Amoco Production Co. v. Kansas Power & Light Co. (505 F. Supp. 628, 1980)

MEMORANDUM AND INTERIM ORDER

KELLEY, District Judge.

This matter comes now for decision on the plaintiff’s claim for recovery of $2,884,-000.00 plus statutory interest pursuant to a gas sales contract dated April 18, 1960, as amended by the parties’ Letter Agreement No. 22. During an in-chambers conference on September 29,1980, the litigants, Amoco Production Company and The Kansas Power & Light Company (hereinafter referred to as Amoco and KP&L), agreed and stipulated, with encouragement from the Court, to bifurcate the trial of their case. It was thus agreed the plaintiff’s claim set out above should be tried first to the Court and that the defendant’s counterclaim and its defenses to the plaintiff’s claim involving lack of consideration, breach of contract and unconscionability should be tried after the Court’s decision regarding Amoco’s claim. Both Amoco and KP&L then proffered their respective suggested findings of fact and conclusions of law with respect to the plaintiff’s claim, and oral argument was heard on October 1, 1980. At this hearing, all of the exhibits attached to the parties’ respective suggested findings of fact and conclusions of law (Plaintiff’s Exhibits Nos. 1 through 57, and Defendant’s Exhibits A through I) were admitted into evidence without objection.

In 1960, the parties entered into a gas sales contract. In 1975, they amended the contract pursuant to a provision in it allowing price redetermination every five years. This amendment, i. e., Letter Agreement No. 22, is the subject of the instant litigation. More particularly, the parties are in dispute over the meaning of part five of this amendment, which contains the following price escalator clause:

Should the Federal Power Commission, or a successor regulatory body, at any time during the term hereof, authorize a price, however determined, for interstate gas sales within the geographical area in which the acreage subject hereto is located, which is higher than the price otherwise provided for in this amended Article XYI, then the price to be paid Seller hereunder shall be adjusted to the highest price so authorized.

This type of clause is generally known as a “price escalator clause” or a “F.P.C. price protection clause”. This clause had no significance for the parties until July 27, 1976, the effective date for the Federal Power Commission’s (hereinafter referred to as F.P.C.) Opinion No. 770. The relevant portions of F.P.C. Opinion No. 770 were reaffirmed by F.P.C. Opinion No. 770A issued November 5, 1976. See, (1979) Util.L.Rep.Fed. (C.C.H.) Secs. 2302, 03 at pp. 3906-37. In these two F.P.C. opinions the former area pricing method for natural gas was abandoned in favor of a pricing scheme based on “vintaging”. Opinions 770 and 770A set a ceiling price of $1.42/MCF for gas from wells commenced (“spud in”) after January 1, 1975, a lower price for gas from wells spud in after January'1, 1973, and before December 31, 1974, and a price of 29.5