Louisville Gas and Electric Company and Kentucky Utilities Company v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 21, 2025 Decided August 8, 2025
No. 23-1196
LOUISVILLE GAS AND ELECTRIC COMPANY AND KENTUCKY
UTILITIES COMPANY,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
CITY UTILITY COMMISSION OF THE CITY OF OWENSBORO,
ALSO KNOWN AS OWENSBORO MUNICIPAL UTILITIES, ET AL.,
INTERVENORS
Consolidated with 24-1006, 24-1026, 24-1082
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Christopher R. Jones argued the cause for petitioners.
With him on the briefs were Misha Tseytlin, Kevin M. LeRoy,
Emily A. O’Brien, Russell Kooistra, and Mary-Kaitlin Rigney.
Antonia Douglas, Amie V. Colby, and Miles H. Kiger entered

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appearances.
Kim N. Smaczniak, Special Counsel, Federal Energy
Regulatory Commission, argued the cause for respondent. On
the brief were Matthew R. Christiansen, General Counsel,
Robert H. Solomon, Solicitor, and Beth G. Pacella, Deputy
Solicitor. Scott R. Ediger, Attorney Advisor, entered an
appearance.
Jeffrey M. Bayne argued the cause for intervenors for
respondent. With him on the brief were Jeffrey A. Schwarz,
Thomas C. Trauger, and Lauren L. Springett.
Before: MILLETT, WILKINS, and CHILDS, Circuit Judges.
Opinion for the Court filed by Circuit Judges WILKINS and
CHILDS.
WILKINS and CHILDS, Circuit Judges: The Federal
Energy Regulatory Commission (“FERC” or “the
Commission”) regulates the interstate electricity market,
ensuring that customers can access competing power
generators across a region at reasonable prices. Pursuant to
this authority, the Commission reviews certain mergers
between public utilities and sets terms and conditions or issues
supplemental orders as needed to secure the public interest.
See 16 U.S.C. § 824b(a)(4), (b).
In 1998, the Commission approved a merger between two
electrical grid operators, Louisville Gas & Electric Company
(“LG&E”) and Kentucky Utilities Company (“KU”). The
Commission conditioned its approval on the merged entity
(“Louisville Utilities” or “Petitioners”) becoming a member of
a regional independent grid operator, which would enable its
customers to pay a single, grid-wide transmission rate when
buying power from generators across the region. The
Commission later issued a supplemental order permitting

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Louisville Utilities to end its membership on the condition that
it ensure its customers would continue not to pay redundant
transmission fees. Then, in 2019, the Commission issued a
second supplemental order granting Louisville Utilities’
request to end that obligation to prevent redundant fees
altogether. We vacated and remanded the 2019 order,
determining that the Commission failed to conduct a
comprehensive analysis of whether the order was in the public
interest under 16 U.S.C. § 824b.
On remand, the Commission issued a new order, this
time rejecting Louisville Utilities’ bid to end its fee obligation,
and then denied rehearing. Louisville Utilities now brings
consolidated petitions for review challenging the
Commission’s orders as arbitrary and capricious, an abuse of
discretion, and not in accordance with law. We determine that
the Commission’s orders did not run afoul of its statutory
mandate or its precedent. However, we conclude that the
Commission failed to adequately consider other potential
protections for customers as an alternative to Louisville
Utilities’ fee obligation or explain how those protections would
be inadequate to protect particular customers. We
accordingly grant Louisville Utilities’ petitions, vacate the
orders, and remand to the Commission once again.
I.
A.
The Federal Power Act (“FPA”) authorizes the
Commission to regulate the transmission and sale of electricity
in interstate commerce. See id. § 824b(a). “The main goal of
the Federal Power Act is to encourage the orderly development
of plentiful supplies of electricity . . . at reasonable prices.”
Ky. Mun. Energy Agency v. FERC, 45 F.4th 162, 166 (D.C. Cir.
2022) (“KYMEA”) (internal quotations omitted) (citing
Wabash Valley Power Ass’n, Inc. v. FERC, 268 F.3d 1105,

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1115 (D.C. Cir. 2001)). To further that goal, the FPA requires
public utilities to seek approval from the Commission before
executing certain mergers. See 16 U.S.C. § 824b(a).
Under subsection 203(a) of the FPA, the Commission
reviews proposed mergers to determine whether they are
“consistent with the public interest.” Id. § 824b(a)(4).
Under subsection 203(b), the Commission can set in its orders
“such terms and conditions as it finds necessary or appropriate
to secure” the public interest. Id. § 824b(b). Subsection
203(b) also permits the Commission “from time to time for
good cause shown” to “make such orders supplemental to any
order made under this section as it may find necessary or
appropriate.” Id.
The Commission has set out in regulations its process for
determining whether a proposal is consistent with the public
interest. The Commission “generally” considers the
proposal’s effect on: (1) competition in the market; (2) rates
paid by customers; and (3) the relationship between the
Commission’s regulatory jurisdiction and that of state
regulatory authorities. See Inquiry Concerning the
Commission’s Merger Policy Under the Federal Power Act,
Policy Statement, 61 Fed. Reg. 68,595, 68,596 (Dec. 30, 1996)
(to be codified in 18 C.F.R. pt. 2) (“1996 Merger Policy
Statement”); KYMEA, 45 F.4th at 167–68.
B.
In 1998, pursuant to its authority under section 203, the
Commission approved the merger of LG&E and KU to form
the combined entity Louisville Utilities (the “Merger Order”).1
Fearing the merger could increase concentration in the
wholesale energy market in the region, the Commission
1 A prior panel opinion details the history of this case. See KYMEA, 45
F.4th at 165–74.

