Court Opinion

ID: 7798295
Source: CourtListenerOpinion
Date Created: 2022-08-05 16:00:42.849464+00
Date Added: 2024-06-11T16:28:46.653324
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 14, 2022               Decided August 5, 2022

                         No. 19-1236

      KENTUCKY MUNICIPAL ENERGY AGENCY, ET AL.,
                   PETITIONERS

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION,
                     RESPONDENT

 KENTUCKY UTILITIES COMPANY AND LOUISVILLE GAS AND
                 ELECTRIC COMPANY,
                    INTERVENORS

  Consolidated with 19-1237, 20-1282, 20-1326, 20-1452,
               20-1459, 21-1013, 21-1025

          On Petitions for Review of Orders of the
          Federal Energy Regulatory Commission

    Latif M. Nurani argued the cause for municipal petitioners.
With him on the briefs were Thomas C. Trauger and David E.
Pomper.
                                2
     Paul D. Clement argued the cause for petitioners
Louisville Gas and Electric Company and Kentucky Utilities
Company. With him on the briefs were Erin E. Murphy and
Julie M.K. Siegal.

     Scott Ray Ediger, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Matthew R. Christiansen, General Counsel, and
Robert H. Solomon, Solicitor.

    Before:     HENDERSON, TATEL*, and MILLETT, Circuit
Judges.

    Opinion for the Court filed by Circuit Judge MILLETT.

     MILLETT, Circuit Judge: In 1998, the Federal Energy
Regulatory Commission approved the merger of two electrical
grid operators, Louisville Gas & Electric Company and
Kentucky Utilities Company. To protect customers from the
merger’s potential anticompetitive effects, the Commission
required the combined company (collectively, “Louisville
Utilities”) to join a then-new regional electrical grid
organization, the Midwest Independent Transmission System
Operator, Inc. (“MISO”). MISO would act like a free trade
zone, allowing customers to buy power from generators across
the region without having to pay multiple grid operators
redundant fees to transmit electricity. By removing those
redundant charges—known as “pancaked rates”—MISO
membership would give Louisville Utilities customers access
to more options for buying competitively priced power.

    *
       Judge Tatel assumed senior status after this case was argued
and before the date of this opinion.
                                3
     In 2006, the Commission granted Louisville Utilities’
request to leave MISO on the condition that it continue to
depancake rates for a group of municipal customers in its
wholesale market. Louisville Utilities complied with the
Commission’s order through an agreement called Schedule
402.

    Twelve years later, Louisville Utilities asked the
Commission to end its depancaking responsibilities under
Schedule 402. Most of the customers protected by Schedule
402 objected.

     The Commission largely approved the request on the
ground that sufficient competition in electricity sales existed to
provide Louisville Utilities customers alternative competitive
sources for electricity even without depancaking. The
Commission ended its analysis there without considering other
effects of the modified merger order, like increased prices.

    At the same time, the Commission took steps to protect
customers that had reasonably relied on depancaking under
Schedule 402 in their contracting and investing decisions.

     A group of customers previously protected by Schedule
402 (collectively, “Municipal Customers”) and Louisville
Utilities both have petitioned for review of the Commission’s
orders. Municipal Customers argue that the Commission
should not have greenlit the end of depancaking and that it
insufficiently protected customers’ reliance interests. Taking
a different view, Louisville Utilities argues that the
Commission’s remedy to shield customers from the end of
depancaking was impermissibly broad.

    We vacate the Commission’s decision to end depancaking
under Schedule 402. While the Commission adequately
supported its conclusion that customers would continue to
                              4
enjoy a competitive market without depancaking, it was
arbitrary for the agency to completely ignore the significant
effect that duplicative charges would have on customer rates.
We also conclude that the Commission’s decisions protecting
reliance interests were reasonable, with two exceptions.

    As a result, we grant the petitions for review in part and
vacate and remand the challenged orders in part.

                               I

                              A

                              1

     The Federal Power Act tasks the Federal Energy
Regulatory Commission with regulating the sale and
transmission of wholesale electricity in interstate commerce.
See 16 U.S.C. § 824; FERC v. Electric Power Supply Ass’n,
577 U.S. 260, 264 (2016). Under Section 203 of the Act,
public utilities must seek Commission approval for certain
mergers to ensure that they are “consistent with the public
interest[.]” 16 U.S.C. § 824b(a)(1), (4).

     When deciding if a merger is in the public interest, the
Commission considers “both the preservation of economic
competition * * * and the various policies reflected in the
statutes specific to energy regulation.” Wabash Valley Power
Ass’n, Inc. v. FERC, 268 F.3d 1105, 1115 (D.C. Cir. 2001)
(citation omitted). The main goal of the Federal Power Act is
“to encourage the orderly development of plentiful supplies of
electricity * * * at reasonable prices.” Id. (quoting NAACP v.
Federal Power Comm’n, 425 U.S. 662, 670 (1976)).

    Under Section 203(b), the Commission may condition its
approval of utility mergers on “such terms and conditions as it
                              5
finds necessary or appropriate to secure” the public interest.
16 U.S.C. § 824b(b). The agency also has the power to adjust
merger conditions “from time to time for good cause * * * as it
may find necessary or appropriate” and to ensure they are
consistent with the public interest. Id.; see Westar Energy,
Inc., 164 FERC ¶ 61060, ¶ 15 (2018); see also id. at ¶ 15 n.24.

                              2

    At the turn of this century, the Commission issued a series
of orders to make electricity markets more competitive by
providing wholesale buyers greater access to competing power
plants. See Transmission Access Policy Study Group v.
FERC, 225 F.3d 667, 682, 699 (D.C. Cir. 2000), aff’d sub nom.
New York v. FERC, 535 U.S. 1 (2002).

     As part of its reforms, the Commission addressed a barrier
to competition known as “rate pancaking.” Wabash Valley
Power Ass’n, 268 F.3d at 1116. Grid operators typically
charge fees to ferry electricity to a neighboring transmission
network, like a state levying tolls to drive on its highways.
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[,]” Louisville
Gas & Elec. Co. v. FERC, 988 F.3d 841, 844 (6th Cir. 2021),
“much like the total tolls paid when driving on a route that
includes both the Pennsylvania and New Jersey turnpikes[,]”
Wabash Valley Power Ass’n, 268 F.3d at 1116. The
Commission has concluded that pancaked rates weaken
competition by making it more expensive for customers to buy
power from generators on other grids. See Louisville Gas, 988
F.3d at 844; see also Regional Transmission Orgs., 65 Fed.
Reg. 810, 915 (Jan. 6, 2000).

      In part to reduce rate pancaking, the Commission prodded
utilities to band together to form organizations known as
                               6
independent system operators or regional transmission
organizations. These independent entities run grids on behalf
of grid owners and charge customers standardized, non-
duplicative fees to transmit electricity across their network.
See Louisville Gas, 988 F.3d at 844; Midwest Indep.
Transmission Sys. Operator, Inc., 104 FERC ¶ 61105, ¶ 29
(2003).

     In light of those reforms, the Commission overhauled its
approach to reviewing electricity mergers under Section 203.
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. 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)
(“Merger Statement”); see also id. at 68,597; 18 C.F.R. § 2.26.

     On the competition factor, the Commission assesses
whether the merger will significantly increase concentration in
any market. See Merger Statement, 61 Fed. Reg. at 68,596.
To do this, the Commission requires merging parties to identify
products they each sell, customers that might be affected by the
merger, and other suppliers that can compete to serve those
customers. See id. at 68,600–68,601. The merging parties
identify potential rivals by analyzing how much it would cost
alternative suppliers to generate electricity and get it to
customers and whether suppliers can physically access enough
transmission capacity to deliver the energy. Id. at 68,601.
The agency considers a generator a potential competitor to the
merging parties if it can deliver the electricity to a relevant
customer at a price that is no more than five percent above the
market rate. See id. at 68,607 & n.6; see also 18 C.F.R.
§ 33.3(c)(4).
                                7
     If a merger is projected to significantly increase a market’s
concentration, the agency will investigate its competitive
effects more closely. Merger Statement, 61 Fed. Reg. at
68,608; cf. United States v. Philadelphia Nat’l Bank, 374 U.S.
321, 363 (1963). Applicants may mitigate competitive harms
to some degree by joining an independent operator that can
allow more power plants to compete and reduce market
concentration by preventing rate pancaking. See Merger
Statement, 61 Fed. Reg. at 68,601; see also id. at 68,609–
68,610, 68,616.

     As for the second prong of its public-interest test, the
Commission analyzes whether the merging parties have taken
sufficient steps to ensure that the merger will not increase
customers’ rates. See Merger Statement, 61 Fed. Reg. at
68,603. Applicants “bear[] the burden of proof to demonstrate
that the[ir] customer[s] will be protected” from rate hikes. Id.
So the agency requires applicants to propose “ratepayer
protection mechanisms” in case the transaction’s “expected
benefits do not materialize.” Id.

     The third factor, which assesses how a merger will affect
the relationship between the Commission’s regulatory
jurisdiction and that of state authorities, is not at issue in this
case.

