 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT




Argued December 6, 2016              Decided April 14, 2017

                       No. 15-1118

       EMERA MAINE, FORMERLY KNOWN AS BANGOR
          HYDRO-ELECTRIC COMPANY, ET AL.,
                     PETITIONERS

                             v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

               ATTORNEY GENERAL FOR THE
              STATE OF CONNECTICUT, ET AL.,
                      INTERVENORS



            Consolidated with 15-1119, 15-1121



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



   David B. Raskin argued the cause for petitioners Emera
Maine, et al. With him on the briefs were Gary A. Morgans,
Charles G. Cole, Jeffrey M. Jakubiak, Kenneth G. Jaffe, Sean
                               2
A. Atkins, Gunnar Birgisson, Stephen M. Spina, David R. Poe,
Karen Krug O’Neill, and S. Mark Sciarrotta. Jason J.
Fleischer and Mary E. Grover entered appearances.

     David E. Pomper argued the cause for petitioners Attorney
General of Massachusetts, et al. With him on the briefs were
Scott H. Strauss, Latif M. Nurani, John P. Coyle, Joseph A.
Rosenthal, Susan W. Chamberlin, Maura Healy, Attorney
General, Office of the Attorney General for the
Commonwealth of Massachusetts, Jeffrey A. Schwarz, George
Jepson, Attorney General, Office of the Attorney General for
the State of Connecticut, John S. Wright, Michael C.
Wertheimer, and Clare E. Kindall, Assistant Attorneys
General, Donald J. Sipe, Cynthia Arcate, Timothy R.
Schneider, and Leo J. Wold, Assistant Attorney General, Office
of the Attorney General for the State of Rhode Island.

    Beth G. Pacella, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were Robert H. Solomon, Solicitor, and
Lona T. Perry, Deputy Solicitor.

    Jefffrey M. Jakubiak, Kenenth G. Jaffe, Sean A. Atkins,
Gunnar Birgisson, Stephen M. Spina, David R. Poe, David B.
Raskin, Gary A. Morgans, Charles G. Cole, Karen Krug
O’Neill, and S. Mark Sciarrotta were on the brief for intervenor
Transmission Owners supporting respondent.

    Scott H. Strauss, David E. Pomper, Latif M. Nurani, John
P. Coyle, Joseph A. Rosenthal, Susan W. Chamberlin, Maura
Healy, Attorney General, Office of the Attorney General for
the Commonwealth of Massachusetts, Jeffrey A. Schwarz,
George Jepson, Attorney General, Office of the Attorney
General for the State of Connecticut, John S. Wright, Michael
C. Wertheimer, and Clare E. Kindall, Assistant Attorneys
                               3
General, Donald J. Sipe, Cynthia Arcate, Timothy R.
Schneider, and Leo J. Wold, Assistant Attorney General, Office
of the Attorney General for the State of Rhode Island, were on
the brief for Customers as Intervenors Supporting FERC
Authority To Reduce Regulated Returns.

   Before: MILLETT, Circuit Judge, and SENTELLE and
RANDOLPH, Senior Circuit Judges.

   Opinion for the Court filed by Senior Circuit Judge
SENTELLE.

     SENTELLE, Senior Circuit Judge: Under the Federal Power
Act (“FPA”), the Federal Energy Regulatory Commission
(“FERC” or “the Commission”) must ensure that all rates
charged for the transmission or sale of electric energy are “just
and reasonable.” 16 U.S.C. §§ 824d(a), 824e(a). Petitioners
New England Transmission Owners (“Transmission Owners”)
provide transmission services for customers in New England.
In 2011, Petitioners Massachusetts and various consumer-side
stakeholders (“Customers”) filed a complaint under section
206 of the FPA, 16 U.S.C. § 824e, alleging that Transmission
Owners’ base return on equity (“ROE”) had become unjust and
unreasonable. FERC’s orders in that section 206 proceeding
are the subjects of the petitions for review in this case.
     After creating a new zone of reasonableness and
identifying a specific base ROE it found to be just and
reasonable, FERC held that Transmission Owners’ existing
ROE—which was within the newly determined zone of
reasonableness but did not equal FERC’s new ROE—was
unlawful. FERC explained that by setting a new just and
reasonable ROE, it necessarily found that Transmission
Owners’ existing ROE was unjust and unreasonable, thus
satisfying its burdens under section 206.
                               4
     In setting Transmission Owners’ new ROE, FERC
deviated from its traditional use of the midpoint of the zone of
reasonableness, citing the presence of anomalous capital
market conditions and concluding that a mechanical
application of the midpoint would not result in a just and
reasonable rate in this case. After considering additional record
evidence, FERC placed the ROE at the midpoint of the upper
half of the newly determined zone of reasonableness.

     FERC then informed Transmission Owners that their total
ROE—base ROE plus any incentive adders—was now capped
at the upper end of the newly determined zone of
reasonableness. Rather than change Transmission Owners’
previously approved incentive adders, FERC explained that its
decision merely applied the Commission’s well-established
policy that a utility’s total ROE must remain within the zone of
reasonableness.

     Both Transmission Owners and Customers filed petitions
for review challenging whether FERC satisfied the statutory
requirements under section 206 in setting a new ROE.
Transmission Owners argue that FERC’s orders must be
vacated because it failed to find that the existing ROE was
unjust and unreasonable before setting a new ROE. Customers
contend that FERC arbitrarily placed the new ROE at the
midpoint of the upper half of the zone of reasonableness.
Because FERC failed to articulate a satisfactory explanation for
its orders, we grant the petitions for review.

                               I.

                   ISO New England Tariff

      Transmission Owners are a group of privately owned
utilities that provide transmission services in New England. In
                               5
2004, Transmission Owners and ISO New England, Inc.
established ISO New England as a regional transmission
organization. See Conn. Dep’t of Pub. Util. Control v. FERC,
593 F.3d 30, 32 (D.C. Cir. 2010). Transmission Owners
recover their transmission revenue requirements through
formula rates included in ISO New England, Inc.’s open access
transmission tariff (“ISO New England Tariff”). To calculate
the total cost for each Transmission Owner to provide
transmission service from its facilities, the ISO New England
Tariff uses formula rates, which are based on the aggregated
cost of all the transmission assets of each Transmission Owner.
The revenue requirements for Transmission Owners are
calculated using the same single base ROE. Each Transmission
Owner’s costs are calculated under the formula, summed, and
then divided by the aggregate demand in New England to
produce the regional transmission rates under the ISO New
England Tariff. This is known as “rolled-in” ratemaking. See,
e.g., Otter Tail Power Co., 12 FERC ¶ 61,169 at 61,420 (1980).