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conditioned its approval of the merger on Louisville Utilities
joining a regional electrical grid operator, the Midwest
Independent Transmission System Operator, Inc. (“MISO”).
“Grid operators typically charge fees to ferry electricity to a
neighboring transmission network, like a state levying tolls to
drive on its highways.” KYMEA, 45 F.4th at 167. As a result,
“when an electricity customer wishes to buy power from a
plant located on another grid it may face pancaked rates—
transmission fees stacked on top of one another much like the
total tolls paid when driving on a route that includes both the
Pennsylvania and New Jersey turnpikes.” Id. (citation
modified). By contrast, grid operators in MISO charge only
one grid-wide transmission fee, effectively “depancaking” fees
that would otherwise stack on top of one another. The
requirement that Louisville Utilities join MISO addressed the
merger’s potential anti-competitive effects because it enabled
customers to buy from any generator across the region without
paying pancaked rates, increasing the number of suppliers able
to reach markets and lowering market concentration.
Several years after the merger was approved, in 2005, the
Commission issued a supplemental order granting Louisville
Utilities’ request to leave MISO (the “2005 Supplemental
Order”). Again, the Commission imposed a condition for its
approval: even after leaving MISO, Louisville Utilities had to
continue to depancake, ensuring that the affected customers
would remain protected from redundant fees. To comply with
this requirement, Louisville Utilities had to reimburse
customers by covering MISO’s redundant charges because
MISO did not agree to reciprocally depancake its fees.
Therefore, Louisville Utilities created a rate schedule
agreement setting rates for the customers covered by its
depancaking obligations, called Schedule 402, which the
Commission then approved.
After over a decade of depancaking rates following its
departure from MISO, Louisville Utilities requested that the

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Commission end its depancaking obligations altogether (the
“Mitigation Removal Proposal” or the “Proposal”). In 2019,
the Commission issued an order largely approving the
Mitigation Removal Proposal and concluding that the market
would remain competitive without depancaking (the “2019
Supplemental Order”). The Commission also ordered
Louisville Utilities to create a “transition mechanism,” where
Louisville Utilities would continue to depancake certain rates
for a period into the future to address the interests of customers
who had relied on depancaking in their contract and investment
decisions. In conducting its public interest analysis, the
Commission considered only the potential effect on
competition, without considering the potential effect on rates
paid by customers.
C.
On appeal, we reviewed the Commission’s 2019
Supplemental Order ending Louisville Utilities’ depancaking
obligations. See KYMEA, 45 F.4th at 166. We held that the
Commission reasonably concluded that the market would
remain competitive without depancaking but that the
Commission acted arbitrarily by completely ignoring the effect
of ending depancaking on rates. Id.
Even though the original merger condition addressed only
the potential effect on competition, we determined that the
Commission was obligated to consider the other public interest
factors. Id. at 177–79. We reasoned that the Commission’s
refusal to look at rate effects was “quite consequential” because
“rate hikes are not only likely—they are certain.” Id. at 177.
We also rejected Louisville Utilities’ argument that requiring
an analysis of rate effects would keep depancaking in place
forever. Even if the Commission determined that the rates
factor favored keeping depancaking in place, “that would not
dictate the outcome” of the Commission’s evaluation of all the
public interest factors. Id. at 179. Finally, we largely upheld

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the Commission’s consideration of reliance interests in
developing the transmission mechanism, taking issue only with
two determinations that specific projects had shown sufficient
reliance interests. Id. at 180–82, 186–87.
Accordingly, we vacated the Commission’s 2019
Supplemental Order and remanded for the Commission to
“reconsider its decision in light of the direct and indirect effects
ending depancaking would have on customers’ rates.” Id. at
180.
D.
On remand, the Commission issued a new order, this time
rejecting the Mitigation Removal Proposal (the “Remand
Supplemental Order”). The Commission conducted a rates
analysis and concluded that the Proposal would have an
adverse effect on rates that would not be mitigated or offset by
the benefits.
The Commission first set out the framework for its rates
analysis. It decided to apply the FPA’s section 203 public
interest analysis to the Proposal itself, not to the original
merger. Accordingly, the Commission evaluated the effect of
the Proposal on rates by comparing rates prior to the Proposal
(i.e., depancaked rates implemented through Schedule 402) to
those that would exist after implementation of the Proposal
(i.e., repancaked rates). The Commission declined to use the
original merger as the point of reference for its analysis, which
would have required it to compare rates prior to the merger
(i.e., rates pancaked between LG&E, KU, and MISO) to rates
after the merger when accounting for the Proposal (i.e., rates
depancaked between now-merged LG&E and KU but
pancaked with MISO). The Commission explained that the
original merger order did not contemplate the depancaking
provisions contained in Schedule 402, which were
implemented in the 2005 Supplemental Order as part of

