So far, Spectra Energy Partners' (NYSE:SEP) earnings results haven't been disrupted by the recent change in ownership. Revenue and cash flow continue to grow as the company brings new assets online, as it has done for years. This quarter, management highlighted one thing that could disrupt its growth.

Here's a look at Spectra's most recent earnings report and why one government agency could force Spectra to tap the brakes on its growth plan.

Man working on oil pipeline

Image source: Getty Images.

By the numbers

Metric Q2 2017 Q1 2017 Q2 2016
Operating revenue $695 million $700 million $618 million
EBITDA $519 million $499 million $442 million
EPS  $0.75 $0.74 $0.71
Distributable cash flow $341 million $356 million $275 million

Data source: Spectra Energy Partners. EBITDA = earnings before interest, taxes, depreciation, and amortization.

Despite all the changes that have happened at parent company Enbridge (NYSE:ENB) and its other subsidiary partnerships, Spectra Energy Partners' results have remained incredibly steady. While the company did see some seasonal declines compared to the first quarter, Spectra delivered big time on year-over-year growth.

The increase in earnings and cash flow came almost entirely from its U.S. transmission segment, which grew segment EBITDA from $417 million this time last year to $497 million. All of these gains came from newer assets ramping up to full capacity, such as the AIM, Sabal Trail, and Gulf Markets pipelines. 

Thanks to these results, management was able to increase its distribution to shareholders for the 39th consecutive quarter. It also looks like there is still a decent amount room to grow this payout as Spectra's distribution coverage ratio -- distributable cash coming in the door divided by total paid out -- was a respectable 1.2. Management estimates that its coverage ratio for the full fiscal year will be 1.05 to 1.15, which suggests it might slip in the coming quarters.

Regulatory bottleneck

Spectra Energy Partners has a large backlog of projects it wants to either bring into service or get approval for construction. There are several challenges in getting a project to the construction phase including financing, soliciting customer demand, and obtaining regulatory approval. Unfortunately, Spectra and others have struggled with that last issue because the regulating body that approves most pipelines -- the Federal Energy Regulatory Commission (FERC) -- hasn't been able to do so lately. 

FERC is the federal body that approves major energy projects such as pipelines and export terminals. It has a voting council of five members. Since Feb. 3, though, there haven't been enough people on the committee to give approvals. For Spectra, this means that it has had to push back the in-service dates for its NEXUS expansion project and TEAL pipeline. Spectra has also withdrawn its pre-filing application for its Access Northeast pipeline.

On Aug. 4, the Senate approved two nominees to FERC's council, which gives it enough votes to approve projects again. With a seven=month backlog of projects, though, Spectra and others looking to build major projects could be waiting for a while for the council to catch up.

What management had to say

In Spectra's press release, CEO Bill Yardley highlighted the company's suite of projects that should help keep that streak of distribution increases intact for at least another couple of years.

We also made significant progress in advancing SEP's 15 commercially secured projects totaling more than $8 billion in gross expansion opportunity through 2019 -- most notably, by placing the Sabal Trail project into service in early July, on time and on budget. The strength of our business model and expansion program continues to give us confidence in our ongoing ability to deliver on the financial commitments we made to our investors.

What a Fool believes

Spectra Energy Partners continues to be the standout among Enbridge's subsidiaries. The company consistently has grown its payout and doesn't appear to be under any financial strain that could compromise its future growth. Hopefully, Enbridge will take a "if it ain't broken, don't fix it" approach to this subsidiary rather than shuffle some assets around between its other partnerships. 

This situation at FERC could have some lingering effects for Spectra over the next few quarters as it tries to get approval for NEXUS and TEAL. These two pipelines were supposed to be operational by the end of the year and provide the additional cash flow to keep this payout streak alive. While this is by no means a company-killing type of development, it could delay things and force management to slow its payout growth to accommodate the schedule change.

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