

Communications with the Board. A person who wishes to communicate directly with our Board or with an individual director should send the communication, addressed to the Board or the individual director, to our executive offices and the communication will be forwarded to the director or directors to whom it is addressed.

Special Meetings of Shareholders. In February 2015, the Board amended our Bylaws to provide that a special meeting of shareholders shall be called by the president or secretary upon the request of shareholders who are not “market participants” (as defined in regulations of the Federal Energy Regulatory Commission), own at least 25% of the outstanding common stock of the Company and have held that amount as a net long position continuously for at least one year. The Board’s position continues to be that special meetings should be held only to cover extraordinary events when fiduciary or strategic considerations dictate that the matter be addressed before the next annual meeting. However, because holders of a substantial number of shares supported a shareholder proposal on this subject last year and a similar proposal was made for the Company’s 2015 annual meeting, the Board decided to reconsider the existing Bylaws provision and determined to reduce the ownership requirement from a majority to 25% of the outstanding shares.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors, including our chief executive officer, chief financial officer and principal accounting officer. The Code of Business Conduct and Ethics, as currently in effect (together with any amendments that may be adopted from time to time), is available on our website at www.itc-holdings.com through the “Corporate Governance” link on the “Investors” page. In the future, to the extent any waiver is granted or amendment is made with respect to the Code of Business Conduct and Ethics that requires disclosure under applicable SEC rules, we intend to post information regarding such waiver or amendment on the “Corporate Governance” page of our website.

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Corporate Governance Guidelines

The Board has adopted and annually reviews our Corporate Governance Guidelines. These governance principles, along with the charters of the Board’s committees and our Articles of Incorporation and Bylaws, form the framework for the governance of the Company. These principles include board responsibilities, the process of selecting directors, our director resignation policy, director orientation, continuing education and a requirement that the Board and each of its Committees perform an annual self-evaluation. The Corporate Governance Guidelines, as currently in effect, is available on our website at www.itc-holdings.com through the “Corporate Governance” link on the “Investors” page.

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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes the elements of compensation for our chief executive officer, our chief financial officer, the three other most highly compensated executive officers who were serving as such at December 31, 2014 and our former chief financial officer. We refer to these individuals collectively as the named executive officers or NEOs.

The Company’s named executive officers and the capacities in which they served during 2014 were:

Name		Position at December 31, 2014
Joseph L. Welch		Chairman, President and Chief Executive Officer
Linda H. Blair		Executive Vice President and Chief Business Officer
Rejji P. Hayes		Senior Vice President, Chief Financial Officer and Treasurer
Jon E. Jipping		Executive Vice President and Chief Operating Officer
Daniel J. Oginsky		Executive Vice President and General Counsel

Cameron M. Bready, who left the Company in June 2014, is included as an NEO because he served as our Chief Financial Officer during a portion of fiscal 2014.

Executive Summary

The Compensation Committee is responsible for determining the compensation of our NEOs and administering the plans in which the NEOs participate. The goals of our compensation system are to attract first-class executive talent in a competitive environment, and to motivate and retain key employees who are crucial to our success by rewarding Company and individual performance that promotes long-term sustainable growth and increases shareholder value. The key components of our NEOs’ compensation package include base salary, annual cash bonus, long-term equity incentives, as well as certain perquisites and other benefits. In determining the amount of NEO compensation, we consider competitive compensation practices by our peer companies, the executive’s individual performance against objectives, the executive’s responsibilities and expertise, and our performance in relation to annual goals that are designed to strengthen and enhance our value.

We believe our growth and success is attributable in part to our highly talented and motivated executive team. These executives are dedicated to delivering on our commitments made to customers, stakeholders and shareholders. Our results flow from the execution of our strategy, which is premised on investing in our core systems to achieve operational excellence while building on our leadership position in establishing a stronger grid to deliver efficient, reliable, continuous electricity now and in the future. It is this strategy that drove our solid operations and strategic and financial results for 2014 and will continue to drive our performance going forward.

In 2014, the Company reported another year of strong financial results. Our stock performance in 2014 reflected our success and contributed significantly to our total shareholder return for the year of approximately 28.7%. We have outperformed the Dow Jones Utility Index every year since our initial public offering in July 2005 and have produced a total shareholder return over that period of approximately 561.5%. We are very pleased with our ability to translate customer benefits into shareholder returns and expect to continue to deliver value on both fronts going forward. The chart below summarizes our 2014 stock performance compared to the Dow Jones Utility Index.

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Further, the chart below displays our total shareholder returns over the past three, five, and nine years (since our initial public offering in July 2005) compared to our peer group and the peer group selected by two major proxy advisory firms: Institutional Shareholders Services, or ISS, and Glass Lewis. See “Benchmarking and Relationship of Compensation Elements — Benchmarking” for the listing of peer companies used in this data set. Total shareholder return data for our peer group and the ISS peer group was provided by ISS. Data for non-overlapping Glass-Lewis peer companies was retrieved from Yahoo-Finance.

We have also been steadfast in delivering sustainable dividend growth. We increased our dividend approximately 14% in August 2014 and as a result, our dividend has now increased approximately 86% since we instituted our first dividend in August 2005. Our dividend policy is premised on continuing to grow our dividend in a manner that keeps pace with our earnings growth, resulting in our dividend becoming a more meaningful element of our overall shareholder return proposition. The chart below summarizes our dividend growth since September 2005.

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In light of these and other factors, the Compensation Committee made the following decisions with regard to executive compensation in 2014 and early 2015:

· Base salary increases . Base salary increases were provided to our NEOs to reward their individual performance and remain competitive and aligned with our peer group. In addition, three of the NEOs received $20,000 lump sum payments in 2014 to further recognize their individual contributions to the Company’s success without further increasing their base salary.

· Cash incentive bonuses. We paid out cash incentive bonuses for 2014 at 115% of target. This was based on achieving 95% of the performance targets which were largely established under the bonus plan in early 2014. As calculated in accordance with the terms of our annual corporate performance bonus plan, our 2014 total return to shareholders was 31.2%, which was the seventh highest return and ranked in the 56 th percentile compared to the Dow Jones Utility Average Index companies. On January 22, 2015, the Compensation Committee adjusted the targeted EBIT plus AFUDC performance measure to take into account management’s achievement of lower than budgeted debt financing costs at the Company’s regulated operating subsidiaries for debt financings executed during 2014, which will result in lower transmission rates for customers. As this better than expected performance produced a lower bonus result, the Compensation Committee determined to correct the anomalous result by adjusting the target. The adjustment to the EBIT plus AFUDC performance target resulted in the Company’s NEOs achieving 115% of their targeted bonus amounts rather than 110% without such adjustment. In addition, to address this anomalous result in the future, Net Income will replace EBIT plus AFUDC as a financial metric for the 2015 annual incentive plan. See “Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Bonus Compensation”.

· Modest discretionary milestone bonuses . We paid modest discretionary cash bonuses in conjunction with the successful completion of the Hugo-Valliant transmission project and the KETA Phase I and KETA Phase II transmission projects.

· Long-term equity incentives . We granted long-term equity incentive awards to our NEOs. Total award values were determined as a percentage of their base salary and weighted between grants of restricted stock and options to continue our focus on rewarding and motivating performance and to further align their interests with those of shareholders.

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· Performance-based equity . To create a stronger tie to performance, the Compensation Committee determined that at least 50% of future grants associated with our long-term incentive plan will be in the form of performance shares and will be contingent on meeting certain financial metrics over a three-year performance period.

· New CFO compensation. In June 2014, the Compensation Committee approved a compensation package for Mr. Hayes due to his appointment to Vice President, Treasurer and Interim Chief Financial Officer, that included increases in base salary from $260,500 to $325,000, targeted cash bonus from 40% to 60% of annual base compensation and targeted equity award value of 65% of annual base compensation. In August 2014, the Compensation Committee increased Mr. Hayes’ targeted cash bonus to 100% of annual base compensation and his target equity award to 150% of annual base compensation due to his appointment to Senior Vice President, Chief Financial Officer and Treasurer. In February 2015, Mr. Hayes’ base salary was increased to $400,000 and his targeted annual equity award was increased to 175% of salary. In approving these increases, the Compensation Committee considered both the benchmarking data obtained in 2014 and early 2015 as well as the importance of his position relative to our NEOs.

To provide additional insight into how actual pay levels compared to ASC Topic 718 accounting values presented in the summary compensation table under “Summary Compensation”, “realizable pay” levels have been presented below. The key difference is that equity compensation values reported in the summary compensation table represent value at grant based on various assumptions, while “realizable pay” is the intrinsic value of the award at the end of a defined period of time.

The table below compares the average annual compensation for the three-year period ended December 31, 2014 for each NEO from the summary compensation table to each NEO’s “realizable pay”. “Realizable pay” includes base salary, earned bonus, equity awards granted within the three-year period, and other reported compensation. However, payments made under the special bonus plan, which are associated with option awards granted in 2003 and 2005, retention compensation and project development bonuses have been excluded, as these amounts are not considered recurring pay related to current services performed. In addition, changes in pension values have been excluded as they can vary significantly based on assumptions, including mortality, retirement age and interest rates, as well as executive age and years of service.

3 Year Average Compensation (2012 — 2014)

	Summary
	Compensation				Realizable Pay as % of
NEO	Table		Realizable Pay		Summary Compensation
Joseph L. Welch	$	5,614,754	$	6,864,200	122	%
Linda H. Blair	$	2,397,475	$	2,991,879	125	%
Rejji P. Hayes	$	787,660	$	926,903	118	%
Jon E. Jipping	$	2,028,581	$	2,551,461	126	%
Daniel J. Oginsky	$	1,505,368	$	1,805,532	120	%
Cameron M. Bready	$	1,633,070	$	2,331,662	143	%

Average “realizable pay” over the recently completed three-year period ending December 31, 2014 was above the summary compensation table values. This is directionally aligned with our total shareholder return, or TSR, performance relative to our peers, being above median at the 77 th percentile for the same three-year period.

We also reviewed our CEO’s three-year average “realizable pay” rank and our Company’s three-year TSR rank relative to peer group levels and found pay levels to be aligned with performance. Our CEO’s three-year realizable compensation falls at the peer group 87 th percentile, while the three-year TSR falls at the

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peer group 77 th percentile. The shaded area in the graph below illustrates the range where pay and performance are within plus or minus 25 percentile points. According to Mercer, companies falling in this range are considered to have generally aligned pay and performance levels.

Overview and Philosophy

The objective of our compensation program is to attract, motivate and retain exceptional leaders and employees, and to maintain the focus of those leaders and employees on providing value to customers and shareholders by:

· Performing best-in-class utility operations;

· Improving reliability, reducing congestion, and facilitating access to generation resources; and

· Utilizing our experience and skills to seek and identify opportunities to invest in needed transmission and to optimize the value of those investments.

Our compensation program is designed to motivate and reward individual and corporate performance. Our compensation philosophy is to:

· Provide for flexibility in pay practices to recognize our unique position and growth proposition;

· Use a market-based pay program aligned with pay-for-performance objectives;

· Be competitive with the market in all pay elements relating to compensation, while leveraging incentives where possible;

· Use compensation studies to verify competitiveness and ensure continued competitiveness;

· Align long-term incentive awards with improvements in shareholder value;

· Provide benefits through flexible, cost-effective plans and maintain above-market benefits while taking into account business needs and affordability; and

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· Provide other non-monetary awards to recognize and incentivize performance.

What We Do

ü		Pay for performance — about 80% of our CEO’s pay and about 75% of the other NEOs’ pay is at-risk
		(see “Compensation Discussion and Analysis — Risk and Reward Balance”)
ü		Share ownership — our Compensation Committee has established stock ownership guidelines for our
		executives. Failure to maintain minimum stock ownership under these guidelines may result in future bonus payments paid in the form of company stock until stock ownership levels are met (see “Compensation Discussion and Analysis — Stock Ownership Guidelines”)
ü		Performance based vesting — beginning with our 2015 grants, at least 50% of each executive’s award
		will be subject to financial performance-based vesting conditions at the end of three years (see “Compensation Discussion and Analysis - Key Components of Our NEO Compensation Program — Long-Term Equity Incentives”)
ü		Benchmarking — we benchmark total compensation paid to our NEOs against specific peers selected
		among regulated utilities, considering market capitalization and level of net income. We target total compensation between the 50 th and 75 th percentiles of our peer group to attract, motivate and retain the best talent (see “Compensation Discussion and Analysis — Benchmarking and Relationship of Compensation Elements”)
ü		Cap on annual bonus plan payout — our annual bonus plan has a maximum payout opportunity of
		200% of target (see “Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Bonus Compensation”)
ü		Clawbacks — our recoupment policy applies to all of our executive officers and includes all bonus or
		other incentive-based or equity-based compensation (see “Compensation Discussion and Analysis — Other Components of Our Executive Compensation Programs - Recoupment Policy”)
ü		Shareholder outreach — we proactively engage with our shareholders and other interested parties to
		discuss our compensation programs and objectives (see “Compensation Discussion and Analysis — Role of Shareholder Say-on-Pay Vote”)
ü		Independent advice — the Compensation Committee engages its own independent advisor on executive
		compensation issues (see “Compensation Discussion and Analysis — Role of Compensation Consultant”)
ü		Tally Sheets — we regularly review executive tally sheets to ensure a broad view of current and potential
		compensation (see “ Compensation Discussion and Analysis — Benchmarking and Relationship of Compensation Elements — Use of Tally Sheets”)
ü		Modest benefits and perquisites — the variety of benefit programs we offer are a part of total
		compensation and are designed to enable us to attract and retain employees in a competitive market (see “Compensation Discussion and Analysis — Other Components of Our Executive Compensation Program — Benefits and Perquisites”)
ü		Double-trigger change in control provision — our equity grants vest upon a change in control only in
		the event of a qualified termination (see “Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Long-Term Equity Incentives”)

What We Don’t Do
X		No re-pricing of stock options — our long term incentive plan requires us to obtain shareholder approval
		before we re-price stock options
X		No cash dividends on performance shares - dividend equivalents will accrue on unvested performance
		shares and will be delivered to the NEOs only if the related performance shares vest
X		No guaranteed bonuses - bonuses are tied to performance and subject to approval by our Compensation
		Committee
X		No tax reimbursements or gross-ups — we generally do not reimburse executives for income tax they pay on the value of executive perquisites or for change in control excise taxes; however, some reimbursements will continue to be provided to our current CEO through the end of his tenure and to employees in some cases following termination of employment

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Risk and Reward Balance

When reviewing the compensation program, the Compensation Committee considers the impact of the program on the Company’s risk profile. The Compensation Committee believes that the compensation program has been structured with the appropriate mix and design of elements to provide strong incentives for executives to balance risk and reward, without incentivizing excessive risk taking.

In early 2015, the Company engaged Mercer (US), Inc., or Mercer, to conduct a comprehensive compensation risk assessment. The objectives of the review included:

· Engaging in best practices of reviewing compensation plans to avoid excessive risk-taking, and

· Uncovering potential areas for improved risk mitigation

Mercer reviewed our compensation programs, policies and practices in six key areas:

Governance	Funding/Cost	Performance Measures
Goal-Setting and Leverage	Performance Period	Pay Mix

Risk mitigating factors with respect to the Company’s compensation programs include a market competitive pay mix, tying pay to performance through annual and long-term incentive plans, caps on bonus payouts, measures that are both financially and operationally focused, a compensation recoupment policy, share ownership guidelines, regular review of share utilization (overhang, dilution and run rates), regular review of NEO tally sheets and engagement of an independent compensation consultant.

The pay mix of our CEO and NEOs is generally aligned with market practices with slightly more emphasis on annual incentives and slightly less on long-term incentives than our peer group. Variable pay is linked to Company performance and/or stock performance.

Mercer concluded and confirmed that the Company’s compensation programs do not create risks that are reasonably likely to have a material adverse impact on the Company. The Compensation Committee discussed and accepted Mercer’s report.

Role of Shareholder Say-on-Pay Vote

At the Company’s annual meeting of shareholders held in May 2014, the advisory vote on our executive compensation program was approved by shareholders, but only by a vote of approximately 62% in favor. ISS recommended a vote against our say on pay proposal in 2014, while Glass Lewis recommended a vote in favor.

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In response to shareholders’ concerns about our executive compensation program expressed in 2014, we substantially increased our shareholder outreach efforts. We contacted our top twenty-five institutional shareholders, representing about 60% of our outstanding shares. We were able to conduct conference calls with about 44% of those contacted, representing about 40% of our outstanding shares and were able to speak with governance representatives on the majority of our calls. We directly discussed the issues raised by the proxy advisory service providers last year as well as other compensation and governance topics where our shareholders sought clarification or wanted to share their perspective. Through our enhanced shareholder outreach program, we received valuable investor feedback on our compensation program and on our actions around a shareholder proposal in our 2014 proxy statement. We used these outreach sessions to begin an open dialogue with our shareholders on our compensation practices and our corporate governance practices. More specifically, we discussed topics of interest to our shareholders, solicited investor viewpoints, conveyed our views on these topics, and gained a better understanding of areas of mutual agreement. This feedback included, among other things:

· The desire for more proactive shareholder outreach around our compensation and corporate governance practices;

· More robust disclosure within the proxy statement;

· Discussion about our CEO’s pay relative to various peer groups and year over year increases;

· Views on discretionary bonuses; and

· Actions taken on the non-compensation related shareholder proposal in the 2014 proxy statement.

We believe that the institutional shareholders with whom we talked left our discussions with a better understanding about our pay program and how our unique business model, as an independent transmission-only company, has influenced the composition of our peer group. They also expressed appreciation for our reaching out to them and for the steps we have taken to respond to their concerns.

Over the past three years, we have taken the following steps with respect to our executive compensation program to respond to the results of our outreach program to establish best practices and to ensure alignment of executive compensation with shareholder interests:

· Redesigned our Long-Term Equity Incentives. For 2015, vesting of our equity based awards will no longer be 100% time-based. The Compensation Committee intends to include a performance-based component so that at least 50% of grants are performance-based shares with vesting contingent on achieving certain financial metrics. For 2015 grants, there are two independent metrics which will each drive vesting on a portion of these grants; a three-year relative TSR goal and a three-year Diluted EPS Growth goal.

· Expanded disclosure of annual bonus plan goals and results. We have provided additional disclosure and transparency with respect to the operational and financial targets and results associated with the metrics in our annual bonus plan.

· Re-examined our peer group. We believe peer group composition was the root cause for ISS’s negative recommendation in 2013 and 2014, since its analyses are mostly driven by peer group comparisons. In response, we re-examined our peer group and re-affirmed the group based on our unique business model as the only stand-alone electricity transmission provider. Our peer group accounts for the complexity in our business relative to other publicly-traded utility companies, our geographic footprint, the scope of our investments, our growth and diversification plans, and our projected future size. Peer companies were selected based on market capitalization and level of net income rather than revenue or assets. While we recognize that revenue is a common standard for establishing a peer group, we believe it

F- 20

is not a good representation of our company given our unique structure. Most utilities with whom we would be compared in a more traditional peer group reflect fuel expense as a significant portion of their revenues. However, as a transmission-only company we do not incur or pass-through fuel related expenses or revenues; therefore our revenue would appear artificially lower by comparison.

· Eliminated most tax gross-ups. In view of market trends in executive compensation, we eliminated the reimbursement (tax gross-up) for income taxes related to the inclusion of the value of the perquisites by the Company, effective January 1, 2014, except for the CEO. Our CEO and co-founder, Mr. Welch, retains this benefit; however, the benefit will not continue for the CEO beyond Mr. Welch’s tenure with the Company. Although there was no contractual obligation to maintain this benefit for Mr. Welch, the Compensation Committee determined that this benefit was negotiated with Mr. Welch as part of his initial employment with the Company, that it would be unfair to him to eliminate the benefit at this time and that the impact of maintaining the benefit for a limited time until his retirement would not be material to the Company. Our employment agreements also provide for limited tax gross-ups following termination in some circumstances.

· Added double-trigger change in control provision. We modified the vesting of future equity grants upon a change in control so that the provision has a “double-trigger;” that is, accelerated vesting requires both a change in control and a qualified termination.

· Adopted a compensation recoupment policy. We adopted a formal compensation recoupment or “clawback” policy, which gives the Compensation Committee authority to recover or reduce excess cash or other incentive-based or equity-based compensation based on certain financial results that are subsequently restated.

· Revised annual bonus plan. For 2014, the annual bonus plan for executives was restructured to place added emphasis on the Company’s financial performance; however, the maximum potential bonus opportunity for participating executives remains unchanged as a percent of base salary. The TSR performance factor, which represented 50% of the total bonus opportunity in 2013 and 2012, was included as an independent measure in 2014, increasing our focus on providing shareholder value independent of operational goals. Operational performance measures continue to represent 40% of the target bonus, reflecting the inherent importance of driving operational performance, reliability and needed investment in our transmission system for the benefit of our customers. See “Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Bonus Compensation”.

The Compensation Committee continues to review and evaluate with its consultant executive compensation trends and practices, and may further modify the program or philosophy from time to time as it deems necessary or appropriate and in the best interests of the Company. In addition, the Company found its shareholder outreach meetings to be helpful and plans to hold more meetings of this nature in the future to provide shareholders with the opportunity to provide feedback around compensation and governance-related matters.

The Company provides shareholders with an opportunity to approve the compensation of the named executive officers each year at the annual meeting of shareholders. It is expected that the next such vote after the 2015 annual meeting will occur at the 2016 annual meeting of shareholders.

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Role of Compensation Consultant

In 2014, the Compensation Committee continued to engage Mercer as its advisor on executive and compensation issues, to provide market data on all of the components of compensation, including salary, bonus, long-term incentives and total compensation, for all executive officers, including the NEOs. The Compensation Committee engaged Mercer to provide market data and comments about the design of our executive compensation programs with respect to both market practice and the unique strategic goals of our business model. The Compensation Committee also engaged Mercer to review the competitiveness of the current compensation levels of our Directors. Mercer was engaged by and reported to the Compensation Committee and, at the Compensation Committee’s discretion, participated in its meetings and executive sessions.

The Company purchased Mercer’s annual salary and benefits surveys in 2014 for a total cost of $10,378. These surveys are used for benchmarking pay below the executive level.

Total fees paid to Mercer for consulting services relating to executive and director compensation were $166,859 for 2014. All services provided by Mercer were approved by the Compensation Committee.

Annually, the Compensation Committee assesses the independence of Mercer, taking into consideration all factors relevant to independence, including the factors specified in the NYSE listing standards. Mercer provides the Compensation Committee with written confirmation of its independence and the existence of any potential conflicts of interest. The Compensation Committee also obtains an understanding of the policies and procedures that Mercer has in place to prevent conflicts of interest, confirms that there are no personal or business relationships between Mercer and members of the Board and our executive officers and validates that employees of Mercer who perform consulting services do not own any of our common stock. After considering these factors, the scope of services provided by Mercer, and the amount of fees paid for executive compensation consulting and other valuation services, pursuant to SEC and NYSE rules, the Compensation Committee has concluded that no conflict of interest exists that would prevent Mercer from serving the Compensation Committee as its independent consultant.

Benchmarking and Relationship of Compensation Elements

Benchmarking. The Compensation Committee benchmarks total compensation paid to our NEOs as well as the base salary, annual cash bonus opportunity and long-term equity components to compensation paid to comparable executives by a peer group of companies approved by the Compensation Committee. In February 2014, the Compensation Committee, through Mercer, updated its 2013 benchmarking study that compared NEO total compensation, including base salary, annual bonus awards and long-term incentives to the 50 th and 75 th percentiles of market compensation among selected peer companies listed below. The updated study indicated that total compensation paid to our NEOs is between the median and the 75 th percentile of our peer companies.

The Compensation Committee selected a peer group comprised of regulated utility companies that are geographically diverse. This approach was used given that we are the only publicly traded company that exclusively owns stand-alone electricity transmission companies. Specific peers were selected from among regulated utilities, considering market capitalization and level of net income rather than revenue or assets given our unique business model. This peer group also accounts for the complexity in our business relative to other publicly-traded utility companies, the scope of our investments, our growth and diversification plans, and our projected future size. The methodology used by the Compensation Committee to determine the composition of the peer group was confirmed by advice from Mercer as to its reasonableness. Periodically, the composition of the peer group is reviewed and updated for consistency with the profile of the Company. The peer group used in 2014 consisted of the following entities:

F- 22

AGL Resources Inc.	Alliant Energy Corporation
Atmos Energy Corporation	CMS Energy Corporation
Great Plains Energy Incorporated	MDU Resources Group, Inc.
National Fuel Gas Company	NV Energy, Inc.
OGE Energy Corp.	Pepco Holdings, Inc.
Questar Corporation	SCANA Corp.
UGI Corporation	Wisconsin Energy Corporation

Northeast Utilities was removed from the peer group for 2014 because following its merger the company was no longer a comparable size.

Since we believe that net income is a better reflection of our financial performance than revenue, we also reviewed our reported net income growth rate compared to our peer group companies as well as the peer group companies selected by ISS and Glass Lewis, as published in their proxy advisory reports in advance of our 2014 shareholder meeting. We looked at growth over the last three, five and nine years (since our initial public offering in 2005). The comparison indicated that we had superior net income growth rates in relation to all of these peer groups. Our growth rate ranged from 12.4% to 24.2% depending on the time frame measured. The ISS peer group reported net income growth that ranged from 8.3% to 9.1% on a normalized basis and the Glass Lewis group reported net income growth that ranged from 5.6% to 7.5%. Our peer group reported net income growth that ranged from 6.4% to 11.4%.

The ITC peer group included in the table excludes certain companies with losses greater than 100% which skewed the peer group results. Our net income amounts reflect what was reported in our corresponding year’s Form 10-K. Peer group net income numbers were retrieved from Factset, where available, or company reported net income from the corresponding year’s Form 10-K. The ISS and Glass Lewis peer groups were only used for purposes of the net income growth table and not for setting compensation. The ISS peer group consisted of the following entities:

Allete, Inc.	Black Hills Corporation
Chesapeake Utilities Corporation	Cleco Corporation
El Paso Electric Co.	IDACORP, Inc
MGE Energy, Inc.	Northwest Natural Gas Company
Northwestern Energy	Otter Tail Corporation
Piedmont Natural Gas Co. Inc.	PNM Resources, Inc.
Portland General Electric	Questar Corporation
South Jersey Industries, Inc.	The Empire District Electric Company
The Laclede Group, Inc.

The Glass Lewis peer group consisted of the following entities:

F- 23

Alliant Energy Corporation	Ameren Corporation
Atmos Energy Corporation	CenterPoint Energy Inc
CMS Energy Corporation	Eversource Energy
Integrys Energy Group	National Fuel Gas Company
OGE Energy Corp.	Pepco Holdings, Inc
Questar Corporation	SCANA Corp.
TECO Energy, Inc.	UGI Corporation Wisconsin Energy Corp.

Use of Tally Sheets. The Compensation Committee, with the assistance of management and Mercer, creates tally sheets to facilitate their review of the total annual compensation of our NEOs. The tally sheets contain annual cash compensation (salary and bonuses), long-term equity incentives, benefit contributions and perquisites. In addition, the sheets include retirement program balances, outstanding vested and unvested equity values and potential severance and termination scenario values.

Pay Review Process. In addition to the Compensation Committee’s benchmarking analysis and review of tally sheets, our chief executive officer reviews and examines market survey compensation levels and practices, as well as individual responsibilities and performance, our compensation philosophy and other related information to determine the appropriate level of compensation for each of our NEOs. Mr. Welch evaluates the performance of the NEOs, other than himself, and makes recommendations on their salaries, bonus targets and long-term incentive awards. The Compensation Committee considers these recommendations in its decision making and confers with its compensation consultant to understand the impact and result of any such recommendations. The Compensation Committee uses market data and recommendations from the Committee’s consultant and makes recommendations on Mr. Welch’s salary, bonus targets and long-term incentive awards to the Board of Directors. The Board of Directors (other than Mr. Welch) evaluates Mr. Welch’s performance and considers the Compensation Committee’s recommendations in its decision making.

The Compensation Committee reviews and considers each element of compensation and all elements of compensation together in measuring total compensation packages as part of its benchmarking analyses and in measuring compensation packages against the objectives of our compensation program. The Compensation Committee does not determine the mix of compensation elements using a pre-set formula. In setting executive compensation levels, the Committee retains full discretion to consider or disregard data collected through benchmarking or peer group studies. Compensation decisions are also considered in the context of individual and Company performance, retention concerns, the importance of the position, internal equity and other factors.

Key Components of Our NEO Compensation Program

The key components of our executive compensation program are discussed below. The elements in the table immediately below include the principal components of our program. The other elements of our executive compensation programs are discussed below under the heading Other Components of Our Executive Compensation Programs which summarize the benefit programs that are available to our NEOs.

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Principal Components of our Compensation Program for 2014

Component	Purpose	Form	Pay-for-Performance	Comment
Base Salary	Provide sufficient competitive pay to attract and retain experienced and successful executives.	Cash	Adjustments to base salary consider individual performance and contributions to the business with reference to base salary levels of executives with comparable responsibilities at peer companies.	Annual fixed cash compensation. Reflects employee’s level of responsibility, expertise, and individual performance.
Bonus Compensation	Encourage and reward contributions to our corporate performance goals.	Cash	The potential award amount varies with the degree to which we achieve our annual corporate performance goals.	Annual variable cash compensation. The Compensation Committee determines the goals and amounts of the annual bonus each year.
Long-term Incentives	Encourage equity ownership, reward building long-term shareholder value and retain NEOs. We provide a mix of equity award types to balance these objectives. Stock Options : Reward stock price appreciation. Restricted Stock : Maintain retention value through short-term market volatility. Value increases or decreases with stock price, aligning the interests of the recipient with shareholders’ interests.	Stock Options and Restricted Stock Awards	The potential value created by appreciation in our stock price motivates our NEOs’ individual performance, which encourages them to achieve strong company performance and, in turn, results in increased shareholder value.	Long-term variable stock-based compensation. The Compensation Committee determines the amounts and value of these awards each year. We encourage stock ownership through guidelines applicable to all of our NEOs.

Base Salary

The Compensation Committee annually reviews and approves the base salaries, and any adjustments thereto, of the NEOs. In making these determinations, the Compensation Committee considers the executive’s job responsibilities, individual performance, leadership and years of experience, the performance of the Company, the recommendation of the chief executive officer and the total direct compensation package as well as the benchmarking analysis conducted by Mercer.

The 2014 base salaries for the named executive officers, including any year-over-year change, were:

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	2013 Base		2014 Base		Percent
NEO	Salary		Salary		Increase
Joseph L. Welch	$	984,000	$	1,023,400	4.0	%
Rejji P. Hayes	$	240,000	$	325,000	—
Linda H. Blair	$	591,000	$	614,000	3.9	%
Jon E. Jipping	$	483,000	$	502,000	3.9	%
Daniel J. Oginsky	$	385,000	$	423,000	9.9	%
Cameron M. Bready	$	569,000	$	569,000	—

In May 2014, the Compensation Committee approved an increase to the base salaries of Ms. Blair and Messrs. Jipping and Oginsky and the Board of Directors approved an increase, based on the recommendation of the Compensation Committee, to the base salary of Mr. Welch. The salary increases were provided to remain competitive and aligned with our peer group and reward the NEOs for their individual performance. For 2014, Ms. Blair and Messrs. Jipping, Oginsky and Welch’s base salaries, on average, were aligned with the 50 th percentile of the base salaries of our peer group.

In addition to the above changes in base salaries, the Committee also approved lump sum cash payments in the amount of $20,000 each to Ms. Blair, Mr. Jipping and Mr. Oginsky. The use of the lump sum payments as a portion of the annual compensation adjustments of these NEOs was done to recognize their individual contributions to the Company’s success while keeping their fixed compensation aligned with the peer group.

The salary adjustment for Mr. Oginsky also reflects his promotion from Senior Vice President to Executive Vice President of the Company. As Senior Vice President and General Counsel, Mr. Oginsky had served as a key member of the management team, and previous benchmarking analyses showed his base salary approximated the 50 th percentile of the peer group. The Compensation Committee considered the peer group comparison, as well as Mr. Oginsky’s contributions to the Company’s success and his pay in comparison to that of the other senior executives in granting him a 9.9% salary increase in connection with his promotion to Executive Vice President.

In March 2014, while serving as Vice President, Finance and Treasurer, Mr. Hayes received an increase in his base salary from $240,000 to $260,500. In June 2014, the Compensation Committee approved an increase to Mr. Hayes’ base salary from $260,500 to $325,000, in connection with his appointment to Vice President, Treasurer and Interim Chief Financial Officer. On February 3, 2015, the Compensation Committee approved an immediate increase to Mr. Hayes’ base salary from $325,000 to $400,000. In approving the second increase, the Compensation Committee considered both the benchmarking data it had obtained in early 2015 and the importance of his position relative to other NEOs. Mr. Hayes’ base salary remains considerably below our peer group median.

Bonus Compensation

Annual bonus awards based on corporate performance goals, as well as occasional cash bonuses made on a discretionary basis upon completion of significant projects or milestones, are used to provide incentives for and to reward contributions to our growth and success. Annual corporate performance bonuses for 2014 are listed in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table in this Schedule F, discretionary bonuses for 2014 are listed in the Bonus column of the Summary Compensation Table, and each are described below. Some of the NEOs also participate in the Executive Group Special Bonus Plan, described below. Amounts paid under this plan are reflected in the Bonus column of the Summary Compensation Table.

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Annual Corporate Performance Bonus. Early each year, the Compensation Committee approves our annual corporate performance bonus plan goals and targets, which are based on key Company objectives relating to operational excellence and superior financial performance. The same corporate performance goals and targets are used in determining annual bonus compensation for all of our employees. The corporate performance goals and targets, accordingly, are designed to align the interests of customers, shareholders, management and all employees, and encourage teamwork and coordination among all of our executives and employees with a common focus on the growth and success of the Company. Target levels for the corporate performance goals are determined based on long-term strategic plans, historical performance, expectations for future growth and desired improvement over time.

The annual bonus plan performance goals are individually weighted. Weights are assigned to each goal based on areas of focus during the year and difficulty in achieving target performance. Weights are also assigned so that there is a balance between operational and financial goals. Each goal operates independently, and, for most goals, there is not a range of acceptable performance; if a goal is not achieved, there is no payout for that goal. We do not pay for achieving below-target performance on any goal, but we will pay for achievement of target performance on those goals that are achieved even though other goals may not be achieved. The bonus goal targets are established to motivate employees toward operational excellence and superior financial performance and are designed to be challenging to meet, while remaining achievable.

The annual bonus plan for executives was restructured for 2014 to place added emphasis on the Company’s financial performance. The maximum potential bonus opportunity for participating executives remains unchanged as a percent of base salary. Financial measures drive 60% of the target bonus, while operational performance measures drive the remaining 40% of the target bonus. This reflects the inherent importance of driving operational performance, reliability and needed investment in our transmission system for the benefit of our customers.

The annual bonus plan consists of three primary measurement categories: Financial, Safety & Compliance, and System Performance.

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Corporate performance goal criteria approved by the Compensation Committee for 2014, the rationale for the target (in some cases in relation to the prior year target) and actual bonus results, were as follows:

Financial goals represent 60% of the total annual bonus target and include specific measures for Non-Field Operation and Maintenance Expense, EBIT plus AFUDC and TSR, with a maximum potential payout opportunity of 120% of the target bonus amount:

Rationale for

Potential

2014

Actual

Category

Goal

Rationale for Target

Payout

Results

Payout

Financial

60% Weight / 120% Maximum Potential Payout

Non-field Operation and Maintenance Expense

Controlling general and administrative expenses is an important part of controlling rates charged to transmission customers.

Target is consistent with the approach used in 2013 and reflects the 2014 Board-approved budget.

Non-Field O&M and G&A expense at or under budget of $145 million .

10%

$141.9 million

EBIT plus AFUDC (1)

Represents the Company’s financial performance as it accurately measures the economic benefits of our investments and capital in any given year.

Target is consistent with the approach used in 2013 and reflects the 2014 Board-approved budget.

EBIT plus AFUDC at or above $690 million to achieve 10%;

EBIT plus AFUDC at or above $655 million to achieve 5%.

5% - 10%

$693.3 million (1)

Total Shareholder Return (TSR) (2)

Represents the Company’s TSR relative to the TSR of each of the companies that comprise the Dow Jones Utilities (DJU) Average Index.

Target is based on percentile rank relative to companies in the DJU Average Index. See chart below.

20%-100%

Achieved 31.2% TSR or 56 th percentile

Total

120%

Safety & Compliance goals represent 10% of the total annual bonus target and include specific measures for Lost Time, Recordable Incidents and Infrastructure Protection, with a maximum potential payout opportunity of 20% of the target bonus amount:

Rationale for

Potential

2014

Actual

Category

Goal

Rationale for Target

Payout

Results

Payout

Safety & Compliance

10% Weight / 20% Maximum Potential Payout

Safety as measured by lost time

Maintaining the safety of our employees and contractors is a core value and is at the foundation of our success.

Target number of incidents remained the same as prior years and is based on industry top decile performance, which reflects an aggressive view and philosophy on the importance of safety.

1 or fewer lost work day cases to achieve 5%

2 or fewer lost work day cases to achieve 2.5%

2.5% - 5%

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		Rationale for		Potential		2014	Actual
Category	Goal	Goal	Rationale for Target	Payout		Results	Payout
	Safety as measured by recordable incidents	Maintaining the safety of our employees and contractors is a core value and is at the foundation of our success.	Target number of incidents remained the same as prior year and is based on industry top decile performance, which reflects an aggressive view and philosophy on the importance of safety. 7 or fewer recordable incidents	5	%	1	5	%
	Infrastructure Protection	Maintaining cyber and physical security is critical to ensuring system reliability and ongoing operations.	New goal focuses on implementing updated cyber-security and physical security plans. Emphasizes securing our information systems and our most important assets. Implementation of the 2014 portion of the Cyber Security and CIP (critical infrastructure protection) Plan and the Physical Security Plan , as presented to and approved by the Board of Directors, each plan worth 5%.	10	%	Completed	10	%
Total				20	%		20	%

System Performance goals represent 30% of the total annual bonus target and include specific measures for System Outages, Maintenance Plans and System Development, with a maximum potential payout opportunity of 60% of the target bonus amount:

Rationale for

Potential

2014

Actual

Category

Goal

Rationale for Target

Payout

Results

Payout

System Performance

30% Weight / 60% Maximum Potential Payout

Outage frequency

Reducing and limiting system outages are critical to ensuring system reliability.

Target unchanged from prior year. Number of Forced, Sustained Line Outages, excluding the “External” cause classification, for:

ITCTransmission ( 18 or fewer , representing top decile performance)

METC ( 38 or fewer , representing top decile performance)

ITC Midwest ( 73 or fewer , representing second quartile performance, no more than 37 of which can cause end-use customer sustained outages.

At least 63% of caused, unplanned, sustained outages, 34.5 kV and above, that impact end-use customers are restored at point of interconnection within 90 minutes);

Each target worth 5%.

ITCTransmi ssion — 16

METC — 27

ITC Midwest — 79 / 42

ITC Midwest — 74.3%

Field Operation

Performing necessary

Target is reflective of goal to complete the normal maintenance

All high priority

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Rationale for

Potential

2014

Actual

Category

Goal

Rationale for Target

Payout

Results

Payout

and Maintenance Plan

preventive maintenance is critical to ensuring system reliability.

schedule of high priority maintenance activities. Complete high priority 2015 Field O&M Initiatives for:

ITCTransmission ( 15 )

METC ( 13 )

ITC Midwest ( 10 )

Each subsidiary target worth 5%.

initiatives completed

Capital Project Plan

Performing necessary system upgrades is critical to ensuring system reliability, providing a robust transmission grid and delivering financial performance.

Target continues to tie to external guidance on the current year capital project plan.

The maximum payout represents the midpoint of our 2014 capital investment guidance range, with a threshold level also established.

15 - 25%

Midpoint of guidance achieved

60%

Total Bonus Payout

200%

115

(1) We define EBIT as net income plus income taxes and interest expense; and excluding certain other items not related to operating performance, such as loss on extinguishment of debt. Allowance for Funds Used During Construction, or AFUDC, is recorded as an item of other income. The allowance represents a return on debt and equity at our regulated operating subsidiaries used for construction purposes in accordance with FERC regulations. The rate applied to the construction work in progress balance is based on the weighted average cost of capital at our regulated operating subsidiaries. On January 22, 2015, the Compensation Committee adjusted the targeted EBIT plus AFUDC performance measure to take into account management’s achievement of lower than budgeted debt financing costs at the Company’s regulated operating subsidiaries for debt financings executed during 2014, which will result in lower transmission rates for customers. As this better than expected performance produced a lower bonus result, the Compensation Committee determined to correct the anomalous result by adjusting the target. The adjustment of $8.7 million was based on the lower than expected interest expense for actual 2014 results versus interest expense levels assumed for the target and resulted in the Company’s NEOs achieving 115% of their targeted bonus amounts rather than 110% without such adjustment. The adjustment may cause the associated portion of the bonus to not be tax deductible, but the Company does not believe the foregone deduction will have a material adverse effect on the Company.

(2) Total Shareholder Return will be compared to the Dow Jones Utility Average Index companies. Total Shareholder Return must be positive for the year and must exceed the 50th percentile of the Dow Jones Utility Average Companies before there will be any payout for meeting this goal, as illustrated below:

Total Shareholder Return
relative to each of the Dow Jones	Payout %
Utility Average Companies	of Salary
1 st to 50 th percentile	0	%
51 st to 60 th percentile	20	%
61 st to 70 th percentile	40	%
71 st to 80 th percentile	60	%
81 st to 90 th percentile	80	%
91 st to 100 th percentile	100	%

We compute Total Shareholder Return as follows:

A: Calculated the average of the closing prices from December 17, 2013 to January 15, 2014

B: Calculated the average of the closing prices from December 17, 2014 to January 15, 2015

C: Calculated total dividend paid per share in 2014

Total Return to Shareholders: (B – A + C)/A

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Bonuses are based on target bonus amounts, which for each employee is a percentage of his or her base salary. The Compensation Committee considers each individual’s job responsibilities and the results of its benchmarking analysis when determining target bonus levels for executive officers, including the NEOs. For 2014, target bonus levels are unchanged from the prior year with the exception of Mr. Hayes’ bonus amount which was increased from 60% to 100% in connection with his appointment to Senior Vice President, Chief Financial Officer and Treasurer on August 13, 2014. Target bonus amounts for 2014 were as follows:

	% of Base
NEO	Salary

Joseph L. Welch	125	%
Linda H. Blair	100	%
Rejji P. Hayes	100	%
Jon E. Jipping	100	%
Daniel J. Oginsky	100	%
Cameron M. Bready	100	%

The benchmarking study showed that Mr. Welch’s target bonus opportunity is above the 75 th percentile compared to CEOs in our peer group. In establishing the annual bonus target at 125% of salary and determining that varying from its median target was appropriate, the Compensation Committee considered this information along with Mr. Welch’s significant experience as the Company’s founder, Chairman and CEO, his leading role in the industry and his pivotal role in the growth of the Company. The target bonus percentages for the other NEOs were also above the 75 th percentile of the peer group, with total cash compensation purposefully more weighted towards performance-based compensation than that of our peer group.

Company performance on the incentive plan goals resulted in a bonus calculation for 2014 for executives, including NEOs, according to the following formula:

Base Salary x Target Bonus (% of base salary) x Achievement of Corporate Goals

(115%) = Annual Bonus Amount

For 2015, the Compensation Committee approved corporate performance goals for the annual bonus award similar to the 2014 criteria, except that the EBIT plus AFUDC goal has been replaced with a goal based on adjusted net income, as the Compensation Committee and management believe an EBIT plus AFUDC goal would have inadvertently created a misaligned incentive to increase debt returns and tax rates that could result in higher customer rates and produce an anomalous result, as it did in 2014. In addition, the 30-day period during which total shareholder return is to be calculated will move 15 days earlier so that it ends on December 31, which we believe better represents current market practice.

Discretionary Bonuses. In February, May and August 2014, the Compensation Committee approved discretionary cash bonuses for all employees hired prior to December 13, 2011 in conjunction with the successful completion of the Hugo-Valliant transmission project and the KETA Phase I and KETA Phase II transmission projects. The Compensation Committee approved the total discretionary bonus amounts recommended by management, noting that these totals, in each case, represented a small fraction of the addition to rate base that resulted from completion of the associated project, and that increasing our rate base is critical to our revenue growth and improving results of operations. The total bonus award amount to be paid to employees was divided among eligible employees on a pro rata basis equal to the percentage of the total annual incentive award payout that would be received by each employee in connection with the 2014 annual corporate performance bonus awards. The KETA Phase II transmission project bonus was paid in February 2014, the Hugo-Valliant transmission project bonus was paid in June 2014 and the KETA Phase I transmission project bonus was paid in August 2014. Also in 2014, while serving in his prior position as our Vice President Finance and Treasurer, Mr. Hayes received a discretionary bonus in

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recognition of the integral role he played in the Company’s pursuit of the transmission business of Entergy Corporation.

Special Bonus Plan. Under the ITC Holdings Corp. Executive Group Special Bonus Plan, or the Special Bonus Plan, the Compensation Committee is authorized to approve the crediting of special bonus amounts to plan participants and generally gives consideration to dividends paid, or expected to be paid, on our common stock. We adopted the Special Bonus Plan in June 2005 as a vehicle that could be used to compensate plan participants for the lost value of equity investments and grants that occurred prior to the Company’s initial public offering, or IPO, in July 2005. Since inception, bonuses under the Special Bonus Plan have been credited to plan participants once each quarter. The amounts of the awards were equal to the approved per share quarterly dividend amount, multiplied by the number of our common shares underlying the options held by the participant granted prior to the IPO and are immediately vested and paid. These options and the associated Special Bonus Plan are scheduled to expire no later than July 25, 2015. The amounts paid under the Special Bonus Plan in 2014 are set forth in the “Bonus” column of the Summary Compensation Table. The only participants in this plan are executives who were granted options during the period prior to the IPO and special bonus amounts have been paid only with respect to options granted before the IPO. The Compensation Committee considers these amounts to be tied to the investments made and risks faced by our executive officers prior to the IPO.

Retention Compensation Agreement. Pursuant to a retention compensation arrangement for Mr. Welch entered into in 2012, he is entitled to be paid cash payments of $1,500,000 on each of June 30, 2014 and June 30, 2016, if he satisfies continued employment and satisfactory performance conditions as the Company’s Chief Executive Officer as of such dates. The payments under the agreement will not be included in the calculation of benefits payable to Mr. Welch pursuant to the MSBP. On May 20, 2014, the Compensation Committee determined that Mr. Welch met the “satisfactory performance” standard for purposes of the June 30, 2014 payment.

Long-Term Equity Incentives

The Compensation Committee believes that the purpose of the equity component of compensation is to encourage ownership among our employees and non-employee directors to align their interests with the interests of our shareholders and creating shareholder value. To that end, the Compensation Committee provides and maintains a long-term incentive program under the Second Amended and Restated ITC Holdings Corp. 2006 Long Term Incentive Plan, or 2006 LTIP. The 2006 LTIP is designed to enhance our ability to attract, motivate and retain qualified leaders and employees, and encourage strong performance. It also is designed to motivate future growth through individual performance and, in turn, strong Company performance. The amounts and terms of grants made under the 2006 LTIP are described in the narrative following the Grants of Plan-Based Awards Table in this Schedule F. Awards to the Chief Executive Officer are also presented to the Board of Directors by the Compensation Committee and are ratified by the Board of Directors.

In November 2013, the Compensation Committee amended our form of equity award agreements to adopt a double trigger standard for vesting of equity awards upon a change in control, effective for grants made in 2014. These revised agreements include a change in control provision so that accelerated vesting requires both a change in control and qualified termination of employment and apply to all equity awards issued to our NEOs in 2014.

In May 2014, The Compensation Committee approved grants of restricted stock and stock options to employees, including the NEOs, under the 2006 LTIP based on our CEO’s recommendation, which was derived from peer group data provided by its compensation consultant and was also based on the performance of the Company and the executive. The awards were meant to reward, motivate and encourage performance, as well as act as a retention mechanism. As in past years, total value for the

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award for each grantee was determined based on a percentage of salary. For the NEOs, as of May 2014 when 2014 awards were made, the awards were targeted to be:

	Grant		Percent		Percent of
	Value		of Award		Award in
	Percent of		in		Restricted
NEO	Salary		Options		Stock
Mr. Welch	260	%	30	%	70	%
Mr. Hayes	65	%	70	%	30	%
Ms. Blair	175	%	70	%	30	%
Mr. Jipping	175	%	70	%	30	%
Mr. Oginsky	175	%	70	%	30	%
Mr. Bready	—		—		—

Total award values were determined as a percentage of their base salary and weighted between grants of restricted stock and options to continue our focus on rewarding and motivating performance and to further align their interests with those of shareholders. In May 2014, the Committee increased Mr. Oginsky’s targeted equity award from 150% to 175% of annual base compensation to align Mr. Oginsky’s target with that of the other NEOs. The long term incentive percentages for Ms. Blair and Messrs. Jipping and Welch in 2014 were the same as in 2013. The target long-term incentive award opportunity for Mr. Welch is at the 50 th percentile of our peer group, while the target opportunity for our other NEOs averages between the 50 th and 75 th percentile compared to our peer group; however, this element of target compensation is very volatile and can produce significant variances in year-over-year levels. In determining the size of grants under the long term incentive program and the split between options and restricted stock, the Compensation Committee considered the recommendation of the CEO in light of comparisons to peer company long-term incentive plan grants, expense to the Company and dilution of shareholder value, as well as amounts that it believes will motivate performance to achieve continued growth in shareholder value. In determining the award mix between options and restricted stock, due to Mr. Welch’s historical heavy weighting in stock options from the start up and the IPO of the Company, the Committee decided to assign a higher weighting of restricted stock to Mr. Welch to reflect a more appropriate balance of risk and reward in terms of his long-term equity incentives.

On August 13, 2014, the Compensation Committee approved an increase to Mr. Hayes’ target equity award from 65% to 150% of annual base compensation, in connection with his appointment to Senior Vice President, Chief Financial Officer and Treasurer. On February 3, 2015, the Compensation Committee approved an additional increase to Mr. Hayes’ target equity award to 175%. In establishing this increase, the Compensation Committee considered both the benchmarking data it had obtained and the importance of his position relative to other NEOs.

In November 2014, the Compensation Committee approved a redesign of our long term incentive program and the introduction of performance shares that will be implemented in 2015. The new award mix for 2015 will be 50% performance shares, 30% stock options and 20% restricted stock. The performance shares will be contingent on meeting certain financial metrics. For 2015 performance share grants, these metrics will be a three-year relative TSR goal (50%) and a three-year Diluted EPS Growth goal (50%). These metrics were chosen based on a detailed review of the metrics commonly used in peer company long-term incentive plans and also typical in the broader market. Relative TSR is an external measure that calculates the relative market return, including dividend yield, compared to the Dow Jones Utilities Index. The Diluted EPS Growth goal is an internal profitability growth measure that will calculate diluted earnings per share growth. Each goal is measured over a three year period starting in 2015 and ending in 2017, with no intermediate goals. We believe these metrics enhance management-shareholder alignment and strengthens our pay-for-performance philosophy by providing direct focus on key financial metrics and establishing a balance between external and internal performance drivers.

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Payout related to the performance-based portion of the grant may range from 0% to 200% according to the following scales:

Performance Shares

Total Shareholder Return (TSR)		Diluted EPS Growth
Achieve 30th %ile	Pays 50% of target	Achieve 10.0%	Pays 50% of target
Achieve 50th %ile	Pays 100%	Achieve 11.0%	Pays 100%
Achieve 70th %ile	Pays 150%	Achieve 12.0%	Pays 150%
Achieve 90th %ile	Pays 200%	Achieve 13.0%	Pays 200%

Both scales prorated between levels based on performance		Based on the five-year plan released April 2014
TSR must be positive to earn greater than 100%		Reflects compound annual growth

Diluted EPS Growth goal is consistent with our five-year plan released on April 15, 2014, which is publicly available on our investor webpage. This five-year plan assumes approximately $4.5 billion of capital investments and 11% to 13% operating EPS growth, on a compound annual basis, for the period from 2014 through 2018. In addition, the plan assumes that approximately $3.4 billion of the total capital investments over the plan period is associated with our base operating companies and regional infrastructure, resulting in approximately 10% operating EPS growth on a compound annual growth basis. Diluted EPS will be derived from our reported diluted earnings per share, adjusted for certain items, and is expected to be comparable to Operating Diluted Earnings Per Share as disclosed in our earnings releases. Outstanding unvested performance shares will be eligible to receive dividend equivalents. Dividend equivalents will accrue on such unvested performance shares and will be subject to the same performance goals and restrictions as the performance shares.

In aggregate, the total direct compensation value (salary, annual target bonus and long-term incentive opportunities) of each of our NEOs is between the 50 th and the 75 th percentile of the peer group. The peer group median for total direct compensation decreased in 2014 compared to 2013. The Compensation Committee continues to monitor and balance competitive practice, alignment with shareholders’ interests and cost considerations when making long-term incentive awards. Our NEOs’ total direct compensation is more heavily weighted towards at-risk incentive compensation than others in our peer group.

Other Components of Our Executive Compensation Programs

Pension Benefits . As is common in our industry and as established pursuant to our initial formation requirements included in the acquisition agreement with DTE Energy for ITCTransmission, we maintain a tax-qualified defined benefit retirement plan for eligible employees, comprised of a traditional pension component and a cash balance component. All employees, including the NEOs, participate in either the traditional component or the cash balance component. We have also established two supplemental nonqualified, noncontributory retirement benefit plans for selected management employees: the Management Supplemental Benefit Plan, or MSBP, in which only Mr. Welch participates and the Executive Supplemental Retirement Plan, or ESRP, in which all other NEOs participate. These plans provide for benefits that supplement those provided by our qualified defined benefit retirement plan. Benefits payable to the NEOs pursuant to the retirement plans are set by the terms of that plan. The Compensation Committee exercises no regular discretionary authority in the determination of benefits. The retirement plans may be modified, amended or terminated at any time, although no such action may reduce a NEO’s earned benefits and, with regard to the MSBP, changes must generally be agreed to by Mr. Welch. Mr. Welch’s assumed retirement age is 68. See Pension Benefits in this Schedule F for information regarding participation by the NEOs in our retirement plans as well as a description of the terms of the plans.

For Mr. Welch, the Change in Pension Value & Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table includes amounts associated with the MSBP. Mr. Welch retired

F- 34

under DTE Energy’s Management Supplemental Benefit Plan, though with lower benefits than he would have earned with additional service. In order to compensate Mr. Welch for the value of benefits he would have received had he remained with DTE Energy, the Company agreed to establish the MSBP such that his retirement benefits would be calculated to include service with DTE Energy, with the resulting amount offset by the benefits he is receiving from DTE Energy. The MSBP is described in detail in the Pension Benefits — Management Supplemental Benefit Plan section of this Schedule F following the Pension Benefits Table. The calculation of Mr. Welch’s benefit under the MSBP is affected by including awards to him under the Special Bonus Plan prior to May 17, 2006. Special Bonus Plan amounts paid after May 17, 2006 and amounts paid under Mr. Welch’s retention compensation agreement are excluded. The calculation also is affected by including awards to Mr. Welch under our former Dividend Equivalents Rights Plan, or DERP. The DERP was established in 2003 to preserve the value of options that previously were granted to executives and key employees upon a return of capital to shareholders that we issued that year. Under the DERP, upon affecting a return of capital to shareholders, a cash amount (equal to the per share return of capital multiplied by the number of options held by each executive and key employee) was credited to a bookkeeping account maintained for each DERP participant. Those amounts previously held in bookkeeping accounts under the DERP were paid out to each DERP participant in 2005 upon the plan’s termination.

Benefits and Perquisites. The NEOs participate in a variety of benefit programs, which are designed to enable us to attract and retain our workforce in a competitive marketplace. These programs include our Savings and Investment Plan, which consists of an employee deferral contribution component and an employer safe-harbor matching contribution component.

Our NEOs are provided a limited number of perquisites in addition to benefits provided to our other employees. The purpose of these perquisites is to minimize distractions from the NEOs’ attention to important Company initiatives, to facilitate their access to work functions and personnel, and to encourage interactions among NEOs and others within professional, business and local communities. NEOs are provided perquisites such as auto allowance, financial, estate and legal planning, income tax return preparation, annual physical, club memberships, and personal liability insurance. Additionally, we own aircraft to facilitate the business travel schedules of our executives and other employees, particularly to locations that do not provide efficient commercial flight schedules. Mr. Welch and guests traveling with him are permitted to travel for personal business on our aircraft, with an annual maximum of 125 flight hours for such personal travel.

In 2013, in view of market trends in executive compensation, the Compensation Committee eliminated the reimbursement (tax gross-up) for income taxes related to the value of the perquisites, effective January 1, 2014, for all executives except for the CEO. Although the Mr. Welch retains this benefit, it will not continue for the CEO position beyond Mr. Welch’s tenure with the Company. Our employment agreements also provide for limited tax gross-ups following termination in some circumstances. In November 2014, the Compensation Committee approved a home security maintenance perquisite for the CEO. This provides for the maintenance, replacement and monitoring on certain equipment at the CEO’s residence with an annual limit of $20,000 (no tax gross-up). The Committee continues to monitor and review the Company’s perquisite program. These perquisites are further discussed in footnote 5 to the Summary Compensation Table in this Schedule F.

Potential Severance Compensation . Pursuant to their employment agreements, each NEO is entitled to certain benefits and payments upon a termination of his or her employment. Benefits and payments to be provided vary based on the circumstances of the termination. These agreements were last amended and restated in late 2012 and early 2013 to provide additional benefits to the NEOs in the event of a termination in connection with a change in control. Mr. Hayes entered into an executive level employment agreement in October 2014 following his appointment as our chief financial officer. The agreements were also modified to conform to the requirements of Section 409A of the Internal Revenue Code and to update certain provisions to better conform to current practices, based on the advice of the

F- 35

Compensation Committee’s advisors. We believe it is important to provide these protections in order to ensure our NEOs will remain engaged and committed to us during an acquisition of the Company or other transition in management. See “Employment Agreements and Potential Payments Upon Termination or Change in Control” in this Schedule F for further detail on these employment agreements, including a discussion of the compensation to be provided upon termination or a change in control and the changes made to the prior agreements.

In addition to severance benefits identified in their employment agreements, NEOs are eligible to receive certain payments or benefits due to a termination of employment or change in control of the Company, which would be related to grants made under the 2003 Stock Purchase and Option Plan (referred to as the 2003 Plan), the 2006 LTIP, or our benefits plans. The NEOs’ eligibility for such payments or benefits is identified in the descriptions of those plans in this Schedule F. Because these agreements are provided to satisfy different objectives than our regular compensation program, and because they are by definition contingent in nature, decisions made regarding these programs do not affect our regular compensation program.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, restricts the deductibility of executive compensation paid to a company’s chief executive officer and certain other most highly compensated executive officers to not more than $1,000,000 in annual compensation (including the value of restricted stock as they vest and the gain from the exercise of certain stock option grants). Certain performance-based compensation is exempt from this limitation if it complies with the various conditions described in Section 162(m). In general, our stock options and cash incentive compensation arrangements are designed to cause compensation realized in connection with the plans to comply with these conditions and be exempt from the Section 162(m) restriction on deductibility, to the extent permissible.

Other components of our compensation program result in payments that are subject to the restriction on deductibility, but we do not believe the effect of the restriction on us is currently material or that further action to qualify compensation for deductibility is necessary at this time. We believe it is appropriate to exceed the limitations on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that is consistent with the best interests of us and our shareholders, and we reserve the authority to approve non-deductible compensation in appropriate circumstances. We continue to evaluate from time to time the advisability of qualifying future executive compensation programs for exemption from the Section 162(m) restriction on deductibility.

Stock Ownership Guidelines

In furtherance of our objective to align the interests of management with shareholders, the Compensation Committee has adopted stock ownership guidelines applicable to officers. Under these guidelines, officers, including NEOs, must achieve and maintain the applicable level of stock ownership of the Company by the fifth anniversary of when the guidelines first become applicable to the individual. The current levels are as follows:

		Ownership
Position		Level
Chief Executive Officer		5x Annual Salary
Executive and Senior Vice Presidents		3x Annual Salary
Vice Presidents		2x Annual Salary

The Compensation Committee determined the ownership levels in reliance on comparisons to peer company stock ownership guideline policies. Shares issuable upon exercise of vested in-the-money stock options, shares (including shares of restricted stock) owned directly, shares owned through various employee benefit plans and shares previously owned by executives but placed in trust for family members

F- 36

count towards the ownership threshold. Failure to maintain minimum stock ownership under these guidelines, at the discretion of the Compensation Committee, may result in: (1) payment of annual bonus in Company stock, with a mandatory holding period for such stock; and/or (2) reduction in or exclusion from future awards under the Company’s bonus plans. If an officer is below their ownership level and not making active progress toward the ownership level, 50% of any bonus payment awarded to the officer will be paid in the form of Company stock until the officer’s stock ownership level is achieved. The Compensation Committee and management of the Company will consider stock ownership when considering persons for promotion to any executive position or in connection with other succession decisions. The Compensation Committee may modify, amend, waive, suspend or rescind any aspect of the guidelines at any time. Each of the NEOs is in compliance with the policy.

Recoupment Policy

In November 2013, the Board of Directors adopted a Recoupment Policy, effective January 1, 2014, that applies to the Company’s executive officers. The Recoupment Policy provides that in the event of any restatement of financial results, the officer will be required to reimburse the Company for an amount equal to the sum of:

· Any bonus or other incentive-based or equity-based compensation received, earned or recognized by the officer from the Company during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission of the financial document embodying such financial reporting requirement in excess of the amount that would have been received, earned or recognized if the restated financial results had been released instead; and

· Any profits realized by the officer from the sale of securities of the Company during that 12-month period.

The Board of Directors or the Compensation Committee will determine, in its reasonable discretion, based on the circumstances, the amount, form and timing of recovery. The Recoupment Policy applies to the equity based grants made after the effective date of the policy and to incentive cash compensation awards made for fiscal years beginning with 2014.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with management and, based on the review and discussions with management, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive Proxy Statement dated April 9, 2015.

DAVID R. LOPEZ	WILLIAM J. MUSELER	HAZEL R. O’LEARY
THOMAS G. STEPHENS

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Summary Compensation

The following table provides a summary of compensation paid or accrued by the Company and its subsidiaries to or on behalf of the NEOs for services rendered by them during each of the last three calendar years, as required by SEC rules and regulations. The material terms of plans and agreements pursuant to which certain items set forth below were paid are discussed elsewhere in Compensation of Executive Officers and Directors.

Summary Compensation Table

												Change in
												Pension Value &						SEC Total
												Non-qualified						Without
										Non-Equity		Deferred						Change in
						Stock		Option		Incentive Plan		Compensation		All Other				Pension
		Salary		Bonus		Awards		Awards		Compensation		Earnings		Compensation				Value
Name	Year	($) (1)		($) (2)		($) (3)		($) (3)		($) (4)		($) (5)		($) (6)		SEC Total ($)		($) (7)
(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Joseph L. Welch, President, CEO & Director	2014	$	1,012,182	$	2,314,262	$	1,862,578	$	775,648	$	1,471,138	$	8,544,075	$	375,715	$	16,355,598	$	7,811,523
	2013	$	977,686	$	723,308	$	1,790,870	$	793,071	$	1,672,800	$	2,411,520	$	538,739	$	8,907,994	$	6,496,474
	2012	$	932,260	$	1,588,267	$	1,722,440	$	804,271	$	1,656,200	$	1,636,484	$	458,274	$	8,798,195	$	7,161,711
Rejji P. Hayes, SVP, CFO & Treasurer (8)	2014	$	289,092	$	30,000	$	50,798	$	115,175	$	373,750	$	82,560	$	34,370	$	975,745	$	893,185
Rejji P. Hayes, SVP, CFO & Treasurer (8)
Linda H. Blair, EVP, and CBO (9)	2014	$	627,515	$	131,234	$	322,342	$	730,851	$	706,100	$	310,407	$	38,588	$	2,867,037	$	2,556,630
	2013	$	570,808	$	183,411	$	310,305	$	748,084	$	803,760	$	161,682	$	57,382	$	2,835,432	$	2,673,750
	2012	$	500,692	$	184,533	$	275,115	$	699,366	$	733,600	$	191,834	$	67,916	$	2,653,056	$	2,461,222
Jon E. Jipping, EVP & COO	2014	$	516,623	$	137,603	$	263,358	$	597,533	$	577,300	$	455,009	$	36,279	$	2,583,705	$	2,128,696
	2013	$	479,700	$	124,294	$	253,590	$	611,390	$	656,880	$	135,032	$	54,320	$	2,315,206	$	2,180,174
	2012	$	464,000	$	94,061	$	243,627	$	619,290	$	649,600	$	320,854	$	62,252	$	2,453,684	$	2,132,830
Daniel J. Oginsky, EVP and General Counsel (9)	2014	$	430,012	$	86,697	$	222,070	$	503,498	$	486,450	$	234,481	$	25,970	$	1,989,178	$	1,754,697
	2013	$	365,808	$	87,268	$	173,222	$	417,705	$	523,600	$	109,353	$	31,647	$	1,708,603	$	1,599,250
	2012	$	315,289	$	60,866	$	146,261	$	371,803	$	455,000	$	136,909	$	47,770	$	1,533,898	$	1,396,989
Cameron M. Bready, Former EVP & CFO (10)	2014	$	269,181	$	26,681	—		—		—		$	102,373	$	27,510	$	425,745	$	323,372
	2013	$	549,377	$	93,716	$	298,698	$	720,246	$	773,840	$	141,513	$	60,088	$	2,637,478	$	2,495,965
	2012	$	488,462	$	59,659	$	264,572	$	672,679	$	705,600	$	133,768	$	68,957	$	2,393,697	$	2,259,929

(1) The compensation amounts reported in this column include the $20,000 lump sum cash payments made to Ms. Blair, Mr. Jipping and Mr. Oginsky in 2014.

(2) The compensation amounts reported in this column include, among others, special bonus awards under the Special Bonus Plan. Such bonuses are awarded at the sole discretion of the Compensation Committee. Special bonuses awarded by the Compensation Committee to date under the Special Bonus Plan have been equal to per share dividend amounts paid by the Company multiplied by the number of options granted in 2003 and 2005 that continue to be held by plan participants and all such bonuses are now vested. In 2014, Mr. Welch received a cash bonus paid pursuant to his Retention Compensation Agreement. In each year, the NEOs, except for Mr. Hayes, received certain discretionary bonuses in recognition of the successful completion of various transmission development projects. In 2014, while Mr. Hayes served in his prior position as our Vice President Finance and Treasurer, he received a discretionary bonus in recognition of the integral role he played in the Company’s pursuit of the transmission business of Entergy Corporation. The discretionary bonuses are set forth in the following table under Other Bonuses.

		Special		Retention		Other
		Bonus		Bonus		Bonuses		Total Bonus
Name	Year	($)		($)		($)		($)
Joseph L. Welch	2014	$	588,654	$	1,500,000	$	225,608	$	2,314,262
	2013	$	516,279	—		$	207,029	$	723,308
	2012	$	1,348,233	—		$	240,034	$	1,588,267
Rejji P. Hayes	2014	—		—		$	30,000	$	30,000
Linda H. Blair	2014	$	22,919	—		$	108,315	$	131,234
	2013	$	86,047	—		$	97,364	$	183,411
	2012	$	122,506	—		$	62,027	$	184,533
Jon E. Jipping	2014	$	49,055	—		$	88,548	$	137,603
	2013	$	43,024	—		$	81,271	$	124,295
	2012	$	39,137	—		$	54,925	$	94,062

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		Special		Retention	Other
		Bonus		Bonus	Bonuses		Total Bonus
Name	Year	($)		($)	($)		($)
Daniel J. Oginsky	2014	$	13,115	—	$	73,582	$	86,697
	2013	$	24,619	—	$	62,649	$	87,268
	2012	$	22,395	—	$	38,471	$	60,866
Cameron M. Bready	2014	—		—	$	26,681	$	26,681
	2013	—		—	$	93,716	$	93,716
	2012	—		—	$	59,659	$	59,659

(3) The amounts reported in these columns represent the fair value of stock option and restricted stock awards granted to the NEOs under the 2006 LTIP, excluding any forfeiture reserves recorded for these awards. Restricted stock awards are recorded at fair value at the date of grant, which is equivalent to the share price on that date. The grant date present value of the stock options was determined in accordance with FASB ASC Topic 718 using a Black-Scholes option pricing model and the following assumptions:

				Risk
	Remaining			Free		Expected	Expected		Share Price
	Future Life	Expected		Interest		Life	Dividend		at Grant
Year	of Option	Volatility		Rate		(Years)	Yield		Date

2014	9.3	27.2	%	1.80	%	6	1.55	%	$	36.73
2013	8.3	29.3	%	1.09	%	6	1.72	%	$	29.31
2012	7.3	29.8	%	0.99	%	6	1.99	%	$	23.58

(4) The amounts reported in this column include cash awards tied to the achievement of annual Company performance goals under our bonus plan in effect for each of 2014, 2013 and 2012. Each year, the Compensation Committee sets the targets for bonuses as well as the appropriate financial and operational metrics. For information regarding the corporate goals for 2014, see “Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Bonus Compensation”.

(5) All amounts reported in this column pertain to the tax-qualified defined benefit pension plan and two supplemental nonqualified, noncontributory retirement plans maintained by the Company. None of the income on nonqualified deferred compensation was above-market or preferential. Variations in the amounts from year to year reflect an additional year of service and pay changes used in the accrued benefit, as well as changes in assumptions on which the benefits are calculated, for which the formula has not been revised. The discount rate used for the present value of accumulated benefits was 4.00% in 2012, 4.95% in 2013 and 4.05% in 2014 causing the amounts to fluctuate down from 2012 to 2013 and then back up in 2014. In addition, the post-commencement mortality table change reflected in 2014 caused an increase in present value. Mr. Welch’s change in pension value increased most significantly due to the year over year change in his MSBP benefit. The value of MSBP benefit increased due to an additional year of service and higher average final compensation, along with one less year of discounting as he approaches the assumed retirement age.

(6) All Other Compensation includes amounts for auto allowance, financial, estate and legal planning, income tax return preparation, annual physical, club memberships, personal liability insurance, home security system, personal use of company aircraft and for other benefits such as Company contributions on behalf of the NEOs pursuant to the matching and executive defined contribution plan components of the Savings and Investment Plan, as well as any reimbursements for income taxes related to the inclusion of the value of the payment by the Company of these perquisites. For 2013 and 2014, a non-elective discretionary employer contribution was not made under the executive defined contribution plan component of the Savings and Investment Plan. Perquisites have been valued for purposes of these tables on the basis of the aggregate incremental cost to the Company. The incremental cost of the personal use of the Company aircraft was determined based upon the Company’s expenses incurred in connection with the actual costs of maintenance, landing, parking, crew and catering and estimated fuel costs relating to Mr. Welch’s hours of use of the plane. Fuel expense was determined by calculating the average fuel cost for the month and the average amount of fuel used per hour. These benefits and perquisites for 2014, 2013 and 2012 are itemized in the table below as required by applicable SEC rules.

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				Executive
				Defined
				Contribution
				Plan –
		401(k)		Employer		Tax		Personal Use of
Name	Year	Match		Contribution		Reimbursements		Company Aircraft		Other Benefits		Total
Joseph L. Welch	2014	$	15,600	—		$	156,386	$	164,476	$	39,253	$	375,715
	2013	$	15,300	—		$	101,061	$	393,034	$	29,344	$	538,739
	2012	$	15,000	$	16,000	$	74,909	$	330,735	$	21,630	$	458,274
Rejji P. Hayes	2014	$	13,950	—		—		—		$	20,420	$	34,370
Linda H. Blair	2014	$	13,950	—		—		—		$	24,638	$	38,588
	2013	$	13,850	—		$	20,327	—		$	23,205	$	57,382
	2012	$	13,500	$	16,000	$	16,751	—		$	21,665	$	67,916
Jon E. Jipping	2014	$	13,950	—		—		—		$	22,329	$	36,279
	2013	$	13,850	—		$	18,802	—		$	21,668	$	54,320
	2012	$	13,500	$	16,000	$	13,711	—		$	19,041	$	62,252
Daniel J. Oginsky	2014	$	13,950	—		—		—		$	12,020	$	25,970
	2013	$	13,850	—		$	8,082	—		$	9,715	$	31,647
	2012	$	13,500	$	16,000	$	7,650	—		$	10,620	$	47,770
Cameron M. Bready	2014	$	10,984	—		—		—		$	16,271	$	27,510
	2013	$	13,850	—		$	21,319	—		$	24,919	$	60,088
	2012	$	13,500	$	16,000	$	16,294	—		$	23,163	$	68,957

(7) To show how year-over-year changes in pension value and non-qualified deferred compensation impact total compensation, as determined under SEC rules, we have included this column to show total compensation without changes in pension value and non-qualified deferred compensation earnings. The amounts reported in this column are calculated by subtracting the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column, as described in footnote 5 to this table, from the amount reported in the SEC Total column. The amounts reported in this column differ from, and are not a substitute for, the amounts reported in the SEC Total column.

(8) Mr. Hayes became Vice President, Treasurer and Interim Chief Financial Officer in June 2014 and Senior Vice President, Chief Financial Officer and Treasurer in August 2014. Under applicable SEC rules, we have excluded Mr. Hayes’ compensation for 2012 and 2013 as he was not a named executive in those years.

(9) In February 2015, Ms. Blair was named Executive Vice President, Chief Business Unit Officer and President ITC Michigan, and Mr. Oginsky was named Executive Vice President, U.S. Regulated Grid Development.

(10) Mr. Bready left the Company in June 2014.

Grants of Plan-Based Awards

The following table sets forth information concerning each grant of an award made to a NEO during 2014.

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Grants of Plan-Based Awards Table

							All Other	All Other
							Stock	Option
							Awards:	Awards:
							Number of	Number of			Grant Date Fair
		Estimated Future Payouts Under Non-Equity					Shares of	Securities	Exercise or Base		Value of Stock
		Incentive Plan Awards					Stock or	Underlying	Price of Option		and Option
Name	Grant Date	Threshold ($)	Target ($)(1)		Maximum ($)(1)		Units (#)	Options (#)	Awards ($/Sh)		Awards ($)(2)
(a)	(b)	(c)	(d)		(e)		(i)	(j)	(k)		(l)
Joseph L. Welch	5/20/2014	—	—		—		—	86,956	$	36.73	$	775,648
	5/20/2014	—	—		—		50,710	—	—		$	1,862,578
		—	$	1,279,250	$	2,558,500	—	—	—		—
Rejji P. Hayes	5/20/2014	—	—		—		—	12,912	$	36.73	$	115,175
	5/20/2014	—	—		—		1,383	—	—		$	50,798
		—	$	325,000	$	650,000	—	—	—		—
Linda H. Blair	5/20/2014	—	—		—		—	81,934	$	36.73	$	730,851
	5/20/2014	—	—		—		8,776	—	—		$	322,342
		—	$	614,000	$	1,228,000	—	—	—		—
Jon E. Jipping	5/20/2014	—	—		—		—	66,988	$	36.73	$	597,533
	5/20/2014	—	—		—		7,175	—	—		$	263,538
		—	$	502,000	$	1,004,000	—	—	—		—
Daniel J. Oginsky	5/20/2014	—	—		—		—	56,446	$	36.73	$	503,498
	5/20/2014	—	—		—		6,046	—	—		$	222,070
		—	$	423,000	$	846,000	—	—	—		—
Cameron M. Bready		—	—		—		—	—	—		—
		—	—		—		—	—	—		—
		—	—		—		—	—	—		—

(1) The compensation reported reflects the annual cash awards tied to the achievement of annual Company performance goals under our 2014 bonus plan. The target payout for 2014 was set at 125% of base salary for Mr. Welch and 100% of base salary for the other NEOs. The amount shown in Column (e) represents the potential payout based on maximum achievement of the bonus goals, under which NEOs’ annual bonus awards could be increased up to two times the target amount. The actual bonus payments earned were based on an achievement of 115% of bonus targets. Actual dollar amounts paid are disclosed and reported in the Summary Compensation Table as Non-Equity Incentive Plan Compensation. Plan awards were earned in 2014 and paid in February 2015. For more information regarding the corporate goals for 2014, see Compensation Discussion and Analysis — Key Components of Our NEO Compensation Program — Bonus Compensation.

(2) Grant Date Fair Value consists of stock options and restricted stock awarded under the 2006 LTIP with a grant date of May 20, 2014. See footnote 2 of the Summary Compensation Table for a description of the inputs used to value the stock options under the Black-Scholes option pricing model. The restricted stock awards reflected here are recorded at fair value at the date of grant, which was $36.73 per share for the May 20, 2014 grants.

The Compensation Committee has established bonus targets as a percentage of the base salary for each NEO in consideration of benchmarking data on total cash compensation, the importance of the NEO’s position to the success of the Company, our need to create meaningful incentives to enhance performance and the culture of teamwork that makes our company successful. The Compensation Committee does not have a pre-established targeted allocation of cash compensation.

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The Compensation Committee may grant stock options, restricted stock, restricted stock units and performance based awards in the form of equity or cash under the 2006 LTIP with the terms of each award set forth in a written agreement with the recipient. Equity-based grants made in 2014 to the NEOs under the 2006 LTIP were made pursuant to terms stated in a restricted stock award agreement and an option agreement.

The restricted stock award agreements provide that, so long as the grantee remains employed by us, the restricted stock fully vests upon the earlier of (i) the third anniversary of the grant date, (ii) the grantee’s death or permanent disability, or (iii) the occurrence of a “Change in Control Termination”. A “Change in Control Termination” is defined as a termination of Employee’s employment (i) by the Company without “Cause” or (ii) if the Employee is a party to a written employment agreement with the Company, by Employee for “Good Reason” (as defined in such agreement), which termination in the case of (i) or (ii) occurs after the execution of an agreement to which the Company is a party pursuant to which a Change in Control will occur or has occurred upon consummation of the transactions contemplated by such agreement but, if a Change in Control has occurred pursuant thereto, not more than two years after such Change in Control, and if a Change in Control has not yet occurred pursuant thereto, while such agreement remains executory. If the grantee’s employment is terminated for any reason other than retirement at or after age 65, death, disability or Change in Control Termination prior to the restricted stock becoming fully vested, the grantee forfeits the restricted stock, unless otherwise determined by the Compensation Committee. If the grantee attains or has attained age 65 prior to the vesting date while continuing to be employed by the Company, the stock will become vested (i) as of the date the grantee becomes 65, in increments of 33-1/3% of such shares in respect of each one year anniversary (if any) of the date of the agreement that has occurred prior to grantees attaining such age, and (ii) in increments of 33-1/3% of such shares as of each one year anniversary of the date of the agreement that occurs after grantee attains such age until all shares have fully vested (provided that grantee continues to be employed by the Company as of each such anniversary). If employment is terminated for any reason other than death, disability or Change in Control Termination, after the grantee has reached age 65, the remaining unvested shares will be canceled. The restricted stock award agreements also provide that restricted stock issued to the grantee may not be transferred by the grantee in any manner prior to vesting. Grantees otherwise have all rights of holders of our common stock, including voting rights and the right to receive dividends.

The option agreements provide that the options become exercisable in three equal annual installments beginning on the one year anniversary of the grant date so long as the grantee remains employed by us. The options become fully exercisable immediately upon (i) the grantee’s death or permanent disability or (ii) upon a Change in Control Termination (as defined in the restricted stock award agreement). The Compensation Committee has the right to accelerate vesting or extend the time for exercise. The exercise price of the options is the fair market value per share of our common stock on the grant date. The grantee may pay the exercise price in cash, with previously acquired shares that have been held at least six months or may elect to make payment by means of a net exercise. The stock options will expire 10 years after the grant date and will immediately terminate to the extent not yet exercisable if the grantee’s employment with us is terminated for any reason other than retirement at or after age 65, death, disability or Change in Control Termination. If the grantee’s employment is terminated other than due to retirement at or after age 65, death, disability or Change in Control Termination on or after the date the options first become exercisable, then the grantee has the right to exercise the option for three months after termination of employment to the extent exercisable on the date of termination. If the grantee retires from the Company at or after age 65, the options will continue to vest on the normal schedule and the grantee has the right to exercise the option at any time during the remaining term to the extent it was exercisable and not previously exercised. If the grantee’s employment terminates due to death, disability or Change in Control Termination, the grantee or the grantee’s estate has the right to exercise the option at any time during the remaining term to the extent it was exercisable and not previously exercised. The option agreements also provide that options issued to the grantee may not be transferred by the grantee except pursuant to a will or the applicable laws of descent and distribution or transfers to which the

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Compensation Committee has given prior written consent. Until the issuance of shares of stock pursuant to the exercise of stock options, holders of stock options granted under the option agreements have no rights of holders of our common stock.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information with respect to unexercised options and shares of stock that have not vested as of the end of 2014 held by the NEOs.

Outstanding Equity Awards at Fiscal Year-End Table

	Number of	Number of
	Securities	Securities
	Underlying	Underlying				Number of
	Unexercised	Unexercised				Shares or Units		Market Value of
	Options (#)	Options (#)	Option		Option	of Stock That		Shares or Units of
	Exercisable	Unexercisable	Exercise Price		Expiration	Have Not		Stock That Have
Name	(1)	(1)	($)		Date	Vested (#)		Not Vested ($) (2)
(a)	(b)	(c)	(e)		(f)	(g)		(h)
Joseph L. Welch	965,007	—	$	7.66	7/25/2015	—		—
	23,274	—	$	11.00	8/16/2016	—		—
	97,152	—	$	14.27	8/15/2017	—		—
	54,861	—	$	18.96	8/13/2018	—		—
	46,533	—	$	13.79	5/19/2019	—		—
	76,632	—	$	17.49	5/18/2020	—		—
	76,440	—	$	24.05	5/25/2021	—		—
	97,044	48,522	$	23.58	5/22/2022	—		—
	37,461	74,925	$	29.31	5/14/2023	—		—
	—	86,956	$	36.73	5/20/2024	—		—
						73,026	(3) (6)	$	2,952,441
						61,101	(4) (7)	$	2,470,313
						50,710	(5)	$	2,050,205
Rejji P. Hayes	13,161	6,579	$	23.58	5/22/2022	—		—
	5,331	10,659	$	29.31	5/14/2023	—		—
	—	12,912	$	36.73	5/20/2024	—
						7,962	(8)	$	321,904
						1,818	(3)	$	73,502
						1,596	(4)	$	64,526
						1,383	(5)	$	55,915
Linda H. Blair	27,246	—	$	11.00	8/16/2016	—		—
	30,210	—	$	14.27	8/15/2017	—		—
	56,295	—	$	18.96	8/13/2018	—		—

F- 44

	Number of	Number of
	Securities	Securities
	Underlying	Underlying				Number of
	Unexercised	Unexercised				Shares or Units		Market Value of
	Options (#)	Options (#)	Option		Option	of Stock That		Shares or Units of
	Exercisable	Unexercisable	Exercise Price		Expiration	Have Not		Stock That Have
Name	(1)	(1)	($)		Date	Vested (#)		Not Vested ($) (2)
	91,680	—	$	13.79	5/19/2019	—		—
	81,717	—	$	17.49	5/18/2020	—		—
	79,575	—	$	24.05	5/25/2021	—		—
	84,387	42,192	$	23.58	5/22/2022	—		—
	35,337	70,674	$	29.31	5/14/2023	—		—
	—	81,934	$	36.73	5/20/2024	—		—
						11,664	(3)	$	471,576
						10,587	(4)	$	428,032
						8,776	(5)	$	354,814
Jon E. Jipping	80,418	—	$	7.66	7/25/2015	—		—
	91,680	—	$	13.79	5/19/2019	—		—
	81,717	—	$	17.49	5/18/2020	—		—
	70,935	—	$	24.05	5/25/2021	—		—
	74,724	37,362	$	23.58	5/22/2022	—		—
	28,881	57,759	$	29.31	5/14/2023	—		—
	—	66,988	$	36.73	5/20/2024
						10,329	(3)	$	417,601
						8,652	(4)	$	349,800
						7,175	(5)	$	290,085
Daniel J. Oginsky	37,314	—	$	18.96	8/13/2018	—		—
	34,692	—	$	17.49	5/18/2020	—		—
	36,750	—	$	24.05	5/25/2021	—		—
	44,862	22,431	$	23.58	5/22/2022	—		—
	19,731	39,462	$	29.61	5/14/2023	—		—
	—	56,446	$	36.73	5/20/2024	—		—
						6,201	(3)	$	250,706
						5,910	(4)	$	238,941
						6,046	(5)	$	244,440
Cameron M. Bready	—	—	—		—	—		—

(1) Each option has a ten year term from the date of grant. Options generally vest in three equal annual installments beginning on the first anniversary of the grant date.

F- 45

(2) Value was determined by multiplying the number of shares that have not vested by the closing price of our common stock as of December 31, 2014 ($40.43 per share).

(3) The unvested shares of restricted stock generally vest three years after the date of the grant, which was May 22, 2012.

(4) The unvested shares of restricted stock generally vest three years after the date of the grant, which was May 14, 2013.

(5) The unvested shares of restricted stock generally vest three years after the date of grant, which was May 20, 2014.

(6) Although 48,684 of these shares have not vested pursuant to the terms of the applicable grant agreements, they are no longer subject to a substantial risk of forfeiture due to Mr. Welch having reached retirement age during 2013.

(7) Although 20,367 of these shares have not vested pursuant to the terms of the applicable grant agreements, they are no longer subject to a substantial risk of forfeiture due to Mr. Welch having reached retirement age during 2013.

(8) The unvested shares of restricted stock generally vest five years after the date of the grant, which was February 20, 2012.

Equity grants made to NEOs in 2014 were made pursuant to the 2006 LTIP. The terms of these grants are described above in the narrative discussion accompanying the Grants of Plan-Based Awards Table. Equity grants made from 2008 to 2013 have substantially the same terms as the 2014 grants, except that they do not include the double trigger change in control provision and option awards allowed the grantee to pay the exercise price pursuant to a broker-assisted cashless exercise and now include a net exercise. Equity grants under the 2006 LTIP prior to 2008 have substantially the same terms as the grants issued from 2008 to 2013, except that the vesting period of the prior grants was five years rather than three.

Prior to 2006, we awarded equity-based compensation under the 2003 Plan. The plan provided for the granting of equity awards, which consisted of the right to purchase shares of common stock as well as the right to receive grants of restricted common stock and options to purchase shares of common stock. The Compensation Committee administered the plan. Options granted under this plan generally vested and became exercisable at the rate of 20% per year over five years beginning one year after grant, assuming the recipient of the option retired at or after age 65 or continued to be employed during such time by us or any of our subsidiaries, and expired on the tenth anniversary of the date of the grant. In addition, the options would have automatically become exercisable in the event of the recipient’s death or disability and immediately prior to a “change of ownership” of the Company (as defined in the 2003 Plan). Upon retirement at or after age 65, options would have continued to vest on their normal vesting schedule. The options expire earlier in the event of the termination of the option holder’s employment (other than due to retirement at or after age 65, death or disability) or certain change in ownership events. All awards previously granted to NEOs under this plan have fully vested. The 2003 Plan expired in February 2013.

Option Exercises and Stock Vested

The following table provides information with respect to options exercised by the NEOs during 2014 and shares of restricted stock held by the NEOs that vested during 2014.

Option Exercises and Stock Vested Table

	Option Awards			Stock Awards
				Number of Shares
	Number of Shares	Value Realized on		Acquired on Vesting	Value Realized on
Name	Acquired on Exercise (#)	Exercise ($) (1)		(#)	Vesting ($) (2)
(a)	(b)	(c)		(d)	(e)
Joseph L. Welch (3)	—	—		17,658	$	648,932
Rejji P, Hayes	—	—		—	—
Linda H. Blair	160,836	$	4,689,270	10,128	$	372,204
Jon E. Jipping	86,505	$	1,743,444	9,030	$	331,853
Daniel J. Oginsky	46,017	$	1,371,458	4,677	$	171,880
Cameron M. Bready	262,218	$	3,654,485	49,290	$	1,812,582

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(1) Equals the stock price on the NYSE on the exercise date minus the option exercise price multiplied by the number of shares acquired on exercise.

(2) Equals the stock price on the NYSE on the vesting date multiplied by the number of shares acquired on vesting.

(3) Number of shares vested and value do not include 44,709 restricted shares with a value of $1,657,909 that have not yet vested but became no longer subject to a substantial risk of forfeiture in 2014 due to Mr. Welch having reached retirement age.

Pension Benefits

The following table provides information with respect to each pension benefit plan that provides for payments or other benefits at, following or in connection with retirement. Those plans are the International Transmission Company Retirement Plan (the “Qualified Plan”), the MSBP and the ESRP.

Pension Benefits Table

		Number of Years		Present Value of
		Credited Service		Accumulated Benefit
Name	Plan Name	(#)(1)		($)(2)
(a)	(b)	(c)		(d)
Joseph L. Welch	Cash Balance Component	11.83		$	236,250
	Special Annuity Credit	10.00	(3)	$	1,161,572
	Total Qualified Plan			$	1,397,822
	MSBP	43.92		$	30,518,851
Rejji P. Hayes	Cash Balance Component	2.86		$	64,132
	Total Qualified Plan			$	64,132
	ESRP	2.83		$	101,760
Linda H. Blair	Cash Balance Component	20.58		$	298,331
	ESRP Shift	11.83		$	34,806
	Total Qualified Plan			$	333,137
	ESRP	11.83		$	933,834
Jon E. Jipping	Traditional Component	24.03		$	1,001,206
	Total Qualified Plan			$	1,001,206
	ESRP	9.92		$	819,033
Daniel J. Oginsky	Cash Balance Component	10.20		$	225,654
	Total Qualified Plan			$	225,654
	ESRP	10.00		$	624,658
Cameron M. Bready	Cash Balance Component	5.21		$	128,776
	Total Qualified Plan			$	128,776
	ESRP	5.17		$	445,369

(1) Credited service is estimated as of December 31, 2014 and represents the service reflected in the determination of benefits. For determining vesting, service with DTE Energy is counted for all plans shown in the table except for the ESRP, as explained below.

For Ms. Blair and Mr. Jipping, the credited service for the traditional and cash balance components of the Qualified Plan includes service with DTE Energy. The Company began operations on February 28, 2003, following its acquisition of ITCTransmission from DTE Energy. As of that date, the benefits from DTE Energy’s qualified plan that had accrued, as well as the associated assets from DTE Energy’s pension trust, were transferred to the Company’s plan. Therefore, even though DTE Energy service is included in determining the benefits under the traditional and cash balance components of the Qualified Plan, the benefits associated with this additional service do not represent a benefit

F- 47

augmentation, but rather a transfer of benefit liability and associated assets from DTE Energy’s qualified plan to the Qualified Plan. With respect to the ESRP, credited service includes Company service only for the period during which the NEO was an ESRP participant.

Mr. Welch’s credited service for the Qualified Plan only includes service with the Company because he retired under DTE Energy’s qualified plan concurrent with commencing employment with the Company. As a result, unlike the other NEOs, his benefits under DTE Energy’s qualified plan were not transferred to the Qualified Plan. Mr. Welch also retired under DTE Energy’s Management Supplemental Benefit Plan, though with lower benefits than he would have earned with additional service. In order to compensate Mr. Welch for the value of benefits he would have received had he remained with DTE Energy, the Company agreed to establish its MSBP such that benefits would be calculated including service with DTE Energy, with the resulting amount offset by the benefits he is receiving from DTE Energy. We estimate that $3.6 million of the Present Value of Accumulated Benefit is the value of the augmentation of benefits resulting from including Mr. Welch’s 32 years of service with DTE Energy.

(2) The “Present Value of Accumulated Benefit” is the estimated lump-sum equivalent value measured as of December 31, 2014 (the “measurement date” used for financial accounting purposes) of the benefit that was earned as of that date. Certain benefits are payable as an annuity only, not as a lump sum, and/or may not be payable for several years in the future. The values reflected are based on several assumptions. The date at which the present values were estimated was December 31, 2014. The rate at which future expected benefit payments were discounted in calculating present values was 4.05%, the same rate used for fiscal year-end 2014 financial accounting disclosure of the Qualified Plan. The future annual earnings rate on account balances under the cash balance and ESRP shift components of the Qualified Plan, and for ESRP benefits, was assumed to be 3.26% for 2015 and 5.0% thereafter.

