Why Texas's large-load rule takes letters of credit but not surety bonds, and what bond forms regulators accept: fixed wording, demand pay, rated sureties.
Education only / verify at source / not legal or financial advice. This guide explains how several North American regulators treat surety bonds and letters of credit as security for utility interconnection, utility service and related obligations, using rule text, commission orders, tariffs and published forms. Global Guarantors publishes industry education. We aren't a surety, broker, bank, utility or law firm, and we don't publish premiums, rates or quotes. Your utility's tariff, your agreement and your own counsel control over anything here.
Start here: Surety vs insurance + indemnity · Surety glossary · How to verify a surety bond
On October 8, 2026, Texas's new large-load interconnection rule, 16 TAC §25.194, took effect. A large load seeking to connect to the ERCOT system must now post financial security of $50,000 per megawatt of requested peak demand when it signs its intermediate agreement, in one of three forms: cash, a qualifying guaranty, or a letter of credit. Commenters asked the Public Utility Commission of Texas (PUCT) to add surety bonds. The commission declined.
That raises a question that comes up wherever large customers post security with a utility or regulator: why do some regimes accept a surety bond and others don't, and what must a bond form look like before a regulator will rely on it?
This guide answers both, comparing Texas with ERCOT's market credit rules, Alberta's Directive 068, Ontario's planning-approval bond regulation, and utility tariffs in Virginia and Oregon. It is narrower than our overview of data-center power and interconnection security, which covers the wider costs and commitments a large-load project faces.
Section 25.194 sets the standards for interconnecting large loads to the ERCOT system. It covers a customer not yet energized on the effective date that seeks a new interconnection of 75 megawatts (MW) or more at a single site, certain expansions at or above 75 MW (the rule then applies to the incremental load), or co-location with a generation resource.
The PUCT adopted the rule in Project No. 58481. The signed order was filed on September 18, 2026, and the rule took effect on October 8, 2026.
Two stages. At the intermediate agreement, signed with the interconnecting distribution or transmission service provider (DSP or TSP) before the request enters an interconnection study, the customer pays a $100,000 study fee and posts $50,000 per MW of requested peak demand, both due "not later than the date that the intermediate agreement is executed." After ERCOT's study allocates capacity, the customer signs a standard large load interconnection agreement (SLLIA) and posts the greater of $50,000 per MW of contracted peak demand or its allocated system upgrade costs, "at the time the SLLIA is executed." From 2032, the $50,000 and $100,000 values are adjusted every five years by the Consumer Price Index.
Return and forfeiture. The utility can invoice the customer or draw on the security for outstanding amounts owed, such as equipment it can't cancel. A customer that withdraws after being allocated capacity loses 20% of the security tied to that capacity; one that neither withdraws nor signs an SLLIA by the deadline forfeits its intermediate security. When the customer energizes, the utility returns 20% of the remaining security, and the rest comes back in 20% steps as SLLIA milestones are met.
| Stage | Security and deadline |
|---|---|
| Intermediate agreement | Study fee of $100,000, plus security of $50,000 per MW of requested peak demand (or of the incremental increase for an expansion). Both due no later than the date the intermediate agreement is executed. |
| Standard large load interconnection agreement (SLLIA) | The greater of $50,000 per MW of contracted peak demand or the system upgrade costs allocated to the customer, posted at the time the SLLIA is executed. |
| From 2032 | The $50,000 and $100,000 values are adjusted every five years using the Consumer Price Index. |
Because the security is drawn for real costs, the utility needs an instrument that pays quickly when called.