                                B

                                1

     In 1997, two utilities in Kentucky, Louisville Gas &
Electric Company and Kentucky Utilities Company, sought
Commission approval to merge. See Louisville Gas and Elec.
Co., 82 FERC ¶ 61308, at 2 (1998) (“1998 Merger Order”)
(Joint Appendix (“J.A.”) 2). Each company owned power
plants and operated its own electrical grid. Kentucky Utilities
                                  8
Company also sold wholesale power to twelve cities in
Kentucky on a long-term basis. Id. at 3–4 & n.7 (J.A. 3–4).1

     The Commission found that, by removing Louisville Gas
& Electric as a rival, the merger would substantially increase
concentration in the wholesale energy market faced by
Kentucky Utilities Company’s long-term municipal customers.
See 1998 Merger Order, at 15 (J.A. 15). The Commission
nevertheless concluded that this factor did not weigh against
merger approval, in part because it required the merging parties
to join MISO, an independent grid operator. See id. at 19 (J.A.
19). That would benefit the municipal customers because
MISO would eliminate pancaked rates on its grid, giving them
a wider range of power plants from which to purchase
electricity at competitive rates. Id. The Commission said
that if the merged company tried to leave MISO, the agency
would “evaluate that request in light of its impact on
competition” in the market faced by Kentucky Utilities
Company’s long-term wholesale power customers. Id. (In
this opinion, we refer to this group as Louisville Utilities’
wholesale customers).

     The Commission then turned to the merger’s effects on
rates. It found that the merging parties’ proposed ratepayer
protections—which included a commitment to pass along

     1
        These customers were the Kentucky cities of Barbourville,
Bardstown, Bardwell, Benham, Berea College, Corbin, Falmouth,
Frankfort, Madisonville, Nicholasville, Paris, and Providence. See
1998 Merger Order, at 3–4 n.7 (J.A. 3–4). The Commission
referred to these cities as “requirements customers[,]” id. at 3 (J.A.
3), which means that Kentucky Utilities Company generally
“under[took] a relatively open-ended commitment to provide” them
enough electricity to meet their needs. Regulation of Electricity
Sales-for-Resale and Transmission Service, 50 Fed. Reg. 23,445,
23,446 (June 4, 1985).
                               9
merger-related savings and hold certain customer rates steady
for five years—were adequate. See 1998 Merger Order, at
20–21 (J.A. 20–21).

                               2

     Seven years after the merger, the combined company,
Louisville Utilities, sought the Commission’s permission to
exit MISO. See Louisville Gas & Elec. Co., 114 FERC
¶ 61282, ¶ 1 (2006) (“2006 Withdrawal Order”) (J.A. 88–89).

     Several of Louisville Utilities’ wholesale customers, as
well as other municipalities on the utility’s grid or seeking to
join it, opposed the request. Some of them were particularly
concerned that if Louisville Utilities left MISO, they would
face higher, pancaked rates when purchasing power from
MISO. See Louisville Gas, 988 F.3d at 845.

     Among those opposing Louisville Utilities’ request were
two Kentucky municipal agencies, the Electric Plant Board of
the City of Paducah and the Electric Plant Board of the City of
Princeton. These cities had a dog in the fight because both had
decided, in late 2004 and early 2005, to leave their prior grid
and connect to Louisville Utilities’ transmission lines. In
2005, Paducah and Princeton created the Kentucky Municipal
Power Agency to secure electricity by investing in Prairie
State, a new coal plant to be connected to the MISO grid. (In
this opinion, we generally refer to Princeton, Paducah, and
Kentucky Municipal Power Agency together as “P&P.”)
According to P&P’s consultant at the time, the Prairie State
investment was, “in effect, an option agreement[,]” giving P&P
the “right, but not the obligation,” to buy a five percent stake
in the Prairie State project. J.A. 1236 (Affidavit of Brown D.
Thornton).
                              10
     If Louisville Utilities left MISO, P&P and several other
municipalities would face the prospect of paying pancaked
rates to obtain power from that grid. So they negotiated with
Louisville Utilities to avoid those charges.         Louisville
Utilities, recognizing that it was “counter-intuitive at [that]
time to contemplate that [the Commission] would permit [it] to
establish new rate pancakes[,]” agreed not to charge these
customers duplicative rates for electricity shipped to or from
MISO, so long as MISO did the same in return. J.A. 451
(February 2006 Term Sheet § 1); see also 2006 Withdrawal
Order ¶¶ 99–100 (J.A. 125–126).             In exchange, the
municipalities agreed to withdraw their challenge to Louisville
Utilities’ exit from MISO. J.A. 455 (February 2006 Term
Sheet § 7); 2006 Withdrawal Order ¶ 16 (J.A. 95).

     The following month, the Commission allowed Louisville
Utilities to leave MISO, subject to one condition relevant here.
See 2006 Withdrawal Order ¶ 4 (J.A. 90). Louisville
Utilities’ depancaking proposal depended on MISO agreeing to
reciprocally depancake its own charges. But the Commission
was concerned that MISO might not do so, leaving Louisville
Utilities’ wholesale customers stuck paying pancaked rates.
See id. ¶ 111 (J.A. 129–130). So the Commission directed
Louisville Utilities to “shield” its wholesale customers from
“any re-pancaking of rates” for power shipments between its
grid and MISO, no matter what MISO chose to do. Id.
¶¶ 112–113 (J.A. 130); see also id. ¶ 118 (J.A. 132–133). In
other words, Louisville Utilities was under an obligation to
make customers in that market whole should MISO decide to
charge pancaked fees.

    Ultimately, Louisville Utilities negotiated Schedule 402, a
new agreement with those municipalities already on or
planning to join its grid. See J.A. 557. Schedule 402
protected several groups from pancaked rates with MISO: (i)
                               11
Louisville Utilities’ current and future wholesale power
customers, (ii) Owensboro Municipal Utilities (“Owensboro”),
an entity that used Louisville Utilities’ grid but was not a long-
term wholesale customer, and (iii) a group of municipal
agencies including P&P. See J.A. 557 (Schedule 402).
Schedule 402’s depancaking provisions were designed “to
implement the Section 203 [merger] mitigation requirements
ordered by the Commission” in the 1998 Merger Order and the
2006 Withdrawal Order. J.A. 559 (Schedule 402 § 1.a.v).

    In November 2006, the Commission approved the
agreement. See Louisville Gas & Elec. Co., 166 FERC
¶ 61206, ¶ 8 & n.19 (2019) (“March 2019 Order”) (J.A. 220–
221).

     Here is how depancaking worked under Schedule 402.
When a customer imported power from MISO, Louisville
Utilities refunded the customer’s “transmission and ancillary
services charges” for the electricity to reach the
MISO/Louisville Utilities border.            See J.A. 557–558
(Schedule 402, at 1; id. § 1.a.i). When a customer shipped
power from Louisville Utilities’ grid to MISO, the company
waived its own corollary charges for ferrying the electricity to
the MISO border. See J.A. 558–559 (Schedule 402 § 1.a.ii).
Louisville Utilities’ depancaking responsibilities were limited
to those fees “where both [MISO] and [Louisville Utilities]
provide and charge for corresponding services” that are
“incurred to transmit electricity to” either the MISO or the
Louisville Utilities border. J.A. 558–559 (Schedule 402
§ 1.a.iv, 1.a.i–ii); see also Louisville Gas, 988 F.3d at 847.

     With depancaking now ensured by Schedule 402, P&P
finalized its investment in Prairie State in 2007, which it
financed by borrowing more than $525 million. P&P also
signed 50-year contracts to source electricity from a
                               12
hydroelectric project being built partially on the MISO grid.
See Louisville Gas & Elec. Co., 168 FERC ¶ 61152, ¶ 95
(2019) (“2019 Rehearing Order”) (J.A. 302); Louisville Gas &
Elec. Co., 173 FERC ¶ 61164, ¶ 22 (2020) (“November 2020
Order”) (J.A. 435–436). In statements to bondholders,
Princeton and Paducah have said that they hold ownership
interests in the hydropower project. See NEW ISSUE BOOK
ENTRY, KENTUCKY MUNICIPAL POWER AGENCY 146, 189
(Aug. 22, 2019), http://www.kmpa.us/wp-content/uploads/202
0/12/KMPA-2019A-O.S..pdf, (last accessed July 26, 2022).

                                3

     For more than a decade after the merger, most of
Louisville Utilities’ wholesale power customers relied on it for
virtually all of their electricity needs, forgoing the opportunity
to buy power from other utilities on the MISO grid at
depancaked rates. See March 2019 Order ¶ 75. But after
Louisville Utilities told one of those customers in 2012 that it
would soon stop selling it electricity, all twelve municipalities
began considering other power sources. In April 2014, most
of the municipalities told Louisville Utilities that they would
buy power from other suppliers starting in 2019. Eleven
municipalities then jointly created the Kentucky Municipal
Energy Agency (“Energy Agency”) to allow them to buy
electricity collectively. Energy Agency ran a competitive
process to sign up suppliers, including some located in MISO,
to provide power for most of its members starting in 2019. In
this opinion, we refer to Energy Agency and its members
collectively as “Energy Agency.”2

    2
       The members of Energy Agency are the Kentucky cities, or
municipal power agencies representing the cities, of Barbourville,
                                13
                                C

                                1

     In 2018, Louisville Utilities asked the Commission for
permission to end its depancaking responsibilities under
Schedule 402. The company argued that independent grids
and new generators had boomed in the 20 years after the
merger, creating robust competition for wholesale power and
obviating the need for depancaking. Municipal Customers
opposed the request. They argued that ending depancaking
would increase their rates, block access to competitive markets,
and unfairly interfere with business plans they had made in
reliance on depancaking continuing.3

    In March 2019, a divided Commission conditionally
granted Louisville Utilities’ request to halt depancaking. See
March 2019 Order ¶ 2 (J.A. 218). The Commission held that,
under Section 203 of the Federal Power Act, the only relevant
question was whether depancaking was still needed to mitigate
the merger’s harm to competition for Louisville Utilities’
wholesale customers. See id. ¶¶ 38–42 (J.A. 232–234).
Under that approach, as long as the customers would “have
access to a sufficient number of competitive suppliers” without
depancaking, the Commission would deem the merger
“consistent with the public interest[.]” Id. ¶ 42 (J.A. 234). In
adopting that test, the Commission concluded that it could
ignore the effect restoring pancaking would have on other,

Bardwell, Benham, Berea, Corbin, Falmouth, Madisonville,
Owensboro, Paris, and Providence, along with the Frankfort Electric
and Water Plant Board.
    3
        Several other parties also contested Louisville Utilities’
proposal, but their claims are not before us.
                              14
long-established public-interest factors for mergers, such as
rates. Id. ¶ 44 (J.A. 234–235).