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Louisville Utilities’ exit from MISO. The Commission
understood its framework to be consistent with our directive in
KYMEA to consider “the effect of its supplemental order on
customers’ rates.” See 45 F.4th at 177.
Applying that framework, the Commission then
determined that the Proposal would have an adverse effect on
rates “for the customers involved.” J.A. 249. The
Commission relied on our statement in KYMEA that rate hikes
are “certain” and on testimony from customers regarding an
increase in municipalities’ rates. See 45 F.4th at 177.
Louisville Utilities argued that the Commission should not
view the Proposal as a “rate increase” because all customers
would begin paying their “properly allocated cost of service”
once Louisville Utilities ended the subsidized, depancaked
rates for Schedule 402 customers. J.A. 446. The
Commission was unpersuaded based on its assessment that the
“affected customers” would face higher rates in the absence of
depancaking. J.A. 249–50.
The Commission next found that the adverse effect on
rates would not be offset or mitigated by the Proposal’s
benefits. Louisville Utilities identified several possible
benefits. It argued that the Proposal benefited the customers
not covered by Schedule 402 by ending their higher rates that
subsidize the Schedule 402 customers’ depancaked rates. The
Commission rejected that argument, reasoning that other
customers’ potential benefits did not alter the Commission’s
finding that the Proposal would result in an adverse effect on
Schedule 402 customers. The Commission also explained
that Schedule 402 customers were not receiving an undue
benefit because Schedule 402 places them in the same position
they would have been had Louisville Utilities not withdrawn
from MISO.
Louisville Utilities also suggested that the Commission’s
prior, undisturbed finding that the Proposal would not have an

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anti-competitive effect could serve as an offsetting benefit.
The Commission disagreed, explaining that it had found that
the market would remain sufficiently competitive after the
Proposal, not that the Proposal itself had a “specific benefit to
competition.” J.A. 251. The Commission also noted that it
was “not convinced” that the effect on rates could be offset by
the other elements of the Commission’s public interest
analysis. J.A. 251. Finally, the Commission reasoned that it
did not need to address our conclusions in KYMEA regarding
the transition mechanism because the transition mechanism
was moot.
Louisville Utilities petitioned for rehearing, arguing that
the Commission erred by analyzing the Proposal as a stand-
alone transaction, misapplied its rates analysis, and failed to
consider the transition mechanism in the record as a possible
tool to mitigate any adverse rate effect. The Commission
denied the petition, standing by its original analysis
(“Rehearing Order”). The Commission also explained that
Louisville Utilities had not proposed the transition mechanism
as a ratepayer protection but rather to protect reliance interests,
and, regardless, the transition mechanism was insufficient to
protect all affected customers. Louisville Utilities then
petitioned for review of the Commission’s orders with this
Court. Several municipally owned utilities (collectively,
“Kentucky Municipals”) intervened. We have jurisdiction
under 16 U.S.C. § 825l(b).
II.
We review the Commission’s orders under the
Administrative Procedure Act’s arbitrary and capricious
standard to determine whether the Commission’s decision-
making was reasoned, principled, and based upon the record.
See KYMEA, 45 F.4th at 174; Env’t Def. Fund v. FERC, 2 F.4th
953, 967–68 (D.C. Cir. 2021). Action by the Commission will
be set aside as arbitrary and capricious if the Commission:

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(1) “relied on factors which Congress has not intended it to
consider,” (2) “entirely failed to consider an important aspect
of the problem,” (3) “offered an explanation for its decision
that runs counter to the evidence before the agency,” or (4) “is
so implausible that it could not be ascribed to a difference in
view or the product of agency expertise.” Env’t Def. Fund, 2
F.4th at 967 (quoting Motor Vehicle Mfrs. Ass’n of U.S. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). We
uphold the Commission’s factual findings if they are supported
by substantial evidence. See KYMEA, 45 F.4th at 174.
III.
A.
Petitioners first challenge the Commission’s framework
for conducting its rates analysis. They argue that the
Commission ran afoul both of subsection 203(b) and
Commission precedent when it analyzed the Mitigation
Removal Proposal as a stand-alone transaction, instead of
analyzing whether the 1998 merger would remain in the public
interest in the absence of depancaking. We disagree.
1.
The Commission’s framework for analyzing the
Proposal’s effect on rates did not violate subsection
203(b). Nothing in the statutory text limits the Commission to
considering only the circumstances at the time of the original
merger order.
Subsection 203(b) permits the Commission “from time to
time for good cause shown” to “make such orders supplemental
to any order made under this section as it may find necessary
or appropriate.” 16 U.S.C. § 824b(b). The text does not
speak to how the Commission should determine whether to
issue a supplemental order as it finds necessary or appropriate.

