The liberalisation of markets in the European Union (EU) ended monopoly rights of many public service sectors that have, as a result, undergone significant changes. One of these is the energy sector. The Energy Directives set out rules for the gradual liberalisation of the energy market in the EU.
While during the liberalisation of the energy market the EU Parliament opened up the energy sector to competition, at the same time it designed legislation in such a way as to ensure high levels of consumer protection.
To that end, the directives seek to ensure transparency of contractual terms and conditions for final consumers, who are entitled to be well informed by their service providers on energy prices and their usage, and protection from the threat of disconnection, especially of vulnerable consumers. In a recent joined preliminary reference made by a German court, the Court of Justice of the European Union (CJEU) was requested to consider price increases imposed unilaterally by gas and electricity suppliers.
This reference arose after consumers started bringing claims for reimbursement of the raised energy prices, arguing that the price increases were unreasonable.
The legal context of the reference is the Electricity Directive that stipulates that household customers are to be ensured the right to be supplied with electricity of a specified quality at clearly comparable, transparent and reasonable prices. To this extent, the objective of universal protection and security of supply is a fundamental requirement of the directive. Consumer protection is ensured through the right of consumers to be entitled to up-to-date information on all applicable tariffs and maintenance charges and adequate notice of any intention to modify contractual conditions. In relation to price adjustments, service providers are duty bound to notify their subscribers directly of any increase in charges, at an appropriate time no later than one normal billing period after the increase comes into effect.
In the joined cases in question, two consumers filed complaints against their energy suppliers that had increased prices several times during a set period.
The consumers challenged the price adjustments on the ground that the price increases were unreasonable.
In his opinion, Advocate General (AG) Wahl recognised that in order to ensure an effective level of consumer protection, consumers need to be guaranteed two rights: to terminate the contract and to challenge the reasonableness of the price increase.
The directives seek to ensure transparency of contractual terms and conditions
To enable consumers to invoke the latter right, consumers must be given sufficient information on the reason for the price increase and the method of its calculation.
To this effect, he opined that suppliers must be required to provide the grounds, preconditions and scope of the price adjustment.
In upholding the AG’s views, the CJEU considered that national legislation, which allows the price of supply of electricity and gas covered by a universal supply obligation to be adjusted, must at the same time ensure that customers are to be given adequate notice, before that adjustment comes into effect, of the reasons and preconditions for the adjustment, and its scope. This conclusion was based on the concept underpinning the Energy Directives, namely the consumer’s protection with regards to transparency of contractual conditions in energy supply contracts.The energy suppliers in the joined cases argued, as a last resort, that the temporal effects of the judgment are to be limited in such a way that its effects are deferred to a later date.
They based their request on the financial implications of the ruling that would require them to make retroactive repayments of the amounts paid by consumers over the years, threatening their financial viability. Considering that limiting the effects of a judgment is exceptional in nature, the Court of Justice dismissed this argument and considered that the suppliers did not manage to prove the justifications required for the placing of a temporal limitation on the effects of the judgment.
It is clear that the Court did not declare that a mechanism for unilateral changes in long-term energy supply contracts is illegal nor did it enter into the merits of the calculation of the adequate or fair price. It is likewise clear, however, that the Court underlined the existence of a procedural control, whereby courts can look into the transparency of the conditions in supply contracts for energy price increases.
jgrech@demarcoassociates.com
Josette Grech is advisor on EU law at Guido de Marco & Associates.