Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:

Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG, PSE&G and PSEG Power have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on NYMEX.

Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.

Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. These consist primarily of certain electric load contracts and gas contracts.

Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.

The following tables present information about PSEG’s, PSE&G’s and PSEG Power’s respective assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, 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 PSEG Power.




	Recurring Fair Value Measurements as of March 31, 2020
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)	$	250		$	—		$	250		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	238		$	(939	)	$	24		$	1,132		$	21
NDT Fund (C)
Equity Securities	$	936		$	—		$	936		$	—		$	—
Debt Securities—U.S. Treasury	$	206		$	—		$	—		$	206		$	—
Debt Securities—Govt Other	$	358		$	—		$	—		$	358		$	—
Debt Securities—Corporate	$	527		$	—		$	—		$	527		$	—
Rabbi Trust (C)
Equity Securities	$	22		$	—		$	22		$	—		$	—
Debt Securities—U.S. Treasury	$	62		$	—		$	—		$	62		$	—
Debt Securities—Govt Other	$	48		$	—		$	—		$	48		$	—
Debt Securities—Corporate	$	112		$	—		$	—		$	112		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(33	)	$	926		$	(73	)	$	(884	)	$	(2	)
Interest Rate Swaps (D)	$	(10	)	$	—		$	—		$	(10	)	$	—
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	4		$	—		$	4		$	—		$	—
Debt Securities—U.S. Treasury	$	12		$	—		$	—		$	12		$	—
Debt Securities—Govt Other	$	9		$	—		$	—		$	9		$	—
Debt Securities—Corporate	$	22		$	—		$	—		$	22		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	238		$	(939	)	$	24		$	1,132		$	21
NDT Fund (C)
Equity Securities	$	936		$	—		$	936		$	—		$	—
Debt Securities—U.S. Treasury	$	206		$	—		$	—		$	206		$	—
Debt Securities—Govt Other	$	358		$	—		$	—		$	358		$	—
Debt Securities—Corporate	$	527		$	—		$	—		$	527		$	—
Rabbi Trust (C)
Equity Securities	$	6		$	—		$	6		$	—		$	—
Debt Securities—U.S. Treasury	$	16		$	—		$	—		$	16		$	—
Debt Securities—Govt Other	$	12		$	—		$	—		$	12		$	—
Debt Securities—Corporate	$	27		$	—		$	—		$	27		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(33	)	$	926		$	(73	)	$	(884	)	$	(2	)




	Recurring Fair Value Measurements as of December 31, 2019
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)	$	50		$	—		$	50		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	28		$	—		$	28		$	—		$	—
Debt Securities—U.S. Treasury	$	57		$	—		$	—		$	57		$	—
Debt Securities—Govt Other	$	47		$	—		$	—		$	47		$	—
Debt Securities—Corporate	$	114		$	—		$	—		$	114		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)
Interest Rate Swaps (D)	$	(5	)	$	—		$	—		$	(5	)	$	—
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	5		$	—		$	5		$	—		$	—
Debt Securities—U.S. Treasury	$	11		$	—		$	—		$	11		$	—
Debt Securities—Govt Other	$	9		$	—		$	—		$	9		$	—
Debt Securities—Corporate	$	23		$	—		$	—		$	23		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	8		$	—		$	8		$	—		$	—
Debt Securities—U.S. Treasury	$	14		$	—		$	—		$	14		$	—
Debt Securities—Govt Other	$	12		$	—		$	—		$	12		$	—
Debt Securities—Corporate	$	28		$	—		$	—		$	28		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)


(A)	Represents money market mutual funds.


(B)	Level 1—These contracts represent natural gas futures contracts executed on NYMEX, and are being valued solely on settled pricing inputs which come directly from the exchange.

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 settled prices from similar assets and liabilities from an exchange, such as NYMEX, ICE and Nodal Exchange, 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—Unobservable inputs are used for the valuation of certain contracts. See “Additional Information Regarding Level 3 Measurements” below for more information on the utilization of unobservable inputs.

(C)

As of December 31, 2019, the fair value measurement table excludes foreign currency of $2 million in the NDT Fund. The NDT Fund maintains investments in various equity and fixed income securities. The Rabbi Trust maintains investments in a Russell 3000 index fund and various fixed income securities. 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 other equity securities in the NDT and Rabbi Trust Funds consist primarily of investments in money market funds which seek a high level of current income as is consistent with the preservation of capital and the maintenance of liquidity. To pursue its goals, the funds normally invest in diversified portfolios of high quality, short-term, dollar-denominated debt securities and government securities. The funds’ net asset value is priced and published daily. The Rabbi Trust’s Russell 3000 index fund is valued based on quoted prices in an active market and can be redeemed daily without restriction.