We assumed no NEOs would die or become disabled prior to retirement, or terminate employment with us prior to becoming eligible for benefits unreduced for early retirement. While Mr. Bready resigned during 2014, an assumed retirement age of 58 was still used to identify the unreduced value. The assumed retirement age for each executive was generally the earliest age at which benefits unreduced for early retirement were available under the respective plans. For the traditional component of the defined benefit plan, that age is the earlier of (1) age 58 with 30 years of service (including service with DTE Energy), or (2) age 60 with 15 years of service. For consistency, we generally use the same assumed retirement commencement age for other benefits, including benefits expressed as an account value where the concept of benefit reductions for early retirement is not meaningful. The assumed retirement benefit commencement ages for the respective NEOs were as follows:

·	Mr. Welch:	Age 68
·	Mr. Bready	Age 58
·	Ms. Blair:	Age 58
·	Mr. Hayes	Age 58
·	Mr. Jipping:	Age 58
·	Mr. Oginsky	Age 58

Post-retirement mortality was assumed to be in accordance with the RP-2014 table projected for future mortality improvements with modified MP-2014 generational scale. Benefits under the traditional component of the Qualified Plan were assumed to be paid as a monthly annuity payable for the lifetime of the employee. Under the MSBP, benefits are payable for Mr. Welch’s life with a minimum payment period of 15 years guaranteed. For all other benefits, payment was assumed to be as a single lump sum, although other actuarially equivalent forms are available.

(3) A maximum of 10 years of service is counted for purposes of the Special Annuity Credit.

We maintain one tax-qualified noncontributory defined benefit pension plan and two supplemental nonqualified, noncontributory defined benefit retirement plans. First, we maintain the Qualified Plan, which provides funded, tax-qualified benefits up to the limits on compensation and benefits under the Internal Revenue Code. Generally, all of our salaried employees, including the NEOs, are eligible to participate.

Second, we maintain the MSBP, in which Mr. Welch is the only participant. The MSBP provides additional retirement benefits that are not tax-qualified.

Third, we maintain the ESRP, in which Ms. Blair and Messrs. Hayes, Jipping and Oginsky participate. The ESRP provides additional retirement benefits which are not tax qualified. Mr. Bready was also a participant prior to his resignation.

The following describes the Qualified Plan, the MSBP, and the ESRP, and pension benefits provided to the NEOs under those plans.

Qualified Plan

There are two primary retirement benefit components of the Qualified Plan. Each NEO earns benefits from the Company under only one of these primary components.

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Because our first operating utility subsidiary was acquired from DTE Energy, a component of the Qualified Plan bears relation to the DTE Energy Corporation Retirement Plan (the “DTE Plan”). Generally, persons who were participants in the “traditional component” of the DTE Plan as of February 28, 2003 (the date ITCTransmission was acquired from DTE Energy) earn benefits under the traditional component of our Qualified Plan. All other participants earn benefits under the cash balance component. Mr. Welch began receiving retirement benefits under the traditional component of the DTE Plan before beginning his employment with us, and is earning benefits under the cash balance component of the Qualified Plan. In addition to the traditional and cash balance components, Mr. Welch has earned a special annuity credit described below, and Ms. Blair has benefits under the ESRP shift, also described below.

Benefits under the Qualified Plan are funded by an irrevocable tax-exempt trust. A NEO’s benefit under the Qualified Plan is payable from the assets held by the tax-exempt trust.

NEOs become fully vested in their normal retirement benefits described below with 3 years of service, including service with DTE Energy, or upon attainment of the plan’s normal retirement age of 65. If a NEO terminates employment with less than 3 years of service, the NEO is not vested in any portion of his or her benefit.

Traditional Component of Qualified Plan

Mr. Jipping participates in the traditional component of the Qualified Plan. The benefits are determined under the following formula, stated as an annual single life annuity payable in equal monthly installments at the normal retirement age of 65: 1.5% times average final compensation times credited service up to 30 years, plus 1.4% times average final compensation times credited service in excess of 30 years. Credited service includes service with DTE Energy. Although benefits under the formula are defined in terms of a single life annuity, other annuity forms (e.g., joint and survivor benefits) are available that have the same actuarial value as the single life annuity benefit. The benefits are not payable in the form of a lump sum.

Average final compensation is equal to one-fifth of the NEO’s salary (excluding any bonuses or special pay) during the 260 consecutive weeks of credited service at any time during the NEO’s employment that results in the highest average.

Benefits provided under the Qualified Plan are based on compensation up to a compensation limit under the Internal Revenue Code (which was $260,000 in 2014, and is indexed in future years). In addition, benefits provided under the Qualified Plan may not exceed a benefit limit under the Internal Revenue Code (which was $210,000 payable as a single life annuity beginning at normal retirement age in 2014).

NEOs may retire with a reduced benefit as early as age 45 after 15 years of credited service. If a NEO has 30 years of credited service at retirement, the benefit that would be payable at normal retirement age is reduced for commencement ages below 58. The percentage of the normal retirement benefit payable at sample commencement ages is as follows:

Age 58 and older:	100%
Age 55:	85%
Age 50:	40%

If a NEO has less than 30 years of credited service at retirement, the benefit that would be payable at normal retirement age is reduced for commencement ages below age 60. The percentage of the normal retirement benefit payable at sample commencement ages is as follows:

Age 60 and older:

100%

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Age 55:		71%
Age 50:		40%

If a NEO terminates employment prior to earning 15 years of credited service, the annuity benefit may not commence prior to attaining age 65. If the NEO terminates employment after earning 15 years of credited service but below age 45, the benefit may commence as early as age 45. The percentage of the normal retirement benefit payable at sample commencement ages is as follows:

Age 65 and older:	100%
Age 60:	58%
Age 55:	36%
Age 50:	23%
Age 45:	16%

Mr. Jipping’s annual accrued benefit payable monthly as an annuity for his lifetime, beginning at age 65, is approximately $90,500. He is fully vested.

Cash Balance Component of Qualified Plan

Ms. Blair and Messrs. Welch, Hayes and Oginsky participate in the cash balance component of the Qualified Plan. The benefits are stated as a notional account value.

Each year, a NEO’s account is increased by a “contribution credit” equal to 7% of pay. For this purpose, pay is equal to base salary plus bonuses and overtime up to the same compensation limit as applies under the traditional component of the Qualified Plan ($260,000 in 2014). Each year, a NEO’s account is also increased by an “interest credit” based on 30-year Treasury rates.

Upon termination of employment, a vested NEO may elect full payment of his or her account. Alternate forms of benefit (e.g., various forms of annuities) are available as well that have the same actuarial value as the account.

As of January 1, 2015, Ms. Blair and Messrs. Oginsky and Welch are entitled to immediate payment of their account value on termination of employment, even if before normal retirement age. Mr. Hayes became fully vested on February 20, 2015. Ms. Blair’s estimated account value as of year-end 2014 is approximately $270,000, Mr. Welch’s is approximately $237,000, Mr. Hayes’ is approximately $55,000 and Mr. Oginsky’s is approximately $198,000. Mr. Bready’s account value was approximately $114,000 and he was 100% vested when he resigned.

Special Annuity Credit for Mr. Welch in the Qualified Plan

In addition to his cash balance account, Mr. Welch has earned an additional benefit in the Qualified Plan. This benefit is stated as a single life annuity payable in equal monthly installments, equal to $10,000 times years of credited service after February 28, 2003 up to ten years of credited service (i.e., the maximum benefit is $100,000 per year). Other annuity forms are available that are actuarially equivalent to the single life annuity.

Because Qualified Plan benefits are offset against the otherwise determined MSBP benefits (see below), the effect of this benefit is to shift benefits from the MSBP, a nonqualified plan, to the Qualified Plan, which affords certain tax benefits to the Company and Mr. Welch. As of year-end 2013, Mr. Welch was eligible to retire and receive the maximum annual benefit of $100,000.

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ESRP Shift Benefit in Qualified Plan

The ESRP provides notional account accruals similar to the cash balance component of the Qualified Plan. The “compensation credit” to the NEO’s notional account, analogous to the contribution credit in the cash balance component of the Qualified Plan, is equal to 9% of base salary plus actual bonus earned under the Company’s annual bonus plan. The “investment credit,” analogous to the interest credit in the cash balance component of the Qualified Plan, is similarly based on 30-year Treasury rates.

The ESRP shift benefit is an amount that would otherwise be payable from the ESRP, but is instead being paid from the Qualified Plan, subject to applicable qualified plan legal limits on the ability to discriminate in favor of highly paid employees. The NEO’s cash balance account is increased by any amounts shifted from the ESRP. As with Mr. Welch’s special annuity credit, the purpose of the benefit is to provide the NEOs and the Company the tax advantages of providing benefits through a qualified plan.

Ms. Blair has received ESRP shift additions to her Qualified Plan cash balance account. There was no shift of compensation credits for 2014, although previous shifts have continued to earn interest credits. As of year-end 2014, her ESRP shift balance was approximately $31,000.

Management Supplemental Benefit Plan

The benefit provided by the MSBP is payable as an annuity beginning on the earliest date following termination of employment that is permitted under Section 409A of the Internal Revenue Code (relating to the taxation of deferred compensation). The purpose of the MSBP is to provide an overall target level of benefits based on all years of service, including with DTE Energy. The MSBP benefit is equal to this overall target offset by all benefits earned under the Qualified Plan, the DTE Plan, and DTE Energy’s Management Supplemental Benefit Plan, a nonqualified plan.

The MSBP target before offsets, expressed as an annual single life annuity with 15 years of payments guaranteed commencing at age 60 (the MSBP normal retirement age) or later, is equal to: (1) 60% plus 0.5% for each year of total service in excess of 25 years, times (2) “average final compensation”.

Mr. Welch is currently eligible to retire with an immediate benefit under the MSBP. The life annuity with 15 years of guaranteed payments is the only form of benefits payable under the plan. A lump sum is not available.

“Average final compensation” is equal to one-fifth of Mr. Welch’s compensation during the 260 weeks, not necessarily consecutive, of Company service that results in the highest average. Compensation is equal to salary plus any bonuses, excluding Special Bonus Amounts paid after May 17, 2006 under the Special Bonus Plan and amounts paid under Mr. Welch’s retention compensation agreement. Unlike the Qualified Plan, for the MSBP there is no limit on the amount of pay taken into account.

For purposes of calculating average final compensation, amounts paid by DTE Energy are considered in selecting the highest 260 weeks. Further, each bonus payment that is considered compensation is mapped to the single week it was paid before the highest 260 weeks are selected. Therefore, although compensation is averaged over the number of weeks in 5 years, the average final compensation includes well over 5 years of bonuses.

As of December 31, 2014, if Mr. Welch would have retired, he would have received an annual MSBP benefit of approximately $2,359,000 after offsets, payable as an annuity for his lifetime with a minimum payment period of 15 years guaranteed.

The MSBP is funded with a Rabbi Trust, which we cannot use for any purpose other than to satisfy the benefit obligations under the MSBP, except in the event of the Company’s bankruptcy, in which case the assets are available to general creditors.

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Executive Supplemental Retirement Plan

The ESRP is a nonqualified retirement plan. Only selected executives participate, including Ms. Blair and Messrs. Hayes, Jipping and Oginsky. Mr. Welch does not participate. The purpose of the ESRP is to promote the success of the Company and its subsidiaries by providing the ability to attract and retain talented executives by providing such designated executives with additional retirement benefits.

The ESRP resembles the cash balance component of the Qualified Plan in that benefits are expressed as a notional account value and the vested account balance is payable as a lump sum on termination of employment, although an installment option of equivalent value is also available.

Each year, a NEO’s account is increased by a “compensation credit” equal to 9% of pay. For this purpose, pay is equal to base salary plus bonuses under the Company’s annual bonus plan. There is no limit on compensation that may be taken into account as in the Qualified Plan. Each year, a NEO’s account is also increased by an “investment credit” equal to the same earnings rate as the interest credit in the cash balance component of the Qualified Plan, based on 30-year Treasury rates.

The plan has been in effect since March 1, 2003. Vesting occurs at 20% for each year of participation. As of December 31, 2014, Ms. Blair and Messrs. Jipping and Oginsky were fully vested and Mr. Hayes was 40% vested. Mr. Bready was also a participant prior to his resignation and was 100% vested when he resigned.

As noted above in the description of the Qualified Plan, a portion of the ESRP account balance may be shifted to the cash balance component of the Qualified Plan each year, as permitted under the rules for qualified plans. Such a shift allows the NEOs to become immediately vested in the account values shifted, and confers certain tax advantages to the NEOs and us. As of December 31, 2014, the ESRP account values, net of the amounts shifted to the Qualified Plan, are as follows:

Ms. Blair:	$	843,749
Mr. Hayes	$	87,926
Mr. Jipping:	$	766,259
Mr. Oginsky:	$	547,142
Mr. Bready	$	395,456

On March 3, 2015, Mr. Bready, per terms of the plan, received a lump sum distribution of his ESRP benefit in the amount of $397,605 (the value as of December 31, 2014, plus interest). This is lower than the present value shown in the Pension Benefits Table due to commencement prior to age 58.

The ESRP is funded with a Rabbi Trust, which we cannot use for any purpose other than to satisfy the benefit obligations under the ESRP, except in the event of the Company’s bankruptcy, in which case the assets are available to general creditors. All ESRP balances become fully vested upon a change in control of the Company.

Nonqualified Deferred Compensation

We maintain the Executive Deferred Compensation Plan under which nonqualified deferred compensation is permissible. Only selected officers of the Company, including the NEOs, are eligible to participate in this plan and only Mr. Welch has deferred income under this plan. NEOs are allowed to defer up to 100% of their salary, bonus and restricted stock dividends. Investment earnings are based on the same investment options available under the qualified Savings and Investment Plan (401(k) Plan), and are selected by the individual NEOs. Distributions will generally be made at the NEO’s termination of employment for any reason. The following table provides information with respect to the plan that allows for the deferral of compensation on a basis that is not tax-qualified. There were no Company

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contributions, executive contributions or withdrawals, or other distributions pursuant to the plan during 2014.

Nonqualified Deferred Compensation Table

	Aggregate Earnings in		Aggregate Balance at
Name	Last FY ($)		Last FYE ($)
(a)	(d)		(f)
Joseph L. Welch (1)	$	39,549	$	727,043
Rejji P. Hayes	—		—
Linda H. Blair	—		—
Jon E. Jipping	—		—
Daniel J. Oginsky	—		—
Cameron M. Bready	—		—

(1) None of this amount is reported in the Summary Compensation Table, as none of it is above-market or preferential.

Employment Agreements and Potential Payments Upon Termination or Change in Control

Employment Agreements

As referenced above, we entered into employment agreements with each of the NEOs in December 2012 and January 2013 which superseded the employment agreements then in effect. The employment agreements are subject to automatic one-year employment term renewals each year beginning December 21, 2014, unless either party provides the other with 30 days’ advance written notice of intent not to renew the employment term. Under the employment agreements, Mr. Welch reports to our Board of Directors and all of the other NEOs who are currently employed by us report to Mr. Welch.

The employment agreements provide that each NEO will receive an annual base salary equal to their current base salary, which is subject to annual review and increase by our Board of Directors in its discretion. The employment agreements also provide that NEOs are eligible to receive an annual cash bonus, subject to our achievement of certain performance targets established by our Board of Directors, as detailed in the Compensation Discussion and Analysis section of this Schedule F. The employment agreements also provide the NEOs with the right to participate in equity plans, employee benefit plans and retirement plans, including but not limited to welfare plans, retiree welfare benefit plans and defined benefit and defined contribution plans.

In addition, the NEOs’ employment agreements provide for payments by us of certain benefits upon termination of employment. The rights available at termination depend on the situation and circumstances surrounding the terminating event. The terms “Cause” and “Good Reason” are used in the employment agreements of each NEO and an understanding of these terms is necessary to determine the appropriate rights for which a NEO is eligible. The terms are defined as follows:

· Cause means: a NEO’s continued failure substantially to perform his or her duties (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Company to the NEO of such failure; dishonesty in the performance of the NEO’s duties; a NEO’s conviction of, or plea of nolo contender to, a crime constituting a felony or misdemeanor involving moral turpitude; willful malfeasance or willful

F- 53

misconduct in connection with a NEO’s duties; any act or omission which is injurious to the financial condition or business reputation of the Company; or violation of the non-compete or confidentiality provisions of the employment agreement.

· Good reason means: a greater than 10% reduction in the total value of the NEO’s base salary, target bonus, and employee benefits; or if the NEO’s responsibilities and authority are substantially diminished.

If a NEO’s employment is terminated with cause by the Company or by the NEO without good reason, the NEO will generally only receive his or her accrued but unpaid compensation and benefits as of the date of his or her employment termination. If the NEO terminates due to death or disability (as defined in the employment agreements), the NEO (or the NEO’s spouse or estate) would also receive a pro rata portion of his or her current year annual target bonus.

If a NEO’s employment is terminated by the Company without cause or by the NEO for good reason, the NEO will receive the following, subject to the NEO’s execution of a release agreement and commencing generally on the earliest date that is permitted under Section 409A of the Internal Revenue Code:

· any accrued but unpaid compensation and benefits. For each of the NEOs serving on December 31, 2014, the benefits include:

· Mr. Welch: annual Special Annuity Credit and cash balance under the Qualified Plan, and annual MSBP benefit;

· Ms. Blair: cash balance and ESRP shift under the Qualified Plan and vested portion of ESRP balance;

· Mr. Hayes: cash balance under the Qualified Plan and vested portion of ERSP balance;

· Mr. Jipping: annual benefit under the traditional component of the Qualified Plan and vested portion of ESRP balance; and

· Mr. Oginsky: cash balance under the Qualified Plan and vested portion of ESRP balance;

· continued payment of the NEO’s then-current base salary for two years;

· payment to Mr. Welch in any case, and for the other NEOs if the termination is within six months before or two years after a “Change of Control” (as defined in the employment agreements), of an amount equal to two times the average of the annual bonuses that were payable to the NEO for the three fiscal years immediately preceding the fiscal year in which his or her employment terminates, payable in equal installments over the period in which continued base salary payments are made;

· a pro rata portion of the annual bonus for the year of termination, based upon the Company’s actual achievement of the performance targets for such year as determined under the annual bonus plan and paid at the time that such bonus would normally be paid;

· eligibility to continue coverage under our active medical, dental and vision plans subject to applicable COBRA rules; if such coverage is elected, we will reimburse the NEO for the shorter of 18 months or until the NEO becomes eligible for coverage under another employer-sponsored group plan, in an amount equal to our periodic cost of such coverage for other executives, plus a tax gross-up amount;

· outplacement services for up to two years; and

· for Mr. Welch and Ms. Blair, deemed satisfaction of the eligibility requirements of our retiree welfare benefit plan for purposes of participation therein; and for Messrs. Hayes, Jipping and

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Oginsky, participation in our retiree welfare benefit plan only if, by the end of their specified severance period, they have achieved the necessary age and service credit otherwise necessary to meet the eligibility requirements. In addition, if we terminate our retiree welfare benefit plan and, by application of the provisions described in the prior sentence, the NEO would otherwise be entitled to retiree welfare benefits, we will establish other coverage for the NEO or the NEO will receive a cash payment equal to our cost of providing such benefits, in order to assist the NEO in obtaining other retiree welfare benefits.

In addition, while employed by us and for a period of two years after any termination of employment without cause by the Company (other than due to their disability) or for good reason by them and for a period of one year following any other termination of their employment, the NEOs will be subject to certain covenants not to compete with or assist other entities in competing with our business and not to encourage our employees to terminate their employment with us. At all times while employed and thereafter, the NEOs will also be subject to a covenant not to disclose confidential information.

In the event the NEO becomes subject to excise taxes under Section 4999 of the Internal Revenue Code as a result of payments and benefits received under the employment agreements or any other plan, arrangement or agreement with us, we will pay (a) the NEO (other than Mr. Welch) only that portion of such payments which are in total equal to one dollar less than the amount that would subject the NEO to the excise tax, and (b) in the case of Mr. Welch, the greater of the following which would give Mr. Welch the highest net after-tax amount (after payment by Mr. Welch of the excise tax and any other applicable taxes): (i) such payments and (ii) only that portion of such payments which are in total equal to one dollar less than the amount that would subject Mr. Welch to the excise tax.

Options and Restricted Stock Grants

In the event of a change in control, all unvested options and restricted stock grants awarded pursuant to the 2006 LTIP prior to November 12, 2013 will vest in full with or without termination of employment. In the event of a change in control, all unvested options and restricted stock grants awarded pursuant to the 2006 LTIP on or after November 12, 2013, will vest in full only with termination of employment. The values that would have been received by the NEOs upon accelerated vesting due to termination of employment from a change in control, assuming a change in control transaction had been consummated on December 31, 2014, are as follows:

Accelerated Option and Stock Vesting Table

	Option Awards			Stock Awards
				Number of Shares
	Number of Shares	Value Realized on		Acquired on Vesting	Value Realized on
Name	Acquired on Exercise (#)	Exercise ($) (1)		(#)	Vesting ($) (2)
(a)	(b)	(c)		(d)	(e)
Joseph L. Welch	210,403	$	1,972,499	184,837	$	7,472,960
Rejji P. Hayes	30,150	$	277,159	12,759	$	515,846
Linda H. Blair	194,800	$	1,799,986	31,027	$	1,254,422
Jon E. Jipping	162,109	$	1,519,685	26,156	$	1,057,487
Daniel J. Oginsky	118,339	$	1,025,630	18,157	$	734,088
Cameron M. Bready	—	—		—	—

(1) Equals the stock price on the NYSE on December 31, 2014 minus the option exercise price multiplied by the number of unvested options.

(2) Equals the stock price on the NYSE on December 31, 2014 multiplied by the number of shares acquired on vesting.

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Payments in the Event of Termination

The benefits to be provided to the NEOs as a result of termination under various scenarios are detailed in the tables below. The tables assume that the termination occurred on December 31, 2014, and the relevant stock price was $40.43 per share.

Joseph L. Welch - Termination Scenarios: Value of Potential Payments

Total Value of Severance, Benefits and Unvested Equity Awards (1)(2)

						Involuntary Not-
						for-Cause or		Change In
	Voluntary			Involuntary		Voluntary Good		Control (pre-				Death (pre-
	Resignation			For Cause		Reason		tax) (3)		Disability		retirement) (4)
Compensation
Cash Severance	$		0	$	0	$	4,948,633	$	4,948,633	$	0	$	0
Pro Rata Share of Annual Incentive Comp	$		0	$	0	$	1,471,138	$	1,471,138	$	1,279,250	$	1,279,250
Stock Options	$		0	$	0	$	0	$	1,972,488	$	1,972,488	$	1,972,488
Restricted Stock Awards	$		0	$	0	$	0	$	4,681,228	$	4,681,228	$	4,681,228

Benefits and Perquisites
Qualified Plan (5)	$	136,058		$	136,058	$	136,058	$	136,058	$	136,058	$	369
MSBP (6)	$	3,018,452		$	3,018,452	$	3,018,452	$	3,018,452	$	3,018,452	$	0
Perquisites	$	0		$	0	$	30,000	$	30,000	$	0	$	0
Health & Welfare Benefits	$	0		$	0	$	23,051	$	23,051	$	0	$	0
Post-Retirement Welfare Plan (7)	$	501,384		$	501,384	$	501,384	$	501,384	$	501,384	$	558,482
Total Payout:	$	3,655,894		$	3,655,894	$	10,128,716	$	16,782,432	$	11,588,860	$	8,491,817

Linda H. Blair - Termination Scenarios: Value of Potential Payments

Total Value of Severance, Benefits and Unvested Equity Awards (1)(2)

					Involuntary Not-
					for-Cause or		Change In
	Voluntary		Involuntary		Voluntary Good		Control (pre-				Death (pre-
	Resignation		For Cause		Reason		tax) (3)		Disability		retirement) (4)
Compensation
Cash Severance	$	0	$	0	$	2,531,307	$	2,531,307	$	0	$	0
Pro Rata Share of Annual Incentive Comp	$	0	$	0	$	706,100	$	706,100	$	614,000	$	614,000
Stock Options	$	0	$	0	$	0	$	1,800,003	$	1,800,003	$	1,800,003
Restricted Stock Awards	$	0	$	0	$	0	$	1,254,422	$	1,254,422	$	1,254,422

Benefits and Perquisites
Qualified Plan	$	0	$	0	$	0	$	0	$	0	$	0
ESRP	$	0	$	0	$	0	$	0	$	0	$	0
Perquisites	$	0	$	0	$	25,000	$	25,000	$	0	$	0
Health & Welfare Benefits	$	0	$	0	$	28,372	$	28,372	$	0	$	0
Post-Retirement Welfare Plan (8)	$	0	$	0	$	437,609	$	437,609	$	0	$	0

Total Payout:	$	0	$	0	$	3,728,388	$	6,782,813	$	3,668,424	$	3,668,424

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Rejji P. Hayes - Termination Scenarios: Value of Potential Payments

Total Value of Severance, Benefits and Unvested Equity Awards (1)(2)

					Involuntary Not-
					for-Cause or		Change In
	Voluntary		Involuntary		Voluntary Good		Control (pre-				Death (pre-
	Resignation		For Cause		Reason		tax) (3)		Disability		retirement) (4)
Compensation
Cash Severance	$	0	$	0	$	891,440	$	891,440	$	0	$	0
Pro Rata Share of Annual Incentive Comp	$	0	$	0	$	373,750	$	373,500	$	325,000	$	325,000
Stock Options	$	0	$	0	$	0	$	277,187	$	277,187	$	277,187
Restricted Stock Awards	$	0	$	0	$	0	$	515,846	$	515,846	$	515,846

Benefits and Perquisites
Qualified Plan (9)(10)	$	0	$	0	$	0	$	0	$	0	$	0
ESRP (11)	$	0	$	0	$	0	$	0	$	0	$	0
Perquisites	$	0	$	0	$	25,000	$	25,000	$	0	$	0
Health & Welfare Benefits	$	0	$	0	$	40,062	$	40,062	$	0	$	0

Total Payout:	$	0	$	0	$	1,330,252	$	2,123,285	$	1,118,033	$	1,118,033

Jon E. Jipping - Termination Scenarios: Value of Potential Payments

Total Value of Severance, Benefits and Unvested Equity Awards (1)(2)

					Involuntary Not-
					for-Cause or		Change In
	Voluntary		Involuntary		Voluntary Good		Control (pre-				Death (pre-
	Resignation		For Cause		Reason		tax) (3)		Disability		retirement) (4)
Compensation
Cash Severance	$	0	$	0	$	2,153,387	$	2,153,387	$	0	$	0
Pro Rata Share of Annual Incentive Comp	$	0	$	0	$	577,300	$	577,300	$	502,000	$	502,000
Stock Options	$	0	$	0	$	0	$	1,519,697	$	1,519,697	$	1,519,697
Restricted Stock Awards	$	0	$	0	$	0	$	1,057,487	$	1,057,487	$	1,057,487

Benefits and Perquisites
Qualified Plan (12)	$	0	$	0	$	0	$	0	$	0	$	0
ESRP	$	0	$	0	$	0	$	0	$	0	$	0
Perquisites	$	0	$	0	$	25,000	$	25,000	$	0	$	0
Health & Welfare Benefits	$	0	$	0	$	28,372	$	28,372	$	0	$	0

Total Payout:	$	0	$	0	$	2,784,059	$	5,361,243	$	3,079,184	$	3,079,184

Daniel J. Oginsky - Termination Scenarios: Value of Potential Payments

Total Value of Severance, Benefits and Unvested Equity Awards (1)(2)

					Involuntary Not-
					for-Cause or		Change In
	Voluntary		Involuntary		Voluntary Good		Control (pre-				Death (pre-
	Resignation		For Cause		Reason		tax) (3)		Disability		retirement) (4)
Compensation
Cash Severance	$	0	$	0	$	1,678,401	$	1,678,401	$	0	$	0
Pro Rata Share of Annual Incentive Comp	$	0	$	0	$	486,450	$	486,450	$	423,000	$	423,000
Stock Options	$	0	$	0	$	0	$	1,025,630	$	1,025,630	$	1,025,630
Restricted Stock Awards	$	0	$	0	$	0	$	734,088	$	734,088	$	734,088

Benefits and Perquisites
Qualified Plan	$	0	$	0	$	0	$	0	$	0	$	0
ESRP	$	0	$	0	$	0	$	0	$	0	$	0
Perquisites	$	0	$	0	$	25,000	$	25,000	$	0	$	0
Health & Welfare Benefits	$	0	$	0	$	27,571	$	27,571	$	0	$	0

Total Payout:	$	0	$	0	$	2,217,422	$	3,977,139	$	2,182,718	$	2,182,718

(1) All scenarios include the value of severance and embedded value of accelerated equity. For Mr. Welch and Ms. Blair, the value of the Postretirement Welfare Plan is additionally included where applicable. Mr. Welch’s termination scenarios also reflect additional years of pension benefit payments because his pension benefits are fully vested as of December 31, 2014. The Pension Benefits Table assumes that none of the executives are terminated prior to retirement age and that benefits are paid once retirement commences (age 58 is assumed, except for age 68 for Mr. Welch). All other accrued pension benefits, outside of present value reductions outlined in footnotes (4), (9), (10), (11) and (12) and additional pension benefits upon death, have not been included in these termination scenarios but can be found in the Pension Benefits Table.

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(2) Upon any termination of employment, benefits that are accrued but unpaid prior to that event are paid. These benefits are assumed to be $0 in the above table.

(3) Change in control values include severance amounts reflecting cutbacks to safe harbor value where this is greater than if an excise tax had been paid. No executive would be subject to an excise tax at the assumed change in control date; therefore, the table reflects no cutbacks.

(4) In the event of Mr. Welch’s termination of employment for death (pre-retirement), his spouse would receive survivor benefits under the Postretirement Welfare Plan, half of the Special Annuity Credit that is payable as a 50% joint and survivor annuity, the Qualified Plan cash balance component, and 15 years of payments of the MSBP annuity. In the event of Mr. Jipping’s termination for death (pre-retirement), his spouse would receive half the 50% joint and survivor annuity under the traditional component of the Qualified Plan, also reduced to reflect a 90% for the early retirement factor that would apply at age 58 since Mr. Jipping does not have 30 years of service as of December 31, 2014. Under termination for death (pre-retirement), Ms. Blair’s, Mr. Hayes’ and Mr. Oginsky’s Qualified Plan and ESRP benefits are payable immediately to the surviving spouse. The above termination scenarios do not reflect the reduction in present value of death benefits ($4,373,937 for Mr. Welch, $122,223 for Ms. Blair, $22,553 for Mr. Hayes, $609,355 for Mr. Jipping and $105,518 for Mr. Oginsky) compared to present value in the Pension Benefits Table.

(5) The vested Special Annuity Credit that Mr. Welch is entitled to receive is included in the pension benefit values upon all terminations of employment, with the exception of death, as stated in the Pension Benefits Table ($1,161,572). This amount assumes payment would commence at an assumed retirement age of 68. The amount shown above is attributed to additional years of payment prior to that assumed retirement age (Mr. Welch was 66 years old as of December 31, 2014). The Pension Benefits Table assumes payment commences after Mr. Welch’s assumed retirement age of 68 and reflects the present value of the cash balance component of the Qualified Plan. Please see “Pension Benefits — Qualified Plan - Special Annuity Credit for Mr. Welch in the Qualified Plan” in this Schedule F. Mr. Welch has met the retirement eligibility requirements and therefore would receive benefits under the Qualified Plan upon termination.

(6) The MSBP value in the Pension Benefits Table assumes payment commences at the assumed retirement age of 68. The amount shown in the above table is attributed to additional years of payment prior to that assumed retirement age.

(7) Mr. Welch has met the retirement eligibility requirements and therefore would receive benefits under the Postretirement Welfare Plan upon termination.

(8) The value of the Postretirement Welfare Plan benefit is included in involuntary termination not for cause and change in control scenarios since Ms. Blair’s employment agreement includes a provision for deemed satisfaction of the eligibility requirements when terminated under these scenarios. It is assumed she would commence her Postretirement Welfare Benefits at age 58.

(9) As of December 31, 2014, Mr. Hayes is only 40% vested in the ESRP and not vested in the Qualified Plan. The values shown above do not reflect the reduction in present value ($125,188) of the unvested Retirement Plan and ESRP benefits in the voluntary and involuntary termination scenarios.

(10) In the event of a change in control, Mr. Hayes is immediately vested in the ESRP but not in the Qualified Plan. The value shown above does not reflect the reduction in present value ($64,132) of the unvested Retirement Pan benefit.

(11) In the event of disability, Mr. Hayes is immediately vested in the Qualified Plan but only 40% vested in the ESRP. The value shown above does not reflect the reduction in present value ($61,056) of the unvested ESRP benefit.

(12) The Pension Benefits Table assumes that Mr. Jipping would not be terminated before retirement age and no early retirement reduction was applied. In all termination scenarios, however, a 90% early retirement factor would apply at age 58 because Mr. Jipping has less than 30 years of service as of December 31, 2014. The above table does not reflect the reduction in the present value ($100,121 except for death) due to applying the 90% early retirement factor.

Upon death or disability, a NEO (or his or her estate) receives a pro rata portion of his or her current year target bonus, full and immediate vesting of any unvested stock options and all restrictions on restricted stock are assumed lapsed. All balances under the cash balance and ESRP shift components of the Qualified Plan, and the ESRP balance (vested portion only for disability), are immediately payable. If the NEO has 10 years of service after age 45, then the NEO (and his or her spouse) is eligible for retiree medical benefits.

Mr. Bready was not entitled to any severance benefits, payments or acceleration of his outstanding and unvested equity awards in connection with his resignation. The only payment Mr. Bready received after his resignation was a lump sum distribution of his ESRP benefit in the amount of $397,605 (the value as of December 31, 2014, plus interest) on March 3, 2015, pursuant to the terms of the plan.

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Director Compensation

The following table provides information concerning the compensation of directors during 2014.

Director Compensation Table

	Fees Earned or Paid in Cash ($)
Name	(1)		Stock Awards ($) (2)		Total ($)
(a)	(b)		(c)		(h)
Albert Ernst (4)	$	28,125	$	28,090	$	56,215
Christopher H. Franklin	$	85,000	$	74,924	$	159,924
Edward G. Jepsen	$	75,000	$	74,924	$	149,924
David R. Lopez (4)	$	28,125	$	28,090	$	56,215
William J. Museler	$	85,000	$	74,924	$	159,924
Hazel R. O’Leary	$	85,000	$	74,924	$	159,924
Thomas G. Stephens	$	75,000	$	74,924	$	149,924
G. Bennett Stewart	$	85,000	$	74,924	$	159,924
Lee C. Stewart	$	100,000	$	74,924	$	174,924
J.C. Watts, Jr. (3)	—		—		—

(1) Includes annual Board retainer and committee chairmanship retainer, as well as a lead director fee (for Mr. Lee Stewart only).

(2) Aggregate grant date fair value is computed in accordance with FASB ASC Topic 718. Awards of restricted stock are made quarterly and recorded at fair value at the date of grant. The values for Ms. O’Leary and Messrs. Franklin, Jepsen, Museler, Stephens, Bennett Stewart and Lee Stewart awards were $74,924 (equivalent to 502 shares at $37.35 per share, 513 shares at $36.48 per share, 526 shares at $35.63 per share and 463 shares at $40.43 per share). The values for Mr. Ernst and Mr. Lopez was $28,090 (equivalent to 263 shares at $35.63 per share and 463 shares at $40.43 per share). The aggregate number of unvested stock awards outstanding as of December 31, 2014 for each director is as follows: Ms. O’Leary and Messrs. Franklin, Jepsen, Museler, Bennett Stewart and Lee Stewart, 7,449 shares; Mr. Stephens, 4,794 shares Messrs. Ernst and Lopez, 726 shares.

(3) Mr. Watts left the Board in January 2014.

(4) Messrs. Ernst and Lopez joined the Board in August 2014. Their cash retainer and stock awards were prorated for the length of service rendered in fiscal year 2014.

Directors who are employees of the Company do not receive separate compensation for their services as a director. All non-employee directors are compensated under our standard non-employee director compensation policy, pursuant to which they are paid an annual cash retainer of $75,000 and an annual equity retainer of restricted stock with a total value of $75,000 (awarded through quarterly grants valued at $18,750 each). The restricted stock grants were made under the 2006 LTIP. In addition, we pay an additional cash retainer of $10,000 annually to the chair of each Board committee and $25,000 annually to our lead director. We do not pay per-meeting fees under the policy. In February 2015, the Board approved revisions to the director compensation policy and increased the annual cash retainer to $85,000 and increased the annual equity retainer of restricted stock to a total value of $85,000, both effective January 1, 2015. The Board also approved a revision beginning in the calendar year 2016, that non-employee directors will have the discretion to make individual elections to receive anywhere from 50% to 100% of the total annual cash retainer in grants of Company stock to be granted and with the same vesting provisions as described for restricted stock grants below. Directors were and will continue to be reimbursed for their out-

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of-pocket expenses in an accountable expense plan.

The restricted stock grants will fully vest upon the earlier of (i) March 31 of the third year following the grant date, (ii) the date the grantee ceases to be a member of the Board for any reason other than due to removal for cause, or (iii) a “change of ownership” or “change in control” (as such term is defined under the applicable plan). If the grantee is removed from the Board for cause prior to the restricted stock becoming fully vested, the grantee forfeits the restricted stock. These restricted stock award agreements also provide that the restricted stock issued to the grantee may not be transferred by the grantee in any manner prior to vesting. Grantees otherwise have all rights of holders of our common stock, including voting rights and the right to receive dividends.

We have stock ownership guidelines that apply to our non-employee directors. Under these guidelines, directors must meet the applicable stock ownership guidelines of the Company by the fifth anniversary of when they received their first stock grant from the Company. The guidelines require ownership of shares of our common stock valued at five times their annual cash retainer. Each of the directors is in compliance with, or is on schedule to meet the requirements of, the policy. Our Stock Ownership Policy is further described above in the section entitled “Compensation of Executive Officers and Directors — Compensation Discussion and Analysis — Stock Ownership Guidelines”.

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SCHEDULE G — RISK FACTORS

Shareholders of Fortis should carefully consider the risk factors described in this section which relate to the Acquisition, the failure to complete the Acquisition and the post-Acquisition business and operations of the Corporation and ITC, in addition to the other information contained in this Circular. In addition, Shareholders should carefully consider the risk factors which relate to ITC described in “Schedule D — Information Concerning ITC Holdings Corp.”.

Risk Factors Relating to the Acquisition

The Purchase Price for the Acquisition could increase

ITC is a public company and its directors owe fiduciary duties to its shareholders which may require them to consider competing offers to purchase the common stock of ITC as alternatives to the Acquisition. The Acquisition Agreement preserves the ability of the directors of ITC to accept an alternative proposal in certain circumstances if such offer constitutes a superior proposal. If a superior proposal to acquire ITC is made, Fortis may exercise its right to match such offer and as a result the purchase price paid by the Corporation in connection with the Acquisition may increase. In any such event, Fortis may agree to pay for the Purchase Price increase using cash and/or Common Shares. Fortis would be required to seek the further approval of its Shareholders under the applicable rules of the TSX in connection with any increase in the number of Common Shares issuable as a result the Acquisition, which could delay or result in the failure to complete the Acquisition. See “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement” and “Special Business — The Acquisition of ITC Holdings Corp. — Canadian and U.S. Securities Law Matters — TSX Approval”.

There is no assurance when or if the Acquisition will be completed

Completion of the Acquisition is subject to the satisfaction or waiver of a number of conditions as set forth in the Acquisition Agreement, including, among others, (i) approval by ITC’s shareholders of the Acquisition Agreement, (ii) approval by the Shareholders of the Acquisition Share Issuance Resolution, (iii) obtaining certain regulatory and federal approvals including, among others, those of FERC, CFIUS, the Antitrust Division of the United States Department of Justice, the Federal Communications Commission and the Federal Trade Commission, and various state utilities regulators, and (iv) the absence of legal restraints prohibiting the completion of the Acquisition. There can be no assurance as to when these conditions will be satisfied or waived, if at all, or that other events will not intervene to delay or result in the failure to close the Acquisition.

Fortis and ITC have made various filings and submissions and are pursuing all required consents, orders and approvals in accordance with the Acquisition Agreement. The Acquisition Agreement requires Fortis and ITC, among other things, to accept conditions, divestitures, requirements, limitations, costs or restrictions that may be imposed by regulatory entities. Such conditions, divestitures, requirements, limitations, costs or restrictions may jeopardize or delay completion of the Acquisition, may reduce the benefits that may be achieved from the Acquisition, limit the revenues of the combined company following the Acquisition or may result in the abandonment of the Acquisition. Further, no assurance can be given that the required consents, orders and approvals will be obtained or that the required conditions to Closing will be satisfied. Even if all such consents, orders and approvals are obtained and such conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents, orders and approvals. For example, these consents, orders and approvals may impose conditions on or require divestitures relating to the divisions, operations or assets of Fortis and ITC or may impose requirements, limitations or costs or place restrictions on the conduct of Fortis’ business, and if such consents, orders and approvals require an extended period of time to be obtained, such extended period of time could increase the chance that an event occurs that constitutes a Material Adverse Effect with respect to Fortis or ITC and thereby may offer the other party an opportunity not to complete the Acquisition.

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Such extended period of time also may increase the chance that other adverse effects with respect to Fortis or ITC could occur, such as the loss of key personnel. Each party’s obligation to consummate the Acquisition is also subject to the accuracy of the representations and warranties of the other party (subject to certain qualifications and exceptions) and the performance in all material respects of the other party’s covenants under the Acquisition Agreement, including, with respect to ITC, certain covenants regarding operation of ITC’s business prior to completion of the Acquisition. As a result of these conditions, Fortis and ITC cannot provide assurance that the Acquisition will be completed on the terms or timeline currently contemplated, or at all. See “ Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement — Conditions to the Acquisition” in this Circular.

Fortis may not realize all of the anticipated benefits of the Acquisition

As described in “Special Business — The Acquisition of ITC Holdings Corp. — Background and Recommendation — Reasons for the Recommendation”, Fortis believes that the Acquisition will provide benefits to the Corporation, including that the Acquisition will be accretive in the first full year following Closing, excluding one-time Acquisition-related expenses, and the expectation that the Acquisition will support the Corporation’s average annual dividend growth target of 6% through 2020; however, there is a risk that some or all of the expected benefits of the Acquisition may fail to materialize, or may not occur within the time periods anticipated by the Corporation. The realization of such benefits may be affected by a number of factors, including regulatory considerations and decisions, many of which are beyond the control of the Corporation. The challenge of coordinating previously independent businesses makes evaluating the Corporation’s business and future financial prospects difficult. The past financial performance of each of ITC and the Corporation may not be indicative of their future financial performance. In addition, any regulatory approvals required in connection with the Acquisition may include terms which could have an adverse effect on the Corporation’s financial performance.

The combined company will be required to devote significant management attention and resources to integrating its business practices and support functions. The diversion of management’s attention and any delays or difficulties encountered in connection with the Acquisition and the integration of the two companies’ operations could have an adverse effect on the business, financial results, financial condition or share price of Fortis (as the parent company following the Acquisition). The integration process may also result in additional and unforeseen expenses.

Failure to realize all of the anticipated benefits of the Acquisition may impact the financial performance of the Corporation, the price of its Common Shares and the ability of Fortis to continue to pay dividends on its Common Shares at rates consistent with the Corporation’s dividend guidance, at current rates or at all. The declaration of dividends by the Corporation is at the discretion of the Board of Directors and the Board of Directors may determine at any time to cease paying dividends. See “Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation”.

The Minority Investment may not be completed

There is no certainty, nor can Fortis provide any assurance, that it will reach a binding agreement with one or more Minority Investors to complete the Minority Investment prior to Closing, or at all, nor can Fortis predict the terms (including price) or size of any such Minority Investment, if made. The Minority Investment is limited to a maximum of 19.9% of the issued and outstanding common stock of ITC, as agreed to in the Acquisition Agreement. In connection with the Minority Investment, certain customary rights may be granted to Minority Investors that could restrict the ability of Fortis to operate the ITC business as it might have in the absence of such rights.

The Acquisition is not conditional upon Fortis securing one or more Minority Investors or any minimum Minority Investment and, as such, Fortis intends to complete the Acquisition as soon as practicable after obtaining the required Shareholder Approval, ITC shareholder approval and regulatory approvals and the

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satisfaction or waiver of the other required Closing conditions, regardless of whether it has secured one or more Minority Investors. In addition, the Acquisition Agreement, the Equity Bridge Facilities and the Debt Bridge Facility impose certain restrictions on the Minority Investors and timing for completing the Minority Investment which may make it more difficult for Fortis to complete the Minority Investment prior to Closing. Consummation of the Acquisition without completion of the Minority Investment could increase the consolidated indebtedness of the Corporation and may contribute to the downgrade of the Corporation’s credit ratings at the time of Closing. In addition, a failure to complete the Minority Investment could negatively impact the accretion from the Acquisition. Failure to complete the Minority Investment could also have a negative impact on the price of the Common Shares. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — The Minority Investment”.

The Acquisition Credit Facilities may not be available

The commitments of the lenders to fund the Acquisition Credit Facilities are subject to certain standard conditions, including, in the case of the Equity Bridge Facilities, that the Corporation shall have received gross cash proceeds from Permanent Debt and/or borrowings under the Debt Bridge Facility in an aggregate amount of not less than US$2.0 billion and, in the case of the Debt Bridge Facility, that the Corporation shall have received gross cash proceeds from certain offerings including, for greater certainty, the Minority Investment, and/or amounts borrowed under the Equity Bridge Facilities (or any replacement facility) in a minimum aggregate amount of not less than US$1.2 billion. The failure to satisfy such standard conditions may result in the Acquisition Credit Facilities becoming unavailable to Fortis. If the Acquisition Credit Facilities become unavailable to Fortis, Fortis may not be able to complete the Acquisition. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

Alternate sources of funding that would be used to fund the Acquisition or replace the Acquisition Credit Facilities may not be available

The Cash Purchase Price for the Acquisition and the Acquisition-related expenses are expected to be financed at Closing from: (i) the Prospective Offerings and (ii) the purchase price paid by the Minority Investors in connection with the Minority Investment. Fortis cannot assure you that such financing sources will be available to Fortis or its affiliates at the desired time or at all, or on cost-efficient terms. The inability to obtain alternate sources of financing to fund the Acquisition may negatively impact the financial performance of Fortis, including the extent to which the Acquisition is accretive, and may require Fortis to drawdown on either or both of the Acquisition Credit Facilities to pay part of the Cash Purchase Price. If Fortis is required to drawdown on such Acquisition Credit Facilities, indebtedness under the Acquisition Credit Facilities is required to be repaid within 364 days of drawdown, and Fortis intends to access the capital markets following Closing in order to refinance any such drawdowns under the Acquisition Credit Facilities with long-term financing. There can be no assurance that Fortis will be able to access the capital markets on favorable terms within this period and offerings of securities of Fortis during such period may be completed on terms less favorable than would otherwise be the case if the Acquisition had not taken place or if Fortis had a longer period to time its access to the capital markets.

In addition, any movement in interest rates could affect the underlying cost of these instruments and may affect the expected accretion of the Acquisition. Fortis may enter into hedging arrangements to mitigate interest rate risk in connection with the financing of the Acquisition. See “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

Fortis does not currently control ITC and its subsidiaries

Although the Acquisition Agreement contains covenants on the part of ITC regarding the operation of its business prior to Closing, Fortis will not control ITC and its subsidiaries until completion of the

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Acquisition and the business and results of operations of ITC may be adversely affected by events that are outside of the Corporation’s control during the intervening period. Historic and current performance of ITC’s business and operations may not be indicative of success in future periods. The future performance of ITC may be influenced by, among other factors, economic downturns, increased environmental regulation, turmoil in financial markets, unfavourable regulatory decisions, litigation, rising interest rates, delays in ongoing transmission development projects and other factors beyond the Corporation’s control. As a result of any one or more of these factors, among others, the operations and financial performance of ITC may be negatively affected, which may adversely affect the future financial results of Fortis. See “Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation”.

Fortis and ITC will incur substantial transaction fees and costs in connection with the proposed Acquisition

Fortis and ITC have incurred and expect to incur additional material non-recurring expenses in connection with the Acquisition and completion of the transactions contemplated by the Acquisition Agreement, including costs relating to the financing of the Acquisition and obtaining required shareholder and regulatory approvals. ITC has incurred significant legal, advisory and financial services fees in connection with its board of directors’ review of strategic alternatives and the process of negotiating and evaluating the terms of the Acquisition. Additional unanticipated costs may be incurred in the course of coordinating the businesses of Fortis and ITC after completion of the Acquisition. Even if the Acquisition is not completed, Fortis and ITC will need to pay certain pre-tax costs relating to the Acquisition incurred prior to the date the Acquisition was abandoned, such as legal, accounting, financial advisory, financing, filing and printing fees. Such costs may be significant and could have an adverse effect on the parties’ future results of operations, cash flows and financial condition. See “Significant termination fee may be payable by Fortis”.

Significant termination fee may be payable by Fortis

If the Acquisition is not completed due to the failure to obtain any Required Regulatory Approval, or any Legal Restraint related thereto, Fortis will be required to pay a termination fee of US$280 million to ITC in connection with the termination of the Acquisition Agreement. If the Board changes its recommendation of the Acquisition or resolves to do the foregoing, Fortis will be required to pay ITC a termination fee of US$245 million. See “Special Business — The Acquisition of ITC Holdings Corp. — The Acquisition Agreement — Termination Fees”. If a termination fee is ultimately required to be paid by Fortis to ITC, the payment of such fee will have a significant adverse impact on the financial results of the Corporation in the fiscal quarter in which such termination fee is paid.

ITC Midwest’s election to opt out of federal bonus depreciation has been challenged

On December 18, 2015, Interstate Power and Light Company (“Interstate Power”) filed a FERC challenge to ITC Midwest’s opting out of using U.S. federal bonus tax depreciation (“bonus depreciation”) for the calculation of its federal income tax expense. On March 11, 2016, FERC issued an order requiring ITC Midwest to recalculate its transmission revenue requirements, effective January 1, 2015, reflecting the election of bonus depreciation for 2015. FERC denied Interstate Power’s request that ITC Midwest be required to elect bonus depreciation in any past or future years. ITC continues to believe its intention to elect out of bonus depreciation for 2015 is appropriate and is currently assessing the FERC order, including whether it will seek rehearing of the FERC order or otherwise take action to contest the ruling. The election of bonus depreciation by the ITC Regulated Operating Subsidiaries would negatively affect ITC’s revenues and net income. Fortis is unable to predict the outcome of this matter at this time.

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Fortis expects to issue securities to finance a portion of the cash consideration, which could impact the capital structure of Fortis prior to the closing of the Acquisition

Fortis expects to issue securities in connection with the financing of the Acquisition prior to Closing in order to reduce the amount required to be borrowed at Closing under the Acquisition Credit Facilities. Any such offering of securities prior to Closing could have the effect of changing the current capital structure of Fortis. Fortis cannot assure you that it will complete the Acquisition in the time frame or on the basis described herein, or at all. If the Acquisition is not completed, management of Fortis expects to apply the net proceeds from the sale of securities offered by the Corporation prior to Closing (other than those offered on a contingent basis) to repay indebtedness and/or to, directly or indirectly, finance future growth opportunities of the Corporation and its subsidiaries with the result that the change in the Corporation’s capital structure may subsist for a longer term than expected.

Information relating to ITC in this Circular has been obtained from ITC or its public disclosure record

All information relating to ITC and its affiliates contained in this Circular has been provided to Fortis by ITC or taken from the ITC public disclosure record. Although the Corporation has conducted what it believes to be a prudent and thorough level of investigation in connection with the Acquisition and the disclosure relating to ITC contained in this Circular, an unavoidable level of risk remains regarding the accuracy and completeness of such information. While Fortis has no reason to believe the information provided by ITC or taken from the public disclosure record is misleading, untrue or incomplete, Fortis cannot assure the accuracy or completeness of such information nor can Fortis compel ITC to disclose events which may have occurred or may affect the completeness or accuracy of such information but which are unknown to Fortis. ITC’s public disclosure is itself subject to uncertainties, see “Schedule D — Information Concerning ITC Holdings Corp.”.

Fortis will list the Common Shares on the NYSE in connection with the Acquisition and the Common Shares have no trading history in the United States

The Common Shares currently trade on the TSX. It is a condition to the completion of the Acquisition that the Common Shares issued pursuant to the Acquisition Agreement be authorized for listing on the NYSE, in addition to the TSX. Prior to the completion of the Acquisition, there has been no public market in the United States for the Common Shares. The price at which the Common Shares will trade on the NYSE may be lower than the value for which they are exchanged at Closing. In addition, because the liquidity and trading patterns of securities listed on the TSX may be substantially different from those of securities listed on the NYSE, historical trading prices may not be indicative of the prices at which the Common Shares will trade in the future on the NYSE.

Fortis Common Shares will be traded on more than one market and this may result in price variations

Trading in the Common Shares on the NYSE and TSX will take place in different currencies (U.S. dollars on the NYSE and Canadian dollars on the TSX), and at different times (resulting from different trading days and different public holidays in the United States and Canada). The trading prices of the Common Shares on these two markets may at times differ due to these and other factors. Any decrease in the price of the Common Shares on the TSX could cause a decrease in the trading price of the Common Shares on the NYSE and vice versa. There can be no assurance that the expected benefits of listing the Common Shares on the NYSE will be realized or, if realized, that such benefits will be sustained.

The market price of Fortis Common Shares following the consummation of the Acquisition could be volatile

Notwithstanding the fact that Fortis will issue a significant number of the Common Shares to shareholders of ITC in connection with the Acquisition, there is no guarantee that a significant market for the Common Shares will develop or be sustained on the NYSE following the Acquisition. ITC shareholders may decide to sell the Common Shares received by them in the Acquisition, which will generally be eligible for immediate resale, rather than remain shareholders of Fortis, which could have an adverse impact on the

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trading price of the Common Shares. As Fortis is a Canadian company and is not as well-known to investors in the United States as it is in Canada, investors in Canada may be more likely to purchase any Common Shares sold by ITC shareholders following the Acquisition. If a substantial portion of the Common Shares issued to ITC shareholders are sold to investors in Canada, this may have a material adverse effect on the trading price of the Common Shares following the Acquisition. In addition, a perception among investors that such sales will occur could depress the market price of the Common Shares prior to the issuance of Common Shares in connection with the Acquisition. In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type against Fortis could result in substantial costs and diversion of management’s attention and resources, which would adversely affect its business. Any adverse determination in litigation against Fortis could also subject it to significant liabilities.

Fortis may lose its foreign private issuer status in the future, which could result in additional costs and expenses to Fortis

Following the Acquisition, more than 50% of the Corporation’s total assets will be located in the United States and a material portion of its Common Shares may be held by US residents. Upon registration with the SEC, Fortis expects to initially qualify as a foreign private issuer and satisfy the other eligibility requirements of MJDS. As a foreign private issuer eligible to use MJDS, Fortis will be entitled to substantially satisfy its U.S. reporting obligations by filings its Canadian disclosure documents with the SEC. In order to maintain its status as a foreign private issuer under United States securities laws, a majority of the Common Shares must be either directly or indirectly owned by non-residents of the United States.

Fortis may in the future lose its foreign private issuer status and, consequently, its eligibility to use MJDS, if a majority of its Common Shares are held by residents of the United States. The regulatory and compliance costs to Fortis under United States federal securities laws as a United States domestic issuer may be significantly more than the costs it incurs as a Canadian foreign private issuer eligible to use MJDS. If Fortis is not a foreign private issuer, it would not be eligible to use MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on United States domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, Fortis may lose the ability to rely upon exemptions from NYSE corporate governance requirements that are available to foreign private issuers.

Fortis has not yet completed its determination regarding whether its existing internal controls over financial reporting are compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002

Fortis maintains disclosure controls and procedures and internal control over financial reporting pursuant to the Canadian Securities Administrators National Instrument 52-109 — Certification of Disclosure in Issuers’ Annual and Interim Filings , and has commenced an assessment of whether its current internal controls procedures satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002 and the related rules of the SEC and the Public Company Accounting Oversight Board.

Pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that Fortis files with the SEC after the effectiveness of its registration statement to be filed with the SEC in connection with the Acquisition, the Corporation’s independent auditors will be required to attest to the effectiveness of the Corporation’s internal control over financial reporting. The process of obtaining the required attestation from the Corporation’s independent auditors has commenced and will require the investment of substantial additional time and resources, including by the Corporation’s Chief Financial Officer and other members of the Corporation’s senior management, as well as higher than anticipated

G- 6

operating expenses including independent auditor fees. Fortis’ failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on an ongoing and timely basis, or any failure in Fortis’ internal controls, could result in the loss of investor confidence in the reliability of the Corporation’s financial statements, which in turn could negatively affect the trading price of the Common Shares and could have a material adverse effect on the Corporation’s results of operations and harm its reputation. Further, Fortis can provide no assurance that its independent auditors will provide the required attestation. If Fortis is required in the future to make changes to its internal controls over financial reporting, it could adversely affect the Corporation’s operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls over financial reporting from its independent auditors.

Significant demands will be placed on Fortis and ITC as a result of the Acquisition

As a result of the pursuit and completion of the Acquisition, significant demands will be placed on the managerial, operational and financial personnel and systems of Fortis and ITC. Fortis and ITC cannot assure you that their systems, procedures and controls will be adequate to support the expansion of operations following and resulting from the Acquisition. The future operating results of Fortis and the combined company will be affected by the ability of its officers and key employees to manage changing business conditions and to implement and improve its operational and financial controls and reporting systems.

ITC and Fortis may be the target of additional securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being completed

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Acquisition, then that injunction may delay or prevent the Acquisition from being completed. Following announcement of the Acquisition, three putative class actions were filed by purported shareholders of ITC on behalf of a purported class of ITC shareholders in Oakland County Circuit Court, State of Michigan. Paolo Guerra v. Albert Ernst, et al. , was filed on February 26, 2016, Harvey Siegelman v. Joseph L. Welch, et al. , was filed on March 2, 2016, and Alan Poland v. Fortis Inc., et al. , was filed on March 4, 2016. On March 8, 2016, the ITC board of directors received a demand letter from a fourth purported shareholder demanding that the board remedy the same claimed breaches of fiduciary duty asserted in the complaints. On March 14, 2016, the Guerra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Paolo Guerra v. Albert Ernst, et al . For information regarding these class actions, see the section titled “Fortis — Recent Developments — Litigation Relating to the Acquisition”.

Risk Factors Relating to the Post-Acquisition Business and Operations of the Corporation

Fortis will have a substantial amount of indebtedness which may adversely affect its cash flow and ability to operate its business

After giving effect to the Acquisition and the financing thereof, Fortis will have a significant amount of debt, including an expected C$6.2 billion of debt of ITC and its subsidiaries. As of December 31, 2015, on a pro forma basis after giving effect to the Acquisition, the Corporation’s initial financing plans in connection with the Acquisition (as assumed in the unaudited pro forma condensed consolidated financial statements included in Schedule H to this Circular) and the anticipated outstanding indebtedness of ITC, management estimates that the consolidated indebtedness of the Corporation will be C$23.6 billion. The expected substantial increase in the amount of indebtedness of Fortis will have the effect, among other things, of reducing the Corporation’s flexibility to respond to changing business and economic conditions and could increase the Corporation’s borrowing costs. In addition, the amount of cash required to service the Corporation’s increased indebtedness levels and thus the demands on the Corporation’s cash resources

G- 7

will be greater than the amount of cash flows required to service the indebtedness of Fortis or ITC individually prior to the Acquisition. The increased levels of indebtedness could also reduce funds available for capital expenditures, the payment of dividends and other activities and may create competitive disadvantages for Fortis relative to other companies with lower debt levels.

The Acquisition may result in a downgrade of the Corporation’s credit ratings

Any change in the capital structure of Fortis in connection with the Acquisition and the entering into of the Acquisition Credit Facilities may cause credit rating agencies which rate Fortis and the outstanding debt obligations of Fortis to re-evaluate and downgrade the Corporation’s current credit ratings, which could increase the Corporation’s borrowing costs. A failure to complete the Minority Investment prior to Closing may increase the likelihood that the Corporation’s current credit ratings will be downgraded. In addition, under the terms of the Acquisition Credit Facilities, Fortis must obtain a credit rating and an unsecured debt credit rating from either of Moody’s or Fitch, neither of which currently rates Fortis or its debt securities. It is possible that the credit ratings Fortis obtains from either of Moody’s or Fitch could be lower than the Corporation’s current ratings from S&P and DBRS. See “Fortis — Credit Ratings” and “Special Business — The Acquisition of ITC Holdings Corp. — Financing the Acquisition — Acquisition Credit Facilities”.

Increased foreign exchange exposure may adversely affect Fortis’ earnings and the value of some of Fortis’ assets

Fortis’ reporting currency is the Canadian dollar and the majority of its earnings and cash flows are denominated in Canadian dollars. However, a significant portion of its earnings and cash flows are denominated in U.S. dollars. The earnings from, and net investments in, foreign subsidiaries are exposed to fluctuations in the U.S. dollar to Canadian dollar exchange rate. Although Fortis seeks to limit this exposure through the use of U.S. dollar denominated borrowings at the corporate level, such actions may not insulate Fortis completely from this exposure. The foreign exchange gain or loss on the translation of U.S. dollar denominated interest expense partially offsets the foreign exchange gain or loss on the translation of the Corporation’s foreign subsidiaries’ earnings, which are denominated in U.S. dollars. The reporting currency of Tucson Electric Power Company, UNS Electric Inc., UNS Gas Inc., Central Hudson Gas & Electric Corporation, Caribbean Utilities Company, Ltd., FortisTCI Limited, Turks and Caicos Utilities Limited and Belize Electric Company Limited is the U.S. dollar. On an annual basis, it is estimated that a US$0.05, or 5%, increase or decrease in the U.S. dollar relative to the Canadian dollar exchange rate would increase or decrease earnings per Common Share by approximately C$0.04, before considering the impact of the pending Acquisition.

The operations of ITC are conducted in U.S. dollars and, as a result, following the Acquisition the Corporation’s consolidated earnings and cash flows may be impacted by movements in the U.S. dollar-Canadian dollar exchange rate to a greater extent than prior to the Acquisition. In particular, any decrease in the value of the U.S. dollar versus the Canadian dollar following the Acquisition could negatively impact Fortis’ earnings as reported in Canadian dollars, which could negatively impact Fortis’ ability to realize all of the anticipated benefits of the Acquisition.

Fortis may enter into forward foreign exchange contracts and utilize certain derivatives as cash flow hedges of its exposure to foreign currency risk to a greater extent than in the past. There is no guarantee that such hedging strategies, if adopted, will be effective. In addition, currency hedging entails a risk of illiquidity and, to the extent that the U.S. dollar depreciates against the Canadian dollar, the risk of using hedges could result in losses greater than if the hedging had not been used. Hedging arrangements may have the effect of limiting or reducing the total returns to Fortis if management’s expectations concerning future events or market conditions prove to be incorrect, in which case the costs associated with the hedging strategies may outweigh their benefits.

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The unaudited pro forma condensed consolidated financial information of Fortis and ITC is presented for illustrative purposes only and may not be indicative of the results of operations or financial condition of Fortis following the Acquisition

The unaudited pro forma condensed consolidated financial information included in this Circular has been prepared using the consolidated historical financial statements of Fortis and of ITC, is presented for illustrative purposes only, and should not be considered to be an indication of the results of operations or financial condition of Fortis following the Acquisition. In addition, the pro forma combined financial information included in this Circular is based in part on certain assumptions regarding the Acquisition. These assumptions may not prove to be accurate, and other factors may affect the Corporation’s results of operations or financial condition following the Acquisition. Accordingly, the historical and pro forma financial information included in this Circular does not necessarily represent the Corporation’s results of operations and financial condition had Fortis and ITC operated as a combined entity during the periods presented, or of the Corporation’s results of operations and financial condition following the Acquisition. The Corporation’s potential for future business success and operating profitability must be considered in light of the risks, uncertainties, expenses and difficulties typically encountered by recently combined companies. Among the uncertainties that could cause the results of operations and financial condition of Fortis to differ materially from the pro forma combined information included in this Circular is the possibility that the allowed ROEs of the MISO Regulated Operating Subsidiaries will be reduced by FERC as a result of the base rate complaints to a greater extent than assumed and reflected in the audited consolidated financial statements of ITC for the year ended December 31, 2015, attached to this Circular at Schedule E. While a decision has been issued by the presiding administrative law judge in the first base rate complaint, such decision remains subject to confirmation by FERC, and the ultimate outcome of the base rate complaints cannot be predicted at this time. In addition, following a recent FERC order, ITC stakeholders could bring FERC challenges regarding the election out of federal bonus tax depreciation taken by the ITC Regulated Operating Subsidiaries for some or all of the years from 2015 to 2019. If any such FERC challenges are initiated and are successful, the resulting lower rate base would negatively impact the revenues and net income of ITC. See “Schedule E — ITC Historical Financial Statements and Management’s Discussion and Analysis” in this Circular.

In preparing the pro forma financial information contained in this Circular, Fortis has given effect to, among other items, the completion of the Acquisition, the payment of the Cash Purchase Price using long-term indebtedness of Fortis and the indebtedness of Fortis on a consolidated basis after giving effect to the Acquisition, including the indebtedness of ITC. The unaudited pro forma financial information does not reflect all of the costs that are expected to be incurred by Fortis in connection with the proposed Acquisition or the impact of the proposed Minority Investment. See also “Caution Regarding Pro Forma Financial Information”, “Risk Factors Relating to the Acquisition” and the notes to the unaudited pro forma condensed consolidated financial statements of Fortis and ITC incorporated in this Circular.

The ROEs of ITC’s Regulated Operating Subsidiaries may change as a result of the Acquisition

On the basis of the Acquisition, FERC or third parties could challenge the ROEs of the ITC Regulated Operating Subsidiaries which could have a negative impact on the ROEs of the ITC Regulated Operating Subsidiaries following the Acquisition. Any change to the ROEs of the ITC Regulated Operating Subsidiaries resulting from the Acquisition would have a negative impact on the ability of Fortis to realize all of the anticipated benefits of the Acquisition.

Fortis may not have discovered undisclosed liabilities of ITC

In the course of the due diligence review of ITC that Fortis conducted prior to the execution of the Acquisition Agreement, Fortis may not have discovered, or may have been unable to quantify, undisclosed liabilities of ITC and its subsidiaries and Fortis will not be indemnified for any of these liabilities. Such undisclosed liabilities could have an adverse effect on the business, results of operations,

G- 9

financial condition and cash flows of Fortis and on the value of the Common Shares after Closing.

Fortis has limited experience in the independent transmission industry and may not be successful in retaining the services of executives and other employees that it needs to realize all of the anticipated benefits of the Acquisition

While Fortis owns and operates transmission assets, those assets are limited and do not constitute a material portion of the consolidated rate base of Fortis. Fortis currently has no experience in the operation of an independent transmission utility under the FERC regulatory construct and regional transmission operator transmission grid management regime. Fortis will rely heavily on the experienced existing management and other key personnel of ITC to continue to manage and operate the transmission business of ITC (including the ITC Regulated Operating Subsidiaries) following the Acquisition; however, Fortis will compete with other potential employers for employees and may not be successful in retaining the services of executives and other employees that it needs to realize all of the anticipated benefits of the Acquisition. A failure to retain key personnel as part of the management team of ITC in the period following the Acquisition could have a material adverse effect on the business and operations of ITC and Fortis on a consolidated basis. See “— Fortis may not realize all of the anticipated benefits of the Acquisition”.

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SCHEDULE H — PRO FORMA FINANCIAL STATEMENTS OF FORTIS AND ITC

Unaudited Pro Forma Condensed Consolidated Financial Information

Fortis Inc.

As of and for the year ended December 31, 2015

H- 1

Foreword

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial statements give effect to the Acquisition by Fortis of ITC under the acquisition method of accounting for business combinations and based on the respective historical audited consolidated financial statements of Fortis and ITC for the year ended December 31, 2015. The unaudited pro forma condensed consolidated balance sheet gives effect to the Acquisition as if it had closed on December 31, 2015. The unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 2015 gives effect to the Acquisition as if it had closed on January 1, 2015.

The historical audited consolidated financial information has been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are: (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) with respect to the unaudited pro forma condensed consolidated statement of earnings, expected to have a continuing impact on the combined results of Fortis and ITC. As such, the impact from Acquisition-related expenses is not included in the unaudited pro forma condensed consolidated statement of earnings. However, the estimated impact of these expenses is reflected in the unaudited pro forma condensed consolidated balance sheet as an increase to debt and a decrease to retained earnings.

The unaudited pro forma condensed consolidated financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies or synergies that could result from the Acquisition or the effect of any regulatory actions that may impact the unaudited pro forma condensed consolidated financial statements when the Acquisition is completed.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition and results of operations would have been had the Acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of the operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma financial information should be read together with: (i) the audited historical consolidated financial statements of Fortis and the notes thereto and the related management’s discussion and analysis included in the Corporation’s 2015 Annual Report; (ii) the ITC historical financial statements and the notes thereto and management’s discussion and analysis included in Schedule E to this Circular; and (iii) other information contained in this Circular.

The unaudited pro forma information and adjustments, including the preliminary allocation of purchase price, are based upon preliminary estimates of fair values of assets acquired and liabilities assumed, current available information and certain assumptions that Fortis believes are reasonable in the circumstances, as described in the notes to the unaudited pro forma condensed consolidated financial statements. The actual adjustments to the consolidated financial statements of Fortis upon the closing of the Acquisition will depend on a number of factors, including, among others, additional information available and the net assets of ITC on Closing, and as a result the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

H- 2

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of December 31, 2015

(In millions of Canadian dollars)

									Pro forma
									condensed
			ITC			Pro forma			consolidated
ASSETS	Fortis		(Note 3[h])		Note	adjustments			balance sheet

Current assets
Cash and cash equivalents	$	242	$	19	3[a]	$	(4,868	)	$	261
					3[c]	5,061
					3[c]	(28		)
					3[d]	(165		)
Accounts receivable and other current assets	964		144						1,108
Prepaid expenses	68		15						83
Inventories	337		36						373
Regulatory assets	246		20						266
	1,857		234						2,091

Other assets	352		62						414
Deferred financing fees	—		41		3[i]	(41		)	—
Regulatory assets	2,286		323						2,609
Utility capital assets	19,595		8,456						28,051
Intangible assets	541		63						604
Goodwill	4,173		1,315		3[b]	(1,315		)	12,880
					3[b]	8,707
	$	28,804	$	10,494		$	7,351		$	46,649
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	511	$	—	3[i]	$	131		$	642
Accounts payable and other current liabilities	1,419		215		3[d]	(33		)	1,772
					3[i]	167
					3[i]	4
Accrued payroll, interest and taxes other than income taxes	—		167		3[i]	(167		)	—
Refundable deposits from generators for transmission network upgrades	—		4		3[i]	(4		)	—
Regulatory liabilities	298		62						360
Debt maturing within one year	—		547		3[i]	(547		)	—
Current installments of long-term debt	384		—		3[i]	416			800
Current installments of capital lease and finance obligations	26		—						26
	2,638		995			(33		)	3,600
Other liabilities	1,152		32		3[i]	85			1,294
					3[i]	25
Accrued pension and post retirement liabilites	—		85		3[i]	(85		)	—
Refundable deposits from generators for transmission network upgrades	—		25		3[i]	(25		)	—
Regulatory liabilities	1,340		353						1,693
Deferred income taxes	2,050		1,018		3[b], 3[e]	(81		)	2,987
Long-term debt	10,784		5,620		3[b]	202			21,598
					3[c]	5,061
					3[c]	(28		)
					3[i]	(41		)
Capital lease and finance obligations	487		—						487
	18,451		8,128			5,080			31,659
Shareholders’ equity
Common shares	5,867		1,148		3[f]	(1,148		)	10,636
					3[a]	4,769
Preference shares	1,820		—						1,820
Additional paid-in capital	14		—						14
Accumulated other comprehensive income	791		6		3[f]	(6		)	791
Retained earnings	1,388		1,212		3[f]	(1,212		)	1,256
					3[d]	(165		)
					3[d]	33
	9,880		2,366			2,271			14,517
Non-controlling interests	473		—						473
	10,353		2,366			2,271			14,990
	$	28,804	$	10,494		$	7,351		$	46,649

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

H- 3

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Earnings

Year Ended December 31, 2015

(In millions of Canadian dollars, except share and per share amounts)

										Pro forma
										condensed
										consolidated
			ITC				Pro forma			statement of
	Fortis		(Note 3[h])			Note	adjustments			earnings

Revenue	$	6,727	$	1,336						$	8,063

Expenses
Energy supply costs	2,561		—							2,561
Operating	1,864		434							2,298
Depreciation and amortization	873		185							1,058
	5,298		619							5,917
Operating income	1,429		717							2,146
Other income (expense), net	187		(1		)	3[i]	36			222
Allowance for funds used during construction	—		36			3[i]	(36		)	—
Finance charges	553		261			3[b]	(41		)	970
						3[c]	4
						3[c]	193
Earnings before income taxes	1,063		491				(156		)	1,398
Income tax expense (recovery)	223		181			3[b], 3[e]	16			366
						3[c], 3[e]	(1		)
						3[c], 3[e]	(53		)

Net earnings	$	840	$	310			$	(118	)	$	1,032
Net earnings attributable to:
Non-controlling interests	$	35	$	—						$	35
Preference equity shareholders	77		—							77
Common equity shareholders	728		310				(118		)	920

	$	840	$	310			$	(118	)	$	1,032
Weighted average common shares outstanding (# in millions)
Basic	278.6					3[g]	113.8			392.4
Diluted	284.7					3[g]	113.8			398.5

Earnings per common share (Canadian dollars)
Basic	$	2.61								$	2.34
Diluted	$	2.59								$	2.33

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

H- 4

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial statements give effect to the proposed Acquisition as more particularly described elsewhere in this Circular. The accompanying unaudited pro forma condensed consolidated financial statements have been prepared by management of Fortis and are derived from the audited consolidated financial statements of Fortis and ITC as of and for the year ended December 31, 2015. The accompanying unaudited pro forma condensed consolidated balance sheet reflects the Acquisition as if it had closed on December 31, 2015 and the accompanying unaudited pro forma condensed consolidated statement of earnings reflects the Acquisition as if it had closed on January 1, 2015. Amounts are presented in millions of Canadian dollars unless otherwise noted.

The accompanying unaudited pro forma condensed consolidated financial statements utilize accounting policies that are consistent with those disclosed in the audited consolidated financial statements of Fortis for the year ended December 31, 2015, which were prepared in accordance with U.S. GAAP.

The Acquisition has been accounted for in the unaudited pro forma condensed consolidated financial statements as an acquisition of ITC common shares by Fortis using the acquisition method of accounting for business combinations. Based on the purchase price calculation as detailed in the Acquisition Agreement, the estimated purchase price for the equity of ITC is approximately C$9.6 billion (Notes 2 and 3[a]). The assets to be acquired and liabilities to be assumed have been measured at estimated fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The accompanying unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the results that would have been achieved if the transactions reflected therein had been completed on the dates indicated or the results which may be obtained in the future. While the underlying pro forma adjustments are intended to provide a reasonable basis for presenting the significant financial effects directly attributable to the Acquisition, they are preliminary and are based on currently available financial information and certain estimates and assumptions which Fortis believes to be reasonable. The actual adjustments to the consolidated financial statements of Fortis will be determined at the time that the Acquisition is completed. Therefore, it is expected that the actual adjustments will differ from the pro forma adjustments, and the differences may be material. For instance, the actual purchase price allocation will reflect the fair value, at the closing date, of the assets acquired and liabilities assumed based upon Fortis’ valuation of such assets and liabilities following the closing of the Acquisition and, accordingly, the final purchase price allocation, as it relates principally to goodwill, may differ materially from the preliminary allocation reflected herein.

H- 5

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

2. DESCRIPTION OF TRANSACTION

Pursuant to the Acquisition Agreement, Fortis will indirectly purchase the outstanding common shares of ITC for US$22.57 in cash and share consideration of 0.7520 of a Common Share per ITC common share. The total estimated purchase price is approximately C$9.6 billion (Note 3[a]). Fortis will also assume ITC debt, which was approximately C$6.2 billion as of December 31, 2015.

Fortis has arranged approximately US$3.7 billion in committed bridge facilities which, together with the Common Share consideration, will fully fund the estimated net purchase price and thereby ensure ample liquidity to close the Acquisition. The accompanying unaudited pro forma condensed consolidated financial statements reflect the estimated costs of arranging the bridge facilities in Acquisition-related expenses as further discussed in Note 3[d] below.

Fortis intends to finance a portion of the estimated purchase price by seeking one or more minority investors for up to 19.9% of the common stock of ITC. This has not been reflected in the pro forma assumptions and adjustments. The estimated impact of an assumed 19.9% minority investment in the common stock of ITC is further discussed in Note 4 below.

H- 6

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

[a] Estimated Purchase Price, Estimated Funding Requirements and Assumed Financing Structure

The following is the estimated purchase price, the estimated funding requirements and assumed financing structure for the Acquisition. These estimates and assumptions have been reflected in the accompanying unaudited pro forma condensed consolidated financial statements.

Estimated Purchase Price
ITC common shares (# in millions)	151.4
Fraction of Fortis Common Shares issued for each ITC common share	0.7520
Estimated Fortis Common Shares issued (# in millions)	113.8
Assumed price of Fortis Common Shares (US$) (Note 3[b])	30.28
Estimated Common Share consideration (US$ millions)	3,446
Estimated cash consideration for ITC common shares (151.4 x US$22.57) (US$ millions)	3,417
Estimated net cash consideration attributable to settlement of equity awards (US$ millions)	100
Estimated purchase price (US$ millions)	6,963
Assumed exchange rate (Note 3[h])	1.3840
Estimated purchase price	$	9,637

Estimated Common Share consideration (US$3,446 million x 1.3840)	$	4,769
Estimated cash consideration ([US$3,417 million + US$100 million] x 1.3840)	4,868
	$	9,637
Estimated Funding Requirements
Estimated purchase price	$	9,637
Assumed debt of ITC	6,167
Estimated senior unsecured long-term debt issuance costs (Note 3[c])	28
Estimated Acquisition-related expenses (Note 3[d])	165
	$	15,997
Assumed Financing Structure
Assumed debt of ITC	$	6,167
Estimated Common Share consideration	4,769
Estimated senior unsecured long-term debt (Note 3[c])	5,061
	$	15,997

H- 7

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[b] Preliminary allocation of estimated purchase price

The estimated purchase price has been preliminarily allocated to the estimated fair values of ITC assets and liabilities as of December 31, 2015 in accordance with the acquisition method of accounting for business combinations, as follows:

			Fair Value
			and Other
	ITC		Adjustments			Net Total
Assets acquired:
Cash and cash equivalents	$	19				$	19
Accounts receivable and other current assets	144					144
Prepaid expenses	15					15
Inventories	36					36
Regulatory assets	20					20
Total current assets	234					234
Other assets	62					62
Deferred financing fees	41					41
Regulatory assets	323					323
Utility capital assets	8,456					8,456
Intangible assets	63					63
Goodwill	1,315		(1,315		)	—
	$	10,494	$	(1,315	)	$	9,179
Liabilities assumed:
Accounts payable and other current liabilities	$	215				$	215
Accrued payroll, interest and taxes other than income taxes	167					167
Refundable deposits from generators for transmission network upgrades	4					4
Regulatory liabilities	62					62
Debt maturing within one year	547					547
Total current liabilities	995					995
Other liabilities	32					32
Accrued pension and post retirement liabilities	85					85
Refundable deposits from generators for transmission network upgrades	25					25
Regulatory liabilities	353					353
Deferred income taxes	1,018		(81		)	937
Long-term debt	5,620		202			5,822
	$	8,128	$	121		$	8,249
Net assets at fair value, as at December 31, 2015						$	930
Estimated purchase price (Note [3a])						9,637
Total pro forma goodwill						8,707

H- 8

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[b] Preliminary allocation of estimated purchase price (continued)

ITC’s operating subsidiaries are rate-regulated entities. The determination of revenues and earnings is based on regulated rates of return that are applied to historic values. Therefore, with the exception of a fair market value adjustment for long-term debt held outside of regulated operations, along with the related impact on deferred income taxes, no other fair market value adjustments to ITC’s assets and liabilities have been recognized because all of the economic benefits and obligations associated with regulated assets and liabilities beyond regulated thresholds accrue to ITC’s customers. Consequently, it is Fortis’ best estimate that the fair value of the remainder of ITC’s assets and liabilities is their carrying amount.

Long-term debt has an estimated fair market value of C$5,822 million, or an increase of C$202 million over historic values, which would result in a corresponding deferred income tax asset of approximately C$81 million. The amortization of this fair market value adjustment would result in a reduction of finance charges of C$41 million for the year ended December 31, 2015 because of periodic accretion of the debt up to the eventual principal balance. The reduction of financing charges would result in corresponding deferred income tax expense of C$16 million.

The excess of the estimated purchase price of the Acquisition, before assumed debt and Acquisition-related expenses, over the assumed fair value of net assets acquired from ITC is classified as goodwill on the accompanying unaudited pro forma condensed consolidated balance sheet. The final purchase price allocation is dependent upon, among other things, the finalization of asset and liability valuations which will reflect a third-party valuation. This final valuation will be based on, among other things, the actual net tangible and intangible assets and liabilities of ITC that exist as of Closing. Any final adjustment may change the allocation of the purchase price, which could affect the fair value assigned to the assets acquired and liabilities assumed and could result in changes to the unaudited pro forma condensed consolidated financial statements, including a change to goodwill.

The final purchase price and resulting goodwill will vary based on the market price of Fortis’ common shares on Closing. In preparing the unaudited pro forma condensed consolidated financial statements, Fortis estimated the purchase price associated with the Common Share consideration based on the closing market price of the Common Shares on the TSX of C$40.12 and the closing US$ to C$ exchange rate of 1.3250 on March 9, 2016, yielding a price of US$30.28 per Common Share. Based on the historic volatility of the market price of the Common Shares, Fortis believes that a 10% fluctuation in such market price provides a reasonable basis for illustrating the resultant potential impact on the estimated purchase price and goodwill, as follows:

	Estimated		Estimated
	Purchase Price		Goodwill

As presented in the unaudited pro forma condensed consolidated financial statements	$	9,637	$	8,707
10% increase in Fortis common share price	10,114		9,184
10% decrease in Fortis common share price	9,160		8,230

H- 9

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[c] Senior unsecured long-term debt

Assumed financing for the Acquisition contemplates the issuance of approximately C$5,061 million (US$3,657 million) of long-term debt in the form of U.S. dollar-denominated senior unsecured notes. Estimated debt issuance costs of approximately C$28 million have been recognized as a reduction in long-term debt with a corresponding amortization expense of approximately C$4 million, and a deferred income tax recovery of C$1 million for the year ended December 31, 2015 based on an estimated average term of 6.5 years. The interest rate is estimated at 4.12%, which would result in incremental finance charges for the year ended December 31, 2015 of C$193 million and a corresponding deferred income tax recovery of C$53 million. A fluctuation in the estimated interest rate of +/- 0.1250% would result in a change in earnings to common equity shareholders of approximately C$4 million after tax, or approximately C$0.01 per Common Share.

[d] Acquisition-Related Expenses

Acquisition-related expenses are estimated at approximately C$165 million and would reduce current income taxes payable by approximately C$33 million. Acquisition-related expenses are composed of estimated investment banking, accounting, tax, legal and other costs associated with the completion of the Acquisition and estimated post-Acquisition expenses associated with equity-based compensation. These costs have been included as a pro forma adjustment to retained earnings as opposed to being reflected in the unaudited pro forma condensed consolidated statement of earnings of Fortis on the basis that they are directly incremental to the Acquisition of ITC and are therefore non-recurring in nature.

[e] Income taxes

Income taxes applicable to the pro forma adjustments are calculated at Fortis’ average income tax rates of 27.5% (Canadian rate) and 40.0% (U.S. rate) for the year ended December 31, 2015.

[f] ITC historical shareholders’ equity

The historical shareholders’ equity of ITC, which includes retained earnings, accumulated other comprehensive income and common shares, has been eliminated.

[g] Pro forma earnings per common share

The calculation of basic and diluted pro forma earnings per common share for the year ended December 31, 2015, reflects the assumed issuance of approximately 113.8 million Fortis common shares as if the issuance had taken place as of January 1, 2015 (Note 3[a]).

[h] Foreign exchange translation

The assets and liabilities of ITC, which has a U.S. dollar functional currency, and additional assumed financing denominated in U.S. dollars arising from the Acquisition, are translated at the exchange rate in effect as of December 31, 2015. Revenue and expenses of ITC’s operations, additional assumed U.S. dollar-denominated finance charges and U.S. dollar-denominated Acquisition-related expenses and their related income tax effects are translated at the average exchange rate for 2015.

H- 10

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[h] Foreign exchange translation (continued)

The following exchange rates were utilized in preparing the unaudited pro forma condensed consolidated financial statements:

Balance Sheet (US$ to C$)
Spot rate - December 31, 2015		1.3840

Income Statement (US$ to C$)
Average rate - January 1, 2015 to December 31, 2015		1.2788

[i] Reclassifications and Accounting Policy Difference

In preparing the unaudited pro forma condensed consolidated financial statements, the following reclassifications were made to ITC’s 2015 historical audited consolidated financial statements to conform to the presentation utilized by Fortis: (i) commercial paper totaling C$131 million included within “Debt maturing within one year” was reclassified as “Short-term borrowings” and the current portion of long-term debt totaling C$416 million included within “Debt maturing within one year” was reclassified as “Current installments of long-term debt”; (ii) “Accrued payroll, interest and taxes other than income taxes” of C$167 million and current “Refundable deposits from generators for transmission network upgrades” of C$4 million were reclassified as “Accounts payable and other current liabilities”; (iii) “Accrued pension and post retirement liabilities” of C$85 million and non-current “Refundable deposits from generators for transmission network upgrades” of C$25 million were reclassified as “Other liabilities”; and (iv) “Allowance for funds used during construction” of C$36 million was reclassified as “Other income (expense), net”.

Effective October 1, 2015 Fortis early adopted Accounting Standards Update (“ASU”) No. 2015-03 that requires deferred debt issuance costs to be presented as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. ITC did not early adopt ASU No. 2015-03 and, therefore, has presented deferred financing fees of C$41 million as a long-term asset on its 2015 historical audited consolidated balance sheet. These costs have been netted against long-term debt on the unaudited pro forma condensed consolidated balance sheet.

H- 11

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

4. MINORITY INVESTMENT

The unaudited pro forma condensed consolidated financial statements assume that the estimated cash purchase price will be fully funded by long-term debt in the form of U.S. dollar-denominated senior unsecured notes as described in Notes 3[a] and 3[c].

However, Fortis intends to finance a portion of the purchase price by seeking one or more minority investors to acquire up to 19.9% of the outstanding common stock of ITC from Fortis. This would result in a non-controlling interest with an estimated fair value of approximately C$1,891 million, with a decrease in long-term debt of approximately C$1,891 million (US$1,366 million). This, in turn, would result in a reduction in finance charges of approximately C$74 million with a corresponding reduction of the deferred income tax recovery of approximately C$20 million, and an allocation of earnings attributable to non-controlling interests for the year ended December 31, 2015 of approximately C$62 million.

The estimated impact of an assumed 19.9% minority investment in the common stock of ITC on the unaudited pro forma condensed consolidated balance sheet as of December 31, 2015 and the unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 2015 is summarized below.

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

With 19.9% Minority Interest in ITC Holdings Corp.

As of December 31, 2015

							Pro forma
							condensed
			ITC		Pro forma		consolidated
	Fortis		(Note 3[h])		adjustments		balance sheet

Total Assets	$	28,804	$	10,494	$	7,351	$	46,649
Total Liabilities	18,451		8,128		3,189		29,768
Shareholders’ equity	9,880		2,366		2,271		14,517
Non-controlling interests	473		—		1,891		2,364
	10,353		2,366		4,162		16,881
	$	28,804	$	10,494	$	7,351	$	46,649

H- 12

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial

Statements

Year Ended December 31, 2015

4. MINORITY INVESTMENT (Continued)

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Earnings

With 19.9% Minority Interest in ITC Holdings Corp.

Year Ended December 31, 2015

									Pro forma
									condensed
									consolidated
			ITC			Pro forma			statement of
	Fortis		(Note [h])			adjustments			earnings

Operating income	$	1,429	$	717					$	2,146
Other income (expense), net	187		(1		)	36			222
Allowance for funds used during construction	—		36			(36		)	—
Finance charges	553		261			82			896
Earnings before income taxes	1,063		491			(82		)	1,472
Income tax expense (recovery)	223		181			(18		)	386

Net earnings	$	840	$	310		$	(64	)	$	1,086
Net earnings attributable to:
Non-controlling interests	$	35				$	62		$	97
Preference equity shareholders	77								77
Common equity shareholders	728		310			(126		)	912
	$	840	$	310		$	(64	)	$	1,086
Weighted average common shares outstanding (# in millions)
Basic	278.6					113.8			392.4
Diluted	284.7					113.8			398.5
Earnings per common share (Canadian dollars)
Basic	$	2.61							$	2.32
Diluted	$	2.59							$	2.31

H- 13

Any questions and requests for assistance may be directed to the

Proxy Solicitation Agent:

The Exchange Tower

130 King Street West, Suite 2950, PO Box 361

Toronto, Ontario

M5X 1E2

www.kingsdaleshareholder.com

North American Toll Free Phone:

1.888.518.6828

Email: contactus@kingsdaleshareholder.com

Facsimile: 416.867.2271

Toll Free Facsimile: 1.866.545.5580

Outside North America, Banks and Brokers Call Collect: 416.867.2272

Fortis Place

Suite 1100, 5 Springdale Street

PO Box 8837

St. John’s, NL

A1B 3T2

T: 709.737.2800

F: 709.737.5307

www.fortisinc.com

Exhibit 99.5

FORM 51-102F3

MATERIAL CHANGE REPORT

Section 7.1 of National Instrument 51-102

Continuous Disclosure Obligations

ITEM 1: NAME AND ADDRESS OF COMPANY

Fortis Inc. (“Fortis” or the “Corporation”)

Fortis Place, Suite 1100

PO Box 8837

5 Springdale Street

St. John’s, Newfoundland and Labrador A1B 3T2

ITEM 2: DATE OF MATERIAL CHANGE

February 9, 2016

ITEM 3: NEWS RELEASE

A news release was issued by Fortis through Marketwired on February 9, 2016, a copy of which is attached hereto as Schedule A.

ITEM 4: SUMMARY OF MATERIAL CHANGE

Fortis has entered into an agreement and plan of merger dated February 9, 2016 pursuant to which it will acquire ITC Holdings Corp. (“ITC”) in a transaction (the “Acquisition”) valued at approximately US$11.3 billion. Under the terms of the Acquisition, ITC shareholders will receive US$22.57 in cash and 0.7520 common shares of Fortis per ITC share, for a total of approximately US$6.9 billion in Fortis common shares and cash at closing (when calculated using the closing price for Fortis common shares and the US$/C$ exchange rate on February 8, 2016), and Fortis will assume approximately US$4.4 billion of consolidated ITC indebtedness. Upon completion of the Acquisition, ITC will become a subsidiary of Fortis and approximately 27% of the common shares of Fortis will be held by ITC shareholders. In addition to the necessary state approvals, the closing of the Acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory and federal approvals. The closing of the Acquisition is expected to occur in late 2016. In connection with the Acquisition, Fortis will become a registrant with the United States Securities and Exchange Commission and will apply to list its common shares on the New York Stock Exchange. A copy of the news release relating to the Acquisition is attached hereto as Schedule A.

ITEM 5: FULL DESCRIPTION OF MATERIAL CHANGE

For a full description of the material change, see the news release attached as Schedule A hereto.

ITEM 6: RELIANCE ON SUBSECTION 7.1(2) OF NATIONAL INSTRUMENT 51-102

Not applicable.

ITEM 7: OMITTED INFORMATION

Not applicable.

ITEM 8: EXECUTIVE OFFICER

For further information, please contact Karl W. Smith, Executive Vice President, Chief Financial Officer of Fortis at (709) 737-2800.

ITEM 9: DATE OF REPORT

February 11, 2016.

	by:	(signed) David C. Bennett
		David C. Bennett
		Vice President, Chief Legal Officer and Corporate Secretary

SCHEDULE A

News Release Relating to the Acquisition

See attached.

