Face Challenges Confidently

019 Edwards v. Lone Star Gas Co.

Friday, September 4th, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Edwards v. Lone Star Gas Company, S.W.2d , 33 Tx. Sup. Ct. J. 148 (January 3, 1990), involved a dispute as to the price to be paid for gas under a gas purchase contract which contained a price clause tied to the highest price paid under any other contract in that same Railroad Commission District. At issue was whether Edwards would get monthly price increases or annual increases and whether Edwards would get reimbursed for severance taxes.
Held: Edwards was entitled to monthly increases, but no reimbursement for severance taxes, and Edwards was awarded a judgment for $1,500,000.
The price redetermination provision of the Edwards contract read as follows:
Seller may request a redetermination of the price payable hereunder by Seller giving Buyer written notice of Seller’s desire for a price redetermination not less than sixty (60) days immediately preceding the end of the first six (6) months after the date of first delivery and (ii) annually thereafter during the term of this Contract. It is agreed that the redetermined price per MMBtu for such gas shall be equal to the highest price per MMBtu to be paid as of the first day of the period for which the redetermined price will be effective by a bona fide intrastate pipeline company for gas produced in Railroad Commission Districts 8 and 8A in the State of Texas under the terms of a contract of at least three (3) year term in effect at the time the redetermined price is to become effective . . . . (emphasis added)
Shortly after the Edwards contract was executed, the Natural Gas Policy Act of 1978 (15 U.S.C. § § 3303 et seq.) was enacted which imposed price ceilings, but permitted the Federal Energy Regulatory Commission to adjust the price ceiling each month for inflation. Edwards wanted the monthly adjustments from the “highest price” contract rolled into his contract; Lone Star contended the Edwards contract only provided for annual adjustments. The Supreme Court agreed with Edwards and reasoned that the parties agreed to price redeterminations by reference to the highest price in third-party contracts. There was nothing in the Edwards contract that required the “price” to be construed as a flat rate or static number.
Edwards also contended that he should be reimbursed for severance taxes because the “highest price. contract contained such a provision and that reimbursement was part of the “price”. The Court reasoned that because Edwards’ contract expresslyprovided that Edwards would pay all severance taxes, such a reimbursement would be contrary to the plain meaning of the contract.