       Section 205 Proceedings Before the Commission

     Pursuant to section 205 of the FPA, 16 U.S.C. § 824d,
Transmission Owners submitted a proposal in 2003 to establish
ISO New England as a regional transmission organization.
Transmission Owners also submitted “a related section 205
filing seeking approval for the ROE component recoverable
under the regional and local transmission rates charged by ISO
New England.” Bangor Hydro-Elec. Co., 117 FERC ¶ 61,129
at P 5 (2006), order on reh’g, 122 FERC ¶ 61,265 (2008), order
granting clarification, 124 FERC ¶ 61,136 (2008), aff’d sub
nom. Conn. Dep’t of Pub. Util. Control v. FERC, 593 F.3d 30
(D.C. Cir. 2010). In 2006, FERC established the base ROE for
Transmission Owners at 11.14 percent. In establishing the base
ROE, FERC relied on a zone of reasonableness, determined in
a discounted cash flow analysis, of 7.3 percent to 13.1 percent.
                              6

     FERC also approved a number of ROE incentive adders
applicable to Transmission Owners. Citing section 219 of the
FPA, 16 U.S.C. § 824s, FERC established “incentive-based
rate treatments to further encourage the construction of
transmission facilities and replacement of aging transmission
infrastructure.” S. Cal. Edison Co. v. FERC, 717 F.3d 177, 179
(D.C. Cir. 2013) (citing Promoting Transmission Inv. Through
Pricing Reform, 116 FERC ¶ 61,057 (2006), order on reh’g,
117 FERC ¶ 61,345 (2006), order on reh’g, 119 FERC
¶ 61,062 (2007)). All rates approved under section 219 must
meet the FPA’s just-and-reasonable standard. 16 U.S.C.
§ 824s(d). In Transmission Owners’ section 205 proceeding,
FERC approved a 100-basis-point adder for certain
transmission projects, which we affirmed. See Conn. Dep’t of
Pub. Util. 593 F.3d at 33–37. Most of Transmission Owners’
incentives were approved in separate proceedings. See, e.g.,
Ne. Utils. Serv. Co., 125 FERC ¶ 61,183 (2008), reh’g denied,
135 FERC ¶ 61,270 (2011); Cent. Me. Power Co., 125 FERC
¶ 61,079 (2008), reh’g denied, 135 FERC ¶ 61,136 (2011).

      Section 206 Proceedings Before the Commission

     This case concerns FERC’s determination of Customers’
section 206 challenge to Transmission Owners’ base ROE set
in the section 205 proceedings. See Coakley v. Bangor
Hydro-Elec. Co., 144 FERC ¶ 63,012 (2013) (“ALJ
Decision”), aff’d in part, rev’d in part, Opinion No. 531, 147
FERC ¶ 61,234 (2014) (“Opinion No. 531”), order on paper
hearing, Opinion No. 531-A, 149 FERC ¶ 61,032 (2014)
(“Opinion No. 531-A”), order on reh’g, Opinion No. 531-B,
150 FERC ¶ 61,165 (2015) (“Opinion No. 531-B”).

   In 2011, Customers filed a section 206 complaint with
FERC alleging that Transmission Owners’ 11.14 percent base
                                7
ROE had become unjust and unreasonable. The complaint was
premised on Customers’ contention that Transmission Owners’
capital costs had declined since the base ROE was established
in 2006 due to changes in the capital markets. This section 206
proceeding was “the first case of its kind to challenge utilities’
base ROEs [after] the economic recession of 2007-2009 . . . .”
Opinion No. 531-B, 150 FERC ¶ 61,165 at P 15 n.34.

    Applying a newly created discounted cash flow zone of
reasonableness of 6.1 percent to 13.2 percent, the
Administrative Law Judge concluded that Transmission
Owners’ current 11.14 percent base ROE was unjust and
unreasonable. ALJ Decision, 144 FERC ¶ 63,012 at PP 544,
587, 589. Then, using the midpoint of the newly determined
zone of reasonableness, the ALJ set Transmission Owners’
base ROE at 9.7 percent. Id. at PP 544, 587, 590.

     On review of the ALJ’s decision, FERC adopted a new
two-step discounted cash flow, or DCF, methodology for
determining an electric utility’s just and reasonable ROE. See
Opinion No. 531, 147 FERC ¶ 61,234 at PP 7–9, 13–41
(adopting the methodology historically used to set ROEs for
natural gas and oil pipelines). Applying the two-step
methodology in this case, FERC created a new zone of
reasonableness of 7.03 percent to 11.74 percent. Id. at PP 125,
143; Opinion No. 531-B, 150 FERC ¶ 61,165 at P 25. In the
instant proceeding, Transmission Owners and Customers do
not challenge FERC’s use of the two-step methodology or the
resulting zone of reasonableness. Instead, they object to
FERC’s placement of Transmission Owners’ base ROE within
that newly determined zone of reasonableness.

    Because the existing 11.14 percent base ROE fell within
FERC’s newly determined zone of reasonableness,
Transmission Owners argued that FERC lacked statutory
                               8
authority under section 206 to change the existing base ROE.
FERC rejected that argument, explaining that “the DCF zone
of reasonableness does not establish a continuum of just and
reasonable base ROEs, any one of which the utility would
equally be free to charge to ratepayers; rather, only the single
point approved by the Commission within the DCF zone of
reasonableness is the just and reasonable base ROE.” Opinion
No. 531-B, 150 FERC ¶ 61,165 at P 32; see also Opinion No.
531, 147 FERC ¶ 61,234 at P 51; Opinion No. 531-B, 150
FERC ¶ 61,165 at PP 21–31 & n.52.

      The midpoint of FERC’s newly determined zone of
reasonableness was 9.39 percent. Although FERC typically
sets a utility’s base ROE at the midpoint of the zone of
reasonableness, Transmission Owners argued that a base ROE
at 9.39 percent would fail to meet the capital attraction
standards of Hope and Bluefield. See FPC v. Hope Nat. Gas
Co., 320 U.S. 591 (1944); Bluefield Waterworks &
Improvement Co. v. Pub. Serv. Comm’n of W. Va., 262 U.S.
679 (1923). FERC agreed, noting that “all methods of
estimating the cost of equity,” including the discounted cash
flow analysis, “are susceptible to error when the assumptions
underlying them are anomalous.” Opinion No. 531-B, 150
FERC ¶ 61,165 at P 50. Because of “the undisputed presence
of . . . anomalous capital market conditions,” FERC had “less
confidence that the midpoint of the zone of reasonableness . . .
accurately reflect[ed] the equity returns necessary to meet the
Hope and Bluefield capital attraction standards.” Id. at P 49
(quoting Opinion No. 531, 147 FERC ⁋ 61,234 at P 145).
Accordingly, FERC determined that “a mechanical
application” of the midpoint in this case would result in an
ROE that was too low to satisfy Hope and Bluefield. See id. at
PP 36, 50, 56.
                                 9
     Because it had “less confidence” in the results of its
discounted cash flow analysis, FERC considered “additional
record evidence” to inform its placement of Transmission
Owners’ new base ROE within the zone of reasonableness.
Opinion No. 531, 147 FERC ¶ 61,234 at P 145. FERC stressed,
however, that it was “not depart[ing] from [its] use of the DCF
methodology; rather [it] use[d] the record evidence to inform
the just and reasonable placement of the ROE within the zone
of reasonableness established in the record by the DCF
methodology.” Id. at P 146. FERC considered the following
alternative analyses: (1) risk premium analysis; (2) Capital
Asset Pricing Model (“CAPM”) analysis; (3) expected
earnings analysis; and (4) comparison of state
commission-approved ROEs. Id. at PP 145–46, 149–50;
Opinion No. 531-B, 150 FERC ¶ 61,165 at P 49. After
considering these alternative analyses, FERC concluded that
they “corroborate[d] [its] determination that placement [of the
base ROE] at a point above the midpoint was warranted.”
Opinion No. 531-B, 150 FERC ¶ 61,165 at P 49; see also id. at
P 101 n.213 (stating that additional analyses supported
conclusion “that the ROE should indeed be set above the
midpoint”). And because it traditionally uses measures of
central tendency to determine an appropriate return in ROE
cases, FERC set Transmission Owners’ base ROE at the
midpoint of the upper half of the newly determined zone of
reasonableness—10.57 percent. Opinion No. 531-B, 150
FERC ¶ 61,165 at PP 8, 33, 55; Opinion No. 531-A, 149 FERC
¶ 61,032 at PP 1, 10; Opinion No. 531, 147 FERC ¶ 61,234 at
PP 9–10, 142, 151–52.

