Fpl Dividend Policy Essay

3155 words - 13 pages

FPL - An OverviewFPL Group, Inc. is Florida's largest electric utility company. In 1925, through the consolidation of numerous electric and gas companies, they formed Florida Power & Light Company (FP&L). FP&L grew steadily over the next 50 years until rising fuel costs, operating issues, and construction costs began to decrease profitability. In the mid-1980s, FPL diversified with four major acquisitions - Colonial Penn Life Insurance Company, Telesat Cablevision, Inc., CBR Information Group Inc., and Turner Foods Corporation- in order to minimize the potential risk within the utilities industry.To address problems in operations, FPL began a rigorous program of Japanese-inspired ...view middle of the document...

They have proven their ability to survive and succeed in the dynamic and evolving competitive market. The electric utility industry has established itself as a vital public service within today's society. Until the 1970s and 1980s, the government played a major role in determining the rates, returns, and capacity planning of the power industry. Congress passed several laws regulating the sale of wholesale energy and even formed committees to monitor utility companies' dealings.DeregulationIn the 1970s and 1980s deregulation weakened the monopolies that had dominated the trucking, banking, airlines, natural gas, telecommunication, and eventually the electric utilities industry. By 1978 most major segments were faced with mandatory changes. In 1992 the National Energy Policy Act (NEPA) was passed requiring utility companies to make their transmission systems available to third-party users at the same level of cost. A clatter of legal quarrels ensued thereafter and FPL was accused of charging excessive rates and denying fair access to its system.In 1994, the industry was facing deregulation of the last segment - distribution. While states such as California and Michigan had toyed with the "retail wheeling" concept in the past as a way to increase competition, Florida had not yet adopted this method. Retail wheeling allows customers to buy power from any utility, not just their local monopoly supplier. Data from the California experimentation with retail wheeling indicated an average loss of 8% of market value per utility company once this method was initiatedRecent Happenings in the Electric Utility IndustryDespite California's proposal on retail wheeling, as of May 1994, the Florida Public Service Commission was not considering implementing the policy. Although FPL is the largest electric utility in the state, retail wheeling would greatly increase the amount of competitors in the market. The industry faces a challenging future full of change, and shareholders would benefit from understanding the potential risks and rewards of their investment. The Standard & Poor's Ratings Group declared a revision to their guidelines for evaluating utilities in October of 1993. This revision included the utilities' competitive position as part of its financial rating. FPL's positions rose based on the new criteria, placing them in the top 10% of publicly owned utilities.Major Issues Confronting FPL in 1994In spite of a favorable position rating, FPL cannot ignore the deregulation movements threatening their current business landscape. The most important issues facing FPL in May 1994 are potential competition resulting from industry deregulation and their high payout ratio.1) Retail WheelingThe threat of retail wheeling within FPL's market forces management to consider whether or not they can maintain high payout ratios. Retail wheeling is reshaping the utilities industry and if enacted in Florida, it will bring grave challenges to the future of FPL.2) Low...

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