Prairie Land Elec. Coop., Inc. v. Kan. Elec. Power Coop., Inc.

• Court: Kansas Supreme Court
• Writing for the Court: The opinion of the court was delivered by MORITZ
• Citation: Prairie Land Elec. Coop., Inc. v. Kan. Elec. Power Coop., Inc., 299 Kan. 360, 323 P.3d 1270 (Kan. 2014)
• Decision Date: 16 May 2014
• Docket Number: No. 102,630.,102,630.
• Parties: PRAIRIE LAND ELECTRIC COOPERATIVE, INC., A Kansas Electric Cooperative, Plaintiff/Appellee, v. KANSAS ELECTRIC POWER COOPERATIVE, INC., Defendant/Appellant, and Sunflower Electric Power Corporation, Defendant/Appellee.

299 Kan. 360

323 P.3d 1270

PRAIRIE LAND ELECTRIC COOPERATIVE, INC., A Kansas Electric Cooperative, Plaintiff/Appellee,

v. KANSAS ELECTRIC POWER COOPERATIVE, INC., Defendant/Appellant,andSunflower Electric Power Corporation, Defendant/Appellee.

No. 102,630.

Supreme Court of Kansas.

May 16, 2014.

Syllabus by the Court

1. Declaratory judgment actions provide relief from uncertainty and insecurity with respect to disputed rights, status, and other legal relations.

2. Appellate courts exercise unlimited review over the interpretation and legal effect of written instruments and are not bound by a lower court's interpretation of those instruments.

3. The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the contract language without applying rules of construction.

Timothy J. Sear, of Polsinelli Shughart PC, of Overland Park, argued the cause, and Kevin J. Breer and Brett C. Randol, of the same firm, and R. Douglas Sebelius, of Sebelius and Griffiths, LLP, of Norton, were with him on the briefs for defendant/appellant Kansas Electric Power Cooperative, Inc.

John F. McClymont, of Ryan, Walter & McClymont, Chtd., of Norton, argued the cause and was on the briefs for plaintiff/appellee Prairie Land Electric Cooperative, Inc.

James M. McVay, of Watkins Calcara, Chtd., of Great Bend, argued the cause and was on the briefs for defendant/appellee Sunflower Electric Power Corporation.

The opinion of the court was delivered by MORITZ, J.:

We granted review in this declaratory judgment action to consider a unique contract question involving three parties, one of which entered into two separate “all-requirements” contracts, agreeing to purchase all of its wholesale electricity needs from each of the other two parties. The district court ruled in favor of the supplier that entered into the first all-requirements contract, and the Court of Appeals reversed the district court.

Simply stated, the parties have presented the court with two seemingly irreconcilable contracts. Nevertheless, we are not asked to determine whether any party breached its obligations under either contract, but to consider which party has superior rights under the competing contracts. We conclude that under the facts of this case, the party that chose to enter into two temporally overlapping all-requirements contracts must meet its obligations under its contract with the first supplier before it may comply with any obligations under its contract with the second supplier. Consequently, we reverse the Court of Appeals' decision and affirm the district court's judgment.

Factual and Procedural Background

Prairie Land Electric Cooperative, Inc. (Prairie Land) purchases wholesale electricity from multiple suppliers and distributes that electricity to retail consumers within a certified service area in northwest and north central Kansas. The Kansas Corporation Commission establishes the boundaries of Prairie Land's certified service area. Within its certified service area, Prairie Land's distribution system consists of all the “facilities, transmission lines, distribution lines and substation equipment as owned and operated by Prairie Land.” The dispute in this case arises from Prairie Land's decision to enter into temporally overlapping, long-term all-requirements contracts with two different wholesale electricity suppliers.

The Sunflower Contract

Nearly 50 years before the current litigation arose, Prairie Land entered into an all-requirements contract with Sunflower Electric Power Corporation (Sunflower). The Sunflower Contract, entered into in February 1958, remains in effect until April 2021 and in relevant part provides:

“1. General. [Sunflower] shall sell and deliver to [Prairie Land] and [ Prairie Land ] shall purchase and receive from [ Sunflower ] all electric power and energy which [ Prairie Land ] shall require for the operation of [ Prairie Land's ] system to the extent that [Sunflower] shall have such power and energy available, provided, however, that [Prairie Land] shall have the right to continue to purchase electric powerand energy under any existing contract or contracts with a supplier other than [Sunflower] during the remainder of the term thereof. [Prairie Land] shall terminate, if [Sunflower] shall, with the approval or at the direction of the Administrator of the Rural Electrification Administration (hereinafter called the ‘Administrator’), so request, any such existing contract or contracts with a supplier other than [Sunflower] at such times as it may legally do so, provided [Sunflower] shall have sufficient electric power and energy available for [Prairie Land].” (Emphasis added.)

