- Security Deposits Protect Against Non-paying Customers
- September 9, 2016 | Author: Sara M. Donnersbach
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
- The Public Utilities Commission ("the Commission") is a state agency that has regulatory authority over certain public utilities. The Commission works to regulate the rates customers pay for electricity and ensure that companies provide quality, safe and reliable electric service.1
When someone requests new electric service, the utility provider will verify credit.
For customers without good credit
With residential service, security deposit decisions must be based only on an individual's credit record. The utility provider cannot require a deposit on the basis of location, race, sex, age if over 18, national origin or marital status.2
If the party requesting service does not meet the requirements for good credit, a deposit may be required. The utility provider may ask for - but cannot require - a Social Security number in order to check credit history. It also may ask for valid identification (ID), which may be a government-issued photo ID or two alternative IDs, as long as one has a photo. The utility provider also may require the names and proof of identity of each adult occupant of the residence.
To establish credit, new customers must meet at least one of the following criteria:
- Be a creditworthy property owner or meet the legally accepted practices to verify credit
- Have had a prior account with the electric company for the same type of service within the past two years, and in the prior year of service not had a late bill more than twice, nor had service disconnected for nonpayment, fraud or tampering
- Furnish a guarantor or someone with good credit who will pay up to 60 days of service if the customer fails to pay the bill
That said, understand that a utility company cannot require a deposit simply because previous utility services were in a spouse's name but not in the current applicant's name. However, the spouse's utility credit history may be a factor if:
- The spouse will use the services or will be liable for paying for the account;
- The applicant is relying on a spouse's income to help pay the account; or
- The applicant lives in a community property state - even if the two weren't living together and didn't share the account while it was open.
- The applicant did not live with the non-paying spouse when the account was overdue;
- The applicant never saw the prior bills; or
- The applicant paid the bills once he or she discovered they were overdue.
How much should the security deposit be?
In some states, the electric company may not charge a deposit of more than 130% of the estimated average monthly bill for regulated services. The deposit may be increased or lowered after three consecutive billing periods if the deposit differs by 20% or more of the amount that would have been required based on actual usage (while considering possible seasonal changes in usage).
If the utility provider keeps a deposit for more than six months, the utility provider may have to pay at least 3% interest on the deposit, depending on the applicable state law. After 12 months, the utility provider may review the account and determine if the deposit should be returned.
Security deposits from commercial customers
With commercial service, security deposit decisions are a little more complicated. Utility providers may request a deposit based on several factors3:
- The customer has an unpaid delinquent bill for utility service;
- The business has an unfavorable credit rating; or
- The customer has engaged in unauthorized use of utility service within the past six years.
- The business receives two or more final disconnect notices within a 12-month period;
- Service is disconnected for nonpayment;
- The customer has engaged in unauthorized use of electric or gas utility service; or
- The customer exhibits an unsatisfactory record of bill payment within the first six months of service.
- Letter of Credit from a Bank. This option is most common where large deposit amounts are required. Customers must contact a bank that will lend the required amount, usually based on collateral.
- Surety Bond from an Insurance Company. This option is also most often used when large deposit amounts are required. Customers contact a bond/insurance company to complete, notarize and mail an original surety bond form to the utility provider.
The requirement of a security deposit can be waived, for both residential and commercial accounts, if good credit is established. Utility providers must apply all credit reviewing procedures uniformly to all customers. A utility provider may waive a deposit if the customer:
- Enrolls in a pre-pay program;
- Provides a Social Security/Tax ID number and gives permission to check prior credit history (finding, for example, that the customer's potential delinquency risk is 1-10% for residential accounts, or 90-100% for commercial accounts);
- Provides documentation from a previous or current energy supplier for at least the previous 12 consecutive months that indicates an excellent payment history with no late payment penalty fees or disconnect notices;
- Provides a credit report run by another business within the last 90 days that indicates an excellent payment history; or
- Has another active account with the current utility provider within the past two years, for a minimum of six consecutive months, which has an excellent credit history with no late payment penalties or disconnect notices.
1 For example, Ohio Revised Code, Section 4901.02.
2 The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.