What is a Rate Refunding Bond?
A Rate Refunding Bond is a type of surety bond used by utility companies that are planning on increasing their rates.
Most of the time, utility companies need to get approval from the public in order to increase their rates. Sometimes, it is possible for a company to increase its rates before a final decision is made. To do this, the utility company would need to purchase a Rate Refunding Bond.
How Does a Rate Refunding Bond Work?
A Rate Refunding Bond guarantees that if the decision to raise rates does not come through (or is approved at a different amount), the utility company will either refund the higher amount it has been charging or credit customer’s accounts for future bills.
If the utility company fails to do this, customers can make a claim on the bond.
When a claim is made, the surety company that issued the Rate Refunding Bond will start an investigation. One of two things will happen after the investigation:
- The claim will be determined to be invalid, and the claim will become null and void
- The claim will be determined to be valid and the surety company will remind the utility company of their obligations under the bond and give them an opportunity to fulfill the claim.
If the utility company fails to fulfill the claim, the surety company will compensate the customers. The surety company would then go to the utility company for repayment. Essentially, the surety bond holds the utility company liable for their actions, no matter what.
How Much Does a Rate Refunding Bond Cost?
The amount that your Rate Refunding Bond needs to be (called the Bond Amount) will vary by state and case.
The amount you pay for your bond (called the Bond Premium) is calculated based on a percentage of the total bond amount.
Often times, collateral is required in addition to the Bond Premium.
Want to know what you would pay for your Rate Refunding Bond? Surety Solutions offers free quotes for Rate Refunding Bonds at no charge and with no obligation to buy.
See how much you’d pay be getting a free quote below: