When & Why You Need Utility Deposit Bonds
Utility deposit bonds get their name from the obligee. The utility deposit bond is required by a private or government utility company for supplying their services to certain businesses. The bond guarantees that the principal will make all due payments to the utility company for its services.
It is a type of surety bond. The three parties of the bond are:
Principal: The business that needs the utility.
Obligee: The utility company that requires the bond.
Surety: The surety is the company that sells the bond.
Do you need a utility deposit bond?
Not everyone needs a utility deposit bond. In fact, the average homeowner has no need for any bond in order to receive services. These are usually required from businesses or commercial enterprises that used a large amount of electricity or water. The utility company ensures timely payments through the bond. Individual homeowners may also be asked to submit the bond in exceptional cases. People with a track record of late or default payments are often asked to submit a bond.
Need for utility company:
Protecting the interests of the service provider: Generation and distribution of public utilities like electricity is an expensive business. If there are any default or late payments from large consumers of energy like businesses, it puts the utility company’s own interests in jeopardy. Timely payments are essential to maintain services therefore utility companies insist on utility bonds.
Saving public money: Some utility companies are government, state or federal bodies and that means they are run on taxes collected by the public. Any losses to a government body will be compensated through public money. So, to default on payments is a loss to public money. Utility deposit bonds protect the taxpayer’s interests.