From the “average” consumer towards the real consumer?

European consumer policy has undergone some seismic changes during the past years. In its early phase, consumers were enjoying the protection of the social welfare state, as the weaker parties in any agreement.[3] Back then, the concept of a consumer was regarded as uniform and no categorizations were necessary. Consequently, there was no characterization as such of a “vulnerable” consumer.

However, the ensuing privatisation of network industries, a venture starting from telecommunications and spreading to transport and energy, significantly changed the landscape. It meant that a new archetype of consumer was required in order for users to

“survive” the newly-set rules and challenges. Choices grew considerably, pushing consumers to develop new qualities, in order to cope with different and mostly fragmented markets, mainly vertically regulated.[4] During that period, an essential change of the orientation of consumer policy happened: the normative concept “consumer” would become malleable and would vary from one sector to the other.

Micklitz calls the process which took place in the integrated market framework

“marketisation”:[5] the consumer is seen as “market-citizen” and is given a diminished role, limited to a market-behavioural function. “Marketized consumers” are seen as active commercial actors, ready to benefit from the market and to contribute to its smooth functioning.

This, however, required that consumers be sorted into different categories, assessing their qualities and their ability to adapt to the market.

Accordingly, the CJEU proceeded to develop the notorious “average consumer” benchmark, a concept articulated in its Gut Springheide judgment and consistently thereafter.[6] The concept of the average consumer was meant to describe a well-informed, reasonable and circumspect market actor,[7] reflecting the role of consumer as a catalyst for the proper functioning of the integrated market.[8] Since this energetic and resourceful individual is able to assess the value of information, this would require a consumer system overfull of information duties,[9] which would function in both directions: suppliers shall inform and consumers shall ensure they are informed. In classical internal market law this “average consumer” has a right to precise information; however, the cognitive processing of such information largely lies with the consumer.[10]

The CJEU added an extra layer of complexity, in Scotch Whisky Association.[11] There, the Court concluded that “the national court is called on to examine the compatibility of the national legislation […] with EU law….In that assessment, the referring court must take into consideration any relevant information, evidence or other material of which it has knowledge ... Such an assessment is all the more necessary in a situation […] where there appears to be scientific uncertainty as to the actual effects of the measures ...”. In other words, the Court

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urged national courts to seek and put through any newest scientific evidence ex officio, while examining the national measures’ compatibility with the EU legal framework and more specifically their proportionality aspect. This implies the incorporation of behavioural sciences into consumer law. This, in turn, means that “if the proportionality principle gets “topped up”

with scientific elements, this has implications on the interpretation of the “average consumer”

benchmark, which is by itself a product of the proportionality test.”[12] The result is a by far more polymorphous concept of “consumer” based on many numerous variables.

In recent years, however, the Court has nuanced its position. Thus, in Koipe,[13] it stressed the significance of the contextual approach and accepted that the surrounding circumstances and the common sense thereby ensuring may drive consumers to erroneous decisions. Later, in Teekanne,[14] the Court stated that even “correct and comprehensive” information may be insufficient to restitute any false or flawed idea one has for the characteristics of a product or service. Most recently, the Court has made clear that, for a consumer “with no legal training”, where EU secondary law stipulates the supplier’s obligation to inform the consumer on the substance of the contractual obligations proposed to him, the supplier is required to inform the consumer in a clear and concise manner. [15] The Court went out of its way to clearly state that “a mere reference […] to a legislative or regulatory act determining the rights and obligations of the parties is insufficient”, explaining that, even for a well-informed and skillful consumer, legal expertise would never be required. Therefore, in recent years, the Court revised upwards - at least qualitatively - the information required by traders and downwards the aspirations the market could have from consumers.

