Entergy a large electric utility is looking to fix its cost, Ask an Expert

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Entergy, a large electric utility is looking to fix its cost of gas purchases over the next 3 years. Entergy currently buys gas in the spot market at the Henry Hub spot price. Entergy has received a proposal from Sempra Energy which would effectively fix the cost of Entergy’s gas purchases over the 3-year period via a fixed for floating (spot) swap contract, and the fixed swap price would equal $4.75 while the floating price would be the Henry Hub spot price.

a) Describe the flow of payments if both parties agree to the swap terms.

b) What is Sempra's market exposure after the swap is undertaken and what could they do to hedge it?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91598376

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