California Utility Deposit Bond: A Comprehensive Guide

January 13, 2023

California Utility Deposit Bond

This guide provides information for insurance agents to help their customers obtain a California Utility Deposit bond.

At a Glance:

  • Average Cost: Between 2% to 7.5% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Determined on a case-by-case basis
  • Who Needs it: Certain businesses seeking to activate utility services in California
  • Purpose: To ensure utility companies receive compensation for financial harm if the consumer fails to pay their utility bills
  • Who Requires Utility Deposit Bonds in California: Utility companies in California that provide services to the general public

Background

Utility companies in California often require customers expected to generate large monthly bills to pay a security deposit before initiating service. The security deposit protects utility companies from losses if the consumer fails to pay their monthly bills on time and in full. However, most utility companies in California allow customers to purchase and maintain a surety bond in lieu of depositing cash. Unlike most surety bonds, utility deposit bonds are not required by a government agency but by the utility company providing the service (unless a municipality owns the utility company).

What is the Purpose of the California Utility Deposit Bond?

Utility companies in California require consumers that do not wish to pay a security deposit to purchase a surety bond as a prerequisite to obtaining utility services. The bond ensures that the utility company will receive compensation for financial harm if the consumer fails to comply with the provisions laid out in the bond form. Specifically, the bond protects the utility company if the consumer does not pay their monthly bills. In short, the bond is a type of insurance that protects utility companies if the consumer fails to remit all required payments.

California Utility Deposit Bond Form
California Utility Deposit Bond Form

How Can an Insurance Agent Obtain a California Utility Deposit Surety Bond?

BondExchange makes obtaining a California Utility Deposit bond easy. Simply login to your account and use our keyword search to find the “utility” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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Is a Credit Check Required for the California Utility Deposit Bond?

Surety companies will run a credit check on the applicant to determine eligibility and pricing for the California Utility Deposit bond. Applicants with excellent credit and work experience can expect to receive the best rates. Applicants with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the applicant’s credit.

How Much Does the California Utility Deposit Bond Cost?

The California Utility Deposit bond can cost anywhere between 2% to 7.5% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $10,000 bond requirement.

$10,000 Utility Deposit Bond Cost

Credit Score* Bond Cost (1 year)
800+ $200
680 – 799 $300
650 – 679 $500
600 – 649 $750
550 – 599 $1,500

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

Which Companies Allow Utility Deposit Bonds in California?

The following California utility companies allow customers to purchase a surety bond in lieu of depositing cash:

Modesto Irrigation District

Commercial customers that cannot produce documentation attesting to a satisfactory payment history for utility services or those whose accounts become impaired must either deposit cash or purchase a surety bond. The bond amount must be equal to three times the customer’s estimated monthly bill (as determined by the District).

Agents can contact the Modesto Irrigation District here.

 

Pacific Gas and Electric Company (PG&E)

Customers are required to deposit cash or purchase a surety bond in an amount determined by the company. When determining the required bond amount, PG&E will consider the customer’s estimated monthly bills.

Agents can contact PG&E here.

 

Southern California Edison Company

High-use customers are required to either deposit cash or purchase a surety bond. When determining the required bond amount, the company will consider the customer’s estimated monthly bills.

Agents can contact Southern California Edison Company here.

 

Southern California Gas Company

Businesses must either deposit cash or purchase a surety bond in an amount equal to twice their average invoice (as determined by the company). The deposit requirement will be waived after the consumer makes on-time payments for 12 consecutive months.

Agents can contact the Southern California Gas Company here.

 

Southwest Gas Corporation

Commercial businesses that have not utilized Southwest Gas in the past or have not established a satisfactory payment history with the company for the past 24 months must either deposit cash or purchase a surety bond in an amount determined by the company.

Agents can contact Southwest Gas Corporation here.

How Do California Utility Customers File Their Bonds?

Utility customers in California should submit their completed bond forms, including the power of attorney, to the company requiring the bond. The surety bond requires signatures from both the surety company that issues the bond and from the customer. In some instances, the bond will require witness signatures as well. Generally, the surety company will include the following information on the bond form:

  • Name and address of entity/individual(s) buying the bond
  • Surety company’s name and address
  • Entity requiring the bond
  • Bond amount
  • Date the bond is signed
  • Date the bond goes into effect

What Can Utility Customers in California Do to Avoid Claims Against Their Bonds?

To avoid claims on their bonds, utility customers in California must ensure they pay their utility bills on time and in full.

What Other Insurance Products Can Agents Offer Utility Customers in California?

Utility companies generally only require businesses to be bonded. As such, agents can offer their customers general business and liability insurance in addition to the utility deposit bond. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

Should Your Customer Purchase a Surety Bond or Deposit Cash?

Surety bonds are generally considered the better option for businesses, as they free up working capital that would otherwise have to be deposited with the utility company. For more information on whether your customer should purchase a bond or deposit cash, contact BondExchange.