2. The energy “customer”: a wider concept

In the energy field, the conventional version of the marketized consumer is that of the

“customer”: a notion first described in the First Package Directive,[16] and then clarified under Directives 2003/54 and 2009/72.[17] As the EU legislator has chosen to use this term instead of “consumer”, it is clear that an autonomous and uniform interpretation had to be followed across the EU. This corresponds to the narrative illustrating the shift from law-making at the Member State level to regulating markets via regulatory authorities at the EU level. If there is a lack of coherence and consistency in the substantive law, effective enforcement is difficult to achieve.[18]

The Directives attributing consumers the role of “customer” were, at the same time, focusing on breaking-up national markets and guaranteeing energy users the right to freely choose their suppliers. However, this development has not been readily accepted in every case. As a recent CJEU judgment illustrates, privatisation is not always seen as the optimum by consumers. In RWE,[19] a consumer association, the Consumer Centre of North Rhine-Westphalia started a battle in order to persuade the local governments to reverse the privatisation of the energy sector. In Germany, communities had sold their energy suppliers to one of the biggest companies in Europe, RWE. However, following that, price increases were observed and the company was not abiding by its information duties. More specifically, it was not providing consumers clarifications regarding the price-increase clauses included in standard term contracts; subsequently, consumers were in the dark as for the price strikes suffered. A big

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number of claims was accumulated and finally the Court found, much to the vindication of the consumers, that it is for the national court to assess whether such a term allowing an energy supplier unilaterally to alter the price satisfies the requirements of good faith, proportionality and transparency. When making this assessment the national court must pay attention to two criteria in particular: first the contract must set out in transparent fashion the reasons for and method of the variation of the charges; second the right of termination conferred on the consumer must actually be capable of being exercised in the specific circumstances.[20]

The people’s opposition to the company’s practice went on even further, motivating a referendum in two big cities (Hamburg and Berlin), asking for the regional governments to buy the electricity grid operation back from the multinational companies. Eventually, Hamburg attained the re-municipalization of its power grid in 2014[21] and Berlin in 2019, after the municipal grid operator “Berlin Energie'' applied for energy grid concession through a formal bid.[22] What this case shows, is that breaking the markets and maximising user’s choice is not panacea: sometimes, the consumer empowerment goal is advanced through decentralised ways of producing and consuming energy.

Similar complaints are currently ongoing in Greece,[23] with group and individual actions flooding the courts, claiming inadequate information provision as for the application of price-adjustment clauses in energy supply contracts. The supply companies started introducing such clauses in the contracts for mitigating the excessive costs of buying electricity in the wholesale market; however, thousands of consumers complain[24] that the companies informed them poorly or did not inform them at all, before having recourse to such clauses. The problem, already existing before, has been exacerbated in view of the price spikes caused by the war in Ukraine.

As prices soar, similar phenomena have been observed across the EU. Many countries have introduced measures to protect consumers against the passing-on of wholesale market costs to customers. For example, in Belgium, the federal government prohibited suppliers to proceed to unilateral increase in the down payment bill, not only in variable-rate energy tariffs, but also in fix-price agreements.[25]

In immediate reaction, the European Commission agreed on a price cap on gas for Spain and Portugal at €50/MWh for the next 12 months.[26] This measure de facto decouples the price of electricity from gas, thus shielding consumers from the steep rises of the energy price. As it has been reported, this should result in electricity bills being halved for about 40% of Spanish and Portuguese consumers with regulated rates.[27] The above examples showcase the fact that, as it currently stands, customer protection in the field of energy is clearly not sufficient under crisis conditions.

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II. INFORMATION DUTIES: PROBLEM OR SOLUTION?

1. Nudging your way through the right choice

The information paradigm implies that there are consumers who are “able, willing, and competent to deal with information provided, to read different languages, to take informed rational decisions and to enforce their information-based rights.”[28]

The model is overall building on the nudge theory teachings.[29] Nudging is the method using behavioural insights and experimental outcomes, asserting that consumer behaviour can be influenced by small suggestions and positive reinforcements.

