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Utility Bond
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What Are Utility Bonds?
A utility bond, also known as a utility service guarantee bond or utility deposit bond, is a type of commercial surety that is often required by public or private utility companies before they will turn on utilities for new clients. These bonds are more often required for commercial businesses with large utility demands than for residential customers. The bond guarantees that the customer will pay its power, water, or gas bills in a timely manner.
Who Needs Them?
Most often, utility bonds are required for businesses that run up high bills because of the volume of their utility usage, such as retail stores, restaurants, manufacturing facilities, laundromats, car washes, hotels and motels, etc.
New business customers will be informed when they set up a utility account whether they will need to provide a bond before services are turned on. Residential customers whose utilities have been turned off for nonpayment may be required to provide a bond in lieu of a cash deposit before service will be restored.
How Do They Work?
In a utility bond arrangement, the utility company is the obligee that requires and is protected by the bond. The utility customer is the principal guaranteeing prompt payment of utility bills, and the company issuing the bond is the surety.
As the obligee, the utility company can file a claim against the principal’s bond for failure to pay utility bills on time. The surety will verify and pay the claim, then recover that amount from the principal.
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