Case Documents

Competition Tribunal Tribunal de la Concurrence Reference: Commissioner of Competition v. Enbridge Services Inc., 2002 Comp.Trib. 09 File no.: CT2001008 Registry document no.: 0008a

IN THE MATTER OF an application by the Commissioner of Competition for a consent order pursuant to sections 79 and 105 of the Competition Act, R.S.C. 1985, c. C-34, as amended;

AND IN THE MATTER OF certain practices of anti-competitive acts by Enbridge Services Inc. within certain markets in the province of Ontario;

AND IN THE MATTER OF an abuse of dominant position in the supply of conventional or power vented natural gas fuelled water heaters not used for commercial purposes and related services within certain markets in the province of Ontario.

B E T W E E N : The Commissioner of Competition (applicant)

and Enbridge Services Inc. (respondent)

Date of hearing: 20020220 Member: McKeown J. (Chairman), Lawrence P. Schwartz and Gerry Solursh Date of order: 20020220 Order signed by: McKeown J.

CONSENT ORDER

[1] FURTHER TO the application of the Commissioner of Competition (the “Commissioner”) pursuant to sections 79 and 105 of the Competition Act (the “Act”) R.S.C. 1985, c. C-34, as amended, for a Consent Order prohibiting Enbridge Services Inc. (“ESI”) (the “Respondent”) from engaging in certain anti-competitive acts and from an order to redress the anti-competitive situation created by these acts;

[2] AND UPON READING the Notice of Application dated December 17, 2001, the Statement of Grounds and Material Facts, the Consent Order Impact Statement, the Draft Consent Order and the Consent of the parties, filed herein;

[3] AND ON CONSIDERING THAT the Commissioner and the Respondent have reached an agreement which is reflected in the Draft Consent Order;

[4] AND ON CONSIDERING THAT the Commissioner is satisfied that, on the basis of the considerations outlined in the Consent Order Impact Statement, the remedies provided herein, if ordered, will be sufficient to eliminate the substantial lessening or prevention of competition in the supply of conventional or power vented natural gas fuelled water heaters not used for commercial purposes (“water heaters”) and related services caused by the practice of anti-competitive acts, by the Respondent;

[5] AND IT BEING UNDERSTOOD by the parties that the Commissioner has alleged certain material facts, and that, though the Respondent does not accept all of the facts alleged by the Commissioner, the Respondent does not contest the Statement of Grounds and Material Facts or the Consent Order Impact Statement for the purposes of this application or in any proceeding initiated by the Commissioner relating to this Consent Order, including an application to vary or rescind this Order under section 106 of the Act;

[6] AND ON THE HEARING of counsel for the parties in respect of this Application; THE TRIBUNAL ORDERS THAT: Definitions [7] For the purposes hereof: (a) the term “water heaters” means conventional or power vented natural gas fuelled water heaters not used for commercial purposes;

(b) the term “effective date” means the effective date of the issuance of the Consent Order; (c) the term “existing customers” refers to customers renting water heaters from ESI prior to the implementation by ESI of the terms of this Consent Order; and

(d) the term “new customers” refers to customers for whom ESI has installed new water heaters for rental purposes after the implementation by ESI of the terms of this Consent Order. For greater certainty, a customer ceases to be an existing customer and becomes a new customer

for purposes hereof if ESI replaces the existing customer’s rental water heater after the effective date with a new water heater and the customer signs a new rental water heater contract with ESI meeting the terms and conditions of this Consent Order.

General [8] Unless otherwise specified, the terms hereof shall apply to existing customers and new customers.

