10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM          TO         

Commission File Number	Registrants, State of Incorporation, Address, and Telephone Number	I.R.S. Employer Identification No.
001-09120	PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED	22-2625848
	(A New Jersey Corporation)
	80 Park Plaza, P.O. Box 1171
	Newark, New Jersey 07101-1171
	973 430-7000
	http://www.pseg.com
001-34232	PSEG POWER LLC	22-3663480
	(A Delaware Limited Liability Company)
	80 Park Plaza—T25
	Newark, New Jersey 07102-4194
	973 430-7000
	http://www.pseg.com
001-00973	PUBLIC SERVICE ELECTRIC AND GAS COMPANY	22-1212800
	(A New Jersey Corporation)
	80 Park Plaza, P.O. Box 570
	Newark, New Jersey 07101-0570
	973 430-7000
	http://www.pseg.com

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

Public Service Enterprise Group Incorporated	Yes x	No ¨
PSEG Power LLC	Yes ¨	No ¨
Public Service Electric and Gas Company	Yes ¨	No ¨

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Public Service Enterprise Group Incorporated	Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
PSEG Power LLC	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
Public Service Electric and Gas Company	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 15, 2011, Public Service Enterprise Group Incorporated had outstanding 505,904,733 shares of its sole class of Common Stock, without par value.

As of April 15, 2011, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated.

PSEG Power LLC and Public Service Electric and Gas Company are wholly owned subsidiaries of Public Service Enterprise Group Incorporated and meet the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q. Each is filing its Quarterly Report on Form 10-Q with the reduced disclosure format authorized by General Instruction H.

		Page
FORWARD-LOOKING STATEMENTS			ii
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Public Service Enterprise Group Incorporated		1
	PSEG Power LLC		5
	Public Service Electric and Gas Company		8
	Notes to Condensed Consolidated Financial Statements		12
	Note 1. Organization and Basis of Presentation		12
	Note 2. Recent Accounting Standards		13
	Note 3. Variable Interest Entities		13
	Note 4. Discontinued Operations and Dispositions		13
	Note 5. Financing Receivables		15
	Note 6. Available-for-Sale Securities		17
	Note 7. Pension and Other Postretirement Benefits (OPEB)		20
	Note 8. Commitments and Contingent Liabilities		21
	Note 9. Changes in Capitalization		32
	Note 10. Financial Risk Management Activities		32
	Note 11. Fair Value Measurements		37
	Note 12. Other Income and Deductions		43
	Note 13. Income Taxes		43
	Note 14. Comprehensive Income, Net of Tax		45
	Note 15. Earnings Per Share (EPS)		46
	Note 16. Financial Information by Business Segments		47
	Note 17. Related-Party Transactions		48
	Note 18. Guarantees of Debt		50
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
	Overview of 2011 and Future Outlook		52
	Results of Operations		55
	Liquidity and Capital Resources		61
	Capital Requirements		64
	Accounting Matters		64
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64
Item 4.	Controls and Procedures		65
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		66
Item 1A.	Risk Factors		67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		67
Item 5.	Other Information		67
Item 6.	Exhibits		74
	Signatures		75

i

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “should,” “hypothetical,” “potential,” “forecast,” “project,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves. Other factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are discussed in Item 1. Financial Statements—Note 8. Commitments and Contingent Liabilities, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other factors discussed in filings we make with the U.S. Securities and Exchange Commission (SEC). These factors include, but are not limited to:

• adverse changes in energy industry law, policies and regulation, including market structures and a potential shift away from competitive markets toward subsidized market mechanisms, transmission planning and cost allocation rules, including rules regarding how transmission is planned and who is permitted to build transmission going forward, and reliability standards,

• any inability of our transmission and distribution businesses to obtain adequate and timely rate relief and regulatory approvals from federal and state regulators,

• changes in federal and state environmental regulations that could increase our costs or limit operations of our generating units,

• changes in nuclear regulation and/or general developments in the nuclear power industry, including various impacts from any accidents or incidents experienced at our facilities or by others in the industry, that could limit operations of our nuclear generating units,

• actions or activities at one of our nuclear units located on a multi-unit site that might adversely affect our ability to continue to operate that unit or other units located at the same site,

• any inability to balance our energy obligations, available supply and trading risks,

• any deterioration in our credit quality or the credit quality of our counterparties,

• availability of capital and credit at commercially reasonable terms and conditions and our ability to meet cash needs,

• any inability to realize anticipated tax benefits or retain tax credits,

• changes in the cost of, or interruption in the supply of, fuel and other commodities necessary to the operation of our generating units,

• delays in receipt of necessary permits and approvals for our construction and development activities,

• delays or unforeseen cost escalations in our construction and development activities,

• adverse changes in the demand for or price of the capacity and energy that we sell into wholesale electricity markets,

• increase in competition in energy markets in which we compete,

• challenges associated with retention of a qualified workforce,

• adverse performance of our decommissioning and defined benefit plan trust fund investments and changes in discount rates and funding requirements, and

• changes in technology and customer usage patterns.

Additional information concerning these factors is set forth in Part II under Item 1A. Risk Factors.

All of the forward-looking statements made in this report are qualified by these cautionary statements and we cannot assure you that the results or developments anticipated by management will be realized, or even if realized, will have the expected consequences to, or effects on, us or our business prospects, financial condition or results of operations. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. Forward-looking statements made in this report only apply as of the date of this report. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if internal estimates change, unless otherwise required by applicable securities laws.

