How Do Utility Bonds Work?

Utility worker

If a utility company has told you to get a surety bond before they will turn on electricity, gas, water or another utility at your home or business, you’re probably wondering: How do utility bonds work? The better you understand the answer, the easier it will be to meet the surety bond requirement and get utilities turned on ASAP. This blog post walks you through everything you need to know. 

Surety Bond Basics

Before we dive into the specifics of utility bonds, let’s cover the basics of surety bonds. Each type of surety bonds works a little differently, but the basics of every surety bond agreement are the same. 

There are three parties involved: the principal, the obligee, and the surety. The obligee has the right to file a claim with the surety for damages caused by the principal. Provided that the claim holds up under investigation, the surety guarantees the obligee immediate payment in full. After paying the obligee, the surety has the right to collect that same amount, plus interest and fees, from the principal using whatever legal recourse necessary. 

Basically, a surety bond protects one party from the misbehavior of another. The “victim” in that scenario has a way to seek damages, and the “perpetrator” is held accountable for their actions. The surety acts as an intermediary. The surety agrees to pay the obligee, but they don’t accept financial liability. That responsibility always rests on the principal – eg. the person who obtains the surety bond. 

Utility Bond Basics

In a utility bond agreement, the person seeking utilities is the principal, and the utility company is the obligee. If the principal does not pay their utility bill for an extended amount of time, the obligee has the right to seek compensation equal to the unpaid bill from the surety. The surety will compensate the obligee for the unpaid bill, but then the principal (who left the bill unpaid in the first place) must pay the surety back. 

Utility companies require surety bonds from some people to guard against the risk and financial consequences of unpaid bills. If enough bills went unpaid, it could put the utility company and the essential service it provides in jeopardy. That’s why almost all of them use surety bonds to manage this risk. You may also hear this type of surety bond referred to as a utility deposit bond

Why Do I Need a Utility Bond?

Utility companies use their own discretion when deciding who needs a surety bond and for what reason. That being said, most people need a utility bond for one of these two reasons:

  • Payment History – If someone has a history of unpaid utility bills or unpaid debts in general, it’s a red flag for utility companies. Utility bonds protect the utility company in case the payment issues continue. 
  • Consumption Expectations – If someone (usually a business) plans to consume a large amount of utilities, they will have large bills. For instance, a factory may consume tens of thousands of dollars worth of electricity each month. Utility bonds help keep a utility company financially solvent if those huge bills go unpaid. 

What Do Utility Bonds Mean for Me?

Let’s get right down to business. If you need a utility bond, your next step is to find a surety agency who will issue you a surety bond. Look for one that issues bonds for your state, creates quotes quickly, and goes above and beyond for bond seekers. You can spend time searching – or you could find everything you’re looking for through Viking Bond Service.

The next step is to apply for the utility bond. You will need to fill out a standard bond application, which asks for basic information about your background and finances. You will also need to supply a copy of the utility bond requirements, which you should have gotten from the utility company. Finally, you need to agree to a credit check.

After reviewing the application materials, the surety agency will offer you a quote for the surety bond cost. How much you pay depends on the size of the bond you need (which is up to the utility company) and how much risk you pose (which is up to the surety agency). The lower your credit score the higher your premium. That being said, bad credit doesn’t inflate premium prices significantly, and with the right surety agency partner, obtaining a bond with bad credit isn’t impossible either. 

Once you pay the premium and activate the bond, you will need to keep it active for as long as the utility company requires. That may involve renewing the bond on an annual basis. At renewal, the surety agency reevaluates your credit and quotes a new premium price – which could be lower or higher than before based on recent credit history. Failure to renew or keep a bond may lead the utility company to suspend service. 

Viking Bond Service – Your First Call for Utility Bonds

Don’t let the search for a surety agency leave you without utilities. Viking Bond Service issues utility bonds in all 50 states, and we have the experience and resources to make the bonding process fast, easy, and affordable. We can even quote you a price within 24 hours so that you can fulfill the surety bond requirement faster. 

Get started now by completing this online application. Or get more information first. Our team is here to answer all your questions at 1-888-278-7389 or by contacting us through the form on this page.