Legal Document

459 U.S. 400 103 S.Ct. 697 74 L.Ed.2d 569 ENERGY RESERVES GROUP, INC., Appellant,v.The KANSAS POWER AND LIGHT COMPANY. No. 81-1370. Argued Nov. 9, 1982. Decided Jan. 24, 1983. Syllabus by the Court In 1975, appellee public utility entered into two intrastate contracts with appellant's predecessor-in-interest to purchase wellhead and residue gas from a certain field. Each contract contains "governmental price escalator clause," which provides that if any governmental authority fixes for natural is higher than price, shall be increased level, "price redetermination gives appellant option have redetermined no more once every years averaging prices being paid under three other chosen parties. If pursuant either clause, each requires appellee, within specified time periods, seek Kansas Corporation Commission (Commission) approval pass increase through consumers. pass-through refused elects not pay increase, has terminate agreement. Pursuant clauses, parties agreed on effective November 27, 1977, approved of consumers, new 1978. Effective December 1, 1978, Natural Gas Policy Act 1978 replaced earlier federal controls interstate gradually increasing ceilings, including ceiling newly discovered or produced (§ 102) lower categories otherwise covered 109). The also extended regulation market, providing in § 105(b)(1) 102 "the terms existing contract, such was subject [November 1978]." As authorized Act, Price Protection enacted May 1979, imposing market regard executed before April 20, prohibiting consideration set authorities application clauses. However, permits indefinite clauses operate after March raise "old" up Act's 109 price. notified would escalated but failing obtain because its failure file timely Commission, elected then sought contracts. When contended were triggered prohibited their activation, filed suit state court, seeking declaratory judgment it had contractual right Appellee later rejected request contending extinguished appellee's obligation comply those Appellant an amended complaint, alleging entitled refusal redetermine counterclaimed still effect. trial court summary holding imposition ceilings did trigger violate Contract Clause Federal Constitution. Supreme affirmed. Held: 1. does impair violation Clause, thus may clause only ceiling. Pp. 409-419. (a) Clause's prohibition law impairing must accommodated State's inherent police power safeguard vital interests people. threshold inquiry "whether has, fact, operated as substantial impairment relationship." Allied Structural Steel Co. v. Spannaus, 438 234, 244, 98 2716, 2722, 57 727. found, State, justification, significant legitimate purpose behind regulation. Once been identified, adjustment contracting parties' rights responsibilities based upon reasonable conditions character appropriate justifying legislation's adoption. 410-413. (b) Here, impaired substantially rights. are operating heavily regulated industry, statement intent made clear designed guarantee increases consistent anticipated value gas, expected receive deregulated prices. Moreover, provision making term relevant present future suggests knew alteration 413-416. (c) To extent, any, impairs interests, rests protecting consumers escalation caused deregulation correcting imbalance between markets permitting rise level. Nor means implement these purposes deficient, particularly light deference Legislature's entitled. 416-419. 2. err enactment 105 so entitle matter statutory interpretation, automatically. By language 105(b)(1), Congress operation provisions; prescribe And Court's particular involved here insufficient escalate interpretation this defers. 419-420. 230 Kan. 176, 630 P.2d 1142, Gary W. Davis, Oklahoma City, Okl., appellant. Basil Kelsey, Mo., appellee. Justice BLACKMUN delivered opinion Court. 1 This case concerns State sold at market. It presents issue issue. 2 * On Sept. Power & Light Company (KPL), here, supply Clinton Oil Company, Energy Reserves Group, Inc. (ERG). Under first KPL agrees directly Spivey-Grabs Field Kingman Harper Counties southern Kansas. second obligates same field is, remaining recovery processing steps completed. original $1.50 per thousand cubic feet (Mcf) gas. continue effect life plants associated A. 3 known generically escalators. clause; level.1 ERG years.2 4 App. Juris. Statement 69a. submitted five days resulting action, fewer 60 become effective. Ibid. refuses permit agreement 30 written notice. 