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Utility broke law, top court rules

Enbridge may refund millions
Late-payment charges too high

Toronto Star - April 23, 2004
by John Spears

Late-payment penalties imposed by Enbridge Gas Distribution Inc. on its customers over nearly a decade amounted to "criminal misconduct," the Supreme Court of Canada has ruled.

In a devastating ruling handed down yesterday, seven justices of the court set a legal process in motion that could result in a large portion of $88 million in late-payment penalties being restored to customers of the utility. The judgment found that the late-payment penalties in force up until 2002 exceeded interest rates permitted by the Criminal Code.

The code limits annual interest to 60 per cent.

The ruling, written by Mr. Justice Frank Iacobucci, minced no words. "The overriding public policy consideration in the case is the fact that the late-payment penalties were collected in contravention of the Criminal Code," he wrote.

"As a matter of public policy, a criminal should not be permitted to keep the proceeds of their crime."

The victory is a sweet one for Gordon Garland, a Toronto businessman and economist, who took on the gas utility in 1994 after being hit with several late payment charges.

At the time, Enbridge charged customers a flat 5 per cent late-payment penalty on any payment submitted 16 days after the date on which a bill was issued. The practice remained in force until 2002, when Enbridge dropped the penalty to 2 per cent.

Most other utilities had modified their late-payment penalties by then, but since the court ruling is effective back to 1994, other gas and electric utilities were studying the ruling closely to see if they might have to make refunds.

Garland started his action after he inadvertently was late with a few gas payments.

"When you get dinged at 5 per cent, it just begins to irk you a bit," he said in an interview. "Then I spoke with a lawyer, and said this is the opportunity to correct it not only for myself but for the other 500,000 Consumers Gas customers in Ontario." (Before 1998, Enbridge Gas Distribution Inc. was called Consumers Gas.)

Garland argued that since most customers paid their bills within a few days of being late, they were being charged an effective rate of interest of several hundred per cent a year or more. "About 80 per cent of those who have made a late-payment pay it within 10 days," Garland said. "It's not like people are trying to fleece the gas company. But the gas company is trying to fleece its customers in this particular case, and the supreme court recognized that."

Enbridge spokeswoman Lisa McCarney said the company is "disappointed" with the decision.

Enbridge argued in its defence that it was required to impose the late-payment penalties because they had been approved by the Ontario Energy Board, which regulates Enbridge's rates and issues orders requiring that they be collected. But the court said the Criminal Code trumps any OEB ruling.

Enbridge also argued that it should not be required to refund the excessive penalties. The company said it had used the revenue from the late-payment penalties to lower rates for other customers.

"We believe we were not unduly enriched due to late-payment penalties," McCarney said.

The court said Enbridge's use of the money doesn't excuse the overcharging.

"Since the respondent in this case was enriched by its own criminal misconduct, it should not be permitted to avail itself of this defence," Iacobucci wrote.

Enbridge was warned in 1994, when Garland filed his action, that there was a serious possibility that its late-payment penalties violate the Criminal Code, Iacobucci wrote. It could have asked the energy board to modify the penalties until the courts heard the case, he wrote.

"Its decision not to do this, as counsel for the appellant pointed out ... was a `gamble.'"

Michael McGowan, Garland's lawyer, said the next step is to apply to have Garland's case certified as a class action that applies to all Enbridge customers. Lower courts will have to determine how much of the $88 million in late-payment penalties collected since 1994 is excessive, and must be refunded.

Another issue that may have to be settled, probably by the energy board, is whether Enbridge can pass the cost of the refunds on to its customer base as a whole through its rate structure, or whether the company's shareholders will have to eat the cost.

The energy board was also reviewing the decision, an official said.

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