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

State: kansas

Issuer: Kansas Supreme Court

Document:

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IN THE SUPREME COURT OF THE STATE OF KANSAS 
 
No. 102,630 
 
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. 
 
 
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. 
 
2 
 
 
 
Review of the judgment of the Court of Appeals in an unpublished opinion filed November 12, 
2010. Appeal from Phillips District Court; WILLIAM B. ELLIOTT, judge. Opinion filed May 16, 2014. 
Judgment of the Court of Appeals reversing the district court is reversed. Judgment of the district court is 
affirmed. 
 
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 
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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 power and 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 
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(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 
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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 Sunflower at the time of 
execution of this contract, shall be furnished to [Prairie Land] by [KEPCo] pursuant to 
this Wholesale Power Contract." (Emphasis added.) 
 
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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 contacted KEPCo about the possibility of adding the new customer load to 
the Phillipsburg substation.  
 
Prairie Land later learned the Jayhawk pumping station would utilize a 1,250-
horsepower motor and the load for this new station would exceed the Phillipsburg 
substation's capacity. After considering several factors, including its preexisting all-
requirements contract with Sunflower, Prairie Land decided to establish a new delivery 
point and substation to serve the Jayhawk pumping station, and to purchase wholesale 
electricity for the new delivery point from Sunflower rather than KEPCo. 
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In correspondence dated November 9, 2007, KEPCo advised Prairie Land that the 
KEPCo Contract required Prairie Land to purchase power from KEPCo to serve the new 
load created by the Jayhawk pumping station.  
 
 
  
District Court Proceedings 
 
On November 16, 2007, Prairie Land filed a petition for declaratory judgment in 
Phillips County District Court pursuant to K.S.A. 60-1701 et seq., asking the court "to 
construe and declare the rights, status and legal relations of the parties" under the 
Sunflower and KEPCo Contracts.  
 
Following a 2-day bench trial, the district court issued a comprehensive 
memorandum decision and order, ultimately concluding "Sunflower has the contractual 
right and obligation to serve the new Jayhawk pumping station delivery point." In 
reaching this conclusion, the district court found ambiguities in the KEPCo Contract, 
particularly KEPCo's recognition of Prairie Land's existing contractual obligations to 
Sunflower and its attempt to limit those obligations in paragraph 6(b), KEPCo's use of the 
undefined term "areas" in that same provision, and KEPCo's failure to clarify the scope of 
paragraph 6(b).  
 
Additionally, while the district court characterized both the KEPCo and Sunflower 
Contracts as "all-requirements" contracts, it noted that the Sunflower Contract was "first 
in time" and that KEPCo knew of Prairie Land's preexisting contractual obligations with 
Sunflower when KEPCo drafted the KEPCo Contract. Finally, the district court 
determined neither Sunflower nor Prairie Land had waived "their respective rights and 
obligations under" the Sunflower Contract. In sum, the district court determined 
Sunflower had the right to supply the need created by the Jayhawk pumping station. 
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Court of Appeals' Decision 
 
In its direct appeal to the Court of Appeals, KEPCo argued the district court erred 
in concluding that paragraph 6(b) of the KEPCo Contract was ambiguous and in finding 
Sunflower had not waived or released its contractual right to serve the new delivery 
point. In response, Sunflower and Prairie Land asserted, in part, that Sunflower was 
entitled to serve the new delivery point because the Sunflower Contract was prior in time.  
 
Ultimately, the panel reversed the district court's ruling and remanded with 
directions to enter judgment in favor of KEPCo after concluding KEPCo had the 
contractual right to supply electricity to Prairie Land for the new delivery point based on 
the unambiguous language of the KEPCo Contract. Prairie Land Elec. Co-op. v. Kansas 
Elec. Power Co-op, No. 102,630, 2010 WL 4977115, at *8 (Kan. App. 2010) 
(unpublished opinion), rev. granted 293 Kan. 1107 (2011).  
 
After rejecting Sunflower's "prior in time" argument on procedural grounds, the 
panel focused solely on the language of the KEPCo Contract and agreed with KEPCo that 
the term "areas" in paragraph 6(b) of the KEPCo Contract was unambiguous. 2010 WL 
4977115, at *4-8. Ultimately, the panel determined the parties to the KEPCo Contract 
intended the term "areas" to be "geographical in scope" and concluded the Jayhawk 
pumping station was "undoubtedly within the area served by the Phillipsburg delivery 
point, so the power must come from KEPCo as a matter of contract." 2010 WL 4977115, 
at *6, 8. Finally, the panel found the waiver issue moot "given the rights granted by the 
KEPCo contract." 2010 WL 4977115, at *8. We granted Sunflower's and Prairie Land's 
petitions seeking review of the Court of Appeals' decision under K.S.A. 20-3018(b), 
obtaining jurisdiction under K.S.A. 60-2101(b). 
 