5 states "solely" compensate "anticipated" costs Id., 70a. provides: "Neither party held default perform hereunder due compliance with," ibid., "relevant laws." 6 invoked $1.77 Mcf, 27 year. 1978.3 B 7 Dec. (Act), Pub.L. 95-621, 92 Stat. 3350, 15 U.S.C. 3301 et seq. (1976 ed., Supp. V), principal part encourage production, became established ch. 556, 52 821 (1938), monthly "an inflation factor" considerations. Different different types Section 3312, sets $2.078 million British thermal units. 104 already producing wells. another sections Act. $1.63 Btus. 8 departure 1938 See S.Conf.Rep. 95-1126, pp. 67-68 (1978); H.R.Conf.Rep. 95-1752, (1978). establishes rule applying described committed commerce 8, 1978.4 provides, subsection (b)(1), maximum lawful "shall . [Nov. 1978], computed month section (relating gas)."5 agree governs 9 602(a), "to establish enforce sale exceed applicable Title I Act." C 10 direct response Legislature promptly imposed (Kansas Act), 1979 Kan.Sess.Laws, 171, codified Kan.Stat.Ann. §§ 55-1401 55-1415 (Supp.1981), enacted.6 applies Apr. 55-1403, until 31, 1984, 55-1411. 55-1404 prohibits clauses.7 55-1405 however, Mar. old 55-1406 exempts stripper D 11 suppliers having similar clause. 7, one day too late satisfy five-day requirement. never 12 June 5, failed apply approval, contends required KPL's activation. action District Harris County, Kan., praying 13 July terminate, requested next date possible conceded permitted utility's 14 cross-motions judgment, found reasoning interest addressing controlling serious economic dislocations sudden cause, reasonably furthered interest. 25a, 42a, 45a. Kansas, unanimous vote, 1142 (1981).8 We noted probable jurisdiction. 456 904, 1748, 72 160 (1982). II raises both constitutional issues challenging ruling whether ERG's Const., Art. I, 10, cl. 1.9 latter issue, 105's effect, not, could rely increase. That exercised 1979. timing hand, affects claim prevails, ceiling; prevail, consider first.10 16 Although facially absolute, people." Home Bldg. Loan Ass'n Blaisdell, 290 398, 434, 54 231, 239, 78 L.Ed. 413 (1934). Minnesota mortgage moratorium statute, even though statute retroactively balanced against exercising power, concluded justified.11 17 recent cases addressed claims. United States Trust New Jersey, 431 97 1505, (1977), Jersey alter bond covenant relied purchasers. One year later, 727 (1978), invalidated employer who closed office "pension funding charge" pension fund provide full benefits all employees least seniority.12 legal facts differ ways, they clarify standard. 18 Co., U.S., S.Ct., 2722. 17, 1515. severity said level scrutiny legislation will subjected. 245, 2723. Total destruction expectations necessary finding impairment. 26-27, 1519-1520. restricts gains necessarily constitute 1522, citing El Paso Simmons, 379 497, 515, 85 577, 587, 446 (1965). determining extent impairment, we industry complaining past. 242, n. 13, 2721, Veix Sixth Ward Ass'n, 310 32, 38, 792, 794-795, 84 1061 (1940) ("When he purchased enterprise now objects, further topic"). long ago observed: "One whose rights, are, restriction, cannot remove them about them." Hudson Water McCarter, 209 349, 357, 28 529, 531, 828 (1908). 19 constitutes regulation, 22, 1517, remedying broad general social problem. 247, 249, 2723-2725. Furthermore, since indicated need emergency temporary situation. 19, 1518, 19; 39-40, 795-796. elimination unforeseen windfall profits. 30, 30. requirement guarantees rather benefit special interests.13 20 [is based] [is] [the legislation's] adoption." 1518. Unless itself party, see id., 23, 1518,14 "[a]s customary reviewing courts properly defer legislative necessity reasonableness measure." 