Directive 2019/944 is clearly moving towards this direction, as its Chapter III titled “Consumer Empowerment and Protection” aims at backing consumers up and providing them with the tools to participate more in the energy market, including participating in new ways.[30] Many nudging policies have been incorporated in the Directive text, including price signals,[31]

smart metering systems,[32] and billing information.[33] As David Cameron, a pure nudge enthusiast,[34] had underlined in a speech, “the best way to get someone to cut their electricity bill” is to cleverly reformat the bill itself.[35] Reformation of the bills has emerged as an imperative need recently, since with the growing complexity of energy markets (self-consumption, energy communities, etc) the bills were to contain more information than in the past. In order to make it easier for consumers to comprehend their billing information, the Council of European Energy Regulators (CEER) suggested the principles of Prioritisation and Reduction to be applied on the bills’ layout, a technique intending to avoid overwhelming the consumer by excess information.[36] Countries across Europe including Greece,[37]

Portugal,[38] France,[39] Italy[40] and Denmark have already followed the above suggestion and have launched standardised forms for both precontractual application forms and consumer bills. France has successfully introduced a normalised contract summary chart (fiche descriptive de l’offre), facilitating customers to have a direct vision of the contract proposed to them.[41] Denmark, on the other hand, built up on behavioural insights in order to improve the intelligibility of the bill’s content.[42]

However, such structural reshaping of the bill templates may be seen as a simplistic intervention on the form, not substance. It takes more for the electricity market actors to comply with their information duties nowadays, especially in the conditions formed after the Target Model[43] applied for the development of the single market in Europe. Besides, and despite the stakeholders calling for inclusiveness in policymaking, new risks emerge threatening the market’s consumer-centric design. Technological developments may create new societal divisions among consumers,[44] as certain social groups like the digitally illiterate people or the ones lacking access to electronic means may find it arduous to adjust to this new reality.

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2. Choice impediments

This is the reason why, despite the aforementioned efforts, the “Consumer Markets Scoreboard” has shown, as for electricity services, that consumers find that this market section does not perform well for them overall.[45] May this be a vindication for the academics voicing fierce criticism against behavioural economics policies? Many of them have blamed the discipline for largely looking at consumers as individuals, while the collective dimension of consumer law is heavily disregarded. In a strongly critical article, two of the leading behavioural scientists, Chater and Loewenstein, seem to regret their previous inducements, by recognizing that “If your problem is basically that fallible individuals are making bad choices, behavioural science is an excellent solution. If, however, the real problem is not individual but systemic, then nudges are at best limited, and at worst, a harmful diversion.”[46] The aphorism seems to contradict the conception of libertarian paternalism, the soft centre of any nudge theory. The idea was initially introduced by Thaler and Sunstein,[47] as an alternative to classic State paternalism. Libertarian paternalism operates through individual empowerment and aims to navigate individuals towards more efficient lifestyle choices. The theory argues that any freedom to choose can be enhanced rather than restricted by altering the structure of choice to benefit the chooser.[48] As its inspirers emphasise: “Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom”.[49] They envision better, happier lives, through the endorsement a “choice architect” offers.

At the same time, consumer empowerment, requiring people to be purchase-ready might have collateral implications. This information paradigm indicates that imperfect or asymmetric information may hinder the conclusion of a consumer-effective agreement.[50] This applies especially in the electricity sector, where the level of complexity could be confusing even for an energy market expert.[51] Several reports and studies underline the knowledge gap in the electricity market. In its recent evaluation, the European Commission[52] found that information regarding the period of notice to terminate an electricity contract was not indicated at all on bills in some EU countries (Italy, Poland, Slovenia and Spain), while in others (Germany and France) only half of the customers were able to identify such information. The same report indicates that a scant percentage of only 7% of consumers on average had noticed that they might be charged for switching energy suppliers.[53] In general, after a mystery shopping exercise, the Commission made disappointing observations: in some countries (Lithuania, Spain and Sweden) almost two-thirds of the possible customers were incapable to spot the crucial information as for the switching procedure.[54] As the Bureau Européen des Unions de Consommateurs (BEUC) highlights,[55] in the Czech Republic consumer organisation dTest found that consumers often had difficulties in getting information on the expiration of their ongoing contract and how much it would cost them to switch suppliers. In some cases, the supplier refused to provide the above information on the grounds of commercial secrets and the risk of these details being abused. Such lack of critical information

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confuses the consumer and further hampers one of the most crucial parts of the consumer life-cycle: switching.

