LIPA-PSEG changeover waiting on IRS ruling

At a committee meeting last week with Long At a committee meeting last week with Long Island Power Authority trustees, top officials of PSEG-Long Island discussed their plan for replacing the LIPA brand overnight on Dec. 31, when the Newark, N.J., company takes control of the regional electric grid. (Dec. 4, 2013) Photo Credit: Jessica Rotkiewicz

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Hundreds of employees will have new PSEG uniforms at their homes, customer service centers will have outdoor signs ready to be installed, and billing software will be set for a changeover from LIPA's to PSEG-Long Island's brand -- but none of it will happen on Jan. 1 unless the IRS delivers a critical approval.

At a committee meeting last week with Long Island Power Authority trustees, top officials of PSEG-Long Island discussed their plan for replacing the LIPA brand overnight on Dec. 31, when the Newark, N.J., company takes control of the regional electric grid.

But all those plans could be temporarily derailed if the Internal Revenue Service doesn't issue a ruling by that date to confirm LIPA's tax-exempt status under the new arrangement or, worse, declines to grant it. The approval is expected any day, but it could take longer, and it's uncertain how the agency will rule. An IRS spokeswoman declined to comment.

The brand changeover "will be dependent on the IRS issue," PSEG-Long Island president David Daly told trustees.

LIPA and PSEG have said if their request is denied, they will revert to the more limited contract they originally agreed to, which has already received IRS approval.

Under that contract, PSEG has basic system operation and management duties; it excludes the added jobs of drawing up the annual budget, green-energy program management and power-plant planning issues called for in this summer's LIPA reform act.

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Officials in Gov. Andrew M. Cuomo's administration have previously said they are confident the approval will come in LIPA's favor. A source close to LIPA said a positive ruling is expected in days, noting that LIPA is retaining ownership of the transmission and distribution system and ultimate decision-making authority.

The ruling is important because it would allow LIPA to continue to avoid income taxes and to issue tax-exempt debt as it currently does, providing untold millions in savings.

PSEG's responsibilities for the LIPA grid are considerably more comprehensive than National Grid's, and LIPA in October requested a letter ruling from the IRS confirming its tax-exempt status would remain intact under the new arrangement.

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Irving Like, an attorney for activist Peter Maniscalco and others who have asked the IRS to reject the LIPA request, said he believes it violates the state constitution. "The IRS should not grant the request because the new contract replaces a public company [LIPA] with a private, investor-owned utility [PSEG], and they're giving the private company public money, credit and control," Like said.

An IRS spokeswoman declined to say when or whether the letter ruling would come.

Much hangs in the balance. PSEG officials say employees who require uniforms will have PSEG-logo clothing at home and ready for the changeover. In-store material for products such as efficient light bulbs also will be ready for the brand changeover -- as soon as PSEG says it's OK for them to switch with LIPA's brand. Same for the dozen or so walk-in customer service locations.

If the IRS decision doesn't come before year's end, the utility will start the new year using LIPA's logo, officials said.

Current LIPA bills, which are managed on a computer system that will continue to be owned by National Grid for at least the next year, will be reprogrammed to stamp on the PSEG-Long Island logo once they get the OK, said Daly.

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PSEG will officially launch its new website on Jan. 1, redirecting traffic from LIPA's current site at lipower.org. But PSEG still has issues to resolve. For now, its website is psegliny.com, because someone else owns www.psegli.com. But there was a recent arbitration ruling in PSEG's favor, Daly said, and the company hopes to conclude the dispute in coming weeks.

New computer systems are already being deployed, officials said -- some 500 desktop and laptop computers. But other computer systems will be National Grid's -- including the billing system, storm outage management system (until July) and an enterprise resource planning system, which will remain in place for at least the next two years, at an annual cost of just over $12 million.

Some 1,945 employees out of about 2,000 who have been offered jobs have accepted, PSEG said. The company plans to have 2,253 for the start date.

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