22-23, 21 determination Significant fact industry.15 794-795. regulate well established. Cities Service Peerless 340 179, 71 215, 95 190 (1950).16 At execution contracts, specifically,17 supervision extensive intrusive.18 5(a) (FPC) "just reasonable" rates pipelines. diverged somewhat shortage gas,19 effectively limits increases.20 22 context viewed. drafting included intent, While entirely inconceivable September 1975 introduced think highly unlikely read refer nothing changes regulator's rates. exchange increases, accept lifetime Thus, expect very existence indicates structured background occurred, undoubtedly called much smaller provided adoption ceiling.21 23 expressly recognize law.22 interpreted incorporate dispose claim. Regardless correct,23 suggest existed foreseeable type obligations. Reading mean exempt regulatory limitation whatsoever. Such result permitted. 531-532. short, 587. 24 on, prompted by, interests. protect deregulation. find cause hardship among use heat exist limited fixed incomes. 25 slowly deregulating prices, took cap off well.24 attempts coordinate supplementing specifically contemplated action: 26 "The conference affect sales extends clause." 124-125 There can little doubt Act.25 surface, seems altering less 10% consumed Tr. Oral Arg. 16. analyze entire structure. Only poses danger rapidly utilities simply brings category line limiting 29 rationally production Finally, measure expires when terminates. completes gradual mechanisms national policy toward resolve ERG. III 31 turn contention misconstrued fixing While, point, us, appear construe 105. KPL, contend did. Instead, recognized Pennzoil FERC, 645 F.2d 360, (CA5 1981), cert. denied, --- ----, 1000, 293 (1982) ("[T]he NGPA preclude area rate [a escalators] prices"). 32 actual point dispute acknowledged 184, P.2d, 1149. case, "[t]he herein contain sufficient mechanism." 185, 1150. that, 44 Fed.Reg. 16895, 16904 (1979).26 date." language, price: 33 "[T]he enactment, [provided 102]. 34 35 ". conferees do intend mere establishment contracts." 82-83 36 F.2d, 379. 37 prior decision Mesa Petroleum 229 631, 629 190, clarified, 166, 1129 (1981), 455 928, 1292, 472 (1982), provision. decision, contract. our discussion above, view reading unassailable. which, course, defer. IV 38 energy concern. out path National pursuing path, explicitly envisioned accordance overall policy. effort balance incentives hardships brought traditionally commodity. infirmity Kansas' attempt. therefore 39 Affirmed. 40 POWELL, whom THE CHIEF JUSTICE REHNQUIST join, concurring. 41 concur except Part II-C. concludes II-B there closing sentence "ERG's Ante, 416. conclusion dispositive, unnecessary address question whether, Clause. 2723, 42 II-C "contractual interests" impaired, furthers "significant valid exercise state's power. disagree conclusion, pervasive utilities. decline join II-C, addresses separate disposes case. states: "If jurisdiction premises hereafter fix MCF vintage thereafter equal event, establishing date, whichever ." 66a. part: "SELLER BUYER years, beginning 1977. given writing SELLER 120 Year requested. Within hundred twenty (120) following SELLER'S redetermination, mutually considering (3) highest actually flowing ninety (90) considered shall, primary (1) company selling using average daily volume 5,000 twelve (12) months period ending effective, (d) dated (e) include purchaser field, (f) suspense refunds. "After decided used weighted calculated. SELLER." 67a-68a. gave permission purchased-gas adjustment. automatic wholesale cost notice Commission. retained review revoke normal standards increases. pertinent part, "(a) Application.—The during successor dedicated "(b) Maximum price.— "(1) General rule.—Subject paragraphs (2) (3), of— "(A) date; "(B) Btu's, gas)." 105(b)(2) exceeded asserts avoid aid litigation. notes supported bill, Special Joint Committee bill narrow margin, several members Committee's minority believed legislation. Brief 9-12. Governor, labor unions, farmers, municipal representatives, passed margins Houses Legislature. purchases sizable portion affected purchasers well. 3, supra, obtained allowed customers exceptions, "on agency implementing legislation, taken account contained act, require reduction act below act." situation threatened boost dramatically electricity suggested attempted applied prospectively. concluded, justify retroactive application. 189-190, 1153. "No Law Obligation Contracts fairly possible, course question. Machinists Street, 367 740, 749-750, 81 1784, 1789-1790, 1141 (1961). Because, resolution way obviates scrutinize listed factors deemed analysis: measure; basic societal interest, individuals; tailored appropriately purpose; (4) conditions; (5) duration emergency. 