The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

ii

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)

	For The Three Months Ended March 31,
	2011			2010
OPERATING REVENUES	$	3,354		$	3,573
OPERATING EXPENSES
Energy Costs		1,563			1,688
Operation and Maintenance		651			670
Depreciation and Amortization		241			227
Taxes Other Than Income Taxes		43			42
Total Operating Expenses		2,498			2,627
OPERATING INCOME		856			946
Income from Equity Method Investments		3			3
Other Income		76			43
Other Deductions		(13	)		(16	)
Other-Than-Temporary Impairments		(4	)		(1	)
Interest Expense		(127	)		(116	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		791			859
Income Tax (Expense) Benefit		(329	)		(361	)
INCOME FROM CONTINUING OPERATIONS		462			498
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax (expense) benefit of ($36) and $5, for the periods ended 2011 and 2010, respectively		64			(7	)
NET INCOME	$	526		$	491
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS):
BASIC		505,979			505,950
DILUTED		507,132			507,147
EARNINGS PER SHARE:
BASIC
INCOME FROM CONTINUING OPERATIONS	$	0.91		$	0.99
NET INCOME	$	1.04		$	0.97
DILUTED
INCOME FROM CONTINUING OPERATIONS	$	0.91		$	0.99
NET INCOME	$	1.04		$	0.97
DIVIDENDS PAID PER SHARE OF COMMON STOCK	$	0.3425		$	0.3425

See Notes to Condensed Consolidated Financial Statements.

1

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	900		$	280
Accounts Receivable, net of allowances of $65 and $68 in 2011 and 2010, respectively		1,419			1,387
Tax Receivable		248			689
Unbilled Revenues		296			400
Fuel		376			666
Materials and Supplies, net		365			359
Prepayments		102			204
Derivative Contracts		174			182
Assets of Discontinued Operations		293			564
Deferred Income Taxes		80			43
Regulatory Assets		100			155
Other		113			122
Total Current Assets		4,466			5,051
PROPERTY, PLANT AND EQUIPMENT		23,698			23,272
Less: Accumulated Depreciation and Amortization		(7,050	)		(6,882	)
Net Property, Plant and Equipment		16,648			16,390
NONCURRENT ASSETS
Regulatory Assets		3,590			3,736
Regulatory Assets of Variable Interest Entities (VIEs)		1,080			1,128
Long-Term Investments		1,630			1,623
Nuclear Decommissioning Trust (NDT) Funds		1,366			1,363
Other Special Funds		164			160
Goodwill		16			16
Other Intangibles		135			136
Derivative Contracts		50			79
Restricted Cash of VIEs		21			21
Other		204			206
Total Noncurrent Assets		8,256			8,468
TOTAL ASSETS	$	29,370		$	29,909

See Notes to Condensed Consolidated Financial Statements.

2

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

	March 31,			December 31,
	2011			2010
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	981		$	915
Securitization Debt of VIEs Due Within One Year		209			206
Commercial Paper and Loans		21			64
Accounts Payable		1,067			1,176
Derivative Contracts		64			103
Accrued Interest		153			108
Accrued Taxes		102			49
Clean Energy Program		211			195
Obligation to Return Cash Collateral		106			104
Regulatory Liabilities		166			174
Liabilities of Discontinued Operations		45			72
Other		358			319
Total Current Liabilities		3,483			3,485
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment Tax Credits (ITC)		5,000			5,129
Regulatory Liabilities		265			285
Regulatory Liabilities of VIEs		9			8
Asset Retirement Obligations		467			461
Other Postretirement Benefit (OPEB) Costs		956			967
Accrued Pension Costs		373			788
Clean Energy Program		174			235
Environmental Costs		659			669
Derivative Contracts		25			22
Long-Term Accrued Taxes		221			248
Other		82			152
Total Noncurrent Liabilities		8,231			8,964
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
CAPITALIZATION
LONG-TERM DEBT
Long-Term Debt		6,762			6,834
Securitization Debt of VIEs		890			939
Project Level, Non-Recourse Debt		45			46
Total Long-Term Debt		7,697			7,819
STOCKHOLDERS’ EQUITY
Common Stock, no par, authorized 1,000,000,000 shares; issued, 2011 and 2010—533,556,660 shares		4,813			4,807
Treasury Stock, at cost, 2011—27,651,927 shares; 2010—27,582,437 shares		(597	)		(593	)
Retained Earnings		5,928			5,575
Accumulated Other Comprehensive Loss		(187	)		(156	)
Total Common Stockholders’ Equity		9,957			9,633
Noncontrolling Interest		2			8
Total Stockholders’ Equity		9,959			9,641
Total Capitalization		17,656			17,460
TOTAL LIABILITIES AND CAPITALIZATION	$	29,370		$	29,909

See Notes to Condensed Consolidated Financial Statements.

3

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)

	For the Three Months Ended March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	526		$	491
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Gain on Disposal of Discontinued Operations		(81	)		0
Depreciation and Amortization		245			232
Amortization of Nuclear Fuel		39			34
Provision for Deferred Income Taxes (Other than Leases) and ITC		(152	)		41
Non-Cash Employee Benefit Plan Costs		53			78
Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes		(11	)		(114	)
Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives		8			(112	)
Over (Under) Recovery of Electric Energy Costs (BGS and NTC) and Gas Costs		31			8
Over (Under) Recovery of Societal Benefits Charge (SBC)		23			30
Cost of Removal		(13	)		(19	)
Net Realized (Gains) Losses and (Income) Expense from NDT Funds		(60	)		(24	)
Net Change in Tax Receivable		441			0
Net Change in Certain Current Assets and Liabilities		455			727
Employee Benefit Plan Funding and Related Payments		(446	)		(276	)
Other		(16	)		(24	)
Net Cash Provided By (Used In) Operating Activities		1,042			1,072
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment		(497	)		(427	)
Proceeds from Sale of Discontinued Operations		351			0
Proceeds from the Sale of Capital Leases and Investments		0			106
Proceeds from Sales of Available-for-Sale Securities		315			181
Investments in Available-for-Sale Securities		(331	)		(189	)
Other		7			11
Net Cash Provided By (Used In) Investing Activities		(155	)		(318	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Commercial Paper and Loans		(43	)		(530	)
Issuance of Long-Term Debt		0			344
Redemption of Long-Term Debt		0			(300	)
Repayment of Non-Recourse Debt		(1	)		(1	)
Redemption of Securitization Debt		(46	)		(44	)
Cash Dividends Paid on Common Stock		(173	)		(173	)
Redemption of Preferred Securities		0			(80	)
Other		(4	)		(8	)
Net Cash Provided By (Used In) Financing Activities		(267	)		(792	)
Net Increase (Decrease) in Cash and Cash Equivalents		620			(38	)
Cash and Cash Equivalents at Beginning of Period		280			350
Cash and Cash Equivalents at End of Period	$	900		$	312
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	8		$	24
Interest Paid, Net of Amounts Capitalized	$	85		$	79

See Notes to Condensed Consolidated Financial Statements.