     In addressing Transmission Owners’ argument that section
206 requires an initial finding that the existing rate is unjust and
unreasonable before FERC can set a new rate, the Commission
stated that its analysis showing that the base ROE was 10.57
percent demonstrated “both that the[] existing 11.14 percent
                               10
ROE [was] unjust and unreasonable and that 10.57 percent is
the . . . just and reasonable replacement base ROE.” Opinion
No. 531-B, 150 FERC ¶ 61,165 at P 33. More generally, FERC
held that “both of the burdens of proof under FPA section 206
can be satisfied using a single ROE analysis—one that
generates an ROE that both is below the existing ROE (thus
demonstrating that the existing ROE is excessive) and that also
is a just and reasonable ROE (thus demonstrating what the new
ROE should be) . . . .” Id. at P 32; see also id. (“[S]howing the
existing base ROE established in the prior case is unjust and
unreasonable merely requires showing that the Commission’s
ROE methodology now produces a numerical value below the
existing numerical value.”).

     It is undisputed that Customers sought only to challenge
Transmission Owners’ base ROE, and not their previously
approved ROE incentives. But because the newly determined
zone of reasonableness reduced the upper end of the zone from
13.1 percent to 11.74 percent, FERC reminded Transmission
Owners that their total ROE—base ROE plus any incentives—
must remain within the zone of reasonableness. Opinion No.
531, 147 FERC ¶ 61,234 at PP 164–65. Transmission Owners
asserted that they were not given adequate notice that the
incentives would be at issue and argued that FERC’s decision
to cap the previously approved incentives therefore did not
come within section 206 and violated the Due Process Clause
and the Administrative Procedure Act. See 16 U.S.C. § 824e(a)
(stating that complaint must “state the change or changes to be
made in the rate . . . then in force, and the reasons for any
proposed change or changes therein”); Pub. Serv. Comm’n of
Ky. v. FERC, 397 F.3d 1004, 1012–13 (D.C. Cir. 2005)
(explaining that FERC must provide parties with adequate
notice of the issues to be decided). On rehearing, FERC
countered that it had not “change[d]” Transmission Owners’
incentives, and thus “the issue of whether to reduce an
                               11
incentive . . . that would otherwise exceed the top of the zone
of reasonableness d[id] not present any issue of material fact
that would be appropriate for consideration in a hearing.”
Opinion No. 531-B, 150 FERC ¶ 61,165 at PP 139–41. FERC
stated that it was merely following its well-established policy
that a utility’s total ROE—including any incentives—is
“capped” at the upper end of the zone of reasonableness. See
id.; see also Promoting Transmission Inv. Through Pricing
Reform, 116 FERC ¶ 61,057 at PP 2, 93 (noting that “the
approved ROE, including the impact of an incentive,” must be
within the zone of reasonableness). Accordingly, FERC held
that Transmission Owners’ total ROE, including any
incentives, “would be capped at the upper end of the . . .
DCF-determined zone of reasonableness,” meaning that
Transmission Owners would not be permitted to “fully
implement” their incentives “due to changes in the zone of
reasonableness . . . .” Opinion No. 531-B, 150 FERC ¶ 61,165
at P 139.

    Transmission Owners and Customers each filed petitions
for review. We have jurisdiction pursuant to 16 U.S.C.
§ 825l(b).

                               II.

     The FPA allows public utilities to collect “just and
reasonable” rates for the transmission or sale of electric energy.
16 U.S.C. §§ 824d(a), 824e(a); see also Morgan Stanley
Capital Grp., Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty.,
554 U.S. 527, 531 (2008). Because FERC oversees all prices
for interstate electricity transactions, FERC v. Elec. Power
Supply Ass’n, 136 S. Ct. 760, 767 (2016), it must ensure that
rates charged by utilities are just and reasonable, Pub. Serv.
Comm’n of Ky., 397 F.3d at 1006; Towns of Concord,
Norwood, & Wellesley v. FERC, 955 F.2d 67, 68 (D.C. Cir.
                                12
1992). As we have stated, “FERC, not the Judiciary, has the
principal statutory role in determining the reasonableness of
rates . . . .” Blumenthal v. FERC, 613 F.3d 1142, 1147 (D.C.
Cir. 2010). The Natural Gas Act (“NGA”) also employs the
“just and reasonable” standard, see 15 U.S.C. §§ 717c(a),
717d(a); therefore, judicial interpretations of the FPA and the
NGA may be followed interchangeably. Ark. La. Gas Co. v.
Hall, 453 U.S. 571, 577 n.7 (1981); City of Anaheim v. FERC,
558 F.3d 521, 523 n.2 (D.C. Cir. 2009).

      “Statutory reasonableness is an abstract quality” that
“allows a substantial spread between what is unreasonable
because too low and what is unreasonable because too high.”
FPC v. Conway Corp., 426 U.S. 271, 278 (1976) (quoting
Montana-Dakota Util. Co. v. Nw. Pub. Serv. Co., 341 U.S. 246,
251 (1951)). The FPA’s just-and-reasonable requirement “is
obviously incapable of precise judicial definition . . . .”
Morgan Stanley, 554 U.S. at 532. Thus, FERC’s responsibility
is to “reduce the abstract concept of reasonableness to concrete
expression in dollars and cents,” and it is the rate eventually set
by the Commission “that governs the rights of buyer and
seller.” Montana-Dakota, 341 U.S. at 251. FERC is not
required “to adopt as just and reasonable any particular rate
level,” In re Permian Basin Area Rate Cases, 390 U.S. 747,
767 (1968), and it “has discretion regarding the methodology
by which it determines whether a rate is just and reasonable,”
S. Cal. Edison Co. v. FERC, 717 F.3d 177, 182 (D.C. Cir. 2013)
(citing FPC v. Hope Nat. Gas Co., 320 U.S. 591, 602 (1944));
see also S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 55 (D.C.
Cir. 2014) (stating that FERC has “considerable latitude in
developing a methodology responsive to its regulatory
challenge” (citations and internal quotation marks omitted)).