Disconnection and Return of ESI Rental Water Heaters [9] The following apply with respect to the disconnection and return of ESI rental water heaters:

(a) ESI shall not prevent others from disconnecting ESI rental water heaters or, if such water heaters are otherwise disconnected, from returning such water heaters;

(b) ESI shall designate sites for the return of ESI rental program water heaters by others and these sites will include all ESI district Heating, Ventilation, Air Conditioning (hereinafter “HVAC”) offices and the office locations of ESI’s independently operated HVAC franchisees (the “Return Locations”), with returns permitted at a minimum for the hours between 8 a.m. and 6 p.m. Monday through Saturday. Schedule “A” contains a list of the current Return Locations. ESI may change the Return Locations from time to time in the ordinary course of operating its business and may designate additional Return Locations, whether operated by ESI or on ESI’s behalf by other parties;

(c) where a customer notifies ESI that he/she intends to return an ESI rental water heater, and there is a Return Location within 20 miles (32 kilometres) of the customer’s address then ESI will permit the customer to elect to either:

(i) have a qualified, licenced third party disconnect the water heater and then return the water heater or have the water heater returned (at customer’s expense) to a Return Location during its normal hours of operation; or

(ii) request ESI to disconnect and pick-up or pick-up the water heater from the customer’s address, in which case ESI subject to subparagraph 9(e)(iii), may charge a disconnection and pick-up charge not to exceed $75.00.

ESI may also offer the customer the option of keeping the water heater, in which case disposal will be the customer’s responsibility. However, the customer is not required to accept this alternative;

(d) where a customer notifies ESI that he/she intends to return an ESI rental water heater, and there is not a Return Location within 20 miles (32 kilometres) of the customer’s address then ESI will permit the customer to elect either to:

(i) have a qualified, licenced third party disconnect the water heater and then return the water heater or have the water heater returned (at customer’s expense) to a Return Location during its normal hours of operation; or

(ii) request ESI to disconnect and pick-up or pick-up the water heater in which case ESI will not assess any disconnection and/or pick-up charge.

In any such case (i.e. where the nearest Return Location is more than 20 miles (32 kilometres) from the customer’s address) ESI may also offer the customer the option of keeping the water heater, in which case disposal will be the customer’s responsibility. However, if the customer is unwilling to accept this alternative, ESI must pick-up the water heater (as provided for in subparagraph 9(d)(ii));

(e) where ESI is requested by a water heater rental program customer to disconnect and pick­up or pick-up an ESI rental program water heater:

(i) ESI shall perform such service within two (2) weeks following receipt of such request; (ii) ESI shall not assess water heater rental program customers additional rental charges after the charge for the month during which pick-up took place; and

(iii) if the pick-up is not conducted within two (2) weeks of the customer request, any $75.00 disconnection and pick-up or pick-up charge otherwise contemplated pursuant to subparagraph 9(c)(ii) and further rental charges shall not be imposed;

(f) failure to comply with the time period set out in subparagraph 9(e)(i) shall constitute an immediate breach of this Consent Order subject to ESI providing the Commissioner with adequate written explanation for the failure to comply;

(g) subject to subparagraph 9(c)(ii) hereof, if a customer or another third party returns a disconnected water heater, ESI shall not assess pick-up, administration or other such charges to water heater rental program customers of ESI to disconnect or return water heaters.

Rental Water Heater Exit Charges, Fees and Penalties [10] The following apply with respect to rental water heater exit charges, fees and penalties: (a) subject to paragraph 10(b), ESI shall allow existing customers to cease renting water heaters from ESI without paying any rental exit or cancellation charges, fees, or penalties (collectively “exit charges”), including but not limited to any installation cost recovery or administration charges;

(b) in the case of existing customers who rent water heaters from ESI which were installed prior to the effective date, ESI may apply commercially reasonable and non-discriminatory exit charges until each such water heater is five (5) years old;

(c) ESI shall allow existing customers covered by paragraph 10(b) to exit their water heater rental contract upon notification to ESI with no exit charges applying thereto after such water heater becomes five (5) years old;

(d) ESI contracts with new customers may include an initial rental period of a maximum of five (5) years during which commercially reasonable and non-discriminatory exit charges may apply;