Level 2—NDT and Rabbi Trust fixed income securities include investment grade corporate bonds, collateralized mortgage obligations, asset-backed securities and certain government and U.S. Treasury obligations or Federal Agency asset-backed securities and municipal bonds 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. The preferred stocks are not actively traded on a daily basis and therefore, are also priced using an evaluated pricing methodology. 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.


(D)	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.


(E)	Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. See Note 13. Financial Risk Management Activities for additional detail.

Additional Information Regarding Level 3 Measurements

For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG considers credit and nonperformance risk in the valuation of derivative contracts categorized in Levels 2 and 3, including both historical and current market data, in its assessment of credit and nonperformance risk by counterparty. The impacts of credit and nonperformance risk were not material to the financial statements.

The fair value of PSEG Power’s electric load contracts in which load consumption may change hourly based on demand are measured using certain unobservable inputs, such as historic load variability and, accordingly, are categorized as Level 3. The fair value of PSEG Power’s gas physical contracts at certain illiquid delivery locations are measured using average historical basis and, accordingly, are categorized as Level 3. While these physical gas contracts have an unobservable component in their respective forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs. The following tables provide details surrounding significant Level 3 valuations as of March 31, 2020 and December 31, 2019.

Quantitative Information About Level 3 Fair Value Measurements

Significant

Level 3

Fair Value as of

Valuation

Unobservable

Arithmetic

Commodity

Position

March 31, 2020

Technique(s)

Input

Range

Average

Assets

(Liabilities)

Millions

PSEG Power

Electricity

Electric Load Contracts

$

21

$

—

Discounted Cash flow

Load Shaping Cost

0% to 10%

3%

Gas

Gas Physical Contracts

—

(2

)

Discounted Cash flow

Average Historical Basis

-70% to 0%

-22%

Total PSEG Power

$

21

$

(2

)

Total PSEG

$

21

$

(2

)

Quantitative Information About Level 3 Fair Value Measurements

Significant

Fair Value as of

Valuation

Unobservable

Commodity

Level 3 Position

December 31, 2019

Technique(s)

Input

Range

Assets

(Liabilities)

Millions

PSEG Power

Electricity

Electric Load Contracts

$

10

$

—

Discounted Cash flow

Historic Load Variability

0% to 10%

Gas

Gas Physical Contracts

—

(3

)

Discounted Cash flow

Average Historical Basis

-50% to 0%

Total PSEG Power

$

10

$

(3

)

Total PSEG

$

10

$

(3

)

As of March 31, 2020, significant unobservable inputs listed above would have a direct impact on the fair values of the above Level 3 instruments if they were adjusted. For energy-related contracts in cases where PSEG Power is a seller, an increase in the load variability would decrease the fair value. For gas-related contracts in cases where PSEG Power is a buyer, an increase in the average historical basis would increase the fair value.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months ended March 31, 2020 and March 31, 2019, respectively, follows:

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

for the Three Months Ended March 31, 2020




	Three Months Ended March 31, 2020
Description	Balance as of December 31, 2019		Total Gains or (Losses) Realized/Unrealized Included in Income (A)		Purchases (Sales)		Issuances/ Settlements (B)			Transfers In/Out (C)		Balance as of March 31, 2020
	Millions
PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	7	$	13	$	—	$	(1	)	$	—	$	19

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

for the Three Months Ended March 31, 2019




	Three Months Ended March 31, 2019
Description	Balance as of December 31, 2018		Total Gains or (Losses) Realized/Unrealized Included in Income (A)		Purchases (Sales)		Issuances/ Settlements (B)			Transfers In/Out (C)		Balance as of March 31, 2019
	Millions
PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	1	$	1	$	—	$	(4	)	$	—	$	(2	)


(A)	Unrealized gains (losses) in the following table represent the change in derivative assets and liabilities still held as of March 31, 2020 and 2019.

.




