Direct Energy is changing its water heater rental contracts and making it more expensive for customers to switch suppliers or buy their own units.

As of April 2, customers who cancel their rental contracts will pay a buyout fee ranging from $100 to $1,000 or more, depending on the unit’s age and size.

Direct Energy has sent letters to customers, saying they can choose to keep their old rental agreements. But unless they call the company before April 2, they will be subject to the new rules.

Some people are crying foul about what they see as negative option billing, which is outlawed under Ontario’s Consumer Protection Act.

Some Direct Energy customers who have 20-year-old power vented tank are paying $274 to have them remove.

Lisa Frizzell, a Direct Energy spokeswoman, said the changes were done in compliance with the Consumer Protection Act.

“It is common practice and permitted within the terms of these contracts to update them from time to time,” she said, “as long as we let customers know and give them an appropriate amount of notice to choose whether they want to stay with the existing terms instead.”

To understand what’s going on, you need some background. Back in 2002, Direct Energy bought the home services division of Enbridge Gas. This included the water heater rental contracts.

Direct Energy had to abide by a consent order signed by Enbridge and the federal Competition Bureau in 2001, in which it was barred from charging exit fees to customers who gave up their rented water heaters.

The company won an exemption to use exit fees with water heaters installed after Sept. 16, 2010. When the consent order ran out last month, it was free to impose exit fees on its remaining rental customers.

“Given the change in cancellation terms, we felt it was important to give some value to our customers,” says Robert Comstock, senior vice-president of Direct Energy’s home and business services.

The company is offering two incentives to accept the revised contract terms.

There’s a service guarantee, which gives a credit on future rental charges if you don’t get your hot water back within 24 hours of calling for help.

There’s also a commitment not to raise rental rates more quickly than the annual inflation rate. (This provision was also in the consent order.)

Direct Energy hopes to hang onto its customers, who are being lured into rental contracts with door-to-door rivals on a daily basis.