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Energy Reserves Group v. Kan. Power & Light Co.

Supreme Court of the United States

November 9, 1982, Argued ; January 24, 1983, Decided

No. 81-1370

Opinion

 [*403]  [***575]  [**700]    JUSTICE BLACKMUN delivered the opinion of the Court.

 [****8]  This case concerns the regulation by the State of Kansas of the price of natural gas sold at wellhead in the intrastate market. It presents a federal Contract Clause issue and a statutory issue.

On September 27, 1975, The Kansas Power & Light Company (KPL), a public utility and appellee here, entered into two intrastate natural gas supply contracts with Clinton Oil Company, the predecessor-in-interest of appellant Energy Reserves Group, Inc. (ERG). Under the first contract, KPL agrees to purchase gas directly at the wellhead on the Spivey-Grabs Field in Kingman and Harper Counties in southern Kansas. The second contract obligates KPL to purchase from the same field residue gas, that is, gas remaining after certain recovery and processing steps are completed. The original contract price was $ 1.50 per thousand cubic feet (Mcf) of gas. The contracts continue in effect for the life of the field or for the life of the processing plants associated with the field.

Each contract contains two clauses known generically as indefinite price escalators. The first is a governmental price escalator clause; this provides that if a governmental authority fixes a price for any natural  [****9]  gas that is higher than the price specified in the contract, the contract price shall be increased to that level. 2 The second is a price redetermination  [*404]   [***576]  clause; this gives ERG the option to have the contract price redetermined no more than once every two years. 3 The new price is then  [**701]  set by averaging the prices being paid under three other gas contracts chosen by the parties.

 [****10]  When the price is increased pursuant to either of these clauses, each contract requires KPL to seek from the Kansas Corporation Commission (Commission) approval to pass the increase through to consumers. App. to Juris. Statement 69a. The application for approval is to be submitted within 5 days after a price increase resulting from governmental action,  [*405]  or no fewer than 60 days before a price redetermination increase is to become effective. Ibid. If the Commission refuses to permit the pass-through and KPL elects not to pay the increase, ERG has the option to terminate the agreement on 30 days' written notice.

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459 U.S. 400 *; 103 S. Ct. 697 **; 74 L. Ed. 2d 569 ***; 1983 U.S. LEXIS 16 ****; 51 U.S.L.W. 4106; 50 P.U.R.4th 489; 76 Oil & Gas Rep. 593

ENERGY RESERVES GROUP, INC. v. KANSAS POWER & LIGHT CO.

Prior History:  [****1]  APPEAL FROM THE SUPREME COURT OF KANSAS.

Disposition:  230 Kan. 176, 630 P. 2d 1142, affirmed.

CORE TERMS

escalator, natural gas, contracts, intrastate, regulation, redetermination, prices, clauses, Kansas Act, ceiling, indefinite, interstate, impaired, price regulation, gas price, contractual, maximum, ceiling price, parties, trigger, Oil, increased price, contract price, pass-through, interstate commerce, public purpose, deregulation, consumers, effective, terminate

Constitutional Law, Congressional Duties & Powers, Contracts Clause, General Overview, Governments, Police Powers, Legislation, Effect & Operation, Retrospective Operation