(e) the terms of any contracts entered into in accordance with paragraph 10(d) hereof shall allow, following the completion of the initial five (5) year period or less, such customers to exit their water heater rental contract upon notification to ESI, with no exit charges applying thereto;

(f) exit charges (whether for existing or new customers) are not to exceed $125.00 for any water heater during year one, and are to be reduced by $10.00 after each year from the date of installation of the water heater;

(g) during the period while any existing customer is subject to exit charges as provided for in paragraph 10(b), ESI may not increase the water heater rental charge for such customer other than through percentage increases (if any) reflecting inflation over the period since the last rental rate adjustment; and

(h) ESI contracts entered into in accordance with paragraph 10(d) with new customers shall contain pre-stated rental rates for the initial five (5) year or less contract period during which exit charges may apply. Such rate(s) shall be expressed as a single rate for the entire period or as different rates each to be effective during specified periods of time, or may be based on an expressly stated escalation formula to reflect inflation.

Buy-Out Price Schedule [11] The following apply with respect to the Buy-Out Price Schedule: (a) ESI water heater rental contracts entered into with new customers shall include a fixed Buy-Out Price Schedule (“Schedule”) for the rented heaters. A model Schedule respecting new customers is attached hereto and marked as Schedule “B” and shall form an integral part of the Consent Order;

(b) ESI shall provide existing customers with a Schedule for their rented water heaters. A model Schedule respecting existing customers is attached hereto and marked as Schedule “C” and shall form an integral part of the Consent Order. The Buy-Out Price for existing customers will be based on ESI’s current retail prices at the time the Schedule is produced and adjusted to eliminate the impact of inflation since the time of installation; and

(c) ESI shall not offer different rental rates or rental water heater Buy-Out Prices to new and existing customers that are renting water heaters of a similar model and age, except to the extent that such differences reflect legitimate differences in the cost of providing service to different groups of customers, based on such factors as location and water conditions.

Other Water Heater Terms, Conditions and Operations [12] The following apply with respect to other water heater terms, conditions and operations: (a) ESI shall not enter into or withdraw from any arrangement, agreements or transaction in regards to water heaters or make any changes to their operations that would be contrary or inconsistent with the intended purpose of this Order, namely, to eliminate anti-competitive behaviour for the ultimate purpose of promoting and protecting competition in the markets affected;

(b) without limiting the generality of paragraph 12(a), ESI’s other terms, conditions and operations with respect to the rental of water heaters will not erect undue barriers to entry and to competition in the market for water heaters; and

(c) without limiting the generality of paragraphs 12(a) and 12(b), ESI’s rental water heater terms, conditions and operations relating to:

(i) the assessment and recovery of damage to returned water heaters; and (ii) the limitation of ESI’s liability with respect to the disconnection or the return of rental water heaters by others;

shall not create the above mentioned effects. Commissioner’s Approval [13] The following apply with respect to the Commissioner’s approval: (a) this Consent Order evidences the Commissioner’s acceptance of the terms and conditions applicable to contracts with new and existing customers, all as modified to give effect to the terms of this Consent Order. A copy of those terms and conditions are attached as Schedule “D” and form an integral part of the Consent Order. Any subsequent material changes to such terms and conditions, to the extent such terms and conditions materially affect the matters addressed by this Consent Order, shall be submitted to the Commissioner for approval in advance of their implementation. The Commissioner shall respond definitively within thirty (30) days following the submission by ESI to the Commissioner of any such revised contractual terms and conditions proposed for the ESI water heater rental program;

(b) without limiting the generality of the foregoing, ESI shall submit to the Commissioner for approval the terms and conditions relating to the items referred to in paragraphs 9 and 10 hereof; and

(c) where the Commissioner’s approval is sought pursuant to this Consent Order and such approval is not granted or if a decision of the Commissioner is unreasonably delayed or withheld, ESI may apply to the Competition Tribunal for directions.

