Dividend Policy at Fpl Group, Inc. Essay

2967 WordsFeb 11, 200712 Pages
FPL – An Overview FPL 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 quality control. Management succeeded in…show more content…
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 1994 In 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 Wheeling The 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 Capacity Margin FPL must prepare for increased competition from the establishment of retail wheeling and other forms of distribution deregulation. FPL is an old firm which is running at roughly 92% capacity. Their low capacity margin (8.6%) suggests that they have less room for growth compared to their competitors. FPL must work to foster growth in order to survive in an evolving industry. 3) Transmission & Power Costs FPL carries a transmission cost of nearly double the industry average. FPL's cost is $.0019 compared to the $.0010 of their peers. With the

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