Consumer choice finds its absolute expression in the unhindered supplier switching: customers shall be able to turn to any supplier which offers a better fit to their needs and personal profiles.

As the Recast Directive underlines: “Several factors impede consumers from accessing, understanding and acting upon the various sources of market information available to them. It follows that the comparability of offers should be improved and barriers to switching should be minimised to the greatest practicable extent without unduly limiting consumer choice.”[56]

In order to avoid any restriction of choice, the option impediments are identified and classified as barriers shaped from commercial contract conditions and barriers altering customer perception.[57] The EU has continuously acted on facilitating the switching procedure, by seeking to abolish those barriers and disallowing any contractual terms which could hinder it.

The most common barriers stemming from the supply contracts’ terms and conditions are the unjustified termination fees imposed by the electricity suppliers. Such fees act against consumer trust-building and exacerbate the existing difficulties. According to an ACER/CEER Market Monitoring Report,[58] exit fees used to be common in almost 40% of the Member States. Exit fees sometimes range at levels so high compared to the final price of energy, so they can be considered as a type of product differentiation. The amount normally exceeds any potential costs incurred by suppliers due to consumers’ breaking away from the contract within the contractual period (e.g. marketing costs for signing up a ‘replacement’ consumer) and these fees end up to be totally unjustified.

The current Directive,[59] like its predecessor,[60] unequivocally prohibits charging any switching fees. The Recast Electricity Directive exceptionally allows them for fixed-price and fixed-term contracts, taking into consideration the level of commitment such contracts entail.

The elimination of exit fees in general (switching or termination) offers the incentive to move easily in the energy market, stimulating the competition and trying different solutions which may be more advantageous for consumers. As free switching has always been seen as the index for a well-functioning market, it was recently asked “what the right switching level is”.[61]

Despite the fact that the switching rates are very diverse across EU,[62] it is reported that, since the energy liberalisation, 70-80% of consumers have switched at least once, which should be considered as a sign of success.[63]

Consumers’ conceptions form another kind of possible impediment to effective switching, as they may affect consumers’ willingness to change suppliers - especially when it comes to sufficient monetary gain. In order for consumers to migrate to another electricity company, they shall have first been persuaded that the actual gain is sufficient to offset the possible costs and hustle of switching. Such costs are often unpredictable or obviously irrelevant to the energy supply itself. The latter happens, for example, when switching impediments rise from commercial practices involving additional services, offered together with electricity supply (for example, boiler maintenance, additional insurance cover). Consumers contemplating switching from their current supplier may face problems disengaging, as the value-added service and the

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energy contract appear to be directly linked and non-dissociable. Typically, in these cases, the renewal of the electricity supply contract leads to an automatic renewal for the additional services provision. This close connection inevitably results in restricting consumers’ choice, since even if they are not interested in using those additional services anymore they may nonetheless feel safer by keeping those. This situation leads to customer lock-in, entrapping consumers in a complex transaction, with aspects for which they have not knowingly consented to.

III. EU: CHOICE ARCHITECT?

While free choice of energy providers has been pivotal to the liberalisation of the sector, on the flip side this has reduced the opportunities for national voice and for political participation in shaping the national economy.[64] In the State-nation setting, the citizen participated in the law-making process, voiced his concerns and could claim protection. In the EU framework, the balance is far more complex, as a potential full harmonisation might deactivate national law.

In this framework, consumer protection is not built upon protecting individuals, but rather on protecting their freedom of choice: EU market is a market where choices are really what is offered.[65] Deregulation and market integration contributed to a whole range of better, more diversified choices to be offered, to better serve individual consumers’ profiles. The Recast Electricity Directive unfolds around the notions of consumer choice and engagement:[66] the first one leads to the attainment of the second, and the EU law’s mission is to retain all the choice possibilities intact for customers. Consumers who hesitate to engage with the market will therefore not be able to benefit from the competition, ensuring lower prices and better services. And, as it has been shown,[67] disengaged consumers are usually the ones displaying traits of vulnerability.