Canada: Tank Suppliers In Hot Water With Canadian Bureau

Last Updated: January 7 2013
Article by James B. Musgrove

The Canadian Competition Bureau is continuing its relatively torrid pace of abuse of dominance and other reviewable practices cases. While the first decade of the 2000s saw a period of some eight years with no new cases filed, under the previous Commissioner, Melanie Aitken, four cases were filed under the abuse of dominance or related reviewable practices provisions in three years. There had been some speculation that with the handover from Ms. Aitken to John Pecman, the Bureau's enthusiasm for contested cases, including in particular abuse of dominance cases, might wane. The early evidence, at least, is to the contrary.

In his speech of December 5, 2012, which we reported on in an earlier brief, the new Commissioner indicated that he would continue an aggressive enforcement stance where appropriate, although he advised that it would work to keep dialogue open with the Bar and other relevant stakeholders. Certainly that dialogue is ongoing, but so is the enforcement agenda. On December 20, 2012 Commissioner filed two separate but related abuse of dominance proceedings, against Reliance Comfort Limited Partnership and Direct Energy Marketing Limited. The cases relate to the alleged anti-competitive practices of these two companies, in various areas of Ontario, respecting their business of renting residential natural gas hot water heaters.

Reliance Comfort Limited Partnership is the spun-off water heater rental business originally operated by Union Gas. Union Gas was the monopoly residential natural gas supplier in certain geographic areas of Ontario. Direct Energy Marketing Limited is the spun-off water heater rental business originally operated by Enbridge Inc., which was the monopoly residential natural gas supplier in other large parts of Ontario. That is, when the regulated entities operated as monopoly suppliers of natural gas they also rented water heaters to their customers. When that regulatory system ended, more than a decade ago, they spun-off the water heater rental business to affiliates – now fully separate entitites.

Despite the separation of gas supply from water heater rental, despite the deregulation of the markets, and despite a significant passage of time, Reliance and Direct, respectively, continue to represent a very large percentage of the supply of hot water heaters in their former territories. According to the Commissioner's Application, Reliance supplies at least 76% of all residential hot water heaters for "its" territories, and Direct supplies over 70% within "its" territories.

The Application alleges that the product market is natural gas hot water heaters and ancillary services. The geographic aspect of the market is alleged to be local. It will be interesting to see how the geographic market issue is determined by the Tribunal, since other than the previous existence of monopoly supply territories for natural gas, it is unclear why the supply of hot water heaters should be a local market. Similarly, it is not entirely clear why electric hot water heaters would not be in the product market.

This is not the first time that the Competition Bureau has expressed concern with regard to hot water tank supplier policies after deregulation of the natural gas business. In 2002, Direct Energy entered into a consent settlement with the Commissioner, registered with Competition Tribunal, prohibiting certain conduct – including preventing competitors from disconnecting or returning in its hot water heaters, or imposing commercially unreasonable and discriminatory buyout schedules on customers. Apparently, as a result of this Tribunal Order, through to 2010, Direct's competitors regularly disconnected and returned Direct's rental hot water heaters on behalf of customers, and supplied those customers with water heaters themselves. In 2010, Direct introduced a return policy, allegedly making it more difficult to disconnect and return Direct's water heaters. The Bureau expressed concern to Direct with respect to this policy, and its possible conflict with the Tribunal Order. Direct suspended the policy.

As soon as the ten year Tribunal Order registered against Direct expired, in early 2012, Direct allegedly introduced similar policies, including a requirement that the customer or a competitor could not return a water heater until the customer first obtained a return authorization number from Direct Energy; that the customer must sign and fully complete a residential rental removal order form; refusing to provide a return authorization number if the competitor and the customer were on the telephone call at the same time; refusing return authorization numbers to competitors on behalf of customers; refusing to honour return authorization numbers more than thirty days after their issuance; and refusing to recognize agency agreements between customers and competitors giving competitors the authority on behalf of the customer to disconnect and return the water heater. Direct Energy also allegedly restricted the hours of operation of its return centres, limited the number of rental removal order forms it would supply, arbitrarily restricted the circumstance in which water heaters could be returned, and levied "multiple and unwarranted exit fees and charges" including continuing to charge customers after they had switched to an alternate supplier and imposed "unwarranted" drain, disconnection and pickup charges. It also allegedly employed a collection process to harass customers to pay and unwarranted exit fees and charges. Similar allegations are made by the Commissioner against Reliance.

The Application alleges that entry into the business of supplying potential hot water heaters would be relatively easy, but for the anti-competitive conduct challenged, which, the Commissioner asserts, raises barriers to entry. No doubt that will be a major issue in the contested case.

One point that is interesting to note is that Direct did not have these allegedly exclusionary policies for a period of a decade, given the existence of the Tribunal Order against it, and yet it maintained a very high market share during that decade. This may represent some evidence that the alleged exclusionary policies are not in fact what creates barriers to entry—at least that may be an issue which Respondents are likely to argue, given that the existence of the Order against Direct for a decade represents a kind of natural experiment typically unavailable in abuse of dominance cases.

Finally, by way of noteworthy aspects of the applications, the Commissioner is seeking the maximum administrative monetary penalties – $10 million against Reliance – the maximum available against a company in the first instance – and $15 million against Direct – again, the maximum available in the case of a "subsequent order" against a company under the abuse of dominance provisions. These are very significant amounts of money, and while the Commissioner has shown willingness to seek maximum administrative monetary penalties in the misleading advertising setting previously, this is the first attempt to obtain penalties of this magnitude for abuse of dominance.

These two hot water heater cases suggest that Commissioner Pecman intends to make good on his recent pledge to maintain an aggressive enforcement stance. It will be some time before we know if the Tribunal will endorse the Bureau's approach.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

James B. Musgrove
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.