Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2015

PSEG's, Power's And PSE&G's Respective Assets And (Liabilities) Measured At Fair Value On A Recurring Basis

The following tables present information about PSEG’s, PSE&G’s and Power's respective assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, including the fair value measurements and the levels of inputs used in determining those fair values. Amounts shown for PSEG include the amounts shown for PSE&G and Power.




	Recurring Fair Value Measurements as of September 30, 2015
Description	Total			Netting (E)			Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Cash Equivalents (A)	$	226		$	—		$	226	$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	242		$	(461	)	$	—	$	694		$	9
Interest Rate Swaps (C)	$	11		$	—		$	—	$	11		$	—
NDT Fund (D)
Equity Securities	$	825		$	—		$	824	$	1		$	—
Debt Securities—Govt Obligations	$	454		$	—		$	—	$	454		$	—
Debt Securities—Other	$	401		$	—		$	—	$	401		$	—
Other Securities	$	35		$	—		$	35	$	—		$	—
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	20		$	—		$	20	$	—		$	—
Debt Securities—Govt Obligations	$	106		$	—		$	—	$	106		$	—
Debt Securities—Other	$	84		$	—		$	—	$	84		$	—
Other Securities	$	1		$	—		$	1	$	—		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(93	)	$	403		$	—	$	(489	)	$	(7	)
PSE&G
Assets:
Cash Equivalents (A)	$	—		$	—		$	—	$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	4		$	—		$	—	$	—		$	4
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	4		$	—		$	4	$	—		$	—
Debt Securities—Govt Obligations	$	21		$	—		$	—	$	21		$	—
Debt Securities—Other	$	17		$	—		$	—	$	17		$	—
Other Securities	$	—		$	—		$	—	$	—		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(7	)	$	—		$	—	$	—		$	(7	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	238		$	(461	)	$	—	$	694		$	5
NDT Fund (D)
Equity Securities	$	825		$	—		$	824	$	1		$	—
Debt Securities—Govt Obligations	$	454		$	—		$	—	$	454		$	—
Debt Securities—Other	$	401		$	—		$	—	$	401		$	—
Other Securities	$	35		$	—		$	35	$	—		$	—
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	5		$	—		$	5	$	—		$	—
Debt Securities—Govt Obligations	$	26		$	—		$	—	$	26		$	—
Debt Securities—Other	$	21		$	—		$	—	$	21		$	—
Other Securities	$	—		$	—		$	—	$	—		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(86	)	$	403		$	—	$	(489	)	$	—




	Recurring Fair Value Measurements as of December 31, 2014
Description	Total			Netting (E)			Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Cash Equivalents (A)	$	365		$	—		$	365	$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	295		$	(517	)	$	—	$	774		$	38
Interest Rate Swaps (C)	$	22		$	—		$	—	$	22		$	—
NDT Fund (D)
Equity Securities	$	897		$	—		$	896	$	1		$	—
Debt Securities—Govt Obligations	$	438		$	—		$	—	$	438		$	—
Debt Securities—Other	$	339		$	—		$	—	$	339		$	—
Other Securities	$	106		$	—		$	106	$	—		$	—
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	23		$	—		$	23	$	—		$	—
Debt Securities—Govt Obligations	$	91		$	—		$	—	$	91		$	—
Debt Securities—Other	$	75		$	—		$	—	$	75		$	—
Other Securities	$	2		$	—		$	—	$	2		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(165	)	$	541		$	—	$	(705	)	$	(1	)
PSE&G
Assets:
Cash Equivalents (A)	$	294		$	—		$	294	$	—		$	—
Derivative Contracts:
Energy Related Contracts (B)	$	26		$	—		$	—	$	—		$	26
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	5		$	—		$	5	$	—		$	—
Debt Securities—Govt Obligations	$	20		$	—		$	—	$	20		$	—
Debt Securities—Other	$	16		$	—		$	—	$	16		$	—
Other Securities	$	—		$	—		$	—	$	—		$	—
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	269		$	(517	)	$	—	$	774		$	12
NDT Fund (D)
Equity Securities	$	897		$	—		$	896	$	1		$	—
Debt Securities—Govt Obligations	$	438		$	—		$	—	$	438		$	—
Debt Securities—Other	$	339		$	—		$	—	$	339		$	—
Other Securities	$	106		$	—		$	106	$	—		$	—
Rabbi Trust (D)
Equity Securities—Mutual Funds	$	5		$	—		$	5	$	—		$	—
Debt Securities—Govt Obligations	$	21		$	—		$	—	$	21		$	—
Debt Securities—Other	$	18		$	—		$	—	$	18		$	—
Other Securities	$	1		$	—		$	—	$	1		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(165	)	$	541		$	—	$	(705	)	$	(1	)


(A)	Represents money market mutual funds.

