Prairie Land Elec. Co-op. v. Kansas Elec. Power Co-op

1



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Review of the judgment of the Court of Appeals in an unpublished opinion filed November 12,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
3



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
4



(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
5



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.)

6



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.
7




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.
8




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).

9



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
10



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.

11



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
12



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
13



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
14



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.