## Facts

- Northern Indiana Public Service Company (NIPSCO), an Indiana regulated electric utility, entered a 20-year coal supply contract (1978) with Carbon County Coal Company, a Wyoming mine operator.
- The contract required NIPSCO to buy a specified quantity (about 1.5 million tons per year) at a price that escalated over time; by 1985 the contract price substantially exceeded market alternatives.
- The agreement was not a requirements contract and lacked bilateral price renegotiation; the pricing structure functioned as a minimum price floor favorable to the seller.
- NIPSCO’s retail rates were regulated by the Indiana Public Service Commission.
- In connection with rate proceedings, the Commission issued “economy purchase” directives ordering NIPSCO to make good-faith efforts to buy cheaper power from other utilities where possible and warned that burdens from non-renegotiable long-term coal contracts would fall on NIPSCO’s management.
- NIPSCO could purchase electricity more cheaply than it could generate power using the contract coal and, without judicially challenging the Commission’s orders, concluded it could not recover above-market coal costs from ratepayers.
- NIPSCO stopped accepting deliveries and sought a declaration that it was excused from performance based on force majeure (civil authority), frustration of purpose, impossibility/commercial impracticability, and alleged illegality under the Mineral Lands Leasing Act.
- Carbon County counterclaimed for breach, seeking damages and specific performance (continued purchases).
- After a jury trial, Carbon County obtained a damages verdict of roughly $181 million; the district court denied specific performance and declined to require a substantial injunction bond.

## Issues

1. Whether regulatory “economy purchase” directives and changed economics excused NIPSCO’s performance under the contract’s force majeure clause.
2. Whether frustration of purpose or commercial impracticability/impossibility discharged NIPSCO’s duty to take coal under a fixed-quantity, long-term contract.
3. Whether alleged violations of the Mineral Lands Leasing Act rendered the contract unenforceable.
4. Whether Carbon County was entitled to specific performance rather than (or in addition to) expectation damages.
5. Whether the district court erred by not requiring NIPSCO to post a substantial injunction bond.

## Decision

- The Seventh Circuit affirmed judgment for Carbon County and held NIPSCO was not excused from performance by force majeure, frustration, or impracticability.
- The court rejected NIPSCO’s illegality defense based on the Mineral Lands Leasing Act.
- The court upheld the approximately $181 million damages award.
- The court affirmed denial of specific performance, concluding damages were adequate and compelled performance would impose inefficient, above-market production and broader social costs.
- The court approved the district court’s approach to the injunction bond in light of NIPSCO’s solvency and ability to satisfy the judgment.

## Legal Principles

- A force majeure clause covering governmental action does not excuse performance when the regulation does not bar performance but only makes it less profitable.
- Frustration of purpose and commercial impracticability generally do not relieve a party from a poor bargain when the contract’s structure shows that the party assumed the relevant market and price risks.
- Fixed-quantity, long-term supply contracts without bilateral renegotiation tend to allocate price volatility risk to the buyer who agreed to the structure.
- Specific performance is ordinarily denied when expectation damages provide an adequate remedy and an order compelling ongoing performance would impose wasteful output or conflict with public interests.
- Injunction bond/security determinations may account for the defendant’s financial stability and the likelihood that a money judgment will be collectible.

## Conclusion

The court enforced the parties’ risk allocation in a fixed-quantity coal contract, holding that regulatory directives and adverse economics did not discharge the buyer’s duties, and it treated money damages as sufficient while refusing to compel continued above-market purchases through specific performance.


N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265 (7th Cir. 1986)