4

PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)

	For The Three Months Ended March 31,
	2011			2010
OPERATING REVENUES	$	1,967		$	2,196
OPERATING EXPENSES
Energy Costs		1,135			1,251
Operation and Maintenance		277			251
Depreciation and Amortization		54			43
Total Operating Expenses		1,466			1,545
OPERATING INCOME		501			651
Other Income		70			39
Other Deductions		(12	)		(14	)
Other-Than-Temporary Impairments		(2	)		(1	)
Interest Expense		(51	)		(40	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		506			635
Income Tax (Expense) Benefit		(208	)		(264	)
INCOME FROM CONTINUING OPERATIONS		298			371
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax (expense) benefit of ($36) and $5 for the periods ended 2011 and 2010, respectively		64			(7	)
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED	$	362		$	364

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

5

PSEG POWER LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	10		$	11
Accounts Receivable		424			511
Accounts Receivable—Affiliated Companies, net		250			782
Short-Term Loan to Affiliate		1,324			398
Fuel		376			666
Materials and Supplies, net		271			269
Derivative Contracts		156			163
Prepayments		54			80
Assets of Discontinued Operations		293			564
Total Current Assets		3,158			3,444
PROPERTY, PLANT AND EQUIPMENT		8,763			8,643
Less: Accumulated Depreciation and Amortization		(2,394	)		(2,301	)
Net Property, Plant and Equipment		6,369			6,342
NONCURRENT ASSETS
Nuclear Decommissioning Trust (NDT) Funds		1,366			1,363
Goodwill		16			16
Other Intangibles		136			130
Other Special Funds		32			32
Derivative Contracts		32			42
Long-Term Accrued Taxes		16			16
Other		67			67
Total Noncurrent Assets		1,665			1,666
TOTAL ASSETS	$	11,192		$	11,452
LIABILITIES AND MEMBER’S EQUITY
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	716		$	650
Accounts Payable		601			643
Derivative Contracts		53			91
Deferred Income Taxes		35			64
Accrued Interest		83			40
Liabilities of Discontinued Operations		45			72
Other		78			91
Total Current Liabilities		1,611			1,651
NONCURRENT LIABILITIES
Deferred Income Taxes and Investment Tax Credits (ITC)		1,018			1,146
Asset Retirement Obligations		245			242
Other Postretirement Benefit (OPEB) Costs		154			151
Derivative Contracts		25			22
Accrued Pension Costs		129			253
Environmental Costs		51			51
Other		38			104
Total Noncurrent Liabilities		1,660			1,969
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
LONG-TERM DEBT
Total Long-Term Debt		2,740			2,805
MEMBER’S EQUITY
Contributed Capital		2,028			2,028
Basis Adjustment		(986	)		(986	)
Retained Earnings		4,267			4,080
Accumulated Other Comprehensive Loss		(128	)		(95	)
Total Member’s Equity		5,181			5,027
TOTAL LIABILITIES AND MEMBER’S EQUITY	$	11,192		$	11,452

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

6

PSEG POWER LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)

	For the Three Months Ended March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	362		$	364
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Gain on Disposal of Discontinued Operations		(81	)		0
Depreciation and Amortization		58			48
Amortization of Nuclear Fuel		39			34
Provision for Deferred Income Taxes and ITC		(139	)		38
Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives		8			(112	)
Non-Cash Employee Benefit Plan Costs		13			17
Net Realized (Gains) Losses and (Income) Expense from NDT Funds		(60	)		(24	)
Net Change in Certain Current Assets and Liabilities:
Fuel, Materials and Supplies		286			315
Margin Deposit		(23	)		54
Accounts Receivable		145			(21	)
Accounts Payable		(126	)		5
Accounts Receivable/Payable-Affiliated Companies, net		500			295
Accrued Interest Payable		43			37
Other Current Assets and Liabilities		15			(29	)
Employee Benefit Plan Funding and Related Payments		(124	)		(78	)
Other		(13	)		5
Net Cash Provided By (Used In) Operating Activities		903			948
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment		(155	)		(174	)
Proceeds from Sale of Discontinued Operations		351			0
Proceeds from Sales of Available-for-Sale Securities		315			181
Investments in Available-for-Sale Securities		(331	)		(189	)
Short-Term Loan—Affiliated Company, net		(926	)		(509	)
Other		17			17
Net Cash Provided By (Used In) Investing Activities		(729	)		(674	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Recourse Long-Term Debt		0			44
Cash Dividend Paid		(175	)		(175	)
Short-Term Loan—Affiliated Company, net		0			(194	)
Net Cash Provided By (Used In) Financing Activities		(175	)		(325	)
Net Increase (Decrease) in Cash and Cash Equivalents		(1	)		(51	)
Cash and Cash Equivalents at Beginning of Period		11			64
Cash and Cash Equivalents at End of Period	$	10		$	13
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	9		$	40
Interest Paid, Net of Amounts Capitalized	$	10		$	13

See disclosures regarding PSEG Power LLC included in the Notes to Condensed Consolidated Financial Statements.