Section 25.194(d)(2)(B)(ii) states that "the interconnecting DSP or the interconnecting TSP may accept only the following forms of financial security," and subsection (f)(2)(B)(v) repeats the list for the SLLIA stage. Cash is held "in a segregated, cash account bearing interest at a rate equal to at least the rate of the constant maturity one-month U.S. Treasury bill." The adoption order widened the guaranty option: it may come from any entity with a high enough rating, and from a party other than the customer. For guaranties and letters of credit, if more than one agency rates the entity, "creditworthiness must be determined by the second-highest rating," so a customer can't rely on its single best rating. The utility may also ask for financial records or statements.
| Form | Who can provide it | Minimum rating |
|---|---|---|
| Cash collateral | The customer, held in a segregated interest-bearing account | Not applicable |
| Guaranty | Any qualifying guarantor, including a party other than the large load customer | BBB- (S&P), Baa3 (Moody's) or BBB- (Fitch); second-highest rating if rated by more than one |
| Letter of credit | A major U.S. commercial bank, or a U.S. branch office of a major foreign commercial bank | A- (S&P), A3 (Moody's) or A- (Fitch); second-highest rating if rated by more than one |
The utility still has discretion. The rule says the utility "may accept only" these forms; it does not say it must accept any instrument that meets them. When commenters asked for mandatory acceptance, the order declined: "it is not appropriate to require a DSP or TSP to accept" a form of security "if the DSP or TSP finds it does not provide sufficient assurance." A qualifying letter of credit is eligible, not guaranteed to be accepted.
The adoption order deals with surety bonds under the heading "Add surety bonds." The request and response in full:
"NRG and Tract recommended modifying proposed §25.194(d)(10)(C) to allow the interconnecting DSP or TSP to accept surety bonds as a form of financial security. Tract reasoned that surety bonds are proven instruments. NRG reasoned that the commission recognizes surety bonds as acceptable financial security in other similar contexts."
"The commission declines to adopt NRG and Tract's recommendation to modify the adopted rule to allow surety bonds as a form of financial security at this time. Surety bonds may contain varying terms, conditions, and remedies, which could create uncertainty regarding the availability and collection of funds and complicate the administration of the financial security requirements. Moreover, the commission determines that the forms of financial security available in the adopted rule provide sufficient options."
In plain English: bond wordings vary; varying terms make it uncertain whether, and how fast, the utility can collect; reviewing each bond complicates administration; and cash, guaranties and letters of credit already give customers enough choice. The words "at this time" matter. The order does not call bonds unsuitable in principle or rule out a later change.
"Varying terms" points to the distinction between on-demand and conditional bonds. A conditional bond pays once the obligee proves default and the surety has investigated; an on-demand bond pays against a demand. A utility drawing security to pay for equipment it has already ordered wants the second kind, and wants to know which it holds without reading every bond line by line.
The §25.107 parallel. In Project No. 59288, the PUCT amended §25.107, the financial assurance rule for retail electric providers (REPs). The REP Coalition asked for surety bonds, noting that ERCOT already accepts them from counter-parties and asking that bond payment timing mirror Section 2.03 of ERCOT's surety bond template. The order, signed and filed October 15, 2026, and effective November 4, 2026, answered:
"The commission agrees that allowing surety bonds as an alternative form of financial assurance may provide more compliance flexibility for REPs. However, additional scrutiny, with the benefit of public feedback, on potential drawbacks and on the necessary details that must be included in a standard template to avoid performance loopholes, is required. Accordingly, the commission declines to permit surety bonds as a form of financial assurance at this time."
The second order names what was missing: a standard template detailed enough to avoid "performance loopholes". Together, the orders point to the question any regulator asks: not whether surety bonds are good or bad, but whether the bond in front of it has known, fixed terms that make collection certain.
ERCOT already accepts surety bonds, but as security for a market participant's credit obligations to ERCOT, not as §25.194 interconnection security. Protocol Section 16.11.3(1)(b)(i), quoted in ERCOT's January 15, 2025 market notice, requires the bond to be "in the form of ERCOT's standard surety bond form approved by the ERCOT Board. No modifications to the form are permitted."
The version this guide relies on, Board-approved on August 31, 2023 and posted September 1, 2023, reads much like a letter of credit. Section 2.03 says the surety "shall make any and all required payments, on or before 5:00 p.m., local time in Austin, Texas, on the first (1st) Business Day after receiving notice from ERCOT that the Principal has failed to meet any of the Obligations or a breach or default has occurred under the Standard Form Agreement." Section 2.02 makes the obligations "a guarantee for payment not of collection." If the surety does not keep the minimum rating ERCOT's protocols require, ERCOT may demand payment up to the entire amount of the bond on a demand similar to the form attached as Exhibit B, with no other documents required. The same Texas grid relies on bonds, but only on one fixed form.