Implementation [14] The following apply with respect to implementation: (a) within forty-five (45) days of the effective date, ESI shall amend the terms and conditions applying to existing customers to comply with the Consent Order;

(b) within forty-five (45) days of the effective date, ESI shall amend the terms and conditions offered to new customers to comply with the Consent Order; and

(c) within forty-five (45) days of the effective date, ESI shall modify its activities and operations to comply with this Consent Order.

Notification [15] The following apply with respect to notification: (a) subject to paragraph 15(d), within forty-five (45) days following the effective date, ESI shall notify in writing all existing customers concerning the terms of the Consent Order, the terms of which notification shall be subject to consultation and joint agreement between ESI and the Commissioner;

(b) notification for paragraph 15(a) will be by way of bill inserts and press releases the terms of which shall be subject to consultation and joint agreement between ESI and the Commissioner;

(c) ESI may amend the rental water heater terms and conditions for existing customers to implement or which are consistent with the provisions of the Draft Consent Order before the effective date;

(d) any amendments referred to in paragraph 15(c) shall immediately be notified to these customers before they are implemented. Notification will be by way of bill inserts and press releases the terms of which shall be subject to consultation and joint agreement between ESI and the Commissioner. The notification shall include an explanation of the reasons for these changes. Further notification shall be given as is required to give full effect to paragraphs 15(a) and 15(b);

(e) within forty-five (45) days following the effective date, ESI shall notify in writing all of ESI’s affiliates, directors, managers, owners, officers, shareholders, agents and employees and to any of its subsidiaries, assignees and their agents and employees in writing of the terms of the Consent Order. The terms of such notification shall be subject to consultation and joint agreement between ESI and the Commissioner. In addition, a copy of the Consent Order shall be provided or made reasonably accessible to such persons. In addition, ESI shall direct such persons to operate and manage the business in accordance with the terms of the Consent Order; and

(f) within sixty (60) days following the effective date, ESI shall provide to the Commissioner a certification by the president of ESI that such notifications and copies required in paragraphs 15(a), 15(b), 15(d), and 15(e) have been sent.

Application [16] The Consent Order applies as follows: (a) ESI shall adhere to all the provisions of the Act and in particular to strictly avoid any act that may be anti-competitive by the recreation of any undue barriers to entry with respect to the ESI water heater rental program as outlined in the aforementioned paragraph 12;

(b) the Consent Order shall bind ESI, as well as, each and every of the present and future affiliates, directors, owners, officers, shareholders, agents and employees and to any of its successors, subsidiaries, assignees and their agents, employees or other person acting for or on behalf of ESI with respect to any matter referred to in this Consent Order;

(c) without limiting the generality of the foregoing, the Consent Order governs any subsequent purchaser, owner or operator of ESI’s water heater rental business, whether through purchase or restructuring or a joint venture partner with ESI; and

(d) any contract transferring ownership of ESI or any part thereof in relation to water heaters shall contain a specific written clause indicating the acceptance by such purchaser or joint venture partner of the terms of the Consent Order.

Communications [17] While all parties will be consulted on the contents and dissemination of any communications with the media, such as press releases or to the public, the Commissioner shall retain the final decision on his communications. The Parties agree to review the confidentiality restrictions contained in any previous correspondence or discussions with a view to removing restrictions that are no longer appropriate.

Other Matters [18] The following apply with respect to other matters: (a) nothing in this Consent Order shall be construed as acceptance by the Commissioner of the terms and conditions in the agreements between ESI and its customers existing prior to the effective date and the legal enforceability of such terms and conditions;

(b) ESI understands that the Commissioner has alleged certain material facts concerning ESI’s water heater rental program. It is understood that ESI does not necessarily agree with all of the facts so alleged. However, ESI will not contest the Statement of Grounds and Material Facts or the Consent Order Impact Statement for the purposes of this application and any proceeding initiated by the Commissioner relating to this Consent Order, including an application to vary or rescind this Consent Order;

(c) the parties shall be bound by the terms of this Consent Order for a period of ten (10) years following the effective date;