     At issue in this proceeding is FERC’s determination of a
just and reasonable ROE. An ROE is “the cost to the utility of
                                 13
raising capital.” Canadian Ass’n of Petroleum Producers v.
FERC, 254 F.3d 289, 293 (D.C. Cir. 2001). To attract
investors, a utility must offer a sufficient “risk-adjusted
expected ROE.” S. Cal. Edison, 717 F.3d at 179 (citation
omitted). An ROE “should be commensurate with returns on
investments in other enterprises having corresponding risks”
and “sufficient to assure confidence in the financial integrity of
the enterprise, so as to maintain its credit and to attract capital.”
Hope Nat. Gas, 320 U.S. at 603; see also Bluefield Waterworks
& Improvement Co., 262 U.S. at 692–93. Otherwise put, an
ROE should allow a utility “to adequately compete for the
investor’s dollar.” See Anaheim v. FERC, 669 F.2d 799, 801,
803 (D.C. Cir. 1981).

      Because “[r]atemaking . . . is not a science,” however,
FERC must use models “to inform, not rigidly to determine,
[its] judgment” as to an appropriate ROE for a utility. Boston
Edison Co. v. FERC, 885 F.2d 962, 969–70 (1st Cir. 1989).
One model FERC employs to determine a utility’s ROE is the
discounted cash flow, or DCF, analysis. See United Airlines,
Inc. v. FERC, 827 F.3d 122, 128 (D.C. Cir. 2016); S. Cal.
Edison, 717 F.3d at 179. This model “projects investor growth
expectations over the long term by adding average dividend
yields to estimated constant growth in dividends over the
indefinite future.” Williston Basin Interstate Pipeline Co. v.
FERC, 165 F.3d 54, 57 (D.C. Cir. 1999); see also Town of
Norwood v. FERC, 80 F.3d 526, 533 (D.C. Cir. 1996). “The
Discounted Cash Flow model flows from the classical
valuation theory that the value of a financial asset is determined
by its ability to generate future cash flows.” Tenn. Gas
Pipeline Co. v. FERC, 926 F.2d 1206, 1208 n.2 (D.C. Cir.
1991) (citation, internal quotation marks, and ellipsis omitted);
see also United Airlines, 827 F.3d at 128.
                              14
     To calculate the ROE for a utility that is not publicly
traded, FERC relies on the ROEs for a “proxy group” of
comparable publicly traded companies. S. Cal. Edison, 717
F.3d at 179; Williston Basin, 165 F.3d at 57. After adjusting
that range of ROEs to exclude unrepresentative high or low
rates, “the Commission assembles a zone of reasonable ROEs
on which to base a utility’s ROE.” S. Cal. Edison, 717 F.3d at
179 (citations omitted); see also Canadian Ass’n of Petroleum
Producers v. FERC, 308 F.3d 11, 12–13 (D.C. Cir. 2002);
Williston Basin, 165 F.3d at 57. The zone of reasonableness is
intended to balance the interests of investors and consumers,
Pac. Gas & Elec. Co. v. FERC, 306 F.3d 1112, 1116 (D.C. Cir.
2002), and typically results in a broad range of potentially
reasonable ROEs, see Panhandle E. Pipe Line Co. v. FERC,
777 F.2d 739, 746–47 (D.C. Cir. 1985). After assembling this
zone of reasonableness, FERC assesses the utility’s
circumstances to determine whether to make “pragmatic
adjustment[s]” to the rate. Canadian Ass’n, 308 F.3d at 15
(quoting Tenn. Gas Pipeline, 926 F.2d at 1209); see also
Williston Basin, 165 F.3d at 57 (stating that the assigned rate
“reflect[s] specific investment risks associated with th[e]
[utility]”).

     FERC’s adjudication of just and reasonable ROEs is
governed by “[t]wo related but distinct sections of the” FPA.
FirstEnergy Serv. Co. v. FERC, 758 F.3d 346, 348 (D.C. Cir.
2014). Section 205, 16 U.S.C. § 824d, “confers upon FERC
the duty to ensure that wholesale energy rates and services are
just and reasonable” by requiring “regulated utilities to file
with the Commission tariffs outlining their rates for FERC’s
approval.” FirstEnergy, 758 F.3d at 348 (citing 16 U.S.C.
§ 824d(a), (c)). In a section 205 proceeding, the utility is not
required to show that a previous rate was unlawful. See Ala.
Power Co. v. FERC, 993 F.2d 1557, 1571 (D.C. Cir. 1993).
                               15
       However, in this case we review FERC’s determination
under section 206, not 205. Section 206 permits, indeed
requires, FERC to determine whether an existing rate is
“unjust, unreasonable, unduly discriminatory or preferential
. . . . ” 16 U.S.C. § 824e(a). Only after having made the
determination that the utility’s existing rate fails that test may
FERC exercise its section 206 authority to impose a new rate.
See, e.g., Atl. City Elec. Co. v. FERC, 295 F.3d 1, 10 (D.C. Cir.
2002); Cities of Bethany v. FERC, 727 F.2d 1131, 1143 (D.C.
Cir. 1984). The burden of demonstrating that the existing ROE
is unlawful is on FERC or the complainant, not the utility. 16
U.S.C. § 824e(b); FirstEnergy, 758 F.3d at 353.

                               III.

     We review FERC’s ratemaking orders under the
Administrative Procedure Act’s arbitrary and capricious
standard. FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760,
782 (2016). The scope of our review is “narrow.” Id. (quoting
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983)). We must uphold
FERC’s orders unless they are “arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law.” S.C.
Pub. Serv. Auth. v. FERC, 762 F.3d 41, 54 (D.C. Cir. 2014)
(citing Midwest ISO Transmission Owners v. FERC, 373 F.3d
1361, 1368 (D.C. Cir. 2004)). “[W]e may not substitute our
own judgment for that of the Commission,” and we do not ask
whether FERC’s “decision is the best one possible or even
whether it is better than the alternatives.” Elec. Power, 136 S.
Ct. at 782. Instead, “[o]ur role . . . is to [ensure] that the
Commission’s judgment is supported by substantial evidence
and that the methodology used in arriving at that judgment is
either consistent with past practice or adequately justified.”
Town of Norwood, 80 F.3d at 533 (citations and internal
                                16
quotation marks omitted); see also S.C. Pub. Serv. Auth., 762
F.3d at 54.

     We are mindful that Congress entrusted the regulation of
electric energy rates to FERC, not the courts. Elec. Power, 136
S. Ct. at 784; Blumenthal v. FERC, 552 F.3d 875, 884 (D.C.
Cir. 2009). Moreover, because “[t]he statutory requirement
that rates be ‘just and reasonable’ is obviously incapable of
precise judicial definition, . . . we afford great deference to the
Commission in its rate decisions.” Morgan Stanley, 554 U.S.
at 532. Our review in ratemaking cases is therefore “limited to
ensuring that the Commission has made a principled and
reasoned decision supported by the evidentiary record.” S. Cal.
Edison, 717 F.3d at 181 (citation omitted). Despite our highly
deferential standard of review, it bears repeating that “courts
have never given regulators carte blanche.” Elec. Consumers
Res. Council v. FERC, 747 F.2d 1511, 1514 (D.C. Cir. 1984)
(citation omitted).