(B)

Level 2—Fair values for energy-related contracts are obtained primarily using a market-based approach. Most derivative contracts (forward purchase or sale contracts and swaps) are valued using the average of the bid/ask midpoints from multiple broker or dealer quotes or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.

Level 3—For energy-related contracts, which include more complex agreements where limited observable inputs or pricing information are available, modeling techniques are employed using assumptions reflective of contractual terms, current market rates, forward price curves, discount rates and risk factors, as applicable. Fair values of other energy contracts may be based on broker quotes that we cannot corroborate with actual market transaction data.


(C)	Interest rate swaps are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.

(D)

The NDT Fund maintains investments in various equity and fixed income securities classified as “available for sale.” The Rabbi Trust maintains investments in an S&P 500 index fund and various fixed income securities classified as “available for sale.” These securities are generally valued with prices that are either exchange provided (equity securities) or market transactions for comparable securities and/or broker quotes (fixed income securities).

Level 1—Investments in marketable equity securities within the NDT Fund are primarily investments in common stocks across a broad range of industries and sectors. Most equity securities are priced utilizing the principal market close price or, in some cases, midpoint, bid or ask price. Certain open-ended mutual funds with mainly short-term investments are valued based on unadjusted quoted prices in active markets. The Rabbi Trust equity index fund is valued based on quoted prices in an active market.

Level 2—NDT and Rabbi Trust fixed income securities are limited to investment grade corporate bonds, collateralized mortgage obligations, asset backed securities and government obligations or Federal Agency asset-backed securities with a wide range of maturities. Since many fixed income securities do not trade on a daily basis, they are priced using an evaluated pricing methodology that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads. Certain short-term investments are valued using observable market prices or market parameters such as time-to-maturity, coupon rate, quality rating and current yield.

(E)

Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset in the Condensed Consolidated Balance Sheets. As of September 30, 2015, net cash collateral (received) paid of $(58) million, was netted against the corresponding net derivative contract positions. Of the $(58) million as of September 30, 2015, $(70) million of cash collateral was netted against assets, and $12 million was netted against liabilities. As of December 31, 2014, net cash collateral (received) paid of $24 million, was netted against the corresponding net derivative contract positions. Of the $24 million as of December 31, 2014, $(12) million of cash collateral was netted against assets, and $36 million was netted against liabilities.

Schedule of Quantitative Information About Level 3 Fair Value Measurements

The following tables provide details surrounding significant Level 3 valuations as of September 30, 2015 and December 31, 2014.




	Quantitative Information About Level 3 Fair Value Measurements

								Significant
		Fair Value as of					Valuation	Unobservable
Commodity	Level 3 Position	September 30, 2015					Technique(s)	Input	Range
		Assets		(Liabilities)
		Millions
PSE&G
Gas	Natural Gas Supply Contracts	$	4	$	(7	)	Discounted Cash Flow	Transportation Costs	$0.60 to $0.90/dekatherm
Total PSE&G		$	4	$	(7	)
Power
Electricity	Electric Load Contracts	$	4	$	—		Discounted Cash flow	Historic Load Variability	0% to +10%
Other	Various (A)	1		—
Total Power		$	5	$	—
Total PSEG		$	9	$	(7	)




	Quantitative Information About Level 3 Fair Value Measurements

								Significant
		Fair Value as of					Valuation	Unobservable
Commodity	Level 3 Position	December 31, 2014					Technique(s)	Input	Range
		Assets		(Liabilities)
		Millions
PSE&G
Gas	Natural Gas Supply Contracts	$	26	$	—		Discounted Cash Flow	Transportation Costs	$0.70 to $1/dekatherm
Total PSE&G		$	26	$	—
Power
Electricity	Electric Load Contracts	$	12	$	(1	)	Discounted Cash Flow	Historic Load Variability	0% to +10%
Other	Various (B)	—		—
Total Power		$	12	$	(1	)
Total PSEG		$	38	$	(1	)

(A)Includes long-term electric positions which were immaterial as of September 30, 2015.


(B)	Includes gas supply positions and long-term electric capacity positions which were immaterial as of December 31, 2014.

Changes In Level 3 Assets And (Liabilities) Measured At Fair Value On A Recurring Basis

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and nine months ended September 30, 2015 and September 30, 2014, respectively, follows:

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Three Months and Nine Months Ended September 30, 2015




	Three Months Ended September 30, 2015
			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of July 1, 2015		Included in Income (A)		Included in Regulatory Assets/ Liabilities (B)			Purchases (Sales)		Issuances/ Settlements (C)			Transfers In/Out		Balance as of September 30, 2015
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	8	$	4	$	(8	)	$	—	$	(2	)	$	—	$	2
PSE&G
Net Derivative Assets (Liabilities)	$	5	$	—	$	(8	)	$	—	$	—		$	—	$	(3	)
Power
Net Derivative Assets (Liabilities)	$	3	$	4	$	—		$	—	$	(2	)	$	—	$	5