     Analyzing only the effect on competition, the Commission
found that depancaking was no longer necessary. See March
2019 Order ¶ 68 (J.A. 245–246). Though pancaking would
reduce the number of competitive suppliers in the market to
some degree, the Commission focused on both record evidence
of extensive competition between generators and economic
analyses performed by Municipal Customers’ and Louisville
Utilities’ experts. See id. ¶¶ 67–69 (J.A. 244–246).

     The Commission held, though, that it “would not be
consistent with the public interest” for Louisville Utilities to
pancake rates when its customers had made business decisions
based on the reasonable assumption that they would be
protected from such duplicative costs. See March 2019 Order
¶ 79 (J.A. 250). The Commission found that the members of
Energy Agency had reasonably relied on depancaking when
contracting for energy from MISO-based suppliers. Id. ¶¶ 74–
80 (J.A. 248–250). So the Commission created a “transition
mechanism” to protect Energy Agency’s reliance interests.
Id. ¶ 74 (J.A. 248–249).        Under that mechanism, the
Commission directed Louisville Utilities to continue
depancaking rates for a time-limited period confined to the
“initial term” of “power purchase agreement[s]” entered into
by Energy Agency when Schedule 402 depancaking was still
in effect.    Id. ¶ 82 (J.A. 251).      An initial term, the
Commission said, meant the agreement duration “before any
extensions[.]” Id. ¶ 82 n.126 (J.A. 251). The Commission
did not include P&P in the transition mechanism because it
found it was “outside the [Louisville Utilities] market[.]” Id.
¶ 81 & n.125 (J.A. 250–251).
                               15
    Commissioner LaFleur dissented. She contended that the
evidence of current-day market competition was insufficient to
show that ending depancaking was in the public interest. See
March 2019 Order ¶¶ 1–3 (LaFleur, Comm’r, dissenting) (J.A.
260–261).

                                2

     In April 2019, the Municipal Customers sought rehearing.
Louisville Utilities did not. While that request was still
pending, Louisville Utilities filed a proposed update to
Schedule 402 to comply with the March 2019 Order. The
Commission issued two more orders in response to those
filings.

                                a

     As relevant here, the Municipal Customers’ rehearing
request argued that the Commission erred by (i) failing to
consider the effect that removing depancaking would have on
rates, (ii) concluding that the Louisville Utilities’ market would
be sufficiently competitive without depancaking, (iii)
excluding P&P from the transition mechanism, and (iv)
limiting the transition mechanism to power purchase
agreements, rather than all of the customers’ financial
commitments made in reliance on depancaking.

     The Commission granted the Municipal Customers’
request in part. See 2019 Rehearing Order ¶ 14 (J.A. 270). It
first reaffirmed its decision to ignore the effect ending
depancaking would have on rates. Id. ¶¶ 25–35 (J.A. 273–
278).     The agency recognized that it had previously
considered the effect modifying merger conditions would have
on all three of its typical Section 203 public-interest factors—
competition, rates, and regulation. Id. ¶¶ 32–35 (J.A. 277–
278) (citing Louisville Gas & Elec. Co., 137 FERC ¶ 61195
                               16
(2011)). So the Commission announced that it was now
“clarify[ing]” that its public-interest analysis of requests to
modify merger conditions “is limited to addressing the effect
of the modification on the public interest factor that [first] led
the Commission to impose the condition[.]” Id. ¶ 35 (J.A.
278).

     The Commission then reversed its decision to exclude
P&P from the depancaking transition mechanism. See 2019
Rehearing Order ¶ 109 (J.A. 306–307). The agency found
that P&P is in the Louisville Utilities market and had sourced
power while relying on depancaking. Id.

     Finally, the Commission expanded the scope of Louisville
Utilities’ depancaking responsibilities to include all contracts
entered into by one of the Municipal Customers before the
March 2019 Order in reliance on depancaking continuing.
See 2019 Rehearing Order ¶ 110 (J.A. 307). That included
“long-term financial commitments, such as * * * transmission
service” contracts reserving the use of MISO’s wires to
transmit electricity, so long as such agreements were used to
carry power that was purchased before the March 2019 Order.
Id. ¶ 111 (J.A. 307). The Commission also directed the
company to depancake P&P’s fees associated with importing
power from Prairie State, its partially owned coal plant on the
MISO grid. Id. ¶ 112 (J.A. 307).

                                b

     In a separate order, the Commission rejected Louisville
Utilities’ proposed transition mechanism to replace Schedule
402, making three additional determinations relevant here.
See Louisville Gas & Elec. Co., 168 FERC ¶ 61151 (2019)
(“2019 Transition Mechanism Order”).
                              17
     First, the Commission rejected Louisville Utilities’
argument that it would have been unreasonable for P&P to rely
on depancaking when investing in Prairie State. See 2019
Transition Mechanism Order ¶¶ 31–36 (J.A. 321–322).
Louisville Utilities argued that P&P made that investment
decision in 2005, after it was already on notice that Louisville
Utilities was leaving MISO and before the parties had agreed
to Schedule 402. Id. ¶ 32. (J.A. 321). The Commission
disagreed, finding that P&P only made a definitive Prairie State
investment after Louisville Utilities had committed to
depancaking in 2006, around the time the utility proposed
leaving MISO. Id. ¶ 33 (J.A. 321). The Commission added
that it was always “likely” that Louisville Utilities would only
be allowed to leave MISO on the condition that it continue
some form of depancaking. Id. ¶ 35 (J.A. 322). So P&P
reasonably relied on pancake-free access to MISO when
securing Prairie State power. Id. ¶¶ 31–36 (J.A. 321–322).

    Second, the Commission directed Louisville Utilities to
depancake fees associated with some contracts the company
had omitted from its transition mechanism, including
agreements several customers had made with generators
outside of the MISO grid. See 2019 Transition Mechanism
Order ¶¶ 39–42 (J.A. 324–325).

     Third, the Commission determined that Louisville
Utilities’ depancaking obligation extended to three MISO
fees—known as Schedules 26, 26-A, and 45—that the utility
had depancaked under Schedule 402. See 2019 Transition
Mechanism Order ¶¶ 57, 62 (J.A. 330, 332). The Commission
explained that the transition remedy was meant to temporarily
extend Schedule 402, and so Louisville Utilities had to
depancake MISO fees associated with services that
“correspond[]” to those for which Louisville Utilities also
                              18
charged. Id. ¶ 62 (J.A. 332) (citation omitted); see also id.
¶ 79 (J.A. 337).

                               3

    The Municipal Customers and Louisville Utilities sought
rehearing as to both the 2019 Rehearing Order and the 2019
Transition Mechanism Order. The Commission responded
with two more orders.

     In its second rehearing order, the Commission agreed to
lessen Louisville Utilities’ depancaking responsibilities in two
ways. See Louisville Gas & Elec. Co., 172 FERC ¶ 61227
(2020) (“Second Rehearing Order”).

     First, the Commission held that Louisville Utilities only
had to depancake rates and fees pertaining to Prairie State for
ten years, rather than for the duration of the power agreements’
open-ended terms. See Second Rehearing Order ¶¶ 43–44
(J.A. 363–364). The Commission recognized that, unlike
other power purchase agreements covered by the transition
mechanism, P&P’s ownership right to Prairie State electricity
had no clear end. Id. So absent the ten-year cap, requiring
depancaking for the term of the contracts could commit
Louisville Utilities to provide that relief indefinitely, which
would go beyond the term-limited reliance the Commission
meant to protect. Id.

     Second, the Commission reversed itself and held that
Louisville Utilities need not depancake fees related to the
Municipal Customers’ purchase of power from generators
outside of MISO. See Second Rehearing Order ¶ 61 (J.A.
371–372). The Commission reasoned that the transition
mechanism only required Louisville Utilities to depancake fees
that would have been protected under Schedule 402—in other
words, those incurred to shuttle power to or from MISO. Id.
                              19
¶¶ 61–62 (J.A. 371–372). So charges related to contracts with
generators outside of MISO should not be covered. See id.

     As for the rehearing petition addressed to the 2019
Transition Mechanism Order, the Commission largely
reaffirmed its initial decision. Louisville Gas & Elec. Co., 173
FERC ¶ 61164 (2020) (“Transition Rehearing Order”). As
relevant here, the Commission bolstered its decision to order
Louisville Utilities to depancake the MISO fee known as
Schedule 45 for covered agreements, citing evidence that
Louisville Utilities charges corresponding fees. See id. ¶¶ 66–
67 & n.117 (J.A. 407–408).

                               4

    Louisville Utilities and Municipal Customers filed for
rehearing as to both the Second Rehearing Order and the
Transition Rehearing Order. The Commission rejected the
requests. See November 2020 Order ¶ 22 (2020) (J.A. 435–
436).

                              II

    Municipal Customers—that is, Energy Agency and
P&P—timely petitioned for review of the Commission’s
orders, as did Louisville Utilities. We have jurisdiction under
16 U.S.C. § 825l(b).