	Three Months Ended March 31,
	2020					2019
	Total Gains (Losses)			Unrealized Gains (Losses)		Total Gains (Losses)			Unrealized Gains (Losses)
	Millions
PSEG and PSEG Power
Operating Revenues	$	18		$	11	$	6		$	—
Energy Costs	(5		)	1		(5		)	(3		)
Total	$	13		$	12	$	1		$	(3	)


(B)	Includes settlements of $(1) million for the three months ended March 31, 2020 and $(4) million for the three months ended March 31, 2019.


(C)	There were no transfers into or out of Level 3 during the three months ended March 31, 2020 and 2019.

As of March 31, 2020, PSEG carried $2.7 billion of net assets that are measured at fair value on a recurring basis, of which $19 million of net assets was measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

As of March 31, 2019, PSEG carried $2.3 billion of net assets that are measured at fair value on a recurring basis, of which $2 million of net liabilities were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

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 March 31, 2020 and December 31, 2019.




	As of				As of
	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	Millions
Long-Term Debt:
PSEG (A) (B)	$	2,441	$	2,423	$	2,441	$	2,479
PSE&G (B)	10,423		11,569		9,827		11,107
PSEG Power (B)	2,841		2,766		2,840		3,137
Total Long-Term Debt	$	15,705	$	16,758	$	15,108	$	16,723


(A)	Includes floating-rate term loans of $700 million at PSEG as of March 31, 2020 and December 31, 2019. The fair values of the term loan debt (Level 2 measurement) approximate the carrying value because the interest payments are based on LIBOR rates that are reset monthly and the debt is redeemable at face value by PSEG at any time.

(B)

Given that these bonds do not trade actively, the fair value amounts of taxable debt securities (primarily Level 2 measurements) are generally determined by a valuation model that is based on a conventional discounted cash flow methodology. The fair value amounts above do not represent the price at which the outstanding debt may be called for redemption by each issuer under their respective debt agreements.

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:

Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG, PSE&G and PSEG Power have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on NYMEX.

Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.

Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. These consist primarily of certain electric load contracts and gas contracts.

Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.

The following tables present information about PSEG’s, PSE&G’s and PSEG Power’s respective assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, 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 PSEG Power.




	Recurring Fair Value Measurements as of March 31, 2020
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)	$	250		$	—		$	250		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	238		$	(939	)	$	24		$	1,132		$	21
NDT Fund (C)
Equity Securities	$	936		$	—		$	936		$	—		$	—
Debt Securities—U.S. Treasury	$	206		$	—		$	—		$	206		$	—
Debt Securities—Govt Other	$	358		$	—		$	—		$	358		$	—
Debt Securities—Corporate	$	527		$	—		$	—		$	527		$	—
Rabbi Trust (C)
Equity Securities	$	22		$	—		$	22		$	—		$	—
Debt Securities—U.S. Treasury	$	62		$	—		$	—		$	62		$	—
Debt Securities—Govt Other	$	48		$	—		$	—		$	48		$	—
Debt Securities—Corporate	$	112		$	—		$	—		$	112		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(33	)	$	926		$	(73	)	$	(884	)	$	(2	)
Interest Rate Swaps (D)	$	(10	)	$	—		$	—		$	(10	)	$	—
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	4		$	—		$	4		$	—		$	—
Debt Securities—U.S. Treasury	$	12		$	—		$	—		$	12		$	—
Debt Securities—Govt Other	$	9		$	—		$	—		$	9		$	—
Debt Securities—Corporate	$	22		$	—		$	—		$	22		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	238		$	(939	)	$	24		$	1,132		$	21
NDT Fund (C)
Equity Securities	$	936		$	—		$	936		$	—		$	—
Debt Securities—U.S. Treasury	$	206		$	—		$	—		$	206		$	—
Debt Securities—Govt Other	$	358		$	—		$	—		$	358		$	—
Debt Securities—Corporate	$	527		$	—		$	—		$	527		$	—
Rabbi Trust (C)
Equity Securities	$	6		$	—		$	6		$	—		$	—
Debt Securities—U.S. Treasury	$	16		$	—		$	—		$	16		$	—
Debt Securities—Govt Other	$	12		$	—		$	—		$	12		$	—
Debt Securities—Corporate	$	27		$	—		$	—		$	27		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(33	)	$	926		$	(73	)	$	(884	)	$	(2	)