      We apply this deferential standard in evaluating the issues
raised in the petitions before us. First, Transmission Owners
contend that FERC failed to satisfy its burden under section
206 of demonstrating that the existing 11.14 percent base ROE,
which was within FERC’s newly determined zone of
reasonableness, was unjust and unreasonable.             Second,
Transmission Owners challenge the impact of FERC’s decision
to set a new base ROE on their previously approved ROE
incentives. Customers argue that FERC acted arbitrarily and
capriciously in placing Transmission Owners’ base ROE at the
midpoint of the upper half of the newly determined zone of
reasonableness. We address Transmission Owners’ petition
first.
                              17
         “Unjust and Unreasonable” Determination

     Transmission Owners argue that FERC failed to follow the
two-step procedure mandated by section 206 when it changed
their base ROE. Specifically, Transmission Owners contend
that, rather than first finding that their existing base ROE was
unjust and unreasonable, FERC began by determining that
10.57 percent would be a just and reasonable base ROE and
only then found the existing 11.14 percent ROE to be unlawful
because it was not equivalent to 10.57 percent. FERC does not
actually challenge Transmission Owners’ description of its
process. Rather, it argues that its determination of a new just
and reasonable base ROE was “sufficient” by itself to prove
that the existing base ROE was unjust and unreasonable. See
Resp’t Br. 28–29. We conclude that FERC did not meet the
first requirement of section 206 that it demonstrate the
unlawfulness of Transmission Owners’ base ROE.

     We begin our analysis by clarifying what is not required
of FERC. Transmission Owners, relying on dictum from City
of Winnfield v. FERC, 744 F.2d 871 (D.C. Cir. 1984), argue
that FERC must show that an existing rate is “entirely outside
the zone of reasonableness” before it can exercise its section
206 authority to change that rate. Id. at 875; see also Tex. E.
Transmission Corp., 32 FERC ¶ 61,056 at 61,150 (1985). The
crux of Transmission Owners’ argument appears to be that in a
section 206 proceeding, the established zone of reasonableness
is “coextensive” with the statutory just-and-reasonableness
standard, and therefore, FERC must accept as just and
reasonable all ROEs within the discounted cash flow zone of
reasonableness. FERC rejected that argument and so do we.

     The zone of reasonableness informs FERC’s selection of a
just and reasonable rate. See S. Cal. Edison, 717 F.3d at 179;
Williston Basin, 165 F.3d at 57; Boston Edison, 885 F.2d at
                               18
969–70. But the zone of reasonableness represents a “broad”
range of potentially just and reasonable ROEs, “not an exact
dollar figure . . . .” Panhandle E. Pipe Line Co., 777 F.2d at
746; see also Conway, 426 U.S. at 278; Permian Basin, 390
U.S. at 770. As long as the rate selected by the Commission is
within the zone of reasonableness, FERC is not required “to
adopt as just and reasonable any particular rate level.” Permian
Basin, 390 U.S. at 767. Whether a particular rate within the
zone is the just and reasonable rate for the utility at issue
depends on a number of factors. See, e.g., Canadian Ass’n, 308
F.3d at 15. Thus, the fact that a rate falls within the zone of
reasonableness does not establish that the rate is the just and
reasonable rate for the utility at issue.

     To support their claim that FERC lacks the authority under
section 206 to reduce a base ROE that falls within the zone of
reasonableness, Transmission Owners rely upon cases that
explain the boundaries for courts reviewing FERC’s
ratemaking decisions. But these cases do not address the
showing necessary under section 206 to find that an existing
rate is unjust and unreasonable. In Montana-Dakota Utilities
Co. v. Northwestern Public Service Co., 341 U.S. 246 (1951),
for example, the Supreme Court explained that, because
statutory reasonableness “allows a substantial spread” of
potentially reasonable rates, a court has no authority to fix a
rate different from the one chosen by FERC “on the ground
that, in its opinion, it is the only or the more reasonable one.”
See id. at 250–52. As we have held, “[a]bsent procedural or
methodological flaws, the court may only set aside a rate that
is outside a zone of reasonableness . . . .” Pac. Gas & Elec.,
306 F.3d at 1116.

    Conversely, although courts afford deference to FERC’s
ratemaking decisions, a reviewing court must set aside any rate,
even one within the zone of reasonableness, if FERC’s
                                19
procedure or methodology was flawed. See id. While we have
recognized FERC’s discretion in ratemaking cases, we have
stated that “in all cases, the Commission must explain its
reasoning when it purports to approve rates as just and
reasonable.” TransCanada Power Mktg. Ltd. v. FERC, 811
F.3d 1, 12 (D.C. Cir. 2015). Whether a rate, even one within
the zone of reasonableness, is unlawful depends on the
particular circumstances of the case. As the Supreme Court has
held, “one rate in its relation to another rate may be
discriminatory, although each rate [p]er se, if considered
independently, might fall within the zone of reasonableness.”
Conway, 426 U.S. at 278 (citation omitted). FERC itself
recognizes the limits of its discretion.           In Bangor
Hydro-Electric Co., for example, the Commission stated that
“[c]ertain rates, though within the zone, may not be just and
reasonable given the circumstances of the case.” 122 FERC
¶ 61,038 at P 11. Neither the language of the FPA nor our
precedents compel FERC to accept all rates within the
discounted cash flow zone of reasonableness as just and
reasonable in a section 206 proceeding.

     The FPA, by requiring FERC to show that an existing rate
is unlawful before ordering a new rate under section 206,
provides a form of “statutory protection” to a utility. City of
Winnfield, 744 F.2d at 875. Thus, while showing that the
existing rate is entirely outside the zone of reasonableness may
illustrate that the existing rate is unlawful, see, e.g., Pub. Serv.
Comm’n of N.Y. v. FERC, 642 F.2d 1335, 1350 n.27 (D.C. Cir.
1980), that is not the only way in which FERC can satisfy its
burden under section 206. As the parties agree, section 206
required FERC to make an explicit finding that Transmission
Owners’ existing rate was unjust and unreasonable before
proceeding to set a new rate. See Opinion No. 531-B, 150
FERC ¶ 61,165 at P 33; Opinion No. 531, 147 FERC ¶ 61,234
at P 50. FERC failed to make such a finding in this case.
                              20

     FERC misunderstood and misapplied its dual burden
under section 206. Sections 205 and 206 are “related but
distinct” provisions of the FPA. FirstEnergy, 758 F.3d at 348.
The purpose of section 206 is “quite different” from that of
section 205. City of Winnfield, 744 F.2d at 875. Section 205
enables a utility to propose changes in its own rates. Section
206 empowers FERC to modify existing rates upon complaint
or on FERC’s own initiative. FirstEnergy, 758 F.3d at 348–
49. In contrast to section 206, section 205 “is intended for the
benefit of the utility,” City of Winnfield, 744 F.2d at 875, and
“FERC plays ‘an essentially passive and reactive’ role under
section 205,” Atl. City Elec., 295 F.3d at 10 (quoting City of
Winnfield, 744 F.2d at 876)). Section 206’s procedures are
“entirely different” and “stricter” than those of section 205.
City of Anaheim, 558 F.3d at 525.

     One “important difference[]” between section 205 and
section 206 is the burden of proof, Ala. Power, 993 F.2d at
1571, a difference that FERC failed to recognize in this case.
A utility filing a rate adjustment under section 205 must show
that the adjustment is lawful. Id. The proponent of a rate
change under section 206, however, bears “the burden of
proving that the existing rate is unlawful.” Id. (emphasis
added) (citations omitted); see also Papago Tribal Util. Auth.
v. FERC, 723 F.2d 950, 952–53 (D.C. Cir. 1983); N.J. Bd. of
Pub. Utils. v. FERC, 744 F.3d 74, 94–95 (3d Cir. 2014).
Therefore, unlike section 205, section 206 mandates a two-step
procedure that requires FERC to make an explicit finding that
the existing rate is unlawful before setting a new rate.

