Canada's abundant energy resources have played a central role in our country's economic development and will continue to be extremely important to our prospects for growth and innovation in the future.
Competition law applies to all of the diverse participants in Canada's energy sector — from crude oil and natural gas to nuclear and renewable energy, and from pipelines transporting energy products to refinery complexes and retail gas stations — with a view to preserving the benefits of a competitive industry, often in parallel with sectoral regulators at the federal or provincial levels. In the wake of COVID-19 and uncertainty surrounding global supply levels, we expect to see higher levels of M&A activity, collaborations among competitors, and potentially even industry-wide initiatives as firms adapt to the new competitive environment.
5 Things You Need to Know About the Energy Industry and Competition Law in Canada
- 1 The energy industry is high profile for consumers, which has led to consumer-driven complaints about conduct and subsequent investigations by Canada's Competition Bureau under the Competition Act (particularly in the retail gas segment).
- 2 While Canada's Competition Bureau has recognized the generally high level of competition in some parts of the energy industry (such as upstream oil and gas), they also have a history of undertaking extensive investigations in parts of the energy industry where there are fewer players or evolving market dynamics that may impact competition.
- 3 Since Canada's merger control thresholds look to the value of the merging parties' assets and revenues to determine whether a transaction is notifiable (unlike the thresholds in the U.S. that focus on acquisition value), mergers involving companies with high turnover and low margins (common in the energy industry) can be unexpectedly notifiable in Canada despite a relatively low enterprise value of the target.
- 4 The energy industry is regulated by a complex federal and provincial regulatory regime that provides context for the application of Canada's competition laws and, in limited circumstances, may even override certain provisions in the Competition Act.
- 5 In investigating any subsegment of the energy industry, the Competition Bureau will employ its established framework for defining markets and will not accept generic arguments about the substitutability or competitiveness of different energy sources.
Competition Law Enforcement Framework
Like many developed economies, Canada has a competition law of general application called the Competition Act (Act). The purpose of the Act is, among other things, to "maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy ... and in order to provide consumers with competitive prices and product choices."
The Act contains numerous provisions that are important for participants in Canada's energy industry, including criminal prohibitions against certain types of agreements among competitors, as well as civil provisions relating to mergers or business practices that are likely to prevent or lessen competition substantially. However, the Act also includes important provisions that recognize efficiency-enhancing behaviour.
The Act is administered and enforced by the Commissioner of Competition, an official who heads Canada's Competition Bureau (Bureau). The Act requires that mergers that exceed certain thresholds be reported to the Bureau for review. The Act also permits the Bureau to apply for court orders for the production of data and documents, the interview of company executives, and the search of premises.
However, the Bureau is not permitted to take action unilaterally in respect of competitive conduct that it believes contravenes the Act. Instead, the Bureau must present its concerns to a specialized court, the Competition Tribunal, or the Federal Court or provincial superior court (as the case may be), which will ultimately decide the issue. Alternatively, the Bureau may enter into settlements with private parties to resolve the Bureau's concerns.
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