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What Drove Energy Transfer Equity’s Distributable Cash Flow?

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Sep. 23 2015, Updated 6:05 a.m. ET

Energy Transfer Equity’s distributable cash flow

Energy Transfer Equity’s (ETE) 2Q15 distributable cash flow rose to $335 million from $218 million in 2Q14. This is a YoY (year-over-year) increase of 53.60%. For the six months ending June 30, 2015, the partnership’s distributable cash flow was $656 million—compared to $417 million in the same period previous year. This is a YoY increase of $239 million or 42.70%.

Energy Transfer Equity’s distributable cash flow continued to grow over the past several quarters. It’s driven by strong distribution growth at Energy Transfer Partners and Sunoco Logistics. Energy Transfer Partners’ distributions have continued to grow for eight consecutive quarters. Sunoco Logistics recorded its 40th consecutive quarter of distribution growth. Its distribution grew by 8.40% YoY and 20% YoY in the most recent quarter. As we discussed in the previous article, Energy Transfer Equity derives most of its earnings from GP (general partner) interest, LP (limited partner) interest, and IDRs (Incentive Distribution Rights) in its subsidiaries. Later, we’ll see how Energy Transfer Equity benefits from its IDRs.

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Distributable cash flows per unit

The partnership reported distributable cash flows per unit of $0.31 and $0.61 for 2Q15 and 2H15, respectively. This represents a 55% and 61% YoY increase over the same periods in the prior year.

Incentive distribution rights

As a holder of IDRs in Energy Transfer Partners, Energy Transfer Equity is entitled to receive an incremental share of Energy Transfer Partners’ distributions as they achieve certain targets. Energy Transfer Partners’ distribution are above the fourth target distribution amount. This entitles Energy Transfer Equity to 48% of Energy Transfer Partners’ incremental distributions. Energy Transfer Equity received $617 million from Energy Transfer Partners through IDRs during the six months ending June 30, 2015—compared to $346 million for the same period the year before. This is a YoY increase of 78.30%.

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Spectra Energy (SE), Williams Companies (WMB), and EnLink Midstream (ENLC) are among the companies that benefit from IDRs in their subsidiaries—Spectra Energy Partners (SEP), Williams Partners (WPZ), and EnLink Midstream Partners (ENLK), respectively. Together, Energy Transfer Partners, Energy Transfer Equity, Williams Partners, Sunoco Logistics, and Spectra Energy account for 28.78% of the Global X MLP ETF (MLPA).

Distribution coverage ratio

Energy Transfer Equity has a strong distribution coverage ratio of 1.19x. A distribution coverage ratio that’s greater than one indicates that the partnership is generating enough distributable cash flow to cover its distributions even during trying times in the energy sector.

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