• Water Heater Companies in Hot Water: Competition Bureau Seeks $25 Million Administrative Monetary Penalties
  • December 27, 2012 | Authors: Imran Ahmad; Chris Hersh; Stephen I. Selznick
  • Law Firm: Cassels Brock & Blackwell LLP - Toronto Office
  • The Competition Bureau (the "Bureau”) has initiated proceedings under the abuse of dominance provisions of the Competition Act against Direct Energy Marketing Limited and Reliance Comfort Limited Partnership (two companies that rent water heaters to residential customers in Ontario) and is seeking Administrative Monetary Penalties (“AMPs”) totalling $25 million. While the Bureau has had the ability to seek AMPs under the abuse of dominance provisions since 2009, this is the first time it has done so.

    The Bureau alleges that Direct Energy and Reliance each intentionally implemented anti-competitive practices related to their water heater return policies and procedures aimed at preventing consumers from switching to competitors, thereby forcing them to continue their rental agreements with each of them.

    While this is the first time the Bureau has sought AMPs under the abuse of dominance provisions, it is using this power aggressively and is seeking the maximum penalties allowed (up to $10 million for first contraventions and up to $15 million for subsequent offences/contraventions). This explains why the Bureau is seeking AMPs of $10 million against Reliance and $15 million against Direct Energy, as this is the second enforcement action brought against Direct Energy (in 2002, the Competition Tribunal had prohibited similar conduct by Direct Energy’s predecessor, Enbridge Services Inc., under a 10-year consent agreement that expired in February 2012).

    The Bureau has initiated separate proceedings against each Direct Energy and Reliance for similar conduct in different geographic markets (the relevant market for Direct Energy is the local markets where Enbridge distributes natural gas while for Reliance, it is the local markets where Union Gas distributes natural gas). This case is also interesting in that it is the first case brought under the Bureau's recently revised Enforcement Guidelines on the Abuse of Dominance Provisions.

    Regardless of the outcome, these cases send a strong signal to companies that their business activities, including consumer related policies and procedures, may be subject to scrutiny and aggressive enforcement action (including significant AMPs) by the Bureau under the abuse of dominance provisions of the Competition Act.