     We review the Commission’s orders “under the arbitrary-
and-capricious standard, and we will uphold the [agency’s]
factual findings if they are supported by substantial evidence.”
ESI Energy, LLC v. FERC, 892 F.3d 321, 329 (D.C. Cir. 2018)
(citation omitted). “Substantial evidence is such relevant
evidence as a reasonable mind might accept as adequate to
support a conclusion, and requires * * * less than a
preponderance of evidence[.]” South Carolina Pub. Serv.
                              20
Auth. v. FERC, 762 F.3d 41, 54 (D.C. Cir. 2014) (per curiam)
(internal quotation marks and citations omitted).

                              III

     Municipal Customers challenge the Commission’s orders
on two fronts. First, they argue that the Commission erred by
permitting Louisville Utilities to pancake rates because (i) the
Commission lacked substantial evidence to find that the market
would remain competitive without depancaking, and (ii) the
Commission arbitrarily excluded from its public-interest
analysis the effect ending depancaking would have on rates.
Second, they contend that the Commission’s transition
mechanism insufficiently protected certain customers’ reliance
interests.

     Louisville Utilities comes at the Commission’s decisions
from a different direction. It argues that, under agency
precedent, P&P could not reasonably have relied on
depancaking and so should not have been shielded from any
pancaked charges going forward. Louisville Utilities also
objects to being required to depancake three specific MISO
fees, along with fees associated with P&P’s hydroelectric
project until 2057.

     We hold that while the Commission reasonably found that
sufficient competition would survive the return of pancaking,
it was arbitrary and capricious for the agency to ignore the
effect pancaking would have on rates. And while the agency’s
transition mechanism is reasonably justified for the most part,
we conclude that the Commission inadequately explained two
aspects of its orders.
                              21
                               A

                               1

    Municipal Customers contend that the Commission lacked
substantial evidence to find that sufficient wholesale power
competition would continue even with the return of pancaking
and its attendant rate increases.

    The question, though, is not whether, on this record,
reasonable minds could have reached a different conclusion on
that question. It is only whether substantial evidence
supported the Commission’s conclusion and whether it
reasonably explained its decision.        The Commission’s
decision clears that bar. See Environmental Action, Inc. v.
FERC, 939 F.2d 1057, 1064 (D.C. Cir. 1991) (“[I]t is within
the scope of the agency’s expertise to make [a reasonable]
prediction about the market it regulates, and a reasonable
prediction deserves our deference notwithstanding that there
might also be another reasonable view.”).

     The Commission grounded its decision in several relevant
sources of data. Together, they provide substantial evidence
that sufficient competition exists among companies able to sell
power to wholesale customers on the Louisville Utilities grid,
and that competition will continue even after the return of
pancaked rates on power coming from MISO. See March
2019 Order ¶¶ 68–73 (J.A. 245–248); 2019 Rehearing Order
¶¶ 58–77 (J.A. 288–295).

     First, the Commission found that MISO-based generators
can offer prices that are competitive with Louisville Utilities’
rates even with pancaking. See March 2019 Order ¶¶ 69–70
(J.A. 246–247); 2019 Rehearing Order ¶ 62 & n.87 (J.A. 289).
The Commission cited a report from Municipal Customers’
own expert, who forecast that Energy Agency’s MISO-based
                                22
suppliers will charge rates that are only 2.5% higher, on
average, than Louisville Utilities after accounting for
pancaking. See March 2019 Order ¶ 70 (J.A. 246–247).
That sufficed, the Commission explained, because it “considers
[electricity] that can be delivered into a market at a price that is
no more than five percent above the [market] price * * * to be
competitive[.]” Id. (J.A. 246) (citing 18 C.F.R. § 33.3(c)(4));
see also Merger Statement, 61 Fed. Reg. at 68,607 & n.6.

    The Commission’s conclusion was bolstered by a
competing forecast from Louisville Utilities’ expert, who
predicted that Energy Agency’s rates from MISO would be
7.8% cheaper on average than Louisville Utilities’ offerings
even with pancaking. See March 2019 Order ¶ 69 (J.A. 246).

     Second, the Commission found that competitive sources
of electrical power exist outside MISO that will be unaffected
by the end of depancaking. The agency determined that 65%
of the capacity secured by Energy Agency was sourced from
generators outside of MISO. (Capacity is a measure of the
total electricity that a contracted power plant can produce.)
See March 2019 Order ¶ 71 (J.A. 247); 2019 Rehearing Order
¶¶ 64–65 (J.A. 290). Transmission fees from those plants are
not depancaked under Schedule 402, so the Commission
concluded that new pancaked rates “would have no effect on
whether suppliers located in [such] markets remain
competitive[.]” March 2019 Order ¶ 71 (J.A. 247).

     Third, the Commission found that the number of
generators that could profitably sell to the Louisville Utilities
grid had increased substantially since 1998. At the time of the
merger, there were only four to seven competitive potential
wholesale energy suppliers for the grid. See March 2019
Order ¶ 72 & n.118 (J.A. 247–248). According to a
Louisville Utilities expert that the Commission credited, more
                               23
than 100 suppliers could competitively sell to the grid in 2018,
with available capacity to meet Municipal Customers’ needs
“several times over[.]” J.A. 593 (Prepared Testimony of Julie
R. Solomon); 2019 Rehearing Order ¶ 74 (J.A. 294).

     Relatedly, the Commission found that the expansion of
independent power grids had transformed the market for
wholesale power since 1998. At the time of the merger,
Louisville Gas & Electric’s and Kentucky Utilities Company’s
grids were surrounded by several small networks, limiting the
number of plants customers could buy from at competitive
rates. See March 2019 Order ¶ 73 (J.A. 248). Now
Louisville Utilities’ neighbors include some of the largest
independent grids on the continent—MISO and PJM
Interconnection, L.L.C.—giving those customers ready access
to independent power suppliers. See id. ¶ 73 (J.A. 248); J.A.
656 (grid map).

    Finally, the Commission found an active and healthy
wholesale energy market on the Louisville Utilities grid. See
March 2019 Order ¶ 68 (J.A. 245). Energy Agency received
proposals to replace Louisville Utilities as a power supplier
from between 38 and 59 different companies. Id. So
Louisville Utilities now faces far more rivals than it did at the
time of the merger. Id.

     Municipal Customers beg to differ. To start, they argue
that the Commission lacked data on the competitiveness of
offers made to Energy Agency, and so it could not rely on those
offers to show a robust wholesale power market. Plus, the
proposals were made with depancaking in place and so, the
Customers argue, gave little information about what would
happen once that protection ended.

     Neither claim succeeds. As the Commission explained,
its evidence about the competitiveness of MISO-based offers
                                  24
came from Municipal Customers’ own expert. See 2019
Rehearing Order ¶¶ 62–63 (J.A. 289); March 2019 Order ¶ 69
(J.A. 246). And his forecasted rates accounted for the end of
depancaking. See J.A. 1001–1002 (Surrebuttal Affidavit of
John F. Painter) (finding that “the imposition of pancaked
transmission charges would be projected to increase” Energy
Agency’s power supply costs from MISO to “2.5% above
[Louisville Utilities’ rates]”).4

     Next, Municipal Customers assert that Louisville Utilities’
market concentration analysis measured only potential
suppliers and not actual market participants. In their view,
that made it irrational for the Commission to treat the presence
of more than 100 potential suppliers as evidence of actual
competition.

     The Commission adequately weighed this concern. It
recognized that not all potential suppliers would offer to sell
Municipal Customers electricity. See 2019 Rehearing Order
¶¶ 74–75 (J.A. 294). But the agency reasonably found the
sheer number of large and competitive rivals would make for a
sufficiently robust market, even if not all of the suppliers
competed. See id.; see also March 2019 Order ¶ 72 (J.A.
247–248).

    Lastly, the Municipal Customers contend that the
Commission ignored the relative paucity of potential sellers
during peak periods of energy demand. The Commission

     4
         Municipal Customers assert that the Commission conceded
that their expert’s analysis does not accurately reflect prices absent
depancaking. The Commission did no such thing. It simply
summarized Municipal Customers’ argument. See 2019 Rehearing
Order ¶ 47 n.68 (J.A. 282) (“[Municipal Customers] contend that
[their expert’s analysis] is not representative of available prices from
suppliers located in MISO without [depancaking.]”).
                               25
answered that contention too. It acknowledged that pancaking
would reduce the number of rival sellers in the market. See
March 2019 Order ¶ 67 (J.A. 244); 2019 Rehearing Order ¶ 71
(J.A. 293). But the Commission found that, even at the
summer peak when the market is most concentrated, “there
would remain at least 100” competitive sellers after the end of
depancaking. March 2019 Order ¶ 72 (J.A. 247); see also
J.A. 593–595 (Solomon Test.). And “[m]any of these are
relatively large suppliers[,] and the total amount of supply [is]
several times larger than the total [needs] of all [Louisville
Utilities] customers.” March 2019 Order ¶ 72 (J.A. 247–
248). That range of rivals ably supported the Commission’s
conclusion that pancaking would leave enough competition in
its wake.5

     In short, the Commission’s conclusion that sufficient
competition would continue after depancaking was based on
substantial evidence from which it drew sensible inferences
employing its expert knowledge of electricity markets. That
is “the kind of reasonable agency prediction * * * to which we
ordinarily defer.” Arkansas Elec. Energy Consumers v.
FERC, 290 F.3d 362, 370 (D.C. Cir. 2002) (citation omitted).

                               2

     Municipal Customers further contend that it was arbitrary
for the Commission to ignore completely the effect pancaking
would have on customer rates.

    5
        Municipal Customers object that the Commission erred by
focusing only on short-term competition and by giving them the
burden of more fully disclosing the proposals received by Energy
Agency. Because Municipal Customers made these arguments only
in their reply brief, they are forfeited. See Union of Concerned
Scientists v. Department of Energy, 998 F.3d 926, 931 (D.C. Cir.
2021).
                               26
     We agree. Agencies cannot disregard important aspects
of a problem before them. See Motor Vehicle Mfrs. Ass’n of
U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983). Because increases in electricity rates—independent
of competition concerns—were an important consideration
under the facts of this case, as well as under agency and judicial
precedent, the Commission erred by backhanding the effect
that pancaking would have on rates.