Since the Alberta Energy Regulator's October 8, 2026 edition of Directive 068, oil, gas, geothermal and brine-hosted mineral licensees may post security deposits as Alberta's demand forfeiture bond (DFB), alongside cash and letters of credit. The DFB must be on the AER-approved form "without alteration," from an issuer with "active operations in Canada and an A or higher rating (or equivalent) from a credit-rating agency acceptable to the AER." Under the Appendix 3 sample form, the surety pays within 10 business days of a notice of claim "without regard for any objection, defences, or arguments" raised by the principal.
Ontario Regulation 461/24, made under the Planning Act, applies when a landowner or applicant chooses a surety bond to secure a condition of a land-use planning approval; it is not a construction-bond rule. The insurer must be licensed under Ontario's Insurance Act to write surety insurance and rated by one of five agencies: DBRS "A", Fitch "A-", Moody's "A3", S&P "A-" or AM Best "A-". (See how rating floors like O. Reg. 461/24 work.) Payment is due within 15 business days of notice, "notwithstanding any objection by the principal".
These concern large-load service collateral, not an interconnection queue. Both rest on documents with open points, listed under What to verify at the source below.
Virginia (Dominion). The State Corporation Commission's November 25, 2025 Final Order in Case No. PUR-2025-00058 created Rate Schedule GS-5, effective January 1, 2027, and "approves the Company's proposed collateral requirement terms". The order itself does not mention surety bonds. Dominion's proposed terms, which the SCC approved, list a surety bond from "a U.S.-based bond issuer with a rating category of Excellent or Superior by AMBest's Credit Rating Service," within "the US Treasury's underwriting limit for that issuer," and "in a format acceptable to and approved by the Company."
Oregon (PGE). In Order No. 26-154 (May 7, 2026, docket UM 2377), the Oregon Public Utility Commission said: "We agree with both PGE and Staff that surety bonds may be accepted as a form of collateral." PGE's Rule I, Sheet I-17, effective for service on and after July 8, 2026, lists "a letter of credit, surety bond, or other financial instrument that meets the Company's credit support requirements" for large-load customer service contracts.
| Regime | Bond accepted? | Key conditions |
|---|---|---|
| Texas §25.194 (large-load interconnection) | No | Cash, a qualifying guaranty or a letter of credit only; bonds declined "at this time" |
| Texas §25.107 (retail electric providers) | No | Declined "at this time"; order effective November 4, 2026 |
| ERCOT market credit | Yes | Board-approved standard form, no modifications; payment by 5 p.m. on the first business day after notice; rating condition |
| Alberta Directive 068 | Yes | Demand forfeiture bond on the AER form without alteration; Canadian operations and an A or higher rating; payment within 10 business days |
| Ontario O. Reg. 461/24 | Yes, at the owner's or applicant's option | Insurer licensed for surety and rated by one of five agencies; payment within 15 business days, notwithstanding objection |
| Virginia, Dominion GS-5 | Listed in the approved proposed terms, from January 1, 2027 | AM Best Excellent or Superior; within the Treasury underwriting limit; format approved by the utility |
| Oregon, PGE Rule I | Yes, for large-load service contracts | Order No. 26-154 and Rule I Sheet I-17, effective July 8, 2026; must meet the utility's credit support requirements |
The PUCT has not published a test for an acceptable bond. What follows is Global Guarantors' reading of the regimes above that do accept bonds: our synthesis, not any regulator's stated standard. Five features recur.
1. One standard wording, used without changes. ERCOT permits no modifications; the AER accepts its form only "without alteration"; Ontario's regulation prescribes the terms. A fixed wording answers the PUCT's "varying terms" concern directly and lets staff check a bond against a known text. Our guide on how to read a bond wording shows how wordings differ in practice.
2. Payment on demand, on a short clock. ERCOT: the first business day after notice. AER: 10 business days. Ontario: 15. The trigger is the obligee's demand, and ERCOT's form needs no other documents.
3. No defences from the principal. The AER form pays "without regard for any objection, defences, or arguments"; Ontario pays "notwithstanding any objection by the principal". That is the difference between a bond that pays like a letter of credit and one that pays only after default is proven.
