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Energy suppliers should inform their consumers about their price variation methods before concluding the supply contract

Energy suppliers should inform their consumers about their price variation methods before concluding the supply contract

Energy suppliers should inform their consumers about their price variation methods before concluding the supply contract

26.04.2013 BE law

 

On 12 March 2013, the Court of Justice of the European Union (hereafter “CJEU”) rendered its judgement in the case RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V. (Case C-92/11). Below, we will set out the highlights of this case and explanations on the judgment and the Safety Net Regulation.

Facts of the case

In the first half of the last decade, a German regulation, i.e., the Regulation on general terms and conditions for the supply of gas to standard tariff customers (the “Verordnung über Allgemeine Bedingungen für die Gasversorgung von Tarifkunden” or “AVBGasV”), obliged natural gas suppliers to conclude contracts with certain consumers (the standard tariff customers). These consumers were eligible for the basic supply and were supplied on the basis of generally applicable prices. Under the AVBGasV, the natural gas 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, if appropriate, they would be free to terminate the supply contract with the gas supplier.

Despite this Regulation, gas suppliers and consumers could still depart from being under the scope of the AVBGasV, and this was done frequently because, inter alia, consumers could obtain more favourable prices outside the statutory requirements of the AVBGasV.

RWE used this possibility to conclude ‘freely’ negotiated contracts with some consumers. However, RWE’s general terms and conditions applicable to these contracts referred to the AVBGasV for what concerned changes to gas prices. Hence, between 1 July 2003 to 1 October 2005, RWE increased its gas prices unilaterally on four occasions.

Verbraucherzentrale Nordrhein-Westfalen, the consumer association acting on behalf of some of RWE’s special consumers, sought to claim from RWE the reimbursement of the additional sums of money that were paid to it by those consumers after the price increases.

The case was brought before the Bundesgerichtshof, which referred two preliminary questions to the CJEU. One was whether contractual terms concerning price variations in natural gas supply contracts meet the requirements for plain and intelligible wording and/or possess the requisite degree of transparency as set out in Directive 93/13/EC and the Second Gas Directive1  if—although the grounds, conditions, and scope of a change in price are not set out—it is nevertheless ensured that the gas supply company informs its customers about every price increase in good time in advance, and those customers have the right to terminate the contract by way of serving notice.

Ruling of the CJEU

The CJEU first recalled that Directive 93/13/EC is based on the idea that the consumer is in a weaker position vis-à-vis the seller or supplier as regards both its bargaining power and level of knowledge, which leads to the consumer’s agreeing to terms drawn up in advance by the seller or supplier without being able to influence the contents of those terms (§41)2.

Since gas supply contracts are often concluded for an indefinite period, the CJEU recognized nonetheless the legitimate interest of the gas supply undertaking in its ability to alter the price for its service (§46).

On the other hand, the CJEU stated that the gas supplier is not only obligated to notify consumers in good time of any increase in tariffs and of their right to terminate the contract but also to inform the consumer of the principal conditions of the exercise of that right of unilateral variation—in clear and intelligible terms before conclusion of the contract (§52).

The CJEU thus balances the interests: In the supplier’s legitimate interest to guard against a change of circumstances, there is a correlating and equally legitimate interest of the consumer, firstly, in knowing and thus being able to foresee the consequences that such a change might have in the future for him or her and, secondly, in having the data available in such a case to allow the consumer to react most appropriately to the new situation (§53).

In answer to the preliminary question, the CJEU therefore ruled that it is of fundamental importance that a gas supply contract set out in transparent fashion the reason for and method of the variation of the gas supply prices so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges. The lack of information on the point before the contract is concluded cannot, in principle, be compensated for by the mere fact that consumers will, during the performance of the contract, be informed in good time of a variation of those prices and of their right to terminate the contract if they do not wish to accept the variation. Furthermore, it is of fundamental importance whether the right of termination conferred on the consumer can actually be exercised in the specific circumstances (§65).

Market liberalization and consumer protection

This CJEU judgment illustrates how market liberalization and consumer protection may be two sides of the same coin.

