Energy Reserves Group, Inc. v. Kansas Power and Light Co.
| Citation | 230 Kan. 176,630 P.2d 1142 |
| Decision Date | 17 July 1981 |
| Docket Number | No. 52677,52677 |
| Parties | ENERGY RESERVES GROUP, INC., Appellant, v. KANSAS POWER AND LIGHT COMPANY, Appellee. |
| Court | United States State Supreme Court of Kansas |
Syllabus by the Court
1. In determining whether a particular clause in a gas purchase contract authorizes increased rates, courts should endeavor to ascertain and give effect to the intent of the parties to the contract.
2. Under the contract clause of the U. S. Constitution (Art. I, § 10, cl. 1), prohibiting state impairment of contract obligations, legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.
3. In reviewing economic and social legislation against Contract Clause challenges, courts should defer to the legislature's judgment of the necessity and reasonableness of a particular measure.
4. The Kansas Natural Gas Price Protection Act, K.S.A. 1980Supp. 55-1401 et seq., is a reasonable and appropriate regulation of the natural gas industry; it is not unconstitutional under the contract clause of the United States Constitution, Article I, Section 10, Clause 1.
5. In a declaratory judgment action involving the construction of indefinite price escalator clauses in natural gas purchase contracts, the record is examined and it is held: 1) the parties intended that price increases under the contracts would be triggered by legislation such as the Natural Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq.; 2) whether the price of natural gas increases under a certain contract is dependent upon the specific terms of that contract; 3) the contract provisions here involved were not effective to permit price escalation under § 105 of the Natural Gas Policy Act; 4) certain clauses in the contracts were "indefinite price escalator clauses" as defined by the Kansas Natural Gas Price Protection Act; and 5) the Kansas Natural Gas Price Protection Act is constitutional.
Gary W. Davis, of Martin, Pringle, Fair, Davis & Oliver, Wichita, argued the cause, and Martin W. Bauer, Wichita, of the same firm, and Clark Mandigo, Gen. Counsel for Energy Reserves Group, Inc., Wichita, were with him on the brief, for appellant.
Jerome T. Wolf, of Spencer, Fane, Britt & Browne, Kansas City, Mo., argued the cause, and Basil W. Kelsey and Terry W. Schackmann, Kansas City, Mo., of the same firm, David S. Black, Gen. Counsel, Topeka, for the Kansas Power and Light Company, and William C. Farmer, of Smith, Shay, Farmer & Wetta, Wichita, were with him on the brief, for appellee.
Brian J. Moline, Gen. Counsel, Topeka, and Terence L. Mundorf, Asst. Gen. Counsel, were on the brief amicus curiae, for State Corporation Commission of the State of Kansas.
Robert L. Howard, of Foulston, Siefkin, Powers & Eberhardt, Wichita, was on the brief amicus curiae, for Kansas Independent Oil and Gas Association.
This is a declaratory judgment action involving the construction of the terms of two natural gas purchase contracts in the light of certain federal and state statutes.
The plaintiff, Energy Reserves Group (ERG), brought suit against the defendant, Kansas Power & Light Company (KPL), seeking judgment that ERG had the right to terminate the contracts. KPL by counterclaim, sought judgment that it had committed no breach, and that ERG had no right to terminate the contracts. Upon an extensive documentary record, both parties moved for summary judgment. The trial court denied ERG's motion and granted that of KPL; ERG appeals.
The two gas purchase contracts in issue were executed on September 27, 1975, by Clinton Oil Company, predecessor of ERG, and KPL. One was a contract for the sale of gas produced directly from the wells; the other was a residue gas purchase contract for the sale of remaining gas after certain recovery and processing steps were completed. Under the contracts, KPL agreed to purchase natural gas for the life of the Spivey-Grabbs field, located in Harper and Kingman counties, or for the life of the processing plants associated with the field. All the gas involved was produced and sold within the state of Kansas and thus was intrastate gas.
Each contract contains identical provisions relating to government price escalation price redetermination, commission approval, and intent. These contract provisions are as follows:
ERG invoked the price redetermination clause in 1977, and on November 27, 1977, the parties mutually accepted a price of $1.77 per MCF. This redetermined price was approved by the Kansas Corporation Commission and was the price paid by KPL during the calendar year 1978.
On November 9, 1978, congress passed the Natural Gas Policy Act (NGPA), 15 U.S.C. §§ 3301-3432. This act (1) terminates the authority of the Federal Energy Regulatory Commission (FERC), successor to the Federal Power Commission, to prescribe rates for natural gas, and (2) establishes short term ceiling prices for various categories of natural gas. The sections of the act with which we are most concerned are as follows:
§ 2 (15 U.S.C. § 3301) is the definitions section. It defines "new well" as any well drilled after February 19, 1977, or the depth of which was increased by drilling after that date. It also defines "first sale" as any sale of natural gas "to any person for use by such person."
§ 102 (15 U.S.C. § 3312) fixes the maximum lawful price for new natural gas. (The Section 102 price for new natural gas for the month of December 1978 was $2.078 per million BTU's.)
§ 105 (15 U.S.C. § 3315) fixes the ceiling price for gas sales under existing intrastate contracts. Subsection (b)(1) reads as follows:
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