IRS ruling paves way for LIPA-PSEG changeover

PSEG will take over day-to-day operations of LIPA, PSEG will take over day-to-day operations of LIPA, as well as management duties, including budgeting and power-plant planning on Jan. 1, 2014. (Oct. 29, 2012) Photo Credit: Tariq Zehawi

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The Internal Revenue Service has declared that the recently reconfigured Long Island Power Authority can maintain its tax-exempt status, clearing the way for a new utility to take over the Island's power grid on New Year's Day, Gov. Andrew M. Cuomo announced Thursday.

With just days to spare, the IRS approval means that New Jersey-based PSEG can replace LIPA's brand overnight on Dec. 31. The IRS approval was the final regulatory hurdle that PSEG and LIPA needed to clear for the changeover to take effect, officials said.

PSEG will take over not only the day-to-day operations but management duties including budgeting and power-plant planning. LIPA is being scaled back to essentially a financial holding company while maintaining ownership of the transmission and distribution system, which serves more than 1 million customers.

The IRS ruling allows LIPA to continue to avoid taxes and to issue tax-exempt bonds, which officials said was necessary for the new LIPA-PSEG contract to work financially. Without the ruling, Cuomo's initiative to end LIPA's troubled run as manager of the grid would have been in jeopardy -- PSEG would have reverted to a more limited role and LIPA would have continued management and storm response.

Cuomo, announcing the IRS approval, called it a "win-win" for Islanders.

"Long Islanders will finally benefit from a privatized utility operation with improved disaster response and customer service, that maintains tax-exempt benefits such as financing infrastructure upgrades and preserving eligibility for federal reimbursement related to major storms," Cuomo said. "This IRS ruling means better service and cost savings for ratepayers, and is a victory for the residents and businesses of Long Island."

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David Daly, president of PSEG's Long Island division, had said previously that the brand changeover from LIPA to PSEG hinged on the IRS determination, which he hailed Thursday.

"The IRS decision is certainly good news as we prepare to assume responsibility for the LIPA system in just five days," Daly said in a statement. " . . . We have made a strong commitment to bring PSEG's reputation for excellence to Long Island, and provide customers with a level of service they expect and deserve from their electric utility."

The IRS approval also means residents will now see PSEG's "orange sunburst" logo on trucks and other utility vehicles servicing the Island, instead of the LIPA logo.

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"PSEG Long Island will begin placing its brand on utility vehicles, customer bills, signage at company work locations, and employee uniforms on Jan. 1. All company employees -- from meter readers to managers -- will wear identification badges that sport the new logo," the company said in a statement.

Some activists had petitioned the IRS to reject LIPA's request to maintain tax-exempt status.

LIPA spokesman Mark Gross said in an email: "We are pleased with the favorable ruling from the IRS, and look forward to completing a smooth transition to our new service provider, PSEG."

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