In this regard, let us remind ourselves that the objective of the successive Gas (and Electricity) Directives is to create an internal market that will deliver real choice for all consumers of the European Union so as to achieve efficiency gains, competitive prices, and higher standards of service, and to contribute to security of supply and sustainability3.

The principal tool for achieving this internal market is complete liberalization by way of imposing, e.g., rules on unbundling and non-discrimination on grid operators. However, the Gas (and Electricity) Directives also oblige the Member States to impose certain public service obligations. To achieve a functioning internal energy market, it was after all regarded to be equally essential to eliminate the distinct rules of procedure of the different Member States and the distortions to competition attendant thereon, and consequently, to define certain minimum requirements with regard to, e.g., transparency of information4.  Not only do Annexes I of the Third Gas and Electricity Directives therefore contain measures on consumer protection, they also explicitly state that these measures apply without prejudice to other Community rules on consumer protection.

The Belgian “Safety Net Regulation”

This CJEU judgement may also be seen as a post factum justification of the Belgian “Safety Net Regulation” (in Dutch: Vangnetregeling).

The Safety Net Regulation was introduced by the Act of 8 January 20125  and was incorporated into Art. 15/10bis of the Gas Act and Art. 20bis of the Electricity Act.

These Articles prescribe, on the one hand, that energy suppliers may only index their supply prices on the first day of each trimester. The formula used by the energy suppliers for the indexation must moreover comply with an exhaustive list of criteria. This list is embodied in two Royal Decrees6 which determine that the parameters for indexation may only vary in function of the evolution of the real supply cost of the energy supplier. The indexation parameters must furthermore be based on transparent, objective, and verifiable data. The parameters may only be calculated through the stock market quotations of the CWE Market. Finally, any link between the gas price and the oil price will be prohibited gradually.

On the other hand, these Articles contain provisions regarding a control on price increases. Energy suppliers are obliged to notify and motivate any price increase, which is not the consequence of indexing or a decision of a public authority, regulator or grid operator, to the CREG. The CREG will assess whether the price increase can be justified on the basis of objective parameters. Until the CREG has approved the increase or there is a settlement agreement concerning the price, the price increase is suspended. 

Although the CJEU’s judgment under discussion may serve as a mechanism for justifying the Safety Net Regulation (or, to put it differently: the Safety Net Regulation is an ex ante implementation of the CJEU’s ruling), it would only do so for the principle that the Safety Net Regulation lays down that price increases must be based on objective (transparent) parameters. The compatibility with some other aspects of the Safety Net Regulation with EU law, such as the suspension before the CREG’s approval or before a settlement agreement, remains questionable.

Conclusion

In its judgement, the CJEU recognized the interdependence between market liberalization and consumer protection. It balanced the interests of energy suppliers and consumers. More particularly, the CJEU ruled that to the supplier’s legitimate interest in guarding against a change of circumstances, there is a correlating and equally legitimate interest of the consumer to be informed—in a transparent way and in principle before the conclusion of the contract—about the reason for and the methods of the variations to the supply prices so that the consumer can foresee, on the basis of clear and intelligible criteria, the alterations that may be made to the supply prices. In a Belgian context, this judgment of the CJEU may be seen as a post factum justification of the (principles of the) Safety Net Regulation.      

 

Footnotes

  1. Directive 2003/55/EC was the Second Gas Directive. It has been replaced by Directive 2009/73/EC (the Third Gas Directive). Art. 3(3) has kept its numbering. Annex A is now Annex I. In essence, this article and annex have not been amended.
  2. See also Case C 453/10 Pereničová and Perenič, §27, and Case C 472/10 Invitel, §33.
  3. Cf., e.g., recital 1 of the Third Gas Directive.
  4. Cf. §65 of the Opinion of AG Trstenjak with references.
  5. Act of 8 January 2012 amending the Electricity Act of 29 April 1999 and the Gas Act of 12 April 1965, Official Gazette 11 January 2012. The concerning provisions were later complemented by the Act of 29 March 2012, Official Gazette 30 March 2012 as interpreted by the Act of 1 July 2012, Official Gazette 6 August 2012.
  6. Royal Decree of 21 December 2012 (electricity), Official Gazette 15 January 2013; Royal Decree of 21 December 2012 (gas), Official Gazette 15 January 2013

 

 

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