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Id. Rather, the text provides the Commission flexibility in
deciding how to conduct its analysis. Cf. Chippewa &
Flambeau Imp. Co. v. FERC, 325 F.3d 353, 358 (D.C. Cir.
2003) (explaining that “necessary or appropriate” standard in
FPA section 309 shows “Congress invested the Commission
with significant discretion” to “set out a series of relevant
factors” to govern its analysis).
Nonetheless, Petitioners argue that the text of subsection
203(b) contains a tie-back to the original merger order that
limits the Commission’s analysis to the circumstances at the
time of the merger. In particular, Petitioners read the phrase
“any order made under this section” in subsection 203(b) to
refer only to the list of proposed transactions in subsection
203(a)—as relevant here, only to mergers. But the text of the
provision is broader than that.
“[A]ny order made under this section” refers to any order
made under the entirety of section 203, not just under
subsection (a). See, e.g., United States v. Hines, 694 F.3d 112,
117–18 (D.C. Cir. 2012) (interpreting the phrase “under this
section” contained in one subsection to encompass the entire
section); Benitez Sampayo v. Bank of N.S., 313 U.S. 270, 272
(1941) (determining it was “hardly open to question” that the
phrase “for the purposes of this section” contained in a
subsection meant for purposes of the section the phrase
appeared within). The original merger order was issued under
subsection 203(a) and the supplemental order granting
Petitioner’s request to withdraw from MISO was issued under
subsection 203(b). Both the Merger Order and the 2005
Supplemental Order thus are orders “made under” section 203.
The statutory text does not bind the Commission’s analysis to
the original merger order.
2.
Petitioners argue that even if the Commission did not

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violate subsection 203(b), the orders are arbitrary and
capricious because they improperly depart from the
Commission’s own precedent. In particular, Petitioners assert
that the Commission ran afoul of its prior decision in Westar
Energy, where the Commission assessed under subsection
203(b) whether “to continue to find that Westar’s acquisition
of [a facility] [wa]s consistent with the public interest if the
mitigation measures and reporting requirements previously
required [we]re removed.” Westar Energy, Inc., Inc., 164
FERC ¶ 61,060 at P 15 (2018). Petitioners read Westar
Energy to require the Commission to evaluate the merger if the
depancaking obligations were removed, not the Proposal itself.
We are unpersuaded. Westar Energy does not require the
Commission to consider the circumstances at the time of the
original merger order.
The arbitrary-and-capricious standard of the APA requires
the Commission to provide “a reasoned explanation where [it]
departs from established precedent.” Verso Corp. v. FERC,
898 F.3d 1, 7 (D.C. Cir. 2018) (citation modified) (citing
Transmission Agency of N. Cal. v. FERC, 495 F.3d 663, 672
(D.C. Cir. 2007)). “But where the circumstances of the prior
cases are sufficiently different from those of the case before the
court, [the Commission] is justified in declining to follow
them, and the court may accept even a laconic explanation as
an ample articulation of its reasoning.” Nat’l Weather Serv.
Emps. Org. v. Fed. Lab. Rels. Auth., 966 F.3d 875, 884 (D.C.
Cir. 2020) (internal quotations omitted) (citing Gilbert v.
NLRB, 56 F.3d 1438, 1445 (D.C. Cir. 1995)).
Westar Energy neither involved nor addressed the manner
of analysis for an order supplementing an earlier supplemental
order. Instead, Westar Energy concerned an order directly
supplementing an original merger order. See 164 FERC
¶ 61,060 at PP 1–2. As a result, considering the circumstances
at the time of the original merger order in Westar Energy did
not require skipping over the imposition of additional

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conditions over time through supplementary orders, as it would
here. Where there is already a supplemental order to the
original merger order, Westar Energy does not control the
Commission’s analysis. As the Commission explained in its
order, therefore, “on the facts of this case,” Westar Energy does
not preclude the Commission from looking to the Proposal
itself. J.A. 297.
Even though Westar Energy does not govern the
Commission’s orders on review here, the Commission
nonetheless acknowledged that, in its vacated 2019
Supplemental Order, it interpreted Westar Energy as Louisville
Utilities does now—to require an assessment of whether “the
Merger continues to be consistent with the public interest
without” depancaking. J.A. 126. To the extent the
Commission even needed to address a departure from a now-
vacated order, the Commission sufficiently explained that it
“reconsidered” its interpretation of Westar Energy in
accordance with its interpretation of subsection 203(b) to allow
for an analysis of the Proposal itself. J.A. 297.
B.
Petitioners’ next contention is that the Commission’s
decision to deny their Mitigation Removal Proposal because it
would adversely affect rates was arbitrary and capricious. We
hold that the Commission properly concluded that rates would
adversely increase without depancaking under Schedule 402.
However, the Commission did not adequately consider
whether the transition mechanism agreements it previously
ordered Petitioners to create could act as ratepayer protections
to offset the adverse increase.
1.
A “central factor in the [Commission’s] public[ ]interest
analysis” under FPA section 203 is to analyze whether the