	Nine Months Ended September 30, 2015
			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2015		Included in Income (A)		Included in Regulatory Assets/ Liabilities (B)			Purchases (Sales)		Issuances/ Settlements (C)			Transfers In/Out		Balance as of September 30, 2015
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	37	$	12	$	(29	)	$	—	$	(18	)	$	—	$	2
PSE&G
Net Derivative Assets (Liabilities)	$	26	$	—	$	(29	)	$	—	$	—		$	—	$	(3	)
Power
Net Derivative Assets (Liabilities)	$	11	$	12	$	—		$	—	$	(18	)	$	—	$	5

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Three Months and Nine Months Ended September 30, 2014




	Three Months Ended September 30, 2014
				Total Gains or (Losses) Realized/Unrealized
Description	Balance as of July 1, 2014			Included in Income (E)			Included in Regulatory Assets/ Liabilities (B)			Purchases (Sales)		Issuances/ Settlements (C)			Transfers In/Out (D)			Balance as of September 30, 2014
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	13		$	(8	)	$	(9	)	$	—	$	(4	)	$	—		$	(8	)
PSE&G
Net Derivative Assets (Liabilities)	$	22		$	—		$	(9	)	$	—	$	—		$	—		$	13
Power
Net Derivative Assets (Liabilities)	$	(9	)	$	(8	)	$	—		$	—	$	(4	)	$	—		$	(21	)

	Nine Months Ended September 30, 2014
				Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2014			Included in Income (E)			Included in Regulatory Assets/ Liabilities (B)			Purchases (Sales)		Issuances/ Settlements (C)			Transfers In/Out (D)			Balance as of September 30, 2014
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	88		$	(66	)	$	(81	)	$	—	$	54		$	(3	)	$	(8	)
PSE&G
Net Derivative Assets (Liabilities)	$	94		$	—		$	(81	)	$	—	$	—		$	—		$	13
Power
Net Derivative Assets (Liabilities)	$	(6	)	$	(66	)	$	—		$	—	$	54		$	(3	)	$	(21	)


(A)	PSEG’s and Power’s gains and losses attributable to changes in net derivative assets and liabilities includes $4 million and $12 million in Operating Income for the three months and nine months ended September 30, 2015, respectively. Of the $4 million in Operating Income, $3 million is unrealized. Of the $12 million in Operating Income, $(6) million is unrealized.


(B)	Mainly includes gains/losses on PSE&G’s derivative contracts that are not included in either earnings or Other Comprehensive Income, as they are deferred as a Regulatory Asset/Liability and are expected to be recovered from/returned to PSE&G’s customers.


(C)	Represents $(2) million and $(18) million in settlements for the three months and nine months ended September 30, 2015. Includes $(4) million and $54 million in settlements for the three months and nine months ended September 30, 2014.

(D)

There were no transfers among levels during the three months ended September 30, 2015 and 2014 and the nine months ended September 30, 2015. During the nine months ended September 30, 2014, $(3) million of net derivative assets/liabilities were transferred from Level 3 to Level 2 due to more observable pricing for the underlying securities. The transfers were recognized as of the beginning of the quarters in which the transfers first occurred as per PSEG's policy.


(E)	PSEG’s and Power’s gains and losses attributable to changes in net derivative assets and liabilities include $(8) million and $(66) million in Operating Income for the three months and nine months ended September 30, 2014, respectively. Of the $(8) million in Operating Income, $(12) million is unrealized. Of the $(66) million in Operating Income, $(11) million is unrealized.

Schedule of Fair Value of Debt

The estimated fair values were determined using the market quotations or values of instruments with similar terms, credit ratings, remaining maturities and redemptions as of September 30, 2015 and December 31, 2014.




	As of				As of
	September 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	Millions
Long-Term Debt:
PSEG (Parent) (A)	$	7	$	11	$	14	$	22
PSE&G (B)	6,612		7,102		6,312		6,912
Transition Funding (PSE&G) (B)	68		69		251		261
Transition Funding II (PSE&G) (B)	—		—		8		8
Power - Recourse Debt (B)	2,544		2,856		2,543		2,930
Energy Holdings:
Project Level, Non-Recourse Debt (C)	7		7		16		16
Total Long-Term Debt	$	9,238	$	10,045	$	9,144	$	10,149


(A)	Fair value represents net offsets to debt resulting from adjustments from interest rate swaps entered into to hedge certain debt at Power. Carrying amount represents such fair value reduced by the unamortized premium resulting from a debt exchange entered into between Power and Energy Holdings.


(B)	The debt fair valuation is based on the present value of each bond’s future cash flows. The discount rates used in the present value analysis are based on an estimate of new issue bond yields across the treasury curve. When a bond has embedded options, an interest rate model is used to reflect the impact of interest rate volatility into the analysis (primarily Level 2 measurements).


(C)	Non-recourse project debt is valued as equivalent to the amortized cost and is classified as a Level 3 measurement.