Standard & Poor’s said Monday that while it is certainly “disturbing” news that Nicor Inc. will pay $38.5 million to settle a class action lawsuit and may face a civil lawsuit from the Securities and Exchange Commission for fraud and securies law violations, Nicor’s financial condition is “so extraordinarily robust that the ratings could withstand additional financial penalties.
“However, if this most recent investigation appears to be heading towards the levying of an unexpectedly severe penalty, Standard & Poor’s is likely to take a negative rating action,” the agency said. Nicor Inc. holds an AA/Stable/A-1+ credit rating and outlook.
The potential charges by the SEC are related to an investigation into the company’s performance-based rate (PBR) program, which rewards the utility for buying gas at prices lower than an agreed upon benchmark and enables it to share the reward with customers and shareholders. The charges also may involve activities at Nicor Energy, its defunct energy marketing joint venture with Dynegy Inc. Last December, three former Nicor Energy executives pleaded guilty to federal fraud charges of inflating revenues and understating expenses in an effort to meet profit goals and boost bonuses in 2001.
The company’s problems with its PBR program came to a head in July 2002, when Nicor saw its stock price nearly cut in half one Friday morning after it announced that it would have to reverse all of its first quarter earnings and exclude all of its second quarter earnings for the PBR program at Nicor Gas. The Nicor board appointed a special independent committee to investigate the subsidiary’s natural gas purchases, sales, transportation and storage.
After the investigation, Nicor restated nearly four years of financial results. The internal investigation found that while there was no evidence of criminal conduct, the company’s Nicor Gas unit had made accounting errors that increased customer costs.
The PBR program was scheduled for hearing this week at the Illinois Commerce Commission, but Nicor has obtained a delay to consider additional information that has surfaced.
Regarding the class action settlement, the company said the claims against it are being dismissed without any finding or admission of wrongdoing or liability. The final settlement is contingent on execution of a formal stipulation of settlement and court approval. Nicor will pay $38.5 million to the class but continues to pursue coverage from its insurance carriers.
“What [the class action] says specifically here is that the plaintiffs alleged that during the class period certain aspects of the PBR program were misrepresented and there were also issues that they had with the historical financial condition and results of operations and future profits,” said spokeswoman Kris Lathan.
Nicor said that while the settlement will have an adverse impact on its financial results, it is not expected to have a material adverse impact on its liquidity or financial condition.
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