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parties “have taken sufficient steps” to ensure a proposal “will
not increase customers’ rates.” KYMEA, 45 F.4th at 168, 177.
In carrying out this analysis, the Commission investigates
“applicants’ claims about the potential costs and benefits of
their propos[al] and weigh[s] that information to determine
whether the costs are likely to exceed the benefits.” 1996
Merger Policy Statement, 61 Fed. Reg. at 68,602. The
“Commission’s focus ‘is on the effect that a proposed
transaction itself will have on rates, whether that effect is
adverse, and whether any adverse effect will be offset or
mitigated by benefits that are likely to result from the proposed
transaction.’” Policy Statement on Hold Harmless
Commitments, 155 FERC ¶ 61,189 at P 5 (2016) (quoting
Policy Statement on Hold Harmless Commitments, 150 FERC
¶ 61,031 at P 3 (2015)). The “[a]pplicants bear the burden of
proof” to show that their customers will be protected from rate
hikes. KYMEA, 45 F.4th at 168 (internal quotations and
alterations omitted); see also 1996 Merger Policy Statement,
61 Fed. Reg. at 68,603. The Commission will consider “the
applicants’ burden of proof to be met by a generalized showing
of likely costs and benefits.” 1996 Merger Policy Statement,
61 Fed. Reg. at 68,602. Ratepayer protections are one benefit
that parties can offer to offset an adverse increase in costs
consumers may experience. Id. at 68,603.
In its Remand Supplemental Order following our opinion
in KYMEA, the Commission held that approving Petitioners’
Mitigation Removal Proposal would have an adverse effect on
rates and therefore denied Petitioners’ request to end
protections provided in Schedule 402. See J.A. 246. As
discussed supra, in evaluating whether rates would adversely
increase, the Commission compared depancaked rates under
Schedule 402 to those that would exist after ceasing
depancaking under Schedule 402. J.A. 247–48. The
Commission chose to focus its rates comparison analysis on
Schedule 402, instead of comparing the merger-as-a-whole’s
effect on rates because of our instructions in KYMEA, 45 F.4th

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at 177–78, and the fact that Schedule 402 was “not required,
nor contemplated, under the original merger order” but instead
only implemented when Petitioners exited MISO. J.A. 248.
The Commission held that “[r]emoving rate depancaking will
cause the affected customers to pay more for . . . transactions
regardless of whether the rates in each zone are changing,” and
“[t]his constitutes an adverse effect on rates. J.A. 249–50.
Petitioners contend that FERC arbitrarily and capriciously
determined that removal of depancaking would adversely
affect rates. Pet’rs’ Br. 42–44. Although Petitioners seem to
acknowledge their previous concession that “rate hikes are not
only likely—they are certain”—they contend that it is not an
increase per se if removal of depancaking would simply restore
charges to customers that the customers would have been
obligated to pay all along if it were not for depancaking. See
KYMEA, 45 F.4th at 177; see also J.A. 249; Pet’rs’ Br. 44–45.
In other words, Petitioners contend that even if there will be
rate increases from the removal of depancaking, these
increases are not “unnecessary.” Pet’rs’ Reply Br. 15–16.
Petitioners point to two types of authority to support their
contention that only unnecessary rate hikes can be adverse
increases: (1) FPA’s cost-causation principle 2 and
(2) Commission precedent.
First, as to Petitioners’ contention that the FPA’s cost-
causation principle supports their argument, we easily find that
it does not. The cost-causation analysis “under section 205”
of the FPA on which Petitioners rely “differs from the analysis”
the Commission conducts “under [s]ection 203 of the FPA.”
Silver Merger Sub, Inc., 145 FERC ¶ 61,261 at P 65 (2013)
(“Silver Merger”); see also Nev. Power Co., 145 FERC
2 The “unremarkable” cost-causation principle requires “that all approved
rates reflect to some degree the costs actually caused by the customer who
must pay them.” Midwest ISO Transmission Owners v. FERC, 373 F.3d
1361, 1368 (D.C. Cir. 2004) (internal quotations omitted).

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¶ 61,170 at P 51 (2013) (“Generally, the Commission does not
address the rate treatment of assets in section 203 proceedings,
but instead reserves such discussion for a section 205
proceeding.”); Sw. Power Pool, Inc., 175 FERC ¶ 63,023 at
P 363 (2021) (explaining that courts have used the “cost
causation principle” in interpreting the “just and reasonable”
standard language under section 205 of the FPA); K N Energy,
Inc. v. FERC, 968 F.2d 1295, 1297–98, 1301 (D.C. Cir. 1992)
(considering cost-causation principles after pipelines
attempted to recoup costs from a “take-or-pay problem” by
increasing customer rates).
Second, Petitioners’ contention that “long-standing FERC
precedent” conflicts with the Commission’s conclusion that
rates will adversely increase if depancaking is removed also
fails. Pet’rs’ Br. 45. Petitioners cite to a section in the
Commission’s 2016 Policy Statement on Hold Harmless
Commitments which explains that if an energy provider is
undertaking to “fulfill documented utility service needs” it
need not “offer a hold harmless commitment in order to show
that the transaction does not have an adverse effect on rates.”
155 FERC ¶ 61,189 at P 87. However, Petitioners have not
alleged that their 1998 merger was meant to “satisfy resource
adequacy requirements at the state level, . . . improve system
reliability, and/or meet other regulatory requirements” and
therefore this section of the Policy Statement is inapplicable.
Id. at P 86.
Moreover, other FERC precedent that Petitioners cite is
inapposite to the present case. For example, in GridLiance
West Transco LLC, the Commission considered a “unique
circumstance[]” where one party to a merger transaction was a
nonprofit organization and one party was a for-profit
organization. 160 FERC ¶ 61,002 at P 52 (2017). The
Commission held that because the for-profit organization
would not seek to recover acquisition premium from the
nonprofit organization, and the nonprofit organization operated