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DISCUSSION 
 
Preliminarily, we note that our summaries of the district court's and the Court of 
Appeals panel's findings and conclusions are highly condensed. This is so because we 
exercise unlimited review over the interpretation and legal effect of written instruments, 
and we are not bound by the lower courts' interpretations of those instruments. See 
Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011); McGinley v. Bank of 
America, N.A., 279 Kan. 426, 431, 109 P.3d 1146 (2005).  
 
So we begin anew, keeping in mind "[t]he 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 language of the contract without applying rules 
of construction." Anderson v. Dillard's, Inc., 283 Kan. 432, 436, 153 P.3d 550 (2007).  
 
We find it helpful initially to place this action in the appropriate context by 
clarifying what it is not—i.e., this is not a breach of contract action brought by KEPCo 
against Prairie Land to enforce its rights under the KEPCo Contract. Rather, this is a 
declaratory judgment action. Declaratory judgment actions "'provide relief from 
uncertainty and insecurity' with respect to 'rights, status and other legal relations.'" Waste 
Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943, 963, 298 P.3d 250 (2013) 
(quoting K.S.A. 60-1713).  
 
In the spirit of a declaratory judgment, Prairie Land brought this action to 
"construe and declare the rights, status and other legal relations of the parties" under the 
nearly identical portions of both its 1958 all-requirements contract with Sunflower and its 
1977 all-requirements contract with KEPCo. In its declaratory judgment petition, Prairie 
Land identified the pending dispute concerning the Jayhawk pumping station and 
informed the court that KEPCo had threatened to sue Prairie Land if Prairie Land refused 
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to permit KEPCo to serve the load. Finally, Prairie Land asserted that its preexisting all-
requirements contract with Sunflower required Prairie Land to purchase the power for the 
new pumping station from Sunflower and that the KEPCo Contract recognized this 
preexisting obligation.  
 
Although the declaratory judgment action clearly placed both contracts at issue 
and sought the district court's determination of the "rights, status and other legal relations 
of the parties" under both agreements, the Court of Appeals panel initially discarded any 
consideration of the Sunflower Contract, observing simply: 
 
 
"Sunflower argues it 'has the contractual right to serve the new Jayhawk delivery 
point' because its contract 'was prior in time to the KEPCo contract.' This is contrary, 
however, to the trial court's ruling. The trial court gave Sunflower the right because 
Prairie Land had not chosen KEPCo, not because Sunflower enjoyed a precedence over 
KEPCo. Absent a cross-appeal, we will not consider points contrary to the trial court's 
ruling." Prairie Land, 2010 WL 4977115, at *4. 
 
Unlike the panel, we will not resolve the question presented in this declaratory 
judgment action by ignoring one of the two contracts at issue. First, although not 
determinative, we note that the trial court did not ignore the Sunflower Contract. Instead, 
it found the Sunflower Contract was "first in time" and further concluded neither 
Sunflower nor Prairie Land had waived their respective rights and obligations under that 
contract. Second, even if the district court had considered only the KEPCo Contract, the 
panel was not precluded from considering both contracts. Rather, as we have noted, an 
appellate court exercises unlimited review over the interpretation and legal effect of 
written instruments and is not bound by the lower courts' interpretations of those 
instruments. 
 
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With that context in mind, we proceed to first consider the Sunflower Contract, 
which, as Prairie Land noted, was executed nearly 20 years prior to the KEPCo Contract. 
Notably, under the plain and unambiguous language of the Sunflower Contract, Prairie 
Land agreed to "purchase and receive from [Sunflower] all electric power and energy 
which [Prairie Land] shall require for the operation of [Prairie Land's] system." The 
parties agreed to only two exceptions to this all-requirements language:  (1) if Sunflower 
lacked capacity to meet all of Prairie Land's requirements; or (2) if Prairie Land had 
preexisting obligations to purchase some of its energy requirements from other suppliers 
at the time it entered into the Sunflower Contract. 
 
Both of these exceptions came into play shortly after Prairie Land entered into the 
Sunflower Contract when, by letter agreement, Sunflower acknowledged Prairie Land's 
preexisting agreement to purchase some of its energy requirements from Centel and 
permitted Prairie Land to continue doing so, and when Sunflower permitted Prairie Land 
to purchase power from Centel for a new delivery point which Sunflower lacked the 
capacity to supply.  
 
Accordingly, until 1977, Prairie Land purchased all of its energy requirements 
from Sunflower, except the power it required for two delivery points. And Prairie Land 
purchased power for those two delivery points from Centel in accordance with the 
exceptions recognized in the Sunflower Contract.  
 
