## Facts

- Northern Illinois Gas Company (NI-Gas), a regulated public utility, built and operated a supplemental natural gas (SNG) plant to address anticipated gas shortages.
- NI-Gas entered a long-term naphtha supply contract in 1973; the contract was later assigned to Energy Cooperative, Inc. (ECI).
- The contract duration was 10 years or until 56 million barrels were delivered; the price was tied to crude oil and increased substantially over time.
- By 1979–1980, natural gas demand decreased, NI-Gas had large storage inventories, and alternative gas prices fell while the contract naphtha price rose.
- The Illinois Commerce Commission denied NI-Gas a requested rate increase and criticized its storage levels; NI-Gas decided to reduce SNG production as its most expensive supply source.
- NI-Gas unsuccessfully attempted to negotiate termination or modification with ECI and unilaterally ceased performance effective March 31, 1980.
- The contract included a clause permitting the nonbreaching party to demand liquidated damages of one cent per gallon; ECI did not elect that clause and instead sought actual damages.

## Issues

1. Whether NI-Gas was legally excused from performance due to changed market conditions, economic hardship, or regulatory developments affecting its rates and storage policies.
2. Whether the contract’s one-cent-per-gallon liquidated-damages provision limited ECI to that remedy or allowed ECI to recover actual damages.
3. Whether the jury’s actual-damages verdict was sustainable under proper measures of commercial damages and supported by non-speculative evidence.

## Decision

- The appellate court held NI-Gas breached the supply contract by unilaterally ceasing performance and rejected defenses based on economic disadvantage and regulatory context.
- The court held ECI was not limited to liquidated damages because the clause was optional and required election by the nonbreaching party.
- The court affirmed the breach determination but reversed parts of the damages disposition and remanded for further proceedings on damages.

## Legal Principles

- Market shifts, increased costs, and reduced profitability ordinarily do not discharge contractual duties in long-term supply contracts absent a recognized legal excuse.
- Public-utility regulation and adverse rate treatment do not, without more, eliminate or reduce common-law/UCC contract liability to a private counterparty.
- A liquidated-damages clause phrased as an option for the nonbreaching party is not an exclusive remedy unless the contract clearly makes it exclusive; absent election, actual damages may be pursued.
- Large commercial damages awards must rest on correct legal measures of damages and competent proof; appellate courts may uphold liability while requiring further proceedings to correct or reassess damages.

## Conclusion

The court held NI-Gas’s unilateral termination was a breach not excused by economic or regulatory pressures, ruled that ECI could seek actual damages because the liquidated-damages clause was elective rather than exclusive, and remanded for further proceedings to address deficiencies in the damages award.


Northern Illinois Gas Co. v. Energy Cooperative, Inc., 122 Ill. App. 3d 940, 461 N.E.2d 1049 (Ill. App. Ct. 3d Dist. 1984)