     When determining if a proposed merger is “consistent with
the public interest,” the Commission “generally” considers its
effect on rates. 18 C.F.R. § 2.26(b). That makes sense, as the
public interest “encompasses” the “various policies reflected in
the statutes specific to energy regulation[,]” including the
encouragement of “the orderly development of plentiful
supplies of electricity * * * at reasonable prices.” Wabash
Valley Power Ass’n, 268 F.3d at 1115 (emphasis added and
citations omitted).

     Rate effects can have that same importance when the
Commission evaluates supplemental merger orders under
Section 203(b). After all, the Commission will modify a
merger order only if the transaction will remain “consistent
with the public interest[.]” Westar Energy, Inc., 164 FERC
¶ 61060, at ¶ 15. Importantly, this rate analysis goes beyond
just looking at competition because, as the Commission has
recognized, markets do not always function perfectly. See
Merger Statement, 61 Fed. Reg. at 68,603.

     Yet here, the Commission expressly refused to even
consider the effect ending depancaking would have on
electricity rates. See March 2019 Order ¶ 44 (J.A. 234–235).
The Commission held, instead, that because depancaking was
imposed to protect competition, that was the only factor it
needed to consider in ending the program. Id.
                               27
    That “ostrich-like approach” will not do. Environmental
Def. Fund v. FERC, 2 F.4th 953, 975 (D.C. Cir. 2021).
Commission precedent requires it to consider how modifying a
merger order under Section 203(b) affects the public interest,
see Westar Energy, Inc., 164 FERC ¶ 61060, at ¶ 15, and a
merger’s effect on rates is a central factor in the agency’s
public-interest analysis, see 18 C.F.R. § 2.26(b). So the
Commission could not sensibly brush off the effect of its
supplemental order on customers’ rates. See also Emera
Maine, 155 FERC ¶ 61233, ¶ 37 n.68 (2016).

     The refusal to look at rate effects was quite consequential
in this case because rate hikes are not only likely—they are
certain. All parties agree that they will happen. See March
2019 Order ¶ 79 (J.A. 250); Louisville Utilities Intervenor Br.
12. And both Municipal Customers and Louisville Utilities
agree they will be material increases. Municipal Customers’
expert estimated that if depancaking were scrapped, the
municipalities’ rates in 2019 would increase by at least 15%,
with one customer’s rates rising 47%. See J.A. 768 (Affidavit
of John F. Painter (Oct. 2, 2018)). If depancaking continued,
by contrast, Louisville Utilities forecast that the program would
save customers at least $200 million in rate prices between
2018 and 2028. See J.A. 550 (Direct Testimony of Tom
Jessee). By refusing to consider the material effects of its
order on customer rates—a factor that its own regulations
identify as a key component of the public interest, see 18
C.F.R. § 2.26(b)—the Commission engaged in “unreasoned,
arbitrary, and capricious decisionmaking.” Humane Soc’y of
the United States v. Zinke, 865 F.3d 585, 606 (D.C. Cir. 2017).

    On top of that, the Commission had previously
acknowledged the role of rates in its public-interest analysis
when considering a different modification to a term of the
Louisville Utilities merger.    In a 2011 decision, the
                                 28
Commission determined that all three of its standard public-
interest factors—including rate effects—were relevant and
evaluated them when modifying another order concerned with
this very same merger. And it did so even though the order
being modified was, as here, originally designed to address
only competition concerns. See Louisville Gas, 137 FERC
¶ 61195, at ¶¶ 6–7, 39 (modifying orders meant to protect
competition only after finding that the change would have no
“adverse impact on * * * rates or regulation”).

    The Commission and Louisville Utilities make several
counterarguments, none of which succeeds.

     The Commission, for its part, asserts that its approach is
supported by other Section 203(b) decisions that did not weigh
rate effects. See 2019 Rehearing Order ¶¶ 15–16 & n.31 (J.A.
270–271) (citing Commission orders); see also Commission
Br. 46–47.

     Not at all. In the orders the Commission cites, the issue
of price increases simply was not raised by any party. See
MidAmerican Energy Holdings Co., 131 FERC ¶ 61004, ¶¶ 8–
11 (2010) (utility stated without rebuttal that modification
would save ratepayers money); Public Serv. Co. of New
Mexico, 135 FERC ¶ 61230, ¶¶ 9–11 (2011) (same); PPL
Corp., 153 FERC ¶ 61257, ¶ 22 (2015) (protestor arguing that
modification would affect capacity, but not claiming any effect
on rates); Westar Energy, 164 FERC ¶ 61060, at ¶¶ 13–16 (rate
effects not at issue).6

    6
         See also Commission Br. 46 (not contesting Municipal
Customers’ claim that “other public interest factors such as rate
impacts were not raised” in the cited decisions) (formatting modified
and citation omitted).
                                 29
    The Commission also argues that its earlier decision in
Louisville Gas is inapposite because in that decision it was
Louisville Utilities itself that raised the issue of rate effects, not
the customers. 2019 Rehearing Order ¶ 33 (J.A. 277–278).
But if rate effects are an important part of the problem, then
they remain so regardless of which party raises the concern.
See Spirit Airlines, Inc. v. Department of Transp., 997 F.3d
1247, 1255 (D.C. Cir. 2021). Basic fairness and rational
decisionmaking require no less.

     Nor does it matter, as the Commission contends, that the
Section 203(b) standard was not directly at issue in Louisville
Gas. See 2019 Rehearing Order ¶ 33 (J.A. 277–278). The
Commission there applied its understanding of the Section
203(b) standard, see Louisville Gas, 137 FERC ¶ 61195, at
¶¶ 1, 37–39, and so created agency precedent to complement
what its regulation and prior cases had already said, see 18
C.F.R. § 2.26(b); MidAmerican Energy Holdings Co., 131
FERC ¶ 61004, at ¶ 16.

    The Commission tried to smooth over this conflict by
holding that the agency was now “clarify[ing]” that, for
supplemental orders, it would only consider the particular
public-interest factor that the order approving the merger was
meant to address. 2019 Rehearing Order ¶ 35 (J.A. 278).

     That is of no help. To be sure, an agency may depart from
its precedent so long as it “display[s] awareness that it is
changing position” and shows that “the new policy is
permissible under the statute, that there are good reasons for it,
and that the agency believes it to be better[.]” FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009) (emphases
omitted).

    But even assuming the Commission’s “clarif[ication]”
showed sufficient awareness of its changed position, the
                               30
agency failed to put its analysis where its mouth was. 2019
Rehearing Order ¶ 35 (J.A. 278). In the very orders
announcing this new approach, the Commission defied it.
Rather than analyzing Louisville Utilities’ request to end
depancaking only in terms of its effect on competition, the
Commission went on to address other public interest goals.
For example, the Commission tailored its remedy to address
some customers’ reliance interests, reasoning that the “public
interest requires” that its approval of Louisville Utilities’
request be conditioned on protecting those interests. March
2019 Order ¶ 74 (J.A. 248–249).

     So it seems the modification standard is not so narrow after
all.    And nowhere did the Commission explain why
selectively excluding rate effects from the public-interest
analysis would make any sense.

     The Commission argues that because its rules only provide
that it “generally consider[s]” rates under Section 203, and then
only as to “proposed mergers[,]” it need not always weigh rate
effects in evaluating supplemental order requests.
Commission Br. 48–49 (emphasis added and citations
omitted). But just because the Commission need not consider
rates in every Section 203(b) proceeding does not mean the
agency can ignore rate effects when they are raised and are
significant. Because Commission rules and judicial precedent
establish that customer rates are a cardinal consideration in
determining whether a merger’s terms are in the public interest,
the Commission must address rates when they are an important
aspect of the problem before it. See 18 C.F.R. § 2.26(b);
Wabash Valley Power Ass’n, 268 F.3d at 1115.

    Louisville Utilities, for its part, contends that because
pancaking necessarily increases rates, analyzing rate effects
here is a “circular inquiry that would inevitably favor keeping”
                               31
depancaking in place forever. Louisville Utilities Intervenor
Br. 12. But Louisville Utilities’ own evidence suggested
otherwise. A Louisville Utilities executive testified that
depancaking reduces Municipal Customers’ rates but increases
those of the retail and transmission customers whose bills pay
for the program. See J.A. 551–552 (Jessee Test.); see also
Merger Statement, 61 Fed. Reg. at 68,603 (on the rate effects
prong, Commission will protect “wholesale ratepayers and
transmission customers”). Beyond that, even if an inquiry into
rates would favor keeping depancaking in place, that would not
dictate the outcome of the Commission’s full public-interest
determination based on all relevant factors.

     In sum, in this case, how restoring pancaking would affect
rates was a critical part of the public-interest analysis to which
the Commission could not close its eyes.

     Vacatur is the “normal remedy” for “unsustainable agency
action[,]” and neither the Commission nor Louisville Utilities
“has * * * asked the court []or given us any reason to depart
from that standard course of action.” Brotherhood of
Locomotive Eng’rs & Trainmen v. Federal R.R. Admin., 972
F.3d 83, 117 (D.C. Cir. 2020) (citation omitted).

     Even putting that forfeiture aside, the decision whether to
vacate an order depends “on the seriousness of the order’s
deficiencies * * * and the disruptive consequences of an
interim change that may itself be changed.” Environmental
Def. Fund, 2 F.4th at 976 (citation omitted). Considering
those factors, we conclude that vacatur is appropriate.

