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IRS approves LIPA tax-exempt status - clearing way for PSEG takeover
The Internal Revenue Service has conferred tax-exempt status on a recently reconfigured Long Island Power Authority, clearing the way for a new utility to take over the Island’s power grid on New Year’s Day, the Cuomo administration 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.
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.
The IRS ruling allows LIPA to continue to avoid taxes and to issue tax-exempt bonds, as it historically has. Without the ruling, Gov. Andrew M. 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.”
David Daly, president of PSEG’s Long Island division, had said previously 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. “Our new contract provides us with greater authority over day-to-day operations, including budgeting, maintenance, storm preparedness and response, infrastructure improvements, and energy efficiency and renewable activities. 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.”
Some activists had petitioned the IRS to reject LIPA’s request to maintain tax-exempt status. Irving Like, an attorney for activists who opposed LIPA’s request, told Newsday earlier this month because the new LIPA operations plan “replaces a public company (LIPA) with a private, investor-owned utility (PSEG), and they’re giving the private company public money, credit and control.”
The IRS dismissed that argument.
In its ruling, the agency said: "Based on the facts and circumstances represented, we conclude that the amended agreement (between LIPA and PSEG) does not result in private business use of the (tax-exempt) bonds."