In 1977, Prairie Land entered into the KEPCo Contract. On its face, the KEPCo 
Contract required Prairie Land to assume the same obligation to KEPCo that Prairie Land 
had assumed to Sunflower under the Sunflower Contract—i.e., Prairie Land agreed 
generally to "purchase and receive from [KEPCo] all electric power and energy which 
[Prairie Land] shall require for the operation of [Prairie Land's] system." To further 
complicate matters, in paragraph 1 of the KEPCo Contract, Prairie Land purported to 
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agree to the same two exceptions to the all-requirements language which it had agreed to 
in the Sunflower Contract:  (1) if KEPCo lacked the capacity to meet all of Prairie Land's 
requirements; or (2) if Prairie Land had preexisting obligations to purchase its needs from 
another supplier.  
 
Despite this general language in the KEPCo Contract recognizing Prairie Land's 
preexisting obligations to Sunflower, in paragraph 6(b) of that same contract KEPCo 
inexplicably attempted to limit Prairie Land's obligations to Sunflower, utilizing language 
varying from the all-requirements language of Prairie Land's separate contract with 
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 Sunflower at the time of 
execution of this contract, shall be furnished to [Prairie Land] by [KEPCo] pursuant to 
this Wholesale Power Contract." (Emphasis added.) 
 
In this litigation, Sunflower points out that the Jayhawk pumping station is clearly 
within Prairie Land's "system" and because neither exception to the all-requirements 
language of the preexisting Sunflower Contract applies, Prairie Land is contractually 
required to purchase power for the new pumping station from Sunflower. Prairie Land 
concurs with this interpretation of the Sunflower Contract.  
 
KEPCo, on the other hand, argues that its identical, but later in time, all-
requirements contract with Prairie Land requires Prairie Land to purchase power for the 
Jayhawk pumping station from KEPCo. But unlike Sunflower, KEPCo does not focus on 
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the all-requirements language of its contract that mirrors the language in the preexisting 
Sunflower Contract and requires Prairie Land to purchase all requirements for its 
"system" from KEPCo. Instead, KEPCo focuses on paragraph 6(b) of the KEPCo 
Contract, which attempts to limit Prairie Land's preexisting obligation to Sunflower by 
permitting KEPCo to serve "areas of [Prairie Land's] system" not presently served by 
Sunflower.  
  
Notably, none of the parties offers any real solution to the underlying 
irreconcilable conflict, i.e., that Prairie Land entered into identical and temporally 
overlapping agreements to purchase all of the requirements for its system from two 
different suppliers, yet neither supplier was a party to the other contract.  
 
The Court of Appeals panel essentially ignored this conflict by suggesting that the 
issue was not properly before it and then moved on to considering paragraph 6(b) of the 
KEPCo Contract. But we decline to reconcile this conflict by ignoring it; nor can we 
reconcile the conflict, as KEPCo suggests, by turning to paragraph 6(b) of the KEPCo 
Contract. Although in this paragraph Prairie Land and KEPCo purportedly limited the 
scope of Prairie Land's future obligations to Sunflower under its preexisting all-
requirements contract, Sunflower was not a party to the KEPCo Contract and never 
agreed to limit Prairie Land's future obligation to Sunflower to only those "areas of 
[Prairie Land's] system" served by Sunflower at the time the KEPCo Contract was 
executed.  
 
Moreover, paragraph 6(b) directly contradicted Prairie Land's broader and 
preexisting obligation to purchase all of the present and future power requirements for 
the operation of its "system" from Sunflower. Further, paragraph 6(b) of the KEPCo 
Contract conflicted with paragraph 1 of that same contract, whereby KEPCo agreed that 
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Prairie Land could continue to purchase electric power and energy under any preexisting 
contracts with other suppliers, including Sunflower.  
 
After careful consideration of these seemingly irreconcilable contract provisions, 
we conclude the only way to reasonably interpret and give legal effect to both contracts is 
to interpret the KEPCo Contract in light of, and as limited by, Prairie Land's preexisting 
obligations under the Sunflower Contract. We thus conclude that Prairie Land agreed in 
the KEPCo Contract to purchase its needs from KEPCo only if one of the two exceptions 
recognized in the Sunflower Contract applied—i.e., if Sunflower lacked capacity to meet 
all of Prairie Land's requirements; or (2) if Prairie Land had preexisting obligations to 
purchase some of its energy requirements from other suppliers at the time it entered into 
the Sunflower Contract. 
 
The first exception does not apply here because Sunflower had the capacity to 
meet Prairie's Land's requirements for the new Jayhawk pumping station. Similarly, the 
second exception does not apply here because Prairie Land did not have a preexisting 
obligation to purchase energy requirements for the new Jayhawk pumping station from a 
supplier other than Sunflower at the time it entered into the Sunflower Contract. Thus, we 
interpret the contracts at issue to require that Prairie Land purchase its energy needs for 
the Jayhawk pumping station from Sunflower rather than KEPCo.  
 
Accordingly, we reverse the Court of Appeals' decision and affirm the district 
court's decision on Prairie Land's petition for declaratory judgment.