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Dividend Policy at Fpl Group, Inc

Essay by   •  June 14, 2012  •  Case Study  •  1,178 Words (5 Pages)  •  2,202 Views

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Dividend Policy at FPL Group, Inc.

This case is based more on knowledge, opinion and speculation than it is hard financial facts. Depending on where your mind set is, are you conservative or do you like taking risks or maybe you like to stay at status quo to see how things are going to go or change? As it has been stated a few times in class even what were supposed to be some of the smartest people on earth got it wrong. So what do I think FPL should do with their dividends and what kind of advice should I give to my investors if I was the analyst? I definitely think they should lower their dividends due to just the fact for the industry they are too high. As far as the advice, I could never be an investment analyst because I live in fear of I have stock and I sell, am I selling too early because the price might rise higher? If I don't have stock and buy, am I buying too soon because the stock might go lower before it begins to go up? So with that being said obviously I would personally choose to hold. However since this case isn't about my fear I would recommend to sell if you already have stock and to wait to buy until after the announcement if you don't have stock.

This case has many different aspects to take into consideration. We will start first with industry itself. The history of electricity is actually an important piece of information. Once electricity was invented it rapidly became a necessity. From the production point they figured to get it from one point to another it could be transmitted through power lines and distributed to the end users. The next two paragraphs from the case are important to understand. They give you an idea on how utilities came about and how the government handled it. Then we will discuss the deregulation of it.

concept of a public utility developed in the late nineteenth century to refer to a monopoly supplier of a vital public service. The vital public service in this case was the generation, transmission, and distribution of electricity. In exchange for the monopoly right to supply electricity, power companies agreed to let government agencies regulate their prices and returns. By 1930, virtually every state had established a regulatory agency. In Florida, the Florida Public Service Commission not only regulated rates, returns, and capacity planning, but also determined what non- utility businesses a utility could enter.

The federal government's involvement in electric power began in earnest with the passage of the Federal Power Act in 1935. This Act gave the Federal Power Commission (renamed the Federal Energy Regulatory Commission (FERC) in 1977) the authority to oversee wholesale electricity transactions (sales of electricity between utilities rather than to consumers). During that same year, Congress also passed the Public Utilities Holding Company Act (PUHCA) which gave the Securities and Exchange Commission (SEC) the authority to regulate utilities with interstate systems or substantial investments in assets not related to the generation, transmission, and distribution of electricity. To avoid direct SEC supervision, the industry had evolved into a large number of intrastate, and relatively undiversified, utility companies operating under extensive federal and state regulation.

Deregulation started as far back as 1978. This slowly took power away from the monopolies the utility franchises had. This is when Congress passed the Public Utilities Regulatory Policies Act (PURPA). The act encouraged the creation of power plants using renewable or non-traditional fuels such as geothermal, solar, and wind power and authorized FERC to regulate them.

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