FOR IMMEDIATE RELEASE:

St. John’s, NL and Novi, Michigan (February 9, 2016):

FORTIS INC. TO ACQUIRE ITC HOLDINGS CORP. FOR US$11.3 BILLION

Fortis to increase its 2016 consolidated mid year rate base to approximately C$26 billion (US$18 billion) with acquisition of the largest independent transmission utility in the United States

Highlights

· The acquisition aligns with Fortis’ financial objectives by providing approximately 5% earnings per common share accretion in the first full year following closing, excluding one-time acquisition-related expenses. Fortis continues to target 6% average annual dividend growth through 2020.

· ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 megawatts along approximately 15,600 miles of transmission line.

· Fortis will become one of the top 15 North American public utilities ranked by enterprise value.

· ITC’s FERC regulated operations, with substantial rate base growth and robust investment opportunities, add a new growth platform.

· Following the acquisition, ITC will continue as a stand-alone transmission company, retaining its focus on growth and operational excellence while benefiting from a broader platform that will support its mission to modernize electrical infrastructure in the U.S.

· ITC’s average rate base and CWIP is expected to grow at a compounded average annual rate of approximately 7.5% through 2018.

· Fortis intends on retaining all of ITC’s employees and maintaining the corporate headquarters in Novi, Michigan.

· The per share consideration of cash and Fortis stock payable to ITC shareholders of US$44.90 represents a 33% premium to the unaffected closing share price on November 27, 2015 and a 37% premium to the 30-day average unaffected share price prior to November 27, 2015. Pro forma, upon closing of the transaction, ITC shareholders will own approximately 27% of the combined company and will receive a meaningful increase in their dividend per share.

· In connection with the acquisition, Fortis will apply to list its common shares on the NYSE.

Fortis Inc. (“Fortis”) (TSX: FTS) and ITC Holdings Corp. (“ITC”) (NYSE: ITC) announced today that they have entered into an agreement and plan of merger pursuant to which Fortis will acquire ITC in a transaction (the “Acquisition”) valued at approximately US$11.3 billion. Under the terms of the transaction ITC shareholders will receive US$22.57 in cash and 0.7520 Fortis shares per ITC share. At yesterday’s closing price for Fortis common shares and the US$/C$ exchange rate, the per share consideration represents a premium of 33% over ITC’s unaffected closing share price on November 27, 2015 and a 37% premium to the unaffected average closing price over the 30 day period prior to November 27, 2015.

Following the Acquisition, Fortis will be one of the top 15 North American public utilities ranked by enterprise value, with an estimated enterprise value of C$42 billion (US$30 billion). On a pro forma basis, the consolidated mid year 2016 rate base of Fortis would increase by approximately C$8 billion (US$6 billion) to approximately C$26 billion (US$18 billion), as a result of the Acquisition.

“Fortis has grown its business through strategic acquisitions that have contributed to strong organic growth over the past decade. Our performance in 2015 is a clear demonstration of the success of this strategy,” says Mr. Barry Perry, President and Chief Executive Officer of Fortis. “The acquisition of ITC — a premier pure-play transmission utility — is a continuation of this growth strategy. ITC not only further strengthens and diversifies our business, but it also accelerates our growth.”

Under the terms of the Acquisition, which has been approved by the boards of directors of both companies, ITC shareholders will receive approximately US$6.9 billion in Fortis common shares and cash at closing and Fortis will assume approximately US$4.4 billion of consolidated ITC indebtedness. Upon completion of the Acquisition, ITC will become a subsidiary of Fortis and approximately 27% of the common shares of Fortis will be held by ITC shareholders. Fortis will apply to list its common shares on the New York Stock Exchange (“NYSE”) in connection with the Acquisition and will continue to have its shares listed on the Toronto Stock Exchange (“TSX”).

“From the very beginning of ITC, we have been focused on creating meaningful value for all stakeholders, including customers, investors and employees, by becoming the leading electric transmission company in the U.S.,” says Joseph L. Welch, Chairman, President and CEO of ITC. “Fortis is an outstanding company with a proven track record of successfully acquiring and managing U.S. based utilities in a decentralized manner. This transaction accomplishes our objectives by better positioning the company to have a higher level of focus on pursuing our long-term strategy of investing in transmission opportunities to improve reliability, expand access to power markets and allow new generating resources to interconnect to transmission systems and lower the overall cost of delivered energy for customers.

“I am forever grateful for the hard work of the ITC employees in building this great company and look forward to a bright future of continued operational excellence supported by the Fortis platform,” says Mr. Welch. “We also very much appreciate the longstanding support of our investors who will receive an attractive premium for their investment and will also benefit from the opportunity to participate in the upside of the combination, including future value creation and a growing dividend program.”

In addition to the necessary state approvals, the closing of the Acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory and federal approvals including, among others, those of the Federal Energy Regulatory Commission (“FERC”), the Committee on Foreign Investment in the United States, and the United States Federal Trade Commission/Department of Justice under the Hart-Scott-Rodino Antitrust Improvement Act . The closing of the Acquisition is expected to occur in late 2016.

A joint conference call and webcast is scheduled for Tuesday February 9, 2016 beginning at 8:30 a.m. Eastern Time (details provided below).

Entry into FERC Regulated Transmission

By acquiring ITC, Fortis is acquiring the largest independent pure-play electric transmission company in the United States. ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 megawatts along approximately 15,600 miles of transmission line. In addition, ITC is a public utility and independent transmission owner in Wisconsin. ITC has grown its average rate base at a compounded average annual rate of approximately 16% over the last three years and, as of September 30, 2015, ITC had assets of US$7.4 billion.

“The acquisition of ITC is in alignment with our business model and acquisition strategy, providing meaningful accretion, and creating a unique, highly diversified, low-risk regulated energy transportation platform,” explains Mr. Perry. “The predictable returns of a transmission business, with no commodity or fuel exposure, are very compelling.

“We take a very disciplined approach to acquisitions and are focused on businesses that have experienced management teams, provide geographic diversity in favorable economic regions, and possess significant growth prospects,” concludes Mr. Perry.

Strategic Rationale

The strategic rationale underlying the transaction includes:

Accretive Transaction — The Acquisition aligns with Fortis’ financial objectives by providing approximately 5% earnings per common share accretion in the first full year following closing, excluding one-time Acquisition-related expenses. Fortis continues to target 6% average annual dividend growth through 2020.

Increases Diversification — The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix. Based on the twelve months ended September 30, 2015, pro forma the Acquisition, ITC is expected to represent almost 40% of the consolidated regulated operating earnings of Fortis. The Acquisition will increase the regional economic diversity of Fortis from its current operations in five Canadian provinces, the U.S. states of New York and Arizona, and three Caribbean countries, to include a presence in eight additional U.S. states.

Supportive FERC Regulation — ITC’s tariff rates are regulated by FERC, which has been one of the most consistently supportive utility regulators in North America providing reasonable returns and equity ratios. Rates are set using a forward-looking rate-setting mechanism with an annual true-up, which provides timely cost recovery and reduces regulatory lag.

Long-Term Rate Base Growth Prospects — There is a significant need for capital investment in the aging U.S. electric transmission sector to improve reliability, expand access to power markets, allow new generating resources to interconnect to the transmission system and lower the overall cost of energy delivery. Based on ITC’s planned capital expenditure program, ITC’s average rate base and construction work in progress (“CWIP”) is expected to increase at a compounded average annual rate of approximately 7.5% through 2018.

Clean energy policies in the United States, including renewable portfolio standards, are driving the need for new transmission investment to facilitate the delivery of electricity from renewable energy resources to load-serving entities. In particular, the Clean Power Plan (“CPP”) is expected to drive investment in renewables and the retirement of coal-fired generation in the U.S. With its economies of scale and geographic footprint, ITC is favourably positioned to participate in the significant transmission investment opportunity fostered by the CPP.

Management Expertise — The ITC management team has a proven track record of strong EPS growth, total shareholder return, cash flow from operations and operational efficiencies. From its initial public offering in 2005 through November 2015, ITC has delivered more than double the annual shareholder returns of the S&P 500 Utilities Sector Index. ITC’s experienced and execution-focused management team will continue to operate independently under the ownership structure of Fortis.

Transaction Details

The agreement and plan of merger relating to the Acquisition includes customary provisions.

In connection with the Acquisition, Fortis will become a registrant with the United States Securities and Exchange Commission (the “SEC”) and will apply to list its common shares on the NYSE.

Each of the ITC board of directors and Fortis board of directors has approved the Acquisition and has determined that the Acquisition is in the best interest of its shareholders. Each of the ITC board and Fortis board recommend that its shareholders vote in favour of the proposed Acquisition.

In accordance with the requirements of the TSX, Fortis will seek shareholder approval of the issuance of common shares representing 40% of the outstanding common shares of Fortis (on a pre-Acquisition, non-diluted basis) as partial consideration for the Acquisition at an upcoming shareholders’ meeting. The resolution is required to be approved by a majority of Fortis shareholders represented in person or by proxy at the meeting. A proxy circular describing the Acquisition in more detail will be mailed to Fortis shareholders in advance of the meeting.

Acquisition Financing

The financing of the Acquisition has been structured to allow Fortis to maintain a solid investment-grade credit rating and is consistent with Fortis’s existing capital structure. Financing for the cash portion of the Acquisition will be achieved primarily through the issuance of approximately US$2 billion of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors.

Advisors

Goldman Sachs and Scotiabank served as financial advisors to Fortis and provided committed financing. White & Case LLP and Davies Ward Phillips & Vineberg LLP acted as legal advisors to Fortis.

Barclays and Morgan Stanley acted as financial advisors to ITC. Simpson Thacher & Bartlett LLP acted as legal advisor to ITC. Lazard served as financial advisor and Jones Day acted as legal advisor to ITC’s board of directors.

About ITC

ITC Holdings Corp. (NYSE: ITC) is the largest independent electric transmission company in the United States. Based in Novi, Michigan, ITC invests in the electric transmission grid to improve reliability, expand access to markets, allow new generating resources to interconnect to its transmission systems and lower the overall cost of delivered energy. Through its regulated operating subsidiaries ITC Transmission , Michigan Electric Transmission Company, ITC Midwest and ITC Great Plains, ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 megawatts along approximately 15,600 circuit miles of transmission line. ITC’s grid development focus includes growth through regulated infrastructure investment as well as domestic and international expansion through merchant and other commercial development opportunities. Additional information can be accessed at www.itc-holdings.com or www.edgar.com.

About Fortis

Fortis is a leader in the North American electric and gas utility business, with total assets of approximately C$28.6 billion as at September 30, 2015 and revenue totalling approximately C$6.7 billion for the twelve month period ended September 30, 2015. Its regulated utilities serve more than three million customers across Canada and in the United States and the Caribbean. Fortis also owns long-term contracted hydroelectric generation assets in British Columbia and Belize.

Fortis shares are listed on the TSX and trade under the symbol FTS. Additional information can be accessed at www.fortisinc.com or www.sedar.com.

Additional Information about the Acquisition and Where to Find It

Fortis will file with the SEC a registration statement on Form F-4, which will include a proxy statement of ITC that also constitutes a prospectus of Fortis, and any other documents in connection with the Acquisition. The definitive proxy statement/prospectus will be sent to the shareholders of ITC. INVESTORS AND SHAREHOLDERS OF ITC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS, AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE ACQUISITION WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FORTIS, ITC, THE ACQUISITION AND RELATED MATTERS. The registration statement and proxy statement/prospectus and other documents filed by Fortis and ITC with the SEC, when filed, will be available free of charge at the SEC’s website at www.sec.gov. In addition, investors and shareholders will be able to obtain free copies of the proxy statement/prospectus and other documents which will be filed with the SEC by Fortis on Fortis’ website at www.fortisinc.com or upon written request to Fortis’ Investor Relations department, PO Box 8837, St. John’s, NL A1B 3T2 or by calling 709.737.2800, and will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by ITC upon written request to ITC, Investor Relations, 27175 Energy Way, Novi, MI 48377 or by calling 248.946.3000. You may also read and copy any reports, statements and other information filed by Fortis and ITC with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 800.732.0330 or visit the SEC’s website for further information on its public reference room. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

Participants in the Solicitation of Proxies

This communication is not a solicitation of proxies in connection with the Acquisition. However, ITC, Fortis, certain of their respective directors and executive officers and certain other members of management and employees, under SEC rules, may be deemed to be participants in the solicitation of proxies in connection with the Acquisition. Information about ITC’s directors, executive officers and other members of management and employees may be found in its 2014 Annual Report on Form 10-K filed with the SEC on February 26, 2015, and definitive proxy statement relating to its 2015 Annual Meeting of Shareholders filed with the SEC on April 9, 2015. These documents can be obtained free of charge from the sources indicated above. Information about Fortis’ directors and executive officers may be found in its Management Information Circular dated March 20, 2015 available on its website at www.fortisinc.com. Additional information regarding the interests of such potential participants in the solicitation of proxies in connection with the Acquisition will be included in the proxy statement/prospectus and other relevant materials filed with the SEC when they become available.

Teleconference to Discuss Acquisition

Fortis and ITC will host a conference call and webcast, accompanied by slides, to discuss the transaction on February 9, 2016 at 8:30 a.m. Eastern Time.

To access via conference call, please dial 1.844.862.1432 (North America) or 1.617.826.1698 (international) and enter passcode 48792392. To access the webcast, please use this link: www.gowebcasting.com/7301.

Presentation slides for the conference call are available on the Fortis website at www.fortisinc.com and on the ITC website at www.itc-holdings.com.

A replay of the conference call will be available two hours after the conclusion of the call until March 9, 2016. Interested parties can call 1.855.859.2056 or 1.404.537.3406 and enter pass code 48792392.

This news release contains forward-looking statements within the meaning of applicable securities laws including the Private Securities Litigation Reform Act of 1995. Forward-looking statements included in this media release reflect Fortis’ and ITC’s management’s expectations and beliefs regarding future growth, results of operations, performance and business prospects and opportunities and the outlook for Fortis’ and ITC’s respective businesses and the electric transmission industry based on information currently available. Wherever possible, words such as “will”, “anticipates”, “believes”, “expects”, “intends”, “assumes”, “estimates”, “projects”, “expects”, “plans”, “seeks”, “may”, “could”, “would”, “can”, “continue” and the negative of these terms and other similar terminology or expressions have been used to identify the forward-looking statements, which include, without limitation, those statements related to the Acquisition, the combined company’s future business prospects and performance, growth potential, financial strength, market profile, revenues, proceeds, working capital, capital expenditures, investment valuations, liquidity, income, and margins, the satisfaction of the conditions precedent to the closing of the Acquisition, the expectation that Fortis will find one or more minority investors to invest in ITC, the expectation that Fortis will borrow funds to satisfy its obligation to pay the cash portion of the purchase price and will issue securities to pay the balance of the purchase price, the percentage of Fortis common shares to be held by ITC shareholders following the Acquisition, the intention of the parties to the Acquisition to seek, and the expected timing for, shareholder approvals in relation to the Acquisition, the expectation that the Acquisition will be accretive in the first full year following closing, that the Acquisition will support the average annual dividend growth target of Fortis, the availability of future investment opportunities in the electrical transmission industry in the United States, the United States federal regulatory environment and expectations in respect of the continued support for investment in the transmission industry by FERC, the expectation that Fortis will maintain an investment-grade credit rating and will become an SEC registrant and have its common shares listed on the NYSE in connection with the Acquisition, the expectation that ITC will continue to operate independently under the ownership structure of Fortis following the Acquisition, will retain its current employees and will continue to be based in Novi, Michigan, the timing of closing of the Acquisition, the amount of indebtedness of ITC expected to have been incurred as of closing, and the impact of the CPP and other clean energy policies on the electrical transmission industry in

the United States. These statements reflect management’s current beliefs and are based on information currently available to Fortis’ and ITC’s management.

Forward-looking statements involve significant risk, uncertainties and assumptions. Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements. These factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally, including those identified from time-to-time in the forward-looking statements. Such risk factors or assumptions include, but are not limited to, risks relating to regulation and energy prices, the ability to obtain shareholder and regulatory approvals in connection with the Acquisition and the timing and terms thereof, state and federal regulatory legislative decisions and actions, interloper risk, risks relating to uncertainty relating to the completion of the Acquisition and the timing thereof, the risk that conditions to the Acquisition may not be satisfied, risks relating to the focus of management time and attention on the Acquisition and other disruption from the Acquisition making it more difficult to maintain business and operational relationships, the possibility that the expected synergies and value creation from the Acquisition will not be realized, or will not be realized within the expected time period, the risk that ITC will not be integrated successfully, risks relating to the potential decline in the Fortis share price negatively impacting the value of the consideration offered to ITC shareholders, risks relating to the constraints that the minority investment may impose on Fortis’ ability to operate the ITC business in accordance with its business plan following closing, risks relating to the ability of Fortis to access capital markets on favourable terms or at all, risk relating to the ability of Fortis to identify minority investors, the cost of debt and equity capital, general economic, market and political conditions, changes in regional economic and market conditions which could affect customer growth and energy usage, weather variations affecting energy use, the performance of the stock market and changing interest rate environment, which affect the value of pension and other retiree benefit plan assets and the related contribution requirements and expense, risks relating to derivatives and hedging, currency exchange rates, interest rates, capital resources, loss of service area, licences and permits, environmental risks, insurance risks, labour relations, risks relating to human resources, liquidity risks, resolution of pending litigation matters, changes in accounting standards, changes in critical accounting estimates, the ongoing restructuring of the electric industry, changes to long-term contracts, the cost of fuel and power supplies, cyber-attacks or challenges to Fortis’ and ITC’s information security, and certain presently unknown or unforeseen factors, including, but not limited to, acts of terrorism. Fortis and ITC caution readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forward-looking statements. For additional information with respect to certain of these risks or factors, reference should be made to the continuous disclosure materials filed from time to time by Fortis with Canadian securities regulatory authorities and to ITC’s filings with the SEC, including the proxy circulars to be filed by each such company in connection with the Acquisition. Fortis and ITC disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

*For more information, please contact:*

Fortis Inc.

Ms. Janet Craig
Vice President, Investor Relations
Fortis Inc.
Phone: 709.737.2863

ITC Holdings Corp.	Media Contact

Ms. Stephanie Amaimo	Mr. Whit Clay
Director, Investor Relations	Managing Director
ITC Holdings Corp.	Sloane & Company
Phone: 248.946.3572	Phone: 212.446.1864

Exhibit 99.6

EXECUTION VERSION

FIFTH AMENDING AGREEMENT

RE: SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AGREEMENT made as of the 17 th day of August, 2016.

BETWEEN:

THE BANK OF NOVA SCOTIA,

a Canadian chartered bank

(herein, in its capacity as administrative agent of the Lenders, called the “ Agent ”)

— and —

THE BANK OF NOVA SCOTIA,

CANADIAN IMPERIAL BANK OF COMMERCE,
ROYAL BANK OF CANADA,

BANK OF MONTREAL,

THE TORONTO-DOMINION BANK,
HSBC BANK CANADA,

NATIONAL BANK OF CANADA,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
CANADA BRANCH,

BANK OF AMERICA, N.A., CANADA BRANCH,
MORGAN STANLEY BANK, N.A.,

CAISSE CENTRALE DESJARDINS AND

WELLS FARGO BANK, NATIONAL ASSOCIATION

(herein, in their capacities as lenders to the Borrower, collectively called the “ Lenders ” and individually called a “ Lender ”)

— and —

FORTIS INC.,

a corporation existing under the laws of the Province of Newfoundland and Labrador

(herein called the “ Borrower ”)

WHEREAS , pursuant to a second amended and restated credit agreement made as of August 9, 2011 among the Borrower, the Agent and the Lenders as amended by a first amending agreement thereto made as of July 5, 2012, a second amending agreement thereto made as of August 1, 2013, a third amending agreement thereto made as of March 23, 2015 and a fourth amending agreement thereto made as of April 25, 2016 (collectively, the “ Credit Agreement ”), the Lenders have established a certain credit facility in favour of the Borrower;

AND WHEREAS , pursuant to an Accordion Notice dated April 4, 2012 addressed to the Agent, the Borrower requested that the amount of the Credit Facility be increased by $200,000,000 and the Lenders agreed to such increase;

AND WHEREAS , pursuant to an Accordion Agreement dated as of May 2, 2012, Caisse Centrale Desjardins and Wells Fargo, National Association became Lenders under the Credit Agreement;

AND WHEREAS , pursuant to an Accordion Notice dated July 15, 2016 addressed to the Agent, the Borrower requested that the amount of the Credit Facility be further increased by $300,000,000 and the Lenders agreed, subject to the terms and conditions hereof, to such increase;

AND WHEREAS the parties hereto wish to amend certain provisions of the Credit Agreement the aforesaid $300,000,000 further increase to the Credit Facility;

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

ARTICLE 1

DEFINED TERMS

1.1 Capitalized Terms

All capitalized terms which are used herein without being specifically defined herein shall have the meaning ascribed thereto in the Credit Agreement as amended hereby.

ARTICLE 2

AMENDMENTS

2.1 General Rule

Subject to the terms and conditions herein contained, the Credit Agreement is hereby amended to the extent necessary to give effect to the provisions of this agreement and to incorporate the provisions of this agreement into the Credit Agreement.

2.2 Schedule A

Schedule A of the Credit Agreement is hereby deleted in its entirety and replaced by the form of Schedule A attached hereto. The parties hereto acknowledge that, upon this agreement becoming effective, no further increase to the Credit Facility pursuant to Section 2.6 of the Credit Agreement shall be permitted.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties

To induce the Lenders and the Agent to enter into this agreement, the Borrower hereby represents and warrants to the Lenders and the Agent that:

(a) the representations and warranties of the Borrower which are contained in Section 10.1 of the Credit Agreement are true and correct on the date hereof as if made of the date hereof and that, as of the date hereof, no Material Adverse Change has occurred since December 31, 2015; and

(b) no Default or Event of Default exists as at the date hereof or would arise as a result of this agreement becoming effective.

This representation and warranty is given solely as of the date of this agreement and the provisions of Section 12.1(c) of the Credit Agreement do not apply to the representations and warranties in this Section 3.1.

ARTICLE 4

CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT

4.1 Conditions Precedent

This agreement shall not become effective until the following conditions precedent have been met:

(a) this agreement shall be executed and delivered by the Borrower, the Administrative Agent and the Lenders; and

(b) the Borrower shall have paid to the Administrative Agent, for the benefit of the Lenders, such fees as have been agreed upon between the Borrower and the Administrative Agent with respect to the execution and delivery of this agreement.

ARTICLE 5

MISCELLANEOUS

5.1 Future References to the Credit Agreement

On and after the date of this agreement, each reference in the Credit Agreement to “this agreement”, “hereunder”, “hereof”, or words of like import referring to the Credit Agreement and each reference in any related document to the “Credit Agreement”, “thereunder”, “thereof”, or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. The Credit Agreement, as amended

hereby, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.

5.2 Governing Law

This agreement shall be governed by and construed in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein.

5.3 Enurement

This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns.

5.4 Conflict

If any provision of this agreement is inconsistent or conflicts with any provision of the Credit Agreement, the relevant provision of this agreement shall prevail and be paramount.

5.5 Further Assurances

The Borrower shall do, execute and deliver or shall cause to be done, executed and delivered all such further acts, documents and things as the Agent may reasonably request for the purpose of giving effect to this agreement and to each and every provision hereof.

5.6 Counterparts

This agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument.

5.7 No Waiver

The execution, delivery and effectiveness of this agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF the parties hereto have executed and delivered this agreement on the date first above written.

FORTIS INC.


By:	/s/ Barry V. Perry
	Name:	Barry V. Perry
	Title:	President & CEO


By:	/s/ James D. Spinney
	Name:	James D. Spinney
	Title:	Vice President, Treasurer


THE BANK OF NOVA SCOTIA as Agent

By:	/s/ Clement Yu
	Name:	Clement Yu
	Title:	Director


By:	/s/ Ryan Moonilal
	Name:	Ryan Moonilal
	Title:	Analyst

Fifth Amending Agreement

S- 1

THE BANK OF NOVA SCOTIA as Lender

By:	/s/ R.S. Hartlen
	Name:	R.S. Hartlen
	Title:	Managing Director


By:	/s/ G.F. Carson
	Name:	G.F. Carson
	Title:	Director


CANADIAN IMPERIAL BANK OF COMMERCE

By:	/s/ Giovanni Strazzullo
	Name:	Giovanni Strazzullo
	Title:	Executive Director


By:	/s/ Siddharth Samarth
	Name:	Siddharth Samarth
	Title:	Executive Director


ROYAL BANK OF CANADA


By:	/s/ Timothy P. Murray
	Name:	TIMOTHY P. MURRAY
	Title:	AUTHORIZED SIGNATORY


By:
	Name:
	Title:

Fifth Amending Agreement

S- 2

BANK OF MONTREAL


By:	/s/ Grace Potter
	Name:	Grace Potter
	Title:	Vice President


By:
	Name:
	Title:


THE TORONTO-DOMINION BANK


By:	/s/ Brendon D’Mello
	Name:	Brendon D’Mello
	Title:	Vice President


By:	/s/ Matthew Hendel
	Name:	Matthew Hendel
	Title:	Managing Director


HSBC BANK CANADA


By:	/s/ My N Le
	Name:	My N Le
	Title:	Vice President Global Banking


By:	/s/ Casey Coates
	Name:	Casey Coates
	Title:	Managing Director, Global Banking

Fifth Amending Agreement

S- 3

NATIONAL BANK OF CANADA


By:	/s/ Mark Williamson
	Name:	Mark Williamson
	Title:	Authorized Signatory


By:	/s/ John Niedermier
	Name:	John Niedermier
	Title:	Authorized Signatory


THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., CANADA BRANCH


By:	/s/ Michael Quinn
	Name:	Michael Quinn
	Title:	Director


By:
	Name:
	Title:


BANK OF AMERICA, N.A., CANADA BRANCH


By:	/s/ James Campbell
	Name:	James Campbell
	Title:	Director


By:
	Name:
	Title:

Fifth Amending Agreement

S- 4

MORGAN STANLEY BANK, N.A.


By:	/s/ Michael King
	Name:	Michael King
	Title:	Authorized Signatory


By:
	Name:
	Title:


CAISSE CENTRALE DESJARDINS


By:	/s/ Catherine McCarthy
	Name:	Catherine McCarthy
	Title:	Directeur, Financement Corpoail
		Director, Corporate Banking


By:	/s/ Mathieu Talbot
	Name:	Mathieu Talbot
	Title:	Managing Director and Head
		Loan Structuring & Syndication


WELLS FARGO BANK, N.A., CANADIAN BRANCH


By:	/s/ Sean Buchan
	Name:	Sean Buchan
	Title:	SVP Loan Team Manager


By:
	Name:
	Title:

Fifth Amending Agreement

S- 5

Exhibit 99.7

[EXECUTION VERSION]

INDENTURE

Among

FORTIS INC.

As the Corporation

AND

THE BANK OF NEW YORK MELLON

As U.S. Trustee

AND

BNY TRUST COMPANY OF CANADA

As Canadian Co-Trustee

Dated as of October 4, 2016

CERTAIN SECTIONS OF THIS INDENTURE RELATING TO
SECTIONS 310 THROUGH 318, INCLUSIVE, OF THE TRUST

INDENTURE ACT:

Trust Indenture		Indenture
Act Section		Section
Section 310	(a)(1)	609
	(a)(2)	609
	(a)(3)	Not Applicable
	(a)(4)	Not Applicable
	(b)	608
		610
Section 311	(a)	613
	(b)	613
Section 312	(a)	701
		702
	(b)	702
	(c)	702
Section 313	(a)	703
	(b)	703
	(c)	703
	(d)	703
Section 314	(a)	704
	(a)(4)	101
		1004
	(b)	Not Applicable
	(c)(1)	102
	(c)(2)	102
	(c)(3)	Not Applicable
	(d)	Not Applicable
	(e)	102
Section 315	(a)	601
	(b)	602
	(c)	601
	(d)	601
	(e)	514
Section 316	(a)	101
	(a)(1)(A)	502
		512
	(a)(1)(B)	513
	(a)(2)	Not Applicable
	(b)	508
	(c)	104
Section 317	(a)(1)	503
	(a)(2)	504
	(b)	1003
Section 318	(a)	107

Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS

		Page
Parties		1
Recitals of the Corporation		1

ARTICLE ONE Definitions and Other Provisions of General Application		1
Section 101.	Definitions	1
Section 102.	Compliance Certificates and Opinions	8
Section 103.	Form of Documents Delivered to Trustees	9
Section 104.	Acts of Holders; Record Dates	10
Section 105.	Notices, Etc., to Trustees and Corporation	11
Section 106.	Notice to Holders; Waiver	12
Section 107.	Conflict with Trust Indenture Legislation	12
Section 108.	Effect of Headings and Table of Contents	13
Section 109.	Successors and Assigns	13
Section 110.	Separability Clause	. 13
Section 111.	Benefits of Indenture	13
Section 112.	Governing Law; Waiver of Trial by Jury	13
Section 113.	Consent to Jurisdiction and Service of Process	13
Section 114.	Legal Holidays	14
Section 115.	Conversion of Currency	14
Section 116.	Currency Equivalent	15
Section 117.	Currency	15
Section 118.	Rules of Construction and Conventions	15

ARTICLE TWO Security Forms		16
Section 201.	Forms Generally	16
Section 202.	Form of Legends	17
Section 203.	Form of Trustee’s Certificate of Authentication	19

ARTICLE THREE The Securities		20
Section 301.	Amount Unlimited; Issuable in Series	20
Section 302.	Denominations	22
Section 303.	Execution, Authentication, Delivery and Dating	22
Section 304.	Temporary Securities	24
Section 305.	Registrar and Paying Agent	24
Section 306.	Transfer and Exchange	25
Section 307.	Mutilated, Destroyed, Lost and Stolen Securities	33
Section 308.	Payment of Interest; Interest Rights Preserved	34
Section 309.	Persons Deemed Owners	35
Section 310.	Cancellation	35
Section 311.	Computation of Interest	35
Section 312.	CUSIP Numbers, ISIN, etc.	35

ARTICLE FOUR Satisfaction and Discharge		35
Section 401.	Satisfaction and Discharge of Indenture	35

		Page
Section 402.	Application of Trust Money	36

ARTICLE FIVE Remedies		37
Section 501.	Events of Default	37
Section 502.	Acceleration of Maturity; Rescission and Annulment	38
Section 503.	Collection of Indebtedness and Suits for Enforcement by Trustee	39
Section 504.	Trustees May File Proofs of Claim	39
Section 505.	Trustee May Enforce Claims Without Possession of Securities	40
Section 506.	Application of Money Collected	40
Section 507.	Limitation on Suits	40
Section 508.	Unconditional Right of Holders to Receive Principal, Premium, Additional Amounts and Interest	41
Section 509.	Restoration of Rights and Remedies	41
Section 510.	Rights and Remedies Cumulative	41
Section 511.	Delay or Omission Not Waiver	41
Section 512.	Control by Holders	42
Section 513.	Waiver of Past Defaults	42
Section 514.	Undertaking for Costs	42
Section 515.	Waiver of Stay or Extension Laws	42

ARTICLE SIX The Trustees		43
Section 601.	Certain Duties and Responsibilities	43
Section 602.	Notice of Defaults	44
Section 603.	Certain Rights of Trustees	44
Section 604.	Not Responsible for Recitals or Issuance of Securities	45
Section 605.	May Hold Securities	46
Section 606.	Money Held in Trust	46
Section 607.	Compensation and Reimbursement	46
Section 608.	Conflicting Interests	46
Section 609.	Corporate Trustee Required; Eligibility	47
Section 610.	Resignation and Removal; Appointment of Successor	47
Section 611.	Acceptance of Appointment by Successor	48
Section 612.	Merger, Conversion, Consolidation or Succession to Business	49
Section 613.	Preferential Collection of Claims Against Corporation	49
Section 614.	Appointment of Authenticating Agent	49
Section 615.	Joint Trustees	51

ARTICLE SEVEN Holders’ Lists and Reports by Trustees and Corporation		51
Section 701.	Corporation to Furnish Trustees Names and Addresses of Holders	51
Section 702.	Preservation of Information; Communications to Holders	51
Section 703.	Reports by Trustees	52
Section 704.	Reports by Corporation	52

ARTICLE EIGHT Consolidation, Merger, Conveyance or Transfer		53
Section 801.	Corporation May Consolidate, Etc., on Certain Terms	53

		Page
Section 802.	Successor Substituted	53

ARTICLE NINE Supplemental Indentures		54
Section 901.	Supplemental Indentures Without Consent of Holders	54
Section 902.	Supplemental Indentures With Consent of Holders	55
Section 903.	Execution of Supplemental Indentures	55
Section 904.	Effect of Supplemental Indentures	56
Section 905.	Conformity with Trust Indenture Act	56
Section 906.	Reference in Securities to Supplemental Indentures	56

ARTICLE TEN Covenants		56
Section 1001.	Payment of Principal, Premium and Interest	56
Section 1002.	Payment of Taxes	56
Section 1003.	Maintenance of Office or Agency	59
Section 1004.	Money for Securities Payments to Be Held in Trust	59
Section 1005.	Statement by Officers as to Default	60
Section 1006.	Waiver of Certain Covenants	60
Section 1007.	Calculation of Original Issue Discount	61

ARTICLE ELEVEN Redemption of Securities		61
Section 1101.	Applicability of Article	61
Section 1102.	Election to Redeem; Notice to Trustees	61
Section 1103.	Selection by Trustee of Securities to Be Redeemed	61
Section 1104.	Notice of Redemption	62
Section 1105.	Securities Payable on Redemption Date	63
Section 1106.	Securities Redeemed in Part	63
Section 1107.	Tax Redemption	63

ARTICLE TWELVE Defeasance and Covenant Defeasance		64
Section 1201.	Applicability of Article	64
Section 1202.	Defeasance and Discharge	64
Section 1203.	Covenant Defeasance	65
Section 1204.	Conditions to Defeasance or Covenant Defeasance	65
Section 1205.	Deposited Money and Government Obligations to Be Held in Trust; Miscellaneous Provisions	66
Section 1206.	Reinstatement	66

ARTICLE THIRTEEN Immunity of Incorporators, Stockholders, Officers and Directors		67
Section 1301.	Indenture and Securities Solely Corporate Obligations	67

ARTICLE FOURTEEN Subordination of Subordinated Securities		67
Section 1401.	Agreement to Subordinate	67
Section 1402.	Payment on Dissolution, Liquidation or Reorganization; Default on Senior Indebtedness	67
Section 1403.	Payment Prior to Dissolution or Default	69
Section 1404.	Securityholders Authorize Trustees to Effectuate Subordination of Securities	70

iii

		Page
Section 1405.	Right of Trustee to Hold Senior Indebtedness	70
Section 1406.	Article Fifteen Not to Prevent Events of Default	70
Section 1407.	No Fiduciary Duty of Trustees to Holders of Senior Indebtedness	70

EXHIBITS

Exhibit A	FORM OF SECURITY
Exhibit B	FORM OF CERTIFICATE OF TRANSFER
Exhibit C	FORM OF CERTIFICATE OF EXCHANGE

INDENTURE , dated as of October 4, 2016, among Fortis Inc., a corporation duly continued and existing under the laws of the province of Newfoundland and Labrador, Canada (herein called the “ Corporation ”), having its principal office at Fortis Place, Suite 1100, 5 Springdale Street, St. John’s, Newfoundland and Labrador, Canada, A1E 034, The Bank of New York Mellon, a New York banking corporation, as Trustee (herein called the “ U.S. Trustee ”) and BNY Trust Company of Canada, as Trustee (herein called the “ Canadian Co-Trustee ”). The U.S. Trustee and the Canadian Co-Trustee are each also individually referred to in this Indenture as a “ Trustee ” and collectively, as the “ Trustees ”.

RECITALS OF THE CORPORATION

The Corporation has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the “ Securities ”), to be issued in one or more series as in this Indenture provided.

All things necessary to make this Indenture a valid agreement of the Corporation, in accordance with its terms, have been done.

Now, Therefore, This Indenture Witnesseth :

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:

ARTICLE ONE

Definitions and Other

Provisions of General Application

Section 101. Definitions.

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America;

(4) unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Indenture; and

(5) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

“ Act ,” when used with respect to any Holder, has the meaning specified in Section 104.

“ Additional Amounts ” has the meaning specified in Section 1002.

“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“ Applicable Procedures ” means, with respect to any transfer or exchange of or for beneficial interests in any Global Securities, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.

“ Authenticating Agent ” means any Person authorized by a Trustee pursuant to Section 614 to act on behalf of a Trustee to authenticate Securities of one or more series.

“ Authorized Denomination ” has the meaning specified in Section 203.

“ Board of Directors ” means either the board of directors of the Corporation or any duly authorized committee of that board.

“ Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Corporation to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustees.

“ Broker-Dealer ” has the meaning set forth in the Registration Rights Agreement applicable to such Securities, if any.

“ Business Day ,” means a day other than (i) a Saturday or a Sunday, (ii) a day on which banking institutions in New York City, New York, Toronto, Ontario or St. John’s, Newfoundland and Labrador are authorized or obligated by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of a Trustee is closed for business.

“ Canadian Co-Trustee ” means the Person named as the “Canadian Co-Trustee” in the first paragraph of this instrument until a successor Canadian Co-Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Canadian Co-Trustee” shall mean or include each Person who is then a Canadian Co-Trustee hereunder, unless there has ceased to be a Canadian Co-Trustee under this Indenture pursuant to Section 610.

“ Canadian Resale Legend ” means the legend provided for in Section 202(1)(A).

“ Canadian Trust Indenture Legislation ” means, at any time, statutory provisions relating to trust indentures and the rights, duties and obligations of trustees under the trust indentures and of bodies corporate issuing debt obligations under trust indentures to the extent that such provisions are at such time in force and applicable to this Indenture, and at the date of this Indenture includes the applicable provisions of the Trust and Loan Corporations Act (Newfoundland and Labrador) , the Trust and Loan Companies Act (Canada), the Business Corporations Act (Ontario) and the Corporations Act (Newfoundland and Labrador) and any statute that may be substituted therefor, as from time to time amended, and any other statute of Canada or a province thereof and of the regulations under any such statute.

“ Change in Tax Law ” has the meaning specified in Section 1107.

“ Clearstream ” means Clearstream Banking, S.A.

“ Commission ” means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“ Company Request ” or “ Company Order ” means a written request or order signed in the name of the Corporation by its Chairman of the Board, its Chief Executive Officer, its Chief Financial Officer, its President, a Vice President, its Treasurer, or an Assistant Treasurer, and by its Secretary or an Assistant Secretary, and delivered to the Trustees.

“ Corporate Trust Office ” means the office of a Trustee designated by such Trustee at which at any particular time its corporate trust business shall be administered, which office at the date hereof is located at 101 Barclay Street, Floor 7E New York, New York 10286 in the case of the U.S. Trustee and at 320 Bay Street, 11th Floor, Toronto, Ontario, Canada M5H 4A6 in the case of the Canadian Co-Trustee.

“ Corporation ” means the Person named as the “Corporation” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Corporation” shall mean such successor Person.

“ corporation ” means a corporation, association, company, limited liability company, joint-stock company or business trust.

“ Covenant Defeasance ” has the meaning specified in Section 1203.

“ Currency ” means any currency or currencies, composite currency or currency unit or currency units, including, without limitation, the Euro, issued by the government of one or more countries or by any recognized confederation or association of such governments.

“ Custodian ” means the custodian with respect to any Global Security appointed by DTC, or any successor Person thereto, and shall initially be the U.S. Trustee.

“ Defaulted Interest ” has the meaning specified in Section 307.

“ Defeasance ” has the meaning specified in Section 1202.

“ Definitive Security ” means a certificated Security registered in the name of the Holder thereof and issued in accordance with Section 306 hereof substantially in the form of Exhibit A hereto, except that such Security shall not bear the Global Security Legend and shall not have the “Schedule of Exchanges of Interests in the Global Security” attached thereto.

“ Depositary ” means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301.

“ DTC ” means The Depository Trust Company.

“ Euroclear ” means Euroclear Bank, S.A./N.V., as operator of the Euroclear system.

“ Event of Default ” has the meaning specified in Section 501.

“ Exchange Act ” means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time.

“Exchange Offer ” means, with respect to any Securities, the “Exchange Offer” referenced in the Registration Rights Agreement applicable to such Securities, if any.

“ Exchange Registration Statement ” means, with respect to any Securities, the “Exchange Registration Statement” referenced in the Registration Rights Agreement applicable to such Securities, if any.

“ Exchange Securities ” means Securities issued in an Exchange Offer pursuant to Section 306(f) hereof.

“ Expiration Date ” has the meaning specified in Section 104.

“ First Currency ” has the meaning specified in Section 116.

“ Global Security ” means a Security that evidences all or part of the Securities of any series which is issued to a Depositary or a nominee thereof for such series in accordance with Section 301(18).

“ Global Security Legend ” means the legend set forth in Section 202(2) hereof, which is required to be placed on all Global Securities issued under this Indenture.

“ Government Obligation ” has the meaning specified in Section 1204.

“ Holder ” means a Person in whose name a Security is registered in the Register.

“ Indenture ” means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term “Indenture” shall also include the terms of particular series of Securities established as contemplated by Section 301.

“ Indirect Participant ” means a Person who holds a beneficial interest in a Global Security through a Participant.

“ interest ,” when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.

“ Interest Payment Date ,” when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.

“ Letter of Transmittal ” means the letter of transmittal to be prepared by the Corporation and sent to all Holders of the applicable Securities for use by such Holders in connection with an Exchange Offer, if applicable.

“ Judgment Currency ” has the meaning specified in Section 115.

“ Maturity ,” when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

“ Minimum Authorized Denomination ” has the meaning specified in Section 203.

“ MJDS ” means the U.S./Canada Multijurisdictional Disclosure System adopted by the Commission and Canadian securities regulators.

“ Non-U.S. Person ” means a Person who is not a U.S. Person.

“ Notice of Default ” means a written notice of the kind specified in Section 501(3).

“ Officer’s Certificate ” means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, a Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation, and delivered to the Trustees.

“ Opinion of Counsel ” means a written opinion of counsel, who may be counsel for the Corporation, or other counsel who shall be reasonably acceptable to the Trustees.

“ Original Issue Discount Security ” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502.

“ Other Currency ” has the meaning specified in Section 116.

“ Outstanding ,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

(1) Securities theretofore cancelled by a Trustee or delivered to a Trustee for cancellation;

(2) Securities for whose payment or redemption the necessary amount of money or money’s worth has been theretofore deposited with a Trustee or any Paying Agent (other than the Corporation) in trust or set aside and segregated in trust by the Corporation (if the Corporation shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to such Trustee has been made;

(3) Securities as to which Defeasance has been effected pursuant to Section 1202; and

(4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to a Trustee proof satisfactory to it that such Securities are held by a protected purchaser in whose hands such Securities are valid obligations of the Corporation;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Corporation or any other obligor upon the Securities or any Affiliate of the Corporation or of such other obligor, whether of record or beneficially, shall be disregarded and deemed not to be Outstanding, except that, in determining whether a Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which such Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of a Trustee the pledgee’s right so to act with respect to such Securities and that the

pledgee is not the Corporation or any other obligor upon the Securities or any Affiliate of the Corporation or of such other obligor.

“ Participant ” means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).

“ Paying Agent ” means any Person authorized by the Corporation to pay the principal of or any premium, Additional Amounts or interest on any Securities on behalf of the Corporation.

“ Periodic Offering ” means an offering of Securities of a series from time to time the specific terms of which Securities, including without limitation the rate or rates of interest or formula for determining the rate or rates of interest thereon, if any, the Stated Maturity or Maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Corporation upon the issuance of such Securities.

“ Person ” means any individual, corporation, partnership, limited liability company or corporation, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.

“ Place of Payment ,” when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301.

“ Predecessor Security ” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as such mutilated, destroyed, lost or stolen Security.

“ Private Placement Legend ” means the legend set forth in Section 202(1) hereof, to be placed on Securities issued under this Indenture issued pursuant to Rule 144A or Regulation S.

“ QIB ” means a “qualified institutional buyer” as defined in Rule 144A.

“ rate(s) of exchange ” has the meaning specified in Section 115.

“ Redemption Date ,” when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.

“ Redemption Price ,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.

“ Register ” and “ Registrar ” have the respective meanings specified in Section 305.

“ Regular Record Date ” for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301.

“ Registration Rights Agreement ” means any Registration Rights Agreement among the Corporation and the other parties named on the signature pages thereof entered into in connection with the issuance of any Restricted Security, as such agreement may be amended, modified or supplemented from time to time.

“ Regulation S ” means Regulation S promulgated under the Securities Act.

“ Regulation S Global Security ” means a Global Security substantially in the form of Exhibit A hereto bearing the Global Security Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Securities sold in reliance on Rule 903 of Regulation S.

“ Relevant Taxing Jurisdiction ” has the meaning specified in Section 1002.

“ Required Currency ” has the meaning specified in Section 115.

“ Responsible Officer ,” when used with respect to either Trustee, means an officer of such Trustee in its Corporate Trust Office, having direct responsibility for the administration of this Indenture, and also, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.

“ Restricted Definitive Security ” means a Definitive Security bearing the Private Placement Legend.

“ Restricted Global Security ” means a Global Security bearing the Private Placement Legend.

“ Restricted Period ” means the 40-day distribution compliance period as defined in Regulation S.

“ Restricted Security ” means any Restricted Definitive Security or Restricted Global Security.

“ Rule 144 ” means Rule 144 promulgated under the Securities Act.

“ Rule 144A ” means Rule 144A promulgated under the Securities Act.

“ Rule 144A Global Security ” means a Global Security substantially in the form of Exhibit A hereto bearing the Global Security Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Security sold in reliance on Rule 144A.

“ Rule 903 ” means Rule 903 promulgated under the Securities Act.

“ Rule 904 ” means Rule 904 promulgated under the Securities Act.

“ Securities ” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.

“ Securities Act ” means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time.

“ Senior Indebtedness ” means all obligations or indebtedness of, or guaranteed or assumed by, the Corporation, whether or not represented by bonds, debentures, notes or similar instruments, for borrowed money, and any amendments, renewals, extensions, modifications and refundings of any such obligations or indebtedness, unless in the instrument creating or evidencing any such indebtedness or obligations or pursuant to which the same is outstanding it is specifically stated, at or prior to the time the Corporation becomes liable in respect thereof, that any such obligation or indebtedness or such amendment, renewal, extension, modification and refunding thereof is not Senior Indebtedness.

“ Shelf Registration Statement ” means, with respect to any Securities, the “Shelf Registration Statement” referenced in the Registration Rights Agreement applicable to such Securities, if any.

“ Special Record Date ” for the payment of any Defaulted Interest means a date fixed by the Trustees pursuant to Section 307.

“ Stated Maturity ,” when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the date on which the principal of such Security or such installment of principal or interest is due and payable, in the case of such principal, as such date may be advanced or extended as provided pursuant to the terms of such Security and this Indenture.

“ Subordinated Security ” means any security issued under this Indenture which is designated as a Subordinated Security.

“ Taxes ” has the meaning specified in Section 1002.

“ Tax Redemption Date ” has the meaning specified in Section 1107.

“ Trust Indenture Act ” means the U.S. Trust Indenture Act of 1939 as in force at the date as of this Indenture; provided, however, that in the event the U.S. Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” shall mean, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

“ Trust Indenture Legislation ” means the Trust Indenture Act and, if there is at the relevant time a Canadian Co-Trustee hereunder, the Canadian Trust Indenture Legislation.

“ Trustee ” or “ Trustees ” means the Person named as the “U.S. Trustee” and the “Canadian Co-Trustee” in the first paragraph of this instrument until a successor of either Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” or “Trustees” shall mean or include each Person who is then a Trustee hereunder. If the Canadian Co-Trustee resigns or is removed and, pursuant to Section 610, the Corporation is not required to appoint a successor Trustee to the Canadian Co-Trustee, and “Trustee”, “Trustees” and any reference to “the Trustees” shall mean the U.S. Trustee.

“ Unrestricted Definitive Security ” means a Definitive Security that does not bear and is not required to bear the Private Placement Legend.

“ Unrestricted Global Security ” means a Global Security that does not bear and is not required to bear the Private Placement Legend.

“ U.S. Person ” means a U.S. Person as defined in Rule 902(k) promulgated under the Securities Act.

“ U.S. Trustee ” means the Person named as the “U.S. Trustee” in the first paragraph of this instrument until a successor U.S. Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “U.S. Trustee” shall mean or include each Person who is then a U.S. Trustee hereunder.

“ Writing ” has the meaning specified in Section 615.

Section 102. Compliance Certificates and Opinions.

Upon any application or request by the Corporation to either Trustee to take any action under any provision of this Indenture, the Corporation shall furnish to the applicable Trustee such certificates and opinions as may be required under the Trust Indenture Legislation. Each such certificate or opinion shall be given in the form of an Officer’s Certificate, if to be given by an officer of the Corporation, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Legislation and any other requirements set forth in this Indenture.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (except for Officer’s Certificates delivered under Section 1004) shall include

(1) a statement that the individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4) a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with.

Section 103. Form of Documents Delivered to Trustees.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Corporation may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Corporation stating that the information with respect to such factual matters is in the possession of the Corporation, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Whenever, subsequent to the receipt by either Trustee of any Board Resolution, Officer’s Certificate, Opinion of Counsel or other document or instrument, a clerical, typographical or other inadvertent or unintentional error or omission shall be discovered therein, a new document or instrument may be substituted therefor in corrected form with the same force and effect as if originally filed in the corrected form and, irrespective of the date or dates of the actual execution and delivery thereof, such substitute document or instrument shall be deemed to have been executed and delivered as of the date or dates required with respect to the document or instrument for which it is substituted. Anything in this Indenture to the contrary notwithstanding, if any such corrective document or instrument indicates that action has been taken by or at the request of the Corporation which could not have been taken had the original document or instrument not contained such error or omission, the action so taken shall not be invalidated or otherwise rendered ineffective but shall be and remain in full force and effect, except to the extent that such action was a result of willful misconduct or bad faith. Without limiting the generality of the foregoing, any Securities issued under the authority of such defective document or instrument shall

nevertheless be the valid obligations of the Corporation entitled to the benefits of this Indenture equally and ratably with all other Outstanding Securities, except as aforesaid.

Section 104. Acts of Holders; Record Dates.

Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument is, or instruments are, delivered to a Trustee and, where it is hereby expressly required, to the Corporation. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustees and the Corporation, if made in the manner provided in this Section.

The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which a Trustee deems sufficient.

The ownership of Securities shall be proved by the Register.

Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Corporation in reliance thereon, whether or not notation of such action is made upon such Security.

The Corporation may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series; provided that the Corporation may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take or revoke the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Corporation from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Corporation, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustees in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106.

The Trustees may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the applicable series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction or to revoke the same, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustees from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustees, at the Corporation’s expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be sent to the Corporation in writing and to each Holder of Securities of the relevant series in the manner set forth in Sections 105 and 106.

With respect to any record date set pursuant to this Section, the party hereto which sets such record date may designate any day as the applicable “Expiration Date” and from time to time may change such Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of such proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 106, on or prior to the applicable existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date.

Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount.

Section 105. Notices, Etc., to Trustees and Corporation.

Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1) the U.S. Trustee by the Canadian Co-Trustee, any Holder or by the Corporation shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the U.S. Trustee at its Corporate Trust Office, Attention: International Corporate Trust, or

(2) the Canadian Co-Trustee by the U.S. Trustee, any Holder or the Corporation shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Canadian Co-Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or

(3) the Corporation by a Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Corporation addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention: Chief Financial Officer, or at any other address previously furnished in writing to a Trustee by the Corporation.

The Trustees shall have the right to accept and act upon instructions, including funds transfer instructions (“ Instructions ”) given pursuant to this Indenture and delivered using electronic means; provided, however, that the Corporation shall provide to each Trustee an incumbency certificate listing officers with the authority to provide such Instructions (“ Authorized Officers ”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the Corporation whenever a person is to be added or deleted from the listing. If the Corporation elects to give the Trustees Instructions using electronic means and the Trustees in their discretion elect to act upon such Instructions, each such Trustee’s understanding of such Instructions shall be deemed controlling. The Corporation understands and agrees that the Trustees cannot determine the identity of the actual sender of such Instructions and that the Trustees may conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to either Trustee have been sent by such Authorized Officer. The Corporation shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustees and that the Corporation and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and authentication keys upon receipt by the Corporation. The Trustees shall not be liable for any losses, costs or expenses arising directly or indirectly from each respective Trustee’s reliance upon and compliance with such Instructions notwithstanding that such directions may conflict or be inconsistent with a subsequent written instruction. The Corporation agrees: (i) to assume all risks arising out of the use of electronic means to submit Instructions to the Trustees, including without limitation the risk of the Trustees acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to either Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the Corporation; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify either Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.

Section 106. Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his or her address as it appears in the Register, or sent electronically through the Applicable Procedures of the Depositary, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail or sent electronically, neither the failure to mail or send such notice, nor any defect in any notice so mailed or sent, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with either Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail or by electronic transmission, then such notification as shall be made with the approval of the Trustees (not to be unreasonably withheld, conditioned or delayed) shall constitute a sufficient notification for every purpose hereunder.

Section 107. Conflict with Trust Indenture Legislation.

If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Legislation which is required thereunder to be a part of and govern this Indenture, the Trust Indenture Legislation provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust

Indenture Legislation which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.

Section 108. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 109. Successors and Assigns.

All covenants and agreements in this Indenture by the Corporation shall bind its successors and assigns, whether so expressed or not.

Section 110. Separability Clause

In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 111. Benefits of Indenture.

Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 112. Governing Law; Waiver of Trial by Jury.

This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles thereof.

Each of the Corporation, the Trustees and any Holder by its acceptance of any Securities irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Indenture or the transactions contemplated hereby.

Section 113. Consent to Jurisdiction and Service of Process.

The Corporation submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this Indenture or any Security. The Corporation irrevocably waives, to the fullest extent permitted by law, any objection that it may have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Corporation agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon the Corporation and may be enforced in the courts of Canada (or any other courts to the jurisdiction of which the Corporation is subject) by a suit upon such judgment, provided that service of process is effected upon the Corporation in the manner specified in the following paragraph or as otherwise permitted by law; provided, however, that the Corporation does not waive, and the foregoing provisions of this sentence shall not constitute or be deemed to constitute a waiver of, (i) any right to appeal any such judgment, to seek any stay or otherwise to seek reconsideration or review of any such judgment or (ii) any stay of execution or levy pending an appeal from, or a suit, action or proceeding for reconsideration or review of, any such judgment.

As long as any Securities remain outstanding, the Corporation will at all times have an authorized agent in the Borough of Manhattan, New York City upon whom process may be served in any legal action or proceeding arising out of or relating to the Indenture or any Security. Service of process upon such agent and written notice of such service mailed or delivered to the Corporation shall to the extent permitted by

law, be deemed in every respect effective service of process upon the Corporation in any such legal action or proceeding. The Corporation shall appoint in one or more indentures supplemental hereto, on or prior to the issuance of Securities of any series, an agent for such purpose with respect to such series, and covenants and agrees that service of process in any such legal action or proceeding may be made upon it at the office of such agent at the address provided (or at such other address or to such other agent in the Borough of Manhattan, New York City as the Corporation may designate in a written notice to the Trustees).

The Corporation hereby consents to process being served in any suit, action or proceeding of the nature referred to in the preceding paragraphs by service upon such agent together with the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of the Corporation in St. John’s, Newfoundland and Labrador set forth in the first paragraph of this Indenture or to any other address of which the Corporation shall have given written notice to the Trustees. The Corporation irrevocably waives, to the fullest extent permitted by law, all claim or error by reason of any such service (but does not waive any right to assert lack of subject matter jurisdiction) and agrees that such service (i) shall be deemed in every respect effective service of process upon the Corporation in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Corporation.

Nothing in this Section shall affect the right of the Trustees or any Holder to serve process in any manner permitted by law or limit the right of the Trustees to bring proceedings against the Corporation in the courts of any jurisdiction or jurisdictions.

Section 114. Legal Holidays.

In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium and Additional Amounts, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity.

Section 115. Conversion of Currency.

(1) The Corporation covenants and agrees that the following provisions shall apply to conversion of Currency in the case of the Securities and this Indenture:

(A) If for the purposes of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert into any other Currency (the “ Judgment Currency ”) an amount due or contingently due under the Securities of any series and this Indenture (the “ Required Currency ”), then the conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which a final judgment which is not appealable or is not appealed is given or the order of enforcement is made, as the case may be (unless a court shall otherwise determine).

(B) If there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment referred to in (A) above is given or an order of endorsement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Corporation shall pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the Judgment Currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in the Required Currency originally due.

(2) In the event of the winding-up of the Corporation at any time while any amount or damages owing under the Securities and this Indenture, or any judgment or order rendered in respect thereof, shall remain outstanding, the Corporation shall indemnify and hold the Holders of Securities and the Trustees harmless against any deficiency arising or resulting from any variation in rates of exchange between (A) the date as of which the equivalent of the amount in the Required Currency due or contingently due under the Securities and this Indenture (other than under this Subsection (2)) is calculated for the purposes of such winding-up and (B) the final date for the filing of proofs of claim in such winding-up. For the purpose of this Subsection (2) the final date for the filing of proofs of claim in the winding-up of the Corporation shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being the latest practicable date as at which liabilities of the Corporation may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto.

(3) The obligations of the Corporation contained in Subsections (1)(B) and (2) of this Section shall constitute separate and independent obligations from its other obligations under the Securities and this Indenture, shall give rise to separate and independent causes of action against the Corporation, shall apply irrespective of any waiver or extension granted by any Holder or the Trustees from time to time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding-up of the Corporation for a liquidated sum in respect of amounts due hereunder (other than under Subsection (2) above) or under any such judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the Holders or the Trustees, as the case may be, and no proof or evidence of any actual loss shall be required by the Corporation or the applicable liquidator. In the case of Subsection (2) above, the amount of such deficiency shall not be deemed to be reduced by any variation in rates of exchange occurring between the said final date and the date of any liquidating distribution.

(4) The term “ rate(s) of exchange ” shall mean the Bank of Canada noon rate for purchases on the relevant date of the Required Currency with the Judgment Currency, as reported on the “Exchange Rates-Daily noon rates” page of the website of the Bank of Canada (or by such other means of reporting the Bank of Canada noon rate as may be agreed upon by each of the parties to this Indenture) and includes any premiums and costs of exchange payable.

Section 116. Currency Equivalent.

Except as otherwise provided in this Indenture, for purposes of the construction of the terms of this Indenture or of the Securities, in the event that any amount is stated herein in the Currency of one nation (or in Euros) (the “ First Currency ”), as of any date such amount shall also be deemed to represent the amount in the Currency of any other relevant nation (the “ Other Currency ”) which is required to purchase such amount in the First Currency at the Bank of Canada noon rate as reported by Telerate on screen 3194 (or such other means of reporting the Bank of Canada noon rate as may be agreed upon by each of the parties to this Indenture) on the date of determination.

Section 117. Currency.

Unless otherwise indicated in this Indenture, any Security or any indenture supplemental hereto, all amounts referenced herein are in U.S. dollars.

Section 118. Rules of Construction and Conventions.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with U.S. GAAP;

(3) “or” is not exclusive;

(4) “including” means including without limitation;

(5) words in the singular include the plural and words in the plural include the singular;

(6) unsecured indebtedness shall not be deemed to be subordinate or junior to secured indebtedness merely because it is unsecured;

(7) indebtedness shall not be deemed to be subordinate or junior to any other secured indebtedness merely because it has a junior priority with respect to the same collateral; and

(8) unless otherwise specified, any value to be determined under this Indenture will be determined by the Corporation as set forth in this paragraph. With respect to any provision of this Indenture that specifies a value or requires or provides for a determination of the value of any item or amount, the value shall be as determined in good faith by an officer of the Corporation. Any such determination shall be conclusive for all purposes under this Indenture.

ARTICLE TWO

Security Forms

Section 201. Forms Generally.

The Securities of each series shall be in substantially the form set forth in Exhibit A, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Corporation and delivered to the Trustees at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities.

Any Definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

Any Global Security will represent such of the outstanding Securities as will be specified therein and each Global Security shall provide that it represents the aggregate principal amount of outstanding Securities from time to time endorsed thereon and that the aggregate principal amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Security to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding amount represented thereby will be made by the U.S. Trustee or the Custodian, at the direction of the U.S. Trustee, in accordance with instructions given by the Holder thereof as required by Section 306 hereof. Any Global Security may also be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

The provisions of the “Operating Procedures of the Euroclear System” and “Terms and Conditions Governing Use of Euroclear” and the “General Terms and Conditions of Clearstream Banking” and “Customer Handbook” of Clearstream will be applicable to transfers of beneficial interests in any Regulation S Global Securities that are held by Participants through Euroclear or Clearstream.

Section 202. Form of Legends.

The following legends, as applicable, will appear on the face of applicable Global Securities and Definitive Securities issued under this Indenture as set forth below and as determined by the officers executing such Securities:

(1) Private Placement Legend.

(A) Except as permitted by subparagraph (B) below, each Global Security and each Definitive Security (and all Securities issued in exchange therefor or substitution thereof) issued pursuant to Rule 144A or Regulation S shall bear the legend in substantially the following form:

“THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE CORPORATION THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION IF THE CORPORATION SO REQUESTS), (2) TO THE CORPORATION OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE CANADIAN SECURITIES LAWS OR APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.

CANADIAN RESALE LEGEND:

IN CANADA, UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [DATE WHICH IS FOUR MONTHS AND ONE DAY FROM THE DATE OF ISSUANCE OF APPLICABLE SECURITY TO BE INSERTED HERE].”

(B) Notwithstanding the foregoing, any Global Security or Definitive Security issued pursuant to subparagraph (b)(4), (c)(2), (c)(3), (d)(2), (d)(3), (e)(2) or (e)(3) of Section 306 (and all Securities issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend; provided, however that any Global Security or Definitive Security issued pursuant to subparagraph (b)(4), (c)(2), (c)(3), (d)(2), (d)(3), (e)(2) or (e)(3) of Section 306 shall, if issued before the date that is four months and one day after the date of original issuance of the Security, bear a legend in substantially the following form:

“CANADIAN RESALE LEGEND:

IN CANADA, UNLESS PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THE NOTES MUST NOT TRADE THE NOTES BEFORE [DATE WHICH IS FOUR MONTHS AND ONE DAY FROM THE DATE OF ISSUANCE OF APPLICABLE SECURITY TO BE INSERTED HERE].”

(2) Global Security Legend . Each Global Security will bear a legend in substantially the following form:

“THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 306 OF THE INDENTURE, (2) THIS GLOBAL SECURITY MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 306(a) OF THE INDENTURE, (3) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 310 OF THE INDENTURE AND (4) THIS GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”

Section 203. Form of Trustee’s Certificate of Authentication.

Subject to Section 614, each of the Trustee’s certificates of authentication shall be in substantially the following form:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

	The Bank of New York Mellon,
	as U.S. Trustee


	By:
		Authorized Signatory


	BNY Trust Company of Canada,
	as Canadian Co-Trustee


	By:
	Authorized Signatory

ARTICLE THREE

The Securities

Section 301. Amount Unlimited; Issuable in Series.

The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officer’s Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series,

(1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series);

(2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 307, 906 or 1106 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder);

(3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;

(4) the date or dates on which the principal of any Securities of the series is payable or the method by which such date shall be determined and the right, if any, to shorten or extend the date on which the principal of any Securities of the series is payable and the conditions to any such change;

(5) the rate or rates at which any Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined; the date or dates from which any such interest shall accrue; the Interest Payment Dates on which any such interest shall be payable; the manner (if any) of determination of such Interest Payment Dates; and the Regular Record Date, if any, for any such interest payable on any Interest Payment Date;

(6) the right, if any, to extend the interest payment periods and the terms of such extension or extensions;

(7) the place or places where the principal of and any premium, Additional Amounts and interest on any Securities of the series shall be payable and whether, if acceptable to the Trustees, any principal of such Securities shall be payable without presentation or surrender thereof;

(8) the period or periods within which, or the date or dates on which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Corporation and, if other than by a Board Resolution, the manner in which any election by the Corporation to redeem the Securities shall be evidenced;

(9) the obligation, if any, of the Corporation to redeem or purchase any Securities of the series pursuant to any sinking fund, purchase fund or analogous provisions or at the option of the Holder thereof, the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such

obligation and any other provisions related to such redemption or purchase pursuant to such sinking fund or otherwise;

(10) if other than denominations of $2,000 and any integral multiple of $1,000 in excess thereof, the denominations in which any Securities of the series shall be issuable;

(11) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined;

(12) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium, Additional Amounts or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of “Outstanding” in Section 101;

(13) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502;

(14) whether, under what circumstances and the Currency in which the Corporation will pay Additional Amounts as contemplated by Section 1002 on the Securities of the series to any Holder (including any modification to the definition of such term) in respect of any tax, assessment or governmental charge and, if so, whether the Corporation will have the option to redeem such Securities rather than pay such Additional Amounts (and the terms of any such option);

(15) the application, if any, of Sections 1002 and 1107 to the Securities of that series;

(16) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined);

(17) if either or both of Sections 1202 and 1203 do not apply to any Securities of the series;

(18) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositary or Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 202 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof;

(19) any transfer and exchange provisions of the Securities of the series;

(20) any addition, modification or deletion of any Events of Default or covenants provided with respect to any Securities of the series and any change in the right of the Trustees or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502;

(21) any addition, modification or deletion in the covenants set forth in Article Ten which applies to Securities of the series;

(22) whether such Securities are Subordinated Securities and if so, the provisions for such subordination if other than the provisions set forth in Article Fifteen; and

(23) any other terms of the series (which may amend, supplement, modify or delete any provision of this Indenture insofar as it applies to such series).

All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officer’s Certificate referred to above or in any applicable indenture supplemental hereto.

If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Corporation and delivered to the Trustees at or prior to the delivery of the Officer’s Certificate setting forth the terms or the manner of determining the terms of the series.

With respect to Securities of a series offered in a Periodic Offering, the Board Resolution (or action taken pursuant thereto), Officer’s Certificate or supplemental indenture referred to above may provide general terms or parameters for Securities of such series and provide either that the specific terms of particular Securities of such series shall be specified in a Company Order or that such terms shall be determined by the Corporation in accordance with other procedures specified in a Company Order as contemplated by the third paragraph of Section 303.

Notwithstanding Section 301(2) herein and unless otherwise expressly provided with respect to a series of Securities, the aggregate principal amount of a series of Securities may be increased and additional Securities of such series may be issued up to the maximum aggregate principal amount authorized with respect to such series as increased.

Section 302. Denominations.

The Securities of each series shall be issuable only in fully registered form without coupons and only in such denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $2,000 and any integral multiple of $1,000 in excess thereof.

Section 303. Execution, Authentication, Delivery and Dating.

The Securities shall be executed on behalf of the Corporation by its Chairman of the Board, its Chief Executive Officer, its Chief Financial Officer, its President, any of its Vice Presidents, its Treasurer or any of its Assistant Treasurers. The signature of any of these officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Corporation may deliver Securities of any series executed by the Corporation to either Trustee, or both, for authentication, together with a Company Order for the authentication and delivery of such Securities, and either Trustee, or both, in accordance with the Company Order shall authenticate and deliver such Securities, provided,

however, that in the case of Securities offered in a Periodic Offering, either Trustee, or both, shall authenticate and deliver such Securities from time to time in accordance with such other procedures (including, without limitation, the receipt by such Trustee(s) of oral or electronic instructions from the Corporation or its duly authorized agents, promptly confirmed in writing) acceptable to such Trustee(s) as may be specified by or pursuant to a Company Order delivered to the Trustee(s) prior to the time of the first authentication of Securities of such series. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustees shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating,

(1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture;

(2) if the terms of such Securities have been, or in the case of Securities of a series offered in a Periodic Offering, will be, established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been, or in the case of Securities of a series offered in a Periodic Offering, will be, established in conformity with the provisions of this Indenture, subject, in the case of Securities of a series offered in a Periodic Offering, to any conditions specified in such Opinion of Counsel; and

(3) that such Securities, when authenticated and delivered by either Trustee, or both, and issued by the Corporation in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Corporation enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

If such form or terms have been so established, a Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect such Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to such Trustee.

Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officer’s Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued.

With respect to Securities of a series offered in a Periodic Offering, the Trustees may rely, as to the authorization by the Corporation of any of such Securities, the form and terms thereof and the legality, validity, binding effect and enforceability thereof, upon the Opinion of Counsel and the other documents delivered pursuant to Sections 201 and 301 and this Section, as applicable, in connection with the first authentication of Securities of such series.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the U.S. Trustee or the Canadian Co-Trustee, or both, by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the

foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Corporation, and the Corporation shall deliver such Security to either Trustee for cancellation as provided in Section 310, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.

Section 304. Temporary Securities.

Pending the preparation of definitive Securities of any series, the Corporation may execute, and upon Company Order the Trustees, or either of them, shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

If temporary Securities of any series are issued, the Corporation will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Corporation in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Corporation shall execute and either Trustee, or both, shall authenticate and deliver in exchange therefore one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor.

Section 305. Registrar and Paying Agent

Each of the Trustees is hereby appointed a security registrar for the purpose of registering Securities and transfers of Securities as herein provided (each such registrar, a “ Registrar ”) and the Corporation hereby designates the Corporate Trust Office of each Trustee as the office where Securities may be presented for payment. The Registrar will keep a register (the “ Register ”) of the Securities and of their transfer and exchange. Each of the U.S. Trustee and the Canadian Co-Trustee shall notify the other of any transfer or exchange to ensure that the Register kept at each of the U.S. Trustee and the Canadian Co-Trustee will be consistent. The Corporation may appoint one or more co-registrars and one or more additional paying agents. The Corporation may change any Registrar or Paying Agent without notice to any Holder. The Corporation will notify the Trustees in writing of the name and address of any Paying Agent or Registrar not a party to this Indenture. If the Corporation fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Corporation or any of its Subsidiaries may act as Registrar or Paying Agent.

The Corporation hereby appoints DTC to act as the initial Depositary with respect to the Global Securities.

The Corporation hereby appoints the U.S. Trustee to act as the initial Registrar, Paying Agent and Custodian with respect to the Global Securities.

Section 306. Transfer and Exchange.

(a) Transfer and Exchange of Global Securities . A Global Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Securities will be exchanged by the Corporation for Definitive Securities if:

(1) the Corporation delivers to the Trustees notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Corporation within 120 days after the date of such notice from the Depositary;

(2) the Corporation in its sole discretion determines that the Global Securities (in whole but not in part) should be exchanged for Definitive Securities and delivers a written notice to such effect to the Trustees; or

(3) there has occurred and is continuing a default or Event of Default with respect to the Securities.

Upon the occurrence of either of the preceding events in Clause (1) or (2) above, Definitive Securities shall be issued in such names as the Depositary shall instruct the Trustees. Global Securities also may be exchanged or replaced, in whole or in part, as provided in Sections 304 and 307. Every Security authenticated and delivered, in exchange for, or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section 306, or Section 304, 307, 906 or 1106 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security. A Global Security may not be exchanged for another Security other than as provided in this Section 306(a), however, beneficial interests in a Global Security may be transferred and exchanged as provided in Section 306(b), (c) or (f).

The following transfer and exchange provisions will apply to Securities issued pursuant to Rule 144A or Regulation S subject to any other provisions or adjustments, all as determined by the officers executing such Securities:

(b) Transfer and Exchange of Beneficial Interests in the Global Securities . The transfer and exchange of beneficial interests in the Global Securities will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Securities will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Securities also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:

(1) Transfer of Beneficial Interests in the Same Global Security . Beneficial interests in any Restricted Global Security may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Security in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however , that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Security may not be made to a U.S. Person or for the account or benefit of a U.S. Person other than an initial purchaser). Beneficial interests in any Unrestricted Global Securities may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 306(b)(1).

(2) All Other Transfers and Exchanges of Beneficial Interests in Global Securities. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 306(b)(1)

above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Security in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Security in an amount equal to the beneficial interest to be transferred or exchanged; and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Security shall be registered to effect the transfer or exchange referred to in Clause (1) above; provided that in no event shall Definitive Securities be issued upon the transfer or exchange of beneficial interests in a Regulation S Global Security prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Corporation in accordance with Section 306(f) hereof, the requirements of this Section 306(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Securities. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Securities contained in this Indenture and the Securities or otherwise applicable under the Securities Act, the applicable Trustee shall adjust the principal amount of any relevant Global Securities.

(3) Transfer of Beneficial Interests to Another Restricted Global Security. A beneficial interest in any Restricted Global Security may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Security if the transfer complies with the requirements of Section 306(b)(2) above and the Registrar receives the following:

(A) if the transferee will take delivery in the form of a beneficial interest in the Rule 144A Global Security, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the applicable certifications therein; and

(B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Security, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the applicable certifications therein.

(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Security for Beneficial Interests in an Unrestricted Global Security . A beneficial interest in any Restricted Global Security may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Security or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security if the exchange or transfer complies with the requirements of Section 306(b)(2) above and:

(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the applicable Registration Rights Agreement and the Holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Securities or (iii) a Person who is an affiliate (as defined in Rule 144) of the Corporation;

(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;

(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement or a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement; or

(D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Security proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Security, a certificate from such holder in the form of Exhibit C hereto, including the applicable certifications therein; or (2) if the holder of such beneficial interest in a Restricted Global Security proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, a certificate from such holder in the form of Exhibit B hereto, including the applicable certifications therein; and, in each such case set forth in this clause (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

If any such transfer is effected pursuant to Clause (4)(B) or (4)(D) above at a time when an Unrestricted Global Security has not yet been issued, the Corporation shall issue and, upon receipt of an Authentication Order in accordance with Section 303 hereof, the applicable Trustee shall authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to Clause (4)(B) or (4)(D) above.

Beneficial interests in an Unrestricted Global Security cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Security.

(1) Beneficial Interests in Restricted Global Securities to Restricted Definitive Securities. If any holder of a beneficial interest in a Restricted Global Security proposes to exchange such beneficial interest for a Restricted Definitive Security or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Security, then, upon receipt by the Registrar of the following documentation:

(A) if the holder of such beneficial interest in a Restricted Global Security proposes to exchange such beneficial interest for a Restricted Definitive Security, a certificate from such holder in the form of Exhibit C hereto, including the applicable certifications therein;

(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(E) if such beneficial interest is being transferred to the Corporation or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein; or

(F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein,

the Trustee shall cause the aggregate principal amount of the applicable Global Security to be reduced accordingly, and the Corporation shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Security in the appropriate principal amount. Any Definitive Security issued in exchange for a beneficial interest in a Restricted Global Security pursuant to this Section 306(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Securities to the Persons in whose names such Securities are so registered. Any Definitive Security issued in exchange for a beneficial interest in a Restricted Global Security pursuant to this Section 306(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.

(2) Beneficial Interests in Restricted Global Securities to Unrestricted Definitive Securities. A holder of a beneficial interest in a Restricted Global Security may exchange such beneficial interest for an Unrestricted Definitive Security or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Security only if:

(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the applicable Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Securities or (iii) a Person who is an affiliate (as defined in Rule 144) of the Corporation;

(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;

(D) the Registrar receives the following:

(i) if the holder of such beneficial interest in a Restricted Global Security proposes to exchange such beneficial interest for an Unrestricted Definitive Security, a certificate from such holder in the form of Exhibit C hereto, including the applicable certifications therein; or

(ii) if the holder of such beneficial interest in a Restricted Global Security proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Security, a certificate from such holder in the form of Exhibit B hereto, including the applicable certifications therein;

and, in each such case set forth in this Clause (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3) Beneficial Interests in Unrestricted Global Securities to Unrestricted Definitive Securities. If any holder of a beneficial interest in an Unrestricted Global Security proposes to exchange such beneficial interest for a Definitive Security or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Security, then, upon satisfaction of the conditions set forth in Section 306(b)(2), the Trustees will cause the aggregate principal amount of the applicable Global Security to be reduced accordingly, and the Corporation will execute and the applicable Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Security in the appropriate principal amount. Any Definitive Security issued in exchange for a beneficial interest pursuant to this Section 306(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustees will deliver such Definitive Securities to the Persons in whose names such Securities are so registered. Any Definitive Security issued in exchange for a beneficial interest pursuant to this Section 306(c)(3) will not bear the Private Placement Legend.

(d) Transfer and Exchange of Definitive Securities for Beneficial Interests .

(1) Restricted Definitive Securities to Beneficial Interests in Restricted Global Securities. If any Holder of a Restricted Definitive Security proposes to exchange such Security for a beneficial interest in a Restricted Global Security or to transfer such Restricted Definitive Securities to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Security, then, upon receipt by the Registrar of the following documentation:

(A) if the Holder of such Restricted Definitive Security proposes to exchange such Security for a beneficial interest in a Restricted Global Security, a certificate from such Holder in the form of Exhibit C hereto, including the applicable certifications therein;

(B) if such Restricted Definitive Security is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(C) if such Restricted Definitive Security is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(D) if such Restricted Definitive Security is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein;

(E) if such Restricted Definitive Security is being transferred to the Corporation or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein; or

(F) if such Restricted Definitive Security is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the applicable certifications therein,

the Trustees will cancel the Restricted Definitive Security, increase or cause to be increased the aggregate principal amount of, in the case of Clause (A) above, the appropriate Restricted Global Security, in the case of Clause (B) above, the Rule 144A Global Security, in the case of Clause (C) above, the Regulation S Global Security, and in all other cases, the Restricted Global Security.

(2) Restricted Definitive Securities to Beneficial Interests in Unrestricted Global Securities. A Holder of a Restricted Definitive Security may exchange such Security for a beneficial interest in an Unrestricted Global Security or transfer such Restricted Definitive Security to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security only if:

(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the applicable Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Securities or (iii) a Person who is an affiliate (as defined in Rule 144) of the Corporation;

(B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;

(D) the Registrar receives the following:

(i) if the Holder of such Definitive Security proposes to exchange such Securities for a beneficial interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit C hereto, including the applicable certifications therein; or

(ii) if the Holder of such Definitive Securities proposes to transfer such Securities to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit B hereto, including the applicable certifications therein;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

Upon satisfaction of the conditions of any of the subparagraphs in this Section 306(d)(2), the Trustee will cancel the Definitive Securities and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Security.

(3) Unrestricted Definitive Securities to Beneficial Interests in Unrestricted Global Securities. A Holder of an Unrestricted Definitive Security may exchange such Security for a beneficial interest in an Unrestricted Global Security or transfer such Definitive Securities to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Security and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Securities.

If any such exchange or transfer from a Definitive Security to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Security has not yet been issued, the Corporation will issue and, upon receipt of an Authentication Order in accordance with Section 303 hereof, the applicable Trustee will authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of Definitive Securities so transferred.

(e) Transfer and Exchange of Definitive Securities for Definitive Securities. Upon request by a Holder of Definitive Securities and such Holder’s compliance with the provisions of this Section 306(e), the Registrar will register the transfer or exchange of Definitive Securities. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Securities duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 306(e).

(1) Restricted Definitive Securities to Restricted Definitive Securities. Any Restricted Definitive Security may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Security if the Registrar receives the following:

(A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the applicable certifications therein;

(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the applicable certifications therein; and

(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the applicable certifications, certificates and Opinion of Counsel required thereby.

(2) Restricted Definitive Securities to Unrestricted Definitive Securities. Any Restricted Definitive Security may be exchanged by the Holder thereof for an Unrestricted Definitive Security or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Security if:

(A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the applicable Registration Rights Agreement and the Holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Securities or (iii) a Person who is an affiliate (as defined in Rule 144) of the Corporation;

(B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;

(C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement or a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement; or

(D) the Registrar receives the following:

(i) if the Holder of such Restricted Definitive Securities proposes to exchange such Securities for an Unrestricted Definitive Security, a certificate from such Holder in the form of Exhibit C hereto, including the applicable certifications therein; or

(ii) if the Holder of such Restricted Definitive Securities proposes to transfer such Securities to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Security, a certificate from such Holder in the form of Exhibit B hereto, including the applicable certifications therein;

and, in each such case set forth in this Clause (2)(D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3) Unrestricted Definitive Securities to Unrestricted Definitive Securities. A Holder of Unrestricted Definitive Securities may transfer such Securities to a Person who takes delivery thereof in the form of an Unrestricted Definitive Security. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Securities pursuant to the instructions from the Holder thereof.

(f) Exchange Offer. Upon the occurrence of an Exchange Offer in accordance with a Registration Rights Agreement, the Corporation will issue and, upon receipt of an Authentication Order in accordance with Section 303 hereof, the applicable Trustee will authenticate:

(1) one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Securities accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Securities and (C) they are not affiliates (as defined in Rule 144) of the Corporation; and

(2) Unrestricted Definitive Securities in an aggregate principal amount equal to the principal amount of the Restricted Definitive Securities accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Securities and (C) they are not affiliates (as defined in Rule 144) of the Corporation.

Concurrently with the issuance of such Securities, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Securities to be reduced accordingly, and the Corporation will execute and the applicable Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Securities so accepted Unrestricted Definitive Securities in the appropriate principal amount.

(g) General Provisions Relating to Transfers and Exchanges .

(1) To permit registrations of transfers and exchanges, the Corporation will execute and the Trustees will authenticate Global Securities and Definitive Securities upon receipt of an Authentication Order in accordance with Section 303 hereof or at the Registrar’s request.

(2) No service charge will be made to a Holder of a beneficial interest in Global Securities or to a Holder of a Definitive Securities for any registration of transfer or exchange, but the Corporation and the Trustees may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 304 and 1106).

(3) The Registrar will not be required to register the transfer of or exchange of any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.

(4) All Global Securities and Definitive Securities issued upon any registration of transfer or exchange of Global Securities or Definitive Securities will be the valid obligations of the Corporation, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Securities or Definitive Securities surrendered upon such registration of transfer or exchange.

(5) Neither the Registrar nor the Corporation will be required:

(A) to issue, to register the transfer of or to exchange any Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption under Article 11 hereof and ending at the close of business on the day of selection;

(B) to register the transfer of or to exchange any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part; or

(C) to register the transfer of or to exchange a Security between a record date and the next succeeding interest payment date.

(6) Prior to due presentment for the registration of a transfer of any Security, the Trustees, any Agent and the Corporation may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Securities and for all other purposes, and none of the Trustees, any Agent or the Corporation shall be affected by notice to the contrary.

(7) The Trustees will authenticate Global Securities and Definitive Securities in accordance with the provisions of Section 303.

(8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 306 to effect a registration of transfer or exchange may be submitted by facsimile.

Notwithstanding any other provision of this Indenture, any Holder shown on the Register to be resident in Canada will be entitled to receive a beneficial interest in a Global Security or Definitive Security that is an Unrestricted Global Security or Unrestricted Definitive Security, as applicable, following an Exchange Offer in accordance with the applicable Registration Rights Agreement without any further action on the part of such Holder.

Section 307. Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security is surrendered to either Trustee, the Corporation shall execute and either Trustee, or both, shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Corporation and to either Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Corporation or the Trustees that such Security has been acquired by a protected purchaser, the Corporation shall execute and either Trustee, or both, shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Corporation in its discretion may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustees) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits

of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

Section 308. Payment of Interest; Interest Rights Preserved.

Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Corporation, at its election in each case, as provided in Clause (1) or (2) below:

(1) The Corporation may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Corporation shall notify the Trustees in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Corporation shall deposit with either Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustees for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustees shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustees of the notice of the proposed payment. The Trustees shall promptly notify the Corporation of such Special Record Date and, in the name and at the expense of the Corporation, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder of Securities of such series in the manner set forth in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so sent, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).

(2) The Corporation may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner consistent with the requirements of any securities exchange, if any, on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Corporation to the Trustees of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustees.

Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

Section 309. Persons Deemed Owners.

Prior to due presentment of a Security for registration of transfer, the Corporation, the Trustees and any agent of the Corporation or the Trustees may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium, Additional Amounts and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Corporation, the Trustees nor any agent of the Corporation or the Trustees shall be affected by notice to the contrary.

Section 310. Cancellation.

All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than a Trustee, be delivered to either Trustee and shall be promptly cancelled by it. The Corporation may at any time deliver to either Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and may deliver to either Trustee (or to any other Person for delivery to such Trustee) for cancellation any Securities previously authenticated hereunder which the Corporation has not issued and sold, and all Securities so delivered shall be promptly cancelled by such Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustees shall be disposed of by the Trustees in accordance with their respective then customary practice; provided, however, that the Trustees shall not be required to destroy such cancelled Securities.

Section 311. Computation of Interest.

Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. For disclosure purposes under the Interest Act (Canada), whenever in this Indenture or any Securities issued hereunder interest at a specified rate is to be calculated on the basis of a period less than a calendar year, the yearly rate of interest to which such rate is equivalent is such rate multiplied by the actual number of days in the relevant calendar year and divided by the number of days in such period.

Section 312. CUSIP Numbers, ISIN, etc.

The Corporation in issuing the Securities may use “CUSIP” numbers, “ISINs” and “Common Code” numbers (in each case if then generally in use), and, if so, the Trustees shall use “CUSIP” numbers, “ISINs” and “Common Code” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Corporation shall notify the Trustees in writing of any change in any “CUSIP” numbers, “ISINs” or “Common Code” numbers applicable to the Securities.

ARTICLE FOUR

Satisfaction and Discharge

Section 401. Satisfaction and Discharge of Indenture.

This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for, any right to receive Additional Amounts as contemplated by Section 1002 and the rights of the Trustees with respect

to regular payment and indemnity which also shall survive), and the Trustees, at the expense of the Corporation, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

(1) either

(A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Corporation and thereafter repaid to the Corporation or discharged from such trust, as provided in Section 1003) have been delivered to a Trustee for cancellation; or

(B) all such Securities not theretofore delivered to either Trustee for cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within one year, or

(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustees for the giving of notice of redemption by the Trustees in the name, and at the expense, of the Corporation,

and the Corporation, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with either Trustee as trust funds in trust for the purpose (I) money in an amount, (II) Government Obligations (as defined in Section1204) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (III) a combination thereof, sufficient, in the case of (II) or (III), in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustees, to pay and discharge, and which shall be applied by the Trustees to pay and discharge, the entire indebtedness on such Securities not theretofore delivered to either Trustee for cancellation, for principal and any premium, Additional Amounts and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;

(2) the Corporation has paid or caused to be paid all other sums payable hereunder by the Corporation; and

(3) the Corporation has delivered to the Trustees an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, each of the obligations of the Corporation to the Trustees under Section 607, the obligations of the Corporation to any Authenticating Agent under Section 614 and, if money shall have been deposited with either Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustees under Section 402 and the last paragraph of Section 1003 shall survive.

Section 402. Application of Trust Money.

Subject to the provisions of the last paragraph of Section 1003, all money deposited with either Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the

Corporation acting as its own Paying Agent) as such Trustee may determine, to the Persons entitled thereto, of the principal and any premium, Additional Amounts and interest for whose payment such money has been deposited with such Trustee. Moneys held pursuant to this Section for the benefit of the Holders of Subordinated Securities shall not be subject to the subordination provisions established with respect to such Securities pursuant to Section 301(20).

The Corporation shall pay and indemnify the Trustees against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 401 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities.

Anything in this Article to the contrary notwithstanding, the Trustees shall deliver or pay to the Corporation from time to time upon Company Request any money or Government Obligations held by either of them as provided in Section 401 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustees (in case Government Obligations are held by either Trustee as provided in Section 401), are in excess of the amount thereof which would then be required to be deposited to effect the satisfaction and discharge of this Indenture.

ARTICLE FIVE

Remedies

Section 501. Events of Default.

“Event of Default,” wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless it is inapplicable to a particular series or is specifically deleted or modified in the Board Resolution (or action taken pursuant thereto), Officer’s Certificate or supplemental indenture under which such series of Securities is issued or has been deleted or modified in an indenture supplemental hereto:

(1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 60 days; provided, however, that if the Corporation is permitted by the terms of the Securities of such series to defer the payment in question, the date on which such payment is due and payable shall be the date on which the Corporation is required to make payment following such deferral, if such deferral has been elected pursuant to the terms of the Securities; or

(2) default in the payment of the principal of or any premium on any Security of that series at its Maturity; or

(3) default in the performance, or breach, of any covenant of the Corporation in this Indenture (other than a covenant a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Corporation by either Trustee or to the Corporation and a Trustee by the Holders of at least 33% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder, unless the Trustees, or the Trustees and the Holders of a principal amount of Securities of such series not less than the principal amount of Securities the Holders of which gave such notice, as the case may be, shall agree in writing to

an extension of such period prior to its expiration; provided, however, that the Trustees, or the Trustees and the Holders of such principal amount of Securities of such series, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Corporation within such period and is being diligently pursued; or

(4) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Corporation in an involuntary case or proceeding under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangements Act (Canada) or other applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Corporation a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Corporation under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangements Act (Canada) or other applicable United States federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(5) the commencement by the Corporation of a voluntary case or proceeding under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or other United States federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Corporation in an involuntary case or proceeding under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or other applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief thereunder, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the authorization of any such action by the Board of Directors; or

(6) any other Event of Default provided with respect to Securities of that series.

Section 502. Acceleration of Maturity; Rescission and Annulment.

If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case either Trustee or the Holders of not less than 33% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) to be due and payable immediately, by a notice in writing to the Corporation (and to a Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable.

At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by either or both Trustees as hereinafter in this Article provided, the Event of Default giving rise to such declaration of acceleration shall, without further act, be deemed to have been waived, and such declaration and its consequences shall, without further act, be deemed to have been rescinded and annulled, if

(1) the Corporation has paid or deposited with either Trustee a sum sufficient to pay

(A) all overdue interest on all Securities of that series,

(B) the principal of (and premium and Additional Amounts, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities,

(C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and

(D) all sums paid or advanced by either Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of each of the Trustees and their agents and counsels;

and

(2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.

The Corporation covenants that if

(1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 60 days, or

(2) default is made in the payment of the principal of (or premium or Additional Amounts, if any, on) any Security at the Maturity thereof,

the Corporation will, upon demand of either Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium, Additional Amounts and interest and, to the fullest extent that payment of such interest is legally enforceable, interest on any overdue principal, premium and Additional Amounts and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of each of the Trustees and their agents and counsels.

If an Event of Default with respect to Securities of any series occurs and is continuing, either Trustee may in its discretion proceed to protect and enforce the rights of the Trustees and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as such Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 504. Trustees May File Proofs of Claim.

In case of any judicial proceeding relative to the Corporation (or any other obligor upon the Securities), its property or its creditors, the Trustees shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Legislation in order to have claims of the Holders and the Trustees allowed in any such proceeding. In particular, the

Trustees shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to either Trustee and, in the event that the Trustees shall consent to the making of such payments directly to the Holders, to pay to either Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of each of the Trustees and their agents and counsels, and any other amounts due either Trustee under Section 607.

No provision of this Indenture shall be deemed to authorize the Trustees to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustees to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustees may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors’ or other similar committee.

Section 505. Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustees or either of them without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by either or both Trustees shall be brought in its or their own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of each of the Trustees, their respective agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

Section 506. Application of Money Collected.

Any money collected by a Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the U.S. Trustee and, in case of the distribution of such money on account of principal or any premium, Additional Amounts or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

First: To the payment of all amounts due the Trustees under Section 607;

Second: Subject to the subordination terms established pursuant to Section 301(20), if applicable, to the payment of the amounts then due and unpaid for principal of and any premium, Additional Amounts and interest (including interest on interest, if any) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium, Additional Amounts and interest, respectively; and

Third: To the payment of the balance, if any, to the Corporation or any other Person or Persons legally entitled thereto.

Section 507. Limitation on Suits.

No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(1) such Holder has previously given written notice to a Trustee of a continuing Event of Default with respect to the Securities of that series;

(2) the Holders of not less than a majority in principal amount of the Outstanding Securities of that series shall have made written request to such Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(3) such Holder or Holders have offered to such Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

(4) for 60 days after its receipt of such notice, request and offer of indemnity, such Trustee has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been given to such Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.

Section 508. Unconditional Right of Holders to Receive Principal, Premium, Additional Amounts and Interest.

Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and Additional Amounts and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

Section 509. Restoration of Rights and Remedies.

If either Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Corporation, the Trustees and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustees and the Holders shall continue as though no such proceeding had been instituted.

Section 510. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustees or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 511. Delay or Omission Not Waiver.

No delay or omission of the Trustees or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.

Every right and remedy given by this Article or by law to the Trustees or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustees or by the Holders, as the case may be.

Section 512. Control by Holders.