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on a wholly different business structure from the for-profit
organization—whereby the for-profit organization had a
different capital structure, tax obligations, and a need to earn a
return—the .48% rate increase would not be adverse. Id.
Petitioners’ merger is between two for-profit organizations and
the rate increase is estimated to range from 15% to 47%—a
significantly higher increase than the Commission considered
in GridLiance West Transco LLC. See KYMEA, 45 F.4th at
177.
As to cases Petitioners cite to support their contention that
the Commission never deems removal of depancaking to be an
adverse effect on rates, we find that the Commission has not
acted contrary to its precedent. Take Translink Transmission
Company, LLC, for example. 101 FERC ¶ 61,140 (2002).
There the Commission did not hold that rate pancaking would
not be an adverse increase to rates, as Petitioners suggest, but
instead that it could not determine the “full impact” of “rates
on any particular customer” until the “actual rates [we]re filed
and approved.” Id. at P 65. Additionally, the Commission
“remain[ed] convinced that the benefits” TRANSlink offered
“with reductions in rate pancaking and increases in efficiency
w[ould] far exceed the increases in access rates that” some
customers may have faced. Id. Thus, far from holding that
removal of depancaking could never be an adverse increase in
rates, the Commission held that it lacked enough information
to decide the issue, and that certain benefits offered by
TRANSLink would offset the alleged increase in rates. Id.; cf.
Startrans IO, LLC, 130 FERC ¶ 61,209 at P 30 (2010) (finding
that benefits would offset the rate increase and therefore the
rate increase was not deemed adverse); Silver Merger, 145
FERC ¶ 61,261 at P 65 (finding no rate increases); Cent. Vt.
Pub. Serv. Co., 138 FERC ¶ 61,161 (2012) (finding that
because the hold harmless commitments included all
transaction-related costs, and nothing in the application
indicated a rate increase to those customers, there was no
adverse effect on rates).

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Because Petitioners’ contentions fail and we have
previously recognized that “both Municipal Customers and
[Petitioners] agree the[re] will be material increases” in rates,
KYMEA, 45 F.4th at 177, we hold that the Commission
properly concluded that removing depancaking protections
would adversely increase the rates that Petitioners’ Schedule
402 customers would pay if it were not for depancaking. See
Kansas v. Ventris, 556 U.S. 586, 590 (2009) (treating
concession earlier in litigation “as the law of the case”).
2.
However, upholding the Commission’s determination that
rates will adversely increase without depancaking is not the end
of our analysis. We next decide whether the Commission
arbitrarily or capriciously determined that the adverse increase
in rates would not be offset or mitigated by benefits or specific
ratepayer protections Petitioners offered. Policy Statement on
Hold Harmless Commitments, 155 FERC ¶ 61,189 at PP 5–6.
Before the Commission, Petitioners argued that
depancaking under Schedule 402 provides an undue benefit to
Schedule 402 customers that is subsidized by those customers
not currently covered by Schedule 402. J.A. 250, 301–02.
Petitioners contended that “approximately 80 percent of the
costs of depancaking” under Schedule 402 are borne by
Petitioners’ retail customers. J.A. 250. By ceasing
depancaking under Schedule 402, Petitioners contend that their
retail customers and Schedule 402 customers would pay
equitable costs. J.A. 250.
The Commission rejected Petitioners’ arguments
concluding that the “undue benefit” Schedule 402 customers
receive has been the case since Schedule 402 was
implemented, and those customers have since relied on that
benefit “to seek out alternative supply arrangements.” J.A.

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251. The Commission held that instead of receiving a benefit,
Schedule 402 customers are “placed in the same position they
would have been in had [Petitioners] not withdrawn from
MISO.” J.A. 251. Moreover, in the Commission’s
Rehearing Order, it held that the adverse rate increase from
removing depancaking under Schedule 402 would fall squarely
on current Schedule 402 customers rather than being shared by
Petitioners’ retail and transmission customers. J.A. 302.
The Commission concluded that none of Petitioners’
“arguments warrant[ed] accepting the” Petitioners’ proposal to
end depancaking under Schedule 402. J.A. 304. First, the
Commission was unpersuaded by Petitioners’ contention that
depancaking under Schedule 402 should cease because, as a
matter of policy, the Commission generally sets time limits on
mitigation measures. J.A. 1231–32, 304. This argument
failed because Petitioners did not meet their burden in
proposing a time limit to depancaking under Schedule 402 at
the outset in 2019. J.A. 304. Second, the Commission
rejected Petitioners’ argument that Schedule 402 itself
contemplates changes to its requirements because they did not
show that the specific changes they were proposing would
avoid adverse impacts on rates. J.A. 305, 1232. Third, the
Commission declined to engage with Petitioners’ argument
that depancaking under Schedule 402 “could be limiting
competition from” resources from PJM Interconnection
L.L.C., another regional transmission organization, thereby
diminishing competition in the market, J.A. 1232–33
(emphasis omitted), because our opinion in KYMEA only
directed the Commission to reconsider its decision to end
depancaking based on its effect to customer rates, and not to
competition. J.A. 305.
Before us, Petitioners once again contend that their retail
customers inequitably “bear the overwhelming majority of the
costs that” the customers under Schedule 402 do not have to
bear, and that their 1998 merger already eliminated one layer