     The Commission’s failure to consider an important public-
interest factor—one that is central to the Federal Power Act’s
purpose of “encourag[ing] the orderly development of plentiful
supplies of electricity * * * at reasonable prices[,]” NAACP,
425 U.S. at 670—was a “major shortcoming[] that [went] to
                                32
the heart of the [agency’s] decision[,]” and so favors vacatur,
Humane Soc’y, 865 F.3d at 614. A material effect on rates is
not even disputed in this case, so we cannot find that there is a
“significant possibility” that the Commission may be able to
“find an adequate explanation for its actions on remand[,]”
given that it must go back to the drawing table and entirely redo
its public-interest analysis. Standing Rock Sioux Tribe v.
Army Corps of Eng’rs, 985 F.3d 1032, 1051 (D.C. Cir. 2021)
(formatting modified and citation omitted). Though vacatur
may cause some disruption, that disruption seems unlikely to
be severe, as our decision implicates in large part the same type
of rates that are required to be depancaked in the short term
under the transition mechanism. We therefore vacate the
Commission’s decision to permit Louisville Utilities to end
depancaking under Schedule 402 and remand for the agency to
reconsider its decision in light of the direct and indirect effects
ending depancaking would have on customers’ rates.

                                B

     Both Louisville Utilities and the Municipal Customers
separately assail the Commission’s transition mechanism. We
review these challenges to provide the Commission guidance
on remand, should it conclude—after considering the relevant
factors—that ending depancaking under Schedule 402 is in the
public interest. See National Fuel Gas Supply Corp. v. FERC,
468 F.3d 831, 844 (D.C. Cir. 2006) (Kavanaugh, J.)
(“provid[ing] specific guidance to FERC on what it could do
on remand if it chose to re-promulgate” orders vacated in part
by the court); cf. Oncor Elec. Delivery Co. v. NLRB, 887 F.3d
488, 495 (D.C. Cir. 2018).

    Louisville Utilities argues that the Commission erred in
whom it protected—which parties qualified for the remedy.
Then both Municipal Customers and Louisville Utilities
                              33
contend that the Commission erred in what it protected—which
fees the agency required to be depancaked. We conclude that
the Commission’s decision as to whom to protect was
reasonable and mostly reach the same conclusion regarding its
decision as to what fees to cover.

                              1

     Louisville Utilities argues that the Commission should not
have required it to continue depancaking rates for P&P. In its
view, P&P only ever enjoyed depancaked rates because
Louisville Utilities voluntarily chose to provide them, making
it unreasonable for P&P to think that depancaking would
continue indefinitely. Louisville Utilities adds that it should
not have to depancake fees associated with Prairie State in
particular, because P&P did not in fact rely on depancaking
when contracting with that generator.

     Louisville Utilities is incorrect. The Commission’s
conclusion that P&P reasonably relied on continued
depancaking was sound, and substantial evidence supports the
Commission’s finding that P&P committed to Prairie State in
reliance on depancaked rates.

                              a

     The Commission’s transition mechanism was designed to
protect “customers located in the [Louisville Utilities] market
that reasonably relied on” depancaking in contracting for
electrical power. March 2019 Order ¶ 80 (J.A. 250). P&P fit
that bill.

    To start, the Commission properly found that P&P is a
customer in the Louisville Utilities market. See 2019
Rehearing Order ¶ 109 (J.A. 306–307). Like the other parties
whose reliance interests the Commission protected—without
                              34
protest from Louisville Utilities—P&P is on the Louisville
Utilities grid and a potential Louisville Utilities wholesale
power customer that was expressly protected from pancaked
rates under Schedule 402. See March 2019 Order ¶¶ 77, 81
(J.A. 249–251); 2019 Rehearing Order ¶ 109 (J.A. 306–307);
Second Rehearing Order ¶ 37 (J.A. 360); cf. J.A. 593 (Solomon
Test.) (Louisville Utilities’ expert analyzing competition
effects of ending depancaking on P&P, among other
customers).

     The Commission’s conclusion that P&P could reasonably
rely on the protections of Schedule 402 was also sound because
its depancaking provisions were designed to comply with
earlier Commission orders, and so were not optional. See
Second Rehearing Order ¶¶ 39–40 (J.A. 361–362); Transition
Rehearing Order ¶¶ 45–46 (J.A. 395–397).

    Louisville Utilities insists that it was only required to
protect those customers in its wholesale market at the time of
the merger in 1998, and it protected other entities in Schedule
402 only voluntarily.

     Not so. Schedule 402, which depancaked P&P’s rates
with MISO, was by its terms “intended to implement the
Section 203 mitigation requirements ordered by the
Commission[.]” J.A. 559 (Schedule 402 § 1.a.v); see
Transition Rehearing Order ¶ 45 (J.A. 395–396). And
Louisville Utilities itself acknowledged, when first agreeing to
protect P&P and other parties from rate pancaking that “it [was]
counter-intuitive at [that] time to contemplate that FERC would
permit the company to establish new rate pancakes” for the
parties to the agreement. J.A. 450–451 (February 2006 Term
Sheet § 1); see Second Rehearing Order ¶¶ 39–40 (J.A. 361–
                                 35
362).7 So the Commission’s conclusion that P&P reasonably
believed itself protected from pancaked rates by the
Commission was justified.

     To be sure, the 2006 Withdrawal Order only expressly
directed Louisville Utilities to protect its wholesale customers
from pancaked rates with MISO. See 2006 Withdrawal Order
¶ 112 (J.A. 130). But the Commission reasonably found that
Louisville Utilities agreed to depancake P&P’s rates because
P&P was planning to join the Louisville Utilities wholesale
market, and would then be protected by the Commission’s
merger orders. See Second Rehearing Order ¶ 40 (J.A. 361–
362); Transition Rehearing Order ¶¶ 45–46 (J.A. 395–397);
1998 Merger Order, at 19 (J.A. 19) (protecting customers in
Louisville Utilities’ wholesale market). In other words,
Louisville Utilities agreed to Schedule 402 because it had to
depancake rates for entities in its wholesale market subject to
its “horizontal market power[,]” which it understood at the time
would likely soon include P&P. 2006 Withdrawal Order
¶ 112 (J.A. 130); see also Second Rehearing Order ¶ 40 (J.A.
361); cf. J.A. 583, 601 (Solomon Test.) (Louisville Utilities
expert assessing the competitive effects of pancaking on all
Schedule 402 customers on the company’s grid). Especially
given our deference to the Commission’s interpretation of
tariffs like Schedule 402, that is substantial evidence
supporting the agency’s conclusion that Louisville Utilities did
not voluntarily depancake P&P’s rates with MISO. See City

    7
        Cf. LG&E Energy LLC on behalf of Louisville Gas and
Electric Co. et al., Midwest ISO Withdrawal & Independent
Transmission Organization/Reliability Coordinator Implementation
Filing, FERC Accession No. 20051007-4004 (Oct. 7, 2005), at 20
(“[Louisville Utilities] seek[s] to ensure that [its] withdrawal from
[M]ISO * * * is consistent with the Commission’s goal of
eliminating transmission rate pancaking.”).
                             36
& County of San Francisco v. FERC, 24 F.4th 652, 660 (D.C.
Cir. 2022).

     On top of that, in protecting P&P, the Commission was
hewing to the March 2019 Order, to which Louisville Utilities
never objected. See Second Rehearing Order ¶ 37 (J.A. 360).
In that decision, the Commission required Louisville Utilities
to temporarily depancake rates for the City of Owensboro,
another Schedule 402 customer that was not one of Louisville
Utilities’ wholesale clients in 1998. See March 2019 Order
¶ 77 (J.A. 249). Louisville Utilities tries to distinguish
Owensboro’s coverage, asserting that the city, unlike P&P, was
on its grid in 1998. But Owensboro indisputably was not a
Louisville Utilities wholesale customer in 1998. That goes to
show that the Commission found it reasonable for entities to
rely on depancaking even if they were not Louisville Utilities
wholesale customers at the time of the merger—a holding to
which the company did not object when the Commission first
adopted it in 2019. See Second Rehearing Order ¶ 37 (J.A.
360).

                              b

    The Commission also reasonably found that P&P relied on
depancaking when it invested in Prairie State.

     Louisville Utilities argues that it was “chronologically
impossible” for P&P to “rely on de-pancaking when deciding
to invest in Prairie State” because it began investing in the
generator after Louisville Utilities had announced plans to
leave MISO and before it signed Schedule 402. Louisville
Utilities Opening Br. 36.

     That argument misses the mark. As the Commission
found, P&P first agreed to invest only a modest amount in
Prairie State in February 2005, when Louisville Utilities was
                               37
still in MISO and unable to pancake rates with other parts of
that grid. See Transition Rehearing Order ¶ 47 (J.A. 397).
While the utility’s request to leave MISO was pending, P&P
looked into other electricity options, recognizing that fully
investing in a generator in MISO might be uneconomical with
pancaked rates. See id.; see also J.A. 1240–1242 (Thornton
Aff.). It was only after the Commission accepted Schedule
402, with its promise of depancaking for P&P, that P&P made
the decision to invest hundreds of millions of dollars in Prairie
State. See Transition Rehearing Order ¶ 47 (J.A. 397); J.A.
1235, 1239–1240 (Thornton Aff.).          That is substantial
evidence of reliance.

                               2

     Turning to Municipal Customers’ and Louisville Utilities’
challenges to the Commission’s design of its reliance interest
remedy, we generally find no error, with two exceptions.

    Because the transition remedy was designed to “protect the
economics of the decisions made by [Municipal Customers]
while [depancaking] was in effect[,]” the Commission ordered
Louisville Utilities to depancake fees associated with
agreements entered before the March 2019 Order to the same
extent as they would have been covered under Schedule 402.
Transition Rehearing Order ¶ 77 (J.A. 412); see id. ¶¶ 24–25
(J.A. 386–387).

