Utility Bonds

What is a utility bond?

A utility company may request a utility bond when an individual or organization is projected to use a high volume of a public utility. This type of bond may be referenced by other name variations, including utility deposit bond, utility surety bond, and utility guarantee bond. While surety bonds are often designed to protect the public, a utility bond protects the utility company by assuring they will be paid for their services.

Some examples of utility companies that might request a utility guarantee bond include:

• Electricity providers
• Gas providers
• Water providers

How much does a utility bond cost?

All utility bonds are priced differently, as well as underwritten differently, based on the bond form and utility company requiring the bond. While in some situations, the premiums may be as high as 10% of the bond amount, 2% is typically the standard cost of a utility bond.

The final cost will be determined by assessing the consumer’s full financial situation and history as well as other considerations, depending on the obligee's specific requirements.

How can I get a utility deposit bond?

Once the necessity of a utility deposit bond is determined, getting the bond begins with an application and determination of credit history. Depending on the bond form and amount, a business and/or personal financial statement may also be required.

A solid, clean credit history is beneficial; however, spotty or unfavorable credit history does not necessarily exclude a consumer from being able to obtain a bond.

Why do I need a utility guarantee bond?

A utility bond serves as a guarantee to the utility company that payment for used services will be paid on time. This is typically requested when usage is expected to be very high, and thus the financial risk is greater for the utility company. A utility bond may be required in lieu of a large initial deposit to establish the account.

While a consumer, whether an individual or an organization, may not appreciate being asked to purchase a utility guarantee bond, the benefit of such a bond should be considered. When a consumer provides this requested bond, especially when usage may be high and place financial risk on the provider, the provider may feel more comfortable providing service to a new business or a customer with low or not well-established credit.

How does a utility surety bond work?

If a customer fails to pay their bill on time and in full, the utility company may file a claim against the bond to obtain payment. The surety (issuer of the bond) will pay the amount due, and the bonded individual or organization will then be required to reimburse the surety for the claim. The bond alleviates the risk taken by a utility company from potential losses when bills aren’t paid.

Payment from the surety to the utility provider does not release the consumer from financial responsibility. If the surety pays the bill, the consumer must pay the surety company back.

What else should I know about utility bonds?

A utility guarantee bond is different from commercial insurance. A surety bond, in this scenario, protects the utility company from potential loss caused when a consumer fails to pay, while commercial insurance protects the business from lawsuits or damage.