Tips for satisfying a utility provider’s credit requirements
November 26, 2012 By Brandi Cowen
A topic that is very rarely discussed but should be considered with any existing business or new build, is the impact your utility contracts will have on your business. Not only will you need to have an idea of what your usage and pricing will be, but what those utilities are going to ask for in order to set up or maintain your account.
Electrical utilities and natural gas utilities each have their own requirements. With new businesses, in particular those in volatile industries, the utilities require some form of security that bills will get paid and that they will not be responsible for significant amounts of energy that have been used if a customer is unable to make payment. At the same time, this security deposit can seem rather daunting in addition to so many of the other expenses that come with owning and operating a business.
While each individual utility may have unique requirements, most are similar in what they are looking for. Electrical utilities will often ask for a one month security deposit, based on what has been or is expected to be the highest month of the year for the business. This, as a general rule, will be one of the winter months, where heating and lighting demands are higher than at other times of the year. Natural gas utilities, will often ask for two month deposits, based on the highest two months of consumption for the year. With natural gas utilities, due to the forecast you submit annually, these are the numbers the utility will use to estimate consumption and therefore set your deposit figure.
Of course there are always exceptions to the rule. Many times, if you can show a long standing history of good credit and/or a letter from a previous utility providing support of a satisfactory payment history, then this security deposit can be waived. Other times, if there isn’t sufficient history to support the complete removal of a security deposit, there are other options to consider.
Customers often consider a security deposit to simply be cash required to sit with the local distribution company (LCD), but this is simply not the case. There are several options at your disposal. A business should consider using a letter of credit from their bank, pre-authorized payments and supportive financial statements as bargaining tools with which to negotiate with the LDC. An energy consultant can also work on your behalf with the utility to ensure that an option that works for both you and your LDC can be decided upon.
It should also be noted that while security deposits are typically based on historical or forecasted consumption, one’s point of delivery for the commodity could also impact the amount of security required by the LDC. If you are unsure about how to go about contacting and working with your LDC, whether it is with security deposits or otherwise, contact an energy professional who works with LDCs on a regular basis to help you sort through the requirements. This will allow you to return to running your business in the shortest amount of time possible.
Lisa Brodeur is a quality assurance supervisor at 360 Energy.
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