    To ensure that the transition mechanism only covered
“reasonabl[e]” reliance interests, the Commission only
required continued depancaking for the “initial term” of
covered power agreements. March 2019 Order ¶¶ 80, 82
(J.A. 250–251); see also 2019 Rehearing Order ¶ 111 (J.A.
307); Transition Rehearing Order ¶¶ 49, 83 (J.A. 398–399,
415–416).
                              38
    In applying those principles, the Commission made
several choices about what types of fees were covered, which
financial commitments to protect, and how long its remedy
should last. Municipal Customers and Louisville Utilities
each challenge some of those details.

                               a

     Louisville Utilities argues that the Commission arbitrarily
required it to depancake three MISO fees known as Schedules
26, 26-A, and 45. The utility claims that it does not charge
fees that correspond to those schedules, so MISO’s bills are not
duplicative, leaving no pancaked rates to depancake.

     The Commission reasonably found otherwise. Schedules
26 and 26-A are MISO’s overhead charges to customers for
construction that benefits multiple parts of its grid. See 2019
Transition Mechanism Order ¶ 63 (J.A. 332). As the
Commission noted, Louisville Utilities does not similarly
divide its grid into zones, and its building requirements are
different. See id.; Transition Rehearing Order ¶ 64 (J.A. 405–
406). But what matters for purposes of depancaking is that
Louisville Utilities collects fees from its customers for the
same basic purpose as Schedules 26 and 26–A: that is,
building and maintaining transmission capacity. See 2019
Transition Mechanism Order ¶ 63 (J.A. 332); Transition
Rehearing Order ¶ 64 (J.A. 405–406). Depancaking the
Schedule 26 and 26-A fees ensures that customers do not pay
for that same type of overhead twice.

     As for the Schedule 45 charges, MISO uses those fees to
pay for the costs of responding to grid reliability alerts. See
2019 Transition Mechanism Order ¶ 64 (J.A. 332–333);
Transition Rehearing Order ¶¶ 66–67 & n.117 (J.A. 407–408).
The Commission found that Louisville Utilities charges fees to
that same end. See Transition Rehearing Order ¶¶ 66–67 &
                               39
n.117 (J.A. 407–408). Though Louisville Utilities contends
that Schedule 45 covers “discretionary and site-specific”
responses, it has no answer to the Commission’s evidence that
it also charges customers to address the same type of incidents.
Louisville Utilities Opening Br. 41–42.

     Given that record, Louisville Utilities provides no basis for
us to reject these technical and record-specific factual findings
by the Commission. See Electric Power Supply Ass’n, 577
U.S. at 292.

                                b

    Contrary to the Municipal Customers’ objection, the
Commission properly limited its transition mechanism to their
preexisting agreements with entities in MISO because
Schedule 402 itself only applied to such contracts. See Second
Rehearing Order ¶ 61 (J.A. 371–372); Transition Rehearing
Order ¶¶ 76, 83 (J.A. 412, 415–416).

     Though Municipal Customers contend that some
municipalities had relied on backup energy in MISO when
securing power outside of MISO, the Commission sensibly
focused its remedy on the agreements that fell squarely within
Schedule 402—that is, contracts with entities inside MISO.
See Transition Rehearing Order ¶¶ 76, 83 (J.A. 412, 415–416).
In doing so, the Commission reasonably declined to embroil
itself in the intractable task of trying to discern which other
arrangements that themselves would not have been protected
by Schedule 402 were in some sense still reliant on it. Even if
another decision would have been reasonable, that is the type
of “line-drawing” that “[w]e are generally unwilling” to
overturn unless the lines drawn are “patently unreasonable,
having no relationship to the underlying regulatory problem.”
ExxonMobil Gas Mktg. Co. v. FERC, 297 F.3d 1071, 1085
                              40
(D.C. Cir. 2002) (formatting modified and citation omitted).
Municipal Customers have not shown that.

                               c

     Turning to the Commission’s decision to require
Louisville Utilities to depancake P&P’s rates tied to Prairie
State only for ten years, Louisville Utilities says there is too
much coverage. P&P says there is too little coverage. We
say the Commission got it just right enough.

     P&P’s investment in Prairie State presented the
Commission with a conundrum. P&P had counted on
continued depancaking in investing in the Prairie State project,
creating a reliance interest. See 2019 Rehearing Order ¶ 111
(J.A. 307). Investing in the project—which includes a coal
plant, a coal mine, and related facilities—took considerable
resources. See J.A. 1285 (Prairie State Project Power Sales
Agreement Attach. 1); Second Rehearing Order ¶ 44 (J.A.
364).

     Yet the arrangement did not fit easily into the
Commission’s decision to cabin the transition mechanism to
the initial term of power purchase agreements. See Second
Rehearing Order ¶¶ 44, 53 (J.A. 364, 368–369); March 2019
Order ¶ 82 n.126 (J.A. 251). P&P’s arrangement with Prairie
State lasts until all of the consortium’s relevant “obligations
and liabilities” have been paid and the project “has been
terminated[.]” See J.A. 1255 (Prairie State Project Power
Sales Agreement § 101). That could be decades and decades
down the line. Because P&P’s arrangement with Prairie State
has no “readily apparent ‘term’”—or, rather, has an indefinite
term—bringing the entire Prairie State arrangement into the
transition mechanism would saddle Louisville Utilities with
potentially perpetual depancaking duties, which the
Commission found incompatible with the time-limited nature
                              41
of the remedy. See Second Rehearing Order ¶¶ 43–44 (J.A.
363–364); see also id. ¶ 53 (J.A. 368).

     Balancing P&P’s reliance interests against the burden of
indefinite mitigation, the Commission capped Prairie State-
related depancaking to a “proxy term” of ten years. November
2020 Order ¶ 20 (J.A. 435). For support, the Commission
pointed to one of its earlier merger mitigation decisions,
NextEra Energy, Inc., 165 FERC ¶ 61199 (2018). See Second
Rehearing Order ¶ 44 & n.70 (J.A. 364). In NextEra, the
Commission found that it needed to retain a mitigation measure
to preserve competition for only approximately ten years
because, by that point, new generators might enter the market
and replace the rivalry lost in the merger. See 165 FERC
¶ 61199, at ¶ 31. Similarly here, the Commission found that a
decade would give P&P enough time to “plan for future market
conditions[,]” and the benefit of “new entry” from other
generators to provide energy alternatives. November 2020
Order ¶ 20 (J.A. 435).

     Municipal Customers respond that P&P’s agreements with
Prairie State contain a definitive end date, albeit one that “is
not expressed as a calendar date[.]” Municipal Customers
Opening Br. 35–36.

     That misses the point. The Commission defined an
“initial term” to mean “the term specified in [a] power purchase
agreement before any extensions pursuant to an evergreen
provision or other provision[.]” March 2019 Order ¶ 82 n.126
(J.A. 251). In that way, the Commission drew a line against
protecting contracts if they were extended and re-extended. In
other words, to confine the remedy to reasonable reliance
interests for a reasonable period of time, the Commission
“phase[d]-out the De-pancaking Mitigation,” rather than
allowing it to continue indefinitely. Second Rehearing Order
                               42
¶¶ 43, 67 (J.A. 363, 374); see also March 2019 Order ¶ 80 (J.A.
250). So it made sense to set a reasonable time limit for Prairie
State depancaking that would be fair under the circumstances.
See Second Rehearing Order ¶¶ 43–44 (J.A. 363–364). P&P,
for its part, never even proposed an alternative fixed timeframe
the Commission could have used as an initial term instead.
See J.A. 1482–1485 (Municipal Customers Rehearing Request
as to the Transition Rehearing Order and Second Rehearing
Order); Municipal Customers Opening Br. 33–38.

     Both Louisville Utilities and Municipal Customers
contend that the Commission acted arbitrarily by relying on
NextEra to select a term for Prairie State depancaking. To
Louisville Utilities, NextEra involved the question of how long
merger mitigation “should exist in the first place, not how long
it should take to transition away from” it. Louisville Utilities
Opening Br. 39 (internal quotation marks omitted). Because
Louisville Utilities had been depancaking rates for more than a
decade already, it argues that the Commission’s directive to
cover Prairie State fees for ten more years was irrational.
Municipal Customers, meanwhile, argue that NextEra
inappositely dealt with the question of how long mitigation is
needed to protect competition, not reliance interests, and the
approximately ten-year mitigation term there was based on
case-specific facts.

     Those are fair points. But not enough to displace the
Commission’s judgment. The Commission never claimed
that the facts of NextEra mapped onto the Prairie State situation
perfectly. Instead, the Commission found NextEra to be a
helpful benchmark because the approximately ten-year
mitigation period in that case (i) gave the affected parties time
to adjust to the new market landscape, by (ii) allowing for more
competitive entry. See November 2020 Order ¶ 20 (J.A. 435).
Those same considerations apply to the Commission’s
                                43
transition mechanism here. Like the affected parties in
NextEra, P&P will now face a new market and cost
environment; ten additional years of depancaking will give it a
cushion to “plan accordingly.”            Id.    And if there is
“competitive new entry[,]” as the Commission predicted,
P&P’s reliance interests may diminish as new providers lower
the costs of switching to a new energy source. Id. So while
NextEra dealt with a different factual scenario, its principles
have purchase here, and the Commission’s judgment in that
regard was well within its broad remedial powers under Section
203(b).    See Environmental Action, 939 F.2d at 1064
(deferring to Commission merger condition decision because
“agency discretion is, if anything, at [its] zenith when the action
assailed relates to the fashioning of policies, remedies[,] and
sanctions”) (formatting modified and citation omitted).