7

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

(Unaudited)

	For The Three Months Ended March 31,
	2011			2010
OPERATING REVENUES	$	2,306		$	2,444
OPERATING EXPENSES
Energy Costs		1,366			1,540
Operation and Maintenance		368			414
Depreciation and Amortization		179			177
Taxes Other Than Income Taxes		43			42
Total Operating Expenses		1,956			2,173
OPERATING INCOME		350			271
Other Income		5			5
Other Deductions		(1	)		(1	)
Other-Than-Temporary Impairments		(1	)		0
Interest Expense		(79	)		(77	)
INCOME BEFORE INCOME TAXES		274			198
Income Tax (Expense) Benefit		(111	)		(80	)
NET INCOME		163			118
Preferred Stock Dividends		0			(1	)
EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED	$	163		$	117

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

8

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	28		$	245
Accounts Receivable, net of allowances of $65 in 2011 and $67 in 2010, respectively		983			832
Unbilled Revenues		296			400
Materials and Supplies		93			90
Prepayments		38			117
Regulatory Assets		100			155
Other		30			19
Total Current Assets		1,568			1,858
PROPERTY, PLANT AND EQUIPMENT		14,363			14,068
Less: Accumulated Depreciation and Amortization		(4,393	)		(4,326	)
Net Property, Plant and Equipment		9,970			9,742
NONCURRENT ASSETS
Regulatory Assets		3,590			3,736
Regulatory Assets of VIEs		1,080			1,128
Long-Term Investments		240			230
Other Special Funds		54			54
Derivative Contracts		6			17
Restricted Cash of VIEs		21			21
Other		87			87
Total Noncurrent Assets		5,078			5,273
TOTAL ASSETS	$	16,616		$	16,873

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

9

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions

(Unaudited)

	March 31,		December 31,
	2011		2010
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Long-Term Debt Due Within One Year	$	264	$	264
Securitization Debt of VIEs Due Within One Year		209		206
Commercial Paper and Loans		21		0
Accounts Payable		358		406
Accounts Payable—Affiliated Companies, net		19		85
Accrued Interest		67		65
Clean Energy Program		211		195
Derivative Contracts		11		12
Deferred Income Taxes		14		19
Obligation to Return Cash Collateral		106		104
Regulatory Liabilities		166		174
Other		316		229
Total Current Liabilities		1,762		1,759
NONCURRENT LIABILITIES
Deferred Income Taxes and ITC		3,134		3,127
Other Postretirement Benefit (OPEB) Costs		755		770
Accrued Pension Costs		128		377
Regulatory Liabilities		265		285
Regulatory Liabilities of VIEs		9		8
Clean Energy Program		174		235
Environmental Costs		608		617
Asset Retirement Obligations		218		216
Long-Term Accrued Taxes		44		74
Other		21		23
Total Noncurrent Liabilities		5,356		5,732
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 8)
CAPITALIZATION
LONG-TERM DEBT
Long-Term Debt		4,020		4,019
Securitization Debt of VIEs		890		939
Total Long-Term Debt		4,910		4,958
STOCKHOLDER’S EQUITY
Common Stock; 150,000,000 shares authorized; issued and outstanding, 2011 and 2010—132,450,344 shares		892		892
Contributed Capital		420		420
Basis Adjustment		986		986
Retained Earnings		2,289		2,126
Accumulated Other Comprehensive Income		1		0
Total Stockholder’s Equity		4,588		4,424
Total Capitalization		9,498		9,382
TOTAL LIABILITIES AND CAPITALIZATION	$	16,616	$	16,873

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

10

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

(Unaudited)

	For The Three Months Ended March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	163		$	118
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation and Amortization		179			177
Provision for Deferred Income Taxes and ITC		(8	)		4
Non-Cash Employee Benefit Plan Costs		35			54
Cost of Removal		(13	)		(19	)
Market Transition Charge (MTC) Refund		(15	)		0
Over (Under) Recovery of Electric Energy Costs (BGS and NTC) and Gas Costs		31			8
Over (Under) Recovery of SBC		23			30
Net Changes in Certain Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenues		(47	)		(98	)
Materials and Supplies		(3	)		(10	)
Prepayments		79			65
Accounts Receivable/Payable-Affiliated Companies, net		(33	)		(77	)
Other Current Assets and Liabilities		40			94
Employee Benefit Plan Funding and Related Payments		(276	)		(168	)
Other		2			(18	)
Net Cash Provided By (Used In) Operating Activities		157			160
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant and Equipment		(339	)		(217	)
Solar Loan Investments		(10	)		(6	)
Other		0			(2	)
Net Cash Provided By (Used In) Investing Activities		(349	)		(225	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change in Short-Term Debt		21			0
Issuance of Long-Term Debt		0			300
Redemption of Long-Term Debt		0			(300	)
Redemption of Securitization Debt		(46	)		(44	)
Redemption of Preferred Securities		0			(80	)
Deferred Issuance Costs		0			(4	)
Cash Dividend on Preferred Stock		0			(1	)
Net Cash Provided By (Used In) Financing Activities		(25	)		(129	)
Net Increase (Decrease) In Cash and Cash Equivalents		(217	)		(194	)
Cash and Cash Equivalents at Beginning of Period		245			240
Cash and Cash Equivalents at End of Period	$	28		$	46
Supplemental Disclosure of Cash Flow Information:
Income Taxes Paid (Received)	$	0		$	(3	)
Interest Paid, Net of Amounts Capitalized	$	74		$	66

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Condensed Consolidated Financial Statements.

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

This combined Form 10-Q is separately filed by Public Service Enterprise Group Incorporated (PSEG), PSEG Power LLC (Power) and Public Service Electric and Gas Company (PSE&G). Information relating to any individual company is filed by such company on its own behalf. Power and PSE&G each is only responsible for information about itself and its subsidiaries.

Note 1. Organization and Basis of Presentation

Organization

PSEG is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid Atlantic United States and in other select markets. PSEG’s four principal direct wholly owned subsidiaries are:

• Power—which is a multi-regional, wholesale energy supply company that integrates its generating asset operations and gas supply commitments with its wholesale energy, fuel supply, energy trading and marketing and risk management functions through three principal direct wholly owned subsidiaries. Power’s subsidiaries are subject to regulation by the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC) and the states in which they operate.

• PSE&G—which is an operating public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and FERC. Pursuant to applicable BPU orders, PSE&G is also investing in the development of solar generation projects and energy efficiency programs within its service territory.

• PSEG Energy Holdings L.L.C. (Energy Holdings)—which has invested in leveraged leases and owns and operates primarily domestic projects engaged in the generation of energy through its direct wholly owned subsidiaries. Certain Energy Holdings’ subsidiaries are subject to regulation by FERC and the states in which they operate. Energy Holdings is also investing in solar generation projects and exploring opportunities for other investments in renewable generation.