	Recurring Fair Value Measurements as of December 31, 2019
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)	$	50		$	—		$	50		$	—		$	—
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	28		$	—		$	28		$	—		$	—
Debt Securities—U.S. Treasury	$	57		$	—		$	—		$	57		$	—
Debt Securities—Govt Other	$	47		$	—		$	—		$	47		$	—
Debt Securities—Corporate	$	114		$	—		$	—		$	114		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)
Interest Rate Swaps (D)	$	(5	)	$	—		$	—		$	(5	)	$	—
PSE&G
Assets:
Rabbi Trust (C)
Equity Securities	$	5		$	—		$	5		$	—		$	—
Debt Securities—U.S. Treasury	$	11		$	—		$	—		$	11		$	—
Debt Securities—Govt Other	$	9		$	—		$	—		$	9		$	—
Debt Securities—Corporate	$	23		$	—		$	—		$	23		$	—
PSEG Power
Assets:
Derivative Contracts:
Energy-Related Contracts (B)	$	137		$	(662	)	$	19		$	770		$	10
NDT Fund (C)
Equity Securities	$	1,151		$	—		$	1,150		$	1		$	—
Debt Securities—U.S. Treasury	$	225		$	—		$	—		$	225		$	—
Debt Securities—Govt Other	$	352		$	—		$	—		$	352		$	—
Debt Securities—Corporate	$	486		$	—		$	—		$	486		$	—
Rabbi Trust (C)
Equity Securities	$	8		$	—		$	8		$	—		$	—
Debt Securities—U.S. Treasury	$	14		$	—		$	—		$	14		$	—
Debt Securities—Govt Other	$	12		$	—		$	—		$	12		$	—
Debt Securities—Corporate	$	28		$	—		$	—		$	28		$	—
Liabilities:
Derivative Contracts:
Energy-Related Contracts (B)	$	(32	)	$	660		$	(43	)	$	(646	)	$	(3	)


(A)	Represents money market mutual funds.


(B)	Level 1—These contracts represent natural gas futures contracts executed on NYMEX, and are being valued solely on settled pricing inputs which come directly from the exchange.

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 settled prices from similar assets and liabilities from an exchange, such as NYMEX, ICE and Nodal Exchange, 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—Unobservable inputs are used for the valuation of certain contracts. See “Additional Information Regarding Level 3 Measurements” below for more information on the utilization of unobservable inputs.

(C)

As of December 31, 2019, the fair value measurement table excludes foreign currency of $2 million in the NDT Fund. The NDT Fund maintains investments in various equity and fixed income securities. The Rabbi Trust maintains investments in a Russell 3000 index fund and various fixed income securities. 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 other equity securities in the NDT and Rabbi Trust Funds consist primarily of investments in money market funds which seek a high level of current income as is consistent with the preservation of capital and the maintenance of liquidity. To pursue its goals, the funds normally invest in diversified portfolios of high quality, short-term, dollar-denominated debt securities and government securities. The funds’ net asset value is priced and published daily. The Rabbi Trust’s Russell 3000 index fund is valued based on quoted prices in an active market and can be redeemed daily without restriction.

Level 2—NDT and Rabbi Trust fixed income securities include investment grade corporate bonds, collateralized mortgage obligations, asset-backed securities and certain government and U.S. Treasury obligations or Federal Agency asset-backed securities and municipal bonds 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. The preferred stocks are not actively traded on a daily basis and therefore, are also priced using an evaluated pricing methodology. 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.


(D)	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.


(E)	Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. See Note 13. Financial Risk Management Activities for additional detail.

Additional Information Regarding Level 3 Measurements

For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG considers credit and nonperformance risk in the valuation of derivative contracts categorized in Levels 2 and 3, including both historical and current market data, in its assessment of credit and nonperformance risk by counterparty. The impacts of credit and nonperformance risk were not material to the financial statements.

The fair value of PSEG Power’s electric load contracts in which load consumption may change hourly based on demand are measured using certain unobservable inputs, such as historic load variability and, accordingly, are categorized as Level 3. The fair value of PSEG Power’s gas physical contracts at certain illiquid delivery locations are measured using average historical basis and, accordingly, are categorized as Level 3. While these physical gas contracts have an unobservable component in their respective forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs. The following tables provide details surrounding significant Level 3 valuations as of March 31, 2020 and December 31, 2019.