     Municipal Customers respond that P&P can do nothing to
“plan” for the end of depancaking because it is irrevocably
committed to Prairie State. Municipal Customers Opening Br.
38 (citation omitted). But the Commission only guarded
reasonable reliance interests, March 2019 Order ¶ 80 (J.A.
250), and it was not unreasonable for the Commission to leave
P&P responsible for some portion of its open-ended investment
in Prairie State given that nothing in Schedule 402 promised
that its depancaking would continue indefinitely. See J.A. 559
(Schedule 402 § 1.a.v) (recognizing that parties to the
depancaking provisions could seek changes with the
Commission); Second Rehearing Order ¶ 53 (J.A. 368) (“[T]he
Transition Mechanism * * * was intended to protect, for a
limited period of time, the customers that accessed the market
and reasonably relied on the De-Pancaking Mitigation when
making their past power supply choices.”).
                              44
                               d

    Next, Louisville Utilities argues that the Commission’s
order to depancake P&P’s rates related to a hydroelectric
project was arbitrary. We agree.

    The Commission held that P&P should be protected from
pancaked fees relating to a hydropower project in which it held
an ownership stake. See November 2020 Order ¶ 22 & n.35
(J.A. 435–436). Because P&P’s power agreements with the
project last “until December 31, 2057, or until other conditions
occur[,]” the Commission found that depancaking must
continue until the end of 2057. Id. (citation omitted).

     That reasoning cannot be reconciled with the
Commission’s determination that the transition mechanism
was meant to extend depancaking only for a “limited period of
time[.]” Second Rehearing Order ¶ 53 (J.A. 368). The
Commission had just said that ten years of mitigation was
enough to protect P&P’s similar long-term investment in
Prairie State. See id. ¶ 44 (J.A. 364). Yet here, the
Commission concluded that mitigation must continue for an
additional 38 years—simply because the hydropower
agreements contained a concrete end date of 2057. See
November 2020 Order ¶ 22 (J.A. 435–436).

     That makes no sense. If ten years of protection suffices
for an ownership interest that continues “indefinitely[,]”
something in the neighborhood of ten years would seem the
relevant timeframe to protect another exceptionally long
investment.      Second Rehearing Order ¶ 44 (J.A. 364);
Municipal Customers Opening Br. 36 (recognizing
inconsistency between Commission’s hydropower holding and
its Prairie State decision). The Commission failed to explain
why the fact that an agreement will terminate by a date certain
justified extending the mitigation term for nearly four decades.
                               45
Though we are deferential to the Commission’s remedial
decisions, we cannot overlook such unexplained inconsistency.
See Chippewa & Flambeau Improvement Co. v. FERC, 325
F.3d 353, 358 (D.C. Cir. 2003) (“A grant of discretion to an
agency does not, of course, authorize it to make an unprincipled
decision[.]”).

     The Commission responds that its decision was not unduly
discriminatory because parties with “clear initial terms and
those without clear initial terms are not similarly situated.”
Commission Br. 70. But the agency’s mistake was not that it
did not factually distinguish the two cases. The Commission
simply failed to explain why that distinction matters, given that
the point of the transition mechanism was to protect reasonable
reliance interests for a reasonable time, not to protect those who
happen to have tied their agreements to a calendar. See
Second Rehearing Order ¶ 53 (J.A. 368).

    Should the Commission conclude on remand that the
public interest supports ending depancaking under Schedule
402, it must either better explain this aspect of the transition
mechanism or take a fresh approach to the question.

                                    e

     Finally, Municipal Customers contend that the
Commission arbitrarily declined to protect the entirety of a
transmission reservation Energy Agency purchased from
MISO. Here too, we find the Commission’s reasoning
inexplicable.

    Before the March 2019 Order, Energy Agency agreed to
an eight-year deal to reserve capacity on MISO’s wires for
imported power. See Second Rehearing Order ¶ 49 (J.A.
366); J.A. 1178 (Affidavit of John F. Painter (Aug. 2, 2019)).
That capacity reservation gives Energy Agency the temporary
                               46
right to ship electricity, using MISO lines, from MISO-based
generators to the border with Louisville Utilities. See J.A.
1181 (2019 Painter Aff.); Louisville Gas, 988 F.3d at 845–846
(explaining how transmission reservations work). As part of
that agreement, Energy Agency is contractually “obligated to
make monthly payments for the MISO * * * capacity reserved”
regardless of how much it uses. J.A. 1173 (2019 Painter Aff.);
see also 2019 Rehearing Order ¶ 104 & n.142 (J.A. 304–305).

    The Commission agreed that the reservation must be
depancaked, but only so long as it is used to transmit power
purchased before the March 2019 Order. See 2019 Rehearing
Order ¶ 111 (J.A. 307). The agency asserted that, unlike
power purchase agreements, a transmission reservation is “not
a separate financial commitment that merits” independent
protection. Second Rehearing Order ¶ 53 (J.A. 368). If
those agreements were covered, the Commission said, Energy
Agency could “preserve * * * de-pancaking for future power
supply transactions not yet entered into[.]” Id. That would
be unreasonable, according to the Commission, because
customers now “have access to competitive power supply
choices[.]” Id. (J.A. 368–369).

     That rationale does not make sense. The Commission
said it would protect Municipal Customers’ commitments (i)
that were reasonably reliant on depancaking, (ii) for a
reasonable initial term, and (iii) that would have been protected
under Schedule 402. See March 2019 Order ¶ 80 (J.A. 250);
2019 Rehearing Order ¶ 111 (J.A. 307); Second Rehearing
Order ¶ 43 (J.A. 363–364). Energy Agency’s transmission
reservation checks each of those boxes.

     Energy Agency’s transmission reservation was
indisputably made in reliance on depancaking, see 2019
Rehearing Order ¶ 111 (J.A. 307), and there was unrebutted
                                   47
record evidence that Energy Agency owes monthly fees for
eight years even if its reserved capacity is unused, see J.A. 1173
(2019 Painter Aff.); see also 2019 Rehearing Order ¶ 104 &
n.142 (J.A. 304–305). In addition, the Commission had
already decided that transmission reservations used to import
power from MISO—like those at issue here—must be
depancaked under Schedule 402. 8 On this record, the
Commission’s holding that transmission reservations are not
“separate financial commitment[s]” meriting independent
protection was conclusory and inconsistent with the plain
criteria of the transition mechanism. Second Rehearing Order
¶ 53 (J.A. 368).9

     That customers now enjoy a competitive power market is
beside the point. See Second Rehearing Order ¶ 53 (J.A. 368–
369).     If today’s competitive market obviated reliance
interests, there would be no need for the transition mechanism
at all. But the Commission balanced competing interests and
explicitly concluded that reliance interests in electricity
contracts must be protected for a reasonable period of time:
     8
         See 2019 Rehearing Order ¶ 111 & n.148 (J.A. 307) (citing
Owensboro Mun. Utils., 166 FERC ¶ 61131 (2019), rev’d, Louisville
Gas, 988 F.3d at 843); Owensboro Mun., 166 FERC ¶ 61131, at
¶¶ 41–44 (requiring Louisville Utilities to depancake a Schedule 402
customer’s “transmission reservation” in MISO); Louisville Gas,
988 F.3d at 848 (Commission required Louisville Utilities to
depancake a customer’s “reservation charges * * * apparently for the
life of the contract with MISO”).
     9
        It does not matter for this decision that the Sixth Circuit later
vacated the Commission’s order requiring Louisville Utilities to
depancake a transmission reservation in MISO. See Louisville Gas,
988 F.3d at 843; see also Brooklyn Union Gas Co. v. FERC, 409 F.3d
404, 406 (D.C. Cir. 2005). The Sixth Circuit’s decision was issued
after the challenged orders, and so it cannot retroactively make
earlier Commission decisions that did not rely on it reasonable.
                              48
“Although we have determined that there would continue to be
a sufficient number of competitive suppliers [absent
depancaking],” it would nevertheless “not be consistent with
the public interest to” end depancaking “without a [remedy]
accounting for [customers’] reliance on that mitigation.”
March 2019 Order ¶ 79 (J.A. 250). So the Commission’s
competition finding does nothing to justify reaching a different
result for transmission reservations than it did for power
purchase agreements.

      The Commission’s claim that depancaking Energy
Agency’s entire transmission reservation would unduly extend
its remedy to future power agreements was also baseless. See
Second Rehearing Order ¶¶ 51–53 (J.A. 367–368). The
Commission did not explain why Louisville Utilities could not
depancake the portions of the reservation to which Energy
Agency irrevocably committed before the March 2019 Order
without covering other fees that may attend its future use.
That amounts to a failure of reasoned decisionmaking. See
Spirit Airlines, 997 F.3d at 1255 (“An agency is required to
consider responsible alternatives to its chosen policy and to
give a reasoned explanation for its rejection of such
alternatives.”) (citation omitted).

     The Commission and Louisville Utilities argue that
“power purchase agreements and transmission service
reservations are different, especially in light of the
determination that customers now have competitive supply
choices.” Commission Br. 78; see also Louisville Utilities
Intervenor Br. 16–17.         But that simply repeats the
Commission’s hollow explanation for limiting its protection of
the transmission contract that we have already found wanting.
If the Commission chooses again to end Schedule 402
depancaking on remand, it must come forward with a logical
explanation for its decision here that is consistent with the
                               49
purpose and scope of the transition mechanism, or it must
extend depancaking on reasoned terms to Energy Agency’s
transmission contract.

                               IV

    For all those reasons, we grant the petitions in part, vacate
the challenged orders in part, and remand for further
proceedings consistent with this opinion.

                                                    So ordered.