• PSEG Services Corporation (Services)—which provides management and administrative and general services to PSEG and its subsidiaries.

Basis of Presentation

The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements (Notes) should be read in conjunction with, and update and supplement matters discussed in the Annual Report on Form 10-K for the year ended December 31, 2010.

The unaudited condensed consolidated financial information furnished herein reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. All such adjustments are of a normal recurring nature. The year-end Condensed Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2010.

In January 2011, Power reached an agreement to sell its two generating facilities located in Texas. As a result, amounts related to these plants have been reclassified as Discontinued Operations in the financial statements. See Note 4. Discontinued Operations and Dispositions for additional information.

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Recent Accounting Standards

New Standard Adopted during 2011

Revenue Arrangements with Multiple Deliverables

• amends existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist,

• establishes a selling price hierarchy, such as, “vendor-specific objective evidence,” “third-party evidence” and “estimated selling price” for determining the selling price of a deliverable, and

• provides guidance for allocating and recognizing revenue based on separate deliverables.

We adopted this standard, prospectively effective January 1, 2011, for new and significantly modified revenue arrangements. Upon adoption, there was no material impact on our financial statements and we do not anticipate any changes to the pattern or general timing of revenue recognition for our significant units of account in future periods.

Note 3. Variable Interest Entities (VIEs)

Variable Interest Entities for which PSE&G is the Primary Beneficiary

PSE&G is the primary beneficiary and consolidates two marginally capitalized VIEs, PSE&G Transition Funding LLC (Transition Funding) and PSE&G Transition Funding II LLC (Transition Funding II), which were created for the purpose of issuing transition bonds and purchasing bond transitional property of PSE&G, which is pledged as collateral to the trustee. PSE&G acts as the servicer for these entities to collect securitization transition charges authorized by the BPU. These funds are remitted to Transition Funding and Transition Funding II and are used for interest and principal payments on the transition bonds and related costs.

The assets and liabilities of these VIEs are presented separately on the face of the Condensed Consolidated Balance Sheets of PSEG and PSE&G because the Transition Funding and Transition Funding II assets are restricted and can only be used to settle the obligations of Transition Funding and Transition Funding II, respectively. The Transition Funding and Transition Funding II creditors do not have any recourse to the general credit of PSE&G in the event the transition charges are not sufficient to cover the bond principal and interest payments of Transition Funding and Transition Funding II, respectively.

PSE&G’s maximum exposure to loss is equal to its equity investment in these VIEs which was $16 million as of March 31, 2011 and December 31, 2010. The risk of actual loss to PSE&G is considered remote. PSE&G did not provide any financial support to Transition Funding and Transition Funding II during the first quarter of 2011 or in 2010. Further, PSE&G does not have any contractual commitments or obligations to provide financial support to Transition Funding and Transition Funding II.

Note 4. Discontinued Operations and Dispositions

Discontinued Operations

Power

In January 2011, Power reached agreements to sell its two 1,000 MW combined-cycle generating facilities located in Texas. The plants are being sold in two separate transactions aggregating approximately $687 million. The sale of the Guadalupe facility closed in March 2011 for proceeds of $351 million, resulting in an after-tax gain of $53 million. The sale of the Odessa facility is expected to be closed in the second quarter of 2011.

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

PSEG Texas’ operating results for the three months ended March 31, 2011 and 2010, which were reclassified to Discontinued Operations, are summarized below:

	Three Months Ended March 31,
	2011		2010
	Millions
Operating Revenues	$	63	$	107
Income (Loss) Before Income Taxes	$	18	$	(12	)
Net Income (Loss)	$	11	$	(7	)

The carrying amounts of PSEG Texas’ assets and liabilities as of March 31, 2011 and December 31, 2010 are summarized in the following table:

	As of March 31,		As of December 31,
	2011		2010
	Millions
Current Assets	$	12	$	28
Noncurrent Assets		281		536
Total Assets of Discontinued Operations	$	293	$	564
Current Liabilities	$	11	$	28
Noncurrent Liabilities		34		44
Total Liabilities of Discontinued Operations	$	45	$	72

Dispositions

Leveraged Leases

During the first quarter of 2010, Energy Holdings sold its interest in two leveraged leases, including one international lease for which the IRS has indicated its intention to disallow certain tax deductions taken in prior years.

	Three Months Ended March 31,
	2010
	Millions
Proceeds from Sales	$	106
Gain on Sales, after-tax	$	8

Proceeds from the sales of the international leases were used to reduce the tax exposure related to these lease investments. For additional information see Note 8. Commitments and Contingent Liabilities.

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Financing Receivables

PSE&G

PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout our electric service area. The loans are generally paid back with Solar Renewable Energy Certificates (SRECS) generated from the installed solar electric systems. The following table reflects the outstanding short and long-term loans by class of customer, none of which would be considered “non-performing.”

Credit Risk Profile Based on Payment Activity	As of		As of
	March 31,		December 31,
Consumer Loans	2011		2010
	Millions
Performing
Commercial/Industrial	$	71	$	62
Residential		5		4
	$	76	$	66

Energy Holdings

Energy Holdings has investments in domestic energy and real estate assets subject to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ investments in the leases are comprised of the total expected lease receivables by Energy Holdings on its equity investments over the lease terms plus the estimated residual values at end of lease term, and are reduced for any income on the leases not yet earned. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Taxes on PSEG’s Condensed Consolidated Balance Sheets. The table below shows Energy Holdings’ gross and net lease investment as of March 31, 2011 and December 31, 2010, respectively.

	As of March 31,			As of December 31,
	2011			2010
	Millions
Lease receivables (net of non-recourse debt)	$	893		$	896
Estimated residual value of leased assets		891			905
		1,784			1,801
Unearned and deferred income		(534	)		(546	)
Gross investments in leases		1,250			1,255
Deferred tax liabilities		(896	)		(899	)
Net investments in leases	$	354		$	356

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The corresponding receivables associated with the lease portfolio are reflected below, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. “Not Rated” counterparties relate to investments in leases of commercial real estate properties.