The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to any Trustee, or exercising any trust or power conferred on any Trustee, with respect to the Securities of such series; provided that

(1) such direction shall not be in conflict with any rule of law or with this Indenture,

(2) the Trustees may take any other action deemed proper by the Trustees which is consistent with such direction, and

(3) subject to the provisions of Section 601, each of the Trustees shall have the right to decline to follow any such direction if such Trustee in good faith shall, by a Responsible Officer of such Trustee, determine that the proceeding so directed would involve the Trustee in personal liability.

Section 513. Waiver of Past Defaults.

The Holders of not less than a majority in principal amount of the Outstanding Securities of all series with respect to which any default under the Indenture shall have occurred and be continuing (voting as one class) may, on behalf of the Holders of all Securities of all such series, waive such past default under the Indenture and its consequences, except a default

(1) in the payment of the principal of or any premium, Additional Amounts or interest on any Security of such series, or

(2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of the series affected.

Upon any such waiver, such default shall cease to exist and be deemed not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 514. Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against either or both of the Trustees for any action taken, suffered or omitted by it or them as a Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Legislation; provided that neither this Section nor the Trust Indenture Legislation shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Corporation or either or both Trustees.

Section 515. Waiver of Stay or Extension Laws.

The Corporation covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Corporation (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or

impede the execution of any power herein granted to the Trustees, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE SIX

The Trustees

Section 601. Certain Duties and Responsibilities.

The duties and responsibilities of the Trustees shall be as provided by the Trust Indenture Legislation.

(a) In the event an Event of Default has occurred and is continuing of which a Responsible Officer of the Trustees has received written notification in accordance with the provisions of this Indenture, the Trustees will exercise such of the rights and powers vested in them under this Indenture and use the same degree of care that a prudent Person would use in the conduct of its own affairs.

(b) Except during the continuance of an Event of Default:

(1) the Trustees undertake to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustees; and

(2) in the absence of bad faith on their part, the Trustees may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustees and conforming to the requirements of this Indenture. However, the Trustees shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein) and shall be entitled to seek advice from legal counsel in relation thereto.

(c) Each of the Trustees will not be relieved from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that:

(1) this Section 601(c) does not limit the effect of Section 601(a);

(2) a Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that such Trustee was grossly negligent in ascertaining the pertinent facts; and

(3) a Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Article 6.

(d) The Trustees shall not be deemed to have notice or any actual knowledge of any matter (including, without limitation, defaults or Events of Default) unless written notice thereof is received by the Trustees in accordance with this Indenture and such notice clearly references the Securities, the Corporation or this Indenture.

(e) Every provision of this Indenture that in any way relates to the Trustees is subject to Section 601(a), Section 601(b), Section 601(c) and Section 601(f).

(f) No provision of this Indenture shall require either of the Trustees to expend or risk its own funds or otherwise incur liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of holders if it has grounds for believing that repayment of such funds is not assured to it or it does not receive an agreement in writing from such holders for full indemnity and security satisfactory to it in its discretion against any loss,

liability or expense which might be incurred by it in compliance with such request or direction nor shall the Trustees be required to do anything which is illegal or contrary to applicable laws or this Indenture. Neither Trustee will be liable to the holders if prevented or delayed in performing any of its obligations or discretionary functions under this Indenture by reason of any present or future law applicable to it, by any governmental or regulatory authority or by any circumstances beyond its control.

(g) A Trustee shall not be liable for interest on any money received by it except as such Trustee may agree in writing with the Corporation.

(h) Money held in trust by either of the Trustees need not be segregated from other funds except to the extent required by law.

(i) The Trustees will (save as expressly otherwise provided herein) have absolute and uncontrolled discretion as to the exercise or non-exercise of their functions and will not be responsible (save as expressly provided herein) for any loss, liability, cost, claim, action, demand, expense or inconvenience which may result from their exercise or non-exercise but, whenever the Trustees are under the provisions of this Indenture or the Securities bound to act at the request or direction of the Holders, the Trustees shall nevertheless not be so bound unless first indemnified or secured to their satisfaction against all actions, proceedings, claims and demands to which they may render themselves liable and all costs, charges, damages, expenses and liabilities which they may incur by so doing.

Section 602. Notice of Defaults.

If a default occurs hereunder with respect to Securities of any series, and the Trustees have been provided with written notification of such default, the Trustees shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Legislation. For the purpose of this Section and Section 601, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

Section 603. Certain Rights of Trustees.

Subject to the provisions of Section 601:

(1) the Trustees may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties;

(2) any request or direction of the Corporation mentioned herein shall be sufficiently evidenced by a Company Request or Company Order or as otherwise expressly provided herein, and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution;

(3) whenever in the administration of this Indenture the Trustees shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, each Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer’s Certificate;

(4) the Trustees may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by them hereunder in good faith and in reliance thereon;

(5) the Trustees shall be under no obligation to exercise any of the rights or powers vested in them by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless

such Holders shall have offered to the Trustees reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by them in compliance with such request or direction;

(6) the Trustees shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustees, in their discretion, may make such further inquiry or investigation into such facts or matters as they may see fit, and, if the Trustees shall determine to make such further inquiry or investigation, they shall be entitled, at reasonable times previously notified to the Corporation, to examine the relevant books, records and premises of the Corporation, personally or by agent or attorney;

(7) the Trustees may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustees shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by either of them hereunder;

(8) in no event shall the Trustees be liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustees or either of them have been advised of the likelihood of such loss or damage and regardless of the form of action;

(9) in no event shall the Trustees be responsible or liable for any failure or delay in the performance of their obligations under this Indenture arising out of or caused by, directly or indirectly, forces beyond its reasonable control, including without limitation strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services;

(10) the permissive rights of the Trustees to take the actions permitted by this Indenture will not be construed as an obligation or duty to do so;

(11) the Trustees shall have no duty to inquire as to the performance of the Corporation with respect to the covenants contained herein. The Trustees may assume without inquiry in the absence of written notice to the contrary that the Corporation is duly complying with its obligations contained in this Indenture required to be performed and observed by it, and that no Default or Event of Default or other event which would require repayment of the Securities has occurred;

(12) the Trustees may request that the Corporation deliver an Officer’s Certificate setting forth the names of the individuals and titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officer’s Certificate may be signed by any person authorized to sign an Officer’s Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded; and

(13) the Trustees shall not have any obligation or duty to monitor, determine or inquire as to compliance, and shall not be responsible or liable for compliance with restrictions on transfer, exchange, redemption, purchase or repurchase, as applicable, of minimum denominations imposed under this Indenture or under applicable law or regulation with respect to any transfer, exchange, redemption, purchase or repurchase, as applicable, of any interest in any Securities, but may in their sole discretion, choose to do so.

Section 604. Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except a Trustee’s certificate of authentication, shall be taken as the statements of the Corporation, and neither the Trustees nor any Authenticating Agent assumes any responsibility for their correctness. The Trustees makes no representations as to the validity

or sufficiency of this Indenture or of the Securities. Neither the Trustees nor any Authenticating Agent shall be accountable for the use or application by the Corporation of Securities or the proceeds thereof.

Section 605. May Hold Securities.

Either Trustee, any Authenticating Agent, any Paying Agent, any Registrar or any other agent of the Corporation, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Corporation with the same rights it would have if it were not a Trustee, Authenticating Agent, Paying Agent, Registrar or other agent.

Section 606. Money Held in Trust.

Money held by either Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. Neither Trustee shall be under any liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Corporation.

Section 607. Compensation and Reimbursement.

The Corporation agrees:

(1) to pay to the Trustees from time to time such compensation as shall be agreed to in writing between the Corporation and the Trustees for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the Trustees upon their request for all reasonable expenses, disbursements and advances incurred or made by either Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel subject to prior agreement by the Corporation), except any such expense, disbursement or advance as may be attributable to its gross negligence, willful misconduct or bad faith; and

(3) to indemnify the Trustees for, and to hold them harmless against, any loss, liability or expense incurred without gross negligence, willful misconduct or bad faith on their part arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder.

The Trustees shall have a lien prior to the Securities upon all property and funds held by them hereunder for any amount owing them or any predecessor of either such Trustee pursuant to this Section 607, except with respect to funds held in trust for the benefit of the Holders of particular Securities.

Without limiting any rights available to the Trustees under applicable law, when either Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(4) or Section 501(5), the expenses (including the reasonable charges and expenses of their counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable U.S. or Canadian federal, state or provincial bankruptcy, insolvency or other similar law.

The provisions of this Section shall survive the satisfaction, discharge or termination of this Indenture and the resignation or removal of the Trustees.

Section 608. Conflicting Interests.

If a Trustee has or shall acquire a conflicting interest within the meaning of any Trust Indenture Legislation, such Trustee shall either eliminate such interest or resign, to the extent and in the manner

provided by, and subject to the provisions of, the Trust Indenture Legislation and this Indenture. To the extent permitted by the Trust Indenture Legislation, a Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series.

Section 609. Corporate Trustee Required; Eligibility.

There shall at all times be a U.S. Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each U.S. Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the U.S. Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

For so long as required by the Canadian Trust Indenture Legislation, there shall be a Canadian Co-Trustee under this Indenture. The Canadian Co-Trustee shall at all times be a corporation organized under the laws of Canada or any province thereof and authorized under the laws of the Province of Ontario to carry on trust business therein and be registered under Section 3 of the Trust and Loan Companies Act (Canada). If at any time the Canadian Co-Trustee shall cease to be eligible in accordance with this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

Section 610. Resignation and Removal; Appointment of Successor.

No resignation or removal of either Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611.

Either Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Corporation. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to such Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

Either Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to such Trustee and to the Corporation or by the Corporation by Officer’s Certificate delivered to such Trustee. If at any time:

(1) either Trustee shall fail to comply with Section 608 after written request therefor by the Corporation or by any Holder who has been a bona fide Holder of a Security for at least six months, or

(2) either Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Corporation or by any such Holder, or

(3) either Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of such Trustee or of its property shall be appointed or any public officer shall take charge or control of such Trustee or its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (A) the Corporation by a Board Resolution may remove such Trustee with respect to all Securities, or (B) subject to Section 514, any Holder who has been a bona fide Holder of a Security

for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.

If either Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of U.S. Trustee or the Canadian Co-Trustee for any cause, with respect to the Securities of one or more series, the Corporation, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be at most one U.S. Trustee and one Canadian Co-Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within 90 days after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Corporation and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Corporation. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Corporation or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated or either Trustee, at the expense of the Corporation, may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

The Corporation shall give notice of each resignation and each removal of a Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.

If a Canadian Co-Trustee under this Indenture is no longer required by the Canadian Trust Indenture Legislation, then the Corporation by a Board Resolution may remove the Canadian Co-Trustee after giving 30 days’ prior written notice to the Trustees.

Section 611. Acceptance of Appointment by Successor.

In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Corporation and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Corporation or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.

In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Corporation, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to

which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by multiple Trustees, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co- trustees of the same trust, except as otherwise provided in this Indenture, and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered, except as otherwise provided in this Indenture, by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Corporation or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.

Upon request of any such successor Trustee, the Corporation shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be.

No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

Section 612. Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which either Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, arrangement, amalgamation, conversion or consolidation to which such Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of either Trustee, shall be the successor of such Trustee hereunder, provided that such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by a Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

Section 613. Preferential Collection of Claims Against Corporation.

If and when a Trustee shall be or become a creditor of the Corporation (or any other obligor upon the Securities), such Trustee shall be subject to the provisions of the applicable Trust Indenture Legislation regarding the collection of claims against the Corporation (or any such other obligor).

Section 614. Appointment of Authenticating Agent.

The Trustees may appoint an Authenticating Agent or Agents acceptable to the Corporation with respect to one or more series of Securities which shall be authorized to act on behalf of each of the Trustees to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by either or both Trustees hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities

by either or both Trustees or the respective Trustee’s certificates of authentication, such reference shall be deemed to include authentication and delivery on behalf of either or both Trustees by an Authenticating Agent and a certificate of authentication executed on behalf of either or both Trustees by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Corporation and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof, the District of Columbia or the laws of Canada or any province thereof, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or state authority or Canadian federal or provincial authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, arrangement, amalgamation, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided that such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustees or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustees and to the Corporation. The Trustees may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Corporation. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustees may appoint a successor Authenticating Agent which shall be acceptable to the Corporation and shall give notice of such appointment in the manner provided in Section 106 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Corporation agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.

If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to either or both Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

	The Bank of New York Mellon,
	as U.S. Trustee

	By:
		As Authenticating Agent

	By:

	Authorized Signatory


	BNY Trust Company of Canada,
	as Canadian Co-Trustee


	By:
		As Authenticating Agent

	By:
		Authorized Signatory

Section 615. Joint Trustees.

The rights, powers, duties and obligations conferred and imposed upon the Trustees are conferred and imposed upon and shall be exercised and performed by the U.S. Trustee and the Canadian Co-Trustee individually, except to the extent the Trustees are required under the Trust Indenture Legislation to perform such acts jointly, and neither Trustee shall be liable or responsible for the acts or omissions of the other Trustee. Unless the context implies or requires otherwise, any written notice, request, direction, certificate, instruction, opinion or other document (each such document, a “ Writing ”) delivered pursuant to any provisions of this Indenture to any of the U.S. Trustee or the Canadian Co-Trustee shall be deemed for all purposes of this Indenture as delivery of such Writing to the Trustees. Each such Trustee in receipt of such Writing shall notify such other Trustee of its receipt of such Writing within two Business Days of such receipt provided, however, that any failure of such Trustee in receipt of such Writing to so notify such other Trustee shall not be deemed as a deficiency in the delivery of such Writing to the Trustees.

ARTICLE SEVEN

Holders’ Lists and Reports by Trustees and Corporation

Section 701. Corporation to Furnish Trustees Names and Addresses of Holders.

The Corporation will furnish or cause to be furnished to the Trustees

(A) within 15 days after each Regular Record Date, a list, in such form as the Trustees may reasonably require, of the names and addresses of the Holders of Securities of each series as of such Regular Record Date, and

(B) at such other times as the Trustees may reasonably request in writing, within 10 days after the receipt by the Corporation of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished;

excluding from any such list names and addresses received by either Trustee in its capacity as Registrar.

Section 702. Preservation of Information; Communications to Holders.

The Trustees shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustees as provided in Section 701 and the names and addresses of Holders received by either Trustee in its capacity as Registrar. The Trustees may destroy any list furnished to them as provided in Section 701 upon receipt of a new list so furnished.

The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustees, shall be as provided by the Trust Indenture Legislation.

Every Holder of Securities, by receiving and holding the same, agrees with the Corporation and the Trustees that neither the Corporation nor the Trustees nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Legislation.

Section 703. Reports by Trustees.

The Trustees shall transmit to Holders such reports concerning the Trustees and their actions under this Indenture as may be required pursuant to the Trust Indenture Legislation at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustees shall, within 60 days after each May 15 following the date of this Indenture, deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a).

A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustees with each stock exchange upon which any Securities are listed, with the Commission and with the Corporation. The Corporation will promptly notify the Trustees when any Securities are listed on any stock exchange.

Section 704. Reports by Corporation.

(1) The Corporation shall supply to Holders and the Trustees, in each case at the Corporation’s own expense, copies of the annual reports and quarterly reports and of any information, documents or reports that the Corporation is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act within 15 days after the same is filed with the Commission. Notwithstanding the foregoing, such reports, information or documents shall be deemed supplied to Holders and the Trustees pursuant to this clause (1) if such reports, information or documents have been filed by the Corporation with the Commission. The Trustees shall have no responsibility to determine if and when any such reports, information or documents have been filed by the Corporation with the Commission. Delivery of these reports, information and documents to the Trustees is for informational purposes only and the Trustees’ receipt of any such report will not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Corporation’s compliance with any of its covenants hereunder (as to which the Trustees are entitled to rely exclusively on Officer’s Certificates).

(2) Notwithstanding that the Corporation may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Corporation shall supply to Holders and the Trustees:

(A) all annual and quarterly financial statements that the Corporation would have filed with the Commission on Form 40-F and Form 6-K pursuant to Section 13 or Section 15(d) of the Exchange Act as if the Corporation was required, as an MJDS-eligible issuer, to file with the Commission such financial statements; provided, however, that such financial statements shall be prepared in accordance with U.S. GAAP and substantially in the form prescribed by applicable Canadian regulatory authorities for Canadian public reporting companies and, with respect to the annual financial statements only, including a report thereon by the Corporation’s certified independent accountants, plus, in each case, a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that describes its financial condition and results of operations on a consolidated basis; and

(B) all current reports that would be required to be filed with the Commission on Form 6-K if the Corporation were required to file such reports.

Notwithstanding the foregoing, such statements, reports and information shall be deemed supplied to Holders and the Trustees pursuant to this clause (2) if such statements, reports and information have been posted on the Corporation’s public website under “Investor Relations” or a similar heading.

ARTICLE EIGHT

Consolidation, Merger, Conveyance or Transfer

Section 801. Corporation May Consolidate, Etc., on Certain Terms.

Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation, merger, arrangement or amalgamation of the Corporation with or into any other Person or Persons (whether or not affiliated with the Corporation), or successive consolidations, mergers, arrangements or amalgamations in which the Corporation or its successor or successors shall be a party or parties, or shall prevent any conveyance or transfer of the properties and assets of the Corporation as an entirety or substantially as an entirety to any other Person (whether or not affiliated with the Corporation) lawfully entitled to acquire the same; provided, however, and the Corporation hereby covenants and agrees, that (1) if an Event of Default has occurred and is continuing, it will not enter into any agreement for any such consolidation, merger, arrangement, amalgamation, conveyance or transfer and (2) upon any such consolidation, merger, arrangement, amalgamation, conveyance or transfer, (i) the due and punctual payment of the principal of and premium and Additional Amounts, if any, and interest on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Corporation, shall be expressly assumed, by indenture supplemental hereto, in form reasonably satisfactory to the Trustees, executed and delivered to the Trustees by the Person (if other than the Corporation) formed by such consolidation, or into which the Corporation shall have been merged, arranged or amalgamated, or by the Person which shall have acquired such properties and assets, and (ii) the Corporation shall deliver to the Trustees an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, arrangement, amalgamation, conveyance or transfer and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

Section 802. Successor Substituted.

Upon any consolidation of the Corporation, arrangement or amalgamation with, merger of the Corporation into, any other Person or any conveyance or transfer of the properties and assets of the Corporation as an entirety or substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation, arrangement or amalgamation or into which the Corporation is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Corporation under this Indenture with the same effect as if such successor Person had been named as the Corporation herein, and thereafter the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities so long as the covenants of this Article have been complied with.

ARTICLE NINE

Supplemental Indentures

Section 901. Supplemental Indentures Without Consent of Holders.

The Corporation, when authorized by a Board Resolution, and the Trustees, at any time and from time to time, without the consent of any Holders, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustees, for any of the following purposes:

(1) to evidence the succession of another Person to the Corporation and the assumption by any such successor of the covenants of the Corporation herein and in the Securities; or

(2) to add to the covenants of the Corporation for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Corporation; or

(3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or

(4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to facilitate the issuance of Securities in uncertificated form; or

(5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities; provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or

(6) to secure the Securities; or

(7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or

(8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by multiple Trustees pursuant to the requirements of Section 611 or the removal of the Canadian Co- Trustee pursuant to Section 610; or

(9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action pursuant to this Clause (9) shall not adversely affect the interests of the Holders of Securities of any series in any material respect.

Section 902. Supplemental Indentures With Consent of Holders.

With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such supplemental indenture (voting as one class), by Act of said Holders delivered to the Corporation and the Trustees, the Corporation, when authorized by a Board Resolution, and the Trustees may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture, or modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

(1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change any obligation of the Corporation to pay Additional Amounts contemplated by Section 1002 (except as contemplated by Section 801 and permitted by Section 901), or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or change the coin or currency in which any Security or any premium, Additional Amounts or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or

(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or

(3) modify any of the provisions of this Section, Section 513 or Section 1005, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to “the Trustees” and concomitant changes in this Section and Section 1005, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(8).

A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

Section 903. Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustees shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, in addition to the documents required by Section 102, an Opinion of Counsel and an Officer’s Certificate each stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. Each Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Section 904. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 905. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Legislation.

Section 906. Reference in Securities to Supplemental Indentures.

Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustees, bear a notation in form approved by the Trustees as to any matter provided for in such supplemental indenture. If the Corporation shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustees and the Corporation, to any such supplemental indenture may be prepared and executed by the Corporation and authenticated and delivered by either Trustee or both in exchange for Outstanding Securities of such series.

ARTICLE TEN

Covenants

Section 1001. Payment of Principal, Premium and Interest.

The Corporation covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture.

Section 1002. Payment of Taxes

(a) All payments that the Corporation makes under or with respect to the Securities of any series will be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charges (including, without limitation, penalties, interest and other similar liabilities related thereto) of whatever nature (collectively, “ Taxes ”) imposed or levied by or on behalf of Canada or any other jurisdiction in which the Corporation is incorporated, organized or otherwise resident or engaged in or carrying on business for tax purposes or from or through which the Corporation or its paying agent makes any payment on the Securities of such series, or by any political subdivision or taxing authority or agency thereof or therein (each, a “ Relevant Taxing Jurisdiction ”), unless withholding or deduction is then required by law. If the Corporation or any other applicable withholding agent is required to withhold or deduct any amount for or on account of Taxes of a Relevant Taxing Jurisdiction from any payment made under or with respect to the Securities of any series, the Corporation will pay additional amounts (“ Additional Amounts ”) as may be necessary to ensure that the net amount received by each Holder or beneficial owner of the Securities of such series after such withholding or deduction (including any withholding or deduction attributable to the Additional Amounts) will be not less than the amount the Holder or beneficial owner would have received if such Taxes had not been required to be withheld or deducted.

(b) The Corporation will not, however, pay Additional Amounts in respect or on account of:

(1) any Taxes that would not have been imposed or levied but for a present or former connection (including, but not limited to, citizenship, nationality, residence, domicile, incorporation, or existence of a business, a permanent establishment, a dependent agent, a place of business or a place of management present or deemed present within such Relevant Taxing Jurisdiction) between such Holder or beneficial owner (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over, such Holder or beneficial owner, if such Holder or beneficial owner is an estate, trust, partnership, limited liability company or corporation) and the Relevant Taxing Jurisdiction (other than any connection arising solely from the acquisition, ownership or disposition of the Securities of any series, the receipt of payments under or with respect to the Securities of any series, or the exercise or enforcement of rights under or with respect to the Securities of any series or this Indenture);

(2) any Taxes that are imposed or withheld by reason of the failure of the Holder or beneficial owner of Securities of any series, following the Corporation’s written request addressed to the Holder (and made at a time that would enable the Holder or beneficial owner acting reasonably to comply with that request, and in all events at least 30 calendar days before the relevant date on which payment under or with respect to the Securities of such series is due and payable) to comply with any certification or identification requirements, whether required or imposed by statute, regulation or administrative practice of a Relevant Taxing Jurisdiction, as a precondition to exemption from, or reduction in the rate of deduction or withholding of, Taxes imposed by the Relevant Taxing Jurisdiction (including, without limitation, a certification that the Holder or beneficial owner is not resident in the Relevant Taxing Jurisdiction), but in each case only to the extent that the Holder or beneficial owner, as the case may be, is legally eligible to provide such certification;

(3) any estate, inheritance, gift, sales, transfer, personal property or similar Taxes;

(4) any Tax which is payable otherwise than by deduction or withholding from payments made under or with respect to the Securities of any series;

(5) any Canadian Taxes paid or payable by reason of (i) the Holder, beneficial owner or other recipient of the amount not dealing at arm’s length with the Corporation for the purposes of the Income Tax Act (Canada), or (ii) the Holder or beneficial owner being, or not dealing at arm’s length with, a “specified shareholder” of the Corporation for the purposes of subsection 18(5) of the Income Tax Act (Canada);

(6) any Tax imposed on or with respect to any payment by the Corporation to the Holder if such Holder is a fiduciary or partnership or person other than the sole beneficial owner of such payment to the extent that Taxes would not have been imposed on such payment had the beneficiary, partner or other beneficial owner directly held the Securities of any series;

(7) any Tax that is imposed or levied by reason of the presentation (where presentation is required in order to receive payment) of the Securities of a series for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficial owner or Holder thereof would have been entitled to Additional Amounts had the Securities been presented for payment on any date during such 30 day period;

(8) any Tax that is imposed or levied on or with respect to a Security of a series presented for payment on behalf of a Holder or beneficial owner who would have been able to avoid such withholding or deduction by presenting the relevant Security of such series to another paying agent in a member state of the European Union;

(9) any taxes to the extent such taxes are directly attributable to the failure of the holder or beneficial owner to qualify for an exemption from U.S. federal withholding tax with respect to payments of interest pursuant to an applicable income tax treaty to which the United States is a party or pursuant to the “portfolio interest” exemption as defined in Section 871(h) or 881(c), as applicable, of the Internal Revenue Code as in effect on the Issue Date (determined without regard to the requirement that such holder or beneficial owner provide the applicable IRS Form W-8); or

(10) any Taxes imposed pursuant to Sections 1471 through 1474 of the Internal Revenue Code as of the Issue Date (and any amended or successor version that is substantially comparable) any regulations or other official guidance thereunder or agreements (including any intergovernmental agreements or any laws, rules or practices implementing such intergovernmental agreements) entered into in connection therewith.

In addition, Additional Amounts will not be payable with respect to any Taxes that are imposed in respect of any combination of the above items.

(c) Notwithstanding Section 1002(b)(4) hereof, where Tax is payable pursuant to Section 803 of the Regulations under the Income Tax Act (Canada) by a Holder or beneficial owner of the Securities in respect of any amount payable under the Securities to the Holder (other than by reason of a transfer of the Securities to a person resident in Canada with whom the transferor does not deal at arm’s length for the purposes of such Act), but no Additional Amount is paid in respect of such Tax, the Corporation will pay to such Holder an amount equal to such Tax within 45 days after receiving from the Holder a notice containing reasonable particulars of the Tax so payable; provided, that such Holder or beneficial owner would have been entitled to receive Additional Amounts on account of such Tax but for the fact that it is payable otherwise than by deduction or withholding from payments made under or with respect to the Securities.

(d) The Corporation, if it is an applicable withholding agent (or is otherwise required to withhold amounts under applicable law), will (i) make such withholding or deduction required by applicable law and (ii) remit the full amount deducted or withheld to the relevant taxing authority in accordance with applicable law.

(e) At least 30 calendar days prior to each date on which any payment under or with respect to the Securities of any series is due and payable, if the Corporation will be obligated to pay Additional Amounts with respect to such payment (unless such obligation to pay Additional Amounts arises after the 30th day prior to the date on which payment under or with respect to the Securities of such series is due and payable, in which case it will be promptly thereafter), the Corporation will deliver to the Trustee an Officer’s Certificate stating that such Additional Amounts will be payable and the amounts so payable and will set forth such other information (other than the identities of Holders and beneficial owners) necessary to enable the Trustee or Paying Agent to pay such Additional Amounts to Holders and beneficial owners on the relevant payment date. The Trustee will make such payments in the same manner as any other payments on the Securities of such series. The Corporation will provide the Trustee with documentation reasonably satisfactory to the Trustee evidencing payment of such Additional Amounts.

(f) Upon request, the Corporation will take reasonable efforts to furnish to the Trustee or a Holder within a reasonable time certified copies of tax receipts or other evidence of the payment by the Corporation of any Taxes imposed or levied by a Relevant Taxing Jurisdiction.

(g) The Corporation will pay any present or future stamp, issue, registration, court documentation, excise or property taxes or other similar taxes, charges and duties, including interest, additions to tax and penalties with respect thereto, imposed by any Relevant Taxing Jurisdiction in respect of the receipt of any payment under or with respect to the Securities of any series, the execution, issue, delivery or

registration of the Securities of such series or this Indenture or any other document or instrument referred to thereunder and any such taxes, charges, duties or similar levies imposed by any jurisdiction as a result of, or in connection with, the enforcement of the Securities of such series or this Indenture or any such other document or instrument following the occurrence of any Event of Default with respect to the Securities of such series. The Corporation will not, however, pay such amounts that are imposed on or result from a sale or other transfer or disposition by a Holder or beneficial owner of a Security.

(h) The preceding provisions will survive any termination, defeasance or discharge of this Indenture and shall apply mutatis mutandis to any jurisdiction in which any successor person to the Corporation is organized, incorporated or otherwise resident or engaged in or carrying on business for tax purposes and any political subdivision or taxing authority or agency thereof or therein.

Section 1003. Maintenance of Office or Agency.

The Corporation will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Corporation in respect of the Securities of that series and this Indenture may be served. The Corporation will give prompt written notice to the Trustees of the location, and any change in the location, of such office or agency. If at any time the Corporation shall fail to maintain any such required office or agency or shall fail to furnish the Trustees with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of either Trustee, and the Corporation hereby appoints each of the Trustees as its agent to receive all such presentations, surrenders, notices and demands.

The Corporation may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Corporation of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Corporation will give prompt written notice to the Trustees of any such designation or rescission and of any change in the location of any such other office or agency.

Section 1004. Money for Securities Payments to Be Held in Trust.

If the Corporation shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium, Additional Amounts or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium, Additional Amounts and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustees of its action or failure so to act.

Whenever the Corporation shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of or any premium, Additional Amounts or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Legislation, and (unless such Paying Agent is a Trustee) the Corporation will promptly notify the Trustees of its action or failure so to act.

The Corporation will cause each Paying Agent for any series of Securities other than a Trustee to execute and deliver to the Trustees an instrument in which such Paying Agent shall agree with the Trustees, subject to the provisions of this Section, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Legislation applicable to it as a Paying Agent and (2) during the continuance of any default by the Corporation (or any other obligor upon the Securities of that series) in the making of any

payment in respect of the Securities of that series, upon the written request of the Trustees, forthwith pay to either Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series.

The Corporation may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to either Trustee all sums held in trust hereunder by the Corporation or such Paying Agent, such sums to be held by such Trustee upon the same trusts as those upon which such sums were held by the Corporation or such Paying Agent; and, upon such payment by any Paying Agent to a Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Any money deposited with the Trustees or any Paying Agent, or then held by the Corporation, in trust for the payment of the principal of or any premium, Additional Amounts or interest on any Security of any series and remaining unclaimed for two years after such principal, premium, Additional Amounts or interest has become due and payable shall be paid to the Corporation on Company Request, or (if then held by the Corporation) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Corporation for payment thereof, and all liability of the Trustees or such Paying Agent with respect to such trust money, and all liability of the Corporation as trustee thereof, shall thereupon cease; provided, however, that the Trustees or such Paying Agent, before being required to make any such repayment, may at the expense of the Corporation cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, New York and the City of Toronto, Canada, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Corporation.

Section 1005. Statement by Officers as to Default.

The Corporation will deliver to the Trustees, on or before October 15 of each calendar year or on or before such other day in each calendar year as the Corporation and the Trustees may from time to time agree upon, an Officer’s Certificate, stating whether or not to the best knowledge of the signers thereof the Corporation is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Corporation shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

Section 1006. Waiver of Certain Covenants.

Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Corporation may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(20), 901(2) or 901(7) for the benefit of the Holders of such series if before the time for such compliance the Holders of not less than a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Corporation and the duties of the Trustees in respect of any such term, provision or condition shall remain in full force and effect. The Corporation will promptly notify the Trustees in writing of any such waiver or the revocation of any such waiver.

Section 1007. Calculation of Original Issue Discount.

The Corporation shall file with the Trustees promptly after the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year.

ARTICLE ELEVEN

Redemption of Securities

Section 1101. Applicability of Article.

Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article.

Section 1102. Election to Redeem; Notice to Trustees.

The election of the Corporation to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Corporation, the Corporation shall, at least 45 days prior to the Redemption Date fixed by the Corporation (unless a shorter notice shall be reasonably satisfactory to the Trustees), notify the Trustees of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities (a) prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or (b) pursuant to an election of the Corporation which is subject to a condition specified in the terms of such Securities or elsewhere in this Indenture, the Corporation shall furnish the Trustees with an Officer’s Certificate evidencing compliance with each such restriction or condition.

Section 1103. Selection by Trustee of Securities to Be Redeemed.

If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustees, from the Outstanding Securities of such series not previously called for redemption, in accordance with the applicable procedures of the Depositary; provided that the unredeemed portion of the principal amount of any Security shall be in an Authorized Denomination (which shall not be less than the Minimum Authorized Denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustees, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.

The Trustees shall promptly notify the Corporation in writing of the Securities selected for redemption as aforesaid and, in the case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed.

The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an Authorized Denomination (which shall not be less than the Minimum Authorized Denomination) for such Security.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.

Section 1104. Notice of Redemption.

Notice of redemption shall be delivered not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Register.

All notices of redemption shall state:

(1) the Redemption Date;

(2) the Redemption Price or, if not then ascertainable, the manner of calculation thereof;

(3) if less than all the Outstanding Securities of any series and of a specified tenor consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series and of a specified tenor consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed;

(4) that on the Redemption Date the Redemption Price, together with accrued interest, if any, to the Redemption Date, will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date;

(5) the place or places where each such Security is to be surrendered for payment of the Redemption Price and accrued interest, if any, unless it shall have been specified as contemplated by Section 301 with respect to such Securities that such surrender shall not be required;

(6) the “CUSIP” number, “ISIN” or “Common Code” number, if any, printed on the Securities being redeemed;

and

(7) such other matters as the Corporation shall deem desirable or appropriate.

Unless otherwise specified with respect to any Securities in accordance with Section 301, with respect to any redemption of Securities at the election of the Corporation, unless, upon the giving of notice of such redemption, Defeasance shall have been effected with respect to such Securities pursuant to Section 1202, such notice may state that such redemption shall be conditional upon the receipt by either Trustee or the Paying Agent(s) for such Securities, on or prior to the date fixed for such redemption, of money sufficient to pay the principal of and any premium, Additional Amounts and interest on such Securities and that if such money shall not have been so received such notice shall be of no force or effect and the Corporation shall not be required to redeem such Securities. In the event that such notice of redemption contains such a condition and such money is not so received, the redemption shall not be made and within a reasonable time thereafter notice shall be given, in the manner in which the notice of redemption was given, that such money was not so received and such redemption was not required to be made, and the Trustees or Paying Agent(s) for the Securities otherwise to have been redeemed shall promptly return to the Holders thereof any of such Securities which had been surrendered for payment upon such redemption.

Notice of redemption of Securities to be redeemed at the election of the Corporation, and any notice of non-satisfaction of redemption as aforesaid, shall be given by the Corporation or, at the Corporation’s request, by the Trustees in the name and at the expense of the Corporation. Subject to the preceding paragraph, any such notice of redemption shall be irrevocable.

Section 1105. Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid, and the conditions, if any, set forth in such notice having been satisfied, the Securities or portions thereof so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless, in the case of an unconditional notice of redemption, the Corporation shall default in the payment of the Redemption Price and accrued interest, if any) such Securities or portions thereof, if interest-bearing, shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security or portion thereof shall be paid by the Corporation at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that no such surrender shall be a condition to such payment if so specified as contemplated by Section 301 with respect to such Security, and provided further that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium and Additional Amounts shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.

Section 1106. Securities Redeemed in Part.

Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Corporation or the Trustees so require, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation and the Trustees duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Corporation shall execute, and the Trustees or either of them, or the Authentication Agent, shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

Section 1107. Tax Redemption

The Corporation may, at its option, redeem the Securities of any series, in whole but not in part, at any time upon not less than 30 days’ nor more than 60 days’ written notice to the Holders (which notice shall be given in accordance with Section 1104), at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date fixed for redemption (a “ Tax Redemption Date ”), premium, if any, and all Additional Amounts, if any, then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise, if the Corporation determines in good faith that the Corporation is, or on the next date on which any amount would be payable in respect of the Securities of such series, would be obligated to pay Additional Amounts in respect of the Securities of such series pursuant to the terms and conditions thereof, which the Corporation cannot avoid by the use of reasonable measures available to it (including, without limitation, making payment through a payment agent located in another jurisdiction), as a result of:

(1) any change in, or amendment to, the laws (or any regulations or rulings promulgated thereunder) of any Relevant Taxing Jurisdiction affecting taxation which becomes effective on or after the Issue Date or, in the case of a Relevant Taxing Jurisdiction that did not become a Relevant Taxing Jurisdiction until after the Issue Date, the date on which such Relevant Taxing Jurisdiction became a Relevant Taxing Jurisdiction under this Indenture; or

(2) any change in, or amendment to, the official application, administration, or interpretation of the laws, regulations or rulings of any Relevant Taxing Jurisdiction (including by virtue of a holding,

judgment, or order by a court of competent jurisdiction or change in published practice or revenue guidance), on or after the Issue Date or, in the case of a Relevant Taxing Jurisdiction that did not become a Relevant Taxing Jurisdiction until after the Issue Date, the date on which such Relevant Taxing Jurisdiction became a Relevant Taxing Jurisdiction under this Indenture (each of the foregoing clauses (1) and (2), a “ Change in Tax Law ”);

provided, however , the Corporation may not redeem the Securities of any series under this Section 1107 if the Change in Tax Law obliging the Corporation to pay Additional Amounts was (i) officially announced by the Relevant Taxing Jurisdiction’s tax authority or a court (including, for the avoidance of doubt, an announcement by or on behalf of the Minister of Finance (Canada) or any provincial or territorial counterpart) or (ii) validly enacted into law by the Relevant Taxing Jurisdiction, in each case, prior to the Issue Date or, in the case of a Relevant Taxing Jurisdiction that did not become a Relevant Taxing Jurisdiction until after the Issue Date, the date on which such Relevant Taxing Jurisdiction became a Relevant Taxing Jurisdiction under this Indenture.

This Section 1107 shall apply mutatis mutandis to any successor Person, after such successor Person becomes a party to this Indenture, with respect to a Change in Tax Law occurring after the time such successor Person becomes a party to this Indenture.

ARTICLE TWELVE

Defeasance and Covenant Defeasance

Section 1201. Applicability of Article.

Unless, pursuant to Section 301, provision is made that either or both of (a) defeasance of any Securities or any series of Securities under Section 1202 and (b) covenant defeasance of any Securities or any series of Securities under Section 1203 shall not apply to such Securities of a series, then the provisions of either or both of Sections 1202 and Section 1203 as the case may be, together with Sections 1204 and 1205, shall be applicable to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article.

Section 1202. Defeasance and Discharge.

The Corporation may cause itself to be discharged from its obligations with respect to any Securities or any series of Securities on and after the date the conditions set forth in Section 1204 are satisfied (hereinafter called “Defeasance”). For this purpose, such Defeasance means that the Corporation shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustees, at the expense of the Corporation, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1204 and as more fully set forth in such Section, payments in respect of the principal of and any premium, Additional Amounts and interest on such Securities when payments are due, (2) the Corporation’s obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003 and with respect to the Trustees under Section 607, (3) the rights, powers, trusts, duties and immunities of the Trustees hereunder and (4) this Article. Subject to compliance with this Article, Defeasance with respect to any Securities or any series of Securities by the Corporation is permitted under this Section 1202 notwithstanding the prior exercise by the Corporation of its rights under Section 1203 with respect to such Securities. Following a Defeasance, payment of such Securities may not be accelerated because of an Event of Default.

Section 1203. Covenant Defeasance.

The Corporation may cause itself to be released from its obligations under any covenants provided pursuant to Section 301(20), 901(2), 901(6) or 901(7) with respect to any Securities or any series of Securities for the benefit of the Holders of such Securities and the occurrence of any event specified in Section 501(3) (with respect to any such covenants provided pursuant to Section 301(20), 901(2), 901(6) or 901(7)) or 501(6) shall be deemed not to be or result in an Event of Default with respect to such Securities as provided in this Section, in each case on and after the date the conditions set forth in Section 1204 are satisfied (hereinafter called “Covenant Defeasance”). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Corporation may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(3)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby.

Section 1204. Conditions to Defeasance or Covenant Defeasance.

The following shall each be a condition precedent to the application of Section 1202 or Section 1203 to any Securities or any series of Securities, as the case may be:

(1) The Corporation shall have irrevocably deposited or caused to be deposited with either Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the case of (B) or (C), in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustees, to pay and discharge, and which shall be applied by such Trustee to pay and discharge, the principal of and any premium, Additional Amounts and interest on such Securities on the applicable Stated Maturities or on any Redemption Date established pursuant to Clause (3) below, in accordance with the terms of this Indenture and such Securities. As used herein, “Government Obligation” means (x) any security which is (i) a direct obligation of the United States of America or the government which issued the foreign currency in which such Securities are payable, for the payment of which its full faith and credit is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the foreign currency in which such Securities are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any Government Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt.

(2) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Securities or any other Securities shall have occurred and be continuing at the time of such deposit or, with regard to any such event specified in Sections 501(4) and (5), at any time

on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day).

(3) If the Securities are to be redeemed prior to the applicable Stated Maturity (other than from mandatory sinking fund payments or analogous payments), notice of such redemption shall have been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustees shall have been made.

(4) The Corporation shall have delivered to the Trustees an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with.

Section 1205. Deposited Money and Government Obligations to Be Held in Trust; Miscellaneous Provisions.

Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (including the proceeds thereof) deposited with either Trustee pursuant to Section 1204 in respect of any Securities shall be held in trust and applied by such Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Corporation acting as its own Paying Agent) as the Trustees may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium, Additional Amounts and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. Moneys and Government Obligations (and the proceeds thereof) held pursuant to this Section for the benefit of the Holders of Subordinated Securities shall not be subject to the subordination provisions established with respect to such Securities pursuant to Section 301(20).

The Corporation shall pay and indemnify the Trustees against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1204 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities.

Anything in this Article to the contrary notwithstanding, each Trustee shall deliver or pay to the Corporation from time to time upon Company Request any money or Government Obligations held by it as provided in Section 1204 with respect to any Securities which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustees, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Securities.

Section 1206. Reinstatement.

If and for so long as the Trustees are unable to apply any money or Government Obligations held in trust pursuant to Section 1003, Section 1204 or Section 1205 by reason of any legal proceeding or by reason of any order or judgment of any court or government agency enjoining, restraining or otherwise prohibiting such application, the Corporation’s obligations with respect to this Indenture and the Securities will be reinstated as though no such deposit in trust had been made. If the Corporation makes any payment of principal of or interest on any Securities because of the reinstatement of its obligations, it will be subrogated to the rights of the Holders of such Securities to receive such payment from the money or Government Obligations held in trust.

ARTICLE THIRTEEN

Immunity of Incorporators, Stockholders, Officers and Directors

Section 1301. Indenture and Securities Solely Corporate Obligations.

No recourse for the payment of the principal of or any premium, Additional Amounts or interest on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Corporation in this Indenture or in any supplemental indenture, or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director or employee, as such, past, present or future, of the Corporation or of any successor corporation, either directly or through the Corporation or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities.

ARTICLE FOURTEEN

Subordination of Subordinated Securities

Section 1401. Agreement to Subordinate.

The Corporation covenants and agrees, and each Holder of any Subordinated Security issued hereunder by his acceptance thereof, whether upon original issue or upon transfer or assignment, likewise covenants and agrees, that the principal of (and premium and Additional Amounts, if any) and interest on each and all of the Subordinated Securities issued hereunder are hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness.

Section 1402. Payment on Dissolution, Liquidation or Reorganization; Default on Senior Indebtedness.

Upon any payment or distribution of assets or securities of the Corporation of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Corporation, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other similar proceedings, or upon any assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Corporation or otherwise, all principal of (and premium and Additional Amounts, if any) and interest then due upon all Senior Indebtedness shall first be paid in full, or payment thereof provided for in money or money’s worth, before the Holders of the Subordinated Securities or the Trustees on their behalf shall be entitled to receive any assets or securities (other than shares of stock of the Corporation as reorganized or readjusted or securities of the Corporation or any other corporation provided for by a plan of reorganization or readjustment, junior to, or the payment of which is subordinated at least to the extent provided in this Article to the payment of, all Senior Indebtedness which may at the time be outstanding or any securities issued in respect thereof under any such plan of reorganization or readjustment) in respect of the Subordinated Securities (for principal, premium, Additional Amounts or interest). Upon any such dissolution or winding up or liquidation or reorganization, any payment or distribution of assets or securities of the Corporation of any kind or character, whether in cash, property or securities (other than as aforesaid), to which the Holders of the Subordinated Securities or the Trustees on their behalf would be entitled, except for the provisions of this Article, shall be made by the Corporation or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, direct to the holders of Senior Indebtedness or their representatives to the extent necessary to pay all Senior Indebtedness in full, in money or money’s

worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. In the event that, notwithstanding the foregoing, the Trustees or the Holder of any Subordinated Security shall, under the circumstances described in the two preceding sentences, have received any payment or distribution of assets or securities of the Corporation of any kind or character, whether in cash, property or securities (other than as aforesaid) before all Senior Indebtedness is paid in full or payment thereof provided for in money or money’s worth, and if such fact shall then have been made known to the Trustees or, as the case may be, such Holder, then such payment or distribution of assets or securities of the Corporation shall be paid over or delivered forthwith to the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making payment or distribution of assets or securities of the Corporation for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, in money or money’s worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness.

Subject to the payment in full, in money or money’s worth, of all Senior Indebtedness, the Holders of the Subordinated Securities (together with the holders of any indebtedness of the Corporation which is subordinate in right of payment to the payment in full of all Senior Indebtedness and which is not subordinate in right of payment to the Subordinated Securities) shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distribution of assets or securities of the Corporation applicable to Senior Indebtedness until the principal of (and premium and Additional Amounts, if any) and interest on the Senior Indebtedness shall be paid in full. No such payments or distributions applicable to Senior Indebtedness shall, as between the Corporation, its creditors other than the holders of Senior Indebtedness, and the Holders of the Subordinated Securities, be deemed to be a payment by the Corporation to or on account of the Subordinated Securities, it being understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Subordinated Securities, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Subordinated Securities is intended to or shall impair, as between the Corporation and the Holders of Subordinated Securities, the obligation of the Corporation, which is unconditional and absolute, to pay to the Holders of the Subordinated Securities the principal of (and premium and Additional Amounts, if any) and interest on the Subordinated Securities as and when the same shall become due and payable in accordance with their terms, or to affect (except to the extent specifically provided above in this paragraph) the relative rights of the Holders of the Subordinated Securities and creditors of the Corporation other than the holders of Senior Indebtedness. Nothing contained herein shall prevent the Trustees or the Holder of any Subordinated Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article, of the holders of Senior Indebtedness in respect of assets or securities of the Corporation of any kind or character, whether cash, property or securities, received upon the exercise of any such remedy.

Upon any payment or distribution of assets or securities of the Corporation referred to in this Article, the Trustees and the Holders of the Subordinated Securities shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making any such payment or distribution, delivered to the Trustees or to the Holders of the Subordinated Securities for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.

If:

(1) there shall have occurred a default in the payment on account of the principal of (or premium or Additional Amounts, if any) or interest on or other monetary amounts due and payable on any Senior Indebtedness, or

(2) any other default shall have occurred concerning any Senior Indebtedness which permits the holder or holders thereof to accelerate the maturity of such Senior Indebtedness following notice, the lapse of time, or both, or

(3) during any time Senior Indebtedness is outstanding, the principal of, and accrued interest on, any series of Subordinated Securities shall have been declared due and payable upon an Event of Default pursuant to Section 502 hereof (and such declaration shall not have been rescinded or annulled pursuant to this Indenture);

then, unless and until such default shall have been cured or waived or shall have ceased to exist, or such declaration shall have been waived, rescinded or annulled, no payment shall be made by the Corporation on account of the principal (or premium or Additional Amounts, if any) or interest on the Subordinated Securities.

The Trustees shall be entitled to rely on the delivery to them of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a representative of such holder or a trustee under any indenture under which any instruments evidencing any such Senior Indebtedness may have been issued) to establish that such notice has been given by a holder of such Senior Indebtedness or such representative or trustee on behalf of such holder. In the event that the Trustees determine in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Fifteen, the Trustees may request such Person to furnish evidence to the reasonable satisfaction of the Trustees as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the right of such Person under this Article Fifteen, and, if such evidence is not furnished, the Trustees may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment or distribution.

Section 1403. Payment Prior to Dissolution or Default.

Nothing contained in this Article or elsewhere in this Indenture, or in any of the Subordinated Securities, shall prevent (a) the Corporation, at any time except under the conditions described in Section 1502 or during the pendency of any dissolution or winding up or total or partial liquidation or reorganization proceedings therein referred to, from making payments at any time of principal of (or premium or Additional Amounts, if any) or interest on Subordinated Securities or from depositing with either Trustee or any Paying Agent moneys for such payments, or (b) the application by either Trustee or any Paying Agent of any moneys deposited with it under this Indenture to the payment of or on account of the principal of (or premium or Additional amounts, if any) or interest on Subordinated Securities to the Holders entitled thereto if such payment would not have been prohibited by the provisions of Section 1502 on the day such moneys were so deposited.

Notwithstanding the provisions of Section 1501 or any other provision of this Indenture, the Trustees and any Paying Agent shall not be charged with knowledge of the existence of any Senior Indebtedness, or of the occurrence of any default with respect to Senior Indebtedness of the character described in Section 1502, or of any other facts which would prohibit the making of any payment of moneys to or by the Trustees or such Paying Agent, unless and until the Trustees shall have received, no later than three Business Days prior to such payment, written notice thereof from the Corporation or from a holder of

such Senior Indebtedness and the Trustees shall not be affected by any such notice which may be received by them on or after such third Business Day.

Section 1404. Securityholders Authorize Trustees to Effectuate Subordination of Securities.

Each Holder of Subordinated Securities by his or her acceptance thereof authorizes and expressly directs the Trustees on his or her behalf to take such action in accordance with the terms of this Indenture as may be necessary or appropriate to effectuate the subordination provisions contained in this Article Fifteen and to protect the rights of the Holders of Subordinated Securities pursuant to this Indenture, and appoints each of the Trustees his or her attorney-in-fact for such purpose.

Section 1405. Right of Trustee to Hold Senior Indebtedness.

The Trustees shall be entitled to all of the rights set forth in this Article Fifteen in respect of any Senior Indebtedness at any time held by either of them to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive a Trustee of any of its rights as such holder.

Section 1406. Article Fifteen Not to Prevent Events of Default.

The failure to make a payment on account of principal of, premium, if any, Additional Amounts or interest on the Subordinated Securities by reason of any provision of this Article Fifteen shall not be construed as preventing the occurrence of an Event of Default under Section 501 or an event which with the giving of notice or lapse of time, or both, would become an Event of Default or in any way prevent the Holders of Subordinated Securities from exercising any right hereunder other than the right to receive payment on the Subordinated Securities.

Section 1407. No Fiduciary Duty of Trustees to Holders of Senior Indebtedness.

The Trustees shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct, bad faith or negligence) if either of them shall in good faith mistakenly pay over or distribute to the Holders of Subordinated Securities or the Corporation or any other Person, cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Fifteen or otherwise. Nothing in this Section 1507 shall affect the obligation of any other such Person to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their representative. Nothing in this Article Fifteen shall apply to amounts due the Trustees pursuant to Section 607 or any other Section of this Indenture.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.

	Fortis Inc.


	By:	/s/ Barry V. Perry
		Barry V. Perry
		President and Chief Executive Officer


	By:	/s/ David C. Bennett
		David C. Bennett
		Executive Vice President, Chief Legal
		Officer and Corporate Secretary

[Signature Page to Indenture]

	The Bank of New York Mellon,
	as U.S. Trustee


	By:	/s/ James Briggs
	Name:	James Briggs
	Title:	Vice President


	BNY Trust Company of Canada,
	as Canadian Co-Trustee


	By:	/s/ James Briggs
	Name:	James Briggs
	Title:	Authorized Signor

[Signature Page to Indenture]

Exhibit A

[Form of Face of Security]

[Insert the Global Security Legend, if applicable pursuant to the provisions of the Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture]

[Insert the Canadian Resale Legend, if applicable pursuant to the terms of the Indenture]

[Insert any legend required by the Internal Revenue Code or the Income Tax Act (Canada) and the regulations thereunder.]

FORTIS INC.

No.	$
	CUSIP No.

Fortis Inc., a corporation duly continued and existing under the laws of the province of Newfoundland and Labrador, Canada (herein called the “Corporation,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on [if the Security is to bear interest prior to Maturity and interest payment periods are not extendable, insert— , and to pay interest thereon from or from the most recent Interest Payment Date to which interest has been paid or duly provided for, [insert— semi-annually, quarterly, monthly or other description of the relevant payment period] on , , and in each year, commencing , , at the rate of % per annum, until the principal hereof is paid or made available for payment [if applicable, insert —; provided that any principal, Additional Amounts and premium, and any such installment of interest, which is overdue shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date (other than an Interest Payment Date that is the Stated Maturity or a Redemption Date) will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustees, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Securities of this series may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in said Indenture].

[If the Security is not to bear interest prior to Maturity, insert— The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal and any overdue premium or Additional Amounts shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal, Additional Amounts or premium shall be payable on demand. Any such interest on overdue principal, Additional Amounts or premium which is not paid on demand shall bear interest at the rate of % per annum (to the extent that the payment of

Exhibit A- 1

such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.]

Payment of the principal of (and premium and Additional Amounts, if any) and [ if applicable, insert —any such] interest on this Security will be made at the office or agency of the Corporation maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. [ if applicable, insert —; Payments of principal of, premium, if any, Additional Amounts, if any, and interest on the Securities of this series represented by a Global Security shall be made by wire transfer of immediately available funds to the Holder of such Global Security, provided that, in the case of payments of principal and premium, if any, such Global Security is first surrendered to the Paying Agent. If any of the Securities of this series are no longer represented by a Global Security, (i) payments of principal, premium, if any, and interest due at the Stated Maturity or earlier redemption of such Securities shall be made at the office of the Paying Agent upon surrender of such Securities to the Paying Agent, and (ii) at the option of the Corporation payment of interest may be made by (A) check mailed to the address of the Person entitled thereto as such address shall appear in the Register or (B) wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustees at least five (5) Business Days prior to the date for payment by the Person entitled thereto].

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

Unless the certificate of authentication hereon has been executed by a Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

Exhibit A- 2

IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed.

Dated:

	Fortis Inc.

	By:
		Name:
		Title:


	By:
		Name:
		Title:

Exhibit A- 3

[ Form of Reverse of Security ]

This Security is one of a duly authorized issue of securities of the Corporation (herein called the ”Securities”), issued and to be issued in one or more series under an Indenture, dated as of (herein called the “Indenture,” which term shall have the meaning assigned to it in such instrument), between the Corporation and The Bank of New York Mellon (the “U.S. Trustee”) and BNY Trust Company of Canada (the “Canadian Co-Trustee” and, together with the U.S. Trustee, the “Trustees” or each a “Trustee”, which terms include their respective successor trustees under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Corporation, the Trustees [ if applicable, insert— , the holders of Senior Indebtedness] and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [ if applicable, insert— , [initially] limited in aggregate principal amount to $ , provided that the Corporation may, without the consent of any Holder, at any time and from time to time, increase the initial principal amount].

[ If applicable, insert— The Securities of this series are subject to redemption upon not less than 30 days’ notice by mail, at any time [if

applicable, insert—on or after , ], as a whole or in part, at the election of the Corporation, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [ if applicable, insert — on or before , , %, and if redeemed] during the 12-month period beginning of the years indicated,

and thereafter at a Redemption Price equal to % of the principal amount, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]

[ If applicable, insert — The Securities of this series are subject to redemption as a whole, but not in part, at the option of the Corporation, on not less than 30 nor more than 60 days’ prior written notice, at 100% of the principal amount plus accrued and unpaid interest thereon to the Tax Redemption Date, in the event the Corporation has become or would become obligated to pay, on the next date on which any amount would be payable in respect of the Securities of this series any Additional Amounts as a result of certain changes affecting Canadian withholding taxes on or after the Issue Date.]

[ If applicable, insert— Notwithstanding the foregoing, the Corporation may not, prior to , , redeem any Securities of this series as contemplated by [ if applicable, insert— Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Corporation (calculated in accordance with generally accepted financial practice) of less than % per annum.]

[ If the Security is subject to redemption of any kind, insert— In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.]

[ If applicable, insert— The Indenture contains provisions for defeasance at any time of [the entire indebtedness of this Security] [or] [certain restrictive covenants and Events of Default with respect to this Security] [, in each case] upon compliance with certain conditions set forth in the Indenture.]

Exhibit A- 4

[ If applicable, insert— In addition to the rights provided to Holders of Securities under the Indenture, Holders of Restricted Global Securities and Restricted Definitive Securities that are Initial Securities shall have all the rights set forth in the Registration Rights Agreement, dated as of , between the Corporation and the parties named on the signature pages thereto or, in the case of Additional Securities, Holders of Restricted Global Securities and Restricted Definitive Securities shall have the rights set forth in one or more registration rights agreements, if any, among the Corporation and the other parties thereto, relating to rights given by the Corporation to the purchasers of any Additional Securities.]

[ If the Security is not an Original Issue Discount Security, insert— If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner, with the effect and subject to the conditions set forth in the Indenture.]

[ If the Security is an Original Issue Discount Security, insert— If an Event of Default with respect to the Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to [ insert formula for determining the amount ]. Upon payment of (i) the amount of principal so declared due and payable and (ii) interest on any overdue principal, premium, Additional Amounts and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Corporation’s obligations in respect of the payment of the principal of and premium, Additional Amounts and interest, if any, on the Securities of this series shall terminate.]

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Corporation and the rights of the Holders of the Securities of all series affected under the Indenture at any time by the Corporation and the Trustees with the consent of the Holders of a majority in principal amount of the Securities of all series at the time Outstanding affected thereby (voting as one class). The Indenture contains provisions permitting the Holders of not less than a majority in principal amount of the Securities of all series at the time Outstanding with respect to which a default under the Indenture shall have occurred and be continuing (voting as one class), on behalf of the Holders of the Securities of all such series, to waive, with certain exceptions, such past default with respect to all such series and its consequences. The Indenture also permits the Holders of not less than a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Corporation with certain provisions of the Indenture. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder unless such Holder shall have previously given a Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than a majority in principal amount of the Securities of this series at the time Outstanding shall have made written request to a Trustee to institute proceedings in respect of such Event of Default as Trustee and offered such Trustee reasonable indemnity, and such Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium, Additional Amounts or interest hereon on or after the respective due dates expressed herein.

Exhibit A- 5

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of and any premium, Additional Amounts and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

For disclosure purposes under the Interest Act (Canada), whenever in the Securities of this series or the Indenture interest at a specified rate is to be calculated on the basis of a period less than a calendar year, the yearly rate of interest to which such rate is equivalent is such rate multiplied by the actual number of days in the relevant calendar year and divided by the number of days in such period.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Register, upon surrender of this Security for registration of transfer at the office or agency of the Corporation in any place where the principal of and any premium, Additional Amounts and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities of this series are issuable only in registered form without coupons in denominations of $2,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration of transfer or exchange, but the Corporation and the Trustees may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Corporation, the Trustees and any agent of the Corporation or the Trustees may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Corporation, the Trustees nor any such agent shall be affected by notice to the contrary.

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

Exhibit A- 6

Exhibit B

Form of Certificate of Transfer

Fortis Inc.

Fortis Place, Suite 1100

5 Springdale Street

St. John’s, Newfoundland and Labrador, Canada, A1E 034

The Bank of New York Mellon

101 Barclay Street, Floor 7E

New York, New York 10286

Attention: Corporate Trust

BNY Trust Company of Canada

320 Bay Street, 11th Floor

Toronto, Ontario, Canada M5H 4A6

Attention: Corporate Trust

Re: [ · ]% Notes due [ · ] (the “ Securities ”)

Reference is hereby made to the Indenture, dated as of [ · ] (the “ Indenture ”), among Fortis Inc. (the “ Corporation ), The Bank of New York Mellon, (the “ U.S. Trustee”) and BNY Trust Company of Canada (“ Canadian Co-Trustee ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

, (the “ Transferor ”) owns and proposes to transfer the Security[ies] or interest in such Security[ies] specified in Annex A hereto, in the principal amount of US$ in such Security[ies] or interests (the “ Transfer ”), to (the “ Transferee ”), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

o Check if Transferee will take delivery of a beneficial interest in the 144A Global Security or a Definitive Security Pursuant to Rule 144A . The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Security is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Security for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Security and/or the Definitive Security and in the Indenture and the Securities Act.

o Check if Transferee will take delivery of a beneficial interest in the Restricted Global Security or a Restricted Definitive Security pursuant to the securities laws of any of the provinces and territories of Canada and the respective regulations, rules, rulings, decisions and orders made thereunder, together with the multilateral or national instruments and notices issued or adopted by the securities

Exhibit B- 1

commissions or securities regulatory authorities in such provinces or territories (collectively, “Canadian Securities Laws”). The Transfer is being effected pursuant to and in accordance with Canadian Securities Laws, and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Security is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Security as principal and is an “accredited investor” as defined in Canadian Securities Laws. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will be subject to the restrictions on transfer enumerated in the Canadian Resale Legend printed on the Restricted Global Security and/or the Restricted Definitive Security and in the Indenture and the Securities Act, unless, among other conditions, four months and one day have elapsed since the date of issuance of the Securities represented thereby.

o Check if Transferee will take delivery of a beneficial interest in the Regulation S Global Security or a Definitive Security pursuant to Regulation S . The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(a) of Regulation S under the Securities Act, and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Security and/or the Definitive Security and in the Indenture and the Securities Act.

o Check and complete if Transferee will take delivery of a Definitive Security pursuant to any provision of the Securities Act other than Rule 144A or Regulation S . The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Security and Restricted Definitive Security and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):

o such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;

o such Transfer is being effected to the Corporation or any of its Subsidiaries;

o such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act.

o Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Security or of an Unrestricted Definitive Security .

o Check if Transfer is pursuant to Rule 144 . (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer

Exhibit B- 2

restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Security, on Restricted Definitive Security and in the Indenture.

o Check if Transfer is pursuant to Canadian Securities Laws. (i) The Transfer is being effected pursuant to and in accordance with Canadian Securities Laws and in compliance with the transfer restrictions contained in the Indenture and (ii) the restrictions on transfer contained in the Indenture and the Canadian Resale Legend are not required in order to maintain compliance with Canadian Securities Laws. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will no longer be subject to the restrictions on transfer enumerated in the Canadian Resale Legend printed on the Restricted Global Security, on the Restricted Definitive Security and in the Indenture.

o Check if Transfer is Pursuant to Regulation S . (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Security, on Restricted Definitive Security and in the Indenture.

o Check if Transfer is Pursuant to Other Exemption . (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Security or Restricted Definitive Security and in the Indenture.

This certificate and the statements contained herein are made for your benefit and the benefit of the Corporation.

	[Insert Name of Transferor]

	By:
	Name:
	Title:

	Dated:

Exhibit B- 3

ANNEX A TO CERTIFICATE OF TRANSFER

1. The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) a beneficial interest in the:

(i) 144A Global Security (CUSIP ), or

(ii) Regulation S Global Security (CUSIP ); or

(b) a Restricted Definitive Security.

2. After the Transfer the Transferee will hold:

[CHECK ONE OF (a), (b) OR (c)]

(a) a beneficial interest in the:

(i) 144A Global Security (CUSIP ), or

(ii) Regulation S Global Security (CUSIP ), or

(iii) Unrestricted Global Security (CUSIP ); or

(b) a Restricted Definitive Security; or

in accordance with the terms of the Indenture.

Exhibit B- 4

Exhibit C

Form of Certificate of Exchange

Fortis Inc.

Fortis Place, Suite 1100

5 Springdale Street

St. John’s, Newfoundland and Labrador, Canada, A1E 034

The Bank of New York Mellon

101 Barclay Street, Floor 7E

New York, New York 10286

Attention: Corporate Trust

BNY Trust Company of Canada

320 Bay Street, 11th Floor

Toronto, Ontario, Canada M5H 4A6

Attention: Corporate Trust

Re: [ · ]% Notes due [ · ]

Reference is hereby made to the Indenture, dated as of October 4, 2016 (the “ Indenture ”), among Fortis Inc. (the “ Corporation ), The Bank of New York Mellon (the “ U.S. Trustee ”) and BNY Trust Company of Canada (the “ Canadian Co-Trustee ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

, (the “ Owner ”) owns and proposes to exchange the Security[ies] or interest in such Security [ies] specified herein, in the principal amount of US$ in such Security[ies] or interests (the “ Exchange ”). In connection with the Exchange, the Owner hereby certifies that:

o Exchange of Restricted Definitive Securities or Beneficial Interests in a Restricted Global Security for Unrestricted Definitive Securities or Beneficial Interests in an Unrestricted Global Security evidencing the same indebtedness as the Restricted Global Security

o Check if Exchange is from beneficial interest in a Restricted Global Security to beneficial interest in an Unrestricted Global Security . In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Security for a beneficial interest in an Unrestricted Global Security in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Security and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the “ Securities Act ”), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Security is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

o Check if Exchange is from beneficial interest in a Restricted Global Security to Unrestricted Definitive Security . In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Security for an Unrestricted Definitive Security, the Owner hereby certifies (i) the Unrestricted Definitive Security is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted

Exhibit C- 1

Global Security and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Security is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

o Check if Exchange is from Restricted Definitive Security to beneficial interest in an Unrestricted Global Security . In connection with the Owner’s Exchange of a Restricted Definitive Security for a beneficial interest in an Unrestricted Global Security, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Security and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

o Check if Exchange is from Restricted Definitive Security to Unrestricted Definitive Security . In connection with the Owner’s Exchange of a Restricted Definitive Security for an Unrestricted Definitive Security, the Owner hereby certifies (i) the Unrestricted Definitive Security is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Security and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Security is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

o Exchange of Restricted Definitive Securities or Beneficial Interests in Restricted Global Securities for Restricted Definitive Securities or Beneficial Interests in Restricted Global Securities

o Check if Exchange is from beneficial interest in a Restricted Global Security to Restricted Definitive Security . In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Security for a Restricted Definitive Security with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Security is being acquired for the Owner’s own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Security issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Security and in the Indenture and the Securities Act.

o Check if Exchange is from Restricted Definitive Security to beneficial interest in a Restricted Global Security . In connection with the Exchange of the Owner’s Restricted Definitive Security for a beneficial interest in the [CIRCLE ONE] 144A Global Security or Regulation S Global Security with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Definitive Security and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Security and in the Indenture and the Securities Act.

Exhibit C- 2

This certificate and the statements contained herein are made for your benefit and the benefit of the Corporation.

	[Insert Name of Transferor]

	By:
	Name:
	Title:

	Dated:

Exhibit C- 3

Exhibit 99.8

[EXECUTION VERSION]

FIRST SUPPLEMENTAL INDENTURE

Among

FORTIS INC.

As the Corporation

AND

THE BANK OF NEW YORK MELLON

As U.S. Trustee

AND

BNY TRUST COMPANY OF CANADA

As Canadian Co-Trustee

Dated as of October 4, 2016

US$500,000,000 2.100% NOTES DUE 2021

US$1,500,000,000 3.055% NOTES DUE 2026

TABLE OF CONTENTS


Article I THE NOTES		2

Section 1.01	Establishment	2

Section 1.02	Definitions	3

Section 1.03	Payment of Principal and Interest	3

Section 1.04	Denominations	5

Section 1.05	Global Securities	5

Section 1.06	Optional Redemption	5

Section 1.07	Special Mandatory Redemption	7

Section 1.08	Depositary; Registrar; Paying Agent	7

Article II MISCELLANEOUS PROVISIONS		8

Section 2.01	Recitals by the Corporation	8

Section 2.02	Ratification and Incorporation of Base Indenture	8

Section 2.03	Executed in Counterparts	8

Section 2.04	Appointment of Agent	8

Section 2.05	Acceptance of Trust	8

Section 2.06	Governing Law	8

Exhibit A — Form of 2.100% Note Due 2021

Exhibit B — Form of 3.055% Note Due 2026

THIS FIRST SUPPLEMENTAL INDENTURE, dated as of October 4, 2016, by and among FORTIS INC. , a corporation duly continued and existing under the laws of the province of Newfoundland and Labrador, Canada, having its principal office at principal office at Fortis Place, Suite 1100, 5 Springdale Street, St. John’s, Newfoundland and Labrador, Canada, A1E 034 (the “ Corporation ”), and The Bank of New York Mellon , a New York banking corporation, as U.S. Trustee (herein called the “ U.S. Trustee ” ) and BNY Trust Company of Canada , as Canadian Co-Trustee (herein called the “ Canadian Co-Trustee ” ). The U.S. Trustee and the Canadian Co-Trustee are each also individually referred to in this Indenture as a “ Trustee ” and collectively, as the “ Trustees ”.

WITNESSETH:

WHEREAS , the Corporation has heretofore entered into an Indenture, dated as of October 4, 2016 (the “ Base Indenture ”), with The Bank of New York Mellon, as U.S. Trustee, and BNY Trust Company of Canada, as Canadian Co-Trustee;

WHEREAS , the Base Indenture is incorporated herein by this reference and the Base Indenture, as it may be amended and supplemented to the date hereof, including by this First Supplemental Indenture, is herein called the “ Indenture ;”

WHEREAS , under the Indenture, new series of Securities may at any time be established in accordance with the provisions of the Indenture and the terms of such series may be described by a supplemental indenture executed by the Corporation and the Trustees;

WHEREAS , the Corporation hereby proposes to create under the Indenture two series of Securities;

WHEREAS , additional Securities of other series hereafter established, except as may be limited in the Indenture as at the time supplemented and modified, may be issued from time to time pursuant to the Indenture as at the time supplemented and modified; and

WHEREAS , all conditions necessary to authorize the execution and delivery of this First Supplemental Indenture and to make it a valid and binding obligation of the Corporation have been done or performed.

NOW, THEREFORE , in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I
THE NOTES

Section 1.01 Establishment . There is hereby established (i) a new series of Securities to be issued under the Indenture, to be designated as the Corporation’s 2.100% Notes due 2021 (the “ 2021 Notes ”) and (ii) a new series of Securities to be issued under the Indenture, to be designated as the Corporation’s 3.055% Notes due 2026 (the “ 2026 Notes ”, together with the 2021 Notes, the “ Notes ”).

There are to be authenticated and delivered (i) $500,000,000 in aggregate principal amount of the 2021 Notes and (ii) $1,500,000,000 in aggregate principal amount of the 2026 Notes. No further Notes shall be authenticated and delivered pursuant to this First Supplemental Indenture except as provided by Section 304, 305, 306, 307, 906 or 1106 of the Base Indenture and the last paragraph of Section 301 thereof. The Notes shall be issued in global form as book-entry securities, substantially in the form set forth in Exhibit A hereto, in the case of the 2021 Notes, and Exhibit B hereto, in the case of the 2026 Notes.

The form of the Trustee’s Certificate of Authentication for each of the 2021 Notes and the 2026 Notes shall be in substantially the form set forth in Exhibit A and B hereto, respectively.

Each Note shall be dated the date of authentication thereof and shall bear interest from the date of original issuance thereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for.

Section 1.02 Definitions . The following defined terms used in this Article I shall, unless the context otherwise requires, have the meanings specified below for purposes of the Notes, as applicable. Capitalized terms used herein for which no definition is provided herein shall have the meaning set forth in the Base Indenture.

“ Business Day ” means a day other than (i) a Saturday or a Sunday, (ii) a day on which banking institutions in New York City, New York, Toronto, Ontario or St. John’s, Newfoundland and Labrador are authorized or obligated by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of a Trustee is closed for business.

“ 2021 Notes Interest Payment Date ” means each October 4 and April 4 of each year, commencing on April 4, 2017.

“ 2021 Notes Stated Maturity ” means October 4, 2021.

“ 2026 Notes Interest Payment Date ” means each October 4 and April 4 of each year, commencing on April 4, 2017.

“ 2026 Notes Stated Maturity ” means October 4, 2026.

“ Interest Payment Dates ” means the 2021 Notes Interest Payment Date and the 2026 Notes Interest Payment Date.

“ ITC ” means ITC Holdings Corp.

“ Merger Agreement ” means the Agreement and Plan of Merger, dated as of February 9, 2016, among, inter alia , the Corporation and ITC, relating to the proposed acquisition by the Corporation of ITC (the “ Merger ”).

“ Original Issue Date ” means October 4, 2016.

“ Regular Record Date ” means, with respect to each Interest Payment Date, the close of business on the 15th calendar day prior to such Interest Payment Date (whether or not a Business Day).

Section 1.03 Payment of Principal and Interest .

A.) 2021 Notes

The principal of the 2021 Notes shall be due at the 2021 Notes Stated Maturity (unless earlier redeemed). The unpaid principal amount of the 2021 Notes shall bear interest at the rate of 2.100% per annum until paid or duly provided for, such interest to accrue from the Original Issue Date or from the most recent 2021 Notes Interest Payment Date to which interest has been paid or duly provided for. Interest shall be paid semi-annually in arrears on each 2021 Notes Interest Payment Date to the Person or Persons in whose name the 2021 Notes are registered on the Regular Record Date for such 2021 Notes Interest Payment Date; provided that interest payable at the 2021 Notes Stated Maturity or on a Redemption Date as provided herein shall be paid to the Person to whom principal is payable. Any such interest that is not so punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose

name the 2021 Notes are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the U.S. Trustee (“ 2021 Notes Special Record Date ”), notice whereof shall be given to Holders of the 2021 Notes not less than ten (10) days prior to such 2021 Notes Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the 2021 Notes may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Base Indenture.

B.) 2026 Notes

The principal of the 2026 Notes shall be due at the 2026 Notes Stated Maturity (unless earlier redeemed). The unpaid principal amount of the 2026 Notes shall bear interest at the rate of 3.055% per annum until paid or duly provided for, such interest to accrue from the Original Issue Date or from the most recent 2026 Notes Interest Payment Date to which interest has been paid or duly provided for. Interest shall be paid semi-annually in arrears on each 2026 Notes Interest Payment Date to the Person or Persons in whose name the 2026 Notes are registered on the Regular Record Date for such 2026 Notes Interest Payment Date; provided that interest payable at the 2026 Notes Stated Maturity or on a Redemption Date as provided herein shall be paid to the Person to whom principal is payable. Any such interest that is not so punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose name the 2026 Notes are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the U.S. Trustee (the “ 2026 Notes Special Record Date ”), notice whereof shall be given to Holders of the 2026 Notes not less than ten (10) days prior to such 2026 Notes Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the 2026 Notes may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Base Indenture.

C.) General .

Payments of interest on the Notes shall include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for the Notes shall be computed and paid on the basis of a 360-day year consisting of twelve 30-day months. In the event that any date on which interest is payable on any Notes is not a Business Day, then payment of the interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. For disclosure purposes under the Interest Act (Canada), whenever in this Indenture or any Securities issued hereunder interest at a specified rate is to be calculated on the basis of a period less than a calendar year, the yearly rate of interest to which such rate is equivalent is such rate multiplied by the actual number of days in the relevant calendar year and divided by the number of days in such period.

Payment of principal of, premium, if any, Additional Interest, if any, and interest on the Notes shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal of, premium, if any, Additional Interest, if any, and interest on Notes represented by a Global Security shall be made by wire transfer of immediately available funds to the Holder of such Global Security, provided that, in the case of payments of principal and premium, if any, such Global Security is first surrendered to the Paying Agent. If any of the Notes are no longer represented by a Global Security, (i) payments of principal, premium, if any, Additional Interest, if any, and interest due at the applicable Stated Maturity or earlier redemption of such Notes shall be made at the office of the Paying Agent upon surrender of such Notes to the Paying Agent and (ii) payments of interest shall be made, at the option of the Corporation, subject to such surrender where applicable, by (A) check mailed to the address of the Person entitled thereto as such address shall appear in the Register or (B) wire transfer at such place and to such

account at a banking institution in the United States as may be designated in writing to the Trustees at least five (5) Business Days prior to the date for payment by the Person entitled thereto.

Section 1002 of the Base Indenture shall be applicable to the Notes.

Section 1.04 Denominations . The Notes shall be issued in denominations of $2,000 or any integral multiple of $1,000 in excess thereof.

Section 1.05 Global Securities . The Notes shall initially be issued in the form of one or more Global Securities registered in the name of the Depositary (which initially shall be The Depository Trust Company) or its nominee. Except under the limited circumstances described below, Notes represented by such Global Security or Global Securities shall not be exchangeable for, and shall not otherwise be issuable as, Notes in definitive form. The Global Securities described in this Article I may not be transferred except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or to a successor Depositary or its nominee.

A Global Security representing the Notes shall be exchangeable for Notes registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Corporation that it is unwilling or unable to continue as a Depositary for such Global Security and no successor Depositary shall have been appointed by the Corporation within 90 days of receipt by the Corporation of such notification, or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as such Depositary and no successor Depositary shall have been appointed by the Corporation within 90 days after it becomes aware of such cessation, (ii) an Event of Default has occurred and is continuing with respect to the Notes and beneficial owners of a majority in aggregate principal amount of the Notes represented by Global Securities advise the Depositary to cease acting as Depositary, or (iii) the Corporation in its sole discretion, and subject to the procedures of the Depositary, determines that such Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Notes registered in such names as the Depositary shall direct.

Section 1.06 Optional Redemption .

A.) 2021 Notes

At any time before September 4, 2021 (the “ 2021 Notes Par Call Date ”), the 2021 Notes shall be redeemable, in whole or in part and from time to time, at the option of the Corporation, on any date (a “ 2021 Notes Redemption Date ”), at a redemption price equal to the greater of (i) 100% of the principal amount of the 2021 Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2021 Notes being redeemed that would be due if the 2021 Notes matured on the 2021 Notes Par Call Date (exclusive of interest accrued to the redemption date), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, plus, in either case, accrued and unpaid interest on the principal amount of the 2026 Notes being redeemed to, but excluding, such redemption date

At any time on or after September 4, 2021, the Corporation will have the right to redeem the 2021 Notes, in whole or in part and from time to time, at a redemption price equal to 100% of the principal amount of the 2021 Notes being redeemed plus accrued and unpaid interest on the principal amount of the 2021 Notes being redeemed to, but excluding, such redemption date.

B.) 2026 Notes

At any time before July 4, 2026 (the “ 2026 Notes Par Call Date ”), the 2026 Notes shall be redeemable, in whole or in part and from time to time, at the option of the Corporation, on any date (a “ 2026 Notes Redemption Date ”), at a redemption price equal to the greater of (i) 100% of the principal amount of the 2026 Notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2026 Notes being redeemed that would be due if the 2026 Notes matured on the 2026 Notes Par Call Date (exclusive of interest accrued to the redemption date), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in either case, accrued and unpaid interest on the principal amount of the 2026 Notes being redeemed to, but excluding, such redemption date.

At any time on or after July 4, 2026, the Corporation will have the right to redeem the 2026 Notes, in whole or in part and from time to time, at a redemption price equal to 100% of the principal amount of the 2026 Notes being redeemed plus accrued and unpaid interest on the principal amount of the 2026 Notes being redeemed to, but excluding, such redemption date.

C.) Optional Redemption Definitions

For purposes of this Section 1.06, the following terms have the following meanings:

“ Comparable Treasury Issue ” means the United States Treasury security selected by the Quotation Agent as having an actual or interpolated maturity comparable to the remaining term of the applicable series of Notes to be redeemed (assuming, for this purpose, that the applicable series of Notes matured on the applicable Par Call Date) that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such applicable series of Notes.

“ Comparable Treasury Price ” means, with respect to any Redemption Date for the applicable series of Notes, (1) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if fewer than four of such Reference Treasury Dealer Quotations are obtained, the average of all such Reference Treasury Dealer Quotations.

“ Quotation Agent ” means a Reference Treasury Dealer appointed by the Corporation.

“ Reference Treasury Dealer ” means each of Goldman, Sachs & Co., Scotia Capital (USA) Inc. and Wells Fargo Bank, N.A., plus two other financial institutions appointed by the Corporation at the time of any redemption of any Notes, or their respective affiliates or successors, each of which is a primary U.S. Government securities dealer in the United States (a “ Primary Treasury Dealer ”); provided, however , that if any of the foregoing or their affiliates or successors shall cease to be a Primary Treasury Dealer, the Corporation will substitute therefor another Primary Treasury Dealer.

“ Reference Treasury Dealer Quotations ” means, with respect to each Reference Treasury Dealer and any Redemption Date for the applicable series of Notes, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

“ Treasury Rate ” means, with respect to any Redemption Date for the applicable series of Notes, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such

Redemption Date. The Treasury Rate shall be calculated on the third Business Day preceding the applicable Redemption Date.

D.) General

The Corporation shall notify the Trustees of the redemption price with respect to any redemption of the Notes occurring before the applicable Par Call Date promptly after the calculation thereof. The Trustees shall not be responsible for calculating said redemption price.

If less than all of a series of Notes are to be redeemed, the Trustees shall select the applicable Notes or portions of the applicable Notes to be redeemed by such method as the Trustees shall deem fair and appropriate. The Trustees may select for redemption Notes and portions of Notes in amounts of $2,000 or any integral multiple of $1,000 in excess thereof. As long as the Notes are represented by Global Securities, beneficial interests in such Notes shall be selected for redemption by the Depositary in accordance with its standard procedures therefor.

The Notes shall not have a sinking fund.

The Notes shall also be redeemable at the option of the Corporation in accordance with the provisions of Section 1107 of the Base Indenture.

Section 1.07 Special Mandatory Redemption .

In the event that (a) the Merger does not take place on or prior to August 9, 2017 (the “ End Date ”), or (b) at any time prior to the End Date, the Merger Agreement is terminated (any such event being a “ Special Mandatory Redemption Event” ), the Corporation will redeem all of the Notes at a price equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest on the principal amount of the Notes being redeemed to, but excluding, such redemption date (the “ Special Mandatory Redemption Price ”).

Notice of the occurrence of a Special Mandatory Redemption Event and that a special mandatory redemption is to occur (the “ Special Mandatory Redemption Notice ”) shall be delivered to the Trustees and mailed by first class mail to each holder of Notes’ registered address or electronically delivered according to the procedures of the Depositary as to Global Securities, within ten Business Days after the Special Mandatory Redemption Event. At the Corporation’s written request, the Trustees shall give the Special Mandatory Redemption Notice in the Corporation’s name and at the Corporation’s expense. On such date specified in the Special Mandatory Redemption Notice as shall be no more than ten Business Days (or such other minimum period as may be required by the Depositary) after mailing or sending the Special Mandatory Redemption Notice, the special mandatory redemption shall occur (the date of such redemption, the “ Special Mandatory Redemption Date ”).

If funds sufficient to pay the Special Mandatory Redemption Price of all of the Notes on the Special Mandatory Redemption Date are deposited with the Paying Agent or the Trustees on or before such Special Mandatory Redemption Date, then on and after such Special Mandatory Redemption Date, the Notes shall cease to bear interest and, other than the right to receive the Special Mandatory Redemption Price, all rights under such Notes and this First Supplemental Indenture shall terminate.

Upon the closing of the Merger, the foregoing provisions regarding the Special Mandatory Redemption will cease to apply.

Section 1.08 Depositary; Registrar; Paying Agent . DTC shall initially act as the Depositary with respect to the Notes and the U.S. Trustee shall initially serve as Paying Agent and Custodian with respect to the Notes, with the Place of Payment initially being the Corporate Trust Office of the U.S. Trustee. Each of the Trustees shall act as Registrar and maintain a Register in accordance with the

Trust Indenture Legislation and, to the extent deemed necessary or advisable from time to time, one or more branch Registers in such places as they may determine.

Section 1.09 Transfer and Exchange . The transfer and exchange provisions set forth in Section 306(b) of the Base Indenture shall apply to the Notes, including the forms attached as Exhibit B and Exhibit C to the Base Indenture.

ARTICLE II
MISCELLANEOUS PROVISIONS

Section 2.01 Recitals by the Corporation . The recitals in this First Supplemental Indenture are made by the Corporation only and not by the Trustees, and all of the provisions contained in the Base Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustees shall be applicable in respect of the Notes and this First Supplemental Indenture as fully and with like effect as if set forth herein in full.

Section 2.02 Ratification and Incorporation of Base Indenture . As supplemented hereby, the Base Indenture is in all respects ratified and confirmed, and the Base Indenture and this First Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 2.03 Executed in Counterparts . This First Supplemental Indenture may be executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

Section 2.04 Appointment of Agent . The Corporation hereby appoints C T Corporation for a period of ten years as its agent upon whom process may be served in any legal action or proceeding arising out of or relating to this First Supplemental Indenture or the Notes.

Section 2.05 Acceptance of Trust . The Trustees accept the trusts in this First Supplemental Indenture and agree to carry out and discharge the same upon the terms and conditions set out in this First Supplemental Indenture and in accordance with the Base Indenture.

Section 2.06 Governing Law . This First Supplemental Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles thereof.

IN WITNESS WHEREOF , each party hereto has caused this instrument to be signed in its name and behalf by its duly authorized officer, all as of the day and year first above written.

	Fortis Inc.


	By:	/s/ Barry V. Perry
		Barry V. Perry
		President and Chief Executive Officer


	By:	/s/ Karl W. Smith
		Karl W. Smith
		Executive Vice President, Chief Financial Officer

[Signature Page to First Supplemental Indenture]

	The Bank of New York Mellon, as U.S. Trustee


	By:	/s/ James Briggs
	Name:	James Briggs
	Title:	Vice President


	BNY Trust Company of Canada, as Canadian Co-Trustee


	By:	/s/ James Briggs
	Name:	James Briggs
	Title:	Authorized Signor

[Signature Page to First Supplemental Indenture]

Exhibit A

[Form of Face of Security]

THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 306 OF THE INDENTURE, (2) THIS GLOBAL SECURITY MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 306(a) OF THE INDENTURE, (3) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 310 OF THE INDENTURE AND (4) THIS GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION.

THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE CORPORATION THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR (d) IN

A- 1

ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION IF THE CORPORATION SO REQUESTS), (2) TO THE CORPORATION OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE CANADIAN SECURITIES LAWS OR APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.

IN CANADA, UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE FEBRUARY 5, 2017.

FORTIS INC.

2.100% NOTE DUE 2021

No. [ · ]	CUSIP No.: [ · ]
	ISIN No.: [ · ]

Principal Amount: $[ · ]

Regular Record Date: Close of business on the 15th calendar day prior to the relevant Interest Payment Date (whether or not a Business Day)

Original Issue Date: October 4, 2016

Stated Maturity: October 4, 2021

Interest Payment Dates: Semi-annually on October 4 and April 4 of each year, commencing on April 4, 2017

Interest Rate: 2.100% per annum

Authorized Denomination: $2,000 or any integral multiple of $1,000 in excess thereof

Fortis Inc., a corporation duly continued and existing under the laws of the province of Newfoundland and Labrador, Canada (herein called the “ Corporation ,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of [ · ] Dollars ($[ · ]) on the Stated Maturity shown above and to pay interest thereon from the Original Issue Date shown above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on each Interest Payment Date as specified above, commencing on the date specified above and on the Stated Maturity, at the rate of 2.100% per annum, until the principal hereof is paid or made available for payment, and any principal, Additional Amounts and premium, and any such installment of interest, which is overdue shall bear interest at the such rate (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date (other than an Interest Payment Date that is the Stated Maturity or a Redemption Date) will, as provided in the Indenture, be paid to the Person in whose name this 2.100% Note due 2021 (this “ Security ”) is registered at the close of business on the Regular Record Date as specified above (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name

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this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustees, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Securities of this series may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Indenture.

Payments of interest on this Security will include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for this Security shall be computed and paid on the basis of a 360-day year consisting of twelve 30-day months and will accrue from the Original Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for. In the event that any date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable.

Payment of the principal of (and premium and Additional Amounts, if any) and interest on this Security will be made at the office or agency of the Corporation maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal of, premium, if any, Additional Amounts, if any, and interest on the Securities of this series represented by a Global Security shall be made by wire transfer of immediately available funds to the Holder of such Global Security, provided that, in the case of payments of principal and premium, if any, such Global Security is first surrendered to the Paying Agent. If any of the Securities of this series are no longer represented by a Global Security, (i) payments of principal, premium, if any, and interest due at the Stated Maturity or earlier redemption of such Securities shall be made at the office of the Paying Agent upon surrender of such Securities to the Paying Agent, and (ii) at the option of the Corporation payment of interest may be made by (A) check mailed to the address of the Person entitled thereto as such address shall appear in the Register or (B) wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustees at least five (5) Business Days prior to the date for payment by the Person entitled thereto.

The Securities of this series shall not have a sinking fund.

The Securities of this series shall constitute the direct unsecured and unsubordinated debt obligations of the Corporation and shall rank equally in priority with the Corporation’s existing and future unsecured and unsubordinated indebtedness and senior in priority to the Corporation’s existing and future subordinated indebtedness.

A- 3

IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed.

	Fortis Inc.


	By:
	Name:
	Title:

A- 4

CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

Dated:	The Bank of New York Mellon, as U.S. Trustee


	By:
		Authorized Signatory


	BNY Trust Company of Canada, as Canadian Co-Trustee


	By:

		Authorized Signatory

A- 5

[Form of Reverse of Security]

This 2.100% Note due 2021 is one of a duly authorized issue of securities of the Corporation (herein called the “ Securities ”), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2016, as supplemented by the First Supplemental Indenture, dated as of October 4, 2016 (herein called the “ Indenture ,” which term shall have the meaning assigned to it in such instrument), between the Corporation and The Bank of New York Mellon (the “ U.S. Trustee ”) and BNY Trust Company of Canada (the “ Canadian Co-Trustee ” and, together with the U.S. Trustee, the “ Trustees ” or each a “ Trustee ”, which terms include their respective successor trustees under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Corporation, the Trustees and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof as 2.100% Notes due 2021. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Indenture.

This Security shall be subject to the applicable optional redemption and special mandatory redemption provisions set forth in the Indenture.

In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.

The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture.

In addition to the rights provided to Holders of Securities under the Indenture, Holders of Restricted Global Securities and Restricted Definitive Securities shall have all the rights set forth in the Registration Rights Agreement, dated as of October 4, 2016, between the Corporation and the parties named on the signature pages thereto.

If an Event of Default with respect to the Securities shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner, with the effect and subject to the conditions set forth in the Indenture.

A- 6

or trustee or for any other remedy thereunder unless such Holder shall have previously given a Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than a majority in principal amount of the Securities of this series at the time Outstanding shall have made written request to a Trustee to institute proceedings in respect of such Event of Default as Trustee and offered such Trustee reasonable indemnity, and such Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium, Additional Amounts or interest hereon on or after the respective due dates expressed herein.

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

This Security shall be governed by, and construed in accordance with, the laws of the State of New York.

A- 7

ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM — as tenants in common

TEN ENT — as tenants by the entireties

JT TEN — as joint tenants with rights of survivorship and not as tenants in common

UNIF GIFT MIN ACT — Custodian under Uniform Gifts to Minors Act

Additional abbreviations may also be used though not on the above list.

FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto (please insert Social Security or other identifying number of assignee)

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE the within Security and all rights thereunder, hereby irrevocably constituting and appointing agent to transfer said Security on the books of the Corporation, with full power of substitution in the premises.

Dated:
			NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever

			Signature
			Guarantee:

SIGNATURE GUARANTEE

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

A- 8

Exhibit B

[Form of Face of Security]

B- 1

THE CORPORATION IF THE CORPORATION SO REQUESTS), (2) TO THE CORPORATION OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE CANADIAN SECURITIES LAWS OR APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.

IN CANADA, UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE FEBRUARY 5, 2017.

FORTIS INC.

3.055% NOTE DUE 2026

No. [ · ]	CUSIP No.: [ · ]
	ISIN No.: [ · ]

Principal Amount: $[ · ]

Regular Record Date: Close of business on the 15th calendar day prior to the relevant Interest Payment Date (whether or not a Business Day) Original Issue Date: October 4, 2016

Stated Maturity: October 4, 2026

Interest Payment Dates: Semi-annually on October 4 and April 4 of each year, commencing on April 4, 2017

Interest Rate: 3.055% per annum

Authorized Denomination: $2,000 or any integral multiple of $1,000 in excess thereof

Fortis Inc., a corporation duly continued and existing under the laws of the province of Newfoundland and Labrador, Canada (herein called the “ Corporation ,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal sum of [ · ] Dollars ($[ · ]) on the Stated Maturity shown above and to pay interest thereon from the Original Issue Date shown above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on each Interest Payment Date as specified above, commencing on the date specified above and on the Stated Maturity, at the rate of 3.055% per annum, until the principal hereof is paid or made available for payment and any principal, Additional Amounts and premium, and any such installment of interest, which is overdue shall bear interest at such rate (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date (other than an Interest Payment Date that is the Stated Maturity or a Redemption Date) will, as provided in the Indenture, be paid to the Person in whose name this 3.055% Note due 2026 (this “ Security ”) is registered at the close of business on the Regular Record Date as specified above (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustees, notice whereof shall

B- 2

be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Securities of this series may be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Indenture.

