December 10, 2008
UTILITY DEPOSITS FOR BUSINESS CUSTOMERS
By: Kevin E. McCarthy, Principal Analyst
You asked for (1) a description of current Department of Public Utility Control regulations on security deposits for business customers of electric and gas companies and (2) legislative options to make the security requirements more favorable towards businesses.
Under Conn. Agencies Regs. § 16-11-105, electric companies (Connecticut Light & Power and United Illuminating) can demand a deposit from existing and prospective non-residential customers to ensure payment of their bills. The deposit can be for up to the estimated maximum bill for 90 days. The company can keep the deposit as needed to ensure payment of the customer's bills. The company must (1) keep the deposit in an interest bearing account; (2) return the deposit, plus accrued interest, when the customer establishes satisfactory credit; and (3) return the deposit, plus accrued interest, when the customer discontinues service (the company can deduct any amount due from the customer). Conn. Agencies Regs. § 16-11-32a has parallel provisions for gas companies (Connecticut Natural Gas, Southern Connecticut Gas, and Yankee Gas). The rationale for security deposits is that electric and gas companies bills in arrears and their customers can accrue substantial bill before their service is subject to termination under Conn. Agencies Regs. § 16-3-100.
The legislature could adopt legislation to make the security deposit requirements less onerous for businesses. It could do so by extending to business customers provisions that currently apply to residential customers under Conn. Agencies Regs. § 16-262j-1. In the case of residential customers who have not had an account with the company, the company can only demand a security deposit if the customer cannot demonstrate creditworthiness. The residential customer can demonstrate creditworthiness by, among other things, showing that he or she (1) has owned or rented his or her current dwelling for at least one year, (2) has been employed by his or her employer for at least one year, and (3) has had bank accounts for at least one year. The legislature could establish similar prima facie creditworthiness standards for businesses. The legislature could also require that the companies allow business customers to pay their security deposits in installments. The security deposit regulations that apply to residential customers allow the companies to provide for installment payments.
In the case when a business customer moves within the utility company's service territory or opens a facility there, the legislature could adopt provisions that parallel the security deposit requirements that apply to residential customers with existing accounts. Under Conn. Agencies Regs. § 16-262j-1, electric and gas companies may only demand security deposits from such customers under limited circumstances. These circumstances are when (1) the company has terminated the customer's service during the past two years for non-payment of a delinquent account or similar reasons, (2) the company has obtained a judgment against the customer during the past two years for non-payment of a delinquent account, (3) the customer has had a delinquent account for three consecutive months or two billing cycles, whichever is longer, within the past two years; or (4) the customer has an account that is currently delinquent.
Alternatively, the legislature could (1) reduce the period covered by the deposit, e.g., the deposit could equal the estimated bill for 60 days; (2) establish a maximum dollar amount that can be required as a deposit; or (3) require that the deposit, plus accrued interest, be returned when the customer meets certain criteria, e.g., having paid its bill in full for two billing cycles.