	Lease Receivables, Net of Non-Recourse Debt
	As of March 31,		As of December 31,
Counterparties’ Credit Rating (S&P)	2011		2010
	Millions
AAA - AA	$	21	$	21
A		110		112
BBB - BB		316		316
B		300		430
CC		129		0
Not Rated		17		17
	$	893	$	896

The “B” and “CC” ratings above represent lease receivables underlying coal, gas and oil fired assets in Illinois, New York and Pennsylvania. As of March 31, 2011, the gross investment in the leases of such assets, net of non-recourse debt, was $816 million ($144 million, net of deferred taxes). A more detailed description of such assets under lease is as follows:

Asset	Location	Gross Investment (Millions)		% Owned		Total (MW)		Fuel Type	Counterparty
Powerton Station Units 5 and 6	IL	$	135		64%		1,538	Coal	Edison Mission Energy
Joliet Station Units 7 and 8	IL	$	84		64%		1,044	Coal	Edison Mission Energy
Danskammer Station Units 3 and 4	NY	$	71		100%		370	Coal	Dynegy
Roseton Station Units 1 and 2	NY	$	199		100%		1,200	Gas/Oil	Dynegy
Keystone Station Units 1 and 2	PA	$	110		17%		1,711	Coal	GenOn REMA Services LLC
Conemaugh Station Units 1 and 2	PA	$	111		17%		1,711	Coal	GenOn REMA Services LLC
Shawville Station Units 1, 2, 3 and 4	PA	$	106		100%		603	Coal	GenOn REMA Services LLC

The credit exposure to the lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease. Some of the leasing transactions include covenants that restrict the flow of dividends from the lessee to its parent, over-collateralization of the lessee with non-leased assets, historical and forward cash flow coverage tests that prohibit discretionary capital expenditures and dividend payments to the parent/lessee if stated minimum coverage ratios are not met and similar cash flow restrictions if ratings are not maintained at stated levels. These covenants are designed to maintain cash reserves in the transaction entity for the benefit of the non-recourse lenders and the lessor/equity participants in the event of a market downturn or degradation in operating performance of the leased assets. In the event of a default in any of the lease transactions, Energy Holdings would exercise its rights and attempt to seek recovery of its investment. The results of such efforts may not be known for a period of time. A bankruptcy of a lessee and failure to recover adequate value could lead to a foreclosure of the lease. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and also be required to pay significant cash tax liabilities.

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The counterparty with the “CC” credit rating noted above is Dynegy Inc (Dynegy). In March 2011, S&P downgraded Dynegy from “B” to “CC” following Dynegy’s issuance of its annual report. In that report, Dynegy’s independent auditors noted in their opinion on the financial statements that there was substantial doubt about Dynegy’s ability to continue as a going concern.

Although all payments of equity rent, debt service and other fees are current, no assurances can be given that all payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flow include, but are not limited to, new environmental legislation regarding air quality and other discharges in the process of generating electricity, market prices for fuel and electricity, overall financial condition of lease counterparties, and the quality and condition of assets under lease.

Note 6. Available-for-Sale Securities

Nuclear Decommissioning Trust (NDT) Funds

Power maintains an external master nuclear decommissioning trust to fund its share of decommissioning for its five nuclear facilities upon termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. The trust funds are managed by third party investment advisors who operate under investment guidelines developed by Power.

Power classifies investments in the NDT funds as available-for-sale. The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT funds:

	As of March 31, 2011
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Millions
Equity Securities	$	504	$	198	$	(3	)	$	699
Debt Securities
Government Obligations		294		6		(4	)		296
Other Debt Securities		254		9		(2	)		261
Total Debt Securities		548		15		(6	)		557
Other Securities		110		0		0			110
Total Available-for-Sale Securities	$	1,162	$	213	$	(9	)	$	1,366

	As of December 31, 2010
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Millions
Equity Securities	$	525	$	213	$	(3	)	$	735
Debt Securities
Government Obligations		301		6		(4	)		303
Other Debt Securities		247		10		(2	)		255
Total Debt Securities		548		16		(6	)		558
Other Securities		70		0		0			70
Total Available-for-Sale Securities	$	1,143	$	229	$	(9	)	$	1,363

17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table shows the value of securities in the NDT funds that have been in an unrealized loss position for less than and greater than 12 months:

	As of March 31, 2011										As of December 31, 2010
	Less Than 12 Months					Greater Than  12 Months					Less Than 12 Months					Greater Than  12 Months
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	Millions
Equity Securities (A)	$	43	$	(3	)	$	0	$	0		$	55	$	(3	)	$	0	$	0
Debt Securities
Government Obligations (B)		117		(4	)		2		0			106		(4	)		1		0
Other Debt Securities (C)		73		(1	)		5		(1	)		65		(1	)		8		(1	)
Total Debt Securities		190		(5	)		7		(1	)		171		(5	)		9		(1	)
Total Available-for-Sale Securities	$	233	$	(8	)	$	7	$	(1	)	$	226	$	(8	)	$	9	$	(1	)

(A) Equity Securities—Investments in marketable equity securities within the NDT funds are primarily investments in common stocks within a broad range of industries and sectors. The unrealized losses are distributed over one hundred companies with limited impairment durations and a severity that is generally less than fifteen percent of cost. Power does not consider these securities to be other-than-temporarily impaired as of March 31, 2011.

(B) Debt Securities (Government)—Unrealized losses on Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. Since these investments are guaranteed by the U.S. government or an agency of the U.S. government, it is not expected that these securities will settle for less than their amortized cost basis, since Power does not intend to sell nor will it be more-likely-than-not required to sell. Power does not consider these securities to be other-than-temporarily impaired as of March 31, 2011.

(C) Debt Securities (Corporate)—Power’s investments in corporate bonds are primarily with investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, Power does not consider these debt securities to be other-than-temporarily impaired as of March 31, 2011.