The Securities of this series shall not have a sinking fund.

B- 3

IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed.

	Fortis Inc.

	By:
	Name:
	Title:

B- 4

CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

Dated:	The Bank of New York Mellon, as U.S. Trustee

	By:
		Authorized Signatory


	BNY Trust Company of Canada, as Canadian Co-Trustee


	By:
		Authorized Signatory

B- 5

[Form of Reverse of Security]

This 3.055% Note due 2026 is one of a duly authorized issue of securities of the Corporation (herein called the “ Securities ”), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2016, as supplemented by the First Supplemental Indenture, dated as of October 4, 2016 (the “ Indenture ,” which term shall have the meaning assigned to it in such instrument), between the Corporation and The Bank of New York Mellon (the “ U.S. Trustee ”) and BNY Trust Company of Canada (the “ Canadian Co-Trustee ” and, together with the U.S. Trustee, the “ Trustees ” or each a “ Trustee ”, which terms include their respective successor trustees under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Corporation, the Trustees and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof as 3.055% Notes due 2026. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Indenture.

This Security shall be subject to the applicable optional redemption and special mandatory redemption provisions set forth in the Indenture.

B- 6

All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

This Security shall be governed by, and construed in accordance with, the laws of the State of New York.

B- 7

ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM — as tenants in common

TEN ENT — as tenants by the entireties

JT TEN — as joint tenants with rights of survivorship and not as tenants in common

UNIF GIFT MIN ACT — Custodian under Uniform Gifts to Minors Act

Additional abbreviations may also be used though not on the above list.

FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto (please insert Social Security or other identifying number of assignee)

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE

the within Security and all rights thereunder, hereby irrevocably constituting and appointing agent to transfer said Security on the books of the Corporation, with full power of substitution in the premises.

Dated:
			NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever


			Signature
			Guarantee:

SIGNATURE GUARANTEE

C- 1

Exhibit 99.9

EXECUTION VERSION

Fortis Inc.

US$500,000,000 2.100% Notes Due 2021

US$1,500,000,000 3.055% Notes Due 2026

Exchange and Registration Rights Agreement

October 4, 2016

Goldman, Sachs & Co.,

As representative of the several Purchasers

named in Schedule I to the Purchase Agreement

c/o Goldman, Sachs & Co.

200 West Street

New York, New York 10282-2198

Ladies and Gentlemen:

Fortis Inc., a corporation existing under the Corporations Act of Newfoundland and Labrador, Canada (the “Company” ), proposes to issue and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement (as defined herein) $2,000,000,000 in aggregate principal amount of its 2.100% Notes due 2021 and 3.055% Notes due 2026. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Securities (as defined herein) as follows:

1. Certain Definitions . For purposes of this Exchange and Registration Rights Agreement (this “Agreement” ), the following terms shall have the following respective meanings:

“Acquisition Closing Date ” shall mean the Closing Date (as defined in the Agreement and Plan of Merger dated as of February 9, 2016, among FortisUS Inc., Element Acquisition Sub Inc., the Company and ITC Holdings Corp.).

“Base Interest” shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement.

“broker-dealer” shall mean any broker or dealer registered with the Commission under the Exchange Act.

“Business Day” shall have the meaning set forth in Rule 13e-4(a)(3) promulgated by the Commission under the Exchange Act, as the same may be amended or succeeded from time to time, and shall also exclude any day on which banking institutions or trust companies located in New York, New York, Toronto, Ontario or St. John’s, Newfoundland and Labrador are authorized or obligated to be closed.

“Canadian Co-Trustee” shall mean BNY Trust Company of Canada, as Canadian trustee under the Indenture, together with any successors thereto in such capacity.

“Canadian Prospectus” shall mean a prospectus of the Company included in an Exchange Registration Statement or a Shelf Registration Statement under the MJDS (with such additions and deletions as are required or permitted under the MJDS) filed and receipted (or for which a notification of clearance has been obtained) under Ontario Securities Laws.

“Closing Date” shall mean the date on which the Securities are initially issued.

“Commission” shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose.

“EDGAR System” shall mean the EDGAR filing system of the Commission and the rules and regulations pertaining thereto promulgated by the Commission in Regulation S-T under the Securities Act and the Exchange Act, in each case as the same may be amended or succeeded from time to time (and without regard to format).

“Effective Time,” in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective pursuant to the Securities Act and (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective pursuant to the Securities Act.

“Electing Holder” shall mean any holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or Section 3(d)(iii) and the instructions set forth in the Notice and Questionnaire.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“Exchange Offer” shall have the meaning assigned thereto in Section 2(a).

“Exchange Registration” shall have the meaning assigned thereto in Section 3(c).

“Exchange Registration Statement” shall have the meaning assigned thereto in Section 2(a).

“Exchange Securities” shall have the meaning assigned thereto in Section 2(a).

“holder” shall mean each of the Purchasers and other persons who acquire Securities from time to time (including any successors or assigns), in each case for so long as such person owns any Securities.

“Indenture” shall mean the indenture, dated as of October 4, 2016, among the Company, the U.S. Trustee and the Canadian Co-Trustee, as the same may be amended from time to

time and as supplemented from time to time, including by the first supplemental indenture, dated as of October 4, 2016.

“MJDS” shall mean the U.S./Canada Multijurisdictional Disclosure System adopted by the Commission and Canadian securities regulators.

“Notice and Questionnaire” shall mean a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto.

“Ontario Securities Laws” shall mean the Securities Act (Ontario) and the rules, regulations and national, multijurisdictional and local instruments and published policy statements applicable in the province of Ontario.

“OSC” shall mean the Ontario Securities Commission.

“person” shall mean a corporation, limited liability company, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency.

“Purchase Agreement” shall mean the Purchase Agreement, dated September 29, 2016, between the Purchasers and the Company relating to the Securities.

“Purchasers” shall mean the Purchasers named in Schedule I to the Purchase Agreement.

“Registrable Securities” shall mean the Securities; provided, however, that a Security shall cease to be a Registrable Security upon the earliest to occur of the following: (i) in the circumstances contemplated by Section 2(a), the Security has been exchanged for an Exchange Security in an Exchange Offer as contemplated in Section 2(a) ( provided that any Exchange Security that, pursuant to the last two sentences of Section 2(a), is included in a prospectus for use in connection with resales by broker-dealers shall be deemed to be a Registrable Security with respect to Sections 5, 6 and 9 until resale of such Registrable Security has been effected within the Resale Period); (ii) in the circumstances contemplated by Section 2(b), a Shelf Registration Statement registering such Security under the Securities Act has been declared or becomes effective and such Security has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (iii) subject to Section 8(b), such Security is actually sold by the holder thereof pursuant to Rule 144 under circumstances in which any legend borne by such Security relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture or (iv) such Security shall cease to be outstanding.

“Registration Default” shall have the meaning assigned thereto in Section 2(c).

“Registration Default Period” shall have the meaning assigned thereto in Section 2(c).

“Registration Expenses” shall have the meaning assigned thereto in Section 4.

“Resale Period” shall have the meaning assigned thereto in Section 2(a).

“Restricted Holder” shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary

course of such holder’s business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities and (iv) a holder that is a broker-dealer, but only with respect to Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company.

“Rule 144,” “Rule 405”, “Rule 415”, “Rule 424”, “Rule 430B” and “Rule 433” shall mean, in each case, such rule promulgated by the Commission under the Securities Act (or any successor provision), as the same may be amended or succeeded from time to time.

“Securities” shall mean, collectively, the $500,000,000 in aggregate principal amount of the Company’s 2.100% Notes due 2021 and the $1,500,000,000 in aggregate principal amount of 3.055% Notes due 2026 (each, a “series” of Securities) to be issued and sold to the Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“series” shall have the meaning assigned thereto in the definition of Securities.

“Shelf Registration” shall have the meaning assigned thereto in Section 2(b).

“Shelf Registration Statement” shall have the meaning assigned thereto in Section 2(b).

“Special Interest” shall have the meaning assigned thereto in Section 2(c).

“Suspension Period” shall have the meaning assigned thereto in Section 2(b).

“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“Trustees” shall mean the U.S. Trustee and the Canadian Co-Trustee.

“U.S.” shall mean the United States of America.

“U.S. Trustee” shall mean The Bank of New York Mellon, as U.S. trustee under the Indenture, together with any successors thereto in such capacity.

Unless the context otherwise requires, any reference herein to a “Section” or “clause” refers to a Section or clause, as the case may be, of this Agreement, and the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision.

2. Registration Under the Securities Act .

(a) Except as set forth in Section 2(b) below, to the extent not prohibited by any applicable law or applicable interpretations of the Commission, the Company agrees to use its commercially reasonable efforts to file under the Securities Act, no earlier than the last to occur of (i) the day after the Acquisition Closing Date, (ii) the filing

with the OSC of the Company’s management information circular for the Company’s 2017 annual general meeting and (iii) four months and one day after the Closing Date, and no later than 270 days after the Acquisition Closing Date, a registration statement relating to an offer to exchange (such registration statement, the “Exchange Registration Statement” , and such offer, the “Exchange Offer” ) any and all of the Securities for a like aggregate principal amount of each series of debt securities issued by the Company, which debt securities are substantially identical to the corresponding series of Securities (and are entitled to the benefits of the Indenture), except that they have been registered pursuant to an effective registration statement under the Securities Act and do not contain provisions for Special Interest contemplated in Section 2(c) below or special mandatory redemption (such new debt securities hereinafter called “Exchange Securities” ). The Exchange Securities will be issued under the Indenture as provided therein and pursuant thereto shall be evidence of the same continuing indebtedness of the Company and will not constitute the creation of new indebtedness. The Company agrees to use commercially reasonable efforts to cause the Exchange Registration Statement to become or be declared effective under the Securities Act no later than 365 days after the Acquisition Closing Date. The Exchange Offer will be registered under the Securities Act on any available and appropriate form (which may, as determined by the Company in its sole discretion, be on Form F-10, including a Canadian Prospectus, in the form of a base shelf prospectus contemplated by National Instrument 44-102 — Shelf Distributions or a short form prospectus or other appropriate form, prepared and filed with the OSC; provided, however, that such Form F-10 is available for exchange offers) and will comply with all applicable tender offer rules and regulations under the Exchange Act. Unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company further agrees to use commercially reasonable efforts to (i) commence the Exchange Offer promptly (but no later than 10 Business Days) following the Effective Time of such Exchange Registration Statement, (ii) hold the Exchange Offer open for at least 20 Business Days in accordance with Regulation 14E promulgated by the Commission under the Exchange Act (or a longer period if required by the U.S. federal securities laws) and (iii) promptly following the expiration of the Exchange Offer, exchange Exchange Securities for all Registrable Securities that have been properly tendered and not validly withdrawn prior to the close of business on the date of such expiration. The Exchange Offer will be deemed to have been “completed” only (i) if the debt securities received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the U.S. and (ii) upon the Company having exchanged, pursuant to the Exchange Offer, applicable Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 20 Business Days and not more than 30 Business Days following the commencement of the Exchange Offer. The Company agrees (x) to include in the Exchange Registration Statement a prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer that has acquired Registrable Securities from the Company or for its own account as a result of market-making activities or other trading activities, and (y) to use commercially reasonable efforts to keep such Exchange Registration Statement effective for a period (the “Resale Period” ) beginning when Exchange

Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180 th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities; provided that the Company may, in its sole discretion, in lieu of, or in addition to, keeping any such Exchange Registration Statement effective during the Resale Period, file a “shelf” registration statement on any available and appropriate form providing for the registration of such Registrable Securities held by such broker-dealers during the Resale Period. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Subsections 6(a), (c), (d) and (e).

(b) If (i) on or prior to the time the Exchange Offer is completed existing law or Commission interpretations are changed such that the debt securities received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, (ii) the Effective Time of the Exchange Registration Statement is not within 365 days following the Acquisition Closing Date and the Exchange Offer has not been completed within 30 Business Days of such Effective Time or (iii) any holder of Registrable Securities notifies the Company prior to the 20 th Business Day following the completion of the Exchange Offer that: (A) it is prohibited by law or Commission policy from participating in the Exchange Offer, (B) it may not resell the Exchange Securities to the public without delivering a prospectus and the prospectus supplement or Canadian Prospectus, as applicable, contained in the Exchange Registration Statement is not appropriate or available for such resales, (C) it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company or (D) it is an affiliate of the Company, then the Company shall, in lieu of (or, in the case of clause (iii), in addition to) conducting the Exchange Offer contemplated by Section 2(a), use commercially reasonable efforts to file under the Securities Act no later than 60 days after the time such obligation to file arises (which in the case of clause (iii) above, shall be the date that the applicable holder so notifies the Company) (but in any case no earlier than 270 days after the Acquisition Closing Date), a “shelf” registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (or under Canadian shelf prospectus rules if the Company is eligible to use Form F-10) (such filing, the “Shelf Registration” and such registration statement, the “Shelf Registration Statement” ). The Company agrees to use commercially reasonable efforts to cause the Shelf Registration Statement to become or be declared effective no later than 180 days after such Shelf Registration Statement filing obligation arises; provided, that if at any time the Company is or becomes a “well-known seasoned issuer” (as defined in Rule 405) and is eligible to file an “automatic shelf registration statement” (as defined in Rule 405), then the Company shall file the Shelf Registration Statement in the form of an automatic shelf registration statement as provided in Rule 405. The Company agrees to use commercially reasonable efforts to keep such Shelf Registration Statement continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Registrable Securities outstanding. No holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Securities unless such holder is an Electing Holder. The Company agrees, after the Effective Time of the Shelf Registration Statement and

promptly upon the request of any holder of Registrable Securities that is not then an Electing Holder, to use commercially reasonable efforts to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement (whether by post-effective amendment thereto or by filing a prospectus pursuant to Rules 430B and 424(b) under the Securities Act identifying such holder), provided, however, that nothing in this sentence shall relieve any such holder of the obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii). Notwithstanding anything to the contrary in this Section 2(b), upon notice to the Electing Holders, the Company may suspend the use of the Shelf Registration Statement for a reasonable period of time (but not in excess of 60 consecutive days or more than two times during any single calendar year) (a “ Suspension Period ”) if the board of directors of the Company determines that there is a valid business purpose for suspension of the Shelf Registration Statement; provided, however, that the Company shall promptly notify the Electing Holders when the Shelf Registration Statement may once again be used or is effective.

(c) In the event that (i) the Company has not filed the Exchange Registration Statement or the Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to Section 2(a) or Section 2(b), respectively, or (ii) such Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective pursuant to Section 2(a) or Section 2(b), respectively, (iii) the Exchange Offer has not been completed within 30 Business Days after the Effective Time of the Exchange Registration Statement relating to the Exchange Offer (if the Exchange Offer is then required to be made) or (iv) any Exchange Registration Statement or Shelf Registration Statement required by Section 2(a) or Section 2(b) is filed and declared effective but shall thereafter either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein, including, with respect to any Shelf Registration Statement, during any applicable Suspension Period in accordance with the last sentence of Section 2(b)) without being succeeded immediately by an additional registration statement filed and declared effective (each such event referred to in clauses (i) through (iv), a “Registration Default” and each period during which a Registration Default has occurred and is continuing, a “Registration Default Period” ), then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ( “Special Interest” ), in addition to the Base Interest, shall accrue on all Registrable Securities then outstanding at a per annum rate of 0.25% for the first 90 days of the Registration Default Period and at a per annum rate of 0.50% thereafter for the remaining portion of the Registration Default Period.

(d) The Company shall take all commercially reasonable actions necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated.

(e) Any reference herein to a registration statement or prospectus as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time; and any reference herein to any post-effective amendment to a registration statement or to any prospectus supplement as of any time shall be deemed to

include any document incorporated, or deemed to be incorporated, therein by reference as of such time.

3. Registration Procedures .

If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply:

(a) At or before the Effective Time of the Exchange Registration or any Shelf Registration, whichever may occur first, the Company shall qualify the Indenture under the Trust Indenture Act.

(b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture.

(c) In connection with the Company’s obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the “Exchange Registration” ), if applicable, the Company shall:

(i) use commercially reasonable efforts to prepare and file with the Commission, no earlier than the last to occur of (x) the day after the Acquisition Closing Date, (y) the filing with the OSC of the Company’s management information circular for the Company’s 2017 annual general meeting and (z) four months and one day after the Closing Date, and no later than 270 days after the Acquisition Closing Date, an Exchange Registration Statement on any form which may be utilized by the Company and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use commercially reasonable efforts to cause such Exchange Registration Statement to become effective no later than 365 days after the Acquisition Closing Date;

(ii) as soon as practicable use commercially reasonable efforts to prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein (which may include a Canadian Prospectus or amendment or supplement thereto as part of the Exchange Registration Statement, if filed under MJDS to the extent available for exchange offers) as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities;

(iii) use commercially reasonable efforts to promptly notify each broker-dealer that has requested or, to the knowledge of the Company after reasonable investigation, received copies of the prospectus included in such Exchange Registration Statement, and confirm such advice in writing, (A) when such Exchange

Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission or the OSC and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission or the OSC for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (F) the occurrence of any event that causes the Company to become an “ineligible issuer” as defined in Rule 405, or (G) if at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act or any applicable Ontario Securities Laws or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(iv) in the event that the Company would be required, pursuant to Section 3(c)(iii)(G), to notify any broker-dealers holding Exchange Securities, use commercially reasonable efforts to as promptly as practicable prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act, the Trust Indenture Act and any applicable Ontario Securities Laws and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(v) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date;

(vi) use commercially reasonable efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, to the extent required by such laws, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period, (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions and (D) obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be

required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or become subject to taxation in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or other governing documents or any agreement between it and its stockholders;

(vii) obtain a CUSIP number for all Exchange Securities, not later than the applicable Effective Time; and

(viii) comply with all applicable rules and regulations of the Commission and the OSC, and make generally available to its securityholders no later than eighteen months after the Effective Time of such Exchange Registration Statement, an “earning statement” of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder).

(d) In connection with the Company’s obligations with respect to the Shelf Registration, if applicable, the Company shall:

(i) use commercially reasonable efforts to prepare and file with the Commission, within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by the holders of Registrable Securities as, from time to time, may be Electing Holders and use commercially reasonable efforts to cause such Shelf Registration Statement to become effective within the time periods specified in Section 2(b);

(ii) use commercially reasonable efforts to mail the Notice and Questionnaire to the holders of Registrable Securities (A) not less than 30 days prior to the anticipated Effective Time of the Shelf Registration Statement or (B) in the case of an “automatic shelf registration statement” (as defined in Rule 405), mail the Notice and Questionnaire to the holders of Registrable Securities not later than the Effective Time of such Shelf Registration Statement, and in any such case no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Securities at any time, unless and until such holder has returned a completed and signed Notice and Questionnaire to the Company;

(iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Registrable Securities that is not then an Electing Holder, use commercially reasonable efforts to as promptly as practicable send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company;

(iv) as soon as practicable use commercially reasonable efforts to prepare and file with the Commission and, if applicable, the OSC such amendments and supplements to such Shelf Registration Statement and the prospectus (which may include a Canadian Prospectus or amendment or supplement thereto as part of the Exchange Registration Statement, if filed under the MJDS) included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) and as may be required by the applicable rules and regulations of the Commission and the OSC and the instructions applicable to the form of such Shelf Registration Statement, and use commercially reasonable efforts to furnish to the Electing Holders a commercially reasonable number of copies of any such supplement or amendment substantially concurrently with or prior to its being used or filed with the Commission or the OSC to the extent such documents are not publicly available on the Commission’s EDGAR System;

(v) comply with the provisions of the Securities Act and any applicable Ontario Security Laws with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement;

(vi) provide the Electing Holders and not more than one counsel for all the Electing Holders the opportunity to review and comment on such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto;

(vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company’s principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(d)(vi) who shall have certified to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary (and in the case of counsel, not violate an attorney-client privilege, in such counsel’s reasonable belief), in the judgment of the counsel referred to in Section 3(d)(vi), to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering on behalf of the Electing Holders shall be conducted by one counsel designated by the holders of at least a majority in aggregate principal amount of the Registrable Securities held by the Electing Holders at the time outstanding and provided further that each such party shall be required to agree in a writing reasonably acceptable to such party to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such Shelf Registration Statement or otherwise), (B) such person shall be required to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the

prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(viii) as promptly as practicable notify each of the Electing Holders and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state or province with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company set forth in Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (F) the occurrence of any event that causes the Company to become an “ineligible issuer” as defined in Rule 405, or (G) if at any time when a prospectus is required to be delivered under the Securities Act or Ontario Securities Laws, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act, the Trust Indenture Act and any applicable Ontario Securities Laws or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(ix) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Shelf Registration Statement or any post-effective amendment thereto at the earliest practicable date;

(x) if requested by any Electing Holder, as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of Registrable Securities being sold by such Electing Holder, the name and description of such Electing Holder, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof and with respect to any other terms of the offering of the Registrable Securities to be sold by such Electing Holder; and make all required filings of such prospectus supplement or post-effective amendment as promptly as practicable after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment;

(xi) furnish to each Electing Holder and the counsel referred to in Section 3(d)(vi) an executed copy (or a conformed copy) of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act to the extent such documents are not available through the Commission’s EDGAR System, and such other documents, as such Electing Holder may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such Electing Holder and to permit such Electing Holder to satisfy the prospectus delivery requirements of the Securities Act; and subject to Section 3(e), the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder (subject to any applicable Suspension Period), in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto;

(xii) use commercially reasonable efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration Statement is required to remain effective under Section 2(b) and for so long as may be necessary to enable any such Electing Holder to complete its distribution of Registrable Securities pursuant to such Shelf Registration Statement, (C) take any and all other actions as may be reasonably necessary or advisable to enable each such Electing Holder to consummate the disposition in such jurisdictions of such Registrable Securities and (D) obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or become subject to taxation in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or other governing documents or any agreement between it and its stockholders;

(xiii) unless any Registrable Securities shall be in book-entry only form, cooperate with the Electing Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates, if so required by any securities exchange upon which any Registrable Securities are listed, shall be printed, penned, lithographed, engraved or otherwise produced by

any combination of such methods, on steel engraved borders, and which certificates shall not bear any restrictive legends;

(xiv) obtain a CUSIP number for all Securities that have been registered under the Securities Act to be included in such Shelf Registration Statement, not later than the applicable Effective Time;

(xv) use commercially reasonable efforts to notify in writing each holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Agreement pursuant to Section 9(h) and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; and

(xvi) comply with all applicable rules and regulations of the Commission.

(e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(G), to notify the Electing Holders, the Company shall as promptly as practicable prepare and furnish to each of the Electing Holders a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act, Ontario Securities Laws and the Trust Indenture Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(G), such Electing Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf Registration Statement applicable to such Registrable Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies, of the prospectus covering such Registrable Securities in such Electing Holder’s possession at the time of receipt of such notice.

(f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice and Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder’s intended method of distribution of Registrable Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder’s intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder’s intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit

to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

(g) Until the expiration of the earlier of one year after the Closing Date and the date on which all Securities have ceased to be Registrable Securities, the Company will not, and will not permit any of its “affiliates” (as defined in Rule 144) to, resell any of the Securities that have been reacquired by any of them except pursuant to an effective registration statement, or a valid exemption from the registration requirements, under the Securities Act.

(h) As a condition to its participation in the Exchange Offer, each holder of Registrable Securities shall furnish, upon the request of the Company, a written representation to the Company (which may be contained in the letter of transmittal or “agent’s message” transmitted via The Depository Trust Company’s Automated Tender Offer Procedures, in either case contemplated by the Exchange Registration Statement) to the effect that (A) it is not an “affiliate” of the Company, as defined in Rule 405 of the Securities Act, or if it is such an “affiliate”, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (B) it is not engaged in and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Securities to be issued in the Exchange Offer, (C) it is acquiring the Exchange Securities in its ordinary course of business, (D) if it is a broker-dealer that holds Securities that were acquired for its own account as a result of market-making activities or other trading activities (other than Securities acquired directly from the Company or any of its affiliates), it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Securities received by it in the Exchange Offer, (E) if it is a broker-dealer, that it did not purchase the Securities to be exchanged in the Exchange Offer from the Company or any of its affiliates, and (F) it is not acting on behalf of any person who could not truthfully and completely make the representations contained in the foregoing subclauses (A) through (E).

4. Registration Expenses .

The Company agrees to bear and to pay or cause to be paid promptly all expenses incident to the Company’s performance of or compliance with this Agreement, including (a) all Commission and any FINRA registration, filing and review fees and expenses including reasonable fees and disbursements of counsel for the Eligible Holders in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Registrable Securities and the Exchange Securities, as applicable, for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) and determination of their eligibility for investment under the laws of such jurisdictions as the Electing Holders may designate, including any reasonable fees and disbursements of counsel for the Electing Holders in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities or Exchange Securities, as applicable, for delivery and the expenses of printing or producing any selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities or Exchange Securities, as applicable, to be disposed of (including certificates representing the Securities or Exchange Securities, as applicable), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities or Exchange Securities, as applicable, and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustees

under the Indenture, any agent of any Trustee and any counsel for any Trustee and of any custodian, (f) internal expenses (including all salaries and expenses of the Company’s officers and employees performing legal or accounting duties), (g) reasonable fees, disbursements and expenses of counsel and independent certified public accountants of the Company, (h) reasonable fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Registrable Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company), (i) any fees charged by securities rating services for rating the Registrable Securities or the Exchange Securities, as applicable, and (j) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the “Registration Expenses” ). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities, Securities or Exchange Securities, as applicable, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions, if any, and transfer taxes, if any, attributable to the sale of such Registrable Securities and Exchange Securities, as applicable, and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above.

5. Representations and Warranties .

The Company represents and warrants to, and agrees with, each Purchaser and each of the holders from time to time of Registrable Securities that:

(a) Each registration statement covering Registrable Securities, Securities or Exchange Securities, as applicable, and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(c) or Section 3(d) and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission and the OSC, as the case may be, will conform in all material respects to the requirements of the Securities Act, the Trust Indenture Act and, if applicable, Ontario Securities Laws and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than (A) from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(c)(iii)(G) or Section 3(d)(viii)(G) until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(c)(iv) or Section 3(e) or (B) during any applicable Suspension Period, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(c) or Section 3(d), as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein.

(b) Any documents incorporated by reference in any prospectus referred to in Section 5(a), when they become or became effective or are or were filed with the Commission, as the case may be, (i) will conform or conformed, as the case may be, in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and, if applicable, the Ontario Securities Laws and (ii) will not or did not, as the case may be, contain an untrue statement of a material fact and will not or did not, as the case may be, omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided , however , that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein.

(c) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject other than any such conflict, breach or violation that would not reasonably be expected to have a Material Adverse Effect (as defined in the Purchase Agreement), (ii) result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws or other governing documents, as applicable, of the Company or (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties other than any such conflict, breach or violation that would not reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except (x) the registration under the Securities Act of the Registrable Securities and the Exchange Securities, as applicable, and qualification of the Indenture under the Trust Indenture Act, (y) such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or blue sky laws in connection with the offering and distribution of the Registrable Securities and the Exchange Securities, as applicable, and (z) such consents, approvals, authorizations, registrations or qualifications that have been obtained and are in full force and effect as of the date hereof.

(d) This Agreement has been duly authorized, executed and delivered by the Company.

6. Indemnification and Contribution .

(a) Indemnification by the Company. The Company will indemnify and hold harmless each of the holders of Registrable Securities included in an Exchange Registration Statement and each of the Electing Holders as holders of Registrable Securities included in a Shelf Registration Statement against any losses, claims, damages or liabilities, joint or several, to which such holder or such Electing Holder may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or any Shelf Registration Statement, as the case may be, under which such Registrable Securities or Exchange Securities were registered under the Securities Act, or any preliminary, final or

summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433) contained therein or furnished by the Company to any such holder or any such Electing Holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such holder and each such Electing Holder for any and all legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433), or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein.

(b) Indemnification by the Electing Holders . The Company may require, as a condition to including any Registrable Securities in any Shelf Registration Statement filed pursuant to Section 2(b), that the Company shall have received an undertaking reasonably satisfactory to it from each Electing Holder of Registrable Securities included in such Shelf Registration Statement, severally and not jointly, to (i) indemnify and hold harmless the Company and all other Electing Holders of Registrable Securities included in such Shelf Registration Statement, against any losses, claims, damages or liabilities to which the Company or such other Electing Holders may become subject, under the Securities Act, Ontario Securities Laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433) contained therein or furnished by the Company to any Electing Holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder’s Registrable Securities pursuant to such registration.

(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by Section 6(a) or Section 6(b). In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof,

such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no Electing Holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders’ obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered by them and not joint.

(e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, each Electing Holder, and each person, if any, who controls any of the foregoing within the meaning of the Securities Act; and the obligations of the holders and the Electing Holders contemplated by this Section 6 shall be in addition to any liability which the respective holder or Electing Holder may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act, as well as to each officer and director of the other holders and to each person, if any, who controls such other holders within the meaning of the Securities Act.

7. Underwritten Offerings .

Each holder of Registrable Securities hereby agrees with the Company and each other such holder that no holder of Registrable Securities may participate in any underwritten offering of Registrable Securities hereunder unless (a) the Company gives its prior written consent to such underwritten offering, (b) the managing underwriter or underwriters thereof shall be designated by Electing Holders holding at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company, (c) each holder of Registrable Securities participating in such underwritten offering agrees to sell such holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled selecting the managing underwriter or underwriters hereunder and (d) each holder of Registrable Securities participating in such underwritten offering completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. The Company hereby agrees with each holder of Registrable Securities that, to the extent it consents to an underwritten offering hereunder, it will negotiate in good faith and execute all indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, including using commercially reasonable efforts to procure customary legal opinions and auditor “comfort” letters.

8. Rule 144 .

(a) Facilitation of Sales Pursuant to Rule 144. The Company covenants to the holders of Registrable Securities that, to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144), and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144. Upon the reasonable request of any holder of Registrable Securities in connection with that holder’s sale pursuant to Rule 144, the Company shall deliver to such holder a written statement (which may be sent electronically) as to whether it has complied with such requirements.

(b) Availability of Rule 144 Not Excuse for Obligations under Section 2. The fact that holders of Registrable Securities may become eligible to sell such Registrable Securities pursuant to Rule 144 shall not (1) cause such Securities to cease to be Registrable

Securities or (2) excuse the Company’s obligations set forth in Section 2 of this Agreement, including without limitation the obligations in respect of an Exchange Offer, Shelf Registration and Special Interest.

9. Miscellaneous .

(a) No Inconsistent Agreements. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Securities, Exchange Securities or Securities, as applicable, or any other securities which would be inconsistent with the terms contained in this Agreement.

(b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Purchasers and the holders from time to time of the Registrable Securities may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Company under this Agreement in accordance with the terms and conditions of this Agreement, in any court of the United States or any State thereof having jurisdiction. Time shall be of the essence in this Agreement.

(c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally, by facsimile or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at Suite 1100, 5 Springdale Street, P.O. Box 8837, St. John’s, Newfoundland and Labrador A1B 3T2, and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

(d) Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto, the holders from time to time of the Registrable Securities and the respective successors and assigns of the foregoing. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Securities subject to all of the applicable terms hereof.

(e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, or any controlling person of any of the foregoing, and shall survive delivery of and

payment for the Registrable Securities pursuant to the Purchase Agreement, the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer.

(f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

(g) Headings. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

(h) Entire Agreement; Amendments. This Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least a majority in aggregate principal amount of the Registrable Securities at the time outstanding. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder.

(i) Inspection. For so long as this Agreement shall be in effect, this Agreement and a complete list of the names and addresses of all the record holders of Registrable Securities shall be made available for inspection and copying on any Business Day by any holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) and at the office of the Trustee under the Indenture.

(j) Counterparts. This Agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument.

(k) Severability . If any provision of this Agreement, or the application thereof in any circumstance, is held to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision in every other respect and of the remaining provisions contained in this Agreement shall not be affected or impaired thereby.

(l) Agent for Service; Submission to Jurisdiction. The Company acknowledges that it has irrevocably designated and appointed C T Corporation System (the “Agent” ) as its authorized agent for service of process for a period ending on the later of (i) two years from the date hereof and (ii) the date on which all obligations of the Company under this Agreement have been satisfied, in any suit, action or proceeding arising out of or relating to this Agreement or brought with respect to the Securities under U.S. federal or state securities laws, in each case instituted in any federal or state court located in the State and City of New York. The Company hereby submits to the nonexclusive jurisdiction of any such court in any such suit, action or proceeding and agrees that service of process upon Agent

with written notice thereof to the Company shall be deemed to be effective service of process upon the Company in such suit, action or proceeding.

If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and the Representative plus one for each counsel counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers the Company. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof.

Very truly yours,

Fortis Inc.


By:	/s/ Karl W. Smith
	Karl W. Smith
	Executive Vice President, Chief Financial Officer


By:		/s/ James D. Spinney
		James D. Spinney
		Vice President, Treasurer

[Signature Page to Exchange and Registration Rights Agreement]

Accepted as of the date hereof:

Goldman, Sachs & Co.

By:	/s/ Goldman, Sachs & Co.
	(Goldman, Sachs & Co.)

As representative of the several Purchasers

[Signature Page to Exchange and Registration Rights Agreement]

Exhibit A

Fortis Inc.

INSTRUCTION TO DTC PARTICIPANTS

(Date of Mailing)

URGENT - IMMEDIATE ATTENTION REQUESTED

DEADLINE FOR RESPONSE: [DATE] *

The Depository Trust Company ( “DTC” ) has identified you as a DTC Participant through which beneficial interests in the Fortis Inc. (the “Company” ) [2.100% Notes due 2021][3.055% Notes due 2026] (the “Securities” ) are held.

The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire.

It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [Deadline For Response] . Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact Fortis Inc., Suite 1100, 5 Springdale Street, P.O. Box 8837, St. John’s, Newfoundland and Labrador A1B 3T2 (telephone 1-709-737-2800).

*Not less than 28 calendar days from date of mailing.

A- 1

Fortis Inc.

Notice of Registration Statement
and

Selling Securityholder Questionnaire

(Date)

Reference is hereby made to the Exchange and Registration Rights Agreement (the “Exchange and Registration Rights Agreement” ), dated October 4, 2016, between Fortis Inc. (the “Company” ) and the Representative named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed or will file with the United States Securities and Exchange Commission (the “Commission” ) a registration statement on Form [ · ] or other appropriate form of registration statement (the “Shelf Registration Statement” ) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act” ), of the Company’s [2.100% Notes due 2021][3.055% Notes due 2026]] (the “Securities” ). A copy of the Exchange and Registration Rights Agreement has been filed as an exhibit to the Shelf Registration Statement or, if not, can be obtained from the Commission’s website at www.sec.gov or from the System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators at www.sedar.com . All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement.

Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ( “Notice and Questionnaire” ) must be completed, executed and delivered to the Company’s counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response] . Beneficial owners of Registrable Securities who do not properly complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the prospectus forming a part thereof for resales of Registrable Securities.

Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related prospectus.

The term “Registrable Securities” is defined in the Exchange and Registration Rights Agreement.

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ELECTION

The undersigned holder (the “Selling Securityholder” ) of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3).The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto.

Pursuant to the Exchange and Registration Rights Agreement, the undersigned has agreed to indemnify and hold harmless the Company, its officers who sign any Shelf Registration Statement, and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act of 1934, as amended (the “Exchange Act” ), against certain losses arising out of an untrue statement, or the alleged untrue statement, of a material fact in the Shelf Registration Statement or the related prospectus or the omission, or alleged omission, to state a material fact required to be stated in such Shelf Registration Statement or the related prospectus, but only to the extent such untrue statement or omission, or alleged untrue statement or omission, was made in reliance on and in conformity with the information provided in this Notice and Questionnaire.

Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the prospectus and as Exhibit B to the Exchange and Registration Rights Agreement.

The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete:

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QUESTIONNAIRE

(1) (a) Full legal name of Selling Securityholder:

(b) Full legal name of registered Holder (if not the same as in (a) above) of Registrable Securities listed in Item (3) below:

(c) Full legal name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item (3) below are held:

(2) Address for notices to Selling Securityholder:

Telephone:

Fax:

Contact Person:

E-mail for Contact Person:

(3) Beneficial Ownership of Securities:

Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities.

(a) Principal amount of Registrable Securities beneficially owned:

CUSIP No(s). of such Registrable Securities:

(b) Principal amount of Securities other than Registrable Securities beneficially owned:

CUSIP No(s). of such other Securities:

(c) Principal amount of Registrable Securities that the undersigned wishes to be included in the Shelf Registration Statement:

CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement:

(4) Beneficial Ownership of Other Securities of the Company:

Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3).

State any exceptions here:

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(5) Individuals who exercise dispositive powers with respect to the Securities:

If the Selling Securityholder is not an entity that is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (a “Reporting Company” ), then the Selling Securityholder must disclose the name of the natural person(s) who exercise sole or shared dispositive powers with respect to the Securities. Selling Securityholders should disclose the beneficial holders, not nominee holders or other such others of record.In addition, the Commission has provided guidance that Rule 13d-3 of the Securities Exchange Act of 1934 should be used by analogy when determining the person or persons sharing voting and/or dispositive powers with respect to the Securities.

(a) Is the holder a Reporting Company?

Yes o No o

If “No”, please answer Item (5)(b).

(b) List below the individual or individuals who exercise dispositive powers with respect to the Securities:

Please note that the names of the persons listed in (b) above will be included in the Shelf Registration Statement and related prospectus.

(6) Relationships with the Company:

Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

(7) Plan of Distribution:

Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices.Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities

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may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.

State any exceptions here:

Note: In no event may such method(s) of distribution take the form of an underwritten offering of Registrable Securities without the prior written agreement of the Company.

(8) Broker-Dealers:

The Commission requires that all Selling Securityholders that are registered broker- dealers or affiliates of registered broker-dealers be so identified in the Shelf Registration Statement.In addition, the Commission requires that all Selling Securityholders that are registered broker-dealers be named as underwriters in the Shelf Registration Statement and related prospectus, even if they did not receive the Registrable Securities as compensation for underwriting activities.

(a) State whether the undersigned Selling Securityholder is a registered broker-dealer:

Yes o No o

(b) If the answer to (a) is “Yes”, you must answer (i) and (ii) below, and (iii) below if applicable. Your answers to (i) and (ii) below, and (iii) below if applicable, will be included in the Shelf Registration Statement and related prospectus.

(i) Were the Securities acquired as compensation for underwriting activities?

Yes o No o

If you answered “Yes”, please provide a brief description of the transaction(s) in which the Securities were acquired as compensation:

(ii) Were the Securities acquired for investment purposes?

Yes o No o

(iii) If you answered “No” to both (i) and (ii), please explain the Selling Securityholder’s reason for acquiring the Securities:

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(c) State whether the undersigned Selling Securityholder is an affiliate of a registered broker-dealer and, if so, list the name(s) of the broker-dealer affiliate(s):

Yes o No o

(d) If you answered “Yes” to question (c) above:

(i) Did the undersigned Selling Securityholder purchase Registrable Securities in the ordinary course of business?

Yes o No o

If the answer is “No” to question (d)(i), provide a brief explanation of the circumstances in which the Selling Securityholder acquired the Registrable Securities:

(ii) At the time of the purchase of the Registrable Securities, did the undersigned Selling Securityholder have any agreements, understandings or arrangements, directly or indirectly, with any person to dispose of or distribute the Registrable Securities?

Yes o No o

If the answer is “Yes” to question (d)(ii), provide a brief explanation of such agreements, understandings or arrangements:

If the answer is “No” to Item (8)(d)(i) or “Yes” to Item (8)(d)(ii), you will be named as an underwriter in the

Shelf Registration Statement and the related prospectus.

(9) Hedging and short sales:

(a) State whether the undersigned Selling Securityholder has or will enter into “hedging transactions” with respect to the Registrable Securities:

Yes o No o

If “Yes”, provide below a complete description of the hedging transactions into which the undersigned Selling Securityholder has entered or will enter and the purpose of such hedging transactions, including the extent to which such hedging transactions remain in place:

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(b) Set forth below is Section 239.10 of the Commission’s Compliance and Disclosure Interpretations regarding short selling:

“An issuer filed a Form S-3 registration statement for a secondary offering of common stock which is not yet effective. One of the selling shareholders wanted to do a short sale of common stock “against the box” and cover the short sale with registered shares after the effective date. The issuer was advised that the short sale could not be made before the registration statement becomes effective, because the shares underlying the short sale are deemed to be sold at the time such sale is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold prior to the effective date.”

By returning this Notice and Questionnaire, the undersigned Selling Securityholder will be deemed to be aware of the foregoing interpretation.

* * * * *

By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act, particularly Regulation M (or any successor rule or regulation).

The Selling Securityholder hereby acknowledges its obligations under the Exchange and Registration Rights Agreement to indemnify and hold harmless the Company and certain other persons as set forth in the Exchange and Registration Rights Agreement.

In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement.

By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (9) above and the inclusion of such information in the Shelf Registration Statement and related prospectus.The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related prospectus.

In accordance with the Selling Securityholder’s obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect and to provide such additional information that the Company may reasonably request regarding such Selling Securityholder and the intended method of distribution of Registrable Securities in order to comply with the Securities Act. Except as otherwise provided in the Exchange and Registration Rights Agreement, all notices hereunder and pursuant to the

A- 8

Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows:

(i) To the Company:

(ii) With a copy to:

Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company’s counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above.This Notice and Questionnaire shall be governed in all respects by the laws of the State of New York.

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IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:


Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable Securities)

By:
Name:
Title:

PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY’S COUNSEL AT:

A- 10

Exhibit B

NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT

The Bank of New York Mellon
BNY Trust Company of Canada
Fortis Inc.

c/o The Bank of New York Mellon
225 Liberty Street
New York, New York 10286
United States

c/o BNY Trust Company of Canada
320 Bay Street, 11th Floor
Toronto, Ontario M5H 4A6
Canada

Attention: Trust Officer

Re: Fortis Inc. (the “Company” )

[2.100% Notes due 2021][3.055% Notes due 2026]

Dear Sirs:

Please be advised that has transferred $ aggregate principal amount of the above-referenced Notes pursuant to an effective Registration Statement on Form [ ] (File No. 333- ) filed by the Company.

We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as a “Selling Holder” in the prospectus dated [date] or in supplements thereto, and that the aggregate principal amount of the Notes transferred are the Notes listed in such prospectus opposite such owner’s name.

Dated:

	Very truly yours,


		(Name)

	By:
		(Authorized Signature)

Exhibit 99.10

Execution Version

SIXTH AMENDING AGREEMENT

RE: SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AGREEMENT made as of the 5 th day of October, 2016.

BETWEEN:

THE BANK OF NOVA SCOTIA,

a Canadian chartered bank

(herein, in its capacity as administrative agent of the

Lenders, called the “ Agent ”)

— and —

THE BANK OF NOVA SCOTIA,

CANADIAN IMPERIAL BANK OF COMMERCE,

ROYAL BANK OF CANADA,

BANK OF MONTREAL,

THE TORONTO-DOMINION BANK,

HSBC BANK CANADA,

NATIONAL BANK OF CANADA,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
CANADA BRANCH,

BANK OF AMERICA, N.A., CANADA BRANCH,

MORGAN STANLEY BANK, N.A.,

CAISSE CENTRALE DESJARDINS AND

WELLS FARGO BANK, NATIONAL ASSOCIATION

(herein, in their capacities as lenders to the Borrower, collectively called the “ Lenders ” and individually called a “ Lender ”)

— and —

FORTIS INC.,

a corporation existing under the laws of the

Province of Newfoundland and Labrador

(herein called the “ Borrower ”)

WHEREAS , pursuant to a second amended and restated credit agreement made as of August 9, 2011 among the Borrower, the Agent and the Lenders as amended by a first amending agreement thereto made as of July 5, 2012, a second amending agreement thereto made as of August 1, 2013, a third amending agreement thereto made as of March 23, 2015, a fourth amending agreement thereto made as of April 25, 2016 and a fifth amending agreement thereto made as of August 17, 2016 (collectively, the “ Credit Agreement ”), the Lenders have established a certain credit facility in favour of the Borrower;

AND WHEREAS the parties hereto wish to amend certain provisions of the Credit Agreement;

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

ARTICLE 1

DEFINED TERMS

1.1		Capitalized Terms

All capitalized terms which are used herein without being specifically defined herein shall have the meaning ascribed thereto in the Credit Agreement as amended hereby.

ARTICLE 2

AMENDMENTS

2.1		General Rule

Subject to the terms and conditions herein contained, the Credit Agreement is hereby amended to the extent necessary to give effect to the provisions of this agreement and to incorporate the provisions of this agreement into the Credit Agreement.

2.2		Defined Terms

		Section 1.1 of the Credit Agreement is hereby amended as follows:

(a)		by adding the following new defined terms in the appropriate alphabetical order:

		“ Acquisition ” means the indirect acquisition by the Borrower of all (or, in the case of certain equity investments, not less than 80%) of the issued and outstanding shares of the Target pursuant to, and in accordance with, the terms of the Merger Agreement.

		“ Acquisition Credit Agreement ” means the credit agreement dated as of October 5, 2016 among Fortis Inc., as borrower, the lenders party thereto and The Bank of Nova Scotia, as administrative agent.

		“ AcquisitionCo ” means Element Acquisition Sub Inc., a Michigan corporation.

		“ Convertible Subordinated Debentures ” means the issuance by the Borrower of up to $482,000,000 (or Canadian Dollar Equivalent thereof) in aggregate principal amount of convertible unsecured subordinated debentures of the Borrower.

		“ Equity Investors ” means either (i) Finn Investment Pte Ltd. or any of its permitted assignees under the subscription agreement dated as of April 20, 2016

by and among Finn Investment Pte Ltd., the Borrower, FortisUS Inc., ITC Investments and AcquisitionCo, or (ii) one or more equity investors in the Target, either directly or indirectly through investment in ITC Investments, reasonably acceptable to The Bank of Nova Scotia (such approval not to be unreasonably withheld, delayed or conditioned).

“ Fortis Merger Share Consideration ” means the common shares of the Borrower to be issued by the Borrower and to form part of the consideration for the Acquisition.

“ ITC Investments ” means ITC Investment Holdings Inc., a Michigan corporation.

“ ITC Investments Shareholder Notes ” means the subordinated notes in an aggregate principal amount of $1,000,000,000 to be issued by ITC Investments to its shareholders, proportionally in accordance with their respective equity interests and having substantially the terms set out in Schedule N.

“ Merger ” means the consummation of the merger of AcquisitionCo and the Target upon terms and subject to the conditions set forth in the Merger Agreement.

“ Merger Agreement ” means the agreement and plan of merger dated as of February 9, 2016 by and among FortisUS Inc., AcquisitionCo, the Target and the Borrower.

“ Permitted Intercompany Liens ” means, as of any particular time, Liens, given by a Company, other than the Borrower, to secure its obligations under any Permitted Intercompany Loan.

“ Permitted Intercompany Loan ” means, as of any particular time, (i) a loan from any Company (including the Borrower) to any other Company other than a Regulated Subsidiary, provided that any Company, other than the Borrower, which is a borrower under such Permitted Intercompany Loan does not have any third party Indebtedness for Borrowed Money outstanding other than Indebtedness for Borrowed Money under a Permitted Intercompany Loan, and (ii) loans made under the ITC Investments Shareholder Notes. For certainty, each of the loans described in Schedule O shall be Permitted Intercompany Loans.

“ Regulated Subsidiary ” means a Subsidiary of the Borrower or the Target whose principal line of business is (i) the transmission and distribution of electric energy and whose operations (including its electrical rates charged to the public) are regulated by applicable governmental authorities or (ii) the transmission and distribution of natural gas and whose operations (including its natural gas rates charged to the public) are regulated by applicable governmental authorities and whose material transmission assets are included in its regulated rate base and

		whose only material pipeline assets are related to its regulated gas distribution business.

		“ Surviving Corporation ” means ITC Holdings Corp., the surviving corporation in the Merger.

		“ Target ” means ITC Holdings Corp., a Michigan corporation.

	(b)	by deleting the existing definition of “Consolidated Debt” in its entirety and replacing it with the following:

		““ Consolidated Debt ” means, on any date, an amount equal to the aggregate of all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries on such date, determined in accordance with GAAP on a consolidated basis, plus the redemption amount of all shares of the Borrower which are retractable or redeemable at the option of the holder on such date. For certainty, Preferred Equity and any amounts outstanding under the Convertible Subordinated Debentures shall not be included in the calculation of Consolidated Debt.”.

	(c)	by deleting the existing subsection (cc) in the definition of “Permitted Liens” and replacing it with the following:

		“(cc) Permitted Intercompany Liens; and

		(dd) any other Liens which, as of the date of this Agreement, is, in the case of land comprising the land rights which are held by way of fee simple estate, registered against the title to those lands or, in the case of the other land rights, registered in priority to the land rights where the foregoing would not reasonably be expected to in the aggregate materially adversely affect the Borrower’s financial condition or operations.”.

2.3		Covenants

	(a)	Subsection 11.1(k) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

		“(k) Material Subsidiaries. The Borrower shall not permit any other Company to issue any shares to any Person and the Borrower shall not, and shall not permit any other Company to, transfer, sell or otherwise dispose of the shares of any other Company to any Person other than (i) the issuance, transfer, sale or other disposition of such shares to the Borrower or any direct or indirect wholly owned Subsidiary of the Borrower which has not incurred and will not incur Indebtedness for Borrowed Money other than Permitted Intercompany Loans, (ii) the issuance of shares of Fortis Alberta Holdings Inc. and Fortis Pacific Holdings Inc. to FortisWest, (iii) the issuance of preferred shares of FortisWest to Fortis Properties and FortisOntario in connection with the FortisWest Transaction, (iv) with the prior consent of the Lenders, the issuance of redeemable retractable

		preferred shares of a Company to a Subsidiary of the Borrower in connection with intercorporate transactions similar in nature to the FortisWest Transaction and provided that such preferred shares are pledged to the Borrower or the transaction otherwise does not effectively reduce the direct interest of the Borrower in the Company issuing the preferred shares, (v) the issuance, transfer, sale or other disposition of preferred shares of Newfoundland Power Inc., (vi) the issuance of shares of Subsidiaries of FortisBC to FortisBC, (vii) the transfer of shares of FortisBC to Fortis Pacific Holdings Inc. and of shares of FortisAlberta to Fortis Alberta Holdings Inc., (viii) the issuance of redeemable retractable preferred shares of a Company to a Subsidiary of the Borrower in connection with intercorporate transactions provided that (A) prior written notice of such intercorporate transaction is provided by the Borrower to the Agent, (B) no Default has occurred and is continuing at the time of implementation of such intercorporate transaction or would arise immediately thereafter and (C) such preferred shares are redeemed as one of the steps in such intercorporate transaction and are not outstanding for more than one year; provided further that, the Borrower shall be entitled to dispose of up to 10% of its direct or indirect ownership of any Material Subsidiary either by way of transfer, sale or issuance of shares in such Material Subsidiary without the prior consent of the Majority Lenders provided that any such transfer, sale or issuance of shares does not result in a material reduction or other impairment of the Borrower’s direct or indirect dividend flow from such Material Subsidiary, (ix) the issue of preferred shares of Tucson Electric Power Company in connection with the acquisition by the Borrower of UNS Energy Corporation, (x) the issue, transfer or sale of up to 19.99% of the shares of ITC Investments or AcquisitionCo or the Target to Equity Investors in connection with the Acquisition and Merger, and (xi) the transfer of the Fortis Merger Share Consideration.”.

	(b)	Subsection 11.3(c) of the Credit Agreement is hereby amended by deleting the existing subsection (vii) and replacing it with the following:

		“(vii) Indebtedness for Borrowed Money of the Borrower under the Acquisition Credit Agreement; and

		(viii) any additional Indebtedness for Borrowed Money, provided that (A) at the time of such incurrence, no Default has occurred and is continuing, (B) no Default would arise immediately after or as a result of such incurrence and (C) there would not be a breach of Section 11.1(j) immediately after giving effect to such incurrence.”.

	(c)	Subsection 11.3(e) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

		“(e) Restricted Payments. The Borrower shall not, and shall not permit any other Company to, declare, pay or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) provided no Default has

		occurred and is continuing, the Borrower may declare and pay ordinary course dividends with respect to its share capital (but not special or extraordinary dividends), provided that there would not be a breach of Section 11.1(j) after giving effect to the payment, (ii) any other Company may declare and pay ordinary course, special and extraordinary dividends to the Borrower or for the indirect benefit of the Borrower and, for certainty, ITC Investments may make payments of principal and interest on the ITC Investments Shareholder Notes and may declare and pay ordinary course, special and extraordinary dividends to all of its shareholders provided that it is concurrently paying such dividends proportionally, in accordance with its respective equity interest, to a direct or indirect wholly-owned Subsidiary of the Borrower which is a shareholder of ITC Investments, (iii) the Borrower or any other Company may make Restricted Payments pursuant to and in accordance with stock option plans, stock purchase plans, profit sharing plans, dividend reinvestment plans and/or other benefit plans or investment plans for management, employees or customers of the relevant Company, (iv) the purchase or redemption by Newfoundland Power Inc. of its preferred shares pursuant to the operation of the purchase funds applicable to such preferred shares provided that the aggregate amount of such purchase and/or redemption in any Fiscal Year shall not exceed $300,000, (v) the Borrower may make scheduled interest payments under its convertible subordinated debentures due 2016 in the principal amount of U.S.$40,000,000, (vi) FortisWest may declare and pay dividends with respect to its preferred shares issued to FortisOntario, Fortis Properties and FortisBC Holdings Inc. in connection with the FortisWest Transaction, (vii) a Company may declare and pay dividends with respect to its preferred shares issued in connection with a transaction permitted under clause (iv) or clause (ix) of Section 11.1(k) and (viii) any Restricted Payment by the Borrower or any other Company in addition to those set forth in clauses (i) - (vii) of this Section 11.3(e), provided that (A) at the time of giving effect to such Restricted Payment, no Default has occurred and is continuing, (B) no Default would arise immediately after or as a result of giving effect to such Restricted Payment, (C) except in the case of payments under the ITC Investments Shareholder Notes, the Consolidated Debt to Consolidated Capitalization Ratio would not exceed 0.65:1.00 immediately after giving effect to such Restricted Payment and (D) the Borrower has given the Agent, prior to giving effect to such Restricted Payment, a certificate detailing such Restricted Payment and evidencing compliance with clauses (A) to (C) above.”.

	(d)	Subsection 11.3(f) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

		“(f) Transactions with Affiliates. The Borrower shall not, and shall not permit any other Company to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except to the extent required (i) to give effect to (A) the FortisWest Transaction, (B) the transfer by FortisBC of all or part of the Walden Group to another Company, (C) the

		acquisition of FortisAlberta and FortisBC (including (x) the interest payable by each of FortisOntario, Fortis Properties and FortisBC Holdings Inc. to the Borrower on the intercompany notes issued by them in connection with the FortisWest Transaction and (y) in relation to the Guarantees referred to in Section 11.3(d)), (D) a transaction permitted under clause (iv) or clause (ix) of Section 11.1(k), or (E) intercompany loans made by the Borrower to FortisBC Holdings Inc., the proceeds of which are used by FortisBC Holdings Inc. to repay Indebtedness for Borrowed Money, or (F) the terms of the Merger Agreement and any orders of Governmental Authority pertaining thereto, or (ii) in the ordinary course of business at prices and on terms and conditions not less favourable to such Company than could be obtained on an arm’s length basis from unrelated third parties, or (iii) to give effect to the Permitted Intercompany Loans and Permitted Intercompany Liens. The Borrower shall not enter into any transaction or series of transactions, or permit any other Company to enter into any transaction or series of transactions, with Affiliates of any of the Companies, which involve an outflow of money or other property from such Company to an Affiliate of any of the Companies, including payment of management fees, affiliation fees, administration fees, compensation, salaries, asset purchase payments or any other type of fees or payments similar in nature, other than on terms and conditions substantially as favourable to such Company as would be obtainable by such Company in a reasonably comparable arm’s length transaction with a Person other than an Affiliate of such Company. The foregoing restrictions shall not apply to (A) the payment of reasonable and customary fees to directors of the Borrower who are not employees of the Borrower or the payment of management fees to a Company, directly or indirectly, through a Subsidiary, (B) any other transaction with any employee, officer or director of a Company pursuant to employee profit sharing and/or benefit plans and compensation and non competition arrangements in amounts customary for corporations similarly situated to such Company and entered into in the ordinary course of business and approved by the board of directors of such Company, (C) any reimbursement of reasonable out of pocket costs incurred by an Affiliate of the Borrower on behalf of or for the account of a Company, (D) any loan or Guarantee by any Company to any Affiliate, (E) shared corporate or administrative services and staffing with Affiliates, including accounting, legal, human resources and treasury operations, provided on customary terms for similarly situated companies, (F) tax sharing arrangements on customary terms for similarly situated companies, or (G) transactions by regulated Companies (other than the Borrower) including Regulated Subsidiaries that are Subsidiaries of ITC Investments approved by the relevant Governmental Authority. For greater certainty, nothing in this Section 11.3(f) shall limit or be construed as limiting the ability of a Company to pay management fees or guarantee fees to the Borrower.”.

	(e)	Subsection 11.3(h) of the Credit Agreement is hereby amended by adding the following words after the last sentence of the subsection thereof:

		“(xi) Permitted Intercmopany Loans; (x) loans under the ITC Investments Shareholder Notes.”.

2.4		Schedule D, E and J

		Each of Schedules D, E, and J to the Credit Agreement are hereby deleted in their entirety and replaced with the form attached hereto as Schedule D, E and J, respectively.

2.5		Schedule N

		The form attached hereto as Schedule N is hereby added to the Credit Agreement as Schedule N.

2.6		Schedule O

		The form attached hereto as Schedule O is hereby added to the Credit Agreement as Schedule O.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1		Representations and Warranties

To induce the Lenders and the Agent to enter into this agreement, the Borrower hereby represents and warrants to the Lenders and the Agent that:

	(a)	the representations and warranties of the Borrower which are contained in Section 10.1 of the Credit Agreement are true and correct on the date hereof as if made of the date hereof and that, as of the date hereof, no Material Adverse Change has occurred since December 31, 2015; and

	(b)	no Default or Event of Default exists as at the date hereof or would arise as a result of this agreement becoming effective.

ARTICLE 4

CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT

4.1 Conditions Precedent

This agreement shall not become effective until it has been executed and delivered by the Borrower, the Administrative Agent and the Lenders.

ARTICLE 5

MISCELLANEOUS

5.1 Future References to the Credit Agreement

5.2 Governing Law

This agreement shall be governed by and construed in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein.

5.3 Enurement

This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns.

5.4 Conflict

If any provision of this agreement is inconsistent or conflicts with any provision of the Credit Agreement, the relevant provision of this agreement shall prevail and be paramount.

5.5 Further Assurances

5.6 Counterparts

This agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument.

5.7 No Waiver

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF the parties hereto have executed and delivered this agreement on the date first above written.

FORTIS INC.


By:	/s/ Karl W. Smith
	Name:	Karl W. Smith
	Title:	Executive Vice President and Chief Financial Officer


By:	/s/ James D. Spinney
	Name:	James D. Spinney
	Title:	Treasurer

Sixth Amending Agreement

A- 1

THE BANK OF NOVA SCOTIA as Agent


By:	/s/ Clement Yu
	Name:	Clement Yu
	Title:	Director


By:	/s/ Ryan Moonilal
	Name:	Ryan Moonilal
	Title:	Analyst


THE BANK OF NOVA SCOTIA as Lender


By:	/s/ Randall S. Hartlen
	Name:	Randall S. Hartlen
	Title:	Managing Director


By:	/s/ Frank Carson
	Name:	Frank Carson
	Title:	Director

Sixth Amending Agreement

A- 2

CANADIAN IMPERIAL BANK OF COMMERCE

By:	/s/ Giovanni Strazzullo
	Name:	Giovanni Strazzullo
	Title:	Executive Director


By:	/s/ Peter A. Mastromarini
	Name:	Peter A. Mastromarini
	Title:	Managing Director

Sixth Amending Agreement

A- 3

ROYAL BANK OF CANADA


By:	/s/ Timothy P. Murray
	Name:	Timothy P. Murray
	Title:	Authorized Signatory


By:
	Name:
	Title:

Sixth Amending Agreement

A- 4

BANK OF MONTREAL


By:	/s/ Jeff Currie
	Name:	Jeff Currie
	Title:	Director


By:
	Name:
	Title:

Sixth Amending Agreement

A- 5

	THE TORONTO-DOMINION BANK


	By:	/s/ David Manii
		Name: David Manii
		Title: Director


	By:	/s/ Matthew Hendel
		Name: Matthew Hendel
		Title: Managing Director

Sixth Amending Agreement

A- 6

	HSBC BANK CANADA


	By:	/s/ Casey Coates
		Name: Casey Coates
		Title: Managing Director, Global Banking


	By:	/s/ Shu Wai Chu
		Name: Shu Wai Chu
		Title: Associate, Global Banking

Sixth Amending Agreement

A- 7

	NATIONAL BANK OF CANADA


	By:	/s/ Mark Williamson
		Name: Mark Williamson
		Title: Authorized Signatory


	By:	/s/ John Niedermier
		Name: John Niedermier
		Title: Authorized Signatory

Sixth Amending Agreement

A- 8

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., CANADA BRANCH


By:	/s/ Michael Quinn
	Name:	Michael Quinn
	Title:	Director & Relationship Manager


By:
	Name:
	Title:

Sixth Amending Agreement

A- 9

BANK OF AMERICA, N.A., CANADA BRANCH


By:	/s/ Marc Ahlers
	Name:	Marc Ahlers
	Title:	Vice President


By:
	Name:
	Title:

Sixth Amending Agreement

A- 10

MORGAN STANLEY BANK, N.A.


By:	/s/ Kelly Chin
	Name:	Kelly Chin
	Title:	Authorized Signatory


By:	N/ A
	Name:	N/ A
	Title:	N/ A

Sixth Amending Agreement

A- 11

CAISSE CENTRALE DESJARDINS


By:	/s/ Michel Voyer
	Name:	Michel Voyer
	Title:	Directeur, Financement corporatif
		Director, Corporate Banking


By:	/s/ Dominique Parizeau
	Name:	Dominique Parizeau
	Title:	Directeur général
		Gestion du Portefeuille, Grandes Entreprises
		Managing Director
		Portfolio Management, Corporate Banking

Sixth Amending Agreement

A- 12

WELLS FARGO BANK, N.A., CANADIAN BRANCH


By:	/s/ Jeff Mclnenly
	Name:	Jeff Mclnenly
	Title:	Vice President


By:
	Name:
	Title:

Sixth Amending Agreement

A- 13

Exhibit 99.11

Execution Version

Shareholders’ Agreement

by and among

ITC Investment Holdings Inc.,

ITC Holdings Corp.,

FortisUS Inc.,

Eiffel Investment Pte Ltd,

and

any other Person that becomes a Shareholder pursuant hereto

TABLE OF CONTENTS

		Page
ARTICLE I CERTAIN DEFINITIONS		1
Section 1.1	Certain Definitions	1
Section 1.2	Construction	12
ARTICLE II TRANSFER OF EQUITY SECURITIES		13
Section 2.1	Restrictions	13
Section 2.2	Permitted Transfers	15
Section 2.3	Rights of First Offer	16
Section 2.4	Sales by FortisUS Subject to Tag-Along Rights	18
Section 2.5	Grant to FortisUS of Drag-Along Rights	20
Section 2.6	Grant of Preemptive Rights to Shareholders	23
Section 2.7	Call upon Intermediate Ownership Change	24
Section 2.8	Mandatory Transfer upon Becoming a non-Eligible Holder	24
Section 2.9	Transfer upon New ITC RTO	24
ARTICLE III REGISTRATION RIGHTS		25
Section 3.1	Required Registration	25
Section 3.2	Piggyback Rights	27
Section 3.3	Shelf Registration	28
Section 3.4	Registration Procedures	30
Section 3.5	Preparation; Reasonable Investigation	33
Section 3.6	Rights of Requesting Holders	33
Section 3.7	Registration Expenses	33
Section 3.8	Indemnification; Contribution	34
Section 3.9	Holdback Agreements; Registration Rights to Others	36
Section 3.10	Availability of Information	37
Section 3.11	Other Registration Rights	37
ARTICLE IV GOVERNANCE		37
Section 4.1	ITC Investments Board	37
Section 4.2	Committees of the ITC Investments Board	38
Section 4.3	Majority Shareholder Matters	38
Section 4.4	RH Reserved Matters	39
Section 4.5	Supermajority Shareholder Matters	41
Section 4.6	Independent Director Matters	42
Section 4.7	Related Party Transactions	42
Section 4.8	Consultation Regarding Senior Officers	42
Section 4.9	Maintenance of Governance Rights	43
Section 4.10	ITC Board	43
ARTICLE V OTHER COVENANTS OF INVESTMENTS		43
Section 5.1	Access; Reporting	43
Section 5.2	Dividend Policy	44
Section 5.3	Director and Officer Insurance	44
Section 5.4	Voting Agreements	44
Section 5.5	Investor Tax Status	45
ARTICLE VI SHAREHOLDER REPRESENTATIONS AND WARRANTIES; NOTICES		45
Section 6.1	Representations and Warranties	45
Section 6.2	Shareholder Notices	47
ARTICLE VII MISCELLANEOUS		47
Section 7.1	Entire Agreement	47

TABLE OF CONTENTS

			Page
Section 7.2		Captions	47
Section 7.3		Counterparts	47
Section 7.4		Notices	47
Section 7.5		Successors and Assigns	48
Section 7.6		Governing Law	48
Section 7.7		Disputes	49
Section 7.8		Benefits Only to Parties	50
Section 7.9		Termination; Survival of Benefits	50
Section 7.10		Publicity	50
Section 7.11		Confidentiality	50
Section 7.12		Expenses	52
Section 7.13		Further Assurances	52
Section 7.14		Amendments; Waivers	52
Section 7.15		Severability	52
Section 7.16		Other Business	52
Section 7.17		Issuance of Preferred Stock	53
Section 7.18		Subsidiary Compliance	53
Section 7.19		Limitation of Litigation	54
Section 7.20		Effectiveness Upon Subscription	54

SCHEDULES

Schedule I	—	Equity Securities held by Shareholders

EXHIBITS

Exhibit A	—	Form of Joinder Agreement
Exhibit B	—	Dividend Policy

This SHAREHOLDERS’ AGREEMENT (this “ Agreement ”) is dated as of October 14, 2016, by and among ITC Investment Holdings Inc., a Michigan corporation (“ ITC Investments ”), ITC Holdings Corp., a Michigan corporation (“ ITC ”), FortisUS Inc., a Delaware corporation (“ FortisUS ”), Eiffel Investment Pte Ltd, a Singapore private limited company (“ Investor ”), and any other Person that becomes a Shareholder pursuant hereto.

W I T N E S S E T H :

WHEREAS, on February 9, 2016, FortisUS, Fortis Inc., a corporation organized under the laws of Newfoundland and Labrador (“ Fortis ”), Element Acquisition Sub Inc., a Michigan corporation (“ Merger Sub ”) and ITC, entered into an Agreement and Plan of Merger (the “ Merger Agreement ”) pursuant to which Merger Sub will merge with and into ITC (the “ Merger ”);

WHEREAS, on April 20, 2016, FortisUS has assigned to ITC Investments its rights and obligations under the Merger Agreement, subject to certain exceptions;

WHEREAS, as of the Merger, ITC Investments owned 100% of Merger Sub Common Stock;

WHEREAS, Finn Investment Pte Ltd, a Singapore private limited company (“ Finn ”) entered into that certain Subscription Agreement, dated as of April 20, 2016, by and among Fortis, FortisUS, ITC Investments, Merger Sub, and Finn (as assigned by Finn to Investor pursuant to that certain Assignment Agreement, dated as of October 13, 2016, the “ Subscription Agreement ”) pursuant to which Investor subscribed for and purchased from ITC Investments shares of Common Stock prior to the occurrence of the Merger and FortisUS owned the remaining shares of Common Stock, and as a result thereof, the Shareholders own Equity Securities in the amounts set forth in Schedule I;

WHEREAS, upon the effectiveness of the Merger, the separate corporate existence of Merger Sub ceased and ITC became the surviving corporation in the Merger;

WHEREAS, immediately following the consummation of the Merger, ITC issued common stock of ITC to ITC Investments in accordance with Section 2.1(c)(ii) of the Merger Agreement;

WHEREAS, immediately following the consummation of the Merger, the conversion of the Merger Sub Common Stock into common stock of ITC in connection therewith, and the issuance of common stock of ITC to ITC Investments as aforesaid, ITC Investments owned 100% of ITC; and

WHEREAS, ITC Investments and the Shareholders each desire to enter into this Agreement to, inter alia , establish certain rights and obligations relating to the Equity Securities and to limit the sale, assignment, transfer, encumbrance or other disposition of such Equity Securities and to provide for the consistent and uniform management of ITC Investments and ITC as set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.1 Certain Definitions . For purposes of this Agreement, the following terms shall have the following meanings:

“ Affiliate ” means, with respect to any Person, (i) any Controlled Affiliate of such Person and (ii) any other Person that beneficially owns 10% or more of the voting interests in such Person; provided,

however, that no entity other than GIC Pte Ltd (or any successor thereto or assignee of all or a substantial portion of the business or assets thereof) and its subsidiaries and entities managed or advised by GIC Pte Ltd (or any successor thereto or assignee of all or a substantial portion of the business or assets thereof) and its subsidiaries shall be deemed an Affiliate of the Investor hereunder.

“ Agreement ” has the meaning set forth in the Preamble.

“ Allocated Overhead ” means recoverable general administrative, corporate, or other support costs which are allocated to ITC in accordance with the Uniform System of Accounts for Public Utilities.

“ Applicable Law ” means, with respect to any Person, all provisions of laws, statutes, ordinances, rules, regulations, permits or certificates of any Governmental Entity applicable to such Person or any of its assets or property, and all judgments, injunctions, orders and decrees of any Governmental Entities in proceedings or actions in which such Person is a party or by which any of its assets or properties are bound.

“ Appraiser ” has the meaning set forth in the definition of “Fair Market Value”.

“ Authorization Date ” has the meaning set forth in Section 2.3.

“ Business Day ” means any day, other than a Saturday, a Sunday or a day on which banks located in New York, New York, St. John’s, Newfoundland, or Novi, Michigan are authorized or required by Applicable Law to close.

“ Cash Subscription Price ” has the meaning set forth in the Subscription Agreement.

“ Cause ” means, with respect to any director of the ITC Investments Board, (a) being indicted for, convicted of, or having pled guilty or nolo contendere to, any (x) felony, (y) any crime involving moral turpitude or (z) other crime if, as a result of such director’s continued association with ITC Investments or ITC or any of its Subsidiaries, it is likely to be injurious to its business or reputation as determined by the ITC Investments Board in its sole discretion, (b) being restricted by any Applicable Law from acting as a director on the ITC Investments Board or the ITC Board or (c) having committed gross negligence or willful misconduct in the performance of such director’s duties as determined by the ITC Investments Board or (d) in respect only of membership on the audit committee, not having the requisite financial acumen to sit on the audit committee, as determined by the ITC Investments Board.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Common Stock ” means the common stock of ITC Investments.

“ Common Stock Equivalents ” means, at any time, (i) with respect to each share of Common Stock issued and outstanding, one and (ii) with respect to any other Equity Security which is at such time exercisable, exchangeable or convertible into or for Common Stock at an exercise price equal to or less than the Fair Market Value of the Common Stock at such time, an amount equal to the number of shares of Common Stock, if any, into or for which such Equity Security may be exercised, exchanged or converted at such time.

“ Confidential Information ” has the meaning set forth in Section 7.11.

“ Consent ” means all Licenses, clearances, expirations or terminations of waiting periods, non- actions, waivers, qualifications, change of ownership approvals or other authorizations.

“ Consolidated Debt ” means, on any date, an amount equal to the aggregate of all Indebtedness for Borrowed Money of ITC and its Subsidiaries on such date, determined in accordance with GAAP on a

consolidated basis, plus the redemption amount of all shares of ITC which are retractable or redeemable at the option of the holder on such date (and for certainty, Preferred Equity shall not be included in the calculation of Consolidated Debt).

“ Control ” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise (and the terms “Controlling”, “Controlled by” and “under common Control with” have correlative meanings). Without limiting the foregoing, any Person that beneficially owns 50% or more of the voting interests in another Person shall be conclusively deemed to Control such other Person.

“ Controlled Affiliate ” means, with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person.

“ Core Assets ” means transmission assets, distribution assets, or assets in respect of any related ancillary service.

“ CPI ” means the Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, not seasonally adjusted, (1982-84 = 100), All Items, as calculated and published by the U.S. Department of Labor, Bureau of Labor Statistics; provided, that if such index ceases to be available, a comparable successor index shall be designated by the ITC Investments Board.

“ Demand Notice ” has the meaning set forth in Section 3.1(a).

“ Demand Request ” has the meaning set forth in Section 3.1(a).

“ Demanding Shareholder ” has the meaning set forth in Section 3.1.

“ Disclosure Package ” means, with respect to any offering of securities, (i) the preliminary prospectus, (ii) each Free Writing Prospectus and (iii) all other information, in each case, that is deemed, under Rule 159 promulgated under the Securities Act, to have been conveyed to purchasers of securities at the time of sale of such securities (including a contract of sale).

“ Disqualified RTO Affiliate ” means, with respect to any Market Participant in any Regional Transmission Organization, any Affiliate of such Market Participant; unless, (i) such Affiliate has been determined by the Federal Energy Regulatory Commission to not be controlled by or under common control with such Market Participant in a manner that would result in the loss of any independence adder of ITC or its Subsidiaries or ITC or its Subsidiaries being ineligible for any independence adder in respect of such Regional Transmission Organization or (ii) such Affiliate has not been determined, and could not reasonably be expected to be determined, by the Federal Energy Regulatory Commission to be controlled by or under common control with such Market Participant in a manner that would result in the loss of any independence adder of ITC or its Subsidiaries or ITC or its Subsidiaries being ineligible for any independence adder in respect of such Regional Transmission Organization.

“ Eligible Holder ” means any Person that (i) is not, and is not a Controlled Affiliate of any Person that is, engaged primarily in the business of developing, owning, or operating electrical transmission systems located in North America ( provided, that this subpart (i) shall not apply to FortisUS, for purposes of Transfers by FortisUS or to Investor and its Affiliates as a result of any interest in Oncor Electric Delivery Company LLC), (ii) has not become a Market Participant of any Regional Transmission Organization after such Regional Transmission Organization became an ITC RTO, or, if it has become a Market Participant of any Regional Transmission Organization after such Regional Transmission Organization became an ITC RTO, it did not commit to the transaction pursuant to which it became such a Market Participant after such Regional Transmission Organization became an ITC RTO, (iii) has not

become a Disqualified RTO Affiliate of a Market Participant of any Regional Transmission Organization after such Regional Transmission Organization became an ITC RTO, or, if it has become a Disqualified RTO Affiliate of a Market Participant of any Regional Transmission Organization after such Regional Transmission Organization became an ITC RTO, it did not commit to the transaction pursuant to which it became such a Disqualified RTO Affiliate of Market Participant after such Regional Transmission Organization became an ITC RTO, and (iv) is not a Prohibited Person; provided, that subparts (ii) and (iii) of this definition shall not apply if ITC or its Subsidiaries at any time cease to have the benefit of the independence adder in the pertinent Regional Transmission Organization and the same shall not have been reinstated within a period of ninety days; provided, further, that if any Shareholder shall cease to meet the requirements of subparts (i) through (iii) at any time, for a period of 180 days from the date such Person ceased to meet the requirements of subparts (i) through (iii) (or such later time as permitted by the Federal Energy Regulatory Commission in accordance with an order issued during the initial ninety-day period) such Person shall be deemed to be an Eligible Holder hereunder. For purposes of the foregoing, the Affiliates of a Fund shall include all subsidiaries of such Fund but shall exclude (other than for purposes of subpart (iv) of the definition of Eligible Holder) the other Affiliates of the Fund Manager or Fund Advisor of such Fund (including other Funds managed by such Fund Manager or to whom such Fund Advisor provides investment advice) if customary ethical screens have been established between such Affiliates and such Fund Manager or Fund Advisor that are sufficient to ensure that confidential information regarding ITC Investments and its Subsidiaries will not be shared by such Fund Manager or Fund Advisor with such other Affiliates of such Fund Manager or Fund Advisor.

“ Eligible Transferee ” means any Person that, after giving effect to the relevant Transfer, (i) would be an Eligible Holder, (ii) is not a Market Participant of any ITC RTO and is not a Disqualified RTO Affiliate of a Market Participant of any ITC RTO (other than, with respect to FortisUS, PJM Interconnection, LLC) and would not otherwise reasonably be expected (based on due inquiry or advice from outside counsel, as appropriate), as a result of becoming a Shareholder, to subject ITC Investments or its Affiliates to material adverse regulatory change, burden or process, and (iii) is not and does not have Controlled Affiliate that is in material litigation with ITC Investments, the Shareholders, or its or their respective Controlled Affiliates. For purposes of the foregoing, the Controlled Affiliates of a Fund shall include all subsidiaries of such Fund but shall exclude the other Affiliates of the Fund Manager or Fund Advisor of such Fund (including other Funds managed by such Fund Manager or to whom such Fund Advisor provides investment advice) if customary ethical screens have been established between such Controlled Affiliates and such Fund Manager or Fund Advisor that are sufficient to ensure that confidential information regarding ITC Investments and its Subsidiaries will not be shared by such Fund Manager or Fund Advisor with such other Affiliates of such Fund Manager or Fund Advisor.

“ Equity Securities ” means all shares of Common Stock, all securities, directly or indirectly, convertible into or exercisable or exchangeable for shares of Common Stock and all Options and other rights to purchase or otherwise, directly or indirectly, acquire from ITC Investments shares of Common Stock, or securities convertible into or exercisable or exchangeable for shares of Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event. As to any particular shares of Common Stock constituting Equity Securities, such shares shall cease to be Equity Securities when they have been acquired by ITC Investments.

“ Escalated ” means, with respect to any dollar amount on any date, (x) such dollar amount multiplied by (y) a percentage equal to (A) the positive change (if any) in the CPI between the CPI for January of the year immediately preceding such date and the CPI for January 2016 divided by the CPI for January 2016 multiplied by (B) 100.

“ Excepted Transaction ” means, with respect to Related Party Transactions involving FortisUS or its Affiliates, (A) the non-discriminatory allocation of Allocated Overhead to ITC Investments by

FortisUS in accordance with FortisUS’ generally applicable policies; (B) Related Party Transactions negotiated on an “arm’s-length” basis and containing terms and conditions that are arm’s-length and at least as favorable to ITC Investments and its Subsidiaries as terms and conditions reasonably available from third parties (in each case, as determined by a majority of the disinterested directors of the ITC Investments Board); (C) Related Party Transactions for dispositions of assets that are non-Qualifying Core Assets, the development of which was subject to approval by an RH Shareholder at the time of the final investment decision with respect thereto, in accordance with this Agreement and such approval was not provided at such time (if, and only if, the consideration therefor represents at least fair market value of such assets as determined by a majority of the disinterested directors of the ITC Investments Board); or (D) Related Party Transactions for dispositions of assets that are required by Applicable Law, provided that such disposition is negotiated on an arm’s-length basis and contains arm’s-length terms and conditions that are at least as favorable to ITC Investments and its Subsidiaries as terms and conditions reasonably available from third parties (in each case, as determined by a majority of the disinterested directors of the ITC Investments Board).

“ Excepted Issuance ” means any issuance of Equity Securities to fund (i) capital expenditures in connection with developing Core Assets reasonably required by Applicable Law to provide safe, adequate and reliable electric transmission, distribution, or any related ancillary service in the then-current development and operating area of ITC or (ii) any extraordinary operating expenses of ITC.

“ Excess New Securities ” has the meaning set forth in Section 2.6(a).

“ Exchange Act ” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ Fair Market Value ” means, as of any date, the value of the shares of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock as quoted on such exchange or market (or, if listed on more than one such exchange or market, the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to such date, as reported in The Wall Street Journal or such other source as the ITC Investments Board deems reliable; or (ii) in the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the ITC Investments Board, with written notice of such determination to be promptly given to Shareholders, provided, that if there is a good faith objection to such a determination by the Relevant Shareholder, then the Fair Market Value shall be determined by an independent third party appraiser retained by the ITC Investments Board and reasonably acceptable to the Relevant Shareholder (the “ Appraiser ”), and all reasonable fees, costs and expenses of the Appraiser shall be allocated to ITC Investments, on the one hand, and/or the Relevant Shareholder, on the other hand, based upon the percentage which the portion of the contested amount finally determined bears to the amount actually contested, as determined by the Appraiser. By way of illustration, if ITC Investments claims that the value per share of Common Stock is $1,000, the Relevant Shareholder claims that the value per share of Common Stock is $1,500, and the Appraiser determines that the value per share of Common Stock is $1,200, then the costs and expenses of the Appraiser will be allocated 60% ( i.e ., 300 ÷ 500) to the Relevant Shareholder and 40% ( i.e. , 200 ÷ 500) to ITC Investments.

“ FFO/Net Debt Ratio ” means, as of the end of any fiscal quarter of ITC Investments, the ratio of (i) cash flow from operations before changes in working capital and before changes in other short-term and long-term operating assets and liabilities (with respect to the twelve months preceding the end of such fiscal quarter) to (ii) Consolidated Debt less cash and cash equivalents and less cash-like current financial assets (as of the last day of such fiscal quarter).

“ Filing ” means all registrations, notices, declarations or filings.

“ FINRA ” means the Financial Industry Regulatory Authority.

“ Fortis Group ” means Fortis or any of its Affiliates (other than ITC Investments, Merger Sub and ITC and its Subsidiaries).

“ Fortis Sale Notice ” has the meaning set forth in Section 2.3(b).

“ FortisUS ” has the meaning set forth in the Preamble; provided, that upon any Permitted Transfer by FortisUS Inc., “FortisUS” will mean (i) FortisUS Inc. and its Wholly-Owned Affiliates, or (ii) if FortisUS Inc. and its Wholly-Owned Affiliates are no longer Shareholders, their successor or permitted assign that is a Shareholder (it being understood that if there is more than one such Shareholder that are not Wholly-Owned Affiliates of each other, then FortisUS will mean the one such Shareholder and its Wholly-Owned Affiliates that owns the largest percentage of Common Stock Equivalents).

“ FortisUS Group ” has the meaning set forth in Section 2.3(a)(ii).

“ Free Writing Prospectus ” means any “free writing prospectus” as defined in Rule 405 promulgated under the Securities Act.

“ Fund ” means any share trust, investment trust, investment company, limited partnership, general partnership or other collective investment scheme, pension fund, insurance company, or anybody corporate or other entity, in each case, the business, operations or assets of which are managed professionally for investment purpose.

“ Fund Advisor ” means, with respect to any Fund, the primary or principal entity that provides investment advice to such Fund.

“ Fund Manager ” means, with respect to any Fund, any general partner, trustee, responsible entity, nominee, manager, or other entity performing a similar function with respect to such Fund.

“ GAAP ” means the generally accepted accounting principles in effect from time to time in the United States consistently applied.

“ Governmental Entity ” means any United States or non-United States federal, state, provincial or local court, arbitral tribunal, administrative agency, authority or commission or other governmental, quasi-governmental or regulatory agency or authority or any securities exchange.

“ Holders’ Counsel ” has the meaning set forth in the definition of “Registration Expenses”.

“ ICC ” has the meaning set forth in Section 7.7(a).

“ Indebtedness for Borrowed Money ” means, in respect of any Person and without duplication, (a) all obligations of such Person for borrowed money or with respect to advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes, letters of credit or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all capital lease obligations of such Person, (e) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, letters of credit and letters of guarantee, and (f) all guarantees by such Person of Indebtedness for Borrowed Money of others in each case determined in accordance with GAAP; provided, that, for greater certainty, trade payables do not constitute Indebtedness for Borrowed Money.

“ Independent Director ” means a director who meets all of the following requirements: (a) is elected by the Shareholders; (b) is designated as an independent director by the ITC Investments Board, the ITC Board, or the Shareholders; (c) is not an RH Director; (d) is not and during the 3 years prior to being designated as an independent director has not been any of the following: (i) a director of FortisUS

or any of its Affiliates (other than ITC Investments or ITC); or (ii) an officer or employee of ITC Investments, ITC, FortisUS or any of their Affiliates; and (e) would meet the definition of “independent director” under the New York Stock Exchange Listed Company Manual if such director were a member of the board of directors of Fortis Inc., FortisUS, ITC Investments, or ITC (assuming, in the case of FortisUS, ITC Investments and ITC, that such entities were listed on the New York Stock Exchange).

“ Independent Director Matters ” has the meaning set forth in Section 4.6.

“ Initial Public Offering ” means any initial Public Offering.

“ Intermediate Ownership Change ” means, (i) with respect to Investor, (x) GIC (Ventures) Pte Ltd ceasing to hold all of the direct or indirect voting and economic interests of Investor or (y) GIC Pte Ltd ceasing to Control Investor, (ii) with respect to any Permitted Transferee of Investor that is a Fund or is directly or indirectly owned by a Fund as of the relevant Permitted Transfer, the Fund Manager or Fund Advisor of such Permitted Transferee as of the relevant Permitted Transfer ceasing to Control such Permitted Transferee through such Fund or any other Fund, (iii) with respect to any other Permitted Transferee of Investor, the Ultimate Parent(s) of such Permitted Transferee as of the relevant Permitted Transfer (x) ceasing to hold all of the direct or indirect voting and economic interests of such Permitted Transferee or (y) otherwise ceasing to Control such Permitted Transferee, or (iv) with respect to any Shareholder, such Shareholder becomes or becomes a Controlled Affiliate of a Prohibited Person.

“ Investor ” has the meaning set forth in the Preamble; provided, that upon any Permitted Transfer by Investor, “Investor” will mean (i) Investor Holders, or (ii) if Investor and its Wholly-Owned Affiliates are no longer Shareholders, their successor or permitted assign that is a Shareholder (it being understood that if there is more than one such Shareholder that are not Wholly-Owned Affiliates of each other, then Investor will mean the one such Shareholder and its Wholly-Owned Affiliates that owns the largest percentage of Common Stock Equivalents).

“ Investor Holders ” means the Investor and any Wholly-Owned Affiliate of the Investor to which the Investor Transfers Equity Securities in accordance with the terms hereof.

“ IRR Floor ” means the interpolated amount of net cash (for greater certainty, post-tax) that causes the internal rate of return on investment of the Minority Invested Amount (taking into account all distributions theretofore made on the Common Stock issued in respect of the Minority Invested Amount and the timing of the Subscription and all subsequent contributions and distributions) to equal 10%.

“ ITC ” has the meaning set forth in the Preamble.

“ ITC Board ” means the board of directors of ITC.

“ ITC Bylaws ” means the bylaws of ITC, as in effect from time to time.

“ ITC Group ” means ITC Investments, Merger Sub, ITC or any of its Subsidiaries.

“ ITC Investments ” has the meaning set forth in the Preamble.

“ ITC Investments Board ” means the board of directors of ITC Investments.

“ ITC Investments Bylaws ” means the bylaws of ITC Investments, as in effect from time-to-time.

“ ITC Investments Indemnities ” has the meaning set forth in Section 2.5(b).

“ ITC Investments Loss ” has the meaning set forth in Section 2.5(e)(iv).

“ ITC RTO ” means the Midcontinent Independent System Operator, Inc., the Southwest Power Pool, Inc., and any other Regional Transmission Organization approved in accordance with Section 4.4(n).

“ Licenses ” means all permits, licenses, authorizations, exemptions, orders, consents, approvals, grants, certificates, variances, exceptions, permissions, qualifications, registrations, clearances and franchises.

“ Majority Registrable Holders ” means, at any time, and with respect to any Registration and related Public Offering, the holders of at least a majority of the Registrable Securities proposed to be included in such Public Offering before giving effect to any cut-back provisions contained herein.

“ Market Participant ” means, in respect of any Regional Transmission Organization, any entity that, either directly or through an affiliate, sells or brokers electric energy, or provides ancillary services to such Regional Transmission Organization, consistent with the definition in the Federal Energy Regulatory Commission regulations at 18 C.F.R. §35.34(b)(2).

“ Material Corporate Transaction ” has the meaning set forth in Section 3.3(c).

“ Merger ” has the meaning set forth in the Recitals.

“ Merger Agreement ” has the meaning set forth in the Recitals.

“ Merger Sub ” has the meaning set forth in the Recitals.

“ Merger Sub Common Stock ” means the common stock of Merger Sub (prior to giving effect to the Merger).

“ Minority Invested Amount ” means the Cash Subscription Price plus all other capital contributions to the Common Stock made by the Investor Holders after the date hereof.

“ New Securities ” means any securities (including new Equity Securities, Preferred Equity, or securities representing Indebtedness for Borrowed Money) of ITC Investments or any of its Subsidiaries, whether authorized now or in the future; provided, that “New Securities” shall not include (i) Equity Securities issued by ITC Investments or any of its Subsidiaries on or prior to the date hereof as contemplated by the Subscription Agreement, (ii) shares of Common Stock issued upon the direct or indirect conversion, exchange or exercise of any securities previously issued by ITC Investments in compliance with Section 2.6, (iii) securities issued by ITC Investments or any of its Subsidiaries in connection with any subdivision of securities (including any stock dividend or stock split) or any combination of securities (including any reverse stock split); (iv) Equity Securities sold in a Public Offering, (v) Equity Securities issued as consideration for the acquisition of another Person or all or substantially all of the assets of another Person (whether by merger, recapitalization, business combination or otherwise), or (vi) Equity Securities issued to any third party lenders as “equity kickers” in connection with what is primarily a loan transaction pursuant to any agreement or arrangement approved by the ITC Investments Board.

“ New Securities Price ” has the meaning set forth in Section 2.6(a).

“ Options ” means any rights, options or warrants to purchase any Equity Securities (including, (x) debt obligations which are or may become convertible into or exchangeable or exercisable for Equity Securities, (y) vested and unvested stock options and (z) contractual rights to receive payments, such as “phantom” stock or stock appreciation rights, where the amount thereof is determined by reference to fair market or equity value of ITC Investments or any Equity Securities).

“ Other Holders ” has the meaning set forth in Section 3.2(c)(ii).

“ Other Shareholders ” has the meaning set forth in Section 2.4(a).

“ Participant ” has the meaning set forth in Section 2.4(b).

“ Permitted Transfer ” has the meaning set forth in Section 2.2(a).

“ Permitted Transferee ” has the meaning set forth in Section 2.2(a).

“ Person ” means any individual, corporation, limited partnership, general partnership, limited liability partnership, limited liability company, joint stock company, joint venture, corporation, unincorporated organization, association, company, trust, group or any governmental or political subdivision or any agency, department or instrumentality thereof.

“ Piggyback Notice ” has the meaning set forth in Section 3.2(a).

“ Piggyback Offering ” has the meaning set forth in Section 3.2(a).

“ Preemptive Exercise Notice ” has the meaning set forth in Section 2.6(a).

“ Preemptive Notice ” has the meaning set forth in Section 2.6(a).

“ Preferred Equity ” means, on any date, the amount of any convertible or exchangeable preferred shares of ITC Investments which are convertible into equity of ITC Investments and which are not retractable or redeemable for cash at the option of the holder on such date.

“ Prohibited Person ” means any Person that is (i) the subject of (or would reasonably be expected to cause ITC Investments, the Shareholders, or its or their respective Controlled Affiliates to become the subject of) sanctions, (ii) owned or controlled by a Person that is the subject of sanctions; (iii) organized or resident in any country or region that is the subject of comprehensive sanctions; or (iv) reasonably expected to cause ITC Investments, the Shareholders, or its or their respective Affiliates to be in violation of counterterrorism, money laundering laws, export control, economic sanctions, or other similar regulations.

“ Proxy ” has the meaning set forth in Section 2.5(a).

“ Proxy Shareholders ” has the meaning set forth in Section 2.5(a).

“ Public Offering ” means any Underwritten Offering by ITC Investments of Common Stock to the public pursuant to an effective registration statement filed with the SEC under the Securities Act (or the closing of another transaction that results in any Common Stock being publicly traded and widely held by the public); provided , that a Public Offering shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan.