(d) for the purpose of determining or securing compliance with the Consent Order, subject to legally recognized privilege, and upon written request on reasonable notice to ESI, ESI shall provide the Commissioner with:

(i) information relating to the ESI water heater rental program in the possession or under the control of ESI. A signature, under oath, by a senior officer of ESI confirming that all available information, in respect of the above, has been provided to the Commissioner; and/or

(ii) upon five (5) days written notice to ESI and without restraint or interference from it, sufficient opportunity to interview directors, officers, managers or employees of ESI concerning ESI’s water heater rental program. Such directors, officers, managers or employees may have counsel present at these interviews;

(e) within three (3) months following the written request in paragraph 18(d) to ESI, the Commissioner shall notify ESI in writing of any objections the Commissioner may have with regard to any information in relation to paragraph 18(d);

(f) ESI agrees to the issuance of a final Consent Order by the Competition Tribunal, on usual terms, covering the matters agreed to herein;

(g) the Competition Tribunal shall retain jurisdiction for the purpose of any application by the Commissioner or ESI to rescind or vary any of the provisions of this Consent Order in the event of a change of circumstances or otherwise; and

(h) in the event of a dispute as to the interpretation or application of this Consent Order, including any decision by the Commissioner pursuant to the Consent Order or breach of this Consent Order by ESI, the Commissioner or ESI shall be at liberty to apply to the Competition Tribunal for a further Order.

Notice to the Parties [19] The following shall apply with respect to notice to the parties: (a) notices, reports or other communications required or permitted pursuant to any of the terms of this Order shall be in writing and shall be considered to be given if dispatched by personal delivery, registered mail or facsimile transmission to the parties at the address or facsimile number below:

(b) if to the Commissioner: The Commissioner of Competition Competition Bureau Place du Portage, Phase I 50 Victoria Street, 21 st Floor Hull, Quebec K1A 0C9

Facsimile: (819) 953-5013 (c) if to the respondent: Enbridge Services Inc. 500 Consumers Road North York, Ontario M2J 1P8

Attention: David M. Purdy Facsimile: (416) 753-7336

Aird & Berlis LLP Suite 1800, Box 754 181 Bay Street Toronto, Ontario M5J 2T9

Attention: William G. VanderBurgh Facsimile: (416) 863-1515 DATED at Toronto, Ontario, this 20 th day of February, 2002 SIGNED on behalf of the Tribunal by the presiding judicial member.

(s) W.P. McKeown

[20] SCHEDULE “A” RETURN LOCATIONS

Enbridge Services - Water Heater Return Locations Barrie 165 Ferris Lane District 11 Barrie, ON L4M 2Y1 Warehouse 730

Richmond Hill West United Thermo Group District 09 20 Staffern Dr. #1 Concord, ON L4K 2Z7

Richmond Hill East 64 Industrial Road District 10 Richmond Hill, ON L4C 2Y1 Warehouse 728

Durham West 513 Westney Rd. S District 06 Ajax, ON L1S 6W8 Warehouse 720

Durham East Perry Mechanical District 07 285 Bloor St. W. Oshawa, ON L1H 7L1

Kawarthas 1 Consumers Place District 08 P.O. Box 658 Warehouse 724 Peterborough, ON K9J 6Z8 Ottawa West 90 Bill Leathem Drive District 16 Nepean, ON K2G 6J2 Warehouse 740

Ottawa North Valley 115 Woodcrest Drive District 18 Pembroke, ON K8A 6Y6 Warehouse 744

Ottawa East Climec Residential Inc. District 17 645 Belfast Rd. #6 Ottawa, ON K1G 4V3

Commercial 6 Leswyn Rd. Mass Market North York, ON M6A 1K2 District 80

Metro East 50 Munham Gate District 05 Scarborough, ON M1P 2B4 Warehouse 718

Metro Northwest 89 Carlingview Drive District 01 Toronto, ON M9W 5E4 Warehouse 710