European energy policy aims to ensure consumer-friendly energy supplies to households at affordable prices. The Energy 2020 strategy stresses the role of consumers. European measures intended to promote consumer interests are in place, compelling energy service providers to make it fast and simple for consumers to switch suppliers and to offer their customers a good standard of service.

Consumers must be provided with transparent information on applicable prices

Consumers require protection when it comes to concluding contracts for the supply of energy. In a recent ruling, the Court of Justice of the European Union decided that energy supply contracts must be set out in a transparent fashion. Companies selling electricity or gas are therefore required to provide information on their price offers, tariffs and in their bills. They must also inform their consumers about their price variation methods before concluding a supply contract.

This recent ruling of the European Court was delivered subsequent to a preliminary reference made by a German court. The national court sought guidance on the ability of a German undertaking supplying natural gas to unilaterally amend the price charged to its customers.

At issue was a German piece of legislation that obliged natural gas suppliers to conclude contracts with certain consumers, known as the standard tariff customers. These consumers were eligible for the basic supply and were supplied on the basis of generally applicable prices. The supplier was allowed to increase unilaterally the gas prices without stating the grounds, conditions, or scope of the variation, but, on the other hand, it had to ensure that its customers would be informed about the price variation and they would be free to terminate the supply contract with the gas supplier if they so chose. Gas suppliers and consumers could still depart from these standard tariff contracts.

In this particular case, the parties had concluded a special tariff contract, rather than opting for the standard tariff one. The service supplier, nonetheless, reproduced in the contract some terms used in its normal contracts, which envisaged price increases. The terms of the special tariff contract in question allowed the energy supplier to increase its prices with no restrictions, although customers had the right to be duly notified of the price change and permitted to terminate their subscription.

A consumer organisation instituted proceedings before the German courts against the gas supplier, requesting that the affected consumers be reimbursed of the amounts paid as a consequence of four price increases implemented within 26 months. It contested the measure of notification and termination at the option of the consumer as being insufficient and challenged the right reserved by the supplier to change prices as being unfair. The gas undertaking argued that the disputed term cannot be reviewed for unfairness as the price increases were in line with German legislation applicable to standard tariff contracts.

The CJEU was called to determine whether the terms included in the contract, insofar as they reproduced legal provisions, were immune from control or whether they could be legitimately subject to review for unfairness under the consumer protection rules. The Court was clear in its judgement that such terms must be subject to review if the legislation allowing them does not apply to that category of contracts.

More importantly, the Court determined that in the context of energy supply, a term allowing a supplier of gas unilaterally to alter the price must satisfy the requirements of good faith, balance and transparency. In making that assessment the CJEU spelt out the guidelines on fairness in the context of energy contracts. In particular, the Court referred to contract terms that are fair, drawn up in clear and comprehensible language and notified to consumers before the contract is concluded. Furthermore, consumers must be provided with transparent information on applicable prices, and if subject to change, the contract must set out the reason for and method of the variation of the prices, the obligation to give notice in due time to the consumer of the change, and the right conferred on the consumer to terminate the contract.

The reasoning which led to this ruling is the recognition that the consumer is in a weaker position vis-à-vis the supplier as regards both its bargaining power and level of knowledge but the Court also acknowledged the possibility of an energy supplier to alter the price for its service, which largely depends on a volatile market. The CJEU’s ruling is a balancing act between the suppliers’ legitimate interest to guard against changes of circumstance, and the equally legitimate interest of consumers in being able to foresee the consequences that such a change might have on them in the future.

Josette Grech is an associate with Guido de Marco & Associates and heads its European law division.