4. A qualified surety, with a remedy if its credit slips. ERCOT's minimum ratings and full-amount demand on a downgrade; the AER's A-or-higher rating and Canadian operations; Ontario's licensing plus one of five ratings; Dominion's AM Best category and Treasury underwriting limit.
5. Renewal and cancellation rules that leave no gap. ERCOT's form renews yearly unless the surety gives 60 days' notice, and if no replacement is in place 30 days before termination, the surety must deliver cash collateral for "the full remaining value of this Bond." The AER's sample form and Ontario's regulation both require 90 days' notice of termination: under the AER form, termination takes effect only if replacement security is posted, and Ontario requires replacement security at least 30 days before termination.
| Feature | Why a regulator cares |
|---|---|
| Fixed standard wording, no changes | Removes "varying terms"; staff check one known text |
| Payment on demand within a set number of days | Funds arrive when costs fall due, without a dispute first |
| No defences or objections by the principal | Collection does not depend on proving default |
| Rated, licensed or listed surety, with a rating trigger | The promise is only as good as the issuer; a downgrade has a remedy |
| Renewal and cancellation rules with a cash fallback | Security cannot lapse while the obligation is still open |
An obligee asks the same questions of a letter of credit; see a bond-versus-LOC comparison for federal grant security under the USDA ReConnect program.
A letter of credit is a bank's independent promise to pay when the beneficiary presents the documents it calls for, usually a signed demand. The bank checks the documents, not whether the customer defaulted. That independence is why obligees rely on it, and why the Texas rule focuses on the bank's rating.
A surety bond is a three-party obligation: the surety guarantees the principal's obligation to the obligee, and how it pays depends on its wording. A conditional bond pays after default is established and the surety can raise the principal's defences. A demand bond, such as the ERCOT form, the AER's DFB or an Ontario planning bond, pays much like a letter of credit: on demand, within a fixed time. Behind either sits an indemnity agreement under which the principal repays the surety.
For the obligee, the question is whether this instrument will pay the right amount on time without argument. A letter of credit answers through banking practice and the bank's credit; a surety bond only through its wording, which is why regulators that accept bonds fix it.
For the customer, where a regulator's list does not include surety bonds, as under §25.194 today, the bond is not an option, however strong the surety. Where it does, expect to use the prescribed form exactly as written, with an issuer that meets the stated tests.
Texas and ERCOT
Virginia, Oregon and Alberta
Can I use a surety bond for Texas large-load interconnection security under §25.194? No. The rule's list of accepted forms does not include surety bonds: only cash collateral, a qualifying guaranty or a letter of credit. The PUCT declined to add bonds "at this time".
How much security does §25.194 require, and when? $50,000 per MW of requested peak demand by the date the intermediate agreement is executed; then, when the SLLIA is executed, the greater of $50,000 per MW of contracted peak demand or the allocated system upgrade costs.
What credit rating does a letter of credit bank need under §25.194? At least A- (S&P), A3 (Moody's) or A- (Fitch). If more than one agency rates the bank, the second-highest rating counts.
Why did the PUCT reject surety bonds? The order says bonds "may contain varying terms, conditions, and remedies," creating uncertainty about collection and complicating administration, and that the existing forms "provide sufficient options."
Does ERCOT accept surety bonds? Yes, for market credit obligations, on its Board-approved standard form with no modifications. Not for §25.194 interconnection security.
Can Texas retail electric providers use surety bonds for financial assurance? No. The PUCT's October 15, 2026 §25.107 order declines them "at this time"; it takes effect November 4, 2026.
What is a demand surety bond? A bond that pays on the obligee's demand within a set time, without proof of default first. Alberta's DFB (10 business days) and Ontario's planning bond (15 business days) are examples.
Do other utilities accept bonds for large-load security? Some do: PGE in Oregon for large-load service contracts, and Dominion's approved terms in Virginia from January 1, 2027. Check your utility's current tariff.
Retrieved October 26, 2026 (PT); Sources 1–14 re-confirmed November 1, 2026 (PT), except where noted.
