Learn more about utility deposit bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Utility Deposit Bonds?
Utility deposit bonds are surety bonds that utility companies may require customers to provide as a guarantee that they will pay their bills for electricity, natural gas, water or other utilities. These are categorized as financial guaranty surety bonds. The bond guarantees that the customer will pay the monthly utility bill in full and on time. Without a cash deposit or a utility deposit bond, the utility company may not provide service.
Who Needs Them?
Utility companies may waive a requirement for a substantial cash deposit if the customer obtains the appropriate bond. These bonds may be required from:
Sole proprietors or large business entities that have a history of late payments or nonpayment
New businesses that have not had utility service before
Businesses with high utility usage
How Do They Work?
The utility company is the obligee, the utility customer is the principal, and the company underwriting and issuing the bond is the surety. If the principal fails to pay its utility bills on time, the obligee has the right to file a claim against the bond. Once the surety determines that a claim is valid, it will make payment to the obligee and pursue the principal for reimbursement of the claim amount.
What Do They Cost?
The particular utility company establishes the bond amount. The amount is typically based on a percentage of the customer’s usage over a specified period of time, often six months or a year. This method of predicting usage takes into account seasonal and cyclical fluctuations in the company’s utility demand. If there is no historical usage data for the company, the utility company will estimate the applicant’s usage based on that of a company of comparable size in the same type of business.
The premium cost will be a percentage of the bond amount. The percentage will be based on the applicant’s creditworthiness. Most applicants will pay between 1% and 10% of the bond amount as the annual premium. Companies with poor credit may have to put up collateral in order to obtain a utility deposit bond.
If you’ve been informed by a utility company that you need to provide a cash deposit, a utility deposit surety bond should be an acceptable alternative. Our experts will be able to help you get the bond you need.