Utility Deposit Bond - East Kentucky Power Cooperative, Inc. in Kentucky

Brief Summary

When East Kentucky Power Cooperative asks a customer for a letter of credit or equivalent security, a surety bond can carry that obligation without tying up a bank credit line. The security on an economic development contract can run for years, so keeping your borrowing capacity free for the project itself is worth a lot.

East Kentucky Power Cooperative (EKPC) is a wholesale generation and transmission cooperative that supplies 16 owner-member cooperatives serving 89 Kentucky counties. It does not bill most homes and businesses directly. The security EKPC's published tariff describes is tied to Rate EDR, its Economic Development Rider for qualifying non-residential retail members. Under Rate EDR, the retail member or its guarantor may be required to provide a letter of credit or equivalent security satisfactory to EKPC equal to 75 percent of total EDR credits during the discount period and 50 percent during the non-discount period. Confirm with EKPC that a surety bond is acceptable and get its required wording before the bond is issued.

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How to Apply for a Utility Deposit Bond:

• Confirm with EKPC and your owner-member cooperative that security is required on your Rate EDR special contract and what dollar amount applies.
• Get EKPC's written acceptance of a surety bond as equivalent security and any wording it requires.
• Provide the special contract, the projected EDR credits and the contract term to the surety.
• Provide audited financial statements for the company and any parent or guarantor.
• Sign the surety's indemnity agreement and pay the premium.
• Deliver the executed bond to EKPC and calendar the switch from the discount period to the non-discount period.

Detailed Information About the Kentucky Utility Deposit Bond:

EKPC is not your local electric co-op

The most common mistake is treating EKPC like a retail utility. EKPC is a not-for-profit generation and transmission cooperative headquartered in Winchester, Kentucky. Its tariff on file with the Kentucky Public Service Commission, P.S.C. No. 35, covers wholesale power service to rural electric cooperative members throughout Kentucky. Those 16 owner-member cooperatives, such as Blue Grass Energy, Jackson Energy, Owen Electric and South Kentucky RECC, serve the homes and businesses. A household or small business account is set up with the local co-op, not with EKPC.

Where EKPC asks for security

The security provision in EKPC's published tariff appears in Rate EDR, the Economic Development Rider. It is available as a rider to qualifying non-residential retail members of participating owner-members served under EKPC Rates B, C, E and G. Service under the rider is filed with the Commission as a special contract for a fixed term of at least two times the discount period.

The tariff says the retail member, or its guarantor, may also be required to provide a letter of credit or equivalent security satisfactory to EKPC in two tiers:

• **During the discount period:** 75 percent of the total EDR credits
• **During the non-discount period:** 50 percent of the total EDR credits

If the retail member ends the special contract early, ceases operations or stops taking service during the minimum term, it must reimburse EKPC and the owner-member for a portion of the EDR credits it received. The security backs that repayment.

If EKPC has asked you for a deposit or security under a different agreement, the bond is written for the amount and terms EKPC sets in that agreement.

Does EKPC accept a surety bond?

The tariff does not name a surety bond. It asks for a letter of credit or equivalent security satisfactory to EKPC, so EKPC decides whether a bond qualifies as equivalent. Get EKPC's written acceptance and any required bond wording before the bond is issued.

The general Kentucky deposit rule

For ordinary bill security, 807 KAR 5:006 Section 8 lets a utility require a cash deposit or other guaranty to secure payment of bills. A deposit cannot exceed two-twelfths of the customer's actual or estimated annual bill when bills are rendered monthly, three-twelfths when bimonthly, or four-twelfths when quarterly. Waiver criteria are set in each utility's tariff.

How the premium is set

The surety treats this like a financial guarantee. It looks at the company's audited financials, the size of the EDR credits being secured, the length of the special contract and the strength of any parent guarantor. Ask EKPC whether the bond can be reduced to the 50 percent tier by rider once the contract moves into its non-discount period.

Eligibility and Requirements for a Kentucky Utility Deposit Bond:

• East Kentucky Power Cooperative, Inc. as obligee, with the owner-member co-op added if EKPC requires it.
• Amount equal to 75 percent of total EDR credits during the discount period and 50 percent during the non-discount period.
• Security satisfactory to EKPC, since the tariff names a letter of credit or equivalent security.
• Bond kept in force for the term of the EDR special contract.
• Corporate indemnity to the surety from the retail member and any guarantor.

Kentucky Utility Deposit Bond FAQs:

Official and Additional Resources for the Kentucky Utility Deposit Bond: