Now that I'm done with Powerpoint….
Let's talk about the distortion....
With a normal butt weld, the weld shrinks or to explain another way, the length gets shorter. Two inches or so outside the weld area, the panel remains cool and resists any change. The area between is what's caught between two differing forces, and forms an up and down wave as the metal looks for someplace to go. You would normally planish along the entire length of this weld to stretch (add length) back to the weld and HAZ area, and the wave would relax as those forces equalize.
It's hard to discern if there is any wave action above the flanged area, if it is not, then perhaps the two layers helped to keep it from distorting that side. But any planishing in that area is now near impossible. The first area past that now becomes the weak area more susceptible to the shrinking effects. This is why the distortion is focused in those corners instead of waves along the entire length. With as much of a pucker as you have there, it will be near impossible to remove the distortion. Don't know how much the replacement panels cost, but I would say two inches outside of the weld would be needed to remove most of that distortion. If any distortion remains after that it should be easily planished out. The corners should be cut out as a radius, even larger than you show in the next picture.
All options surmise that inner wheel well is removed for planishing access.
Looking at the proposed cut at the blue line, I feel this is too close to the reverse (inward crease) that a weld will cause distortion in the crease, and the close proximity of the crease will make it difficult to planish with hammer and dolly. So that is not a good option. Moving lower may bring the weld too close to rusty areas, which may be a recipe for blowing holes. If there is room to bring it lower and more centered, this would be a good location.
Looking at the proposed red cut line, IMO the distance between the two creases are too close that shrinking is going to try and pull the creases together. With rear access you would be able to planish, but the limited "target area" may make it challenging. So this option is based on your comfort level.
For all the conditions (rust, body lines, etc) I would prefer the yellow cut line. This does take you across two creases that will tend to pull inward and need localize planishing in the creases to bring them back out, but I think this would be the best of the options (if the rust below is a detractor for that area). For the yellow cut I would try and hold the distance at 1" from the top crease, so not a straight cut but one that follows the radius of the crease. If the rust had been caught earlier on, a midpoint cut below your blue line would be preferred.