Dividend Policy at FPL

1. What are the major uses and sources of funds for FPL? • Major Uses – Operating expenses – Capital and nuclear fuel expenditures o In 1994, FPL budgeted $6.6 billion in expansion cap ex over the next five years in order to meet projected demand. Projects included building a new transmission line, refurbishing the oldest generating plant, improving operating efficiency at all plants, and buying a majority share in a coal burning plant owned by The Southern Company – Retirement of long-term debt and preferred stock – Dividends on Common Stock – Acquisitions o From 1985 to 1988, FPL attempted to diversify into higher growth businesses and made four major acquisitions (Colonial Penn Life Insurance, CBR Information Group and Turner Foods Corp) as well as established a real estate development subsidiary (Alandco) and an alternative energy development subsidiary (ESI Energy) • Major Sources – Operating revenues – Divestitures of non core operations o In 1991, FPL sold Colonial Penn o In addition, FPL was trying to sell Telesat Cablevision and Alandco – Issuance of FPL debt, common and preferred stock

What is the industry structure and business risk? • Electric Utilities Industry Structure – Regulated industry historically dominated by monopolies and vertically integrated suppliers – Beginning in 1978, deregulation has been weakening the utilities’ monopoly franchises in each of the industry’s major segments: generation, transmission and distribution o Generation: PURPA (1978) encouraged creation of power plants using renewable or non-traditional fuels o Transmission: NEPA (1992) required utilities to make their transmission systems available to third party users. FPL currently being sued by Florida Municipal Power