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of pancaked rates between previously separate companies
LG&E and KU. Pet’rs’ Br. 50–51. Petitioners also argue
that “FERC ignored that” the transition mechanism agreements
it previously ordered Petitioners to create “provided the
ultimate ratepayer protection.” Pet’rs’ Br. 53; see also
KYMEA, 45 F.4th at 171, 173. According to Petitioners,
“certain power sales and purchase contracts w[ould have]
continue[d] to receive depancaked rates for decades” under the
transition mechanism agreements. Pet’rs’ Br. 54 (emphasis
omitted).
The Commission declined to consider the transition
mechanism agreements as “ratepayer protections” because it
held that the transition mechanism agreements were only
“required to protect the reasonable reliance interests of
[Schedule 402] customers” and thus were not ratepayer
protections. J.A. 303. Further, the Commission found that
even if the transition agreements “would reduce or eliminate
the rate impact for” some of Petitioners’ customers, it would
not do so for others. J.A. 303–04. The Commission also
disagreed that denying Petitioners’ Proposal would force
Petitioners to maintain depancaking under Schedule 402 “in
perpetuity.” J.A. 304 (internal quotations omitted).
Petitioners contend that the Commission’s holding was
arbitrary because the transition mechanism agreements would
fully “mitigate any impact on rates from removal of”
depancaking under Schedule 402. Pet’rs’ Br. 55–56.
Petitioners’ latter point is an important one. “[W]e
cannot ignore the Commission’s unwillingness to address an
important challenge.” K N Energy, Inc., 968 F.2d at 1303.
We are not satisfied that the Commission adequately addressed
this important issue—that the transition mechanism
agreements would have protected each customer with a
reliance interest, Pet’rs’ Br. 54, thereby mitigating any concern
that customers continue to need Schedule 402 to protect their
reliance interests. See J.A. 302–03, 1230. In fact, during oral

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argument, counsel for FERC suggested that the transition
mechanism agreements could be a potential protection offered
to mitigate or end the need for depancaking. See Oral Arg. Tr.
29:15–30:12.
Instead of grappling with the transition mechanism
agreements as ratepayer protections, the Commission held that
even if the transition mechanism agreements “reduce[d] or
eliminate[d] the rate impact for certain . . . customers, there
will still be a rate impact for other customers.” J.A. 303–04.
However, the Commission’s orders do not specify who those
customers are and why they are not protected, and thus the
Commission’s decision is not adequately reasoned. See Del.
Div. of the Pub. Advoc. v. FERC, 3 F.4th 461, 469 (D.C. Cir.
2021) (finding the Commission’s decision arbitrary and
capricious because it “failed to consider an important aspect of
the problem or offered an explanation for its decision that runs
counter to the evidence before” it (internal quotations
omitted)); see also State Farm, 463 U.S. at 43.
According to the record, there are eighteen municipalities
covered by Schedule 402. J.A. 244, 412. Petitioners contend
that twelve of these parties are covered under either the
transition mechanism agreements or another agreement. Oral
Arg. Tr. 19:19–20. And, the remaining six other parties do not
have settlement agreements because they do not take power
from MISO. 3 See Oral Arg. Tr. 19:20–21, 20:2–3.
Therefore, based on the evidence highlighted by Petitioners,
there are no Schedule 402 customers remaining who either:
(1) do not already have a settlement agreement that can be
enforced if approved by FERC or (2) do not rely on
depancaking in Schedule 402 because they receive power
elsewhere. The Commission should thus conduct its own
3 Petitioners’ claim that Falmouth, Bardstown, Nicholasville and three
other cities no longer have an interest in MISO because they receive
energy elsewhere. See Oral Arg. Tr. 22:16–24.