“ Qualifying Core Assets ” means (i) Core Assets on which ITC or its Subsidiaries is entitled to receive rates approved by the Federal Energy Regulatory Commission and (ii) any other Core Assets reasonably required by Applicable Law to provide continued safe, adequate and reliable electric transmission, distribution, or any related ancillary service in the development and operating area of ITC (after giving effect to the acquisition of such assets, if applicable).

“ Regional Transmission Organization ” means the Midcontinent Independent System Operator, Inc., the Southwest Power Pool, Inc., PJM Interconnection, LLC, and any similar regional transmission organization.

“ Registrable Securities ” means, at any time: (i) any shares of Common Stock issued to, purchased or acquired by, any Shareholder and any shares of Common Stock issued or issuable to any Shareholder upon exercise, exchange or conversion of any Equity Securities; and (ii) any securities issued or issuable to any Shareholder with respect to any shares of Common Stock (including, by way of stock dividend, stock split, distribution, exchange, combination, merger, recapitalization, reorganization or otherwise). As to any particular Registrable Securities once issued, such securities shall cease to be Registrable Securities upon the earliest to occur of: (i) the date on which such securities are disposed of pursuant to an effective registration statement under the Securities Act; (ii) the date on which such securities are disposed of pursuant to Rule 144 (or any successor provision) promulgated under the Securities Act; (iii) with respect to the Registrable Securities held by any Shareholder, any time that such Shareholder is permitted to sell such Registrable Securities under Rule 144(b)(1) under the Securities Act (or any successor provision thereto); and (iv) the date on which such securities cease to be outstanding.

“ Registration ” means each Required Registration and each registration under the Securities Act of securities in connection with a Piggyback Offering.

“ Registration Expenses ” means all reasonable expenses incident to ITC Investments’ performance of or compliance with ARTICLE III of this Agreement including, all registration, filing and FINRA fees, including fees payable in connection with the listing of securities on any securities change, fees and expenses relating to compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of any Registrable Securities), expenses of printing certificates for any Registrable Securities in a form eligible for deposit with the Depository Trust Company, all word processing, duplicating and printing expenses, messenger and delivery expenses, internal expenses (including, all salaries and expenses of its officers and employees performing legal or accounting duties), and fees and disbursements of counsel for ITC Investments and of its independent certified public accountants (including the expenses of any management review, special audits or “cold comfort letters” required by or incident to such performance and compliance), securities acts liability insurance (if ITC Investments elects to obtain such insurance), the reasonable fees and expenses of any special experts retained by ITC Investments in connection with such registration, fees and expenses of other Persons retained by ITC Investments, the fees and expenses of one counsel (the “ Holders’ Counsel ”) and applicable local counsel for the holders of Registrable Securities to be included in each relevant Registration, selected by the holders of a majority of the Registrable Securities to be included in such Registration (except that, where a Registration is a Required Registration, such selection may only be made by Shareholders holding a majority of the Registrable Securities set forth in the relevant Demand Request); but not including any underwriting fees, discounts or commissions attributable to the sale of securities or fees and expenses of counsel representing the holders of Registrable Securities included in such Registration (other than the Holders’ Counsel and applicable local counsel) incurred in connection with the sale of Registrable Securities.

“ Related Party Transaction ” means, with respect to any Shareholder, any transaction or agreement between ITC Investments or any of its Subsidiaries on the one hand and such Shareholder or its Affiliates on the other hand, and for greater certainty, “material Related Party Transaction” means any Related Party Transaction with a dollar value (either individually or together with related transactions) in excess of $1,000,000.

“ Relevant Shareholder ” has the meaning set forth in Section 2.7(b).

“ Representative ” has the meaning set forth in Section 7.11.

“ Request for Intervention ” has the meaning set forth in Section 7.7(d).

“ Request for Joinder ” has the meaning set forth in Section 7.7(c).

“ Requesting Shareholder ” has the meaning set forth in Section 3.3(d).

“ Required Registration ” has the meaning set forth in Section 3.1(a).

“ Requisite Holding ” means 9.95% or more of the aggregate Common Stock Equivalents of ITC Investments (or such lesser percentage as determined in accordance with Section 4.9).

“ RH Director ” means each director that is nominated by an RH Shareholder and appointed as a member of the ITC Investments Board and ITC Board in accordance herewith.

“ RH Reserved Matters ” has the meaning set forth in Section 4.4.

“ RH Shareholder ” means the Investor and any successor or permitted assign thereof, in each case, that together with its Wholly-Owned Affiliates, owns the Requisite Holding.

“ Rules ” has the meaning set forth in Section 7.7(a).

“ Sale of the Business ” means any transaction or series of transactions (whether structured as a stock sale, merger, consolidation, reorganization, recapitalization, redemption, asset sale or otherwise), which results in the sale or transfer of (a) all or substantially all of the assets of ITC Investments and its Subsidiaries taken as a whole (determined based on value), (b) beneficial ownership or Control of all or substantially all of the capital stock of ITC Investments or (c) beneficial ownership or Control of all or substantially all of the capital stock of any one or more of ITC Investments’ Subsidiaries owning, Controlling or otherwise constituting all or substantially all of the assets of ITC Investments and its Subsidiaries taken as a whole (determined based on value), in each case, to a Person or a “group” (as such term is defined under Regulation 13D under the Exchange Act) other than FortisUS or any of its Controlled Affiliates; provided, that in no event shall a Sale of the Business be deemed to include any transaction effected solely for the purpose of changing, directly or indirectly, the form of organization or the organizational structure of ITC Investments or any of its Subsidiaries.

“ Sale Process ” has the meaning set forth in Section 2.5(b).

“ SEC ” means, at any time, the United States Securities and Exchange Commission or any other federal agency at such time administering the Securities Act.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Shareholder ” means FortisUS, Investor, and any other Person that becomes a Shareholder pursuant to Section 2.2(b).

“ Shareholder Agreements ” has the meaning set forth in Section 2.5(b).

“ Shareholder Free Writing Prospectus ” means each Free Writing Prospectus prepared by or on behalf of the relevant selling Shareholder or used or referred to by such Shareholder in connection with the offering of Registrable Securities.

“ Shareholder Note ” means any Indebtedness for Borrowed Money extended by a Shareholder to ITC Investments or its Subsidiaries, other than through participation in a financing whose original lenders were primarily not Shareholders.

“ Shelf Notice ” has the meaning set forth in Section 3.3(a).

“ Shelf Registration ” has the meaning set forth in Section 3.3(a).

“ Shelf Registration Effectiveness Period ” has the meaning set forth in Section 3.3(b).

“ Shelf Registration Statement ” has the meaning set forth in Section 3.3(a).

“ Shelf Request ” has the meaning set forth in Section 3.3(a).

“ Shelf Underwritten Offering ” has the meaning set forth in Section 3.3(d).

“ Subscription ” has the meaning set forth in the Subscription Agreement.

“ Subscription Agreement ” has the meaning set forth in the Recitals.

“ Subsidiary ” means, with respect to any Person, (i) any corporation more than 50% of the stock of any class or classes of which having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more subsidiaries of such Person and (ii) any partnership, association, joint venture, limited liability company or other entity in which such Person directly or indirectly through one or more subsidiaries of such Person has more than a 50% equity interest.

“ Supermajority Shareholder Matters ” has the meaning set forth in Section 4.5.

“ Suspension Period ” has the meaning set forth in Section 3.3(c).

“ Takedown Notice ” has the meaning set forth in Section 3.3(d).

“ Takedown Request ” has the meaning set forth in Section 3.3(d).

“ Transfer ” has the meaning set forth in Section 2.1(a).

“ Transfer Notice ” has the meaning set forth in Section 2.4(a).

“ Ultimate Parent ” of a Permitted Transferee means the first direct or indirect parent of such Permitted Transferee whose economic and voting equity interests are (x) publicly traded pursuant to open market transactions on the New York Stock Exchange, The Nasdaq Stock Market, Inc., London Stock Exchange or comparable United States or foreign securities exchange or (y) owned entirely by one or more natural persons.

“ Underwritten Offering ” means a sale of securities of ITC Investments to an underwriter or underwriters for reoffering to the public.

“ Uniform System of Accounts for Public Utilities ” means the Uniform System of Accounts Prescribed for Public Utilities and Licensees Subject to the Provisions of the Federal Power Act, 18 C.F.R. Part 101.

“ Wholly-Owned Affiliate ” means, with respect to any Person (“ Person A ”), (i) any other Person whose economic and voting equity interests are directly or indirectly wholly-owned by Person A, (ii) any other Person who directly or indirectly owns all of the economic and voting equity interests of Person A or (iii) any other Person whose economic and voting equity interests are directly or indirectly wholly- owned by a Person who also directly or indirectly owns all of the economic and voting equity interests of Person A.

Section 1.2 Construction . In this Agreement, unless otherwise specified or where the context otherwise requires:

(a) the headings of particular provisions of this Agreement are inserted for convenience only and shall not be construed as a part of this Agreement or serve as a limitation or expansion on the scope of any term or provision of this Agreement;

(b) words importing any gender shall include other genders;

(d) the words “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”;

(e) the words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;

(f) references to “Schedules,” “Exhibits” or “Sections” shall be to Schedules, Exhibits or Sections of or to this Agreement;

(g) references to any Person include the successors and permitted assigns of such Person;

(h) the use of the words “or,” “either” and “any” shall not be exclusive;

(i) whenever this Agreement refers to a number of days, that number shall refer to calendar days unless Business Days are specified and whenever any action must be taken under this Agreement on or by a day that is not a Business Day, then that action may be validly taken on or by the next day that is a Business Day.

(j) wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict;

(k) references to any agreement, contract or schedule, unless otherwise stated, are to such agreement, contract or schedule as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; and

(l) the parties hereto have participated jointly in the negotiation and drafting of this Agreement; accordingly, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.

ARTICLE II

TRANSFER OF EQUITY SECURITIES

Section 2.1 Restrictions . (a) No Shareholder shall, voluntarily or involuntarily, by operation of law or otherwise, directly or indirectly, sell, assign, donate, gift, pledge, hypothecate, any right or option with respect to, dispose of, encumber or grant a security interest in, dispose of, grant a participation or beneficial interest in, or in any other manner, transfer any Equity Securities, in whole or in part, with or without consideration, or any other right or interest therein, or enter into any transaction which results in the economic equivalent of a transfer to any Person, including any derivative transaction that has the effect of changing materially the economic benefits, risks and voting rights associated with ownership (each such action, a “ Transfer ”) except pursuant to a Permitted Transfer.

(b) From and after the date hereof, all certificates or other instruments representing Equity Securities held by each Shareholder and all certificates or other instruments issued in exchange for or upon the Transfer of any Equity Securities shall bear a legend which shall state:

“The securities represented by this certificate are subject to and have the benefit of a Shareholders’ Agreement, dated as of October 14, 2016, as the same may be amended from time to time, pursuant to the terms of which such securities are subject to certain restrictions and conditions on transfer. Such Shareholders’ Agreement also provides for various other limitations and obligations, and all of the terms thereof are incorporated by reference herein. A copy of such Shareholders’ Agreement has been filed in the chief executive office of ITC Investments where the same may be inspected daily during business hours.”

(c) In addition to the legend required by Section 2.1(b) above, all certificates or other instruments representing Equity Securities held by each Shareholder and all certificates or other instruments issued in exchange for or upon the Transfer of any Equity Securities shall bear a legend which shall state:

“The securities represented by this certificate have not been registered under the United States Securities Act of 1933, as amended (the “ Securities Act ”), or any other securities law, and such securities may not be offered, sold, pledged or otherwise transferred except (1) pursuant to an exemption from, or in a transaction not subject to, the registration requirements under the Securities Act or (2) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any State of the United States of America.”

Notwithstanding the foregoing provisions of this Section 2.1(c), the legend required by this Section 2.1(c) shall be removed from any such certificates representing Equity Securities upon the request of any Shareholder to ITC Investments, accompanied by an opinion of counsel reasonably satisfactory to ITC Investments that such Equity Securities may be freely transferred at any time without registration thereof under the Securities Act and that such legend may be removed.

(d) Any attempt to Transfer any Equity Security which is not in accordance with this Agreement shall be null and void and ITC Investments agrees that it will not cause, permit or give any effect to any Transfer of any Equity Securities to be made on its books and records unless such Transfer is permitted by this Agreement and has been made in accordance with the terms hereof.

(e) Each Shareholder agrees that it will not effect any Transfer of Equity Securities unless such Transfer is a Permitted Transfer and is made (i) pursuant to an exemption from the registration requirements of the Securities Act or pursuant to an effective registration statement under the Securities Act, (ii) in accordance with all Applicable Laws (including, all securities laws), and (iii) upon the receipt by ITC Investments, its Affiliates, such Shareholder, and the proposed transferee (as applicable) of all Consents and making by each of them (as applicable) of all Filings necessary to effect such Transfer and all such Consents and Filings being in full force and effect and not the subject to appeal, all terminations or expirations of applicable waiting periods imposed by any Governmental Entity with respect to the Transfer having occurred, and no such Consent containing any conditions or other requirements that are adverse to ITC Investments or its Affiliates in any material respect. All costs and expenses reasonably incurred by ITC Investments and its Affiliates in accordance with the foregoing shall be paid in cash by or on behalf of the transferring Shareholder as a condition to the relevant Transfer.

(f) Each Shareholder hereby acknowledges and agrees that the scope of the restrictions set forth in this Section 2.1 are reasonable in nature and serve to protect the legitimate interests of ITC Investments.

(g) For the avoidance of doubt, the foreclosure by any Person of a direct or indirect interest in the Equity Securities shall be subject to such Transfer being a Permitted Transfer, including through the prior compliance by the Shareholder with Section 2.3. Any foreclosure by any Person on the equity interests of a Shareholder or its direct or indirect parents without prior compliance with Section 2.3 shall be subject to Section 2.7.

Section 2.2 Permitted Transfers . (a) Notwithstanding anything to the contrary contained herein (but subject to Section 2.1(e) and Section 2.2(b)) a Shareholder may at any time effect any of the following Transfers (each a “ Permitted Transfer ”, and each transferee of such Shareholder in respect of such Transfer, a “ Permitted Transferee ”):

(i) any Transfer by a Shareholder to its Wholly-Owned Affiliate that is an Eligible Holder;

(ii) any Transfer of Equity Securities held by a Shareholder (other than FortisUS) to an Eligible Transferee so long as both (A) such Equity Securities represent no less than 7% of the aggregate Equity Securities issued and outstanding (or, if all Equity Securities held by such Shareholder represent less than 7% of the aggregate Equity Securities issued and outstanding, all such Equity Securities held by such Shareholder) and (B) such Shareholder has provided FortisUS and ITC Investments, as applicable, with the right of first offer in accordance with Section 2.3(a);

(iii) any Transfer by FortisUS of any or all Equity Securities held by it to any Eligible Holder so long as FortisUS has (A) provided the other Shareholders the tag- along rights in accordance with Section 2.4 and (B) provided the Investor with the right of first offer in accordance with Section 2.3(b) (which, for the avoidance of doubt, shall not be required in the case of FortisUS’s exercise of the drag-along rights in accordance with Section 2.5);

(iv) any Transfer by FortisUS of all Equity Securities held by it to any Person or Persons (other than a Prohibited Person) where FortisUS has exercised its drag-along rights in accordance with Section 2.5; and

(v) any Transfer of any or all Equity Securities held by a Shareholder which is made pursuant to an effective registration statement filed pursuant to the Securities Act.

(b) The restrictions contained in this Section 2.2 will continue to be applicable to the Equity Securities after the Permitted Transfer (other than a Permitted Transfer made pursuant to Section 2.2(a)(v)).

(c) In any Transfer referred to above in Section 2.2(a) (other than clauses (iv) and (v) thereof), the Permitted Transferee shall agree in writing to be bound by the provisions of this Agreement and shall execute and deliver to ITC Investments a copy of the joinder agreement attached hereto as Exhibit A as a condition to such Transfer or other joinder instrument in form and substance reasonably acceptable to the ITC Investments Board. Each such Permitted Transferee shall hold such shares of Equity Securities subject to the provisions of this Agreement as a “Shareholder” hereunder as if such Permitted Transferee were an original signatory hereto and shall be deemed to be a party to this Agreement.

(d) ITC Investments shall have the right to reasonably require, as a condition to any Permitted Transfer pursuant to Section 2.2(a), receipt of an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to ITC Investments, to the effect that such Transfer is not required to be registered under the Securities Act and is not in violation of any Applicable Law.

(e) Any Equity Securities owned by a Shareholder on or after the date of this Agreement shall have the benefit of and be subject to the terms and conditions of this Agreement.

(f) In connection with any Transfer by the Investor pursuant to Section 2.2(a)(ii), ITC Investments and the other Shareholders each hereby agree to reasonably cooperate with the Investor and the purchaser in any such Transfer, including with respect to ITC Investments, (i) assisting with the preparation and delivery by the Investor of preliminary marketing and auction materials, (ii) preparing or assisting in the preparation of due diligence materials, (iii) making such due diligence materials available to prospective purchasers, (iv) providing access to ITC Investments’ books, records, properties and other proprietary materials (subject, in each case, to the execution of customary confidentiality and non- disclosure agreements) to prospective purchasers and (v) making the managers, officers and employees available to prospective purchasers for presentations and due diligence interviews.

Section 2.3 Rights of First Offer .

(a) Prior to a Transfer (other than a Permitted Transfer not made in reliance on this Section 2.3) by any Shareholder (other than FortisUS) (the “ Selling Party ”) to any Person of its Equity Securities, the Selling Party shall give written notice (the “ Sale Notice ”) to ITC Investments and FortisUS of its bona fide intention to Transfer its Equity Securities. Any Sale Notice shall disclose in reasonable detail the number and type of Equity Securities to be Transferred. The Selling Party shall not consummate any Transfer until the earlier of (x) the date that is thirty days after the Sale Notice has been given to ITC Investments and to FortisUS and (y) the date on which the parties to the Transfer have been finally determined pursuant to this Section 2.3(a) (such earlier date, the “ Authorization Date ”). If a Sale Notice is delivered by a Selling Party pursuant to this Section 2.3(a):

(i) ITC Investments shall have the right, within ten days of delivery of the Sale Notice to ITC Investments, to offer to purchase all (but not less than all) of the Equity Securities to be Transferred by delivering a written notice of such offer to the Selling Party and FortisUS. Such notice shall also specify the purchase price per share that ITC Investments is offering to pay for such Equity Securities which shall be cash. Any offer so delivered shall be binding upon delivery and irrevocable unless otherwise revised in accordance with clause (iv).

(ii) If ITC Investments has not offered to purchase all of the Equity Securities to be Transferred, FortisUS or its designees (the “ FortisUS Group ”) may offer to purchase all (but not less than all) of the Equity Securities not purchased by ITC Investments by giving written notice of such offer to the Selling Party and ITC Investments within fifteen days after the earlier of (A) the expiration of the ten day period after delivery of the Sale Notice to ITC Investments or (B) the delivery of the written notice of such offer by ITC Investments to FortisUS. Such notice by the FortisUS Group shall specify the purchase price per share that the FortisUS Group is offering to pay for such Equity Securities, which shall be in cash and binding upon delivery and irrevocable.

(iii) If ITC Investments has made an offer to purchase such Equity Securities to be Transferred, the FortisUS Group may offer to purchase all (but not less than all) of the Equity Securities subject to the Sale Notice by giving written notice of such offer to the Selling Party and ITC Investments within five days of the delivery of the written

notice of such offer by ITC Investments to FortisUS. The FortisUS Group’s offer under this clause (iii) shall be for a purchase price per share greater than the purchase price per share offered by ITC Investments and shall be binding upon delivery and irrevocable.

(iv) If the FortisUS Group has made an offer to purchase all of the Equity Securities in accordance with clause (iii) above and the FortisUS Group’s purchase price per share is greater than that offered by ITC Investments, then ITC Investments shall have the right to revise its offer to specify the higher purchase price within five days after delivery of the written notice of offer by the FortisUS Group to ITC Investments, by delivering a written notice of a revised offer to the Selling Party and the FortisUS Group. If ITC Investments does not so revise its offer, then ITC Investments’ offer in accordance with clause (i) above shall be deemed revoked and the FortisUS Group’s offer made in accordance with clause (iii) shall apply to all of the Equity Securities to be Transferred.

(v) The Selling Party shall indicate to ITC Investments and the FortisUS Group whether it has accepted the offer(s) by ITC Investments and/or the FortisUS Group within ten days of receipt thereof, by sending an irrevocable written notice of such acceptance thereto, pursuant to which, ITC Investments and/or the FortisUS Group, as applicable, shall then be obligated to purchase, and the Selling Party shall then be obligated to sell, the Equity Securities at the applicable purchase price specified on the applicable offer and on the terms and conditions set forth in the Sale Notice.

(vi) If ITC Investments and the FortisUS Group have not collectively purchased all of the Equity Securities specified in the Sale Notice, or if the Selling Party does not accept the offer(s) made by ITC Investments and/or the FortisUS Group, ITC Investments and the FortisUS Group shall not be entitled to purchase any of such Equity Securities and the Selling Party may, during the 180-day period immediately following the Authorization Date ( provided, that such 180-day period may be extended to the extent reasonably necessary to obtain any Filings or Consents from any applicable Governmental Entity), Transfer all such Equity Securities specified in the Sale Notice for consideration consisting of cash or securities with a fair market value (determined as of the date such Transfer is agreed to) that is not less than 101% of the highest purchase price offered by ITC Investments and/or the FortisUS Group. The Transfer of Equity Securities not Transferred during such 180-day period (or any such extension thereof) shall be subject to the provisions of this Section 2.3 upon a subsequent proposed Transfer. The rights granted to ITC Investments and the FortisUS Group pursuant to this Section 2.3 shall continue to be applicable to any subsequent disposition of any Equity Securities acquired by the transferee(s) hereunder until such rights lapse in accordance with the terms of this Agreement.

(vii) If ITC Investments and the FortisUS Group have agreed to purchase all of the Equity Securities set forth in the Sale Notice pursuant to this Section 2.3(a), then the closing of such purchase shall occur within fifteen Business Days from the date ITC Investments and the FortisUS Group have notified the Selling Party of their intention to purchase all of such Equity Securities (or, if applicable, upon the running of any notice periods or the granting of any approvals required by Applicable Law).

(b) Prior to a Transfer (other than a Permitted Transfer not made in reliance on this Section 2.3, including in the case of FortisUS’s exercise of the drag-along rights in accordance with Section 2.5) by FortisUS to any Person of its Equity Securities, whereby after giving pro forma effect to such Transfer, FortisUS will hold more than 50% of the Common Stock Equivalents, FortisUS shall give written notice (the “ Fortis Sale Notice ”) to the Investor of its bona fide intention to Transfer its Equity

Securities. Any Fortis Sale Notice shall disclose in reasonable detail the number and type of Equity Securities to be Transferred. FortisUS shall not consummate any Transfer until the earlier of (x) the date that is thirty days after the Fortis Sale Notice has been given to the Investor and (y) the date on which the parties to the Transfer have been finally determined pursuant to this Section 2.3(b). If a Fortis Sale Notice is delivered by FortisUS pursuant to this Section 2.3(b):

(i) The Investor, shall have the right, within ten days of delivery of the Transfer Notice, to offer to purchase all (but not less than all) of the Equity Securities subject to the Fortis Sale Notice by delivering a written offer to FortisUS (with a copy thereof to ITC Investments) stating that it offers to purchase such Equity Securities. Such offer shall specify the purchase price per share, which shall be cash, and any offer so delivered shall be binding upon delivery and irrevocable unless otherwise specified herein.

(ii) FortisUS shall indicate to the Investor whether it has accepted such offer within ten days of delivery of the Fortis Sale Notice, by sending an irrevocable written notice of such acceptance to the Investor. If FortisUS does not expressly accept an offer by the Investor prior to the expiration of such 10-day period, such offer by the Investor shall be deemed to be revoked. If FortisUS accepts such offer by the Investor, FortisUS shall then be obligated to sell the Equity Securities in accordance with the terms of such offer.

(iii) If the Investor does not deliver an offer during the ten day period after delivery of the Fortis Sale Notice, the Investor shall be deemed to have waived all of its rights to purchase the Equity Securities under this Section 2.3(b), and FortisUS may, during the 180-day period immediately following the earlier of (x) the date that is thirty days after the Fortis Sale Notice has been given to the Investor and (y) the date on which the parties to the Transfer have been finally determined pursuant to this Section 2.3(b), Transfer all (but not less than all) such Equity Securities specified in the Transfer Notice for consideration consisting of cash or securities with a fair market value (determined as of the date such Transfer is agreed to) that is not less than 101% of the purchase price offered by the Investor; provided, that such 180-day period may be extended to the extent reasonably necessary to obtain any Filings or Consents from any applicable Governmental Entity. The Transfer of any Equity Securities not Transferred during such 180-day period (or any such extension thereof) shall be subject to the provisions of this Section 2.3 upon a subsequent proposed Transfer. The rights granted to the Investor pursuant to this Section 2.3 shall continue to be applicable to any subsequent disposition of any Equity Securities acquired by the transferee(s) hereunder until such rights lapse in accordance with the terms of this Agreement.

(iv) If the Investor has agreed to purchase all of the Equity Securities set forth in the Fortis Sale Notice pursuant to this Section 2.3(b), then the closing of such purchase shall occur within fifteen Business Days from the date the Investor has notified FortisUS of its intention to purchase all of such Equity Securities (or, if applicable, upon the running of any notice periods or the granting of any approvals required by Applicable Law).

Section 2.4 Sales by FortisUS Subject to Tag-Along Rights . (a) If FortisUS proposes to effect a Transfer (other than a Permitted Transfer described in Section 2.2(a)(i), Section 2.2(a)(iv), or Section 2.2(a)(v)), then FortisUS shall promptly give written notice (the “ Transfer Notice ”) to ITC Investments and each of the other Shareholders (the “ Other Shareholders ”) at least twenty days prior to the closing of such Transfer. The Transfer Notice shall (i) describe in reasonable detail the proposed

Transfer including, the class and number of shares of Equity Securities to be sold, the number of Common Stock Equivalents represented thereby, the identity of the prospective transferee(s), the purchase price of each such share of Equity Securities to be sold, which shall be in cash, and the date such proposed sale is expected to be consummated and (ii) have attached thereto, if available, an executed copy (or a substantially final draft copy) of the agreement pursuant to which the proposed Transfer is to be consummated.

(b) Each of the Other Shareholders shall have the right, exercisable upon delivery of an irrevocable written notice to FortisUS within thirty days after receipt of the Transfer Notice, to participate in such proposed Transfer on the same terms and conditions as set forth in the Transfer Notice including, the making of all representations, warranties and covenants and the granting of all indemnifications and similar agreements and arrangements agreed to by FortisUS in the executed agreement (or substantially final draft agreement) delivered with the Transfer Notice pursuant to Section 2.4(a) (including, participating in any escrow arrangements to the extent of their respective pro rata portion). Each Other Shareholder electing to participate in the Transfer described in the Transfer Notice (each, a “ Participant ”) shall indicate in its irrevocable notice of election to FortisUS the maximum number of Common Stock Equivalents it desires to Transfer. Each such Participant shall be entitled to Transfer a number of Common Stock Equivalents equal to such holder’s pro rata portion of the total number of Common Stock Equivalents to be Transferred, as set forth in the Transfer Notice, up to such maximum number; provided, that if FortisUS will not hold more than 50% of the Common Stock Equivalents after giving pro forma effect to the Transfer, then each Participant shall be entitled to Transfer all Common Stock Equivalents held by such Participant. For purposes of this Section 2.4(b), pro rata portion means for each Participant a fraction, the numerator of which is the number of Common Stock Equivalents held by such Participant immediately prior to the Transfer proposed in the Transfer Notice and the denominator of which is the total number of Common Stock Equivalents outstanding immediately prior to the Transfer proposed in the Transfer Notice ( provided, that the preceding calculation shall be adjusted so that the total number of Common Stock Equivalents that the Participants may sell in the aggregate does not exceed the total number of Common Stock Equivalents to be sold by FortisUS). No holder of Equity Securities (other than shares of Common Stock) shall be entitled to sell Equity Securities (other than shares of Common Stock) pursuant to this Section 2.4, but shall be permitted to convert, exchange or exercise its applicable portion of Equity Securities (subject to the terms of such Equity Securities) for Common Stock concurrently with, and subject to, the consummation of the proposed Transfer.

(c) Each Participant shall effect its participation in the Transfer by delivering to FortisUS (to hold in trust as agent for such Participant), at least three Business Days prior to the date scheduled for such Transfer as set forth in the Transfer Notice, (i) one or more certificates or other instruments, as applicable, in proper form for transfer, which represent the number of shares of Equity Securities which such Participant is entitled to Transfer in accordance with Section 2.4(b) (but subject to the limitations set forth in Section 2.4(b)), (ii) executed copies of a joinder or other similar agreement pursuant to which such Participant shall agree to be bound by the terms and conditions set forth in the agreement included with the Transfer Notice pursuant to Section 2.4(a)(ii) in form and substance reasonably satisfactory to FortisUS, and (iii) executed copies (or signature pages thereof) of such other agreements, documents or certificates as FortisUS and/or its transferee shall reasonably request. Such agreements, documents or certificates or other instruments, as applicable, shall be delivered by FortisUS to such transferee on the date scheduled for the consummation of the Transfer pursuant to the terms and conditions specified in the Transfer Notice and such transferee shall remit to each such Participant its pro rata portion of the net sale proceeds (taking into account any transaction costs and expenses reasonably incurred by FortisUS in connection with such Transfer, including, any fee paid pursuant to Section 2.4(e), and reasonable transaction costs and expenses incurred by FortisUS on behalf of ITC Investments in connection with such Transfer and any escrows, holdback amounts or other amounts withheld pursuant to

the terms specified in the Transfer Notice) to which such Participant is entitled by reason of its participation in such sale. For purposes of this Section 2.4(c), “ pro rata portion ” means for each Participant a fraction, the numerator of which is the number of Common Stock Equivalents to be Transferred by such Participant pursuant to this Section 2.4 and the denominator of which is the total number of Common Stock Equivalents to be Transferred pursuant to this Section 2.4. FortisUS’s sale of shares of Equity Securities in any sale proposed in a Transfer Notice shall be effected on terms and conditions not more favorable to FortisUS than those set forth in such Transfer Notice and those applicable to the other Participants.

(d) The exercise or non-exercise of the rights of any of the Other Shareholders hereunder to participate in one or more Transfers of Equity Securities made by FortisUS shall not adversely affect their rights to participate in subsequent Transfers of Equity Securities subject to this Section 2.4. Notwithstanding the foregoing, no shares of Common Stock that have been Transferred in a Transfer pursuant to this Section 2.4 shall be subject again to the restrictions set forth in this Section 2.4.

(e) For purposes of this Section 2.4, it is understood and agreed that in consideration of investment banking services provided by an investment banking group, a reasonable fee may be paid by FortisUS and included in reimbursable transaction costs in an amount that is customary and equivalent to a fee arrangement negotiated on an “arm’s-length” basis.

(f) Notwithstanding anything contained in this Section 2.4 to the contrary, there shall be no liability on the part of FortisUS (or any of its Controlled Affiliates and Permitted Transferees) to any Other Shareholder in the event that the proposed Transfer is not consummated or no Common Stock Equivalents are sold notwithstanding the delivery of any Transfer Notice pursuant to Section 2.4(a) or the compliance with any other provision in this Section 2.4.

(g) For purposes of this Section 2.4, the computation of Common Stock Equivalents shall include Equity Securities that would become Common Stock Equivalents in accordance with their terms immediately after the consummation of the transactions contemplated by this Section 2.4.

(h) For convenience of administration with respect to Other Shareholders other than Investor, FortisUS may sell its Common Stock Equivalents without offering the Other Shareholders the opportunity to participate in such sale in compliance with this Section 2.4, so long as each Other Shareholder is provided the opportunity to sell its pro rata portion of the total number of Common Stock Equivalents to FortisUS and, within ten Business Days of consummation of the sale of FortisUS’s Common Stock Equivalents, FortisUS purchases such Common Stock Equivalents from each Other Shareholder on the same terms and conditions (including price) as FortisUS sold its Equity Securities to such transferee.

Section 2.5 Grant to FortisUS of Drag-Along Rights . (a) At the written request of FortisUS at least thirty days prior to the closing of a Sale of the Business, each other Shareholder agrees to vote its shares of voting securities of ITC Investments for, consent to, and raise no objection to such Sale of the Business and shall take all other actions necessary or reasonably required to cause the consummation of such Sale of the Business on the terms proposed by FortisUS, which shall control all decisions in connection therewith (including the hiring or termination of any investment bank or professional advisor). Without limiting the foregoing, (i) if such Sale of the Business is structured as a sale of assets or a merger or consolidation, then each Shareholder shall vote, or cause to be voted, all of its shares of voting securities of ITC Investments over which such Person has the power to vote or direct the voting and which are entitled to vote on such Sale of the Business at a special or annual meeting of Shareholders or by written consent in lieu of a meeting in favor of such transaction and shall irrevocably waive any dissenter’s rights, appraisal rights or similar rights (including any notice in connection therewith) which such Shareholder may be entitled under Applicable Law in connection therewith (and each such

Shareholder does hereby irrevocably waive all such rights) and (ii) if such Sale of the Business is structured as or involves a sale or redemption of Equity Securities, then each Shareholder shall agree to sell such Shareholder’s pro rata portion of the Equity Securities being sold in such Sale of the Business on the economic terms and conditions approved by FortisUS. Each Shareholder (other than FortisUS and the Investor) (such Shareholders, the “ Proxy Shareholders ”) hereby revokes any and all prior proxies or powers of attorney in respect of any of such Shareholder’s Equity Securities. Each Proxy Shareholder hereby irrevocably constitutes and appoints FortisUS and any designee of FortisUS, with full power of substitution and resubstitution, at any time during the term of this Agreement, as its true and lawful attorney and proxy (its “ Proxy ”), and in its name, place and stead, to vote each of such Proxy Shareholders’ Equity Securities (in each case whether such Equity Securities are currently owned or may be acquired in the future by the Proxy Shareholder) as its proxy, at every regular, special, adjourned or postponed meeting of Shareholders, including the right to sign its name (as Shareholder) to any consent, certificate or other document relating to ITC Investments (or, if applicable, any Subsidiary of ITC Investments) that the laws of the State of Michigan may permit or require with respect to any matter to be voted on by the Shareholders. The foregoing Proxy and power of attorney are irrevocable, are coupled with an interest throughout the term of this Agreement and shall survive and not be affected by the death, dissolution, termination, bankruptcy or incapacity of any of the Proxy Shareholder. The Proxy Shareholders shall not (i) grant any Proxy or enter into or agree to be bound by any voting trust with respect to any Equity Securities or enter into any agreement, arrangement or understanding with any Person that is inconsistent with the terms of this Section 2.5 or any other provisions of this Agreement including agreements or arrangements with respect to the acquisition, Transfer or voting of any Equity Securities (including the entrance into a voting trust, the grant of a Proxy or the entry into any other voting or similar agreement or arrangement) or (ii) act, for any reason, as a member of a group or in concert with any other Shareholders (or owners of Equity Securities whether or not party to this Agreement) in connection with the acquisition, Transfer or voting of any Equity Securities in any manner which is inconsistent with the provisions of this Section 2.5 or any other provisions of this Agreement.

(b) ITC Investments and the other Shareholders each hereby agree to reasonably cooperate (including by waiving any appraisal rights and any notices in connection therewith to which such Shareholder may be entitled under Applicable Law and each such Shareholder does hereby waive all such appraisal rights and any notices in connection therewith) with FortisUS and the purchaser in any such Sale of the Business and the sale process preceding such Sale of the Business (the “ Sale Process ”) (including, without limitation, by reasonably cooperating and taking all other actions reasonably necessary or reasonably requested by FortisUS to effectively conduct the Sale Process and assure the success thereof) including, with respect to ITC Investments, (i) identifying and soliciting prospective purchasers (including securing the services of an investment bank and/or other professional advisors, selected by FortisUS, to assist in procuring such purchasers), (ii) preparing and delivering preliminary marketing and auction materials, (iii) preparing or assisting in the preparation of due diligence materials, (iv) making such due diligence materials available to prospective purchasers, (v) providing access to ITC Investments’ books, records, properties and other proprietary materials (subject, in each case, to the execution of customary confidentiality and non-disclosure agreements) to prospective purchasers and (vi) making the managers, officers and employees reasonably available to prospective purchasers for presentations and due diligence interviews) and, to execute and deliver all documents (including purchase agreements, if applicable) and instruments as FortisUS and such purchaser reasonably request to effect such Sale of the Business including, with respect to a Shareholder, the making of all customary individual representations, warranties and covenants and the granting of all indemnifications and similar agreements and arrangements with respect to such Shareholder as agreed to by FortisUS with respect to such matters as power, authority, title and legal right to transfer shares and absence of claims with respect to such shares (the “ Shareholder Agreements ”), and severally (but not jointly) make such indemnities regarding ITC Investments and its Subsidiaries and their assets, liabilities and businesses (the “ ITC Investments Indemnities ”) as made by FortisUS (including, participating in any escrow arrangements to the extent of

their respective pro rata portion). FortisUS agrees that upon such Sale of the Business each Shareholder shall receive its pro rata portion of the net proceeds (taking into account any transaction costs and expenses reasonably incurred by FortisUS in connection with such Sale of the Business, including, any fee paid pursuant to Section 2.5(c), and any transaction costs and expenses incurred by FortisUS on behalf of ITC Investments in connection with such Sale of the Business) and, subject to the foregoing and Section 2.5(d), such sale shall be on the same terms and conditions as afforded to FortisUS; provided, that in no event shall the net amount of cash received by the Investor Holders (other than FortisUS and its Permitted Transferees) be less than the IRR Floor. For purposes of Section 2.5(a) and this Section 2.5(b), “ pro rata portion ” means for each Shareholder a fraction, the numerator of which is the number of Common Stock Equivalents held by such Shareholder immediately prior to such Sale of the Business and the denominator of which is the total number of Common Stock Equivalents outstanding immediately prior to such Sale of the Business.

(c) For the purposes of this Section 2.5, it is understood and agreed that in consideration of investment banking services provided by an investment banking group, a reasonable fee may be paid by FortisUS and included in reimbursable transaction costs in an amount that is customary and equivalent to a fee arrangement negotiated on an “arm’s-length” basis.

(d) For the purposes of this Section 2.5, the computation of Common Stock Equivalents shall include Equity Securities that would become Common Stock Equivalents in accordance with their terms immediately after the consummation of the transactions contemplated by this Section 2.5.

(e) Notwithstanding anything else in this Agreement, the obligations of the Shareholders (other than FortisUS) under this Section 2.5 (including, to participate in a Transfer made in accordance with this Section 2.5) shall be subject to satisfaction of the following:

(i) upon the consummation of the Transfer, each Shareholder (other than FortisUS and any of its Affiliates) shall be entitled to receive for its Equity Securities the same form of consideration and the same proportional amount of consideration as FortisUS and any of its Affiliates (which shall include all consideration payable to, or received by FortisUS and any of its Affiliates) and if FortisUS or any of its Affiliates are entitled to select the form of consideration, such election shall be offered to all Shareholders;

(ii) no Shareholder shall be subject to joint and several liability with respect to any other Shareholders;

(iii) no Shareholder shall be liable for the Shareholder Agreements made by other Shareholders or required to enter into any non-competition or non-solicitation provisions; and

(iv) the aggregate amount of liability with respect to each Shareholder (other than FortisUS and any of its Affiliates) pursuant to all agreements entered into in connection with a Transfer pursuant to this Section 2.5 shall be capped at such Shareholder’s pro rata portion of the proceeds actually received by such Shareholder in connection with such Transfer, and the allocable share of any Shareholder for any amounts payable in connection with any claim in connection with ITC Investments Indemnities (any such amount payable, a “ ITC Investments Loss ”) shall not exceed the lesser of (x) such Shareholder’s pro rata portion of any such ITC Investments Loss or (y) the proceeds actually received by such Shareholder in connection with such Transfer.

(f) Notwithstanding anything contained in this Section 2.5 to the contrary, there shall be no liability on the part of FortisUS (or any of its affiliates and Permitted Transferees) to any other

Shareholder in the event a Sale of the Business is not consummated notwithstanding the delivery of any written request by FortisUS pursuant to Section 2.5(a) or the compliance with any other provision in this Section 2.5.

Section 2.6 Grant of Preemptive Rights to Shareholders . (a) In the event that, at any time, ITC Investments or any of its Subsidiaries shall decide to undertake an issuance of New Securities (any such issuance being hereby expressly consented to by each Shareholder in its capacity as such) (other than an issuance of debt securities in which none of FortisUS and its Affiliates participate), ITC Investments shall at such time deliver to each Shareholder written notice of ITC Investments’ decision, describing the amount, type and terms (including the exercise price and expiration date thereof in the case of any Options and principal amount, maturity date, terms of any security interests and yield thereof in the case of securities representing Indebtedness for Borrowed Money) of such New Securities, the purchase price per New Security (the “ New Securities Price ”) to be paid by the purchasers of such New Securities and the other terms upon which ITC Investments has decided to issue the New Securities including, the expected timing of such issuance which will in no event be more than ninety days after the date upon which such notice is given (the “ Preemptive Notice ”). Each such Shareholder shall have twenty Business Days from the date on which the Preemptive Notice is given to agree by written notice to ITC Investments (a “ Preemptive Exercise Notice ”) to purchase up to its proportional share of such New Securities for the New Securities Price and upon the general terms specified in the Preemptive Notice and stating therein the quantity of New Securities to be purchased by any such Shareholder, including any Excess New Securities such Shareholder wishes to purchase if such securities are available. In the event that in connection with such a proposed issuance of New Securities, any such Shareholder shall for any reason fail or refuse to give such written notice to ITC Investments within such twenty Business Day period, such Shareholder shall, for all purposes of this Section 2.6, be deemed to have refused (in that particular instance only) to purchase any of such New Securities and to have waived (in that particular instance only) all of its rights under this Section 2.6 to purchase any of such New Securities. For purposes of this Section 2.6, a Shareholder’s “proportional share” means, at any time, the quotient obtained by dividing the number of Common Stock Equivalents held by such Shareholder at such time by the aggregate number of Common Stock Equivalents held by all Shareholders. In the event that any Shareholder does not elect to purchase all of its respective proportional share, the New Securities which were available for purchase by such non-electing Shareholders (the “ Excess New Securities ”) shall automatically be deemed to be accepted for purchase by the Shareholders who indicated in their Preemptive Exercise Notice a desire to participate in the purchase of New Securities in excess of their proportional share. Unless otherwise agreed by all of the Shareholders participating in the purchase, each Shareholder who indicated in its Preemptive Exercise Notice that it desired to purchase more than its proportional share shall purchase a number of Excess New Securities equal to the lesser of (x) the number of Excess New Securities indicated in the Preemptive Exercise Notice, if any, and (y) an amount equal to the product of (A) the number of Excess New Securities and (B) a fraction, the numerator of which is the number of Common Stock Equivalents held at such time by such Shareholder and the denominator of which is the aggregate number of Common Stock Equivalents held at such time by all Shareholders participating in such purchase of Excess New Securities.

(b) In the event and to the extent that, subsequent to the procedure set forth in Section 2.6(a), any New Securities (including any Excess New Securities) are not acquired by the Shareholders entitled to subscribe for and purchase such New Securities, ITC Investments (or any such Subsidiary) shall be free to issue such New Securities to any Eligible Holder; provided, that (i) the price per New Security at which such New Securities are being issued to and purchased by such Person is not less than 99% of the New Securities Price and (ii) the other terms and conditions pursuant to which such Person purchases such New Securities are not materially more favorable than the terms set forth in the Preemptive Notice. Any New Securities not issued or sold within 90 days after the date of the Preemptive Notice ( provided, that such 90-day period may be extended up to an additional 90 days to the extent

necessary to obtain any Filings or Consents from any applicable Governmental Entity) shall again be subject to the provisions of this Section 2.6.

(c) For convenience of administration, ITC Investments may sell New Securities to FortisUS without offering the other Shareholders the opportunity to participate in such sale in compliance with this Section 2.6, so long as each such applicable Shareholder is provided the opportunity to purchase its pro rata portion of applicable New Securities from FortisUS, within ten Business Days of consummation of FortisUS’s purchase of New Securities from ITC Investments, on the same terms and conditions (including price) as FortisUS purchased its New Securities from ITC Investments and that such delay does otherwise adversely affect the other Shareholders from an economic perspective ( e.g. as a result of dividends or distributions with a record date during such ten Business Day period).

Section 2.7 Call upon Intermediate Ownership Change . (a) Each indirect Transfer of Equity Securities shall be made subject to Section 2.3 (other than with respect to Equity Securities of FortisUS).

(b) If, in violation of Section 2.3, a Shareholder (other than FortisUS) suffers an Intermediate Ownership Change, then the relevant Shareholder suffering such Intermediate Ownership Change (the “ Relevant Shareholder ”) shall be deemed to have provided ITC Investments and FortisUS an irrevocable offer to purchase the Relevant Shareholders’ Equity Securities at 90% of Fair Market Value. Each Shareholder agrees to give ITC Investments and each other Shareholder prompt notice of any Intermediate Ownership Change.

(c) Promptly following the Intermediate Ownership Change, ITC Investments shall determine the Fair Market Value of the Relevant Shareholders’ Equity Securities as of the date of the Intermediate Ownership Change in accordance with the definition thereof.

(d) ITC Investments may elect to purchase all of the Equity Securities of the Relevant Shareholder by delivering a written notice of such election to the Selling Party and FortisUS within ten days after the determination of the Fair Market Value thereof. If ITC Investments has not elected to purchase all of the Equity Securities of the Relevant Shareholder, then the FortisUS Group may elect to purchase all (but not less than all) of the Equity Securities of the Relevant Shareholder not purchased by ITC Investments by giving written notice of such election to the Selling Party and ITC Investments within fifteen days after earlier of (i) the expiration of the ten-day period after determination of Fair Market Value or (ii) the delivery of the written notice of such election by ITC Investments to FortisUS.

(e) If ITC Investments and the FortisUS Group have agreed to purchase all of the Equity Securities of the Relevant Shareholder, then the closing of such purchase shall occur within fifteen Business Days from the date ITC Investments and the FortisUS Group have notified the Selling Party of their intention to purchase all of such Equity Securities (or, if applicable, upon the running of any notice periods or the granting of any approvals required by Applicable Law).

Section 2.8 Mandatory Transfer upon Becoming a non-Eligible Holder . If any Shareholder shall cease to be an Eligible Holder, then such Shareholder shall promptly Transfer its Equity Securities to a Wholly-Owned Affiliate that is an Eligible Holder in accordance with Section 2.2(a)(i). If no Wholly-Owned Affiliate of the relevant Shareholder is or can be duly organized to be an Eligible Holder, then the relevant Shareholder shall use its commercially reasonable efforts to promptly Transfer its Equity Securities to a third party in accordance with Section 2.2(a)(ii) and Section 2.3.

Section 2.9 Transfer upon New ITC RTO . If (a) ITC Investments desires to acquire Core Assets, directly or indirectly through ownership of another Person, in any Regional Transmission Organization that is not then an ITC RTO, (b) any Shareholder (other than FortisUS) is a Market Participant of such Regional Transmission Organization or a Disqualified RTO Affiliate of a Market

Participant of such Regional Transmission Organization, and (c) such Shareholder can Transfer its Equity Securities in accordance with Section 2.2(a)(i) to a Wholly-Owned Affiliate that is an Eligible Holder and that would not be a Market Participant of such Regional Transmission Organization or a Disqualified RTO Affiliate of a Market Participant of such Regional Transmission Organization without adverse consequences (economic or otherwise), then at the request of ITC Investments such Shareholder shall use commercially reasonable efforts to effect such Transfer as promptly as practicable upon the making of such request. Notwithstanding anything to the contrary, no Shareholder shall be required to Transfer its Equity Securities to a third party under this Section 2.9.

ARTICLE III

REGISTRATION RIGHTS

Section 3.1 Required Registration . (a) If ITC Investments shall be requested in writing, which writing shall specify the Registrable Securities to be sold and the intended method of disposition thereof (a “ Demand Request ”), at any time by FortisUS, or at any time after the first registration statement with respect to Registrable Securities is declared effective by the SEC, by an RH Shareholder (the Shareholder(s) making such Demand Request, the “ Demanding Shareholder ”), to effect a registration under the Securities Act of Registrable Securities held by FortisUS (or an RH Shareholder, if applicable) (each, a “ Required Registration ”), then ITC Investments shall deliver a written notice (a “ Demand Notice ”) to each Shareholder who did not make such Demand Request stating that ITC Investments intends to comply with a Demand Request and informing each such Shareholder of its right to include Registrable Securities in such Required Registration. Within ten Business Days after receipt of a Demand Notice, each Shareholder who received such Demand Notice shall have the right to request in writing that ITC Investments include all or a specific portion of the Registrable Securities held by such Shareholder in such Required Registration, and ITC Investments shall include such Registrable Securities in such Required Registration, subject to Section 3.1(c). ITC Investments shall file a registration statement on the appropriate form as promptly as practicable (but no later than sixty days after the date the Demand Request is delivered in the case of a Form S-1 and thirty days after the date the Demand Request is delivered in the case of a Form S-3) and use its reasonable best efforts to cause such registration statement to be declared effective by the SEC at the earliest possible date permitted under the rules and regulations of the SEC; provided , that ITC Investments shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 3.1:

(i) in any particular jurisdiction in which ITC Investments would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless ITC Investments is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder;

(ii) if the Registrable Securities requested to be registered pursuant to such request do not have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than (x) $25,000,000 (or $50,000,000 if such requested registration is the Initial Public Offering) in the case of Required Registration on Form S-1, or (y) $10,000,000 in the case of Required Registration on Form S-3;

(iii) within three months of any other Required Registration or a Shelf Underwritten Offering;

(iv) within three months of a Piggyback Offering in which all Shareholders were given the right to include Registrable Securities and at least 90% of the Registrable

Securities requested by such Shareholders to be included in such Piggyback Offering were included;

(v) during the period starting with the date thirty days prior to ITC Investments’ good faith estimate of the date of filing of, and ending on the date ninety days immediately following a Piggyback Offering, provided , that during the thirty-day period prior to such filing ITC Investments is actively employing in good faith all reasonable efforts to consummate such Piggyback Offering; provided, further , that ITC Investments may only delay an offering pursuant to this subsection (a)(v) for a period of not more than ninety days if a filing of any other registration statement is not made within that period and ITC Investments may only exercise this right once in any twelve-month period; or

(vi) for a period of up to 120 days if ITC Investments shall furnish to the Shareholders requesting such Registration a certificate signed by the President of ITC Investments stating that in the good faith judgment of the ITC Investments Board such Required Registration would (i) require the disclosure of a material transaction or other matter and such disclosure would be materially disadvantageous to ITC Investments or (ii) adversely affect a material financing, acquisition, disposition of assets or equity interests, merger or other comparable transaction; provided, that ITC Investments shall not exercise such right more than twice in any twelve-month period

(b) Underwritten Offering . If the Demanding Shareholder intends to distribute the Registrable Securities in a Required Registration by means of an underwriting, it shall so advise ITC Investments as a part of its Demand Request. In such event, the underwriters of such Required Registration shall be one or more underwriting firms of nationally recognized standing selected by the Demanding Shareholder, and reasonably acceptable to ITC Investments. The right of each Shareholder to include securities in such Required Registration shall be conditioned upon such Shareholder entering into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected pursuant hereto.

(c) Priority on Underwritten Offerings . ITC Investments shall not include any securities other than Registrable Securities in a Required Registration, except with the written consent of Shareholders participating in such Required Registration that hold a majority of the Registrable Securities included in such Required Registration. In the case of any Required Registration that is an Underwritten Offering, if the managing underwriter for the Required Registration shall advise ITC Investments in writing (a copy of which ITC Investments shall provide to each Shareholder requesting to include Registrable Securities therein) that, in such underwriter’s opinion, the number of securities requested to be included in such Required Registration would adversely affect the Required Registration and sale (including pricing) of such Registrable Securities (such writing to state the basis of such opinion and the approximate number of Registrable Securities that may be included in such Required Registration without such effect), ITC Investments shall include in such Required Registration the number of Registrable Securities that ITC Investments is so advised can be sold in such Required Registration, in the following amounts and order of priority:

(i) first , all Registrable Securities requested to be sold by all holders of Registrable Securities pursuant to this Section 3.1 pro rata among such holders on the basis of the number of Registrable Securities requested to be registered by such holders; and

(ii) second , securities proposed to be sold by ITC Investments for its own account.

(d) Form S-3 . ITC Investments shall use its reasonable best efforts to qualify and remain qualified for registration on Form S-3 for secondary sales and shall effect any Required Registration on Form S-3 after such qualification.

(e) Limitations on Investor Demand Rights . Notwithstanding anything to the contrary in this Section 3.1, ITC Investments shall not be obligated to file and cause to become effective more than three registration statements on Form S-1 initiated pursuant to Section 3.1(a) pursuant to a Demand Request by the RH Shareholders. Notwithstanding anything else in this Section 3.1, any Demand Request made by an RH Shareholder may be rescinded prior to such registration being declared effective by the SEC by written notice to ITC Investments from such RH Shareholder; provided, however, that such rescinded registration shall not count as a registration initiated pursuant to Section 3.1(e) if ITC Investments shall have been reimbursed for all reasonable and documented out-of-pocket expenses incurred by ITC Investments in connection with such rescinded registration; provided, further, however, that if, at the time of such rescission, such RH Shareholder shall have learned of an event that is, or is reasonably likely to result in, a material adverse change in ITC Investments’ business, financial condition or results of operations from that known to such RH Shareholder at the time of its Demand Request and have withdrawn the request with reasonable promptness after learning of such information then such RH Shareholder shall not be required to reimburse ITC Investments for any out-of-pocket expenses incurred by ITC Investments in connection with such rescinded registration and such rescinded registration shall not count as a registration initiated by such RH Shareholder.

Section 3.2 Piggyback Rights . (a) Corporation and Other Offerings . If ITC Investments at any time (other than in connection with the Initial Public Offering) proposes to offer, for its own account or the account of another Person, any of its securities (a “ Piggyback Offering ”) under the Securities Act (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms thereto or in an offering subject to Section 3.1), for sale to the public in an Underwritten Offering (including an “at-the-market offering” or a “registered direct offering”) it will at each such time give prompt written notice to all Shareholders of its intention to do so (a “ Piggyback Notice ”). In the case of a Piggyback Offering under a shelf registration statement filed by ITC Investments pursuant to Rule 415 under the Securities Act, such Piggyback Notice shall be sent not less than ten Business Days prior to the expected date of commencement of marketing efforts for such Piggyback Offering. In the case of a Piggyback Offering under a registration statement that is not a shelf registration statement, such Piggyback Notice shall be given not less than ten Business Days prior to the expected date of filing of such registration statement. Upon the written request of any Shareholder to include Registrable Securities held by it under such registration statement (which request shall (i) be made within ten Business Days after the receipt of any such notice, and (ii) specify the Registrable Securities intended to be included by such Shareholder), ITC Investments will use its reasonable best efforts to effect the registration of all Registrable Securities that ITC Investments has been so requested to register by such Shareholder; provided, that if, at any time after giving written notice of its intention to offer any securities and prior to the pricing of such Piggyback Offering, ITC Investments shall determine for any reason not to consummate such offering, ITC Investments may, at its election, give written notice of such determination to each such Shareholder and, thereupon, shall be relieved of its obligation to register or offer any Registrable Securities of such Persons in connection with such proposed offering.

(b) Underwritten Offering . If ITC Investments intends to distribute the Registrable Securities in a Piggyback Offering by means of an underwriting, it shall so advise the Shareholders as a part of its Piggyback Notice. In such event, the underwriters of such Piggyback Offering shall be one or more underwriting firms of nationally recognized standing selected by ITC Investments and reasonably acceptable to FortisUS. The right of each Shareholder to include securities in such Piggyback Offering shall be conditioned upon such Shareholder entering into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected pursuant hereto.

(c) Priority on Piggyback Offerings . If the managing underwriter for an Underwritten Offering pursuant to this Section 3.2 shall advise ITC Investments in writing (a copy of which ITC Investments shall provide to each Shareholder requesting to include Registrable Securities therein) that, in such underwriter’s opinion, the number of securities requested to be included in such Piggyback Offering would adversely affect such offering and sale (including pricing) of such securities (such writing to state the basis of such opinion and the approximate number of securities that may be included in such Piggyback Offering without such effect), ITC Investments shall include in such Piggyback Offering the number of securities that ITC Investments is so advised can be sold in such offering, in the following amounts and order of priority:

(i) if the Piggyback Offering relates to an offering for ITC Investments’ own account, then (A) first, such number of equity securities to be sold by ITC Investments for its own account (B) second, Registrable Securities of Shareholders pro rata among such Shareholders on the basis of the number of Registrable Securities requested to be sold by such Shareholders pursuant to this Section 3.2, and (C) third, other equity securities held by any other Person; or

(ii) if the Piggyback Offering relates to an offering for holders other than for ITC Investments’ own account (“ Other Holders ”), then (A) first, such number of equity securities sought to be registered by each such Other Holder, (B) second, Registrable Securities of Shareholders pro rata among such Shareholders on the basis of the number of Registrable Securities requested to be sold by such Shareholders pursuant to this Section 3.2 and (C) third, other equity securities held by any other Person.

Section 3.3 Shelf Registration . (a) Subject to Section 3.3(d), if ITC Investments shall be requested in writing (which request may be delivered at any time after the eleven-month anniversary of the date of the Initial Public Offering) to make a Shelf Registration (a “ Shelf Request ”) by FortisUS or the Investor to ITC Investments, then ITC Investments shall deliver a written notice (a “ Shelf Notice ”) to each Shareholder, who did not make such Shelf Request stating that ITC Investments intends to comply with a Shelf Request and informing each such Shareholder of its right to include Registrable Securities in such Shelf Registration. Within five Business Days after receipt of a Shelf Notice, each Shareholder who received such Shelf Notice shall have the right to request in writing that ITC Investments include all or a specific portion of the Registrable Securities held by such Shareholder in such Shelf Registration, and ITC Investments shall include such Registrable Securities in such Shelf Registration. Subject to ITC Investments’ eligibility to use Form S-3 for secondary sales, ITC Investments shall (i) file as promptly as practicable (but no later than thirty days after the date the Shelf Request is delivered) and use reasonable best efforts to cause to be declared effective by the SEC at the earliest possible date permitted under the rules and regulations of the SEC, a Form S-3, or (ii) designate an existing Form S-3 filed with the SEC, in each case providing for offers and sales to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act with respect to the Registrable Securities held by FortisUS and any other Shareholder who elects to participate therein as provided in Section 3.3(b) (the “ Shelf Registration ” and “ Shelf Registration Statement ”, as applicable).

(b) Subject to Section 3.3(c), ITC Investments will use its reasonable best efforts to keep the Shelf Registration Statement continuously effective until the date on which all Registrable Securities covered by the Shelf Registration Statement have been sold thereunder in accordance with the plan and method of distribution disclosed in the prospectus included in the Shelf Registration Statement, or otherwise (the “ Shelf Registration Effectiveness Period ”).

(c) Notwithstanding anything to the contrary contained in this Agreement, ITC Investments may, from time to time, by providing written notice to the Shareholders whose Registrable Securities are covered by the Shelf Registration Statement, require such Shareholders to suspend sales of

Registrable Securities under the Shelf Registration Statement (a “ Suspension Period ”) if in the good faith judgment of the ITC Investments Board, ITC Investments is required to disclose in the Shelf Registration Statement a financing, acquisition, corporate reorganization or other similar corporate transaction or other material event or circumstance affecting ITC Investments or its securities (a “ Material Corporate Transaction ”), and that the disclosure of information about such Material Corporate Transaction at such time would reasonably be expected to have a material adverse effect thereon. Immediately upon receipt of such notice, the Shareholders whose Registrable Securities are covered by the Shelf Registration Statement shall suspend sales of Registrable Securities under the Shelf Registration Statement until the requisite changes to the prospectus have been made as required below. Any Suspension Period shall terminate at such time as the public disclosure of such information is made. After the expiration of any Suspension Period and without any further request from a Shareholder, ITC Investments shall as promptly as practicable prepare a post-effective amendment or supplement to the Shelf Registration Statement or the related prospectus, or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, (A) ITC Investments may declare no more than two Suspension Periods in any twelve month period, (B) the duration of all Suspension Periods may not exceed ninety days in the aggregate in any twelve-month period, (C) the duration of any one period may not exceed sixty days, and (D) at least thirty days must elapse between each Suspension Period.

(d) At any time, and from time-to-time, during the Shelf Registration Effectiveness Period (except during a Suspension Period), FortisUS or the Investor may notify ITC Investments in writing (the “ Takedown Request ” and the Shareholder(s) making such Takedown Request, the “ Requesting Shareholder ”) of its intent to sell Registrable Securities covered by the Shelf Registration Statement (in whole or in part) in an Underwritten Offering (a “ Shelf Underwritten Offering ”). Such notice shall specify the aggregate number of Registrable Securities requested to be registered in such Shelf Underwritten Offering. Upon receipt by ITC Investments of such notice, ITC Investments shall deliver a written notice (a “ Takedown Notice ”) to each Shareholder, who did not make such Takedown Request informing each such Shareholder of its right to include Registrable Securities in such Shelf Underwritten Offering. Within five Business Days after receipt of a Takedown Notice, each Shareholder who received such Takedown Notice shall have the right to request in writing that ITC Investments include all or a specific portion of the Registrable Securities held by such Shareholder in such Shelf Underwritten Offering and ITC Investments shall include such Registrable Securities in such Shelf Underwritten Offering. The underwriters of such Shelf Underwritten Offering shall be one or more underwriting firms of nationally recognized standing selected by the Requesting Shareholder and reasonably acceptable to ITC Investments. The right of each other Shareholder to include securities in such Required Registration shall be conditioned upon such Shareholder entering into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected pursuant hereto.

(e) ITC Investments shall not be obligated to effect, or take any action to effect, any a Shelf Underwritten Offering:

(iii) within three months of any other Required Registration or Shelf Underwritten Offering;

(iv) within three months of a Piggyback Offering in which all Shareholders were given the right to include Registrable Securities and at least 90% of the Registrable Securities requested by such Shareholders to be included in such Piggyback Offering were included;

(vi) for a period of up to 120 days if ITC Investments shall furnish to the Shareholders requesting such Shelf Underwritten Offering a certificate signed by the President of ITC Investments stating that in the good faith judgment of the ITC Investments Board such Required Registration would (A) require the disclosure of a material transaction or other matter and such disclosure would be materially disadvantageous to ITC Investments or (B) adversely affect a material financing, acquisition, disposition of assets or equity interests, merger or other comparable transaction; provided, that ITC Investments shall not exercise such right more than twice in any twelve month period.

Section 3.4 Registration Procedures . ITC Investments will use its reasonable best efforts to effect each Required Registration pursuant to Section 3.1, each Piggyback Offering pursuant to Section 3.2, any Shelf Registration and Shelf Underwritten Offering pursuant to Section 3.3, and to cooperate with the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as possible, and ITC Investments will as expeditiously as possible:

(a) subject, in the case of an Piggyback Offering, to the proviso to Section 3.2(a), prepare and file with the SEC the registration statement and use its reasonable best efforts to cause the registration statement to become effective; provided, that, to the extent practicable, at least five Business Days prior to filing any registration statement or prospectus or any amendments or supplements thereto, ITC Investments will furnish to the holders of the Registrable Securities covered by such registration statement and their counsel, copies of all such documents proposed to be filed and any such holder shall have the opportunity to comment on any information pertaining solely to such holder and its plan of distribution that is contained therein and ITC Investments shall make the corrections reasonably requested by such holder with respect to such information prior to filing any such registration statement, prospectus, supplement or amendment.

(b) subject, in the case of an Piggyback Offering, to the proviso to Section 3.2(a), prepare and file with the SEC such amendments and post-effective amendments to any registration statement and any prospectus used in connection therewith as may be necessary to keep such registration

statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier of the time such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or (i) in the case of a Required Registration pursuant to Section 3.1, the expiration of 120 days after such registration statement becomes effective or (ii) in the case of a Shelf Registration pursuant to Section 3.3, the Shelf Registration Effectiveness Period, and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act;

(c) furnish, upon request, to each holder of Registrable Securities to be included in such Registration and the underwriter or underwriters, if any, without charge, at least one signed copy of the registration statement and any post-effective amendment thereto, and such number of conformed copies thereof and such number of copies of the prospectus (including each preliminary prospectus and each prospectus filed under Rule 424 under the Securities Act), any amendments or supplements thereto and any documents incorporated by reference therein, as such holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities being sold by such holder (it being understood that ITC Investments consents to the use of the prospectus and any amendment or supplement thereto by each holder of Registrable Securities covered by such registration statement and the underwriter or underwriters, if any, in connection with the public offering and sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto);

(d) promptly notify each holder of the Registrable Securities to be included in such Registration and the underwriter or underwriters, if any:

(i) of any stop order or other order suspending the effectiveness of any registration statement, issued or threatened (in writing or otherwise) by the SEC in connection therewith, and take all reasonable actions required to prevent the entry of such stop order or to remove it or obtain withdrawal of it at the earliest possible moment if entered;

(ii) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective;

(iii) of any written request by the SEC for amendments or supplements to such registration statement or prospectus; and

(iv) of the receipt by ITC Investments of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction;

(e) if requested by the managing underwriter or underwriters or any holder of Registrable Securities to be included in such registration statement in connection with any sale pursuant to a registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information relating to such underwriting as the managing underwriter or underwriters or such holder reasonably requests to be included therein; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;

(f) on or prior to the date on which a registration statement is declared effective, use its reasonable best efforts to register or qualify, and cooperate with the holders of Registrable Securities to

be included in such Registration, the underwriter or underwriters, if any, and their counsel, in connection with the registration or qualification of the Registrable Securities covered by such Registration for offer and sale under the securities or “blue sky” laws of each state and other jurisdiction of the United States as any such holder or underwriter reasonably requests in writing; use its reasonable best efforts to keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the period such registration statement is required to be kept effective; and do any and all other acts or things necessary or advisable to enable the disposition of the Registrable Securities in all such jurisdictions reasonably requested to be covered by such Registration; provided, that ITC Investments shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject;

(g) in connection with any sale pursuant to a Registration, cooperate with the holders of Registrable Securities to be included in such Registration and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under such Registration, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such holders may request;

(h) use its reasonable best efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities within the United States and having jurisdiction over ITC Investments or any Subsidiary as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such securities;

(i) use its reasonable best efforts to obtain:

(i) at the time of pricing of any Underwritten Offering (including an “at-the- market offering” or a “registered direct offering”) a “comfort letter” from ITC Investments’ independent certified public accountants covering such matters of the type customarily covered by “comfort letters” as the Majority Registrable Holders and the underwriters reasonably request; and

(ii) at the time of any underwritten sale pursuant to the registration statement, a “bring-down comfort letter,” dated as of the date of such sale, from ITC Investments’ independent certified public accountants covering such matters of the type customarily covered by “bring-down comfort letters” as the Majority Registrable Holders and the underwriters reasonably request;

(j) use its reasonable best efforts to obtain, at the time of effectiveness of each Registration or, in the case of a Shelf Registration, at the time of pricing, and at the time of any sale pursuant to each Registration, an opinion or opinions addressed to the holders of the Registrable Securities to be included in such Registration and the underwriter or underwriters, if any, in customary form and scope from counsel for ITC Investments (who may be its internal counsel);

(k) promptly notify each seller of Registrable Securities covered by such Registration, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration, as then in effect, includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and promptly prepare and file with the SEC and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers or prospective purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact

necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(l) otherwise comply with all applicable rules and regulations of the SEC, and make generally available to its security holders (as contemplated by Section 11(a) under the Securities Act) an earnings statement satisfying the provisions of Rule 158 under the Securities Act no later than ninety days after the end of the twelve month period beginning with the first month of ITC Investments’ first fiscal quarter commencing after the effective date of the registration statement, which statement shall cover said twelve month period;

(m) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by each Registration from and after a date not later than the effective date of such Registration;

(n) use its reasonable best efforts to cause all Registrable Securities covered by each Registration to be listed subject to notice of issuance, prior to the date of first sale of such Registrable Securities pursuant to such Registration, on each securities exchange on which ITC Investments’ securities are then listed;

(o) enter into such agreements (including underwriting agreements in customary form) and take such other actions as the Majority Registrable Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including customary holdback / lock- up provisions; and

(p) cause its employees and personnel to use their reasonable best efforts to support the marketing of the Registrable Securities (including the participation in “road shows,” at the request of the underwriters or the Majority Registrable Holders) to the extent possible taking into account ITC Investments’ business needs and the requirements of the marketing process.

ITC Investments may require each holder of Registrable Securities that will be included in such Registration to furnish ITC Investments with such information in respect of such holder of its Registrable Securities that will be included in such Registration as ITC Investments may reasonably request in writing and as is required by Applicable Law.

Section 3.5 Preparation; Reasonable Investigation . In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, ITC Investments shall give, upon reasonable notice and during normal business hours, the holders of such Registrable Securities to be registered, their underwriters, if any, and their respective counsel and accountants access to its books and records and an opportunity to discuss the business of ITC Investments with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders’ or such underwriters’ counsel to conduct a reasonable investigation within the meaning of Section 11(b)(3) of the Securities Act.

Section 3.6 Rights of Requesting Holders . Each holder of Registrable Securities to be included in a Registration which makes a written request therefor in Section 3.1 or 3.2, as the case may be, shall have the right to receive within thirty days of receipt by ITC Investments of such request copies of the information, notices and other documents described Section 3.4 and Section 3.5.

Section 3.7 Registration Expenses . ITC Investments will pay all Registration Expenses in connection with each Registration of Registrable Securities, including any such registration not effected by ITC Investments.

Section 3.8 Indemnification; Contribution . (a) ITC Investments agrees to indemnify and hold harmless each Shareholder holding Registrable Securities, the Affiliates, directors, officers, employees, shareholders, managers and agents of each such Shareholder and each Person who controls any such Shareholder within the meaning of either the Securities Act or the Exchange Act, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities and expenses to which they or any of them may become subject insofar as such losses, claims, damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon any violation of the Securities Act, Exchange Act or state securities laws, or upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement as originally filed or in any amendment thereof, or the Disclosure Package, or any preliminary, final or summary prospectus or Free Writing Prospectus included in any such registration statement, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Disclosure Package, or any preliminary, final or summary prospectus or Free Writing Prospectus included in any such registration statement, in light of the circumstances under which they were made) not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action (whether or not the indemnified party is a party to any proceeding); provided, that ITC Investments will not be liable in any case to the extent that any such loss, claim, damage, liability or expense arises (i) out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to ITC Investments by or on behalf of any such Shareholder specifically for inclusion therein including any notice and questionnaire, or (ii) out of sales of Registrable Securities made during a Suspension Period after notice is given pursuant to Section 3.3(c). This indemnity agreement will be in addition to any liability which ITC Investments may otherwise have.

(b) Each Shareholder severally (and not jointly) agrees to indemnify and hold harmless ITC Investments and each of its Affiliates, directors, employees, shareholders, managers and agents and each Person who controls ITC Investments within the meaning of either the Securities Act or the Exchange Act, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages or liabilities to which they or any of them may become subject insofar as such losses, claims, damages or liabilities arise out of or are based upon any violation of the Securities Act, Exchange Act or state securities laws, upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement as originally filed or in any amendment thereof, or in the Disclosure Package or any Shareholder Free Writing Prospectus, preliminary, final or summary prospectus included in any such registration statement, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Disclosure Package, or any preliminary, final or summary prospectus or Free Writing Prospectus included in any such registration statement, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that any such untrue statement or alleged untrue statement or omission or alleged omission is contained in any written information relating to such Shareholder furnished to ITC Investments by or on behalf of such Shareholder specifically for inclusion therein; provided, that the total amount to be indemnified by such Shareholder pursuant to this Section 3.8(b) shall be limited to the net proceeds (after deducting underwriters’ discounts and commissions and other reimbursable expenses) received by such Shareholder in the offering to which such registration statement or prospectus relates.

(c) Promptly after receipt by an indemnified party under this Section 3.8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 3.8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from

liability under paragraph (a) or (b) above unless and to the extent such action and such failure results in material prejudice to the indemnifying party and forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, except as provided in the next sentence, after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the indemnifying party’s rights in the prior sentence, the indemnified party shall have the right to employ its own counsel (and one local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. No indemnifying party shall, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general circumstances or allegations, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties. An indemnifying party shall not be liable under this Section 3.8 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by such indemnifying party. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement or compromise unless such settlement or compromise (i) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and (ii) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) In the event that the indemnity provided in Section 3.8(a) or Section 3.8(b) above is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party agrees to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which such indemnifying party may be subject in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party on the one hand or the indemnified party on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 3.8(d) were determined by pro rata allocation (even if the Shareholders holding Registrable Securities or

any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 3.8(d). The amount paid to or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 3.8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 3.8(d), no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 3.8, each Person who controls any Shareholder holding Registrable Securities, agent or underwriter within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of any such Shareholder, agent or underwriter shall have the same rights to contribution as such Shareholder, agent or underwriter, and each Person who controls ITC Investments within the meaning of either the Securities Act or the Exchange Act and each officer and director of ITC Investments shall have the same rights to contribution as ITC Investments, subject in each case to the applicable terms and conditions of this Section 3.8(d). Notwithstanding the foregoing, the total amount to be contributed by any Shareholder pursuant to this Section 3.8(d) shall be limited to the net proceeds (after deducting underwriters’ discounts and commissions and other reimbursable expenses) received by such Shareholder in the offering to which such registration statement or prospectus relates.

(e) The provisions of this Section 3.8 will remain in full force and effect, regardless of any investigation made by or on behalf of any Shareholder holding Registrable Securities or ITC Investments or any of the officers, directors or controlling Persons referred to in this Section 3.8, and will survive the transfer of Registrable Securities.

(f) To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under this Section 3.8 to the fullest extent permitted by Applicable Law; provided, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount (after deducting underwriters’ discounts and commissions and other reimbursable expenses) of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Shelf Registration.

Section 3.9 Holdback Agreements; Registration Rights to Others . In the event and to the extent requested by the managing underwriter of an Underwritten Offering, each Shareholder agrees that it will enter into a customary “lock-up agreement” with such managing underwriter pursuant to which it will agree not to sell, make any short sale of, grant any option for the purchase of, or otherwise dispose of any Equity Securities, other than those Registrable Securities included in such Registration pursuant to the terms hereof for the fourteen days prior to (x) the effectiveness of a registration statement (other than a Shelf Registration Statement) pursuant to which such Public Offering shall be made, or (y) the pricing of an Underwritten Offering and ending on the earlier to occur of (1) in case of the Initial Public Offering, the date that is one hundred and eighty (180) days after the effectiveness of the registration statement relating to such Initial Public Offering, or (2) in the case of any other Underwritten Offering, the date that is ninety days after the pricing of such Underwritten Offering (or such shorter period of time as is sufficient and appropriate, in the opinion of the managing underwriter, to complete the sale and distribution of the securities included in such Underwritten Offering) (the “ Lock-Up Period ”); provided, that the limitations contained in this Section 3.9 shall not apply to the extent a Shareholder is prohibited by Applicable Law from so withholding such Equity Securities from sale during such period; provided,

further, that if any other holder of securities of ITC Investments is or becomes subject to a shorter Lock- Up Period or receives more advantageous terms relating to the Lock-Up Period under any lock-up agreement (including as a result of any discretionary waiver or termination of the restrictions of any or all of such agreements by ITC Investments or the underwriters), then the Lock-Up Period shall be such shorter period and also on such more advantageous terms.

Section 3.10 Availability of Information . Following ITC Investments’ initial Public Offering, ITC Investments shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act and will comply with all other public information reporting requirements of the SEC as from time to time in effect, and cooperate with holders of Registrable Securities, so as to permit disposition of the Registrable Securities pursuant to an exemption from the Securities Act for the sale of any Registrable Securities (including the current public information requirements of Rule 144(c) and Rule 144A under the Securities Act). ITC Investments shall also cooperate with each holder of any Registrable Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of an exemption from the Securities Act for the sale of any Registrable Securities.

Section 3.11 Other Registration Rights . ITC Investments represents and warrants that it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other Person with respect to any Common Stock or Common Stock Equivalents. Except as provided in this Agreement, ITC Investments shall not grant other registration rights to any Persons without the prior written consent of the holders of a majority of the Registrable Securities, provided further that any demand registration rights granted subsequent to the date hereof shall also require the consent of the Investor.

ARTICLE IV

GOVERNANCE

Section 4.1 ITC Investments Board . (a) Composition and Size . The ITC Investments Board shall consist of the number of members set forth in the ITC Investments Bylaws from time-to-time, which the Shareholders agree shall be not more than eleven members or, where there are two RH Shareholders, thirteen members. As soon as practicable, but in any event within six months, after the date hereof, the Shareholders shall cause a majority of the members of the ITC Investments Board to be Independent Directors. If at any time thereafter the ITC Investments Board ceases to consist of a majority of Independent Directors, then the Shareholders shall elect to the ITC Investments Board the necessary number of Independent Directors to create such majority within three months of such event.

(b) Shareholder Voting; RH Director Rights . Each Shareholder agrees to vote, or cause to be voted, all voting securities of ITC Investments over which such Person has the power to vote or direct the voting, and shall take all other necessary or reasonably required actions within such Person’s control (whether in such Person’s capacity as an equity holder, a director, a member of a board committee or an officer of ITC Investments or otherwise, and including attendance at meetings in person, via telephone or by Proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and ITC Investments shall take all necessary or reasonably required actions, in each case, reasonably within its control (including regular and special board and Shareholder meetings) in order to elect and maintain to the ITC Investments Board (i) one director designated by any RH Shareholder (an “ RH Director ”) and (ii) the remainder of such directors nominated in accordance with the ITC Investments Bylaws and the provisions of this Agreement. ITC Investments shall reimburse the RH Director for all reasonable travel and out-of-pocket expenses incurred in connection with attending any meetings of the ITC Investments Board or any committees.

(c) Removal of RH Director . Any RH Director may be removed from the ITC Investments Board in accordance with the ITC Investments Bylaws upon the request or approval of the designating RH Shareholder. In such case, each Shareholder agrees to vote all of its voting securities of ITC Investments over which such Person has the power to vote or direct the voting and do all things necessary under Applicable Law to remove such director (and thereafter Section 4.1(b) shall apply to the replacement thereof). Upon any RH Shareholder ceasing to own the Requisite Holding, the director designated by such Shareholder shall resign from (and may be removed from) the ITC Investments Board.

(d) Removal for Cause . Any director of the ITC Investments Board may be removed from the ITC Investments Board in accordance with the ITC Investments Bylaws for Cause. In such case, each Shareholder agrees to vote all of its voting securities of ITC Investments over which such Person has the power to vote or direct the voting and do all things necessary under Applicable Law to remove such director.

(e) Observer Rights . For so long as the Investor owns one-half of the number of Common Stock Equivalents that would be required for such Shareholder to constitute an RH Shareholder, Investor may elect, in its discretion, to appoint one non-voting observer to attend all meetings (including telephonic meetings) of the ITC Investments Board. For greater certainty, Investor’s rights under this Section 4.1(e) shall be independent of and in addition to its right to designate any RH Director. ITC Investments shall provide each observer appointed under this Section 4.1(e) with (x) notice of all meetings of the ITC Investments Board and its committees, (y) all information delivered to the members of the ITC Investments Board and its committees in connection with such meetings at the same time such notice and information is delivered to the members of the ITC Investments Board and its committees and (z) reimbursement for all reasonable travel and out-of-pocket expenses in connection with attending such meetings. Notwithstanding the foregoing, ITC Investments shall be entitled to (a) excuse any observer from any portion of a ITC Investments Board meeting or a meeting of the committees to the extent such observer’s participation in such meeting is reasonably likely to adversely affect the attorney/client privilege of ITC Investments and its legal advisors and (b) withhold information from any observer delivered to the ITC Investments Board or any of the committees prior to a meeting of the ITC Investments Board or, as the case may be, such committee, in each case if ITC Investments believes there is a reasonable likelihood that the receipt of such information by the observer may adversely affect the attorney/client privilege of ITC Investments and its legal advisors.

Section 4.2 Committees of the ITC Investments Board . The Shareholders agree to cause the establishment of at least the following committees of the ITC Investments Board: (a) an audit and risk committee; and (b) a governance and human resources committee. The RH Director shall be entitled to be a member of all committees of the ITC Investments Board; provided , that any RH Shareholder may elect, in its discretion, to appoint a non-voting observer in lieu of an RH Director to attend all meetings (including telephonic meetings) of committees of the ITC Investments Board. Any member of a committee may be removed from a committee in accordance with the ITC Investments Bylaws for Cause. In such case, each Shareholder agrees to vote all of its voting securities of ITC Investments over which such Person has the power to vote or direct the voting and do all things necessary under Applicable Law to remove such director (and if applicable Section 4.1(b) shall apply to the replacement thereof). Upon any RH Shareholder ceasing to own the Requisite Holding, the director designated by such Shareholder shall resign from (and may be removed from) all committees of the ITC Investments Board.

Section 4.3 Majority Shareholder Matters . Subject to Section 4.4 and Section 4.5, the following acts, expenditures, decisions and obligations made or incurred by ITC Investments or any Subsidiary of ITC Investments shall be reserved to the Shareholders and shall require the affirmative vote, in person (including by electronic means) or by proxy, of holders of record of a majority of the outstanding Common Stock in accordance with the ITC Investments Bylaws:

(a) any issuance of Common Stock;

(b) any Sale of the Business;

(c) the non-discriminatory allocation of Allocated Overhead to ITC Investments by FortisUS (and to ITC by ITC Investments) in accordance with FortisUS’ generally applicable policies;

(d) adopting any resolution in furtherance of the foregoing; and

(e) agreeing, committing or delegating authority to take any of the foregoing actions.

Section 4.4 RH Reserved Matters . The following acts, expenditures, decisions and obligations (the “ RH Reserved Matters ”) shall be reserved to the Shareholders and shall require the prior affirmative vote, in person (including by electronic means) or by proxy, of (A) holders of record of a majority of the outstanding Common Stock in accordance with the ITC Investments Bylaws and (B) for so long as there is an RH Shareholder, the RH Shareholders, and no Shareholder shall vote in favor of any RH Reserved Matter unless approved by the RH Shareholders (it being understood that an affirmative approval by the RH Director designated by an RH Shareholder at a meeting or by written consent shall constitute the approval of such RH Shareholder for the purposes of this Section 4.4; however, if such RH Director abstains, recuses himself or herself, or otherwise requests the RH Reserved Matter be submitted to the relevant RH Shareholder, prior written consent of such RH Shareholder shall be obtained):

(a) any change to the number of persons serving on the ITC Investments Board or the ITC Board or any amendment to Section 4.1(a) hereof;

(b) any change to the nature of ITC’s business that would (i) cause ITC to no longer derive at least 85% of its revenues from Qualifying Core Assets or (ii) would be reasonably likely to result in payments made by ITC to Fortis or any of its Affiliates under shared services or similar arrangements representing more than 2% of ITC’s total operating expenses;

(c) any merger, consolidation, or other reorganization, recapitalization or business combination in which the consideration offered in respect of the Equity Securities or other securities of ITC Investments of any class held by an RH Shareholder differs in kind or amount from the consideration offered in respect of such securities of such class held by any other holders of such class, or the terms under which the consideration is offered in respect of such securities of any class held by an RH Shareholder differs from the terms under which the consideration is offered in respect of such securities of such class held by any other holders of such class; or

(d) any merger, consolidation, or other reorganization, recapitalization or business combination in which the acceptance of any of the consideration offered in respect of the Equity Securities or other securities of ITC Investments of any class held by an RH Shareholder would result in such RH Shareholder, or any direct or indirect owner of such RH Shareholder, (A) incurring any income that is effectively connected with the conduct of a U.S. trade or business within the meaning of the Code (including Section 897 thereof), (B) having a permanent establishment in the United States, or (C) engaging in any “commercial activity” as defined in Section 892(a)(2)(i) of the Code;

(e) taking any action that would reasonably be expected to result (or that, if any RH Shareholder exercises its rights under Section 2.6, would reasonably be expected to result) in such RH Shareholder, or any direct or indirect owner of such RH Shareholder, incurring any income that is effectively connected with the conduct of a U.S. trade or business within the meaning of the Code (including Section 897 thereof);

(f) any conversion of ITC Investments into an entity that is treated as other than a C corporation for U.S. federal income tax purposes or taking any other action that would (i) cause any entity in which an RH Shareholder holds an interest not to be a C corporation for U.S. federal income tax purposes or (ii) cause an RH Shareholder to hold directly any asset or assets that would result in such RH Shareholder, or any direct or indirect owner of such RH Shareholder, (A) having a permanent establishment in the United States, or (B) engaging in any “commercial activity” as defined in Section 892(a)(2)(i) of the Code;

(g) any sale or disposition of any material assets of ITC Investments or ITC or any assets or shares of a Subsidiary of ITC Investments or ITC, by conveyance, transfer, lease or otherwise, for a sale price in excess of $100 million (Escalated) other than with respect to assets that are non-Qualifying Core Assets the development of which was subject to approval by an RH Shareholder at the time of the final investment decision with respect thereto in accordance with this Agreement and such approval was not provided at such time;

(h) the incurrence of Indebtedness for Borrowed Money by (i) ITC Investments or (ii) ITC or its Subsidiaries, if, with respect to this clause (ii) only, after giving pro forma effect to such incurrence and the application of the proceeds therefrom, the long-term unsecured indebtedness of ITC and its Subsidiaries would reasonably be expected to be rated poorer than BBB- by Standard & Poor’s Ratings Services or Baa3 by Moody’s Investors Service, Inc.;

(i) taking any action that, after giving pro forma effect thereto, would reasonably be expected to result in a FFO/Net Debt Ratio of greater than 12.0%, unless taking such action is reasonably necessary to comply with the terms, conditions, covenants or obligations of any Indebtedness for Borrowed Money of ITC;

(j) the incurrence by ITC Investments or its Subsidiaries of capital expenditures in respect of the development of Core Assets that are not Qualifying Core Assets;

(k) the acquisition by ITC Investments or its Subsidiaries from any other Person of Core Assets that are not Qualifying Core Assets;

(l) the entering into of any joint venture, partnership or similar agreement or the acquisition from or subscription in any other Person of the equity interests in a Person; unless , at least 85% of the revenues of such Person are (or in the case of a joint venture or partnership, are reasonably expected to be) derived from Qualifying Core Assets;

(m) the disposition by ITC Investments or its Subsidiaries of Qualifying Core Assets with a book value in excess of $50 million (Escalated), unless required by Applicable Law;

(n) the initial direct or indirect acquisition by ITC Investments or its Subsidiaries of Core Assets in any Regional Transmission Organization that is not an ITC RTO;

(o) any amendment to the ITC Investments Bylaws or the ITC Bylaws that would make the provisions thereof inconsistent with the requirements hereof or that are disproportionately adverse to the RH Shareholders as compared to the other Shareholders;

(p) taking any action that would cause ITC Investments to no longer be a member of the “affiliated group” (as defined in Section 1504(a) of the Code) of which FortisUS is the common parent and that files U.S. federal income tax returns on a consolidated basis;

(q) adopting any resolution in furtherance of the foregoing; and

(r) agreeing, committing or delegating authority to take any of the foregoing actions.

Section 4.5 Supermajority Shareholder Matters . The following acts, expenditures, decisions and obligations (the “ Supermajority Shareholder Matters ”) shall require the prior approval of holders of record of at least 95% of the outstanding Common Stock:

(a) the issuance by ITC of any equity securities to any Person other than ITC Investments;

(b) the incurrence by ITC Investments of Preferred Equity or any instrument Preferred Equity;

(c) the repurchase or redemption of Common Stock, or the repayment of Shareholder Notes unless in each case, offered pro rata among all Shareholders;

(d) the repurchase or redemption of Preferred Equity;

(e) any amendment to the articles of incorporation of ITC Investments or ITC that would have a material and adverse effect on the rights, obligations or interests of the Shareholders (other than FortisUS), as Shareholders, unless required to comply with Applicable Law;

(f) any amendment to the ITC Investments Bylaws or the ITC Bylaws that would make the provisions thereof inconsistent with the requirements hereof or that are disproportionately adverse to the Shareholders (other than FortisUS);

(g) commencement by ITC Investments or ITC of a voluntary case under, or consent to the entry of a decree or order for relief in an involuntary case under, any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or other similar law now or hereafter in effect;

(h) any winding up, dissolution or liquidation with respect to ITC Investments or ITC;

(i) the making by ITC Investments or ITC of a general assignment for the benefit of creditors;

(j) amendments hereto, to the extent provided in Section 7.14;

(k) adopting any resolution in furtherance of the foregoing; and

(l) agreeing, committing or delegating authority to take any of the foregoing actions.

Section 4.6 Independent Director Matters . Subject to Section 4.3, Section 4.4 and Section 4.5, the following acts, expenditures, decisions and obligations shall be reserved to the Independent Directors of the ITC Investments Board (“ Independent Director Matters ”) and approval shall require the unanimous approval of the Independent Directors present and voting at a properly convened meeting of the ITC Investments Board:

(a) any amendments to the articles of incorporation of ITC Investments or the ITC Investments Bylaws (including increasing the authorized share capital of ITC Investments or sub-dividing or cancelling any Equity Securities) or the articles of incorporation of ITC or the ITC Bylaws, unless such amendment(s) are approved in accordance with Section 4.4(o), Section 4.5(e) or Section 4.5(f), as applicable;

(b) any change to the dividend policy of ITC Investments or ITC (such policy as at the date hereof is set forth in Exhibit B); provided that no change to the dividend policy of ITC Investments or ITC that is inconsistent with Section 5.2 shall be effected;

(c) settlement of any litigation, arbitration or other proceeding, in each case, that involves a guilty plea or any other acknowledgment of criminal wrongdoing that would have a material adverse effect on ITC Investments and its Subsidiaries, taken as a whole;

(d) adopting any resolution in furtherance of the foregoing; and

(e) agreeing or committing to take any of the foregoing actions.

Section 4.7 Related Party Transactions . Each Shareholder shall cause any member of the ITC Investments Board that is a director, officer, or employee of such Shareholder to be recused from voting with respect to any material Related Party Transaction (other than the non-discriminatory allocation of Allocated Overhead to the ITC Investments by FortisUS in accordance with FortisUS’ generally applicable policies) and a majority of the remaining directors present and voting at a properly convened meeting of the ITC Investments Board shall be required to approve such Related Party Transaction. Without limiting the foregoing, other than in respect of an Excepted Transaction, (i) any material Related Party Transaction with FortisUS or any of its Affiliates and (ii) any agreement, transaction or arrangement by any member of the ITC Group that would result in a material benefit to any member of the Fortis Group (other than through such member’s direct or indirect shareholdings in ITC Investments) that is not shared generally and pro rata by all shareholders of ITC Investments, including any agreement, transaction or arrangement pursuant to which a member of the ITC Group agrees to be a borrower or guarantor in respect of any debt or other securities issued by any member of the Fortis Group or to provide any pledge, mortgage or other security interest in its assets to secure any obligations of any member of the Fortis Group, shall also be subject to the prior written approval of the RH Shareholders (or the affirmative vote of the RH Directors at a meeting of the ITC Investments Board or by written consent; provided , that if the RH Director abstains, recuses himself or herself, or otherwise requests the applicable transaction be submitted to the RH Shareholders, prior written consent of the RH Shareholders shall be obtained).

Section 4.8 Consultation Regarding Senior Officers . The ITC Investments Board shall consult reasonably with the RH Shareholders (including through the RH Directors at a duly convened meeting of the ITC Investments Board) prior to the removal of any senior officer of ITC Investments and with respect to the appointment of any replacement senior officer of ITC Investments.

Section 4.9 Maintenance of Governance Rights . If ITC Investments at any time issues any Common Stock Equivalents then, unless such issuance constitutes an Excepted Issuance, the Requisite Holding that shall apply with respect to determining whether any Shareholder is an RH Shareholder shall be (x) the Requisite Holding that applied to such Shareholder immediately prior to the issuance of the corresponding Common Stock Equivalents multiplied by (y) the percentage yielded by dividing (A) the sum of (1) the aggregate Common Stock Equivalents outstanding immediately prior to such issuance and (2) the Shareholder Participation Factor by (B) the aggregate Common Stock Equivalents outstanding immediately after such issuance; provided , that in no event shall the Requisite Holding applicable to any Shareholder be less than 5%; and provided further that no adjustment pursuant to this Section 4.9 shall increase the Requisite Holding applicable to any Shareholder. “ Shareholder Participation Factor ” with respect to any such issuance of Common Stock Equivalents means the number of Common Stock Equivalents acquired in such issuance by the relevant Shareholder divided by such Shareholder’s “proportional share” as such term is defined in Section 2.6.