    As “a ‘creature of statute,’” FERC has only those powers
endowed upon it by statute. Atl. City Elec., 295 F.3d at 8. We
presume that, in a statute, Congress meant what it said and said
what it meant. See Simmons v. Himmelreich, 136 S. Ct. 1843,
                                21
1848 (2016); Va. Dep’t of Med. Assistance Servs. v. Dep’t of
Health & Human Servs., 678 F.3d 918, 922–23 (D.C. Cir.
2012). Section 206 grants FERC the authority to change an
existing rate “[w]henever the Commission . . . shall find that
[the] rate . . . is unjust[] [or] unreasonable . . . .” 16 U.S.C.
§ 824e(a). FERC has “undoubted power under section 206” to
change an existing rate “whenever it determines such rate[] to
be unlawful.” FPC v. Sierra Pac. Power Co., 350 U.S. 348,
353 (1956) (emphasis added). In section 206, Congress
specified that “FERC itself may establish the just and
reasonable rate, provided that it first determines that a rate set
by a public utility is unjust[] [or] unreasonable . . . .” Cities of
Bethany, 727 F.2d at 1143 (emphasis added). “[T]he directive
to impose a just and reasonable rate . . . is triggered only by the
Commission’s finding that the existing one is ‘unjust[] [or]
unreasonable . . . .’” Am. Gas Ass’n v. FERC, 912 F.2d 1496,
1504 (D.C. Cir. 1990) (emphasis added) (quoting 15 U.S.C.
§ 717d(a)).

     In other words, a finding that an existing rate is unjust and
unreasonable is the “condition precedent” to FERC’s exercise
of its section 206 authority to change that rate. Sierra Pac.
Power, 350 U.S. at 353. Section 206 therefore imposes a “dual
burden” on FERC. FirstEnergy, 758 F.3d at 353. Without a
showing that the existing rate is unlawful, FERC has no
authority to impose a new rate. See Fla. Gas Transmission Co.
v. FERC, 604 F.3d 636, 640–41 (D.C. Cir. 2010) (examining
similar requirement under the NGA); Sea Robin Pipeline Co.
v. FERC, 795 F.2d 182, 187 (D.C. Cir. 1986) (same). Thus,
while “[t]he ‘just and reasonable’ lodestar is no loftier under
section 206 than under section 205,” FirstEnergy, 758 F.3d at
353, the showing required of FERC to exercise its section 206
authority to change an existing rate is different from anything
required for FERC to approve a utility’s proposed rate
adjustment under section 205.
                              22

     FERC recognized its dual burden in this section 206
proceeding. See Opinion No. 531-B, 150 FERC ¶ 61,165 at PP
28–29; Opinion No. 531, 147 FERC ¶ 61,234 at P 50. But in
reaching its decision, FERC rejected Transmission Owners’
argument that the burden under section 206’s first step was
“very different from and more difficult to satisfy” than the
showing required under both section 206’s second step and
section 205:

       In making these arguments, [Transmission
       Owners] are confusing differences in who bears
       the burden of persuasion as between FPA
       sections 205 and 206 with the substantive “just
       and reasonable” standard contained in both
       those sections. . . . While the party bearing the
       burden of persuasion is different under FPA
       section 205 and FPA section 206, the scope and
       purpose of the Commission’s review remains
       the same — to determine whether the rate fixed
       by the utility is lawful.

                             ****

       Because sections 205 and 206 are part of a
       single statutory scheme, it follows that a rate
       that is lawful under one section must also be
       lawful under the other and a rate that is unlawful
       under one section must also be unlawful under
       the other. For this to be true, the substantive
       standard to determine lawfulness under each
       section — the just and reasonable standard —
       must be applied in the same manner under each
       section.
                               23
Opinion No. 531-B, 150 FERC ¶ 61,165 at PP 28–30 (citation,
internal quotation marks, and alteration omitted). FERC held
that it could satisfy its dual burden through “a single ROE
analysis . . . that generates an ROE that both is below the
existing ROE (thus demonstrating that the existing ROE is
excessive) and that also is a just and reasonable ROE (thus
demonstrating what the new ROE should be) . . . .” Id. at P 32.
FERC thus concluded that its single ROE analysis showing that
10.57 percent was a just and reasonable ROE for Transmission
Owners satisfied “both burdens under section 206.” Id. at P 33.

     In determining that its “single ROE analysis” satisfied
both of its burdens, FERC relied on the general principle that it
is the Commission’s duty to translate the “abstract concept” of
reasonableness into a “concrete rate,” and it is that rate—“not
the abstract concept”—that governs the rights of the utility and
the consumers. Id. at P 32 & n.65 (citing Montana-Dakota,
341 U.S. at 251). Based on this reasoning, FERC asserted that
“only the single point approved by the Commission within the
DCF zone of reasonableness is the just and reasonable base
ROE.” Id. at P 32. FERC went on to hold:

       It follows that showing the existing base ROE
       established in the prior case is unjust and
       unreasonable merely requires showing that the
       Commission’s ROE methodology now
       produces a numerical value below the existing
       numerical value.

                             ****

       [T]he statute requires that, under section 206,
       before we may change an ROE we must find it
       unjust and unreasonable. And, in Opinion No.
       531, that we did. Our ROE analysis showing
                               24
       that the [Transmission Owners’] base ROE is
       10.57 percent demonstrates both that their
       existing 11.14 percent ROE is unjust and
       unreasonable and that 10.57 percent is the
       [Transmission Owners’] just and reasonable
       replacement base ROE. Thus, we met both
       burdens under section 206.

Id. at PP 32, 33; see also Opinion No. 531-A, 149 FERC
¶ 61,032 at P 10 (concluding that existing rate was unlawful
based on finding that 10.57 percent was a just and reasonable
rate).

     FERC’s decision—that a single ROE analysis generating
a new just and reasonable ROE necessarily proved that
Transmission Owners’ existing ROE was unjust and
unreasonable—relied on its assumption that all ROEs other
than the one FERC identifies as the utility’s just and reasonable
ROE are per se unlawful in a section 206 proceeding. See
Opinion No. 531-B, 150 FERC ¶ 61,165 at P 33. But, as we
have explained, the zone of reasonableness creates a broad
range of potentially lawful ROEs rather than a single just and
reasonable ROE, meaning that FERC’s finding that 10.57
percent was a just and reasonable ROE, standing alone, “did
not amount to a finding that every other rate of return was not.”
See Papago, 723 F.2d at 957; see also Conway, 426 U.S. at
277–79. Because it was a section 206 proceeding, rather than
a section 205 proceeding, FERC bore the burden of making an
explicit finding that the existing ROE was unlawful before it
was authorized to set a new lawful ROE. See, e.g., Atl. City
Elec., 295 F.3d at 9–10; Ala. Power, 993 F.2d at 1571.

