The Internal Revenue Service has approved New York State’s contract with PSEG Long Island while allowing the power company to retain its tax-exempt status.

The favorable IRS ruling paves the way for an enhanced operating services agreement with the increased ability to make necessary improvements while retaining tax exempt status, according to the office of New York Governor Andrew Cuomo. The decision was the final regulatory approval needed before the revised contract could take effect.

The enhanced contract with Public Service Electric & Gas Long Island was reached in July following the adoption of the LIPA Reform Act, gives PSEG Long Island increased accountability and decision-making ability in managing the Long Island Power Authority’s transmission and distribution system, which serves 1.1 million customers on Long Island and the Rockaway Peninsula. LIPA came under heavy criticism last year in the wake of Hurricane Sandy for long delays in making repairs to damaged electrical lines.

PSEG Long Island LLC was selected by LIPA in Dec. 2011 to manage LIPA’s electric system. The 12-year contract includes commitments to improve customer satisfaction and provide safe, reliable service for LIPA customers.

“Today’s formal approval of the PSEG-LI contract from the IRS is a win-win for Long Island ratepayers,” Cuomo said in a statement Thursday. “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. This IRS ruling means better service and cost savings for ratepayers, and is a victory for the residents and businesses of Long Island.”

The revised contract also enables the new company to be branded with the familiar orange sunburst that has been part of the PSEG brand for more than 40 years in New Jersey, Connecticut and Bethlehem, N.Y. Starting January 1, the logo will begin appearing on utility vehicles, employee uniforms, signs and customer bills.

“The IRS decision is certainly good news as we prepare to assume responsibility for the LIPA system in just five days,” said PSEG Long Island president and COO David M. Daly. “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.”

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