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review of the evidence to determine whether there are any
Schedule 402 customers who are not already covered by the
transition mechanism agreements and are affected by the
removal of depancaking. The Commission should then
conduct its own review to determine whether the transition
mechanism agreements could adequately act as ratepayer
protections rather than or in addition to protecting the reliance
interests for those customers who are benefiting from Schedule
402. See Cigar Ass’n of Am. v. FDA, 126 F.4th 699, 704 (D.C.
Cir. 2025) (holding that the agency acted arbitrarily when
plaintiffs “provided evidence bearing directly on [the]
question” before the agency but it failed to consider the
evidence). If Schedule 402 is no longer needed to serve the
purpose for which it was meant because all Schedule 402
customers are now either covered by the transition mechanism
agreement or no longer rely on depancaking, see Oral Arg. Tr.
21:6–9, the Commission may conclude that Schedule 402 is no
longer needed to offset the adverse impact on rates. We do
not make that determination for the Commission but simply
remand the case back to the Commission so that it can weigh
the evidence and determine whether the transition mechanism
agreements would adequately protect ratepayers. See United
Steel v. Pension Benefit Guar. Corp., 707 F.3d 319, 325 (D.C.
Cir. 2013) (“[I]n judicial review of agency action, weighing the
evidence is not the court’s function.”).
Because we do not have the authority to “uphold an
agency’s decision” unless “we can discern a reasoned path
from the facts and considerations before the [agency],” we
vacate the Commission’s orders denying Petitioners’
Mitigation Removal Proposal and remand the matter back to
the agency to resolve the issue. K N Energy, Inc., 968 F.2d at
1303 (internal quotations omitted); see also FERC v. Elec.
Power Supply Ass’n, 577 U.S. 260, 292 (2016) (same).
We reiterate that we express no view of what the
Commission should conclude upon remand. We merely direct

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the Commission to consider who the transition mechanism
agreements cover, determine whether there are any other
customers currently benefiting from depancaking under
Schedule 402 that are not covered by the transition mechanism
agreements, and conclude whether any benefits or ratepayer
protections would suffice to offset the adverse impact on rates
that would occur from ceasing depancaking under
Schedule 402.
C.
Petitioners last contention is that FERC “did not balance,”
Pet’rs’ Br. 57–58, or adequately “balance,” Pet’rs’ Br. 59–60,
the three public interest factors after concluding that removal
of depancaking under Schedule 402 would have an adverse
effect on rates that was not offset or mitigated. However, the
Commission is not required to “balance” the three public
interest factors but must simply “consider” them.
In analyzing whether a proposed application is in the
public interest under section 203, FERC “generally take[s] into
account three factors . . . the effect on competition, the effect
on rates, and the effect on regulation.” 1996 Merger Policy
Statement, 61 Fed. Reg. at 68,596; see also KYMEA, 45 F.4th
at 167–68; 16 U.S.C. § 824b(a)(4).
Contrary to Petitioners’ argument, none of the authority
cited by Petitioners mandates the Commission to “balance” the
three public interest factors, and we are not aware of any. The
1996 Merger Policy Statement states that “[i]n general, [the
Commission] expect[s] that a merger . . . will satisfy each of
the three [public interest] factors.” 61 Fed. Reg. at 68,597.
“However, [the Commission] recognize[s] that there may be
unusual circumstances in which” a proposal may not satisfy
each public interest factor but still “clearly compel approval.”
Id. “The Commission . . . could, in [that] particular case,
conclude that on balance” the proposal is consistent with the

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public interest. Id. Absent from this Policy Statement is a
rule that the Commission must balance the three public interest
factors. See also KYMEA, F.4th at 167 (“In 1996, the
Commission announced that it would analyze whether a
proposed merger is in the public interest by ‘generally’
considering its effect on three factors—competition, rates, and
regulation.” (emphasis added)); see also 18 C.F.R. § 2.26
(“[T]he Commission will generally consider the following
factors; it may also consider other factors: (1) The effect on
competition; [t]he effect on rates; and (3) [t]he effect on
regulation.” (emphasis added)).
Consistent with its precedent and regulations, the
Commission considered each public interest factor after our
decision in KYMEA. J.A. 305. On remand from this Court,
the Commission found that even though removing
depancaking under Schedule 402 “was in the public interest
when considering the effect on competition,” that finding did
not “outweigh [the] adverse effect on rates” from the action.
J.A. 306 (quoting J.A. 251). The Commission declined to
“further analy[ze] . . . the competitive effects of” depancaking
under Schedule 402 because of our “focus on the rate impacts
of repancaking” in KYMEA. J.A. 305. The Commission
added that “even if [it did] consider the other [public interest]
factors . . . [the Commission would] not [be] convinced that the
other elements of the Commission’s section 203 analysis
would warrant accepting the [Petitioners’ proposal] given [the]
finding that it w[ould] result in an adverse effect on rates.”
J.A. 305–06 (explaining that “the absence of negative effects
of removing depancaking mitigation . . . on regulation or
[competition did] . . . not translate into positive benefits that
outweigh the adverse effect on rates.” (citation modified)); J.A.
251.
Recognizing that the effect on regulation is not at issue in
this case, see KYMEA, 45 F.4th at 168, on remand the
Commission should consider each prong of its public interest

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test, after correcting its rates analysis, to determine whether
Petitioners’ Proposal to end depancaking under Schedule 402
is in the public interest.
IV.
In sum, we hold that the Commission lawfully analyzed
whether to remove depancaking under Schedule 402 consistent
with subsection 203(b) and determined that removal of
depancaking under Schedule 402 would adversely affect rates;
but it arbitrarily concluded that Petitioners did not provide
sufficient ratepayer protections to offset the adverse impact to
rates. We vacate and remand the matter back to the
Commission so that it can factor ratepayer protections into its
analysis and then consider the three public interest factors to
determine whether to approve or deny Petitioners’ Proposal.
So ordered.

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