The proceeds from the sales of and the net realized gains on securities in the NDT Funds were:

	Three Months Ended March 31,
	2011			2010
	Millions
Proceeds from Sales	$	315		$	181
Net Realized Gains (Losses):
Gross Realized Gains	$	59		$	28
Gross Realized Losses		(7	)		(12	)
Net Realized Gains (Losses)	$	52		$	16

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Net realized gains disclosed in the above table were recognized in Other Income and Other Deductions in PSEG’s and Power’s Condensed Consolidated Statements of Operations. Net unrealized gains of $102 million (after-tax) were recognized in Accumulated Other Comprehensive Income (OCI) on Power’s Condensed Consolidated Balance Sheet as of March 31, 2011. The available-for-sale debt securities held as of March 31, 2011 had the following maturities:

Time Frame	Fair Value
	Millions
Less than one year	$	25
1 - 5 years		100
6 - 10 years		143
11 - 15 years		40
16 - 20 years		9
Over 20 years		240
	$	557

The cost of these securities was determined on the basis of specific identification.

Power periodically assesses individual securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For equity securities, management considers the ability and intent to hold for a reasonable time to permit recovery in addition to the severity and duration of the loss. For fixed income securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through OCI. In 2011, other-than-temporary impairments of $1 million were recognized on securities in the NDT funds. Any subsequent recoveries in the value of these securities are recognized in OCI unless the securities are sold, in which case, any gain is recognized in income. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost detail of the securities.

Rabbi Trusts

PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in grantor trusts commonly known as “Rabbi Trusts.”

PSEG classifies investments in the Rabbi Trusts as available-for-sale. The following tables show the fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trusts.

	As of March 31, 2011
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	Millions
Equity Securities	$	16	$	4	$	0	$	20
Debt Securities		144		0		0		144
Total PSEG Available-for-Sale Securities	$	160	$	4	$	0	$	164

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	As of December 31, 2010
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
		Millions
Equity Securities	$	16	$	2	$	0	$	18
Debt Securities		142		0		0		142
Total PSEG Available-for-Sale Securities	$	158	$	2	$	0	$	160

The Rabbi Trusts are invested in commingled indexed mutual funds, in which the shares have the characteristics of equity securities. Due to the commingled nature of these funds, PSEG does not have the ability to hold these securities until expected recovery. As a result, any declines in fair market value below cost are recorded as a charge to earnings. For the three months ended March 31, 2011 and 2010, proceeds from sales, realized gains and realized losses related to the Rabbi Trusts were immaterial. For the three months ended March 31, 2011, other-than-temporary impairments of $3 million were recognized on the bond portfolio of the Rabbi Trusts.

The cost of these securities was determined on the basis of specific identification.

The estimated fair value of the Rabbi Trusts related to PSEG, Power and PSE&G are detailed as follows:

	As of March 31, 2011		As of December 31, 2010
	Millions
Power	$	32	$	32
PSE&G		54		54
Other		78		74
Total PSEG Available-for-Sale Securities	$	164	$	160

Note 7. Pension and OPEB

PSEG sponsors several qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria. The following table provides the components of net periodic benefit costs relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis. OPEB costs are presented net of the federal subsidy expected for prescription drugs under the Medicare Prescription Drug Improvement and Modernization Act of 2003. New federal health care legislation enacted in March 2010 eliminates the tax deductibility of retiree health care costs beginning in 2013, to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. See Note 13. Income Taxes for additional information.

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Pension and OPEB costs for PSEG are detailed as follows:

	Pension Benefits Three Months Ended March 31,						OPEB Three Months Ended March 31,
	2011			2010			2011			2010
	Millions
Components of Net Periodic Benefit Costs:
Service Cost	$	24		$	22		$	4		$	4
Interest Cost		58			58			15			18
Expected Return on Plan Assets		(81	)		(67	)		(4	)		(4	)
Amortization of Net
Transition Obligation		0			0			2			7
Prior Service Cost		0			0			(3	)		3
Actuarial Loss		30			30			3			2
Net Periodic Benefit Cost	$	31		$	43		$	17		$	30
Effect of Regulatory Asset		0			0			5			5
Total Benefit Costs, Including Effect of Regulatory Asset	$	31		$	43		$	22		$	35

Pension and OPEB costs for Power, PSE&G and PSEG’s other subsidiaries are detailed as follows:

	Pension Three Months Ended March 31,				OPEB Three Months Ended March 31,
	2011		2010		2011		2010
	Millions
Power	$	10	$	13	$	3	$	4
PSE&G		17		24		18		30
Other		4		6		1		1
Total Benefit Costs	$	31	$	43	$	22	$	35

During the three months ended March 31, 2011, PSEG contributed its entire planned contributions for the year 2011 of $415 million and $11 million into its pension and postretirement healthcare plans, respectively.

Note 8. Commitments and Contingent Liabilities

Guaranteed Obligations

Power’s activities primarily involve the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are with numerous counterparties and brokers that may require cash, cash-related instruments or guarantees.

Power has unconditionally guaranteed payments to counterparties by its subsidiaries in commodity-related transactions in order to

• support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and

• obtain credit.

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Under these agreements, guarantees cover lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction.

In order for Power to incur a liability for the face value of the outstanding guarantees, its subsidiaries would have to

• fully utilize the credit granted to them by every counterparty to whom Power has provided a guarantee, and

• all of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, Power would owe money to the counterparties).

Power believes the probability of this result is unlikely. For this reason, Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. This current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.

Power is subject to

• counterparty collateral calls related to commodity contracts, and

• certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.

Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit. Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.

The face value of outstanding guarantees, current exposure and margin positions as of March 31, 2011 and December 31, 2010 are shown below:

	As of March 31, 2011			As of December 31, 2010
	Millions
Face Value of Outstanding Guarantees	$	1,998		$	1,936
Exposure under Current Guarantees	$	297		$	330
Letters of Credit Margin Posted	$	199		$	137
Letters of Credit Margin Received	$	64		$	109
Cash Deposited and Received
Counterparty Cash Margin Deposited	$	0		$	0
Counterparty Cash Margin Received	$	(4	)	$	(2	)
Net Broker Balance Received	$	(3	)	$	(28	)
In the event Power were to lose its investment grade rating:
Additional Collateral that could be Required	$	772		$	828
Liquidity Available under PSEG’s and Power’s Credit Facilities to Post Collateral	$	2,752		$	2,750
Additional Amounts Posted
Other Letters of Credit	$	98		$	98

Power nets receivables and payables with the corresponding net energy contract balances. See Note 10. Financial Risk Management Activities for further discussion. The remaining balance of net cash (received) deposited is primarily included in Accounts Payable.