     FERC, however, never actually explained how the existing
ROE was unjust and unreasonable. FERC correctly noted that
rates within the zone of reasonableness are not per se just and
                             25
reasonable, depending upon “the circumstances of the case.”
Opinion No. 531-B, 150 FERC ¶ 61,165 at P 25. But FERC
“made no effort” to explain what circumstances rendered
Transmission Owners’ existing rate unlawful. See W. Res., Inc.
v. FERC, 9 F.3d 1568, 1580 (D.C. Cir. 1993). Instead, FERC
concluded that the existing 11.14 percent base ROE was
unlawful solely because it had determined that 10.57 percent,
which was “a numerical value below the existing numerical
value,” was a just and reasonable base ROE. Opinion No.
531-B, 150 FERC ¶ 61,165 at P 32. That conclusion, without
any further explanation, is insufficient to prove that
Transmission Owners’ existing base ROE was unlawful. See
Papago, 723 F.2d at 956–58. Further, the mere fact that FERC
eventually reduces the zone of reasonableness to a single ROE
does not relieve the Commission of its burden under section
206. Without the requisite findings, FERC’s reasoning in this
case effectively eliminated section 206’s statutory directive
that existing rates be found unlawful before FERC has the
authority to change those rates.

     To satisfy its dual burden under section 206, FERC was
required to do more than show that its single ROE analysis
generated a new just and reasonable ROE and conclusively
declare that, consequently, the existing ROE was per se unjust
and unreasonable. Although we defer to FERC’s expertise in
ratemaking cases, the Commission’s decision must actually be
the result of reasoned decision-making to receive that
deference. Without further explanation, a bare conclusion that
an existing rate is “unjust and unreasonable” is nothing more
than “a talismanic phrase that does not advance reasoned
decision making.” See TransCanada, 811 F.3d at 12–13.
Because FERC’s single ROE analysis failed to include an
actual finding as to the lawfulness of Transmission Owners’
existing base ROE, FERC acted arbitrarily and outside of its
statutory authority in setting a new base ROE for Transmission
                               26
Owners. In light of FERC’s failure to satisfy its dual burden
under section 206, we need not reach Transmission Owners’
arguments concerning their previously approved ROE
incentives.

        Placement of the Base ROE within the Zone of
                       Reasonableness

     Customers’ petition is also well taken. After performing
its analysis, FERC abandoned its traditional use of the midpoint
of the zone of reasonableness in setting Transmission Owners’
base ROE. Instead, FERC picked the midpoint of the upper
half of the zone of reasonableness as the new base ROE.
FERC, however, did not set forth a rational connection between
the record evidence and its placement of the base ROE.

     FERC has discretion to make “pragmatic adjustments” to
a utility’s ROE based on the “particular circumstances” of a
case. FPC v. Nat. Gas Pipeline Co., 315 U.S. 575, 586 (1942);
see also Canadian Ass’n, 308 F.3d at 15; Town of Norwood, 80
F.3d at 534–35. But, this discretion must be exercised “within
the ambit of [FERC’s] statutory authority.” Nat. Gas Pipeline,
315 U.S. at 586. “Although it is not our role to tell the
Commission what the ‘correct’ rate of return calculation is, . . .
we do have an obligation to remand when the Commission’s
conclusions are contrary to substantial evidence or not the
product of reasoned decisionmaking . . . .” Pub. Serv. Comm’n
of N.Y. v. FERC, 813 F.2d 448, 465 (D.C. Cir. 1987) (citations
omitted). In determining whether FERC’s ROE decision is just
and reasonable, we examine “the method employed in reaching
that result.” City of Charlottesville v. FERC, 661 F.2d 945, 950
(D.C. Cir. 1981) (citing Permian Basin, 390 U.S. at 791–92).

    In this case, the zone of reasonableness was 7.03 percent
to 11.74 percent. FERC typically sets a utility’s base ROE at
                              27
the midpoint of the zone of reasonableness—in this case, 9.39
percent. Opinion No 531-B, 150 FERC ¶ 61,165 at P 36. We
have noted that the midpoint is a good “starting place” for the
placement of the ROE. See Tenn. Gas Pipeline, 926 F.2d at
1213; see also Pub. Serv. Comm’n of Ky., 397 F.3d at 1010–
11. As we explained above, however, FERC may make
adjustments to a utility’s ROE based on the specific
circumstances of the case. See, e.g., Nat. Gas Pipeline, 315
U.S. at 586.

     After FERC performed its discounted cash flow analysis,
it concluded that “unique” and “anomalous” capital market
conditions undermined the reliability of the results of that
analysis in setting Transmission Owners’ new base ROE.
Opinion No. 531, 147 FERC ¶ 61,234 at PP 142, 145, 150;
Opinion No. 531-B, 150 FERC ¶ 61,165 at PP 49–50. FERC
determined that, because of the presence of “unusual capital
market conditions,” it had “less confidence” that “a mechanical
application” of the midpoint of the DCF zone of reasonableness
would result in an ROE that satisfied the Hope and Bluefield
capital attraction standards. See Opinion No. 531, 147 FERC
¶ 61,234 at PP 142, 145; Opinion No. 531-B, 150 FERC
¶ 61,165 at PP 49, 56.

    Because of its lack of confidence in the reliability of its
analysis, FERC turned to “alternative benchmark
methodologies” and “additional record evidence” to inform its
placement of the base ROE. Opinion No. 531-B, 150 FERC
¶ 61,165 at P 36-37. Although FERC concluded that these
analyses supported a finding that a 9.39 percent ROE was too
low to satisfy the Hope and Bluefield standards, see Opinion
No. 531, 147 FERC ¶ 61,234 at PP 146–50, 152; Opinion No.
531-B, 150 FERC ¶ 61,165 at P 37, none of the analyses
necessarily suggested that a 10.57 percent ROE was a just and
reasonable base ROE. Thus, the only conclusion FERC drew
                              28
from these analyses was that Transmission Owners were
entitled to an ROE somewhere above the 9.39 percent midpoint
of the zone of reasonableness. See Opinion No. 531, 147 FERC
¶ 61,234 at PP 146–50; Opinion No. 531-B, 150 FERC
¶ 61,165 at PP 37, 49, 101 n.213, 128.

     But FERC still needed to settle on a new base ROE for
Transmission Owners. Noting that it “has traditionally looked
to the central tendency” in identifying an appropriate ROE,
FERC selected the midpoint of the upper half of the zone of
reasonableness—in this case, 10.57 percent—which it had
done “in the past.” Opinion No. 531, 147 FERC ¶ 61,234 at
PP 151–52. Notably, this 10.57 percent base ROE was higher
than 35 of the 38 data points FERC used to construct its DCF
zone of reasonableness. In reaching its decision, FERC failed
to explain how any evidence demonstrated that 10.57 percent
was a just and reasonable base ROE for Transmission Owners.
This omission is particularly troublesome in light of FERC’s
prior concerns over the reliability of its newly determined zone
of reasonableness. We therefore conclude that in placing the
base ROE within the zone of reasonableness, FERC failed to
establish a “rational connection” between the record evidence
and its decision. Elec. Power, 136 S. Ct. at 782 (citation
omitted).