444-447, 242-243. Malone White Motor Corp., 444 911, 100 223, 62 166 (1979), summarily aff'g 599 283 (CA8). severely relations employers employees. acted meet important focus: aimed specific employers. Indeed, directed planning plan collective-bargaining expired. 247-248 2723-2724 20. See, generally, Note, A Process-Oriented Approach 89 Yale L.J. 1623, 1647-1648 (1980) (distinguishing private contracts). enters walk away financial almost unit obligations markets. 25-28, 1519-1520; W.B. Worthen Kavanaugh, 295 56, 55 555, 79 1298 (1935); Murray Charleston, 96 432, 760 (1878). But Faitoute Iron City Asbury Park, 316 502, 1129, 86 1629 (1942). "complete assessment self-interest stake." 26, 1519. stricter standard altered own addition regulations, various aspects sale. Interstate Compact Summary Statutes Regulations Production (1979). For some time, validity furtherance conservation goals. Ohio Indiana, 177 210, 576, 584, 729 (1900); E. Kuntz, 70.2, p. 307 cf. Henderson Thompson, 300 258, 266, 447, 451, 632 (1937) (state retrospectively regulating containing amounts hydrogen sulfide Texas Constitution). occasions, interfere commerce. e.g., Phillips Oklahoma, 221, 204 (1950); Pennsylvania Public Comm'n, 252 279, 64 434 (1920); 75.2, 371. past 355 391, 381, (1958), rev'g 180 454, 304 528 (1957). struck down Commission's attempt apparently 392, Wisconsin, 347 672, 794, 1035 (1954), Pipeline Panoma 349 44, 75 99 866 (1955); 16, supra. instant Commerce Congress, 602, 125 (1978) ("The ceding Constitution States"); (same). now, transportation, distribution, 222 598, 609-610, 567 1343, 1352 (1977). present, regulates location wells, Supp.1981) 55-110 55-111, safe transportation pipelines, 55-112 55-114, casing 55-115 55-117, escape pollutants, 55-118 55-122 55-139 55-142. drilling wells drilled conformity regulations. 55-128. Licensing mandated plugging 55-128a. Methods extraction 55-133 55-138. Leases liens regulated. 55-201 55-222. county inspector system. 55-301 55-310. Wastage prohibited, 55-701, empowered demands. 55-703. underground storage 55-1201 55-1207. Unitization fields voluntary, occurs, 55-1301 55-1315. Because shortage, diverted where willing "As FPC dropped levels prevailing sector, increasingly gravitated latter." Trade Staff Report Bureau Economics, J. Mulholland, Economic Structure Behavior Industry (1979); Executive Office President, Plan reprinted Plan, 95th Congress: Legislative History Acts (item 5); Comment, Gas, Spells Relief N-G-P-A: An Analysis U.Pitt.L.Rev. 429, Emergency 6(a), 95-2, 91 problem extending presidentially declared These provisions carried forward 302(a) "Even intrastate, indirectly unregulated sector over term." P. Starratt, Shortage (1974). Determining difficult oil agencies collected information sales. Schanz Frank, Future Pattern, Regulation Producing 18, 28-30 (K. Brown ed. 1972). Absent deregulation, continued brake noted, originally Mcf. cents Mcf absent excess amount. occurred risen 1982 $2.194 $3.152. 47 17981, 17982 reason believe structure, ever reached levels. Many provisions. H. Williams, 734, 800-801 (1981). stem assumption 802. Their "provide modified conform requirements regulation." implicitly regulations Harrington, 139 F.Supp. 452, 454-455 (ND Tex.1956), vacated remanded grounds, 246 915 1957), 356 957, 995, 1065 (1958). Analogously, pre-empted incorporated Pan American Corp. Kansas-Nebraska 297 561, 567-568 (CA8 1962). place law, limit Old 104, 106 rollover 1974. 17982-17983 1954 1961. (citing Geological Society Library, Drillers' Log producers)). claims KPL. 6, Unlike record support Given nature industry—sales utilities—it impossible major small number participants. differs challenge singled larger group. close vote committee stage, dissenters expressed bears resemblance circumstantial evidence indication political process broken down. Cf. L.J., 1645 (provided "legislature functioning properly, selection determinations appropriateness should left it"). addition, significantly statute. correct pass-through, so. Regulatory issued interim stating: 43 56448, 56550 After comment period, FERC reserve

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