The D.C. Circuit Court of Appeals has remanded to FERC an order rejecting a mitigation plan LG&E and KU Energy filed to replace its longstanding obligation to de-pancake rates for wholesale customers (23-1196).

The court ruled Aug. 8 that FERC did not adequately consider whether the utility’s transition mechanism provided ratepayers protection from the removal of the rate schedule the utility instituted in 2006 when it left MISO. Schedule 402 ensured customers would not pay duplicate rates across its territory after Louisville Gas & Electric and Kentucky Utilities merged in 1998 while also reimbursing them for MISO’s charges because the grid operator did not agree to reciprocally de-pancake its own rates.

After more than a decade of using Schedule 402, the company asked FERC to end its obligation, which the commission did in 2019, on the condition the utility institute a transition mechanism. But the commission reversed itself on remand from the D.C. Circuit in 2023 and directed the utility to reinstitute 402. (See FERC Upholds De-pancaking Provisions in LG&E/KU Rates.)

In its decision, FERC declined to use the pre-merger status quo — which would have rates pancaked between MISO, LG&E and KU — as a point of reference. The utility argued that FERC should have used that as a baseline and that its retail customers were picking up the costs of de-pancaking rates with MISO for wholesale customers. The utility also proposed a transition mechanism that would have continued de-pancaking some rates for wholesale customers for decades, which it argued would fully mitigate any impact on wholesale rates.

“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, thereby mitigating any concern that customers continue to need Schedule 402 to protect their reliance interests,” the court said. “In fact, during oral argument, counsel for FERC suggested that the transition mechanism agreements could be a potential protection offered to mitigate or end the need for de-pancaking.”

Eighteen municipal customers benefit from the de-pancaking, and 12 of them would be covered by the transition mechanism or some other agreement. The other six do not take service from MISO.

FERC needs to consider whether the transition mechanism is enough to get rid of Schedule 402, the court ruled.

“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,” the court said.