Section 4.10 ITC Board . ITC Investments agrees to vote, or cause to be voted, all voting securities of ITC over which ITC Investments has the power to vote or direct the voting, and shall take all other necessary or reasonably required actions within ITC Investments’ control in order to cause, at all times, (i) the ITC Board to consist of the same number of directors as the ITC Investments Board, (ii) the ITC Board to have established the same committees as the ITC Investments Board, (iii) the directors and observers appointed to the ITC Investments Board and any committee thereof (including any RH Director and/or RH Shareholder-appointed non-voting observer) to be appointed to the ITC Board and the applicable committee thereof, (iv) to cause the acts, expenditures, decisions and obligations described in Section 4.3, Section 4.4, Section 4.5 and Section 4.6 to be reserved to the Shareholders or the Independent Directors, as applicable, in accordance with such provision, (v) cause any member of the ITC Board that is a director, officer, or employee of a Shareholder to be recused from voting with respect to any material Related Party Transaction and any agreement, transaction or arrangement described in Section 4.7(ii) (other than the non-discriminatory allocation of Allocated Overhead to ITC Investments by FortisUS in accordance with FortisUS’ generally applicable policies) and require that a majority of the remaining directors present and voting at a properly convened meeting of the ITC Board shall be required to approve such Related Party Transaction and (vi) cause the ITC Bylaws to be substantially the same as the ITC Investments Bylaws. Without limiting the foregoing, each of the provisions of this Article IV shall apply mutatis mutandis to the governance of ITC.

ARTICLE V

OTHER COVENANTS OF INVESTMENTS

Section 5.1 Access; Reporting . (a) ITC Investments shall maintain at the principal place of business of ITC Investments or at such other place as the ITC Investments Board shall determine, all books and records of ITC Investments and its Subsidiaries as are required to be maintained pursuant to Applicable Law. All such books and records shall be available for review by each Shareholder in person or by its duly authorized representatives at such place during regular business hours within a reasonable time after receipt of a reasonable demand for a purpose reasonably related to the Shareholder’s interest as a Shareholder. All such books and records shall also be available for review by representatives or agents of any Governmental Entity or self-regulatory organization having supervisory authority over any Shareholder. Any expense for any review (including any copying of such books and records) shall be borne by the Shareholder causing such review to be conducted. Any demand under this Section 5.1(a) shall be in writing and shall state the purpose of such demand.

(b) ITC Investments shall, at any time, deliver to each Shareholder holding at such time 5% or more of the Common Stock Equivalents:

(i) within thirty days after the end of each fiscal month of ITC Investments other than the last such month of any fiscal quarter of ITC Investments, consolidated statements of earnings, Shareholders’ equity and cash flows of ITC Investments for such fiscal month and consolidated balance sheets of ITC Investments as of the end of such fiscal month, certified by the chief financial officer or controller of ITC Investments;

(ii) within 45 days after the end of each of the first three quarterly accounting periods in each fiscal year, consolidated statements of earnings, Shareholders’ equity and cash flows of ITC Investments for such fiscal quarter and consolidated balance sheets of ITC Investments as of the end of such fiscal quarter, certified by the chief financial officer or controller of ITC Investments;

(iii) within 120 days after the end of each fiscal year, audited consolidated statements of earnings, Shareholders’ equity and cash flows of ITC Investments for such fiscal year and consolidated balance sheets of ITC Investments as of the end of such fiscal year, accompanied by the opinion of a nationally recognized independent accounting firm selected by ITC Investments;

(iv) within sixty days after the commencement of each fiscal year of ITC Investments, a consolidated annual budget of ITC Investments and its Subsidiaries for such fiscal year (such annual budget to include, budgeted statements of earnings and sources and uses of cash and balance sheets) accompanied by a certificate of the chief financial officer or controller of ITC Investments to the effect that, to the best of his or her knowledge, such budget is a reasonable estimate for the period covered thereby

(v) promptly, such other information as is reasonably requested by such Shareholder.

The covenants set forth in this Section 5.1(b) shall terminate and be of no further force or effect upon the date on which ITC Investments first becomes subject to periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act.

Section 5.2 Dividend Policy . Subject to Section 4.4(i), ITC Investments and ITC shall maintain in effect a dividend policy that is approved by the ITC Investments Board and ITC Board (respectively) in accordance with the ITC Investments Bylaws and the ITC Bylaws (respectively it being understood and agreed that it is the intent of the parties that such dividend policy reflect the intent of maintaining ITC’s investment grade status and promoting an efficient capital structure of ITC Investments and ITC. As of the date hereof, the dividend policy of ITC Investments and ITC is as set forth on Exhibit B.

Section 5.3 Director and Officer Insurance . As promptly as practicable after the date hereof, ITC Investments shall purchase and maintain customary directors’ and officers’ indemnification insurance coverage for each of its directors and officers and the directors and officers of ITC, including any RH Director (or any substitute or replacement thereof) serving on the ITC Investments Board, the ITC Board or the board of directors of any of ITC Investments’ other Subsidiaries. Any RH Director or nominee by an RH Shareholder to the ITC Investments Board, the ITC Board or the board of directors of any of ITC Investments’ other Subsidiaries shall also be indemnified to the same extent as all other directors serving on such boards and shall be entitled to an indemnification agreement from ITC Investments in a form customary for directors appointed by financial investors.

Section 5.4 Voting Agreements . Other than this Agreement, no Shareholder nor ITC Investments shall enter into any agreement restricting the discretion of it or any director appointed by it to

vote in respect of any matter. This Section 5.4 shall not apply to agreements among the equity holders of any Shareholder.

Section 5.5 Investor Tax Status . The Investor represents, and ITC Investments acknowledges the Investor’s representation, that the Investor is exempt from U.S. tax on certain dividends, interest and gain from the sale of stock and securities under Section 892 of the Code and the Treasury Regulations thereunder. Provided that the Investor remains eligible for such benefits under Section 892 of the Code and the Treasury Regulations thereunder and provides an effective and properly executed Internal Revenue Service Form W-8EXP claiming exemption from U.S. income tax under Section 892 of the Code, ITC Investments shall not withhold U.S. tax on the enumerated items of exempt income (or other items otherwise exempt under Section 892 of the Code) unless (i) such withholding is otherwise required by applicable tax law, regulations or relevant provisions of an income tax treaty or (ii) such withholding is otherwise required by a change in circumstances if as a result of such change (A) a Form W-8EXP previously delivered by the Investor to ITC Investments becomes inaccurate, untrue or otherwise invalid or (B) the Investor is no longer in a position to provide a properly executed IRS Form W-8EXP or is otherwise unable to claim an exemption from U.S. income tax under Section 892 of the Code.

ARTICLE VI

SHAREHOLDER REPRESENTATIONS AND WARRANTIES; NOTICES

Section 6.1 Representations and Warranties . Each Shareholder and each Person who becomes a Shareholder after the date hereof with respect to itself hereby represents and warrants to and acknowledges with ITC Investments and each other Shareholder that, as of the time such Shareholder becomes a party to this Agreement (whether by executing a separate joinder or otherwise):

(a) such Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in ITC Investments and making an informed investment decision with respect thereto;

(b) such Shareholder is able to bear the economic and financial risk of an investment in ITC Investments for an indefinite period of time;

(c) such Shareholder is acquiring or has acquired Equity Securities for its own account and not as nominee or agent for any other Person and for investment only and not with a view to, or for offer or sale in connection with, any distribution thereof or with any present intention of offering or selling or otherwise disposing of such Equity Securities, all without prejudice, however, to the right of such Shareholder at any time to sell or dispose of all or any part of the Equity Securities held by such Shareholder pursuant to a lawful Transfer in accordance with this Agreement;

(d) such Shareholder has not granted and is not party to any contract or agreement, including any proxy, voting trust or other agreement or arrangement, which is inconsistent with, conflicts with or violates any provision of this Agreement or pursuant to which any of the Equity Securities or any interest therein held by such party on the date hereof is to be Transferred;

(e) such Shareholder understands that (i) the Equity Securities have not been registered under the Securities Act or the securities or “blue sky” laws of any jurisdiction, (ii) such Shareholder agrees that its Equity Securities cannot be transferred unless they are subsequently registered and/or qualified under the Securities Act or other applicable securities and “blue sky” laws, or are exempt from such qualification or registration, and the provisions of this Agreement have been complied with, (iii) there is no assurance that any exemption from registration under the Securities Act and any applicable state or “blue sky” laws or regulations will be available, or if available, that such exemption will allow such Shareholder to dispose of or otherwise transfer any or all of its Equity Securities in the

amounts or at the times such Shareholder may propose, (iv) except as otherwise set forth herein, ITC Investments has no obligation or present intention of registering the Equity Securities, and (v) ITC Investments is relying upon the representations, warranties and agreements made by such Shareholder in this Agreement;

(f) such Shareholder (i) has been provided with access to all information concerning the Equity Securities, ITC Investments and its Subsidiaries, as he, she or it has requested and has had an opportunity to ask questions of management of ITC Investments and to obtain such additional information concerning the Equity Securities, ITC Investments and its Subsidiaries as such Shareholder deems necessary in connection with his, her or its acquisition of Equity Securities, (ii) understands that information with respect to existing business and historical operating results of ITC Investments and its Subsidiaries and estimates and projections as to future operations involve significant subjective judgment and analysis, which may or may not be correct, (iii) has not relied on any Person in connection with its investigation of the accuracy or sufficiency of such information or its investment decision, (iv) fully understands the nature, scope and duration of the limitations applicable to its Equity Securities, and (v) acknowledges that on the date hereof ITC Investments cannot, and does not, make any representation or warranty as to the accuracy of the information concerning the past or future results of any of its Subsidiaries;

(g) if a natural person, (i) neither ITC Investments nor any Person acting on behalf of ITC Investments has offered to sell or sold the Equity Securities to such person by means of any form of general solicitation or advertising, (ii) such person has not received, paid or been given, directly or indirectly, any commission or remuneration for or on account of any sale, or the solicitation of any sale of the Equity Securities, (iii) the address set forth below such person’s name on the relevant Schedule is the address of such person’s residence and domicile (not a temporary or transient residence) and (iv) no right of employment of any such person is implied either by ownership of any Equity Securities or by any provision of this Agreement;

(h) if not a natural person, such Shareholder was not formed solely for the purpose of owning Equity Securities in ITC Investments;

(i) if a natural person, such Shareholder has the legal capacity to execute and deliver this Agreement (or the separate joinder, if applicable) and to consummate the transactions contemplated hereby (and thereby, if applicable) and, with or without the giving of notice or lapse of time, or both, neither shall require such Shareholder to obtain any consent or approval that has not been obtained or shall contravene or shall result in a breach or default which is material under any provision of any law, rule, regulation, order, judgment or decree applicable to such Shareholder or any agreement or instrument to which such Shareholder is party or by which such Shareholder or any of such Shareholder’s assets or properties is bound;

(j) if not a natural person, the execution, delivery and performance of this Agreement (or the separate joinder executed by such Shareholder, if applicable) and the consummation of the transactions contemplated hereby (and thereby, if applicable) have been duly authorized by such Shareholder and, with or without the giving of notice or lapse of time, or both, do not require such Shareholder to obtain any consent or approval that has not been obtained and do not contravene or result in a breach or default which is material under any provision of any law, rule, regulation, order, judgment or decree applicable to such Shareholder, its certificate of incorporation, by-laws or other governing documents (if an entity) or any agreement or instrument to which such Shareholder is party or by which such Shareholder or any of such Shareholder’s assets or properties is bound; and

(k) this Agreement (or the separate joinder executed by such Shareholder, if applicable) has been executed and delivered by such Shareholder and is valid, binding and enforceable

against such Shareholder in accordance with its terms except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding brought in equity or at law).

Section 6.2 Shareholder Notices . Each Shareholder shall notify each of ITC Investments, FortisUS and the Investor if, to the best of its knowledge, it or its Affiliates at any time becomes a Market Participant in any Regional Transmission Organization.

ARTICLE VII

MISCELLANEOUS

Section 7.1 Entire Agreement . This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements or understandings (whether written or oral) with respect thereto.

Section 7.2 Captions . The Article and Section captions used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

Section 7.3 Counterparts . For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

Section 7.4 Notices . Except as otherwise provided herein, all notices, requests, claims, demands, waivers and other communications required or permitted under this Agreement shall be in writing and shall be delivered by email with copies by overnight courier service to the respective parties as follows (or, in each case, as otherwise notified by any of the parties hereto) and shall be effective and deemed to have been duly given upon being sent by email between 7:30 am and 4:30 pm (New York City time on any Business Day and when sent outside of such hours, at 7:30 am (New York City time) on the next Business Day):

If to ITC Investments, to:

c/o Fortis Inc.

Fortis Place

5 Springdale Street, Suite 1100

P.O. Box 8837

St. John’s, Newfoundland A1B3T2

Canada

Attention: David Bennett

Facsimile: (709) 737-5307

E-Mail: dbennett@fortisinc.com

with a copy (which shall not constitute notice) to its counsel:

White & Case LLP

1155 Avenue of the Americas

New York, New York 10036

Attention: John Reiss

Telephone: (212) 819-8200

Facsimile: (212) 354-8113

Email: jreiss@whitecase.com

If to FortisUS, to:

c/o Fortis Inc.

Fortis Place

5 Springdale Street, Suite 1100

P.O. Box 8837

St. John’s, Newfoundland A1B3T2

Canada

Attention: David Bennett

Facsimile: (709) 737-5307

E-Mail: dbennett@fortisinc.com

with a copy (which shall not constitute notice) to its counsel:

White & Case LLP

1155 Avenue of the Americas

New York, New York 10036

Attention: John Reiss

Telephone: (212) 819-8200

Facsimile: (212) 354-8113

Email: jreiss@whitecase.com

If to Investor, to:

Eiffel Investment Pty Ltd

c/o GIC Pte Ltd

168 Robinson Road #37-01

Capital Tower

Singapore 068912

Attention: Goh Siang

Telephone: +65-68896935

Email: gohsiang@gic.com.sg

with a copy (which shall not constitute notice) to its counsel:

Sidley Austin LLP

787 Seventh Avenue

New York, NY 10019

Attention: Asi Kirmayer

Telephone: (212) 839-5404

Email: akirmayer@sidley.com

Notices sent by multiple means, each of which is in compliance with the provisions of this Agreement will be deemed to have been received at the earliest time provided for by this Agreement.

Section 7.5 Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of ITC Investments, the Shareholders and their respective successors, assigns and Permitted Transferees. Any or all of the rights of a Shareholder under this Agreement may be assigned or otherwise conveyed by any Shareholder only in connection with a Transfer of Equity Securities made in compliance with this Agreement.

Section 7.6 Governing Law . The corporate law of the State of Michigan shall govern all issues and questions concerning the relative rights of ITC Investments and all its Shareholders. All other

issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement (and the exhibits and schedules hereto), and all matters relating hereto, shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

Section 7.7 Disputes . (a) All disputes arising out of, relating to or in connection with this Agreement (including the validity of the agreement of the parties to arbitrate, the arbitrability of the issues submitted to arbitration hereunder, the existence and validity of this Agreement, and any conflict of laws issues arising in connection with this Agreement or this agreement to arbitrate) shall be exclusively, finally, and conclusively settled by binding arbitration under the Rules of Arbitration of the International Chamber of Commerce (the “ ICC ”) then in effect (the “ Rules ”).

(b) Any party may, either individually or together with any other party, initiate arbitration proceedings pursuant to this clause against one or more other parties by sending a request for arbitration (the “ Request for Arbitration ”) to the ICC, with a copy to all other parties to this Agreement (whether or not such parties are named as respondents in the Request for Arbitration).

(c) Any party to an arbitration proceeding hereunder may join any other party to proceedings by submitting a request for joinder against that party (a “ Request for Joinder ”); provided , that such Request for Joinder is sent to the ICC with a copy to all other parties to this Agreement (whether or not such parties are named as respondents in the Request for Joinder) within thirty days from the receipt by the ICC of the Request for Arbitration, Request for Intervention, or other Request for Joinder. The provisions of the Rules governing the form and content of Requests for Joinder shall apply.

(d) Any party to this Agreement may intervene in and become a party to any arbitration proceedings hereunder by submitting a request for arbitration against any party to such arbitration proceedings (a “ Request for Intervention ”); provided , that such Request for Intervention is sent to the ICC with a copy to all other parties to this Agreement (whether or not such parties are named as respondents in the Request for Intervention) within thirty days from the receipt by the ICC of the Request for Arbitration, Request for Joinder, or other Request for Intervention. The provisions of the Rules governing the form and content of Requests for Joinder shall apply mutatis mutandis to the form and content of Requests for Intervention.

(e) Any party so joined or intervening shall be bound by any award rendered by the arbitral tribunal even if such party chooses not to participate in the arbitration proceedings.

(f) There shall be three arbitrators appointed as follows:

(i) if the Request for Arbitration names only one claimant and one respondent, and no party has exercised its right of joinder or intervention in accordance with the above, the claimant and the respondent shall each nominate one arbitrator within fifteen days after the expiry of the period during which parties can exercise their right to joinder or intervention. The third arbitrator, who shall act as president, shall be nominated by agreement of the parties within thirty days of the appointment of the second arbitrator. If any arbitrator is not nominated within these time periods, the ICC shall make the appointment;

(ii) if at least one party exercises its right of joinder or intervention in accordance with the above and the parties to the arbitration are unable to agree to a method for the constitution of the arbitral tribunal within fifteen days of that party exercising its right of joinder or intervention, then the ICC shall appoint all three arbitrators and designate one of them to act as president; and

(iii) if more than two parties are named as either claimants or respondents in the Request for Arbitration, or at least one party exercises its right of joinder or intervention in accordance with the above, the claimant(s) shall jointly nominate one arbitrator and the respondent(s) shall jointly nominate the other arbitrator, both within fifteen days after the expiry of the period during which parties can exercise their right to joinder or intervention under Section 7.7(c) and Section 7.7(d), respectively. If the parties fail to nominate an arbitrator as provided above, the ICC shall, upon the request of any party, appoint all three arbitrators and designate one of them to act as president. If the claimant(s) and respondent(s) nominate the arbitrators as provided above, the third arbitrator, who shall act as president, shall be nominated by agreement of the parties within thirty days of the appointment of the second arbitrator. If the parties fail to nominate the president as provided above, the chairperson shall be appointed by the ICC.

(g) The place of the arbitration shall be New York, New York and the arbitration shall be conducted in the English language.

(h) Any party to the dispute may apply for interim measures of protection (including injunctions, attachments and conservation orders) to any court of competent jurisdiction or to an Emergency Arbitrator as provided (and defined) in the Rules.

(i) Any award or order granted under this Section 7.7 shall be final and binding on the parties thereto. Judgment on the award may be entered in any court of competent jurisdiction having jurisdiction over the applicable parties.

Section 7.8 Benefits Only to Parties . Nothing expressed by or mentioned in this Agreement is intended or shall be construed to give any Person, other than Persons indemnified pursuant to Section 3.7, the parties hereto and their respective successors or assigns and Permitted Transferees, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and assigns and Permitted Transferees, and for the benefit of no other Person.

Section 7.9 Termination; Survival of Benefits . This Agreement shall terminate upon the closing of a Sale of the Business; provided, that the rights and obligations of the Shareholders and ITC Investments under ARTICLE III and this ARTICLE VII shall survive any such termination of this Agreement.

Section 7.10 Publicity . Except as otherwise required by Applicable Law, none of the parties hereto shall issue or cause to be issued any press release or make or cause to be made any other public statement in each case relating to or connected with or arising out of this Agreement or the matters or transactions contemplated herein, without obtaining the prior written consent of FortisUS, the Investor and ITC Investments to the contents and the manner of presentation and publication thereof.

Section 7.11 Confidentiality . Each of the Shareholders hereby agrees that throughout the term of this Agreement, such Shareholder will take all commercially reasonable measures to ensure the continued confidentiality of the Confidential Information and shall not disclose it to anyone except to such Shareholder’s Representatives under the limited terms and conditions set forth in this Section 7.11. “ Confidential Information ” means all information of a confidential or proprietary nature relating to ITC Investments or any of its Affiliates, whether provided in writing, orally, visually, electronically or by other means, relating to ITC Investments or its Affiliates to a Shareholder, its Affiliates or any of their respective Representatives before, on or after the date hereof, including (i) information relating to ITC Investments and the transactions contemplated by this Agreement and (ii) any reports, analyses or notes

that are based on, reflect or contain Confidential Information, but Confidential Information does not include information that (a) is or becomes generally available to the public other than as a direct or indirect result of a disclosure, in violation of this Agreement, by the relevant Shareholder or any of its Representatives, (b) was known to the relevant Shareholder or its Representatives prior to disclosure after the date hereof by ITC Investments or its Representatives, (c) is or becomes available to the relevant Shareholder or its Representatives from a source other than ITC Investments or its Representatives on a non-confidential basis ( provided , that the source of such information was not known by such Shareholder or its Representatives (after reasonable inquiry) to be prohibited from disclosing such information to such Shareholder or its Representatives by a legal, contractual or fiduciary obligation), or (d) has otherwise been independently acquired or developed by the relevant Shareholder or its Representatives without violating any obligations under this Agreement. “ Representatives ” means any of the applicable party’s Affiliates (including Controlled Affiliates and “affiliates” within the meaning of Rule 12b-2 promulgated under the Exchange Act) and any of such party’s or such party’s Affiliates’ officers, members, principals, directors, employees, agents, advisors (including lawyers, consultants and financial advisors), auditors or representatives who receive any of the Confidential Information. Each Shareholder shall be liable for any breaches by such Shareholder’s Representatives of the provisions of this Agreement dealing with restrictions on disclosure and use of the Confidential Information. For certainty, the obligation of each Shareholder and its Representatives not to disclose Confidential Information as set out herein shall include disclosure relating to: (a) the existence of this Agreement; (b) the fact that Confidential Information has been made available; and (c) the fact that the Shareholder is subject to any of the restrictions set forth in this agreement. If any Shareholder becomes aware of any misuse, misappropriation or unauthorized disclosure of any Confidential Information, it shall notify ITC Investments forthwith in writing. Such Representatives shall be bound by all of the obligations in respect of such Confidential Information set forth herein. Each Shareholder further agrees that prior to granting such Representatives access to the Confidential Information, such Shareholder shall inform such Representatives of the confidential nature of the Confidential Information and of the terms of this agreement and direct such Representatives to abide by all the terms included herein. If any Shareholder or any of its Representatives is required to disclose any Confidential Information in connection with any legal, regulatory or administrative proceeding or investigation, or is required by Applicable Law (including any stock exchange) to disclose any Confidential Information, such Person or entity will (i) promptly notify ITC Investments of the existence, terms and circumstances surrounding such a request or requirement (unless prohibited by Applicable Law) so that ITC Investments may seek a protective order or other appropriate remedy, or waive compliance with the provisions of this Section 7.11, and (ii) if, in the absence of a protective order, such disclosure is required in the opinion of such Person’s outside counsel, such Person or entity may make such disclosure without liability under this Agreement, provided , that such Person only furnishes that portion of the Confidential Information which is required as set forth above in this Section 7.11, such Person gives ITC Investments notice of the information to be disclosed as far in advance of its disclosure as practicable (unless prohibited by Applicable Law) and, upon ITC Investments’ request and at ITC Investments’ expense, such Person shall cooperate in any efforts by ITC Investments to ensure that confidential treatment shall be accorded to such disclosed information; provided, that with respect to the Investor or its Affiliates, such cooperation shall not be interpreted to require the Investor or its Affiliates to initiate or participate in any legal action, suit or proceeding. Notwithstanding the provisions of this Section 7.11 to the contrary, in the event that any Shareholder desires to Transfer any interest in such holder’s Equity Securities permitted by this Agreement, such Shareholder may, upon the execution of a confidentiality agreement (in form reasonably acceptable to ITC Investments’ legal counsel) by ITC Investments and any bona fide potential Permitted Transferee, disclose to such potential Permitted Transferee information of the sort otherwise restricted by this Section 7.11 if such Shareholder reasonably believes such disclosure is necessary or beneficial for the purpose of Transferring such Equity Securities to the bona fide potential Permitted Transferee. Each Shareholder understands and agrees that money damages would not be a sufficient remedy for any breach

of this Section 7.11 by such Shareholder or its Representatives and that, in addition to all other remedies, ITC Investments shall be entitled to specific performance or injunctive or other equitable relief as a remedy for any such breach. Each Shareholder agrees to waive, and to cause its Representatives to waive, any requirement for the securing or posting of any bond or security in connection with such remedy.

Section 7.12 Expenses . ITC Investments shall reimburse each of the respective members of its ITC Investments Board who are not employees of ITC Investments for their reasonable travel and out-of-pocket expenses incurred in connection with their serving on the ITC Investments Board or, as the case may be, attending ITC Investments Board meetings as an observer. Employees of ITC Investments who incur expenses in connection with their attendance of meetings of the ITC Investments Board in the performance of their duties shall also be reimbursed in accordance with ITC Investments’ usual expense reimbursement policies.

Section 7.13 Further Assurances . In connection with this Agreement and the transactions contemplated hereby, ITC Investments and each Shareholder hereby agrees, at the request of ITC Investments or any other Shareholder, to execute and deliver such additional documents, instruments, conveyances and assurances and to take such further actions as may be required to carry out the provisions hereof and give effect to the transactions contemplated hereby, including (but not limited to) amending the ITC Investments Bylaws and articles of incorporation of ITC Investments in the event that any provision of such document is inconsistent with the terms and conditions of this Agreement.

Section 7.14 Amendments; Waivers . Subject to Section 7.15, no provision of this Agreement may be amended, modified or waived without the prior written consent of the holders of more than 90% of the Common Stock Equivalents then outstanding; provided, that no amendment or modification to, or deletion of, Section 7.9 or this Section 7.14 shall be effective unless unanimously approved by all of the Shareholders, and provided , further , that no amendment, modification or waiver shall materially and adversely affect the rights, obligations or interests of any Shareholder (i) contained in Section 2.2, Section 2.3, Section 2.4, Section 2.6, ARTICLE III, and ARTICLE IV, (ii) contained in any other provision of this Agreement in a manner different from any other Shareholder and disproportionately adverse to any Shareholder or (iii) specifically granted to or imposed upon such Shareholder but not to or upon all other Shareholders, in each case, without such Shareholder’s prior written consent; provided , further , that any amendment, modification or waiver of any provision in this Agreement in favor of any RH Shareholder shall require the prior written consent of all RH Shareholders. Notwithstanding the foregoing, the addition of parties to this Agreement in accordance with its terms shall not be deemed to be an amendment, modification or waiver requiring the consent of any Shareholder. The failure of any party hereto to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

Section 7.15 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, and the invalid, illegal or unenforceable provision shall be interpreted and applied so as to produce as near as may be the economic result intended by the Shareholders.

Section 7.16 Other Business . Each Shareholder and any of its Representatives shall have the right to, and shall have no duty (contractual or otherwise) not to, directly or indirectly, engage in or possess an interest in any other business venture of any kind, nature or description, independently or with others, whether or not such ventures are competitive with ITC Investments or any of its Subsidiaries,

notwithstanding that Representatives of such Shareholder or any of its affiliates are serving on the ITC Investments Board. No Shareholder or any of its Representatives, as a Shareholder, officer or director of ITC Investments or any of its Subsidiaries, shall have any obligation to communicate, present or offer first to ITC Investments or any of its Subsidiaries any business opportunity or venture of any kind, nature or description that such Shareholder or such affiliate, as the case may be, may wish to pursue from time to time, independently or with others. Except for Section 4.6, nothing in this Agreement shall be deemed to prohibit any Shareholder and/or any of its Representatives from dealing, or otherwise engaging in business, with Persons transacting business with ITC Investments or any of its Subsidiaries, including any client, customer, supplier, lender or investor of ITC Investments or any of its Subsidiaries. No Shareholder or any of its Representatives shall be liable to ITC Investments or its Subsidiaries or any Shareholder for breach of any duty (contractual or otherwise) by reason of any such business ventures or of such Person’s participation therein or by reasons of the fact that such Shareholder or its affiliates directly or indirectly pursues or acquires any such business opportunity or venture for itself, directs such opportunity or venture to another Person or does not communicate, present or offer first such opportunity or venture to ITC Investments or any of its Subsidiaries. Neither ITC Investments (or any of its Subsidiaries) nor any Shareholder shall have any rights or obligations by virtue of this Agreement or the transactions contemplated hereby, in or to any independent venture of any Shareholder or any of its Representatives, or the income or profits or losses or distributions derived therefrom, and such ventures shall not be deemed wrongful or improper even if competitive with the business of ITC Investments or any of its Subsidiaries. Notwithstanding the foregoing, this Section 7.16 shall in no way limit the obligation of each Shareholder to be and remain an Eligible Holder or to Transfer its Equity Securities in accordance with Section 2.8 if any other business venture of such Shareholder or its Affiliates causes it to cease to be an Eligible Holder.

Section 7.17 Issuance of Preferred Stock . If at any time ITC Investments issues preferred stock or other equity securities that are not “Equity Securities”, each of the parties hereto agrees to amend this Agreement to appropriately reflect such issuance and to preserve the respective rights and obligations of each of the parties hereunder.

Section 7.18 Subsidiary Compliance . If, at any time, any board of any Subsidiary of ITC Investments or any committee of such board (i) proposes to exercise its independent decision making power in a manner inconsistent with or independent from prior decisions of the ITC Investments Board or (ii) proposes to resolve or otherwise contemplates resolving to take any material action that is inconsistent with the decisions of the ITC Investments Board, or that were not the subject of discussion or resolution of the ITC Investments Board or that otherwise is beyond the scope of prior decisions of the ITC Investments Board (including delegations of authority by the ITC Investments Board and other than ministerial and routine actions reasonably taken to implement decisions made by the ITC Investments Board), then such board or committee shall not exercise such decision making power or pass such resolution, shall adjourn the relevant meeting, and the relevant matter shall be subject to the approval of the ITC Investments Board and the ITC Board in accordance herewith; provided , that if the exercise of such decision making power or the passing of such resolution is required to be taken by the relevant board or committee in the exercise of fiduciary duties, then the relevant meeting shall be adjourned, each RH Director and each director of the ITC Investments Board that is a director, officer, or employee of the Fortis Group shall be appointed to such board or committee, and the exercise such decision making power or the passing of such resolution shall require the requisite number of votes specified in the bylaws of the relevant subsidiary, including such newly appointed directors. Any appointment of directors in accordance with the proviso in the immediately preceding sentence shall be effective solely for the purpose of the exercise of the relevant decision making power or the passing of the relevant resolution and the directors appointed thereby shall resign promptly thereafter. Without limiting the foregoing, if any director, officer or employee of the Fortis Group is appointed to any board or committee of a

Subsidiary of ITC Investments, then the RH Directors and the Independent Directors shall also be appointed to the same such board or committee.

Section 7.19 Limitation of Litigation . No Shareholder shall be entitled to initiate or participate in a class action suit on behalf of all or any part of the Shareholders against ITC Investments or against any other Shareholder, unless such action or suit has been approved by the ITC Investments Board. A Shareholder who initiates a class action in violation of this Agreement shall be liable to ITC Investments and any Shareholders who are defendant parties to the action or suit for all damages and expenses which they incur as a result, including reasonable fees and expenses of legal counsel and expert witnesses and court costs. Further, each Shareholder irrevocably waives any right it may have to maintain any action for dissolution of ITC Investments or for partition of the property of ITC Investments.

Section 7.20 Effectiveness Upon Subscription . Notwithstanding anything else herein, this Agreement shall automatically become effective at the Subscription Time (as defined in the Subscription Agreement).

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

IN WITNESS WHEREOF , each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) as of the date first above written.

ITC INVESTMENT HOLDINGS INC.


Per:	/s/ David C. Bennett
	Name:	David C. Bennett
	Title:	Executive Vice President, Chief Legal Officer
		and Corporate Secretary


Per:	/s/ James D. Spinney
	Name:	James D. Spinney
	Title:	Vice President, Treasurer


FORTISUS INC.


Per:	/s/ David C. Bennett
	Name:	David C. Bennett
	Title:	Executive Vice President, Chief Legal Officer
		and Corporate Secretary


Per:	/s/ James D. Spinney
	Name:	James D. Spinney
	Title:	Vice President, Treasurer

[Signature page to shareholders’ Agreement]

ITC HOLDINGS CORP.


By:	/s/ Joseph L. Welch
	Name:	Joseph L. Welch
	Title:	President and CEO

[Signature Page to Shareholders’ Agreement]

EIFFEL INVESTMENT PTE LTD.


By:	/s/ Rhys Evenden
	Name:	Rhys Evenden
	Title:	Authorized Signatory

[Signature Page to Shareholders’ Agreement]

SCHEDULE I

EQUITY SECURITIES HELD BY SHAREHOLDERS

	Shares of Common Stock	Percentage
FortisUS	[ · ]	80.1	%
Investor	[ · ]	19.9	%

I- 1

EXHIBIT A

FORM OF JOINDER AGREEMENT

This JOINDER AGREEMENT (this “ Agreement ”) is made as of [ insert date ], by and among [ Insert Name of Joining Party ] (the “ Joining Party ”) and ITC Investment Holdings Inc. (“ ITC Investments” ), a Michigan corporation.

W I T N E S S E T H :

WHEREAS, reference is hereby made to that certain Shareholders’ Agreement (the “ Shareholders’ Agreement ”), dated as of October 14, 2016, by and among ITC Investments, ITC Holdings Corp., a Michigan corporation, and the Shareholders signatory thereto; and

WHEREAS, this Agreement has been entered into to record and effect the admission of the Joining Party as a Shareholder under the Shareholders’ Agreement.

§1. Definitions . Capitalized terms defined in the Shareholders’ Agreement shall have the same meaning when used in this Agreement.

§2. Admission of Joining Party .

(a) By executing and delivering this Agreement to ITC Investments, the Joining Party hereby (i) makes each of the representations and warranties set forth in Article VI of the Shareholders’ Agreement as of the date hereof, (ii) represents and warrants that no Consent of or Filing with, any Governmental Entity or third party is required (with or without notice or lapse of time, or both) for or in connection with the Transfer to the Joining Party (and the Joining Party’s joinder pursuant hereto), other than Consents and Filings that have been obtained or made and all such Consents and Filings are in full force and effect and not the subject to appeal, all terminations or expirations of applicable waiting periods imposed by any Governmental Entity with respect to the Transfer to the Joining Party (and the Joining Party’s joinder pursuant hereto) have occurred, and no such Consent contains any conditions or other requirements that are adverse to ITC Investments or its Affiliates.as of the date hereof and (iii) agrees to become a party to, to be bound by, and to comply with the terms, conditions and provisions of the Shareholders’ Agreement in the same manner as if the undersigned Joining Party were an original signatory and named as a Shareholder thereunder. By executing and delivering this Agreement to the Joining Party, ITC Investments hereby consents to and confirms its acceptance of the Joining Party as a Shareholder for purposes of the Shareholders’ Agreement.

(b) By executing and delivering this Agreement to ITC Investments, the Joining Party hereby acknowledges, agrees and confirms (i) that his address details for notices under the Shareholders’ Agreement are as set forth on Schedule A attached hereto and made a part thereof, and (ii) the Joining Party has received a copy of the Shareholders’ Agreement and has reviewed the same and understands its contents.

§3. Entire Agreement . This Agreement and the Shareholders’ Agreement contain the entire understanding, whether oral or written, of the parties with respect to the matters covered hereby. Any amendment or change in this Agreement shall not be valid unless made in writing and signed by both parties hereto.

A- 1

§4. Effect; Counterparts . Except as herein provided, the Shareholders’ Agreement shall remain unchanged and in full force and effect. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

§5. Governing Law; Disputes . The provisions of Section 7.6 (Governing Law) and Section 7.7 (Disputes) of the Shareholders’ Agreement shall apply to this Agreement as though set out in full herein.

§6. Headings; Construction . The headings of particular provisions of this Agreement are inserted for convenience only and shall not be construed as a part of this Agreement or serve as a limitation or expansion on the scope of any term or provision of this Agreement. The parties hereto have participated jointly in the negotiation and drafting of this Agreement; accordingly, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

A- 2

IN WITNESS WHEREOF, each of the undersigned has duly executed this Joinder Agreement (or caused this Joinder Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) as of the date first above written.

	ITC INVESTMENT HOLDINGS INC.


	By:
		Name:
		Title: Authorized Signatory


	[ Insert Name of Joining Party ]


	By:
		Name:
		Title: Authorized Signatory

A- 3

SCHEDULE A TO EXHIBIT A

ADDRESS FOR NOTICES

[Insert Joining Party’s address]

Email:

Attention:

A- 4

EXHIBIT B

DIVIDEND POLICY

(See attached.)

B- 1

DIVIDEND POLICY

ITC INVESTMENT HOLDINGS INC.

AND

ITC HOLDINGS CORP.

1. Policy . (a) The dividend policy of ITC Holdings Corp. (“ ITC ”) is to distribute on a quarterly basis from time to time to its common shareholders all funds surplus to the operating needs of ITC as determined by its board of directors (the “ ITC Board ”) after establishing the Reserve Amount (as defined below), but subject always to compliance with (i) the Michigan Business Corporation Act, as amended, (ii) all financing documents and other contractual undertakings of ITC and its affiliates (including the Shareholders’ Agreement dated April 20, 2016, by and among ITC Investment Holdings Inc. (“ ITC Investments ”), ITC, FortisUS Inc., a Delaware Corporation, Finn Investment Pte Ltd, a Singapore private limited company, and any other person that becomes a shareholder pursuant thereto (the “ Shareholders’ Agreement ”)), (iii) all Federal and state regulatory requirements, and (iv) the bylaws of ITC (the “ ITC Bylaws ”). In determining the amount of any dividend, ITC intends to maintain a FFO/Net Debt Ratio (as defined in the Shareholders’ Agreement) of 12% or less.

(b) The dividend policy of ITC is to distribute on a quarterly basis from time to time to its common shareholders all funds distributed to ITC Investments, as a shareholder of ITC, after deducting any administrative fees and similar amounts payable by ITC Investments as determined by its board of directors (the “ ITC Investments Board ”), but subject always to compliance with (i) the Michigan Business Corporation Act, as amended, (ii) all financing documents and other contractual undertakings of ITC Investments and its affiliates (including the Shareholders’ Agreement), (iii) all Federal and state regulatory requirements, and (iv) the bylaws of ITC Investments.

2. Establishment of ITC Reserves . Each quarter, the ITC Board will, in its discretion, establish an amount of reserves (the “ Reserve Amount ”) for ITC after reviewing the cash ITC receives from its subsidiaries and other sources and the cash disbursements made by ITC. The ITC Board may consider any items, including budgeted and reasonably expected future capital expenses, general and administrative expenses, leverage, interest and cash taxes, in establishing the Reserve Amount, subject to compliance with the ITC Bylaws. Through the modification or reduction of existing reserves or otherwise, the Reserve Amount for a particular quarter may be negative. The ITC Board may also create additional reserves as the ITC Board, in its discretion, considers proper for any purpose, and may modify or abolish any reserve in the manner in which it was created, in each case subject to compliance with the ITC Bylaws. Without limiting the foregoing, the ITC Board will establish the Reserve Amount in respect of each quarter at a level which is reasonably expected, as of the establishment thereof, to avoid the funding of reasonably anticipated future cash disbursements of ITC with future capital contributions.

3. Payment of Dividends . (a) Subject to provisions of law and ITC’s articles of incorporation, dividends may be declared at any regular or special meeting of the ITC Board and may be paid only in cash. Dividend payments will be made by ITC on the 15th working day

following the declaration. Dividends will be paid among the classes of ITC’s capital stock in accordance with ITC’s articles of incorporation.

(b) Subject to provisions of law and ITC Investment’s articles of incorporation, dividends may be declared at any regular or special meeting of the ITC Investments Board and may be paid only in cash. Dividend payments will be made by ITC Investments promptly following the receipt by ITC Investments of dividends from ITC. Dividends will be paid among the classes of ITC Investments’ capital stock in accordance with ITC Investments’ articles of incorporation.

4. Dividends Not Cumulative . Dividends on all classes of ITC’s common stock will not be cumulative. Dividends on all classes of ITC Investments’ common stock will not be cumulative.

* * *

Exhibit 99.12

FORM 51-102F4

BUSINESS ACQUISITION REPORT

ITEM 1 IDENTITY OF COMPANY

1.1 Name and Address of Company

Fortis Inc. (“Fortis” or the “Corporation”)

Fortis Place, Suite 1100

PO Box 8837

5 Springdale Street

St. John’s, Newfoundland and Labrador A1B 3T2

1.2 Executive Officer

The following executive officer of Fortis is knowledgeable about the significant acquisition and this report:

Karl W. Smith

Executive Vice President, Chief Financial Officer

(709) 737 -2800

ITEM 2 DETAILS OF ACQUISITION

2.1 Nature of Business Acquired

ITC Holdings Corp. (“ITC”) is the largest independent electric transmission company in the United States. ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, and is a public utility and independent transmission owner in Wisconsin.

ITC’s business consists primarily of the electric transmission operations of ITC’s regulated operating subsidiaries, which include International Transmission Company, Michigan Electric Transmission Company, LLC (“METC”), ITC Midwest LLC (“ITC Midwest”), ITC Great Plains, LLC and ITC Interconnection LLC. ITC owns and operates high-voltage transmission lines serving a combined peak load exceeding 26,000 megawatts along approximately 15,700 miles in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from approximately 560 generating stations to local distribution facilities connected to ITC’s systems.

ITC’s business strategy is to own, operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and allow new generating resources to interconnect to ITC’s transmission systems. ITC is pursuing development projects not within its existing systems, which are also intended to improve overall grid reliability, reduce transmission constraints and facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

Each of the ITC regulated operating subsidiaries is an electric transmission utility subject to rate regulation by the United States Federal Energy Regulatory Commission (“FERC”). As electric transmission utilities with rates regulated by FERC, the ITC regulated operating subsidiaries earn revenues through tariff rates charged for the use of their electric transmission systems by their respective customers, which include investor-owned utilities, municipalities, cooperatives, power marketers and alternative energy suppliers.

Schedule A attached hereto discusses certain risks related to the Acquisition (as defined below) and the post-Acquisition business and operations of the Corporation and ITC. The ITC Interim Financial Statements and MD&A (as defined below), attached as Schedule B to this Business Acquisition Report, discuss certain risks related to ITC.

A detailed description of the business of ITC is set out in (a) the ITC Interim Financial Statements and MD&A (as defined below), attached hereto as Schedule B, and (b) Schedules D and E of the Fortis Management Information Circular (as defined below), incorporated by reference in this Business Acquisition Report.

2.2 Date of Acquisition

The date of the Acquisition for accounting purposes was October 14, 2016.

2.3 Consideration

On October 14, 2016, Fortis and GIC Pte Ltd (“GIC”) acquired all of the issued and outstanding common stock of ITC for an aggregate purchase price of approximately US$11.8 billion on closing (the “Acquisition”), including approximately US$4.8 billion of ITC consolidated indebtedness at fair value. ITC is now an indirect subsidiary of Fortis, with Eiffel Investment Pte Ltd. (an affiliate of GIC, the “Minority Investor”) owning a 19.9% interest in ITC (the “Minority Investment”).

ITC shareholders received from Fortis US$22.57 in cash and 0.7520 of a Fortis common share per share of ITC common stock as consideration for the Acquisition. At the closing of the Acquisition, Fortis issued an aggregate of 114,363,774 common shares and paid US$3.4 billion (the “Cash Consideration”) to the former shareholders of ITC, representing total consideration of approximately US$7.0 billion.

Fortis obtained the Cash Consideration from the following sources:

· the net proceeds of the Corporation’s previously announced US$2.0 billion notes offering which closed on October 4, 2016;

· the drawdown in Canadian dollars of approximately US$404 million on the Corporation’s non-revolving term senior unsecured equity bridge facility with The Bank of Nova Scotia, repayable in full 364 days following its advance (the “Equity Bridge Facility”); and

· the US$1.228 billion proceeds from the Minority Investment.

Fortis did not draw on the non-revolving term senior unsecured minority interest sale facility provided by The Bank of Nova Scotia (the “Minority Interest Facility”) or the non-revolving term senior unsecured debt bridge facility provided by Goldman Sachs Bank USA (the “Debt Bridge Facility”) to fund the Acquisition. Both the Minority Interest Facility and the Debt Bridge Facility were cancelled.

2.4 Effect on Financial Position

Fortis does not have any current plans for material changes in its business affairs or the affairs of ITC which may have a significant effect on the results of operations and financial position of Fortis.

2.5 Prior Valuations

Not applicable.

2.6 Parties to Transaction

The Acquisition was not a transaction with an informed person, associate or affiliate of Fortis (as such terms are defined in National Instrument 51-102 — Continuous Disclosure Obligations ).

2.7 Date of Report

November 23, 2016.

ITEM 3 FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements of ITC as at September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015, and associated management’s discussion and analysis (the “ITC Interim Financial Statements and MD&A”), are attached as Schedule B to this Business Acquisition Report.

The audited consolidated financial statements and financial statement schedule of ITC as at December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015, 2014 and 2013 together with the notes thereto and the auditor’s report thereon dated February 25, 2016 (the “ITC Annual Financial Statements”), prepared in accordance with United States generally accepted accounting principles, contained in Schedule E of the management information circular of Fortis (the “Fortis Management Information Circular”) dated March 18, 2016 prepared in connection with the annual and special meeting of shareholders of Fortis held on May 5, 2016 and filed on the Corporation’s SEDAR profile at www.sedar.com on April 1, 2016, are incorporated by reference herein and form part of this Business Acquisition Report.

The unaudited pro forma condensed consolidated financial information of Fortis as of September 30, 2016 and for the nine months ended September 30, 2016 and the year ended December 31, 2015 are attached as Schedule C to this Business Acquisition Report.

In this Business Acquisition Report, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. References to “dollars”, “$” or “C$” are to lawful currency of Canada. References to “US Dollars” or “US$” are to lawful currency of the United States of America, sometimes referred to herein as the “US”). On November 21, 2016, the noon buying rate as reported by the Bank of Canada was C$1.3437 = US$1.00.

	Period End	Average (1)	Low	High
		(C$ per US$)
Year ended December 31,
2015	1.3840	1.2788	1.1728	1.3990
2014	1.1601	1.1045	1.0614	1.1643
2013	1.0636	1.0299	0.9839	1.0697
Quarter ended,
September 30, 2016			1.2775	1.3248
June 30, 2016			1.2544	1.3170
March 31, 2016			1.2962	1.4589

(1) The average of the noon buying rates during the relevant period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Business Acquisition Report contains forward-looking information within the meaning of applicable securities laws, including the Private Securities Litigation Reform Act of 1995, which reflects management’s expectations regarding (i) the future growth, results of operations, performance, business prospects and opportunities of the Corporation and ITC; (ii) the integration of ITC’s electric transmission business with the existing operations of the Corporation; (iii) the impact of the Acquisition, the Minority Investment and the Equity Bridge Facility on the financial position of the Corporation; and (iv) the outlook for the Corporation’s and ITC’s respective businesses and the electric transmission industry based on information currently available. These expectations may not be appropriate for other purposes. All forward-looking information is given pursuant to the “safe harbour” provisions of applicable Canadian securities legislation and the rules of the Securities and Exchange Commission. The words “anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”, “plans”, “projects”, “schedule”, “should”, “will”, “would” and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. Although the forward-looking information reflects management’s current beliefs and is based on information

currently available to management, there can be no assurance that actual results will be consistent with the forward-looking information. The forward-looking information is subject to significant risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. A number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking information. These factors should be considered carefully and undue reliance should not be placed on the forward-looking information. All forward-looking information is provided as of the date of this Business Acquisition Report and qualified in its entirety by the above cautionary statements. Except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise.

DATED this 23 rd day of November, 2016.

(signed) Karl W. Smith

Karl W. Smith

Executive Vice President, Chief Financial Officer

SCHEDULE A

RISK FACTORS

The risk factors described below relate to the Acquisition and the post-Acquisition business and operations of the Corporation and ITC. In addition to the risk factors described below, it is important to carefully consider the other information contained in this Business Acquisition Report and the risk factors which relate to ITC described in the ITC Interim Financial Statements and MD&A attached as Schedule B to this Business Acquisition Report.

Risks Relating to the Acquisition and the Post-Acquisition Business and Operations of Fortis and ITC

Fortis may not realize all of the anticipated benefits of the Acquisition.

Fortis believes that the Acquisition will provide benefits to the Corporation, including that the Acquisition will be accretive in the first full year following closing (excluding one-time Acquisition-related expenses). However, there is a risk that some or all of the expected benefits of the Acquisition may fail to materialize, or may not occur within the time periods anticipated by the Corporation. The realization of such benefits may be affected by a number of factors, including regulatory considerations and decisions which are beyond the control of the Corporation. The challenge of coordinating previously independent businesses makes it difficult to evaluate the business and future financial prospects following the Acquisition. The past financial performance of the Corporation and ITC may not be indicative of future financial performance.

Realization of the anticipated benefits of the Acquisition will depend, in part, on the combined company’s ability to successfully integrate the respective businesses of the Corporation and ITC. The combined company will be required to devote significant management attention and resources to integrating its business practices and support functions. The diversion of management’s attention and any delays or difficulties encountered in connection with the Acquisition and the coordination of the two companies’ operations could have an adverse effect on the business, financial results, financial condition or cash flows of Fortis following the Acquisition. The coordination process may also result in additional and unforeseen expenses.

Failure to realize all of the anticipated benefits of the Acquisition may impact the financial performance of Fortis.

Fortis and ITC have incurred, and will continue to incur, substantial transaction fees and costs in connection with the Acquisition.

Fortis and ITC have incurred and expect to incur additional material non-recurring expenses in connection with the Acquisition, including costs relating to the financing of the Acquisition, costs relating to obtaining required shareholder and regulatory approvals and payments in connection with the cancellation of ITC’s outstanding stock options, restricted stock and performance shares on closing. ITC has incurred significant legal, advisory and financial services fees in connection with its board of directors’ review of strategic alternatives and the process of negotiating and evaluating the terms of the Acquisition. Additional unanticipated costs may be incurred in the course of coordinating the businesses of Fortis and ITC.

ITC Midwest’s and METC’s elections to opt out of bonus depreciation have been challenged.

On December 18, 2015, Interstate Power and Light Company (“Interstate Power”) filed a FERC challenge to ITC Midwest’s election to opt out of using bonus depreciation for the calculation of its federal income tax expense. On March 11, 2016, FERC issued an order requiring ITC Midwest to recalculate its transmission revenue requirements, effective January 1, 2015, reflecting the election of bonus depreciation for 2015. FERC denied Interstate Power’s request that ITC Midwest be required to elect bonus depreciation in any past or future years. On April 11, 2016, ITC Midwest filed a request for rehearing of the FERC order. On June 8, 2016, FERC issued an order denying ITC Midwest’s request for rehearing. In addition, on April 15, 2016, Consumers Energy Company (“Consumers Energy”) filed a formal challenge, or in the alternative, a complaint under Section 206 of the Federal

Power Act (the “FPA”) against METC, also relating to METC’s historical practice of opting out of using bonus depreciation. On July 8, 2016, FERC issued an order denying Consumers Energy’s formal challenge and dismissing the complaint without prejudice. On August 3, 2016, ITC Midwest filed a petition in the United States Court of Appeals for the District of Columbia Circuit seeking review of the March 11, 2016 FERC order and the June 8, 2016 FERC order denying ITC Midwest’s request for rehearing. On September 8, 2016, ITC Midwest filed a motion to hold the petition in abeyance pending the issuance of a private letter ruling from the U.S. Internal Revenue Service (the “IRS”). The Court granted ITC Midwest’s motion on November 7, 2016. The ITC Interim Financial Statements and MD&A incorporated by reference in this Business Acquisition Report reflect the election of bonus depreciation for the tax years 2015 and 2016 for all of ITC’s FERC-regulated operating subsidiaries. The election of bonus depreciation by ITC’s FERC-regulated operating subsidiaries will negatively affect ITC’s future revenues and net income.

Significant demands will be placed on Fortis as a result of the Acquisition.

As a result of the Acquisition, significant demands have been and will continue to be placed on the managerial, operational and financial personnel and systems of Fortis and ITC. Fortis and ITC cannot provide assurance that their systems, procedures and controls will be adequate to support the expansion of operations following and resulting from the Acquisition. The future operating results of Fortis and the combined company will be affected by the ability of its officers and key employees to manage changing business conditions and to implement and improve its operational and financial controls and reporting systems.

While Fortis indirectly owns and operates transmission assets other than those of ITC, those assets are limited and do not constitute a material portion of the consolidated rate base of Fortis. Fortis previously had no experience in the operation of an independent transmission utility under the FERC regulatory construct and regional transmission organizations (“RTOs”) transmission grid management regime. Fortis will rely heavily on the experienced existing management and other key personnel of ITC to continue to manage and operate the transmission business of ITC (including ITC’s regulated operating subsidiaries). However, Fortis will compete with other potential employers for employees and may not be successful in retaining the services of executives and other employees that it needs to realize all of the anticipated benefits of the Acquisition. A failure to retain key personnel as part of the management team of ITC in the period following the Acquisition could have a material adverse effect on the Corporation’s business and operations.

The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and may not be indicative of the results of operations or financial condition of Fortis following the Acquisition.

The unaudited pro forma condensed consolidated financial information included in this Business Acquisition Report has been prepared using the Corporation’s and ITC’s consolidated historical financial statements, is presented for illustrative purposes only, and should not be considered to be an indication of the Corporation’s results of operations or financial condition following the Acquisition. In addition, the pro forma combined financial information included in this Business Acquisition Report is based in part on certain assumptions regarding the Acquisition. These assumptions may not prove to be accurate, and other factors may affect the Corporation’s results of operations or financial condition following the Acquisition. Accordingly, the historical and pro forma financial information included in this Business Acquisition Report does not necessarily represent the Corporation’s results of operations and financial condition had Fortis and ITC operated as a combined entity during the periods presented, or the Corporation’s results of operations and financial condition following the Acquisition. The Corporation’s potential for future business success and operating profitability must be considered in light of the risks, uncertainties, expenses and difficulties typically encountered by recently combined companies.

Among the uncertainties that could cause the Corporation’s results of operations and financial condition to differ materially from the unaudited pro forma consolidated financial information included in this Business Acquisition Report is the possibility that the allowed return on common shareholders’ equity (“ROE”) of ITC’s Midcontinent Independent System Operator, Inc. (“MISO”) regulated operating subsidiaries will be reduced by FERC. As described in the ITC Interim Financial Statements and MD&A incorporated by reference in this Business

Acquisition Report, there is a possibility the allowed ROE of ITC’s MISO regulated operating subsidiaries will be reduced as a result of the base rate complaints to a greater extent than currently assumed by ITC. Initial decisions have been issued by the presiding administrative law judge in both base rate complaints. On September 28, 2016, FERC issued an order on the first base rate complaint, affirming the presiding administrative law judge’s initial decision that set the base ROE applicable to ITC’s MISO-regulated operating subsidiaries at 10.32% with a total or maximum ROE including incentives not to exceed 11.35% for the period between November 12, 2013 and February 11, 2015. On June 30, 2016, the presiding administrative law judge in the second base rate complaint issued an initial decision recommending a base ROE of 9.70% with a total or maximum ROE including incentives not to exceed 10.68%. This initial decision is a non-binding recommendation to FERC on the second base rate complaint and is subject to review by FERC, which may adopt, modify, or reject the initial decision. As a result of the September 28, 2016 FERC order, ITC has revised its combined estimated range of refunds for the base rate complaints to be US$219.0 million to US$255.7 million on a pre-tax basis for the period from November 12, 2013 through September 30, 2016. On October 21, 2016 MISO and the MISO transmission owners filed a motion with FERC seeking to extend the deadline to complete the refunds directed in FERC’s September 28, 2016 order in the first base rate complaint from October 28, 2016 to July 28, 2017. On October 28, 2016 FERC granted this motion. In addition, parties to the base rate complaint proceedings may file requests for rehearing of a FERC order within 30 days of the date of the order and may file a petition for review of a FERC order with the applicable U.S. Court of Appeals. Several parties to the first base rate complaint, including the MISO transmission owners, have filed requests for rehearing of aspects of FERC’s September 28, 2016 order. As such, the ultimate outcome of the base rate complaints cannot be predicted at this time. In addition, interested parties could bring further FERC challenges regarding the election out of bonus tax depreciation taken by ITC’s regulated operating subsidiaries. On April 11, 2016, ITC Midwest filed a request for rehearing of FERC’s March 11, 2016 order relating to Interstate Power’s aforementioned challenge on bonus depreciation. On June 8, 2016, FERC issued an order denying ITC Midwest’s request for rehearing. On August 3, 2016, ITC Midwest filed a petition in the United States Court of Appeals for the District of Columbia Circuit seeking review of the March 11, 2016 FERC order and the June 8, 2016 FERC order denying ITC Midwest’s request for rehearing. On September 8, 2016, ITC Midwest filed a motion to hold the petition in abeyance pending the issuance of a private letter ruling from the IRS. The Court granted ITC Midwest’s motion on November 7, 2016. If any such FERC challenges are initiated and are successful, the resulting lower rate base would negatively impact the revenues and net income of ITC.

Fortis may not have discovered undisclosed liabilities of ITC.

In the course of the due diligence review of ITC that Fortis conducted in connection with the Acquisition, Fortis may not have discovered, or may have been unable to quantify, undisclosed liabilities of ITC and its subsidiaries and Fortis will not be indemnified for any of these liabilities. If ITC has undisclosed liabilities, Fortis as a successor owner may be responsible for such undisclosed liabilities. Such undisclosed liabilities could have an adverse effect on the Corporation’s business, results of operations, financial condition and cash flows.

The ROEs of ITC’s regulated operating subsidiaries may change as a result of the Acquisition.

On the basis of the Acquisition, FERC or third parties could challenge the ROEs of ITC’s regulated operating subsidiaries. Any reduction to the ROEs of ITC’s regulated operating subsidiaries resulting from such challenge would have a negative impact on the Corporation’s ability to realize all of the anticipated benefits of the Acquisition.

Fortis and ITC may be targets of additional securities class action and derivative lawsuits which could result in substantial costs.

shareholder demanding that the board remedy the same claimed breaches of fiduciary duty asserted in the complaints. On March 14, 2016, the Guerra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Paolo Guerra v. Albert Ernst, et al. , No. 2:16-cv-10914. On March 22, 2016, the Siegelman state court action was dismissed by the plaintiff. On March 23, 2016, the state court entered an order directing that related cases be consolidated with the Poland state court action under the caption In re ITC Holdings Corporation Shareholder Litigation . On March 25, 2016, Guerra amended his federal complaint. The amended complaint did not name FortisUS Inc. (“Fortis US”), Fortis and Element Acquisition Sub Inc. (“Merger Sub”) as defendants and added claims alleging that the defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 because the proxy statement/ prospectus filed in connection with the Acquisition is allegedly materially misleading and allegedly omits material facts that are necessary to render it non-misleading. On March 29, 2016, an action captioned Mehrotra v. Welch, et al. , No. 2016-152233-CB was filed in the Oakland County Circuit Court of the State of Michigan naming the individual members of the ITC board of directors, FortisUS and Merger Sub as defendants and asserting the same general allegations and seeking the same types of relief as the other state court actions. On April 8, 2016, an action captioned Harold Severance v. Joseph L. Welch, et al. , No. 2:16-cv-11293 was filed in the United States District Court for the Eastern District of Michigan by the purported shareholder who had previously sent a demand letter to ITC’s board of directors on March 8, 2016. The complaint, which purports to bring claims both directly on behalf of the class and derivatively on behalf of ITC, names the individual members of ITC’s board of directors, Fortis, FortisUS and Merger Sub as defendants and ITC as nominal defendant, and asserts the same general allegations and seeks the same types of relief as in the Guerra federal court action. On April 8, 2016, Poland filed an amended complaint adding Merger Sub and FortisUS as defendants and naming ITC as nominal defendant. The amended complaint asserts the same general allegations and seeks the same types of relief as in the original complaint, but also purports to assert claims derivatively on behalf of ITC. On April 22, 2016, the Mehrotra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Mehrotra v. Welch, et al. , No. 2:16-cv-11449. The plaintiffs in the Guerra, Mehrotra, and Severance actions sought voluntary dismissal of their claims and alerted the federal court that, rather than proceed with litigation, they will seek a ‘‘mootness fee’’ for certain of the supplemental disclosures made by ITC. On July 7, 2016, the federal court entered its order dismissing the Guerra, Mehrotra, and Severance actions. The defendants intend to oppose any application for fees submitted by the plaintiffs. On June 8, 2016, the Oakland County Circuit Court, State of Michigan, granted a motion for summary disposition dismissing the aiding and abetting claims asserted against the Fortis defendants in the Poland case. On July 8, 2016, the plaintiffs in Poland filed a motion for class certification. On July 13, 2016, ITC and the individual members of ITC’s board of directors filed their respective answers to the amended complaint in Poland. On July 19, 2016, the state court issued a scheduling order in the Poland action, which, among other things, directed the parties to complete discovery by March 10, 2017, and set a trial date for June 5, 2017. On July 25, 2016, the state court issued an order allowing a new plaintiff, Washtenaw County Employees’ Retirement System, to intervene in the Poland case.

SCHEDULE B

ITC INTERIM FINANCIAL STATEMENTS AND MD&A

See attached.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2016

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

Commission File Number: 001-32576

ITC HOLDINGS CORP.

(Exact Name of Registrant as Specified in Its Charter)

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

27175 Energy Way

Novi, MI 48377

(Address Of Principal Executive Offices, Including Zip Code)

(248) 946-3000

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting
company)

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

All shares of outstanding common stock of ITC Holdings Corp. are held by its parent company, ITC Investment Holdings Inc., which is an indirect subsidiary of Fortis Inc. and GIC Private Limited. There were 224,203,112 shares of common stock, no par value, outstanding as of November 3, 2016.

ITC Holdings Corp.

Form 10-Q for the Quarterly Period Ended September 30, 2016

INDEX

	Page
Part I. Financial Information	5
Item 1. Financial Statements	5
Condensed Consolidated Statements of Financial Position (Unaudited)	5
Condensed Consolidated Statements of Operations (Unaudited)	6
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	7
Condensed Consolidated Statements of Cash Flows (Unaudited)	8
Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	46
Part II. Other Information	47
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds	50
Item 5A. Other Information	51
Item 6. Exhibits	52
Signatures	53
Exhibit Index

DEFINITIONS

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

ITC Holdings Corp. and its subsidiaries

· “ITC Great Plains” are references to ITC Great Plains, LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;

· “ITC Grid Development” are references to ITC Grid Development, LLC, a wholly-owned subsidiary of ITC Holdings;

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

· “ITC Interconnection” are references to ITC Interconnection LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;

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

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

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

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

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

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

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

Other definitions

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

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

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

· “Fortis” are references to Fortis Inc.;

· “FortisUS” are references to FortisUS Inc., an indirect subsidiary of Fortis;

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

· “GIC” are references to GIC Private Limited;

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

· “kV” are references to kilovolts (one kilovolt equaling 1,000 volts);

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

· “LIBOR” are references to the London Interbank Offered Rate;

· “Merger” are references to the merger with Fortis, whereby ITC Holdings merged with Merger Sub and subsequently became an indirect subsidiary of FortisUS;

· “Merger Agreement” are references to the agreement between Fortis, FortisUS, Merger Sub and ITC Holdings for the Merger;

· “Merger Sub” are references to Element Acquisition Sub, Inc., an indirect subsidiary of Fortis that merged into ITC Holdings in the Merger;

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

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

· “NYSE” are references to the New York Stock Exchange;

· “RTO” are references to Regional Transmission Organizations; and

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

	September 30,			December 31,
(in thousands, except share data)	2016			2015
ASSETS
Current assets
Cash and cash equivalents	$	8,938		$	13,859
Accounts receivable	137,942			104,262
Inventory	28,564			25,777
Regulatory assets	22,262			14,736
Prepaid and other current assets	13,403			10,608
Total current assets	211,109			169,242
Property, plant and equipment (net of accumulated depreciation and amortization of $1,562,532 and $1,487,713, respectively)	6,555,627			6,109,639
Other assets
Goodwill	950,163			950,163
Intangible assets (net of accumulated amortization of $30,736 and $28,242, respectively)	43,525			45,602
Regulatory assets	238,213			233,376
Deferred financing fees (net of accumulated amortization of $1,853 and $1,277, respectively)	1,885			2,498
Other	51,165			44,802
Total other assets	1,284,951			1,276,441
TOTAL ASSETS	$	8,051,687		$	7,555,322
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	139,045		$	124,331
Accrued compensation	26,788			24,123
Accrued interest	45,656			52,577
Accrued taxes	28,748			44,256
Regulatory liabilities	137,014			44,964
Refundable deposits from generators for transmission network upgrades	6,295			2,534
Debt maturing within one year	185,825			395,105
Other	24,030			31,034
Total current liabilities	593,401			718,924
Accrued pension and postretirement liabilities	65,353			61,609
Deferred income taxes	964,588			735,426
Regulatory liabilities	251,187			254,788
Refundable deposits from generators for transmission network upgrades	32,975			18,077
Other	29,738			23,075
Long-term debt	4,298,329			4,034,352
Commitments and contingent liabilities (Notes 4 and 11)
STOCKHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 153,432,671 and 152,699,077 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	849,210			829,211
Retained earnings	969,761			875,595
Accumulated other comprehensive (loss) income	(2,855		)	4,265
Total stockholders’ equity	1,816,116			1,709,071
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,051,687		$	7,555,322

See notes to condensed consolidated financial statements (unaudited).

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands, except per share data)	2016			2015			2016			2015
OPERATING REVENUES	$	253,451		$	273,189		$	831,628		$	820,734
OPERATING EXPENSES
Operation and maintenance	30,326			32,721			82,533			88,309
General and administrative	35,752			33,677			130,922			107,064
Depreciation and amortization	39,599			36,890			117,840			106,903
Taxes other than income taxes	22,645			20,463			68,444			61,629
Other operating (income) and expenses — net	(293		)	(206		)	(839		)	(675		)
Total operating expenses	128,029			123,545			398,900			363,230
OPERATING INCOME	125,422			149,644			432,728			457,504
OTHER EXPENSES (INCOME)
Interest expense — net	55,843			51,398			158,064			150,070
Allowance for equity funds used during construction	(10,002		)	(6,421		)	(26,442		)	(21,434		)
Other income	(408		)	(384		)	(1,149		)	(804		)
Other expense	1,254			1,372			3,635			2,969
Total other expenses (income)	46,687			45,965			134,108			130,801
INCOME BEFORE INCOME TAXES	78,735			103,679			298,620			326,703
INCOME TAX PROVISION	29,097			38,106			114,019			121,662
NET INCOME	$	49,638		$	65,573		$	184,601		$	205,041
Basic earnings per common share	$	0.32		$	0.42		$	1.21		$	1.32
Diluted earnings per common share	$	0.32		$	0.42		$	1.20		$	1.31
Dividends declared per common share	$	0.2155		$	0.1875		$	0.5905		$	0.5125

See notes to condensed consolidated financial statements (unaudited).

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
NET INCOME	$	49,638		$	65,573		$	184,601		$	205,041
OTHER COMPREHENSIVE INCOME (LOSS)
Derivative instruments, net of tax (Note 7)	239			(2,169		)	(7,532		)	(910		)
Available-for-sale securities, net of tax (Note 7)	(18		)	18			412			21
TOTAL OTHER COMPREHENSIVE INCOME (LOSS),	221			(2,151		)	(7,120		)	(889		)
TOTAL COMPREHENSIVE INCOME	$	49,859		$	63,422		$	177,481		$	204,152

See notes to condensed consolidated financial statements (unaudited).

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine months ended
	September 30,
(in thousands)	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	184,601		$	205,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	117,840			106,903
Recognition, refund and collection of revenue accruals and deferrals — including accrued interest	8,450			1,164
Deferred income tax expense	220,309			76,103
Allowance for equity funds used during construction	(26,442		)	(21,434		)
Other	22,872			14,950
Changes in assets and liabilities, exclusive of changes shown separately:
Accounts receivable	(34,449		)	(24,523		)
Inventory	(2,746		)	1,401
Prepaid and other current assets	(2,902		)	(4,317		)
Accounts payable	33,230			(1,120		)
Accrued compensation	3,202			(1,520		)
Accrued interest	(6,921		)	(8,896		)
Accrued taxes	(15,508		)	(15,566		)
Other current liabilities	(2,048		)	132
Estimated refund related to return on equity complaints	87,734			40,269
Other non-current assets and liabilities, net	(145		)	17,701
Net cash provided by operating activities	587,077			386,288
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment	(560,607		)	(460,110		)
Other	3,898			(14,969		)
Net cash used in investing activities	(556,709		)	(475,079		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	599,460			225,000
Borrowings under revolving credit agreements	790,000			909,400
Net issuance of commercial paper, net of discount	39,487			218,983
Retirement of long-term debt	(139,344		)	—
Repayments of revolving credit agreements	(872,500		)	(1,053,200		)
Repayment of term loan credit agreements	(361,000		)	—
Issuance of common stock	12,604			12,322
Dividends on common and restricted stock	(90,277		)	(79,697		)
Refundable deposits from generators for transmission network upgrades	28,798			3,458
Repayment of refundable deposits from generators for transmission network upgrades	(10,140		)	(11,442		)
Repurchase and retirement of common stock	(9,449		)	(21,931		)
Forward contracts of accelerated share repurchase program	—			(115,000		)
Other	(22,928		)	(2,676		)
Net cash (used in) provided by financing activities	(35,289		)	85,217
NET DECREASE IN CASH AND CASH EQUIVALENTS	(4,921		)	(3,574		)
CASH AND CASH EQUIVALENTS — Beginning of period	13,859			27,741
CASH AND CASH EQUIVALENTS — End of period	$	8,938		$	24,167

See notes to condensed consolidated financial statements (unaudited).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, 2015 included in ITC Holdings’ annual report on Form 10-K for such period.

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

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

Supplementary Cash Flows Information

	Nine months ended
	September 30,
(in thousands)	2016		2015
Supplementary cash flows information:
Interest paid (net of interest capitalized)	$	155,848	$	153,350
Income taxes paid (a)	22,743		49,599
Supplementary non-cash investing and financing activities:
Additions to property, plant and equipment and other long-lived assets (b)	$	99,754	$	85,386
Allowance for equity funds used during construction	26,442		21,434

(a) Amount for the nine months ended September 30, 2016 does not include the income tax refund of $128.2 million received from the Internal Revenue Service (“IRS”) in August 2016, which resulted from the election of bonus depreciation as described in Note 4.

(b) Amounts consist of accrued liabilities for construction, labor, materials and other costs that have not been included in investing activities. These amounts have not been paid for as of September 30, 2016 or 2015, respectively, but will be or have been included as a cash outflow from investing activities when paid.

2. THE MERGER

On February 9, 2016, Fortis Inc. (“Fortis”), FortisUS Inc. (“FortisUS”), Element Acquisition Sub Inc. (“Merger Sub”) and ITC Holdings entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Merger Sub would merge with and into ITC Holdings with ITC Holdings continuing as a surviving corporation and becoming a majority owned indirect subsidiary of FortisUS (the “Merger”). On April 20, 2016, FortisUS assigned its rights, interest, duties and obligations under the Merger Agreement to ITC Investment Holdings Inc. (“Investment Holdings”), a subsidiary of FortisUS formed to complete the Merger. On the same date, Fortis reached a definitive agreement with GIC Private Limited (“GIC”) for GIC to acquire an indirect 19.9% equity interest in ITC Holdings and debt securities to be issued by Investment Holdings for aggregate consideration of $1.228 billion in cash upon completion of the Merger. On October 14, 2016, ITC Holdings and Fortis completed the Merger contemplated by the Merger Agreement consistent with the terms described above. On the same date, the common shares of ITC Holdings were delisted from the New York Stock Exchange (“NYSE”) and the common shares of Fortis were listed and began trading on the NYSE. Fortis continues to have its shares listed on the Toronto Stock Exchange.

In the Merger, ITC Holdings shareholders received $22.57 in cash and 0.7520 Fortis common shares for each share of common stock of ITC Holdings (the “Merger consideration”). Upon completion of the Merger, ITC Holdings shareholders held approximately 27% of the common shares of Fortis. Under the Merger Agreement, outstanding options to acquire common stock of ITC Holdings vested immediately prior to closing and were converted into the right to receive the difference between the Merger consideration and the exercise price of each option in cash, restricted stock vested immediately prior to closing and was converted into the right to receive the Merger consideration in cash and performance shares vested immediately prior to closing at the higher of target or actual performance through the effective time of the Merger and were converted into the right to receive the Merger consideration in cash. The Merger consideration for purposes of settling the share-based compensation awards was $45.72.

For the three and nine months ended September 30, 2016, we expensed external legal, advisory and financial services fees related to the Merger of $2.0 million and $24.3 million, respectively, and certain internal labor and associated costs related to the Merger of approximately $3.1 million and $9.4 million, respectively, recorded within general and administrative expenses on the condensed consolidated statement of operations. In addition, subsequent to September 30, 2016 through the date of this filing, we have incurred external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately $75 million, including approximately $41 million of expense recognized due to the accelerated vesting of the share-based compensation awards described above. The external and internal costs related to the Merger will not be included as components of revenue requirement at our Regulated Operating Subsidiaries as they were incurred by ITC Holdings.

See Note 11 for legal matters associated with the Merger with Fortis.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

Amendment to the Balance Sheet Presentation of Debt Issuance Costs

In April 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the balance sheet presentation of debt issuance costs. This new standard requires debt issuance costs to be shown as a direct deduction from the carrying amount of the related debt, consistent with debt discounts. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. On January 1, 2016, we adopted this guidance retrospectively and have applied this change to all amounts presented in our condensed consolidated statements of financial position. The following shows the impact of this adoption on our previously reported consolidated statement of financial position as of December 31, 2015:

(in thousands)	Reported		Adjustment			Adjusted
Deferred financing fees (net of accumulated amortization)	$	29,298	$	(26,800	)	$	2,498
Debt maturing within one year	395,334		(229		)	395,105
Long-term debt	4,060,923		(26,571		)	4,034,352

We have accounted for this adoption as a change in accounting principle that is required due to a change in the authoritative accounting guidance. In connection with implementing this guidance, we adopted an accounting policy to present unamortized debt issuance costs associated with revolving credit agreements, commercial paper and other similar arrangements as an asset that is amortized over the life of the particular arrangement. In addition, we present debt issuance costs incurred prior to the associated debt funding as an asset for all other debt arrangements. This standard did not impact our consolidated statements of operations or cash flows.

Recently Issued Pronouncements

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

Revenue Recognition

In May 2014, the FASB issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five-step model to determine when a customer obtains control of a transferred good or service. The guidance is effective for annual reporting periods beginning after December 15, 2017 and may be adopted using a full or modified retrospective approach. We do not expect the guidance to have a material impact on our consolidated results of operations, cash flows or financial position. However, we are still evaluating the disclosure requirements, the impacts of the recent clarifying amendments that have been issued by the FASB and the transition method we will elect to adopt the guidance.

Classification and Measurement of Financial Instruments

In January 2016, the FASB issued authoritative guidance amending the classification and measurement of financial instruments. The guidance requires entities to carry most investments in equity securities at fair value and recognize changes in fair value in net income, unless the investment results in consolidation or equity method accounting. Additionally, the new guidance amends certain disclosure requirements associated with the fair value of financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance is required to be adopted using a modified retrospective approach, with limited exceptions. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures.

Accounting for Leases

In February 2016, the FASB issued authoritative guidance on accounting for leases, which impacts accounting by lessees as well as lessors. The new guidance creates a dual approach for lessee accounting, with lease classification determined in accordance with principles in existing lease guidance. Income statement presentation differs depending on the lease classification; however, both types of leases result in lessees recognizing a right-of-use asset and a lease liability, with limited exceptions. Under existing accounting guidance, operating leases are not recorded on the balance sheet of lessees. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and will be applied using a modified retrospective approach, with possible optional practical expedients. Early adoption is permitted. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures.

Simplification of Employee Share-Based Payment Accounting

In March 2016, the FASB issued authoritative guidance that simplifies several aspects of the accounting for employee share-based payment transactions. The new guidance (1) requires that an entity recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement, (2) allows an entity to elect as an accounting policy either to estimate forfeitures (as currently required) or account for forfeitures when they occur, (3) modifies the current exception to liability classification of an award when an employer uses a net-settlement feature to withhold shares to meet the employer’s minimum statutory tax withholding requirement to apply if the withholding amount does not exceed the maximum statutory tax rate and (4) specifies the statement of cash flow presentation for excess tax benefits and cash payments to taxing authorities when shares are withheld to meet tax withholding requirements. Though the new guidance is not effective until January 1, 2017, we expect to early adopt the guidance in the fourth quarter of 2016. The various amendments require different transition methods including modified retrospective approach through a cumulative effect

adjustment to retained earnings, prospective adoption and retrospective adoption. Assuming we adopt the guidance in the fourth quarter of 2016, we expect to record an adjustment to beginning retained earnings for excess tax benefits generated in years prior to adoption that were previously unrecognized. In addition, we expect to record an income tax benefit related to stock-based compensation that vested during 2016.

Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows

In August 2016, the FASB issued authoritative guidance on the classification of certain cash receipts and cash payments in the statement of cash flows to address diversity in practice. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied retrospectively but may be applied prospectively if retrospective application would be impracticable. We are currently assessing the impacts this guidance will have on our classification of activity in our statement of cash flows.

4. REGULATORY MATTERS

Regional Cost Allocation Refund

In October 2010, MISO and ITCTransmission made a filing with the Federal Energy Regulatory Commission (“FERC”) under Section 205 of the FPA to revise the MISO tariff to establish a methodology to allocate and recover costs of ITCTransmission’s Phase Angle Regulating Transformers (“PARs”) among MISO and other FERC-approved Regional Transmission Organizations (“RTOs”), New York Independent System Operator and PJM Interconnection (“other RTOs”). In December 2010, the FERC accepted the proposed revisions, subject to refund, while setting them for hearing and settlement procedures. On September 22, 2016, the FERC issued an order largely affirming the presiding administrative law judge’s initial decision issued in December 2012, which stated, among other things, that MISO and ITCTransmission failed to show that the other RTOs will benefit from the operation of ITCTransmission’s PARs. The FERC order requires ITCTransmission to provide refunds within 30 days for excess amounts collected from customers at the other RTOs. As a result of the FERC order, ITCTransmission will collect these revenues from network customers instead, resulting in an increase in network revenues and a decrease in regional cost sharing revenues and no material impact on total operating revenue or net income for the three and nine months ended September 30, 2016. ITCTransmission has recorded $28.7 million for this refund, including interest, in current liabilities on the condensed consolidated statements of financial position as of September 30, 2016, which resulted in a reduction to regional cost sharing revenues and an offsetting increase to network revenues for the three and nine months ended September 30, 2016. This refund, including interest, was provided to the other RTOs in October 2016. The timing for collection from our network customers of the amount refunded to the other RTOs has not yet been determined, but is expected to occur no later than 2018.

ITC Interconnection

ITC Interconnection was formed in 2014 by ITC Holdings to pursue transmission investment opportunities. On June 1, 2016, ITC Interconnection acquired certain transmission assets from a merchant generating company and placed a newly constructed 345 kV transmission line in service. As a result, ITC Interconnection became a transmission owner in PJM Interconnection, and is subject to rate-regulation by the FERC. The revenues earned by ITC Interconnection are based on its facilities reimbursement agreement with the merchant generating company. The financial results of ITC Interconnection are currently not material to our consolidated financial statements.

MISO Funding Policy for Generator Interconnections

On June 18, 2015, the FERC issued an order initiating a proceeding, pursuant to Section 206 of the Federal Power Act (“FPA”), to examine MISO’s funding policy for generator interconnections, which allows a transmission owner to unilaterally elect to fund network upgrades and recover such costs from the interconnection customer. In this order, the FERC suggested the MISO funding policy be revised to require mutual agreement between the interconnection customer and transmission owner to utilize the election to fund network upgrades. On January 8, 2016, MISO made a compliance

filing to revise its funding policy to adopt the FERC suggestion to require mutual agreement between the customer and transmission owner (“TO”), with an effective date of June 24, 2015. ITCTransmission, METC and ITC Midwest (“MISO Regulated Operating Subsidiaries”), along with another MISO TO, are currently appealing the FERC’s orders on this issue. We do not expect the resolution of this proceeding to have a material impact on our consolidated results of operations, cash flows or financial condition.

MISO Formula Rate Template Modifications Filing

On October 30, 2015, our MISO Regulated Operating Subsidiaries requested modifications, pursuant to Section 205 of the FPA, to certain aspects of their respective FERC-approved formula rate templates (“formula rate templates”) which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. Our MISO Regulated Operating Subsidiaries requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which was made on February 8, 2016. On April 14, 2016, the FERC issued an order accepting the February 8, 2016 compliance filing, effective January 1, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. As of September 30, 2016 and December 31, 2015, our MISO Regulated Operating Subsidiaries had recorded an aggregate refund liability of $4.4 million and $10.4 million, respectively.

Challenges Regarding Bonus Depreciation

On December 18, 2015, Interstate Power and Light Company (“IP&L”) filed a formal challenge (“IP&L challenge”) with the FERC against ITC Midwest on certain inputs to ITC Midwest’s formula rates. The IP&L challenge alleged that ITC Midwest has unreasonably and imprudently opted out of using bonus depreciation in the calculation of its federal income tax expense and thereby unduly increased the transmission charges for transmission service to customers. On March 11, 2016, the FERC granted the IP&L challenge in part by requiring ITC Midwest to recalculate its revenue requirements, effective January 1, 2015, to simulate the election of bonus depreciation for 2015. The FERC denied IP&L’s request that ITC Midwest be required to elect bonus depreciation in any past or future years; however, stakeholders will be able to challenge any decision by ITC Midwest not to take bonus depreciation in future years. On June 8, 2016, the FERC denied ITC Midwest’s request for rehearing of the March 11, 2016 order. On August 3, 2016, ITC Midwest filed a petition for review of the FERC’s March 11, 2016 and June 8, 2016 orders in the United States Court of Appeals, District of Columbia Circuit. On September 8, 2016, ITC Midwest filed a motion to defer the petition pending the issuance of a private letter ruling from the IRS. In a separate but related matter, on April 15, 2016, Consumers Energy Company filed a formal challenge, or in the alternative, a complaint under Section 206 of the FPA, with the FERC against METC relating to METC’s historical practice of opting out of using bonus depreciation. On July 8, 2016, the FERC denied Consumers Energy Company’s formal challenge and dismissed the complaint without prejudice.

Rate of Return on Equity Complaints

See “Rate of Return on Equity Complaints” in Note 11 for a discussion of the complaints.

Cost-Based Formula Rate Templates with True-Up Mechanism

The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually, using formula rate templates, and remain in effect for a one-year period. By completing their formula rate templates on an annual basis, our Regulated Operating Subsidiaries are able to make adjustments to reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The formula rate templates do not require further action or FERC filings each year, although the template inputs remain subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rate templates to calculate their respective annual revenue requirements unless the FERC determines any template to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable. See “Rate of Return on Equity Complaints” in Note 11 for detail on return on equity (“ROE”) matters including incentive adders approved by the FERC in 2015.

(in thousands)	Total
Net regulatory liability as of December 31, 2015	$	(2,564	)
Net refund of 2014 revenue deferrals and accruals, including accrued interest	16,785
Net revenue deferral for the nine months ended September 30, 2016	(24,503		)
Net accrued interest payable for the nine months ended September 30, 2016	(732		)
Net regulatory liability as of September 30, 2016	$	(11,014	)

Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, are recorded in the condensed consolidated statements of financial position at September 30, 2016 as follows:

(in thousands)	Total
Current assets	$	22,262
Non-current assets	18,678
Current liabilities	(15,714		)
Non-current liabilities	(36,240		)
Net regulatory liability as of September 30, 2016	$	(11,014	)

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

At September 30, 2016 and December 31, 2015, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of $173.4 million, $453.8 million and $323.0 million, respectively, which resulted from the ITCTransmission acquisition, the METC acquisition and ITC Midwest’s asset acquisition, respectively.

Intangible Assets

We have recorded intangible assets as a result of the METC acquisition in 2006. The carrying value of these assets was $28.9 million and $31.2 million (net of accumulated amortization of $29.5 million and $27.2 million) as of September 30, 2016 and December 31, 2015, respectively.

We have also recorded intangible assets for payments made by and obligations of ITC Great Plains to certain TOs to acquire rights, which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including the KETA Project and the Kansas V-Plan Project. The carrying amount of these intangible assets was $14.6 million and $14.4 million (net of accumulated amortization of $1.2 million and $1.0 million) as of September 30, 2016 and December 31, 2015, respectively.

During each of the three month periods ended September 30, 2016 and 2015, we recognized $0.8 million of amortization expense of our intangible assets, and we recognized $2.5 million during each of the nine month periods ended September 30, 2016 and 2015. For each of the next five years, we expect the annual amortization of our intangible assets that have been recorded as of September 30, 2016 to be $3.3 million per year.

6. DEBT

Derivative Instruments and Hedging Activities

We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 6.05% Senior Notes, due January 31, 2018. As of September 30, 2016, ITC Holdings had $384.3 million outstanding under the 6.05% Senior Notes.

Interest Rate Swaps	Notional		Weighted Average
(in millions, except percentages)	Amount		Fixed Rate		Original Term	Effective Date
July 2016 swaps	$	75.0	1.616	%	10 years	January 2018
August 2016 swap	25.0		1.599	%	10 years	January 2018
Total	$	100.0

The interest rate swaps qualify for cash flow hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date for the effective portion of the hedge is recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be accumulated and amortized as a component of interest expense over the life of the forecasted debt. As of September 30, 2016, the fair value of the derivative instruments was an asset of less than $0.1 million and a liability of $0.2 million. None of the interest rate swaps contain credit-risk-related contingent features. Refer to Note 10 for additional fair value information.

In June 2016, we terminated $300.0 million of 10-year interest rate swap contracts that managed the interest rate risk associated with the unsecured Notes issued by ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:

Weighted Average

Comparable

Interest Rate Swaps

Fixed Rate of

Reference Rate

Loss on

Settlement

(in millions, except percentages)

Amount

Interest Rate Swaps

of Notes

Derivatives

Date

10-year interest rate swaps

300.0

1.99

1.37

17.2

June 2016

The interest rate swaps qualified for cash flow hedge accounting treatment and the loss of $17.2 million was recognized in June 2016 for the effective portion of the hedges and recorded net of tax in AOCI. This amount is being amortized as a component of interest expense over the life of the related debt. The ineffective portion of the hedges was recognized in the condensed consolidated statement of operations for the nine months ended September 30, 2016 and was not material.

METC

On April 26, 2016, METC issued $200.0 million of 3.90% Senior Secured Notes, due April 26, 2046. The proceeds were used to repay the $200.0 million borrowed under METC’s term loan credit agreement. The METC Senior Secured Notes were issued under its first mortgage indenture and secured by a first mortgage lien on substantially all of its real property and tangible personal property.

ITC Holdings

Commercial Paper Program

ITC Holdings has an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed $400.0 million outstanding at any one time. As of September 30, 2016, ITC Holdings had approximately $135.9 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 0.8% and weighted average remaining days to maturity of 16 days. The proceeds from issuances under the program during the nine months ended September 30, 2016 were used to repay and retire the $139.3 million of ITC Holdings’ 5.875% Senior Notes, due September 30, 2016, and for general corporate purposes, including the repayment of borrowings under ITC Holdings’ revolving credit agreement. The amount outstanding as of September 30, 2016 was classified as debt maturing within one year in the condensed consolidated statements of financial position.

Unsecured Notes

On July 5, 2016, ITC Holdings issued $400.0 million aggregate principal amount of unsecured 3.25% Notes, due June 30, 2026. The proceeds from the issuance were used to repay the $161.0 million outstanding under ITC Holdings’ term loan credit agreement and for general corporate purposes, primarily the repayment of indebtedness outstanding under ITC Holdings’ commercial paper program discussed above. These Notes were issued under ITC Holdings’ indenture, dated April 18, 2013.

Revolving Credit Agreements

At September 30, 2016, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:

								Weighted Average
	Total							Interest Rate on
	Available		Outstanding		Unused			Outstanding		Commitment
(in millions)	Capacity		Balance (a)		Capacity			Balance		Fee Rate (b)
ITC Holdings	$	400.0	$	7.0	$	393.0	(c)	1.8	%(d)	0.175	%
ITCTransmission	100.0		41.6		58.4			1.4	%(e)	0.10	%
METC	100.0		25.8		74.2			1.4	%(e)	0.10	%
ITC Midwest	250.0		104.3		145.7			1.4	%(e)	0.10	%
ITC Great Plains	150.0		58.7		91.3			1.4	%(e)	0.10	%
Total	$	1,000.0	$	237.4	$	762.6

(a) Included within long-term debt.

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

On April 7, 2016, each of ITC Holdings and its Regulated Operating Subsidiaries amended its respective unsecured revolving credit agreement to allow for the consummation of the Merger.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and maintaining certain interest coverage ratios. As of September 30, 2016, we were not in violation of any debt covenant.

7. STOCKHOLDERS’ EQUITY

The changes in stockholders’ equity for the nine months ended September 30, 2016 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2015	152,699,077		$	829,211		$	875,595		$	4,265		$	1,709,071
Net income	—		—			184,601			—			184,601
Repurchase and retirement of common stock	(215,791	)	(9,449		)	—			—			(9,449		)
Dividends declared ($0.5905 per share)	—		—			(90,435		)	—			(90,435		)
Stock option exercises	473,519		11,376			—			—			11,376
Shares issued under the Employee Stock Purchase Plan	40,219		1,228			—			—			1,228
Issuance of restricted stock (a)	464,395		—			—			—			—
Forfeiture of restricted stock	(22,750	)	—			—			—			—
Forfeiture of performance shares	(5,998	)	—			—			—			—
Share-based compensation, net of forfeitures	—		16,685			—			—			16,685
Other comprehensive loss, net of tax	—		—			—			(7,120		)	(7,120		)
Other	—		159			—			—			159
BALANCE, SEPTEMBER 30, 2016	153,432,671		$	849,210		$	969,761		$	(2,855	)	$	1,816,116

(a) On May 19, 2016, pursuant to the 2015 Long-Term Incentive Plan, we granted 453,219 shares of restricted stock, which vested as part of the closing of the Merger on October 14, 2016 as described in Note 2.

The changes in stockholders’ equity for the nine months ended September 30, 2015 were as follows:

									Accumulated
									Other			Total
	Common Stock					Retained			Comprehensive			Stockholders’
(in thousands, except share and per share data)	Shares		Amount			Earnings			Income (Loss)			Equity
BALANCE, DECEMBER 31, 2014	155,140,967		$	923,191		$	741,550		$	4,816		$	1,669,557
Net income	—		—			205,041			—			205,041
Repurchase and retirement of common stock	(667,487	)	(21,931		)	—			—			(21,931		)
Dividends declared ($0.5125 per share)	—		—			(79,691		)	—			(79,691		)
Stock option exercises (a)	1,165,435		10,599			—			—			10,599
Shares issued under the Employee Stock Purchase Plan	55,905		1,723			—			—			1,723
Issuance of restricted stock	254,711		—			—			—			—
Forfeiture of restricted stock	(53,197	)	—			—			—			—
Issuance of performance shares	287,464		—			—			—			—
Forfeiture of performance shares	(6,713	)	—			—			—			—
Share-based compensation, net of forfeitures	—		12,461			—			—			12,461
Forward contracts of accelerated share repurchase	—		(115,000		)	—			—			(115,000		)
Other comprehensive loss, net of tax	—		—			—			(889		)	(889		)
Other	—		(6		)	—			—			(6		)
BALANCE, SEPTEMBER 30, 2015	156,177,085		$	811,037		$	866,900		$	3,927		$	1,681,864

(a) An additional 37,941 shares of our common stock were issued during the three months ended December 31, 2015 for stock option exercises. Total shares of 1,203,376 were issued during the year ended December 31, 2015 due to the exercise of stock options.

