Consider a Meaningful Transfer of Energy

The laws of physics inform us that energy in a closed system is neither created nor destroyed. Instead, energy merely changes form.

With a web of interconnectedness more complex than the laws of physics, a trio of income-generating energy stocks has engaged in some meaningful transfers of energy over recent months.

To understand why Energy Transfer Partners (NYSE: ETP  ) took a $52.6 million non-cash charge on its second quarter earnings -- dropping net income to $42.8 million -- Fools need to observe the transfers of energy that took place in May between this midstream natural gas purveyor and related entities Energy Transfer Equity (NYSE: ETE  ) and Regency Energy Partners (Nasdaq: RGNC  ) .

First of all, it's worth noting that Energy Transfer Equity (we'll call it "ETE") acquired 100% of the general partner of Regency from a unit of General Electric (NYSE: GE  ) , for about $300 million in ETE preferred units. To gather a stake in Regency's common units, however, ETE needed something to trade. So the partnership transferred 12.3 million units of Energy Transfer Partners (let's call it "ETP") back to ETP for redemption, in exchange for ETP's minority interest in the Mid-Continent Express pipeline.

ETE then transferred that interest to Regency, in exchange for a 22% stake in Regency's units valued at about $600 million. Lest ETP unitholders cry foul over the recorded impairment, we need also point out that ETE recorded an identical impairment charge associated with the transfers.

Backing out the above transfers, ETP's operations took a bit of a hit from rising costs in its propane retail unit, and reduced fees charged for interstate transportation of natural gas. Consolidated revenue jumped 10% to $1.27 billion, while the operating margin declined from 19% in the prior-year period to 15.7%. Offering some real solace to income-focused unitholders, however, ETP's distributable cash flow increased 49% to $200 million.

Following a fresh review of these high-yielding, natural gas-related partnerships, this Fool is inclined to transfer his prior recommendation of Energy Transfer Partners over to Energy Transfer Equity.

Simply stated, with its dual exposure to ETP and Regency's assets, ETE casts a wider net across a more diverse swath of domestic gas operations ... including that attractive stake in the Mid-Continent Express pipeline operated by rival Kinder Morgan Energy Partners (NYSE: KMP  ) .

The dividend yield on ETE units (at 6.1%) is just slightly below that of ETP, but should still be well in excess of the reduced yields that are soon to strike those Canadian energy trusts ("Canroys"). I continue to like Penn West Energy (NYSE: PWE  ) and Enerplus Resources Fund (NYSE: ERF  ) through the looming conversions of the Canroys, but for Fools demanding higher income yields for their energy plays, Energy Transfer Equity may produce the most energetic returns.