In a letter dated June 1958, Sunflower acknowledged that Prairie Land continued to purchase some of its energy requirements from the Western Light and Telephone Company (Centel). In the letter, Sunflower advised Prairie Land it was “agreeable ... to permitting [Prairie Land] to continue purchasing some of its electric power and energy requirements from [Centel], solely for the purpose of supplying the power and energy requirements of those portions of your distribution system which are presently being served by [Centel].” Sunflower later agreed to permit Prairie Land to purchase power from Centel to serve a new delivery point in Rooks County. In doing so, Sunflower advised Prairie Land that Sunflower did not have the capacity to provide power to that particular delivery point.

The KEPCo Contract

In September 1977, Prairie Land entered into a second all-requirements contract with Kansas Electric Power Cooperative, Inc. (KEPCo). The KEPCo Contract remains in effect until December 31, 2020, and in relevant part after its August 16, 1978, amendment, provides:

“1. General. [KEPCo] shall sell and deliver to [Prairie Land] and [ Prairie Land ] shall purchase and receive from [ KEPCo ] all electric power and energy which [ Prairie Land ] shall require for the operation of [ Prairie Land's ] system to the extent that [KEPCo] shall have such power and energy and facilities available; provided, however, that [Prairie Land] shall continue to purchase electric power and energy under any existing contract or contracts with a supplier other than [KEPCo] during the remainder of the term thereof. [Prairie Land] shall terminate, if [KEPCo] shall, with the approval or at the direction of the Administrator of the Rural Electrification Administration (hereinafter called the ‘Administrator’), so request, any such existing contract or contracts with a supplier other than [KEPCo] at such times as it may legally do so, provided [KEPCo] shall have sufficient electric power and energy and facilities available for [Prairie Land]. Provided, however, that [Prairie Land] may continue to utilize power and energy generated from those facilities owned by [Prairie Land] at the time of [Prairie Land's] execution of the [KEPCo] Wholesale Power Contract, and provided further, that in the event of an emergency power outage(s) which affects a member system during the term of [the KEPCo Contract] [Prairie Land] may take power and energy from a power supplier(s) other than [KEPCo] on an emergency, short term basis.” (Emphasis added.)

With this general language, the KEPCo Contract recognized Prairie Land's right to continue to purchase electric power and energy under Prairie Land's “existing contract” with Sunflower and did not attempt to limit the geographic scope of that preexisting contract or its future impact. Notably, as discussed, Prairie Land's preexisting contract with Sunflower obligated Prairie Land to purchase all of the requirements for Prairie Land's “system” from Sunflower. But inexplicably, in paragraph 6(b) of the KEPCo Contract, KEPCo sought to temporally and geographically limit Prairie Land's obligation to Sunflower to “those areas of [Prairie Land's] system presently served” with power procured from Sunflower:

“If [Prairie Land] is presently a member of Sunflower Electric Cooperative, Inc. (hereinafter called ‘Sunflower’) and intends to retain its membership in Sunflower and to continue to procure from Sunflower its power requirements for those areas of its system presently served with power procured from Sunflower, [Prairie Land] and [KEPCo] agree that all of [Prairie Land's] power requirements to serve those areas of [Prairie Land's] system other than those served with power procured from Sunflowerat the time of execution of this contract, shall be furnished to [Prairie Land] by [KEPCo] pursuant to this Wholesale Power Contract.” (Emphasis added.)

In summary, the Sunflower Contract required Prairie Land to purchase all of the present and future power needs for Prairie Land's “system” from Sunflower unless Sunflower could not supply such needs or Prairie Land had a preexisting contract or contracts with a supplier other than Sunflower. Likewise, Prairie Land's subsequent contract with KEPCo generally required Prairie Land to purchase all of the present and future power needs for Prairie Land's “system” from KEPCo unless KEPCo could not meet Prairie Land's needs or Prairie Land had a preexisting contract or contracts with a supplier other than KEPCo. But paragraph 6(b) of the KEPCo Contract then purported to qualify this more general language by limiting Prairie Land's future obligations to one particular supplier—Sunflower—to “those areas of [Prairie Land's] system presently served with power procured from Sunflower,” although Sunflower was not a party to the KEPCo Contract.

The Delivery Point of Contention

In 2005, Jayhawk Pipeline Service (Jayhawk), a new retail customer, informed Prairie Land it would need electric service to operate an oil-pumping station on a 500–horsepower motor. Because the pumping station would be built near Prairie Land's Phillipsburg substation—a substation supplied with wholesale electricity from KEPCo—Prairie Land...