Accumulated Other Comprehensive Income

The following table provides the components of changes in AOCI for the three and nine months ended September 30, 2016 and 2015:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Balance at the beginning of period	$	(3,076	)	$	6,078		$	4,265		$	4,816
Derivative instruments
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $266 and $100 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $458 and $261 for the nine months ended September 30, 2016 and 2015, respectively)	375			111			605			372
Loss on interest rate swaps relating to interest rate cash flow hedges (net of tax of $98 and $1,639 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $5,865 and $920 for the nine months ended September 30, 2016 and 2015, respectively)	(136		)	(2,280		)	(8,137		)	(1,282		)
Derivative instruments, net of tax	239			(2,169		)	(7,532		)	(910		)
Available-for-sale securities
Unrealized net (loss) gain on available-for-sale securities (net of tax of $13 for the three months ended September 30, 2016 and 2015, and net of tax of $296 and $15 for the nine months ended September 30, 2016 and 2015, respectively)	(18		)	18			412			21

Available-for-sale securities, net of tax	(18		)	18			412			21
Total other comprehensive income (loss), net of tax	221			(2,151		)	(7,120		)	(889		)
Balance at the end of period	$	(2,855	)	$	3,927		$	(2,855	)	$	3,927

The amount of net loss relating to interest rate cash flow hedges to be reclassified from AOCI to interest expense for the 12-month period ending September 30, 2017 is expected to be approximately $2.5 million.

The Merger

On October 14, 2016, ITC Holdings became a wholly-owned subsidiary of Investment Holdings, which is an indirect subsidiary of Fortis and GIC, upon the closing of the Merger. On the same date, the common shares of ITC Holdings were delisted from the NYSE. Refer to Note 2 for further details of the Merger.

8. EARNINGS PER SHARE

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands, except share, per share data and percentages)	2016			2015			2016			2015
Numerator:
Net income	$	49,638		$	65,573		$	184,601		$	205,041
Less: dividends declared and paid — common and restricted shares	(32,999		)	(29,230		)	(90,277		)	(79,697		)
Undistributed earnings	16,639			36,343			94,324			125,344
Percentage allocated to common shares (a)	99.3		%	99.3		%	99.3		%	99.3		%
Undistributed earnings — common shares	16,523			36,089			93,664			124,467
Add: dividends declared and paid — common shares	32,766			29,036			89,656			79,136
Numerator for basic and diluted earnings per common share	$	49,289		$	65,125		$	183,320		$	203,603
Denominator:
Basic earnings per common share — weighted average common shares outstanding	152,028,595			154,836,673			151,754,084			154,348,478
Incremental shares for stock options, employee stock purchase plan shares and performance shares — weighted average assumed conversion	1,189,049			687,035			1,126,616			1,104,516
Diluted earnings per common share — adjusted weighted average shares and assumed conversion	153,217,644			155,523,708			152,880,700			155,452,994
Per common share net income:
Basic	$	0.32		$	0.42		$	1.21		$	1.32
Diluted	$	0.32		$	0.42		$	1.20		$	1.31


(a) Weighted average common shares outstanding	152,028,595			154,836,673			151,754,084			154,348,478
Weighted average restricted shares (participating securities)	1,088,340			1,040,212			1,025,033			1,127,490
Total	153,116,935			155,876,885			152,779,117			155,475,968
Percentage allocated to common shares	99.3		%	99.3		%	99.3		%	99.3		%

The incremental shares for stock options and employee stock purchase plan (“ESPP”) shares are included in the diluted EPS calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. Additionally, performance shares are included in the diluted EPS calculation using the treasury stock method when the performance metric is substantively measurable as of the end of the reporting period and has been met under the assumption the end of the reporting period was the end of the performance period. The outstanding stock options, ESPP shares and performance shares and the anti-dilutive stock options and ESPP shares excluded from the diluted EPS calculations were as follows:

	2016	2015
Outstanding stock options, ESPP shares and performance shares (as of September 30)	3,613,464	4,138,180
Anti-dilutive stock options and ESPP shares (for the three and nine months ended September 30)	—	1,059,106

The Merger

9. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST

Pension Plan Benefits

We have a qualified defined benefit pension plan (“retirement plan”) for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees, and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the retirement plan is to contribute amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as we determine appropriate. During the nine months ended September 30, 2016, we contributed $2.8 million to the retirement plan. We do not expect to make any additional contributions to this plan in 2016.

Net periodic benefit cost for the pension plans, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Service cost	$	1,602		$	1,624		$	4,810		$	4,872
Interest cost	872			924			2,616			2,772
Expected return on plan assets	(931		)	(960		)	(2,795		)	(2,879		)
Amortization of prior service credit	(5		)	(10		)	(13		)	(31		)
Amortization of unrecognized loss	877			1,061			2,629			3,182
Net pension cost	$	2,415		$	2,639		$	7,247		$	7,916

Other Postretirement Benefits

We provide certain postretirement health care, dental and life insurance benefits for eligible employees. During the nine months ended September 30, 2016, we contributed $5.6 million to the postretirement benefit plan. We expect to make estimated additional contributions of $1.7 million to the postretirement benefit plan in 2016.

Net postretirement benefit plan cost, by component, was as follows for the three and nine months ended September 30, 2016 and 2015:

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Service cost	$	1,855		$	2,121		$	5,565		$	6,364
Interest cost	631			620			1,891			1,858
Expected return on plan assets	(531		)	(463		)	(1,592		)	(1,389		)
Amortization of unrecognized loss	—			125			—			375
Net postretirement cost	$	1,955		$	2,403		$	5,864		$	7,208

Defined Contribution Plan

We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was $0.9 million and $0.8 million for the three months ended September 30, 2016 and 2015, respectively, and $3.4 million and $3.2 million for the nine months ended September 30, 2016 and 2015, respectively.

10. FAIR VALUE MEASUREMENTS

The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the nine months ended September 30, 2016 and the year ended December 31, 2015, there were no transfers between levels.

Our assets and liabilities measured at fair value subject to the three-tier hierarchy at September 30, 2016, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant			Significant
	Active Markets for		Other Observable			Unobservable
(in thousands)	Identical Assets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)
Financial assets measured on a recurring basis:
Mutual funds — fixed income securities	$	42,231	$	—		$	—
Mutual funds — equity securities	1,049		—			—
Interest rate swap derivative	—		7			—
Financial liabilities measured on a recurring basis:
Interest rate swap derivatives	—		(240		)	—
Total	$	43,280	$	(233	)	$	—

Our assets and liabilities measured at fair value subject to the three-tier hierarchy at December 31, 2015, were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant			Significant
	Active Markets for		Other Observable			Unobservable
(in thousands)	Identical Assets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)
Financial assets measured on a recurring basis:
Cash and cash equivalents — cash equivalents	$	49	$	—		$	—
Mutual funds — fixed income securities	35,813		—			—
Mutual funds — equity securities	976		—			—
Interest rate swap derivative	—		112			—
Financial liabilities measured on a recurring basis:
Interest rate swap derivatives	—		(3,548		)	—
Total	$	36,838	$	(3,436	)	$	—

As of September 30, 2016 and December 31, 2015, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets included in the table consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. Our cash and cash equivalents

consisted of money market funds that are recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value. Gain and losses are recorded in earnings for investments classified as trading securities and other comprehensive income for investments classified as available-for-sale.

The asset and liability related to derivatives consist of interest rate swaps discussed in Note 6. The fair value of our interest rate swap derivatives is determined based on a discounted cash flow (“DCF”) method using LIBOR swap rates, which are observable at commonly quoted intervals.

We also held non-financial assets that are required to be measured at fair value on a non-recurring basis. These consist of goodwill and intangible assets. We did not record any impairment charges on long-lived assets and no other significant events occurred requiring non-financial assets and liabilities to be measured at fair value (subsequent to initial recognition) during the nine months ended September 30, 2016. For additional information on our goodwill and intangible assets, please refer to the notes to the consolidated financial statements as of and for the year ended December 31, 2015 included in our Form 10-K for such period and to Note 5 of this Form 10-Q.

Fair Value of Financial Assets and Liabilities

Fixed Rate Debt

Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper, was $4,592.1 million and $3,879.7 million at September 30, 2016 and December 31, 2015, respectively. These fair values represent Level 2 measurements under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, net of discount and deferred financing fees and excluding revolving and term loan credit agreements and commercial paper, was $4,110.9 million and $3,653.6 million at September 30, 2016 and December 31, 2015, respectively.

Revolving and Term Loan Credit Agreements

At September 30, 2016 and December 31, 2015, we had a consolidated total of $237.4 million and $680.9 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.

Other Financial Instruments

11. COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as properties currently owned or operated by us. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under some environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. Although environmental requirements generally have become more stringent and compliance with those requirements more expensive, we are not aware of any specific developments that would increase our costs for such compliance in a manner that would be expected to have a material adverse effect on our results of operations, financial position or liquidity.

Litigation

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

Michigan Sales and Use Tax Audit

other functions that would not be exempt, and remanded the case to the Michigan Court of Claims to determine how the exemption applies to assets that are used in electric distribution activities. On March 30, 2016, ITCTransmission withdrew its administrative appeals, and subsequently filed a civil action in the Michigan Court of Claims seeking to have the use tax assessments at issue canceled. This litigation is currently in the discovery stage. Given the preliminary status of this litigation, ITCTransmission cannot estimate the timing of any potential tax assessments or refunds.

The amount of use tax associated with the exemptions taken by ITCTransmission through September 30, 2016 is estimated to be approximately $20.2 million, including interest. This amount includes approximately $10.6 million, including interest, assessed for the audit periods noted above. ITCTransmission believes it is probable that portions of the use tax assessments will be sustained upon resolution of this matter and has recorded $9.5 million and $5.9 million for this contingent liability, including interest, as of September 30, 2016 and December 31, 2015, respectively, primarily as an increase to property, plant and equipment, which is a component of revenue requirement in our cost-based formula rate.

METC has also taken the industrial processing exemption, estimated to be approximately $10.4 million for open periods. METC has not been assessed any use tax liability and has not recorded any contingent liability as of September 30, 2016 associated with this matter. In the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission and METC would record the additional use tax primarily as an increase to the cost of property, plant and equipment, as the majority of purchases for which the exemption was taken relate to equipment purchases associated with capital projects.

Rate of Return on Equity Complaints

On November 12, 2013, the Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group and Wisconsin Industrial Energy Group (collectively, the “complainants”) filed a complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current 12.38% MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest, to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in the formula transmission rates for our MISO Regulated Operating Subsidiaries to 9.15%, reducing the equity component of our capital structure from the FERC approved 60% to 50% and terminating the ROE adders currently approved for certain ITC Holdings operating companies, including adders currently utilized by ITCTransmission and METC.

On June 19, 2014, in a separate Section 206 complaint against the regional base ROE rate for ISO New England TOs, the FERC adopted a new methodology for establishing base ROE rates for electric transmission utilities. The new methodology is based on a two-step DCF analysis that uses both short-term and long-term growth projections in calculating ROE rates for a proxy group of electric utilities. The previous methodology used only short-term growth projections. The FERC also reiterated that it can apply discretion in determining how ROE rates are established within a zone of reasonableness and reiterated its policy for limiting the overall ROE rate for any company, including the base and all applicable adders, at the high end of the zone of reasonableness set by the two-step DCF methodology. The new method presented in the ISO New England ROE case will be used in resolving the MISO ROE case.

On October 16, 2014, the FERC granted the complainants’ request in part by setting the base ROE for hearing and settlement procedures, while denying all other aspects of the Initial Complaint. The FERC found that the complainants failed to show that the use of actual or FERC-approved capital structures that include more than 50% equity is unjust and unreasonable. The FERC also denied the request to terminate ITCTransmission’s and METC’s ROE incentives. The order reiterated that any TO’s total ROE rate is limited by the top end of a zone of reasonableness and the TO’s ability to implement the full amount of previously granted ROE adders may be affected by the outcome of the hearing. The FERC set the refund effective date for the Initial Complaint as November 12, 2013.

November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). Additionally, the rates established by the September 2016 Order will be used prospectively from the date of the order until a new approved rate is established by the Second Complaint described below, which result in an ROE used currently by ITCTransmission, METC and ITC Midwest of 11.35%, 11.35% and 11.32%, respectively. The September 2016 Order requires all MISO TOs, including our MISO Regulated Operating Subsidiaries, to provide refunds within 30 days for the Initial Refund Period. The estimated refund for the Initial Complaint resulting from this FERC order, including interest, is $117.4 million for our MISO Regulated Operating Subsidiaries, recorded in current liabilities on the condensed consolidated statements of financial position. On October 21, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for an extension of nine months to provide refunds until July 28, 2017, which was granted by the FERC on October 28, 2016. Additionally, on October 28, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for rehearing of the September 2016 Order regarding the future exclusion of certain short-term growth projections in the two-step DCF analysis.

On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by Arkansas Electric Cooperative Corporation, Mississippi Delta Energy Agency, Clarksdale Public Utilities Commission, Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative, Inc., seeking a FERC order to reduce the base ROE used in the formula transmission rates of our MISO Regulated Operating Subsidiaries to 8.67%, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, the FERC accepted the Second Complaint and set it for hearing and settlement procedures. The FERC also set the refund effective date for the Second Complaint as February 12, 2015.

On October 20, 2015, the MISO TOs filed expert witness testimony in the Second Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that the FERC elects to change the base ROE, the testimony included a recommendation of a 10.75% base ROE for the period from February 12, 2015 through May 11, 2016 (the “Second Refund Period”). Updated data to be considered in establishing any new base ROE was filed by the parties to the Second Complaint in January 2016, including a recommendation in the updated MISO TO expert witness testimony to use a 10.96% base ROE. On June 30, 2016, the presiding administrative law judge issued an initial decision on the Second Complaint, which recommended a base ROE of 9.70% for the Second Refund Period, with a maximum ROE of 10.68%. The initial decision is a non-binding recommendation to the FERC on the Second Complaint, and all parties, including the MISO TOs and the complainants, have filed briefs contesting various parts of the proposed findings and recommendations. In resolving the Second Complaint, we expect the FERC to establish a new base ROE and zone of reasonable returns that will be used, along with any ROE adders, to calculate the refund liability for the Second Refund Period. We anticipate a FERC order on the Second Complaint in 2017.

In addition to the estimated refund for the Initial Complaint noted above, we believe it is probable that a refund will be required in connection with the Second Complaint. As of September 30, 2016, the estimated range of aggregate refunds for both the Initial Complaint and Second Complaint is expected to be from $219.0 million to $255.7 million on a pre-tax basis for the period from November 12, 2013 through September 30, 2016. As of September 30, 2016, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $255.7 million for the Initial Complaint and Second Complaint, representing the best estimate of the probable aggregate refunds based on the resolution of the Initial Complaint in the September 2016 Order. As of December 31, 2015, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of $168.0 million, which represented the low end of the range of potential refunds as of that date, as there was no best estimate within the range of refunds at that time. The recognition of this estimated liability resulted in the following impacts to our condensed consolidated results of operations:

	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)	2016			2015			2016			2015
Increase (decrease) in:
Operating revenues	$	(55.0	)	$	(18.0	)	$	(80.7	)	$	(38.8	)
Interest expense	3.9			0.5			7.0			1.4
Estimated net income (a)	(35.7		)	(11.2		)	(53.4		)	(24.5		)

(a) Includes an effect on net income of $27.1 million for the three and nine months ended September 30, 2016 for revenue initially recognized in 2015, 2014 and 2013. There was no effect on net income for the three and nine months ended September 30, 2015 for revenue initially recognized in a prior period.

It is possible the outcome of these matters could differ from the estimated range of losses and materially affect our consolidated results of operations due to the uncertainty of the calculation of an authorized base ROE along with the zone of reasonableness under the newly adopted two-step DCF methodology, which is subject to significant discretion by the FERC. As of September 30, 2016, our MISO Regulated Operating Subsidiaries had a total of approximately $2.9 billion of equity in their collective capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each 10 basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately $2.9 million.

In a separate but related matter, in November 2014, METC, ITC Midwest and other MISO TOs filed a request with the FERC, under FPA Section 205, for authority to include a 50 basis point incentive adder for RTO participation in each of the TOs’ formula rates. On January 5, 2015, the FERC approved the use of this incentive adder, effective January 6, 2015. Additionally, ITC Midwest filed a request with the FERC, under FPA Section 205, in January 2015 for authority to include a 100 basis point incentive adder for independent transmission ownership, which is currently authorized for ITCTransmission and METC. On March 31, 2015, the FERC approved the use of a 50 basis point incentive adder for independence, effective April 1, 2015. On April 30, 2015, ITC Midwest filed a request with the FERC for rehearing on the approved incentive adder for independence and this request was subsequently denied by the FERC on January 6, 2016. An appeal of the FERC’s decision has been filed. Beginning September 28, 2016, these incentive adders have been applied to METC’s and ITC Midwest’s base ROEs in establishing their total authorized ROE rates, subject to the maximum ROE limitation in the September 2016 Order of 11.35%.

Challenges Regarding Bonus Depreciation

See “Challenges Regarding Bonus Depreciation” in Note 4 for discussion of these challenges.

Legal Matters Associated with the Merger

Following the announcement of the Merger, four putative state class action lawsuits were filed by purported shareholders of ITC Holdings on behalf of a purported class of ITC Holdings shareholders. Initially, the four actions ( Paolo Guerra v. Albert Ernst, et al., Harvey Siegelman v. Joseph L. Welch, et al., Alan Poland v. Fortis Inc., et al., Sanjiv Mehrotra v. Joseph L. Welch, et al.) were filed in the Oakland County Circuit Court of the State of Michigan. The complaints name as defendants a combination of ITC Holdings and the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub. The complaints generally allege, among other things, that (1) ITC Holdings’ directors breached their fiduciary duties in connection with the Merger Agreement, (including, but not limited to, various alleged breaches of duties of good faith, loyalty, care and independence), (2) ITC Holdings’ directors failed to take appropriate steps to maximize shareholder value and claims that the Merger Agreement contains several deal protection provisions that are unnecessarily preclusive and (3) a combination of ITC Holdings, Fortis, FortisUS and Merger Sub aided and abetted the purported breaches of fiduciary duties. The complaints seek class action certification and a variety of relief including, among other things, enjoining defendants from completing the Merger, unspecified rescissory and compensatory damages, and costs, including attorneys’ fees and expenses. The Siegelman case was voluntarily dismissed by the plaintiff

on March 22, 2016. On March 23, 2016, the state court entered an order directing that the related cases be consolidated under the caption In re ITC Holdings Corporation Shareholder Litigation. On April 8, 2016, Poland filed an amended complaint to add derivative claims on behalf of ITC Holdings.

On March 14, 2016, the Guerra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Paolo Guerra v. Albert Ernst, et al . The federal complaint names the same defendants (plus FortisUS), asserts the same general allegations and seeks the same types of relief as in the state court cases. On March 25, 2016, Guerra amended his federal complaint. The amended complaint dropped Fortis US, Fortis and Merger Sub as defendants and added claims alleging that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary proxy statement/prospectus, filed with the SEC in connection with the special meeting of shareholders to approve the Merger Agreement, was allegedly materially misleading and allegedly omitted material facts that were necessary to render it non-misleading.

Another lawsuit was filed on April 8, 2016 in the United States District Court, Eastern District of Michigan captioned Harold Severance v. Joseph L. Welch et al. against the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub, asserting the same general allegations and seeking the same type of relief as Guerra .

On April 22, 2016, the Mehrotra state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as Sanjiv Mehrotra v. Joseph L. Welch, et al . With the exception of Fortis, the federal complaint names the same defendants and asserts the same general allegations as the other federal complaints.

On June 8, 2016, the state court denied a motion for summary disposition filed by ITC Holdings and the individual members of the ITC Holdings board of directors. ITC Holdings voluntarily made supplemental disclosures related to the Merger in response to certain allegations, which are set forth in a Form 8-K filed with the SEC on June 13, 2016. Nothing in those supplemental disclosures shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth therein.

On July 6, 2016, the federal actions were voluntarily dismissed by the federal plaintiffs. The federal plaintiffs reserved the right to make certain other claims, and ITC Holdings and the individual members of the ITC Holdings board of directors reserved the right to oppose any such claim.

On July 8, 2016, the plaintiffs in Poland filed a motion for class certification. On July 13, 2016, ITC Holdings and the individual members of the ITC Holdings board of directors filed their respective answers to the amended complaint in Poland . On July 19, 2016, the Poland state court issued a scheduling order, which, among other things, requires the parties to complete discovery by March 10, 2017, and sets a trial date for June 5, 2017. On July 25, 2016, the Poland state court issued an order allowing a new plaintiff, Washtenaw County Employees’ Retirement System, to intervene in the Poland case.

We believe the remaining lawsuit is without merit and intend to vigorously defend against it. Additional lawsuits arising out of or relating to the Merger Agreement or the Merger may be filed in the future. See Note 2 for additional discussion on the Merger.

12. SEGMENT INFORMATION

We identify reportable segments based on the criteria set forth by the FASB regarding disclosures about segments of an enterprise, including the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses. As discussed in Note 4, during the second quarter of 2016, ITC Interconnection became a transmission owner in the FERC-approved RTO, PJM Interconnection. As a result, the newly regulated transmission business at ITC Interconnection is included, along with our Regulated Operating Subsidiaries, in the regulated operations segment as of June 1, 2016. The following tables show our financial information by reportable segment:

	Three months ended						Nine months ended
OPERATING REVENUES:	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Regulated operations (a)	$	261,156		$	273,012		$	839,126		$	820,452
ITC Holdings and other	93			334			688			720
Intercompany eliminations	(7,798		)	(157		)	(8,186		)	(438		)
Total Operating Revenues	$	253,451		$	273,189		$	831,628		$	820,734

	Three months ended						Nine months ended
INCOME BEFORE INCOME TAXES:	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Regulated operations (a)	$	119,862		$	138,532		$	439,288		$	436,990
ITC Holdings and other	(41,127		)	(34,853		)	(140,668		)	(110,287		)
Total Income Before Income Taxes	$	78,735		$	103,679		$	298,620		$	326,703

	Three months ended						Nine months ended
NET INCOME:	September 30,						September 30,
(in thousands)	2016			2015			2016			2015
Regulated operations (a)	$	74,965		$	85,971		$	272,085		$	269,491
ITC Holdings and other	49,638			65,573			184,601			205,041
Intercompany eliminations	(74,965		)	(85,971		)	(272,085		)	(269,491		)
Total Net Income	$	49,638		$	65,573		$	184,601		$	205,041

TOTAL ASSETS:							September 30,			December 31,
(in thousands)							2016			2015
Regulated operations							$	7,969,771		$	7,463,557
ITC Holdings and other							4,253,150			4,147,915
Reconciliations / Intercompany eliminations (b)							(4,171,234		)	(4,056,150		)
Total Assets							$	8,051,687		$	7,555,322

(a) Amount includes the results of operations from ITC Interconnection for the period June 1, 2016 through September 30, 2016.

(b) Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our subsidiaries in the regulated operations segment as compared to the classification in our condensed consolidated statements of financial position.

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

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

Our reports, filings and other public announcements contain certain statements that describe our management’s beliefs concerning future business conditions, plans and prospects, growth opportunities, the outlook for our business and the electric transmission industry, expectations with respect to various legal and regulatory proceedings and the Merger with Fortis based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “projects,” “likely” and similar phrases. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are based on estimates and assumptions and subject to significant risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among others, the risks and uncertainties listed in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, 2015, and the following:

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

· Our actual capital investment may be lower than planned, which would cause a lower than anticipated rate base and would therefore result in lower revenues and earnings compared to our current expectations. In addition, we expect to invest in strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot provide assurance that we will be able to initiate or complete any of these investments. In addition, we expect to incur expenses related to the pursuit of development opportunities, which may be higher than forecasted.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

· ITC Holdings and its subsidiaries are subject to business uncertainties during the period of integration with Fortis that could adversely affect ITC Holdings’ financial results.

· We will continue to incur substantial transaction-related costs in connection with the Merger.

· We are the target of securities class action and derivative lawsuits, which could result in substantial costs and diversion of management’s time and resources.

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

OVERVIEW

Through our Regulated Operating Subsidiaries and ITC Interconnection, we operate high-voltage systems in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma that transmit electricity from generating stations to local distribution facilities connected to our systems. Our business strategy is to operate, maintain and invest in transmission infrastructure in order to enhance system integrity and reliability, reduce transmission constraints and upgrade the transmission networks to support new generating resources interconnecting to our transmission systems. We also are pursuing development projects not within our existing systems, which are likewise intended to improve overall grid reliability, reduce transmission constraints and facilitate interconnections of new generating resources, as well as enhance competitive wholesale electricity markets.

Significant recent matters that influenced our financial position and results of operations and cash flows for the nine months ended September 30, 2016 or that may affect future results include:

· Our capital expenditures of $560.6 million at our Regulated Operating Subsidiaries and ITC Interconnection during the nine months ended September 30, 2016 as described below under “— Capital Investment and Operating Results Trends,” resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources;

· Debt issuances as described in Note 6 to the condensed consolidated financial statements and borrowings under our revolving credit agreements in 2016 and 2015 to fund capital investment at our Regulated Operating Subsidiaries and ITC Interconnection as well as for general corporate purposes;

· Debt maturing within one year of $185.8 million as of September 30, 2016 and the potentially higher interest rates associated with the additional financing required to repay this debt;

· Recognition of the liability for the refund and potential refund relating to the rate of return on equity (“ROE”) complaints, as described in Note 11 to the condensed consolidated financial statements, which resulted in a total estimated pre-tax reduction of revenue and additional interest of $58.9 million and $87.7 million and an estimated after-tax reduction to net income of $35.7 million and $53.4 million for the three and nine months ended September 30, 2016, respectively;

· Election of bonus depreciation for tax years 2015 and 2016 as well as the simulation of ITC Midwest’s 2015 revenue requirement with the election of bonus depreciation. The total impact from these matters was lower revenues of approximately $4.2 million and $13.2 million and lower net income of approximately $2.5 million and $7.9 million, for the three and nine months ended September 30, 2016, respectively. These matters also resulted in additional net deferred income tax liabilities of approximately $145.4 million as of September 30, 2016, and a corresponding income tax refund of $128.2 million, which was received from the Internal Revenue Service (“IRS”) in August 2016;

· Recognition of the refund liability, including interest, associated with regional cost allocation as described in Note 4 to the condensed consolidated financial statements, which resulted in a reduction to regional cost sharing revenues and an offsetting increase to network revenues for the three and nine months ended September 30, 2016. This refund, including interest, was provided to New York Independent System Operator and PJM Interconnection (“other RTOs”) in October 2016. The timing for collection from our network customers of the amount refunded to the other RTOs has not yet been determined, but is expected to occur no later than 2018; and

· As a result of the Merger with Fortis consummated on October 14, 2016, ITC Holdings became an indirect subsidiary of Fortis as described below under “— Capital Project Updates and Other Recent Developments — The Merger.” For the three and nine months ended September 30, 2016, we expensed external legal, advisory and financial services fees of $2.0 million and $24.3 million, respectively, and certain internal labor and associated costs of approximately $3.1 million and $9.4 million, respectively, related to the Merger, recorded within general and administrative expenses. In addition, subsequent to September 30, 2016 through the date of this filing, we have incurred external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately $75 million, including approximately $41 million of expense recognized due to the accelerated vesting of the share-based compensation awards described in Note 2 to the condensed consolidated financial statements. Certain amounts of the external costs are not expected to be deductible for income tax purposes. The external and internal costs related to the Merger are not included as components of revenue requirement as they were incurred at ITC Holdings.

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

Capital Project Updates and Other Recent Developments

The Merger

On February 9, 2016, ITC Holdings entered into the Merger Agreement with Fortis, FortisUS and Merger Sub. On April 20, 2016, Fortis reached a definitive agreement with GIC Private Limited for GIC to acquire an indirect 19.9% equity interest in ITC Holdings upon completion of the Merger. On October 14, 2016, ITC Holdings and Fortis completed the Merger contemplated by the Merger Agreement. On the same date, the common shares of ITC Holdings were delisted from the NYSE and the common shares of Fortis were listed and began trading on the NYSE. Fortis continues to have its shares listed on the Toronto Stock Exchange. As a result of the Merger, Merger Sub merged with and into ITC Holdings with ITC Holdings continuing as the surviving corporation and becoming a majority owned indirect subsidiary of FortisUS. In the Merger, ITC Holdings shareholders received $22.57 in cash and 0.7520 Fortis common shares for each share of common stock of ITC Holdings. Refer to Note 2 to the condensed consolidated financial statements for further details on the Merger.

Development Bonuses

We recognized general and administrative expenses of $0.9 million during the nine months ended September 30, 2016 and $0.3 million and $10.1 million during the three and nine months ended September 30, 2015, respectively, for bonuses for certain development projects, including the successful completion of certain milestones relating to projects at ITC Great Plains. We did not recognize any general and administrative expenses for development bonuses during the three months ended September 30, 2016.

Regional Infrastructure Projects

2011 MISO Multi-Value Projects

In December 2011, MISO approved a portfolio of Multi-Value Projects (“MVPs”) which includes portions of four MVPs that we will construct, own and operate. The four MVPs are located in south central Minnesota, northern and southeast Iowa, southwest Wisconsin, and northeast Missouri and are in various stages of construction at ITC Midwest.

Thumb Loop Project

The Thumb Loop Project, constructed by ITCTransmission, consists of a 140-mile, double-circuit 345 kV transmission line and related substations that now serves as the backbone of the transmission system needed to accommodate future wind development projects in the Michigan counties of Tuscola, Huron, Sanilac and St. Clair. The final phase of the Thumb Loop Project was placed in-service in May 2015. Through September 30, 2016, ITCTransmission has invested $503.5 million in the Thumb Loop Project and any further investment to complete this project is not expected to be material.

ITC Interconnection

ITC Interconnection was formed in 2014 by ITC Holdings to pursue transmission investment opportunities. On June 1, 2016, ITC Interconnection acquired certain transmission assets from a merchant generating company and placed a newly constructed 345 kV transmission line in service. As a result, ITC Interconnection became a transmission owner in the FERC-approved RTO, PJM Interconnection, and is subject to rate-regulation by the FERC. The revenues earned by ITC Interconnection are based on its facilities reimbursement agreement with the merchant generating company. The financial results of ITC Interconnection are currently not material to our consolidated financial statements.

Rate of Return on Equity Complaints

On November 12, 2013, certain parties filed a joint complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current 12.38% MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest, to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in the formula transmission rates for our MISO Regulated Operating Subsidiaries to 9.15%, reducing the equity component of our capital structure from the FERC approved 60% to 50% and terminating the ROE adders currently approved for certain ITC Holdings operating companies, including adders currently utilized by ITCTransmission and METC.

On December 22, 2015, the presiding administrative law judge issued an initial decision on the Initial Complaint. On September 28, 2016, the FERC issued an order (the “September 2016 Order”) affirming the presiding administrative law judge’s initial decision and setting the base ROE at 10.32%, with a maximum ROE of 11.35%, effective for the period from November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). Additionally, the rates established by the September 2016 Order will be used prospectively from the date of the order until a new approved rate is established by the Second Complaint described below, which result in an ROE used currently by ITCTransmission, METC and ITC Midwest of 11.35%, 11.35% and 11.32%, respectively. The September 2016 Order requires all MISO TOs, including ITCTransmission, METC and ITC Midwest, to provide refunds within 30 days for the Initial Refund Period. The estimated refund for the Initial Complaint resulting from this FERC order, including interest, is $117.4 million for our MISO Regulated Operating Subsidiaries, recorded in current liabilities on the condensed consolidated statements of financial position. On October 21, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for an extension of nine months to provide refunds until July 28, 2017, which was granted by the FERC on October 28, 2016. Additionally, on October 28, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for rehearing of the September 2016 Order regarding the future exclusion of certain short-term growth projections in the two-step DCF analysis.

On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by separate complainants, seeking a FERC order to reduce the base ROE used in the formula transmission rates of our MISO Regulated Operating Subsidiaries to 8.67%, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, the FERC accepted the Second Complaint and set it for hearing and settlement procedures. The FERC also set the refund effective date for the Second Complaint as February 12, 2015.

testimony included a recommendation of a 10.75% base ROE for the period from February 12, 2015 through May 11, 2016 (the “Second Refund Period”). Updated data to be considered in establishing any new base ROE was filed by the parties to the Second Complaint in January 2016, including a recommendation in the updated MISO TO expert witness testimony to use a 10.96% base ROE. On June 30, 2016, the presiding administrative law judge issued an initial decision on the Second Complaint, which recommended a base ROE of 9.70% for the Second Refund Period, with a maximum ROE of 10.68%. The initial decision is a non-binding recommendation to the FERC on the Second Complaint, and all parties, including the MISO TOs and the complainants, have filed briefs contesting various parts of the proposed findings and recommendations. In resolving the Second Complaint, we expect the FERC to establish a new base ROE and zone of reasonable returns that will be used, along with any ROE adders, to calculate the refund liability for the Second Refund Period. We anticipate a FERC order on the Second Complaint in 2017.

	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)	2016			2015			2016			2015
Increase (decrease) in:
Operating revenues	$	(55.0	)	$	(18.0	)	$	(80.7	)	$	(38.8	)
Interest expense	3.9			0.5			7.0			1.4
Estimated net income	(35.7		)	(11.2		)	(53.4		)	(24.5		)

MISO Formula Rate Template Modifications Filing

On October 30, 2015, our MISO Regulated Operating Subsidiaries requested modifications, pursuant to Section 205 of the FPA, to certain aspects of their respective formula rate templates which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. Our MISO Regulated Operating Subsidiaries requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which was made on February 8, 2016. On April 14, 2016, the FERC issued an order accepting the February 8, 2016 compliance filing, effective January 1, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. As of September 30, 2016 and December 31, 2015, our MISO Regulated Operating Subsidiaries had recorded an aggregate refund liability of $4.4 million and $10.4 million, respectively.

Challenges Regarding Bonus Depreciation

On December 18, 2015, IP&L filed a formal challenge (“IP&L challenge”) with the FERC against ITC Midwest on certain inputs to ITC Midwest’s formula rates. The IP&L challenge alleged that ITC Midwest has unreasonably and imprudently opted out of using bonus depreciation in the calculation of its federal income tax expense and thereby unduly increased the transmission charges for transmission service to customers. On March 11, 2016, the FERC granted the IP&L challenge in part by requiring ITC Midwest to recalculate its revenue requirements, effective January 1, 2015, to simulate the election of bonus depreciation for 2015. The FERC denied IP&L’s request that ITC Midwest be required to elect bonus depreciation in any past or future years; however, stakeholders will be able to challenge any decision by ITC Midwest not to take bonus depreciation in future years. On June 8, 2016, the FERC denied ITC Midwest’s request for rehearing of the March 11, 2016 order. On August 3, 2016, ITC Midwest filed a petition for review of the FERC’s March 11, 2016 and June 8, 2016 orders in the United States Court of Appeals, District of Columbia Circuit. On September 8, 2016, ITC Midwest filed a motion to defer the petition pending the issuance of a private letter ruling from the IRS. Additionally, on April 15, 2016, Consumers Energy Company filed a formal challenge, or in the alternative, a complaint under Section 206 of the FPA, with the FERC against METC relating to METC’s historical practice of opting out of using bonus depreciation. On July 8, 2016, the FERC denied Consumers Energy Company’s formal challenge and dismissed the complaint without prejudice.

These condensed consolidated financial statements reflect the election of bonus depreciation for tax years 2015 and 2016 and the corresponding effects on 2016 revenue requirements for our Regulated Operating Subsidiaries. Additionally, as required by the March 11, 2016 FERC order, we have simulated the election of bonus depreciation for ITC Midwest’s 2015 revenue requirement and included the impact of the corresponding refund obligation in these condensed consolidated financial statements. The total impact from reflecting the election of bonus depreciation as described above was lower revenues of $4.2 million and $13.2 million and lower net income of approximately $2.5 million and $7.9 million for the three and nine months ended September 30, 2016, respectively, as compared to the same period if bonus depreciation was not reflected. These matters also resulted in additional net deferred income tax liabilities of approximately $145.4 million as of September 30, 2016, and a corresponding income tax refund of $128.2 million, which was received from the IRS in August 2016. We are unable to predict the final outcome of this matter; however, the election of bonus depreciation will result in higher cash flows in the year of the election and reduce our rate base and therefore decrease our revenues and net income over the tax lives of the eligible assets. Bonus depreciation is currently enacted through 2019, with certain provisions that allow for an additional year of eligibility for certain property with long construction periods. If bonus depreciation is elected for a given year, we estimate that, based on an amount of tax additions that may be eligible for bonus depreciation representative of our investment plans in the near term, the higher deferred tax liabilities and the corresponding reduced rate base could reduce revenues recognized by us initially for that year by $15 million to $20 million, with a corresponding reduction to annual net income of $9 million to $12 million (disregarding any favorable

effects from the use of the potential cash tax savings), with the negative effect on annual revenues and net income relating to each year’s election decreasing each year over the tax lives of the assets.

Cost-Based Formula Rate Templates with True-Up Mechanism

Revenue Accruals and Deferrals — Effects of Monthly Peak Loads

Capital Investment and Operating Results Trends

We expect a long-term upward trend in revenues and earnings, subject to the impact of any rate changes and required refunds resulting from the resolution of the ROE complaints as described in Note 11 to the condensed consolidated financial statements. The primary factor that is expected to continue to increase our revenues and earnings in future years is

increased rate base that would result from our anticipated capital investment, in excess of depreciation, from our Regulated Operating Subsidiaries’ long-term capital investment programs to improve reliability, increase system capacity and upgrade the transmission network to support new generating resources. In addition, our capital investment efforts relating to development initiatives are based on establishing an ongoing pipeline of projects that would position us for long-term growth. Investments in property, plant and equipment, when placed in-service upon completion of a capital project, are added to the rate base of our Regulated Operating Subsidiaries.

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

	Actual Capital		Forecasted
	Expenditures for the		Capital
	nine months ended		Expenditures
(in millions)	September 30, 2016		2017 — 2021
Expenditures for property, plant and equipment (a)	$	560.6	$	2,811

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

Refer to “Item 1 Business — Development of Business — Development Projects” in our Form 10-K for the year ended December 31, 2015 for a discussion of our development projects. We are pursuing projects that could result in a significant amount of capital investment, but are not able to estimate the amounts we ultimately expect to achieve or the timing of such investments.

RESULTS OF OPERATIONS

Results of Operations and Variances

	Three months ended									Percentage		Nine months ended									Percentage
	September 30,						Increase			increase		September 30,						Increase			increase
(in thousands)	2016			2015			(decrease)			(decrease)		2016			2015			(decrease)			(decrease)
OPERATING REVENUES	$	253,451		$	273,189		$	(19,738	)	(7.2	)%	$	831,628		$	820,734		$	10,894		1.3	%
OPERATING EXPENSES
Operation and maintenance	30,326			32,721			(2,395		)	(7.3	)%	82,533			88,309			(5,776		)	(6.5	)%
General and administrative	35,752			33,677			2,075			6.2	%	130,922			107,064			23,858			22.3	%
Depreciation and amortization	39,599			36,890			2,709			7.3	%	117,840			106,903			10,937			10.2	%
Taxes other than income taxes	22,645			20,463			2,182			10.7	%	68,444			61,629			6,815			11.1	%
Other operating (income) and expenses — net	(293		)	(206		)	(87		)	42.2	%	(839		)	(675		)	(164		)	24.3	%
Total operating expenses	128,029			123,545			4,484			3.6	%	398,900			363,230			35,670			9.8	%
OPERATING INCOME	125,422			149,644			(24,222		)	(16.2	)%	432,728			457,504			(24,776		)	(5.4	)%
OTHER EXPENSES (INCOME)
Interest expense — net	55,843			51,398			4,445			8.6	%	158,064			150,070			7,994			5.3	%
Allowance for equity funds used during construction	(10,002		)	(6,421		)	(3,581		)	55.8	%	(26,442		)	(21,434		)	(5,008		)	23.4	%
Other income	(408		)	(384		)	(24		)	6.3	%	(1,149		)	(804		)	(345		)	42.9	%
Other expense	1,254			1,372			(118		)	(8.6	)%	3,635			2,969			666			22.4	%
Total other expenses (income)	46,687			45,965			722			1.6	%	134,108			130,801			3,307			2.5	%
INCOME BEFORE INCOME TAXES	78,735			103,679			(24,944		)	(24.1	)%	298,620			326,703			(28,083		)	(8.6	)%
INCOME TAX PROVISION	29,097			38,106			(9,009		)	(23.6	)%	114,019			121,662			(7,643		)	(6.3	)%
NET INCOME	$	49,638		$	65,573		$	(15,935	)	(24.3	)%	$	184,601		$	205,041		$	(20,440	)	(10.0	)%

Operating Revenues

Three months ended September 30, 2016 compared to three months ended September 30, 2015

The following table sets forth the components of and changes in operating revenues:

														Percentage
	2016					2015					Increase			increase
(in thousands)	Amount			Percentage		Amount			Percentage		(decrease)			(decrease)
Network revenues	$	240,215		94.8	%	$	205,527		75.2	%	$	34,688		16.9	%
Regional cost sharing revenues	55,867			22.0	%	85,616			31.3	%	(29,749		)	(34.7	)%
Point-to-point	5,637			2.2	%	3,922			1.4	%	1,715			43.7	%
Scheduling, control and dispatch	3,540			1.4	%	3,328			1.2	%	212			6.4	%
Other	3,168			1.3	%	1,383			0.5	%	1,785			129.1	%
Recognition of rate refund liability	(54,976		)	(21.7	)%	(26,587		)	(9.6	)%	(28,389		)	106.8	%
Total	$	253,451		100.0	%	$	273,189		100.0	%	$	(19,738	)	(7.2	)%

The recognition of the refund liability associated with regional cost allocation, described in Note 4 to the condensed consolidated financial statements, resulted in a reduction to regional cost sharing revenues of $28.7 million and an offsetting increase to network revenues during the three months ended September 30, 2016.

Network revenues also increased partially due to higher net revenue requirements at our Regulated Operating Subsidiaries during the three months ended September 30, 2016 as compared to the same period in 2015. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and

equipment in-service. The increases in network revenues were partially offset by the election of bonus depreciation as described in Note 4 to the condensed consolidated financial statements.

The recognition of the liability for the refund and potential refund relating to the ROE complaints, described in Note 11 to the condensed consolidated financial statements, resulted in a reduction to operating revenues of $55.0 million and $26.6 million during the three months ended September 30, 2016 and 2015, respectively. We are not able to estimate whether any required refunds would be applied to all components of revenue listed in the table above or only certain components.

Operating revenues for the three months ended September 30, 2016 include revenue accruals and deferrals as described in Note 4 to the condensed consolidated financial statements.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

The following table sets forth the components of and changes in operating revenues:

														Percentage
	2016					2015					Increase			increase
(in thousands)	Amount			Percentage		Amount			Percentage		(decrease)			(decrease)
Network revenues	$	647,660		77.9	%	$	595,782		72.6	%	$	51,878		8.7	%
Regional cost sharing revenues	225,891			27.2	%	240,949			29.4	%	(15,058		)	(6.2	)%
Point-to-point	13,609			1.6	%	11,972			1.5	%	1,637			13.7	%
Scheduling, control and dispatch	10,432			1.3	%	9,691			1.2	%	741			7.6	%
Other	14,729			1.7	%	9,763			1.2	%	4,966			50.9	%
Recognition of rate refund liability	(80,693		)	(9.7	)%	(47,423		)	(5.9	)%	(33,270		)	70.2	%
Total	$	831,628		100.0	%	$	820,734		100.0	%	$	10,894		1.3	%

Network revenues also increased partially due to higher net revenue requirements at our Regulated Operating Subsidiaries during the nine months ended September 30, 2016 as compared to the same period in 2015. Higher net revenue requirements were due primarily to higher rate bases associated with higher balances of property, plant and equipment in-service. The increases in network revenues were partially offset by the election of bonus depreciation as described in Note 4 to the condensed consolidated financial statements.

The decrease in regional cost sharing revenues described above was partially offset by additional capital projects identified by MISO and SPP as eligible for regional cost sharing and these projects being placed in-service, in addition to higher accumulated investment for the Thumb Loop Project and Kansas V-Plan Project.

The recognition of the liability for the refund and potential refund relating to the ROE complaints, described in Note 11 to the condensed consolidated financial statements, resulted in a reduction to operating revenues of $80.7 million and $47.4 million during the nine months ended September 30, 2016 and 2015, respectively. We are not able to estimate whether any required refunds would be applied to all components of revenue listed in the table above or only certain components.

Operating revenues for the nine months ended September 30, 2016 include revenue accruals and deferrals as described in Note 4 to the condensed consolidated financial statements.

Operating Expenses

Operation and maintenance expenses

Three months ended September 30, 2016 compared to three months ended September 30, 2015

Operation and maintenance expenses decreased due primarily to lower expenses associated with structure and overhead line maintenance activities and rent, partially offset by higher vegetation management requirements.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

Operation and maintenance expenses decreased due primarily to lower vegetation management requirements and expenses associated with rent and structure maintenance activities.

General and administrative expenses

Three months ended September 30, 2016 compared to three months ended September 30, 2015

General and administrative expenses increased due primarily to higher compensation and benefit expenses of $4.9 million due to retention bonuses relating to the Merger, personnel additions and additional stock compensation expense. This increase was partially offset by a $2.4 million decrease in professional services such as legal and advisory services fees, which were related primarily to various development initiatives.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

General and administrative expenses increased due primarily to a $24.3 million increase in external legal, advisory and consulting services relating to the Merger and a $13.4 million increase in compensation and benefit expenses due to retention bonuses relating to the Merger, personnel additions and additional stock compensation expense. These increases were partially offset by a $9.3 million decrease in development bonus expenses as described under “Capital Project Updates and Other Recent Developments — Development Bonuses.”

Depreciation and amortization expenses

Three and nine months ended September 30, 2016 compared to three and nine months ended September 30, 2015

Depreciation and amortization expenses increased due primarily to a higher depreciable base resulting from property, plant and equipment in-service additions.

Taxes other than income taxes

Three and nine months ended September 30, 2016 compared to three and nine months ended September 30, 2015

Taxes other than income taxes increased due to higher property tax expenses due primarily to our Regulated Operating Subsidiaries’ 2015 capital additions, which are included in the assessments for 2016 personal property taxes.

Other Expenses (Income)

Three and nine months ended September 30, 2016 compared to three and nine months ended September 30, 2015

Interest Expense

Interest expense increased due primarily to the additional interest expense associated with the refund liability relating to the ROE complaints described in Note 11 to the condensed consolidated financial statements and long-term debt issuances subsequent to September 30, 2015, which were used for refinancing of current debt maturities and general corporate purposes.

Allowance for Equity Funds Used During Construction

Allowance for Equity Funds Used During Construction (“AFUDC equity”) decreased due primarily to lower balances of construction work in progress eligible for AFUDC equity during 2016.

Income Tax Provision

Three months ended September 30, 2016 compared to three months ended September 30, 2015

Our effective tax rates for the three months ended September 30, 2016 and 2015 were 37.0% and 36.8%, respectively. Our effective tax rate in both periods exceeded our 35% statutory federal income tax rate due primarily to state income taxes as well as the non-deductibility of certain costs incurred to facilitate the consummation of the Merger, partially offset by the tax effects of AFUDC equity which reduced the effective tax rate. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision. We recorded a state income tax provision of $3.0 million (net of federal deductibility) during the three months ended September 30, 2016 compared to a state income tax provision of $3.8 million (net of federal deductibility) for the three months ended September 30, 2015.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

Our effective tax rates for the nine months ended September 30, 2016 and 2015 were 38.2% and 37.2%, respectively. Our effective tax rate in both periods exceeded our 35% statutory federal income tax rate due primarily to state income taxes as well as the non-deductibility of certain costs incurred to facilitate the consummation of the Merger, partially offset by the tax effects of AFUDC equity which reduced the effective tax rate. The amount of income tax expense relating to AFUDC equity was recognized as a regulatory asset and not included in the income tax provision. We recorded a state income tax provision of $11.6 million (net of federal deductibility) during the nine months ended September 30, 2016 compared to a state income tax provision of $11.9 million (net of federal deductibility) for the nine months ended September 30, 2015.

LIQUIDITY AND CAPITAL RESOURCES

We expect to maintain our approach to fund our future capital requirements with cash from operations at our Regulated Operating Subsidiaries and ITC Interconnection, our existing cash and cash equivalents, issuances under our commercial paper program and amounts available under our revolving credit agreements (the terms of which are described in Note 6 to the condensed consolidated financial statements). In addition, we may from time to time secure debt funding in the capital markets, although we can provide no assurance that we will be able to obtain financing on favorable terms or at all. As market conditions warrant, we may also from time to time repurchase debt securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. We expect that our capital requirements will arise principally from our need to:

· Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard to property, plant and equipment investments are described in detail above under “— Capital Investment and Operating Results Trends.”

· Fund working capital requirements.

· Fund our debt service requirements, including principal repayments and periodic interest payments. We expect our interest payments to increase each year as a result of additional debt expected to be incurred to fund our capital expenditures and for general corporate purposes.

· Fund contributions to our retirement benefit plans, as described in Note 9 to the condensed consolidated financial statements. We expect to make additional contributions of approximately $1.7 million to these plans in 2016.

In addition to the expected capital requirements above, any adverse determinations relating to the regulatory matters or contingencies described in Notes 4 and 11 to the condensed consolidated financial statements would result in additional capital requirements.

We believe that we have sufficient capital resources to meet our currently anticipated short-term needs. We rely on both internal and external sources of liquidity to provide working capital and fund capital investments. ITC Holdings’ sources of cash are dividends and other payments received by us from our Regulated Operating Subsidiaries and any of our other subsidiaries as well as the proceeds raised from the sale of our debt securities. Each of our Regulated Operating Subsidiaries and ITC Interconnection, while wholly owned by ITC Holdings, is legally distinct from ITC Holdings and has no obligation, contingent or otherwise, to make funds available to us.

We expect to continue to utilize our commercial paper program and revolving credit agreements as well as our cash and cash equivalents as needed to meet our short-term cash requirements. As of September 30, 2016, we had consolidated indebtedness under our revolving credit agreements of $237.4 million, with unused capacity under our revolving credit agreements of $762.6 million. Additionally, ITC Holdings had $135.9 million of commercial paper issued and outstanding as of September 30, 2016, with the ability to issue an additional $264.1 million under the commercial paper program. See Note 6 to the condensed consolidated financial statements for a detailed discussion of the commercial paper program and our revolving credit agreements as well as the debt issuances and use of proceeds in 2016.

As of September 30, 2016, we had approximately $50.0 million of fixed rate debt maturing within one year, which we expect to refinance with long-term debt. To address our long-term capital requirements as well as repay fixed rate debt maturing within one year, we expect that we will need to obtain additional debt financing. Certain of our capital projects could be delayed if we experience difficulties in accessing capital. We expect to be able to obtain such additional financing as needed, in amounts and upon terms that will be reasonably satisfactory to us due to our strong credit ratings and our historical ability to obtain financing.

Credit Ratings

Credit ratings by nationally recognized statistical rating agencies are an important component of our liquidity profile. Credit ratings relate to our ability to issue debt securities and the cost to borrow money, and should not be viewed as a recommendation to buy, sell or hold securities. Ratings are subject to revision or withdrawal at any time and each rating should be evaluated independently of any other rating. Our current credit ratings are displayed in the following table. An explanation of these ratings may be obtained from the respective rating agency.

		Standard and Poor’s	Moody’s Investor
Issuer	Issuance	Ratings Services (a)	Service, Inc. (b)
ITC Holdings	Senior Unsecured Notes	BBB+	Baa2
ITC Holdings	Commercial Paper	A-2	Prime-2
ITCTransmission	First Mortgage Bonds	A	Al
METC	Senior Secured Notes	A	A1
ITC Midwest	First Mortgage Bonds	A	A1
ITC Great Plains	First Mortgage Bonds	A	A1

(a) On June 8, 2015, Standard and Poor’s Ratings Services (“Standard and Poor’s”) assigned a short-term issuer credit rating to ITC Holdings, which applies to the commercial paper program discussed in Note 6 to the condensed consolidated financial statements. Additionally, on October 18, 2016, Standard and Poor’s reaffirmed the senior unsecured credit rating of ITC Holdings and the secured credit ratings of the Regulated Operating Subsidiaries as well as revised the outlook of the issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries to stable from negative, subsequent to the completion of the Merger. Refer to Note 2 to the condensed consolidated financial statements for details on the Merger.

(b) On June 9, 2015, Moody’s Investor Service, Inc. (“Moody’s”) assigned a short-term commercial paper rating to ITC Holdings, which applies to the commercial paper program discussed in Note 6 to the condensed consolidated financial

statements. Additionally, on April 15, 2016, Moody’s reaffirmed the credit ratings for the associated debt for ITC Holdings, ITCTransmission, ITC Midwest and ITC Great Plains. On April 26, 2016, Moody’s assigned a senior secured rating to METC’s 3.90% Senior Secured Note issuance described in Note 6 to the condensed consolidated financial statements. All of the credit ratings have a stable outlook.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions as well as require us to meet certain financial ratios, which are described in Note 6 to the condensed consolidated financial statements and in our Form 10-K for the fiscal year ended December 31, 2015. As of September 30, 2016, we were not in violation of any debt covenant. In the event of a downgrade in our credit ratings, none of the covenants would be directly impacted, although the borrowing costs under our revolving credit agreements would increase.

Cash Flows From Operating Activities

Net cash provided by operating activities was $587.1 million and $386.3 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in cash provided by operating activities was due primarily to receipt of the income tax refund of $128.2 million from the IRS in August 2016 and lower income taxes paid of $26.9 million during the nine months ended September 30, 2016 compared to the same period in 2015, which both resulted from the election of bonus depreciation as described in Note 4 to the condensed consolidated financial statements. Additionally, the cash received from operating revenues increased by $60.8 million during the nine months ended September 30, 2016 compared to the same period in 2015. These increases were partially offset by an increase in payments of operating expenses of $19.3 million.

Cash Flows From Investing Activities

Net cash used in investing activities was $556.7 million and $475.1 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in cash used in investing activities was due primarily to higher investments in property, plant and equipment and timing of payments of investments in property, plant and equipment during the nine months ended September 30, 2016 compared to the same period in 2015.

Cash Flows From Financing Activities

Net cash used in financing activities was $35.3 million for the nine months ended September 30, 2016 as compared to the net cash provided by financing activities of $85.2 million for the nine months ended September 30, 2015. The decrease in cash provided by financing activities was due primarily to a net decrease of $299.7 million in amounts outstanding under our revolving and term loan credit agreements, a decrease of $179.5 million in net issuances of commercial paper under our commercial paper program and an increase in payments of $139.3 million to retire long-term debt during the nine months ended September 30, 2016 compared to the same period in 2015. These decreases were partially offset by an increase in long-term debt issuances of $374.5 million and higher net proceeds of $26.6 million associated with refundable deposits for transmission network upgrades. Additionally, during the nine months ended September 30, 2015, we paid $115.0 million in connection with our accelerated share repurchase program. See Note 6 to the condensed consolidated financial statements on the issuances and retirement of long-term debt.

CONTRACTUAL OBLIGATIONS

Our contractual obligations are described in our Form 10-K for the year ended December 31, 2015. There have been no material changes to that information since December 31, 2015, other than the items listed below and described in Note 6 to the condensed consolidated financial statements:

· Changes in amounts borrowed under our unsecured, unguaranteed revolving credit agreements;

· Changes in commercial paper issued under the commercial paper program for ITC Holdings;

· The issuance of $200.0 million of secured 3.90% Senior Notes, due April 26, 2046, by METC, which repaid the $200.0 million borrowed under METC’s term loan credit agreement;

· The issuance of $400.0 million of unsecured 3.25% Notes, due June 30, 2026, by ITC Holdings, which repaid the $161.0 million outstanding under ITC Holdings’ term loan credit agreement and indebtedness under ITC Holdings’ commercial paper program;

· The repayment and retirement in September 2016 of $139.3 million of 5.875% ITC Holdings Senior Notes, due September 30, 2016, with the proceeds from the issuance of commercial paper under ITC Holdings’ commercial paper program;

· The refund of $28.7 million required by the FERC order issued on September 22, 2016 associated with regional cost allocation, which was provided to the other RTOs in October 2016. See “Regional Cost Allocation” in Note 4 to the condensed consolidated financial statements for discussion on this matter; and

· The refund of $117.4 million required by the FERC order issued on September 28, 2016 for the Initial Complaint. See “Rate of Return on Equity Complaints” in Note 11 to the condensed consolidated financial statements for a discussion of the complaint.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements 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. These estimates and judgments, in and of themselves, could materially impact the condensed consolidated financial statements and disclosures based on varying assumptions, as future events rarely develop exactly as forecasted, and even the best estimates routinely require adjustment. The accounting policies discussed in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Form 10-K for the fiscal year ended December 31, 2015 are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations or because their application places the most significant demands on management’s judgment and estimates about the effect of matters that are inherently uncertain. There have been no material changes to that information during the nine months ended September 30, 2016.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 to the condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Fixed Rate Debt

Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving credit agreements and commercial paper, was $4,592.1 million at September 30, 2016. The total book value of our consolidated long-term debt and debt maturing within one year, excluding revolving credit agreements and commercial paper, was $4,110.9 million at September 30, 2016. We performed an analysis calculating the impact of changes in interest rates on the fair value of long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper, at September 30, 2016. An increase in interest rates of 10% (from 5.0% to 5.5%, for example) at September 30, 2016

would decrease the fair value of debt by $172.6 million, and a decrease in interest rates of 10% at September 30, 2016 would increase the fair value of debt by $185.9 million at that date.

Revolving Credit Agreements

At September 30, 2016, we had a consolidated total of $237.4 million outstanding under our revolving credit agreements, which are variable rate loans and fair value approximates book value. A 10% increase or decrease in borrowing rates under the revolving credit agreements compared to the weighted average rates in effect at September 30, 2016 would increase or decrease interest expense by $0.3 million, respectively, for an annual period with a constant borrowing level of $237.4 million.

Commercial Paper

At September 30, 2016, ITC Holdings had $135.9 million of commercial paper issued and outstanding, net of discount, under the commercial paper program. Due to the short-term nature of these financial instruments, the carrying value approximates fair value. A 10% increase or decrease in interest rates for commercial paper would increase or decrease interest expense by $0.1 million for an annual period with a continuous level of commercial paper outstanding of $135.9 million.

Derivative Instruments and Hedging Activities

We use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. In June 2016, we terminated $300.0 million of 10-year interest rate swap contracts that managed the interest rate risk associated with the unsecured Notes issued by ITC Holdings described in Note 6 to the condensed consolidated financial statements.

As of September 30, 2016, we held 10-year interest rate swap contracts with a notional amount of $100.0 million, which manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 6.05% Senior Notes, due January 31, 2018. As of September 30, 2016, ITC Holdings had $384.3 million outstanding under the 6.05% Senior Notes. See Note 6 to the condensed consolidated financial statements for further discussion on these interest rate swaps.

Other

As described in our Form 10-K for the fiscal year ended December 31, 2015, we are subject to commodity price risk from market price fluctuations, and to credit risk primarily with DTE Electric, Consumers Energy and IP&L, our primary customers. There have been no material changes in these risks during the nine months ended September 30, 2016.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives

of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 4 to the condensed consolidated financial statements for discussion of the challenges against ITC Midwest and METC relating to the use of bonus depreciation as well as Note 11 to the condensed consolidated financial statements for a description of recent developments in the ROE complaints filed against all MISO TOs, including our MISO Regulated Operating Subsidiaries, and pending litigation associated with the Merger with Fortis.

ITEM 1A. RISK FACTORS

In view of the recent completion of our Merger with a subsidiary of Fortis and the recent developments with respect to the ROE complaints involving our MISO Regulated Operating Subsidiaries, we are amending and restating, in the manner set forth below, (a) the risk factor entitled “Certain elements of our Regulated Operating Subsidiaries’ formula rates can be and have been challenged, which could result in lowered rates and/or refunds of amounts previously collected and thus have an adverse effect on our business, financial condition, results of operations and cash flows.” and (b) all of the risk factors set forth under “Risks Relating to Our Corporate and Financial Structure” and “Risks Relating to the Merger,” in each case as previously disclosed in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, 2015. Other than the foregoing, there have been no material changes to the risk factors set forth in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, 2015.

unjust, unreasonable, unduly discriminatory or preferential, then the FERC will make appropriate prospective adjustments to them and/or disallow any of our Regulated Operating Subsidiaries’ inclusion of those aspects in the rate setting formula. This could result in lowered rates and/or refunds of amounts collected, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In November 2013, certain parties filed a joint complaint with the FERC under Section 206 of the FPA, requesting that the FERC find the base rate of return on equity for all MISO transmission owners, including ITCTransmission, METC and ITC Midwest, to be unjust and unreasonable. The joint complainants sought a FERC order reducing the base rate of return on equity used in the MISO transmission owners’ formula transmission rate, reducing the targeted equity component of MISO transmission owners’ capital structures and terminating the return on equity adders approved for ITCTransmission and METC. Although the FERC issued an order rejecting the November 2013 complaint as to the capital structures and ITCTransmission’s and METC’s equity adders, a hearing was ordered on the November 2013 complaint’s allegations as to the base rate of return on equity for all MISO transmission owners. On December 22, 2015, the presiding administrative law judge issued an initial decision recommending to the FERC a reduction in the base rate of return on equity of the MISO Transmission owners from 12.38% to 10.32%, with a maximum rate of 11.35%. On September 28, 2016, the FERC issued an order affirming the presiding administrative law judge’s initial decision, with the new rates to become effective immediately and for the period from November 12, 2013 through February 11, 2015. In February 2015, an additional complaint was filed under Section 206 of the FPA seeking a FERC order reducing the base rate of return on equity for all MISO transmission owners, including for our MISO Regulated Operating Subsidiaries, to 8.67%. On June 30, 2016, the presiding administrative law judge issued an initial decision on the February 2015 complaint, which recommended a base rate of return on equity of 9.70% for the period from February 12, 2015 through May 11, 2016, with a maximum rate of 10.68%. In resolving the February 2015 complaint, we expect the FERC to establish a new base rate and zone of reasonable returns that will be used, along with any incentive adders, to calculate the refund liability for the period from February 12, 2015 through May 11, 2016. A decision from the FERC on the February 2015 complaint is anticipated in 2017. In 2016, 2015 and 2014, we adjusted revenues downward to accrue for the refund liability based on our estimate of the outcome of these complaints. An unfavorable resolution of the second complaint in excess of the amount accrued for the refund liability could significantly reduce our future revenues and net income and therefore could have a material adverse effect on our future results of operations, cash flows and financial condition.

Risks Relating to Our Corporate and Financial Structure

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

As a holding company with no business operations, ITC Holdings’ material assets consist primarily of the stock and membership interests in our subsidiaries. Our only sources of cash are dividends and other payments received by us from time to time from our subsidiaries, proceeds raised from the sale of our securities and borrowings under our various credit agreements. Each of our subsidiaries, however, is legally distinct from us and has no obligation, contingent or otherwise, to make funds available to us. The ability of each of our Regulated Operating Subsidiaries and our other subsidiaries to pay dividends and make other payments to us 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. Our Regulated Operating Subsidiaries target a FERC-approved capital structure of 60% equity and 40% debt that may limit the ability of our Regulated Operating Subsidiaries to use net assets for the payment of dividends to ITC Holdings. In addition, ITC Holdings’ right to receive any assets of any subsidiary, and therefore the right of its creditors to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors. If ITC Holdings does not receive cash or other assets from our subsidiaries, it may be unable to pay principal and interest on its indebtedness.

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

We have a considerable amount of debt and our consolidated indebtedness includes various debt securities and borrowings, which utilize indentures, revolving and term loan credit agreements and commercial paper, that we rely on as

sources of capital and liquidity. This financing strategy can have several important consequences, including, but not limited to, the following:

· We may need to increase our indebtedness in order to make the capital expenditures and other expenses or investments planned by us.

· Our indebtedness has the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition. A substantial portion of the dividends and payments in lieu of taxes we receive from our subsidiaries will be dedicated to the payment of interest on our indebtedness, thereby, reducing the funds available for working capital and capital expenditures.

We may incur substantial additional indebtedness in the future. The incurrence of additional indebtedness would increase the risks described above.

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

· 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;

· create and acquire subsidiaries; and

· pay dividends or make distributions on our stock or on the stock or member capital of our subsidiaries.

Adverse changes in our credit ratings may negatively affect us.

restrict or discontinue our ability to access capital markets at attractive rates and increase our borrowing costs. A rating downgrade could also increase the interest we pay on commercial paper and under our revolving and term loan credit agreements.

Risks Related to the Merger

ITC Holdings and its subsidiaries are subject to business uncertainties during the period of integration with Fortis that could adversely affect ITC Holdings’ financial results.

Uncertainty about the effect of the Merger on employees or vendors and others, including contractors, may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel, and could cause vendors, contractors and others that deal with us to seek to change existing business relationships. Employee retention and recruitment may continue to be challenging after the completion of the Merger, as current employees and prospective employees may experience uncertainty about their future roles with the combined company. If, despite our retention and recruiting efforts, key employees retire, depart or fail to accept employment with ITC Holdings or its subsidiaries due to the uncertainty of employment and difficulty of integration or a desire not to remain with the combined company, we may incur significant costs in identifying, hiring, and retaining replacements for departing employees, which could have a material adverse effect on our business operations and financial results. In addition, integration-related issues may place a significant burden on management, employees and internal resources which could otherwise have been devoted to other business opportunities. The diversion of management’s attention and any delays or difficulties encountered in connection with the Merger and the integration of ITC Holdings’ operations with Fortis could have an adverse effect on our business, financial results or financial condition. The integration process may also result in additional and unforeseen expenses.

We will continue to incur substantial transaction-related costs in connection with the Merger.

We expect to continue to incur additional costs in connection with the Merger and integrating our operations with Fortis and do not expect savings from elimination of duplicative costs to offset these costs. Such costs may be material and could continue to have a material adverse effect on our future results of operations, cash flows and financial condition.

We are the target of securities class action and derivative lawsuits, which could result in substantial costs and diversion of management’s time and resources.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. There is currently a class action lawsuit pending against us and our directors in connection with the Merger. We are not able to predict the outcome of this action or others that may be brought, nor can we predict the amount of time and expense that will be required to resolve the actions. Even if the lawsuits are without merit, defending against these claims can result in substantial costs to us and divert management’s time and resources.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth the repurchases of common stock for the quarter ended September 30, 2016:

					Maximum Number (or
				Total Number of	Approximate Dollar
				Shares Purchased as	Value) of Shares that May
				Part of Publicly	Yet Be Purchased Under
	Total Number of	Average Price Paid		Announced Plans or	the Plans or Programs (in
Period	Shares Purchased	per Share		Programs	millions)
July (a)	1,365	$	46.51	—	$	—
August (a)	2,710	46.29		—	—
September (a)	1,818	45.69		—	—
Total (b)	5,893	$	46.16	—

(a) Shares acquired were delivered to us by employees as payment of tax withholding obligations due to us upon the vesting of restricted stock.

(b) Amount does not include 18,683 shares deemed issued and repurchased for accounting purposes in connection with the payment of the exercise price and tax withholding obligations relating to net option exercises.

On October 14, 2016, the common shares of ITC Holdings were delisted from the NYSE upon the closing of the Merger with Fortis such that going forward, we will have no publicly announced share repurchase authorization. Refer to Note 2 to the condensed consolidated financial statements for further details of the Merger.

ITEM 5A. OTHER INFORMATION

At the effective time of the Merger, ITC Holdings’ articles of incorporation were amended and restated in accordance with the terms of the Merger Agreement (the “Restated Articles of Incorporation”), and were filed as an exhibit to its Form 8-K on October 14, 2016. On October 31, 2016, a certificate of correction was filed with the State of Michigan correcting the number of outstanding shares noted in Article III of the Restated Articles of Incorporation. A copy of the Restated Articles of Incorporation, as corrected, is filed as Exhibit 3.1 to this Form 10-Q.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report (unless otherwise noted to be previously filed, and therefore incorporated herein by reference). Our SEC file number is 001-32576.

Exhibit No.		Description of Document

3.1		Restated Articles of Incorporation of ITC Holdings Corp., as corrected

3.2		Sixth Amended and Restated Bylaws of ITC Holdings Corp (filed with Registrant’s Form 8-K filed on October 12, 2016

4.45		Third Supplemental Indenture, dated as of July 5, 2016, between the Company and Wells Fargo Bank, National Association, as trustee, together with form of 3.25% Note due 2026 (filed with Registrant’s Form 8-K filed on July 5, 2016

10.167		Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Joseph L. Welch (filed with Registrant’s Form 8-K filed on October 12, 2016)

10.168		Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Linda H. Blair (filed with Registrant’s Form 8-K filed on October 12, 2016)

10.169		Amended Employment Agreement, dated as of October 12, 2016, between ITC Holdings Corp. and Rejji P. Hayes (filed with Registrant’s Form 8-K filed on October 12, 2016)

10.170		Amended and Restated Generator Interconnection Agreement by and among Michigan Electric Transmission Company, LLC, Consumers Energy Company and the Midcontinent Independent System Operator, Inc., dated as of October 24, 2016

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Database

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 4, 2016

	ITC HOLDINGS CORP.

	By:	/s/ Linda H. Blair
		Linda H. Blair
		President and Chief Executive Officer
		(duly authorized officer)


	By:	/s/ Gretchen L. Holloway
		Gretchen L. Holloway
		Vice President, Chief Financial Officer and Treasurer
		(principal financial and accounting officer)

SCHEDULE C

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FORTIS INC.

As of September 30, 2016 and

for the nine months ended September 30, 2016 and the year ended December 31, 2015

See attached.

Unaudited Pro Forma Condensed Consolidated Financial Information

Fortis Inc.

As of September 30, 2016 and for the nine months ended September 30, 2016 and the year ended December 31, 2015

Foreword

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial statements give effect to the October 14, 2016 acquisition (the “Acquisition”) of ITC Holdings Corp. (“ITC”) by us under the acquisition method of accounting for business combinations and based on our and ITC’s respective historical unaudited condensed consolidated financial statements as of September 30, 2016 and for the nine months ended September 30, 2016 and audited consolidated financial statements for the year ended December 31, 2015. The unaudited pro forma condensed consolidated balance sheet gives effect to the Acquisition as if it had closed on September 30, 2016. The unaudited pro forma condensed consolidated statements of earnings for the nine months ended September 30, 2016 and for the year ended December 31, 2015 give effect to the Acquisition as if it had closed on January 1, 2015.

The historical audited consolidated and unaudited condensed consolidated financial information has been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are: (a) directly attributable to the Acquisition; (b) factually supportable; and (c) with respect to the unaudited pro forma condensed consolidated statements of earnings, expected to have a continuing impact on our and ITC’s combined results. As such, the impact of Acquisition-related costs is not included in the unaudited pro forma condensed consolidated statements of earnings. However, the estimated impact of these costs is reflected in the unaudited pro forma condensed consolidated balance sheet as an increase to debt and a decrease to retained earnings and non-controlling interest.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition and results of operations would have been had the Acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of the operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma financial information should be read together with our, and ITC’s, audited consolidated and unaudited condensed consolidated historical financial statements and the notes thereto and the related management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 and for the nine months ended September 30, 2016 respectively.

The unaudited pro forma information and adjustments, including the preliminary allocation of purchase price, are based upon preliminary estimates of fair values of assets acquired and liabilities assumed, current available information and certain assumptions that we believe are reasonable in the circumstances, as described in the notes to the unaudited pro forma condensed consolidated financial statements. The actual adjustments to our consolidated financial statements as of the closing date of the Acquisition will depend on a number of factors, including, among others, additional information available and the net assets of ITC on the closing date of the Acquisition, and as a result the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 30, 2016

(In millions of Canadian dollars)

	Fortis		ITC (Note 3[i])			Note	Pro forma adjustments			Pro forma condensed consolidated balance sheet

ASSETS

Current assets
Cash and cash equivalents	$	301	$	12		3[a]	$	(3,017	)	$	313
						3[a], 3[c]	3,184
						3[a], 3[c]	(18		)
						3[a], 3[d]	(149		)
Accounts receivable and other current assets	837		181							1,018
Prepaid expenses	101		18							119
Inventories	337		37							374
Regulatory assets	209		29							238
	1,785		277				—			2,062

Other assets	308		67			3[j]	3			378
Deferred financing fees			3			3[j]	(3		)
Regulatory assets	2,286		312							2,598
Utility capital assets	20,205		8,599							28,804
Intangible assets	549		57							606
Goodwill	4,058		1,246			3[b]	(1,246		)	12,386
						3[b]	8,328
	$	29,191	$	10,561			$	7,082		$	46,834

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Short-term borrowings	$	423	$			3[c]	$	560		$	1,119
						3[j]	136
Accounts payable and other current liabilities	1,438		214			3[j]	8			1,793
						3[j]	133
Accrued payroll, interest and taxes other than income taxes			133			3[j]	(133		)
Refundable deposits from generators for transmission network upgrades			8			3[j]	(8		)
Regulatory liabilities	312		180							492
Debt maturing within one year			244			3[j]	(244		)
Current installments of long-term debt	118					3[j]	108			226
Current installments of capital lease and finance obligations	27									27
	2,318		779				560			3,657

Other liabilities	1,126		39			3[j]	86			1,294
						3[j]	43
Accrued pension and post retirement liabilities			86			3[j]	(86		)
Refundable deposits from generators for transmission network upgrades			43			3[j]	(43		)
Regulatory liabilities	1,319		329							1,648
Deferred income taxes	2,203		1,265			3[b], 3[e]	(101		)	3,321
						3[d], 3[e]	(46		)
Long-term debt	11,624		5,638			3[b]	252			20,381
						3[a], 3[c]	2,624
						3[a], 3[c]	(18		)
						3[f]	261
Capital lease and finance obligations	465									465
	19,055		8,179				3,532			30,766
Shareholders’ equity
Common shares	6,012		1,114			3[g]	(1,114		)	10,697
						3[a]	4,685
Preference shares	1,623									1,623
Additional paid-in capital	12									12
Accumulated other comprehensive income (loss)	565		(4		)	3[g]	4			565
Retained earnings	1,456		1,272			3[g]	(1,272		)	1,367
						3[d]	(128		)
						3[d], 3[e]	39
	9,668		2,382				2,214			14,264
Non-controlling interests	468					3[d]	(21		)	1,804
						3[d], 3[e]	7
						3[f]	1,350
	10,136		2,382				3,550			16,068
	$	29,191	$	10,561			$	7,082		$	46,834

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Earnings

For the nine months ended September 30, 2016

(In millions of Canadian dollars, except share and per share amounts)

	Fortis		ITC (Note 3[i])			Note	Pro forma adjustments			Pro forma condensed consolidated statement of earnings

Revenue	$	4,744	$	1,100						$	5,844

Expenses
Energy supply costs	1,657									1,657
Operating	1,367		372			3[d]	(84		)	1,655
Depreciation and amortization	700		156							856
	3,724		528				(84		)	4,168
Operating income	1,020		572				84			1,676
Other income (expense), net	35		(3		)	3[j]	35			67
Allowance for funds used during construction			35			3[j]	(35		)
Finance charges	457		209			3[b]	(25		)	684
						3[c]	2
						3[c]	64
						3[d]	(35		)
						3[f]	12

Earnings before income taxes	598		395				66			1,059
Income tax expense (recovery)	110		151			3[b], 3[e]	10			275
						3[c], 3[e]	(18		)
						3[e] , 3[f]	(4		)
						3[d], 3[e]	27
						3[c], 3[e]	(1		)
Net earnings	$	488	$	244			$	52		$	784

Net earnings attributable to:
Non-controlling interests	$	33				3[f]	$	47		$	80
Preference equity shareholders	59									59
Common equity shareholders	396		244				5			645
	$	488	$	244			$	52		$	784

Weighted average common shares outstanding (# in millions)
Basic	283.7					3[h]	114.4			398.1
Diluted	289.4					3[h]	114.4			403.8

Earnings per common share (Canadian dollars)
Basic	$	1.40								$	1.62
Diluted	$	1.39								$	1.61

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

Fortis Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Earnings

For the year ended December 31, 2015

(In millions of Canadian dollars, except share and per share amounts)

	Fortis		ITC (Note 3[i])			Note	Pro forma adjustments			Pro forma condensed consolidated statement of earnings
Revenue	$	6,727	$	1,336						$	8,063

Expenses
Energy supply costs	2,561									2,561
Operating	1,874		434			3[d]	(12		)	2,296
Depreciation and amortization	873		185							1,058
	5,308		619				(12		)	5,915
Operating income	1,419		717				12			2,148
Other income (expense), net	197		(1		)	3[j]	36			232
Allowance for funds used during construction			36			3[j]	(36		)
Finance charges	553		261			3[b]	(33		)	881
						3[c]	2
						3[c]	83
						3[fl	15

Earnings before income taxes	1,063		491				(55		)	1,499
Income tax expense (recovery)	223		181			3[b], 3[e]	13			392
						3[c], 3[e]	(1		)
						3[c], 3[e]	(23		)
						3[d], 3[e]	4
						3[e], 3[f]	(5		)
Net earnings	$	840	$	310			$	(43	)	$	1,107

Net earnings attributable to:
Non-controlling interests	$	35				3[f]	$	52		$	87
Preference equity shareholders	77									77
Common equity shareholders	728		310				(95		)	943
	$	840	$	310			$	(43	)	$	1,107

Weighted average common shares outstanding (# in millions)
Basic	278.6					3[h]	114.4			393.0
Diluted	284.7					3[h]	114.4			399.1

Earnings per common share (Canadian dollars)
Basic	$	2.61								$	2.40
Diluted	$	2.59								$	2.39

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial statements give effect to the Acquisition, as more particularly described elsewhere in this Business Acquisition Report. The accompanying unaudited pro forma condensed consolidated financial statements have been prepared by us and are derived from our and ITC’s unaudited condensed consolidated financial statements as of September 30, 2016 and for the nine months ended September 30, 2016 and audited consolidated financial statements for the year ended December 31, 2015. The accompanying unaudited pro forma condensed consolidated balance sheet reflects the Acquisition as if it had closed on September 30, 2016 and the accompanying unaudited pro forma condensed consolidated statements of earnings for the nine months ended September 30, 2016 and for the year ended December 31, 2015 reflect the Acquisition as if it had closed on January 1, 2015. Amounts are presented in millions of Canadian dollars unless otherwise noted.

The accompanying unaudited pro forma condensed consolidated financial statements utilize accounting policies that are consistent with those disclosed in our unaudited condensed consolidated financial statements as of September 30, 2016 and for the nine months ended September 30, 2016 and audited consolidated financial statements for the year ended December 31, 2015.

The Acquisition has been accounted for in the unaudited pro forma condensed consolidated financial statements as an acquisition of approximately 80.1% of ITC common shares by us using the acquisition method of accounting for business combinations. The purchase price for approximately 80.1% of the equity of ITC was approximately $7.7 billion (Notes 2 and 3[a]). The assets acquired and liabilities assumed have been measured at estimated fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The accompanying unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the results that would have been achieved if the transactions reflected herein had been completed on the dates indicated or the results which may be obtained in the future. While the underlying pro forma adjustments are intended to provide a reasonable basis for presenting the significant financial effects directly attributable to the Acquisition, they are preliminary and are based on currently available financial information and certain estimates and assumptions which we believe to be reasonable. The actual adjustments to our consolidated financial statements will be determined as of the closing date. Therefore, it is expected that the actual adjustments will differ from the pro forma adjustments, and the differences may be material. For instance, the actual purchase price allocation will reflect the fair value, at the closing date, of the assets acquired and liabilities assumed based upon our valuation of such assets and liabilities following the closing of the Acquisition and, accordingly, the final purchase price allocation, as it relates principally to goodwill, may differ materially from the preliminary allocation reflected herein.

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

2. DESCRIPTION OF TRANSACTION

We indirectly purchased the outstanding common shares of ITC for US$22.57 in cash and stock consideration of 0.752 of a Fortis common share per ITC common share. We also indirectly assumed ITC debt, which was approximately $5.9 billion as of September 30, 2016.

Eiffel Investment Pte Ltd., an affiliate of GIC Pte Ltd (“GIC”) indirectly purchased 19.9% of the ITC common shares from us for approximately US$1,228 million ($1,611 million) inclusive of a shareholder note of approximately US$199 million ($261 million) to an affiliate of ITC (Note 3[f]).

The total purchase price for the remaining 80.1% of ITC’s common shares purchased by us was approximately $7.7 billion, which was financed through the issuance of approximately 114.4 million Fortis common shares with the balance paid in cash financed through (i) the net proceeds of our US$2.0 billion unsecured, unsubordinated notes offering which closed October 4, 2016 (the “Notes”) and (ii) a drawdown on our non-revolving term senior unsecured equity bridge facility with the Bank of Nova Scotia (the “Equity Bridge Facility”) (Notes 3[a] and 3[c]).

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

[a] Purchase price, estimated funding requirements and financing structure

The following is the purchase price, the estimated funding requirements and financing structure for the Acquisition. These amounts have been reflected in the accompanying unaudited pro forma condensed consolidated financial statements.

Purchase Price
ITC common shares (in millions)	152.1
Fraction of a Fortis common share issued for each ITC common share	0.752
Fortis common shares issued (in millions)	114.4
Market price of Fortis common shares ($40.96 / 1.3117) (U.S. dollars)	31.23
Stock consideration (in millions of U.S. dollars)	3,572
Cash consideration for ITC common shares (152.1 x US$22.57) (in millions of U.S. dollars)	3,433
Net cash consideration attributable to settlement of equity awards (in millions of U.S. dollars)	95
Purchase price (in millions of U.S. dollars)	7,100
Exchange rate (Note 3[i])	1.3117
Purchase price	9,313
19.9% minority shareholder investment and shareholder note (Note 3[f])	(1,611		)
Purchase price for 80.1% of ITC common shares	$	7,702

Stock consideration (US$3,572 x 1.3117)	$	4,685
Cash consideration ([US$3,433 + US$95] x 1.3117 - $1,611)	3,017
	$	7,702
Estimated Funding Requirements
Purchase price for 80.1% of ITC common shares	$	7,702
Assumed debt of ITC	5,882
Senior unsecured long-term debt issuance costs (Note 3[c])	18
Estimated Merger-related costs (Note 3[d])	149
	$	13,751
Financing Structure
Assumed debt of ITC	$	5,882
Stock consideration	4,685
Debt issuances (Note 3[c])	3,184
	$	13,751

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[b] Preliminary allocation of purchase price

The purchase price has been preliminarily allocated to the estimated fair values of ITC assets and liabilities as of September 30, 2016 in accordance with the acquisition method of accounting for business combinations, as follows:

	ITC		Fair value and other adjustments			Net total
Assets acquired:
Cash and cash equivalents	$	12				$	12
Accounts receivable and other current assets	181					181
Prepaid expenses	18					18
Inventories	37					37
Regulatory assets	29					29
Total current assets	277					277
Other assets	67					67
Deferred financing fees	3					3
Regulatory assets	312					312
Utility capital assets	8,599					8,599
Intangible assets	57					57
Goodwill	1,246		(1,246		)
	$	10,561	$	(1,246	)	$	9,315
Liabilities assumed:
Accounts payable and other current liabilities	$	214				$	214
Accrued payroll, interest and taxes other than income taxes	133					133
Refundable deposits from generators for transmission network upgrades	8					8
Regulatory liabilities	180					180
Debt maturing within one year	244					244
Total current liabilities	779					779
Other liabilities	39					39
Accrued pension and post retirement liabilities	86					86
Refundable deposits from generators for transmission network upgrades	43					43
Regulatory liabilities	329					329
Deferred income taxes	1,265		(101		)	1,164
Long-term debt	5,638		252			5,890
	$	8,179	$	151		$	8,330
Net assets at fair value, as of September 30, 2016						$	985
Purchase price for 80.1% of ITC common shares (Note 3[a])						7,702
19.9% minority shareholder investment and shareholder note (Note 3[f])						1,611
Total pro forma goodwill						8,328

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[b] Preliminary allocation of purchase price (continued)

ITC’s operating subsidiaries are rate-regulated entities . The determination of revenues and earnings is based on regulated rates of return that are applied to historic values. Therefore, with the exception of a fair market value adjustment for long-term debt held at the parent company level outside of regulated operations, which debt does not form part of the ratemaking process, along with the related impact on deferred income taxes, no other fair market value adjustments to ITC’s assets and liabilities have been recognized because all of the economic benefits and obligations associated with regulated assets and liabilities beyond regulated thresholds accrue to ITC’s customers. Consequently, it is our best estimate that the fair value of the remainder of ITC’s assets and liabilities is their carrying amount.

Long-term debt has an estimated fair market value of $5,890 million, or an increase of $252 million over historic values, which would result in a corresponding deferred income tax asset of approximately $101 million. The amortization of this fair market value adjustment would result in a reduction of finance charges of $33 million for the year ended December 31, 2015, and $25 million for the nine months ended September 30, 2016 because of periodic amortization of the debt to the eventual principal balance. The reduction of finance charges would result in corresponding deferred income tax expense of $13 million for the year ended December 31, 2015, and $10 million for the nine months ended September 30, 2016.

The excess of the purchase price of the Acquisition, before assumed debt and Acquisition-related costs, over the assumed fair value of net assets acquired from ITC is classified as goodwill on the accompanying unaudited pro forma condensed consolidated balance sheet. Goodwill primarily represents going concern aspects that represent existing assembled assets and a work force that cannot be duplicated at the same cost by a new entrant; significant barriers to entry; future growth prospects related to substantial capital expenditure programs; and franchise rights and other intangibles not separately identifiable because they are inextricably linked to the provision of regulated utility service. The final purchase price allocation is dependent upon, among other things, the finalization of asset and liability valuations which will reflect a third-party valuation. This final valuation will be based on, among other things, the actual net tangible and intangible assets and liabilities of ITC that exist as of the closing date of the Acquisition. Any final adjustment may change the allocation of the purchase price, which could affect the fair value assigned to the assets acquired and liabilities assumed and could result in changes to the unaudited pro forma condensed consolidated financial statements, including a change to goodwill.

[c] Debt financing

Financing for the Acquisition in the accompanying unaudited pro forma condensed consolidated financial statements reflects the issuance of approximately $3,184 million of debt, composed of (i) $2,624 million (US$2,000 million) from the Notes (US dollar-denominated debt, composed of US$500 million of 5-year Notes and US$1,500 million of 10-year Notes); (ii) $535 million from the Equity Bridge Facility (Canadian dollar-denominated debt); and (iii) $25 million (US$19 million) of drawdowns under our revolving term credit facility (the “Revolver”) (US dollar-denominated debt). Drawdowns under the Equity Bridge Facility and the Revolver have been classified as short-term borrowings. Revolver drawdowns were utilized to fund certain Acquisition-related costs and reflect the estimated amount of certain Acquisition-related costs expected to be paid subsequent to closing.

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[c] Debt financing (continued)

Debt issuance costs of approximately $18 million have been recognized as a reduction in long- term debt with a corresponding amortization expense of approximately $2 million recognized for the year ended December 31, 2015 and $2 million for the nine months ended September 30, 2016, based on the terms of the respective debt instruments. Incremental finance charges would result in a corresponding reduction to income tax of $1 million for the year ended December 31, 2015, and $1 million for the nine months ended September 30, 2016.

Debt financing in the accompanying unaudited pro forma condensed consolidated financial statements reflects the following interest rates: (i) 5-year Notes, 2.100%; (ii) 10-year Notes, 3.055%; (iii) Equity Bridge Facility, 1.878%; and (iv) Revolver, 1.881%. This would result in incremental finance charges of $83 million for the year ended December 31, 2015 and $64 million for the nine months ended September 30, 2016. Incremental finance charges would result in a reduction to income tax of $23 million and $18 million, respectively.

[d] Acquisition-related costs

Acquisition-related costs are composed of investment banking, accounting, tax, legal, compensation-related and other costs associated with the Acquisition.

The following Acquisition-related costs recognized by us and ITC during the year ended December 31, 2015 and the nine months ended September 30, 2016 have been eliminated from our unaudited pro forma condensed consolidated statement of earnings for these periods:

	Year Ended			Nine Months Ended
	December 31, 2015			September 30, 2016
Operating expenses	$	12		$	84
Finance charges				35
Income tax expense (recovery)	(4		)	(27		)

Additional Acquisition-related costs expected to be incurred by us and ITC are estimated at approximately $149 million and would reduce deferred income tax liabilities by approximately $46 million. Acquisition-related costs have been included in the unaudited pro forma condensed consolidated balance sheet as pro forma adjustments to retained earnings of $128 million and non-controlling interests of $21 million, less income tax effects of $39 million and $7 million, respectively.

Acquisition-related costs have been adjusted in this manner on the basis that they are directly incremental to the Acquisition and are therefore non-recurring in nature.

[e] Income taxes

Income taxes applicable to the pro forma adjustments are calculated at our average income tax rates of 27.5% and 28% (Canadian rates), 40.0% (ITC U.S. Rate) and 35.0% (Fortis U.S. Rate) for the year ended December 31, 2015 and for the nine months ended September 30, 2016, respectively.

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[f] Minority shareholder

The minority shareholder indirectly purchased 19.9% of the ITC common shares for approximately $1,611 million (US$1,228 million) inclusive of a shareholder note of approximately $261 million (US$199 million) to an affiliate of ITC at an interest rate of 6.0% in connection with the transaction. This would result in incremental finance charges of approximately $15 million and $12 million, a corresponding deferred income tax recovery of approximately $5 million and $4 million, along with an allocation of earnings attributable to non-controlling interest of approximately $52 million and $47 million, for the year ended December 31, 2015 and for the nine months ended September 30, 2016, respectively.

[g] ITC historical shareholders’ equity

The historical shareholders’ equity of ITC, which includes retained earnings, accumulated other comprehensive income and common shares, has been eliminated.

[h] Pro forma earnings per Common Share

The calculation of basic and diluted pro forma earnings per common share for the year ended December 31, 2015, and for the nine months ended September 30, 2016 reflects the assumed issuance of approximately 114.4 million Fortis common shares as stock consideration (Note 3[a]) as if the issuance had taken place as of January 1, 2015.

[i] Foreign exchange translation

The assets and liabilities of ITC, which has a U.S. dollar functional currency, and additional financing denominated in U.S. dollars arising from the Acquisition are translated at the exchange rate in effect as of September 30, 2016. Revenue and expenses of ITC’s operations, additional assumed U.S. dollar-denominated finance charges and their related income tax effects are translated at the average exchange rate for 2015 and for the nine months ended September 30, 2016.

The following exchange rates were utilized in preparing the unaudited pro forma condensed consolidated financial statements:

Balance Sheet (US$ to C$)
Spot rate - September 30, 2016		1.3117

Income Statement (US$ to C$)
Average rate - January 1, 2015 to December 31, 2015		1.2788
Average rate - January 1, 2016 to September 30, 2016		1.3228

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.

FORTIS INC.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

As of September 30, 2016 and for the nine months ended September 30, 2016
and the year ended December 31, 2015

(in millions of Canadian dollars, unless otherwise stated)

3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (Continued)

[j] Reclassifications

In preparing the unaudited pro forma condensed consolidated financial statements, the following reclassifications were made to ITC’s unaudited condensed consolidated balance sheet as of September 30, 2016 and the unaudited condensed consolidated statement of earnings for the nine months ended September 30, 2016 and the historical audited consolidated statement of earnings for the year ended December 31, 2015 to conform to the presentation utilized by us: (a) “Deferred financing fees” of $3 million were reclassified as “Other assets”; (b) commercial paper totaling $136 million included within “Debt maturing within one year” was reclassified as “Short-term borrowings” and the current portion of long-term debt totaling $108 million included within “Debt maturing within one year” was reclassified as “Current installments of long-term debt”; (c) “Accrued payroll, interest and taxes other than income taxes” of $133 million and current “Refundable deposits from generators for transmission network upgrades” of $8 million were reclassified as “Accounts payable and other current liabilities”; (d) “Accrued pension and post retirement liabilities” of $86 million and non-current “Refundable deposits from generators for transmission network upgrades” of $43 million were reclassified as “Other liabilities”; and (e) “Allowance for funds used during construction” of $36 million and $35 million for the year ended December 31, 2015, and the nine months ended September 30, 2016, respectively, were reclassified as “Other income (expense), net”.

See accompanying Notes, which are an integral part of these unaudited pro forma condensed consolidated financial statements.