Energy Reserves Group, Inc. v. Kansas City Power & Light Company

PETITIONER: Energy Reserves Group, Inc.
RESPONDENT: Kansas City Power & Light Company
LOCATION: Kansas State Legislature

DOCKET NO.: 81-1370
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: Kansas Supreme Court

CITATION: 459 US 400 (1983)
ARGUED: Nov 09, 1982
DECIDED: Jan 24, 1983

ADVOCATES:
Basil W. Kelsey - on behalf of the Appellee
Gary W. Davis - on behalf of the Appellant

Facts of the case

The Kansas Power & Light Company (KPL) entered long-term contracts in 1977 governing its purchase of natural gas from the Energy Reserves Group (ERG), a Kansas-based oil company. The contracts contained "price escalator" clauses which provided for gas prices to rise to the levels set by governmental authorities. In 1978, the federal government established a new system for regulating natural gas prices under the Natural Gas Policy Act. The Act set maximum lawful prices that could be charged for different types of natural gas and applied these price levels to intrastate gas markets. The Act allowed states to set maximum price levels below federal levels, which Kansas did under the Kansas Natural Gas Price Protection Act (Kansas Act). When ERG tried to raise its prices to the higher federal levels using the "price escalator" clause, KPL insisted that it was only legally obligated to buy gas at the lower prices set by the Kansas Act. ERG claimed that KPL violated the contract by refusing to pay federal prices. In response, KPL argued that the Kansas Act clearly prohibited the use of federal price levels to trigger "price escalator" clauses. After a state trial court ruled in favor of KPL, ERG claimed that the Kansas Act violated the Contract Clause by preventing federal price changes from affecting state contracts. The Supreme Court of Kansas held that the Kansas Act did not violate the Contract Clause since it was a legitimate effort by the state of Kansas to protect its economy from rapid price changes.

Question

Did the Kansas Natural Gas Price Protection Act violate the Contract Clause by preventing federal price controls on natural gas from affecting price adjustments made under intrastate contracts?

Media for Energy Reserves Group, Inc. v. Kansas City Power & Light Company

Audio Transcription for Oral Argument - November 09, 1982 in Energy Reserves Group, Inc. v. Kansas City Power & Light Company

Audio Transcription for Opinion Announcement - January 24, 1983 in Energy Reserves Group, Inc. v. Kansas City Power & Light Company

William J. Brennan, Jr.:

Justice Blackmun will deliver the opinion for the Court in No. 81-1370, Energy Reserves Group versus Kansas Power & Light Company.

Harry A. Blackmun:

This case comes to us by way of an appeal from the Supreme Court of Kansas.

It doesn't lend itself very well to a description from the bench.

I think it will suffice to say that the case concerns intrastate gas contracts between the respective predecessors of the appellant producer and the appellee public utility.

That these contracts contained an escalator clause and a price redetermination clause, and that the Federal Natural Gas Policy Act was in -- enacted in 1978 and replaced earlier federal price controls for interstate gas as well as extending federal price regulation to the intrastate gas market.

And that a Kansas Act was enacted in May 1979 and imposed price controls on the intrastate market with respect to contracts executed before April 20, 1977.

And that the parties are in dispute as to whether the new federal Act triggered the escalator clauses and enabled the producers when the utility refused to go along with a higher rate to terminate the contracts.

In this litigation, a Kansas trial court entered summary judgment for the utility holding that the federal Act's imposition of price ceilings on intrastate gas did not trigger the governmental price escalator clauses.

And that the Kansas Act did not violate the Contract Clause of the Federal Constitution.

That reading was affirmed by the Supreme Court of Kansas.

In an opinion filed today with the clerk, we in turn affirm the judgment of the Supreme Court of Kansas.

Justice Powell has filed a separate opinion which joins the Court's opinion and except as to Part II-C and he is joined in that opinion by the Chief Justice and by Justice Rehnquist.

William J. Brennan, Jr.:

Thank you Justice Blackmun.