Investors certainly have plenty of choices when it comes to energy master limited partnerships (MLPs). One of the more interesting options these days may well be Energy Transfer Equity (NYSE:ETE). Not only is the company on track to complete its acquisition of Southern Union, but the company also holds the general partner interest and incentive distribution rights for two other MLPs - Energy Transfer Partners (NYSE:ETP) and Regency Energy Partners (NYSE:RGP). With those incentive rights and the potential for cash flow growth at both partnerships, ETE unit holders could look forward to some fairly significant distribution growth in the coming years.

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Southern Union Shuffles the Deck
With the acquisition of Southern Union moving closer to completion, this will be a transformative deal for this company. Not only does the deal add premier interstate pipeline assets, it also brings valuable midstream, terminal and distribution assets.

Once the deal is done, ETE will almost certainly drop Southern Union's stake in Citrus (a Florida gas pipeline) down to ETP. It also seems reasonably likely that Southern Union Gas Services will eventually drop down to Regency, and ETE may well decide to drop all of Southern Union assets to these other partnerships over time. To know more about acquisitions, read Analyzing An Acquisition Announcement.

Of course, there are other options. Some of Southern Union's assets (like the local distribution companies) could be sold to raise capital to offset the leverage ETE has to take on to do this deal. ETE may also be contemplating moves akin to those of Enterprise Products (NYSE:EPD) a while back and plan to roll up ETP and RGP into a simpler corporate structure.

Gas Is Down, but not out
Right now, with natural gas prices so low, it may seem counter-intuitive to want to own gas assets. The reality is that these low gas prices seem to be accelerating its adoption. Natural gas is gaining incremental share in electricity generation and companies like Clean Energy (Nasdaq:CLNE) and Chesapeake (NYSE:CHK) are pushing hard to accelerate the transition to natural gas-fueled vehicles.

What that all means is that ETE's gas gathering, processing, storage and transportation assets are likely to get more valuable with time, not less. In the meantime, ETP and RGP are both expanding their interests in natural gas liquids, and the conversion of Southern Union's liquefied natural gas terminal to export (from import) could be a long-term growth opportunity.

Not Right for Everyone
Certainly ETE is not going to fit every investor's needs. For starters, owning MLPs can significantly complicate an investor's tax returns, and the fact that about 60% of ETE's distributions are tax deferred may not be worth the hassle. Moreover, this is an admittedly complicated financial/capital structure that raises the risk of self-dealing or at least an unnecessary expense. For additional reading, see Evaluating A Company's Capital Structure.

The Bottom Line
At a minimum, any investor interested in Energy Transfer Partners should at least consider Energy Transfer Equity. The incentive distribution rights alone suggest that ETE could see a lot of the benefit of growth at ETP and Regency in the coming years. Moreover, ETE has one of the better distribution growth outlooks of the MLPs I've researched lately.

On top of a nearly 6% yield today, ETE units could be undervalued by as much as 20%. For patient investors who can appreciate the benefits of owning one of the best natural gas infrastructure networks, that sounds like a fairly rewarding proposition.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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