Quantitative Information About Level 3 Fair Value Measurements

Significant

Level 3

Fair Value as of

Valuation

Unobservable

Arithmetic

Commodity

Position

March 31, 2020

Technique(s)

Input

Range

Average

Assets

(Liabilities)

Millions

PSEG Power

Electricity

Electric Load Contracts

$

21

$

—

Discounted Cash flow

Load Shaping Cost

0% to 10%

3%

Gas

Gas Physical Contracts

—

(2

)

Discounted Cash flow

Average Historical Basis

-70% to 0%

-22%

Total PSEG Power

$

21

$

(2

)

Total PSEG

$

21

$

(2

)

Quantitative Information About Level 3 Fair Value Measurements

Significant

Fair Value as of

Valuation

Unobservable

Commodity

Level 3 Position

December 31, 2019

Technique(s)

Input

Range

Assets

(Liabilities)

Millions

PSEG Power

Electricity

Electric Load Contracts

$

10

$

—

Discounted Cash flow

Historic Load Variability

0% to 10%

Gas

Gas Physical Contracts

—

(3

)

Discounted Cash flow

Average Historical Basis

-50% to 0%

Total PSEG Power

$

10

$

(3

)

Total PSEG

$

10

$

(3

)

As of March 31, 2020, significant unobservable inputs listed above would have a direct impact on the fair values of the above Level 3 instruments if they were adjusted. For energy-related contracts in cases where PSEG Power is a seller, an increase in the load variability would decrease the fair value. For gas-related contracts in cases where PSEG Power is a buyer, an increase in the average historical basis would increase the fair value.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months ended March 31, 2020 and March 31, 2019, respectively, follows:

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

for the Three Months Ended March 31, 2020




	Three Months Ended March 31, 2020
Description	Balance as of December 31, 2019		Total Gains or (Losses) Realized/Unrealized Included in Income (A)		Purchases (Sales)		Issuances/ Settlements (B)			Transfers In/Out (C)		Balance as of March 31, 2020
	Millions
PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	7	$	13	$	—	$	(1	)	$	—	$	19

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

for the Three Months Ended March 31, 2019




	Three Months Ended March 31, 2019
Description	Balance as of December 31, 2018		Total Gains or (Losses) Realized/Unrealized Included in Income (A)		Purchases (Sales)		Issuances/ Settlements (B)			Transfers In/Out (C)		Balance as of March 31, 2019
	Millions
PSEG and PSEG Power
Net Derivative Assets (Liabilities)	$	1	$	1	$	—	$	(4	)	$	—	$	(2	)


(A)	Unrealized gains (losses) in the following table represent the change in derivative assets and liabilities still held as of March 31, 2020 and 2019.

.




	Three Months Ended March 31,
	2020					2019
	Total Gains (Losses)			Unrealized Gains (Losses)		Total Gains (Losses)			Unrealized Gains (Losses)
	Millions
PSEG and PSEG Power
Operating Revenues	$	18		$	11	$	6		$	—
Energy Costs	(5		)	1		(5		)	(3		)
Total	$	13		$	12	$	1		$	(3	)


(B)	Includes settlements of $(1) million for the three months ended March 31, 2020 and $(4) million for the three months ended March 31, 2019.


(C)	There were no transfers into or out of Level 3 during the three months ended March 31, 2020 and 2019.

As of March 31, 2020, PSEG carried $2.7 billion of net assets that are measured at fair value on a recurring basis, of which $19 million of net assets was measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

As of March 31, 2019, PSEG carried $2.3 billion of net assets that are measured at fair value on a recurring basis, of which $2 million of net liabilities were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

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 March 31, 2020 and December 31, 2019.




	As of				As of
	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	Millions
Long-Term Debt:
PSEG (A) (B)	$	2,441	$	2,423	$	2,441	$	2,479
PSE&G (B)	10,423		11,569		9,827		11,107
PSEG Power (B)	2,841		2,766		2,840		3,137
Total Long-Term Debt	$	15,705	$	16,758	$	15,108	$	16,723


(A)	Includes floating-rate term loans of $700 million at PSEG as of March 31, 2020 and December 31, 2019. The fair values of the term loan debt (Level 2 measurement) approximate the carrying value because the interest payments are based on LIBOR rates that are reset monthly and the debt is redeemable at face value by PSEG at any time.

(B)

Given that these bonds do not trade actively, the fair value amounts of taxable debt securities (primarily Level 2 measurements) are generally determined by a valuation model that is based on a conventional discounted cash flow methodology. The fair value amounts above do not represent the price at which the outstanding debt may be called for redemption by each issuer under their respective debt agreements.