     As an initial matter, FERC concluded that the evidence
supported a finding that 9.39 percent was too low of a rate to
satisfy the Hope and Bluefield capital attraction standards. See
Opinion No. 531, 147 FERC ¶ 61,234 at PP 142, 145, 150;
Opinion No. 531-B, 150 FERC ¶ 61,165 at PP 7, 49–50. But
it never found that its chosen rate, 10.57 percent, actually
satisfied those standards. Similarly, although FERC noted that
a decrease from 11.14 percent (the existing base ROE) to 9.39
percent (the midpoint of the newly determined zone of
reasonableness) could “undermine” Transmission Owners’
                               29
ability to attract capital investments, Opinion No. 531, 147
FERC ¶ 61,234 at P 150, it never explained how its ultimate
placement of the base ROE at 10.57 percent was appropriate.

     Moreover, FERC never explained how 10.57 percent was
just and reasonable when the alternative benchmarks and
additional record evidence it used to justify a departure merely
pointed to a base ROE somewhere above 9.39 percent. When
making adjustments in setting a utility’s base ROE, FERC must
adequately explain how the evidence it relied on “support[ed]
the conclusion it reached.” Wis. Gas Co. v. FERC, 770 F.2d
1144, 1156 (D.C. Cir. 1985) (citation omitted); see also Tenn.
Gas Pipeline, 926 F.2d at 1209, 1212–13. In this case, FERC
stressed that it used the alternative analyses only “to inform the
just and reasonable placement of the ROE within the zone of
reasonableness,” see Opinion No. 531, 147 FERC ¶ 61,234 at
PP 145–46; Opinion No. 531-B, 150 FERC ¶ 61,154 at PP 49–
50, and the only conclusion it reached from these alternative
analyses was that “the ROE should . . . be set above the
midpoint,” see Opinion No. 531-B, 150 FERC ¶ 61,165 at PP
37, 49, 128, 101 n.213. FERC’s reasoning is unclear. On the
one hand, it argued that the alternative analyses supported its
decision to place the base ROE above the midpoint, but on the
other hand, it stressed that none of these analyses were used to
select the 10.57 percent base ROE.

     A review of the findings of the alternative analyses
highlights the problem. FERC found the results of three of the
alternative benchmark methodologies “informative”: the risk
premium analysis, the CAPM analysis, and the expected
earnings analysis. See Opinion No. 531, 147 FERC ¶ 61,234
at P 146, Opinion No. 531-B, 150 FERC ¶ 61,165 at P 37. The
risk premium analysis supported a base ROE between 10.7
percent and 10.8 percent, the CAPM analysis produced a
midpoint of 10.4 percent (with a zone of reasonableness of 7.4
                               30
percent to 13.3 percent), and the expected earnings analysis had
a midpoint of 12.1 percent (with a zone of reasonableness of
8.1 percent to 16.1 percent). Opinion No. 531, 147 FERC
¶ 61,234 at P 147. FERC never explained how these analyses
justified a 10.57 percent base ROE, and, in fact, it stressed that
it did not rely on those analyses in setting the base ROE. See,
e.g., Opinion No. 531-B, 150 FERC ¶ 61,165 at PP 91, 103,
120.        FERC also relied on evidence of state
commission-approved ROEs, but it acknowledged that 89
percent of the state commission-authorized ROEs were below
its chosen rate of 10.57 percent. Opinion No. 531-B, 150
FERC ¶ 61,165 at P 85; see also Opinion No. 531, 147 FERC
¶ 61,234 at P 148. Similar to the alternative benchmarks,
FERC maintained that it did not use the state
commission-authorized ROEs in setting Transmission Owners’
actual base ROE. See, e.g., Opinion No. 531-B, 150 FERC
¶ 61,165 at P 80. FERC argues that these analyses, taken
together, merely supported its conclusion that 9.39 percent was
too low and that Transmission Owners’ base ROE should be
set somewhere above the zone of reasonableness’s midpoint.
Thus, while the alternative benchmarks and additional record
evidence may have shown that some “upward adjustment” was
warranted, see Opinion No. 531, 147 FERC ¶ 61,234 at 62,473
(Norris, dissenting in part), they did not justify the specific
placement of the base ROE at 10.57 percent.

    Finally, FERC’s explanation for selecting 10.57 percent as
the base ROE was insufficient. Rather than citing record
evidence demonstrating that 10.57 percent was a just and
reasonable base ROE, FERC simply noted that it “traditionally
looked to the central tendency” to set an ROE and then chose
the midpoint of the upper half of the zone of reasonableness
because it had done so “in the past.” Opinion No. 531, 147
FERC ¶ 61,234 at PP 151–52; see also Opinion No. 531-B, 150
FERC ¶ 61,165 at P 55.
                                31

     To support its assertion that its previous decisions dictated
a top-quarter placement for the base ROE, FERC relied on two
prior cases, Southern California Edison Co., 92 FERC ¶ 61,070
(2000), and Consumers Energy Co., 85 FERC ¶ 61,100 (1998).
Opinion No. 531, 147 FERC ¶ 61,234 at P 152 n.307. But
those cases do not support FERC’s decision. In the prior cases,
a utility’s ROE was set at the midpoint of the upper half of the
zone of reasonableness because the utility was “more risky”
than the proxy group. See S. Cal. Edison, 92 FERC ¶ 61,070
at 61,266–67; Consumers Energy, 85 FERC ¶ 61,100 at
61,363–64.       In both Southern California Edison and
Consumers Energy, FERC knew only that the utility at issue
was riskier than the proxy group, meaning that the utility’s
costs fell somewhere above the midpoint of the zone of
reasonableness. Thus, in those cases, the midpoint of the upper
half was “an obvious place to begin.” See Tenn. Gas Pipeline,
926 F.2d at 1213. Conversely, FERC expressly held in this
case that Transmission Owners were “comparable in risk” to
the proxy group. Opinion No. 531-B, 150 FERC ¶ 61,165 at P
47. Without more specific findings as to Transmission
Owners’ circumstances, FERC’s precedent did not justify its
decision in this case.

     FERC essentially chose the midpoint of the upper half of
the zone because it determined that once it concluded that an
upward adjustment from the midpoint of the zone of
reasonableness was appropriate, the midpoint of the upper half
of the zone was the only available ROE. Cf. Opinion No. 531,
147 FERC ¶ 61,234 at P 151 n.306 (“Nothing in this order
precludes participants in [unrelated] proceedings from
developing a record . . . supporting a different point in the range
of reasonable returns than the midpoint of the upper half of the
range.” (citation omitted)). Such conclusory reasoning does
not establish “a rational connection” between the record
                             32
evidence and FERC’s decision. See Elec. Power, 136 S. Ct. at
782.

     We emphasize that our review is limited to ensuring that
FERC “made a principled and reasoned decision supported by
the evidentiary record.” S. Cal. Edison, 717 F.3d at 181
(citation omitted). It is not our job to tell FERC what the
“correct” ROE is for Transmission Owners, but it is our duty
to ensure that FERC’s decision is “the product of reasoned
decisionmaking.” Pub. Serv. Comm’n of N.Y., 813 F.2d at 465
(citations omitted). While the evidence in this case may have
supported an upward adjustment from the midpoint of the zone
of reasonableness, FERC failed to provide any reasoned basis
for selecting 10.57 percent as the new base ROE.

                            IV.

    For the foregoing reasons, the petitions for review are
granted. We therefore vacate FERC’s orders and remand the
case for proceedings consistent with this opinion.

                                                 So ordered.