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In the event of a deterioration of Power’s credit rating to below investment grade, which would represent a two level downgrade from its current ratings, many of these agreements allow the counterparty to demand further performance assurance. See table above.

In addition to amounts for outstanding guarantees, current exposure and margin positions, Power had posted letters of credit to support various other non-energy contractual and environmental obligations. See table above.

Environmental Matters

Passaic River

Historic operations by PSEG companies and the operations of hundreds of other companies along the Passaic and Hackensack Rivers are alleged by Federal and State agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex.

Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA)

The U.S. Environmental Protection Agency (EPA) has determined that an eight-mile stretch of the Passaic River in the area of Newark, New Jersey is a “facility” within the meaning of that term under CERCLA. The EPA has determined the need to perform a study of the entire 17-mile tidal reach of the lower Passaic River.

PSE&G and certain of its predecessors conducted operations at properties in this area on or adjacent to the Passaic River. The properties included one operating electric generating station (Essex Site), which was transferred to Power, one former generating station and four former manufactured gas plant (MGP) sites. When the Essex Site was transferred from PSE&G to Power, PSE&G obtained releases and indemnities for liabilities arising out of the former Essex generating station and Power assumed any environmental liabilities.

The EPA believes that hazardous substances were released from the Essex Site and one of PSE&G’s former MGP locations (Harrison Site). In 2006, the EPA notified the potentially responsible parties (PRPs) that the cost of its study would greatly exceed the original estimated cost of $20 million. 73 PRPs, including Power and PSE&G, agreed to assume responsibility for the study and to divide the associated costs according to a mutually agreed upon formula. The PRP group, currently 69 members, is presently executing the study. Approximately five percent of the study costs are attributable to PSE&G’s former MGP sites and approximately one percent to Power’s generating stations. Power has provided notice to insurers concerning this potential claim.

In 2007, the EPA released a draft “Focused Feasibility Study” that proposed six options to address the contamination cleanup of the lower eight miles of the Passaic River. The estimated costs for the proposed remedy range from $1.3 billion to $3.7 billion. The work contemplated by the study is not subject to the cost sharing agreement discussed above. A revised focused feasibility study may be released as early as the second quarter of 2011.

In June 2008, an agreement was announced between the EPA and two PRPs for removal of a portion of the contaminated sediment in the Passaic River at an estimated cost of $80 million. The two PRPs have reserved their rights to seek contribution for the removal costs from the other PRPs, including Power and PSE&G.

New Jersey Spill Compensation and Control Act (Spill Act)

In 2005, the New Jersey Department of Environmental Protection (NJDEP) filed suit against a PRP and its related companies in the New Jersey Superior Court seeking damages and reimbursement for costs expended by the State of New Jersey to address the effects of the PRP’s discharge of hazardous substances into both the Passaic River and the balance of the Newark Bay Complex. Power and PSE&G are alleged to have owned, operated or contributed hazardous substances to a total of 11 sites or facilities that impacted these water bodies. In February 2009, third party complaints were filed against some 320 third party defendants, including Power and PSE&G, claiming that each of the third party defendants is responsible for its proportionate share

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

of the clean-up costs for the hazardous substances they allegedly discharged into the Passaic River and the Newark Bay Complex. The third party complaints seek statutory contribution and contribution under the Spill Act to recover past and future removal costs and damages. Power and PSE&G filed answers to the complaint in June 2010. A special master for discovery has been appointed by the court. Power and PSE&G believe they have good and valid defenses to the allegations contained in the third party complaints and will vigorously assert those defenses.

Natural Resource Damage Claims

In 2003, the NJDEP directed PSEG, PSE&G and 56 other PRPs to arrange for a natural resource damage assessment and interim compensatory restoration of natural resource injuries along the lower Passaic River and its tributaries pursuant to the Spill Act. The NJDEP alleged that hazardous substances had been discharged from the Essex Site and the Harrison Site. The NJDEP estimated the cost of interim natural resource injury restoration activities along the lower Passaic River at approximately $950 million. In 2007, agencies of the United States Department of Commerce and the United States Department of the Interior sent letters to PSE&G and other PRPs inviting participation in an assessment of injuries to natural resources that the agencies intended to perform. In 2008, PSEG and a number of other PRPs agreed to share certain immaterial costs the trustees have incurred and will incur going forward, and to work with the trustees to explore whether some or all of the trustees’ claims can be resolved in a cooperative fashion. That effort is continuing.

Newark Bay Study Area

The EPA has established the Newark Bay Study Area, which it defines as Newark Bay and portions of the Hackensack River, the Arthur Kill and the Kill Van Kull. In August 2006, the EPA sent PSEG and 11 other entities notices that it considered each of the entities to be a PRP with respect to contamination in the Study Area. The notice letter requested that the PRPs fund an EPA-approved study in the Newark Bay Study Area and encouraged the PRPs to contact Occidental Chemical Corporation (OCC) to discuss participating in the Remedial Investigation/Feasibility Study that OCC was conducting. The notice stated the EPA’s belief that hazardous substances were released from sites owned by PSEG companies and located on the Hackensack River, including two operating electric generating stations (Hudson and Kearny sites) and one former MGP site. PSEG is participating in and partially funding this study. Notices to fund the next phase of the study have been received but it is uncertain at this time whether the PSEG companies will consent to fund the next phase.

PSEG, Power and PSE&G cannot predict what further actions, if any, or the costs or the timing thereof, may be required with respect to the Passaic River, the NJDEP Litigation, the Newark Bay Study Area or with respect to natural resource damages claims; however, such costs could be material.

MGP Remediation Program

PSE&G is working with the NJDEP to assess, investigate and remediate environmental conditions at PSE&G’s former MGP sites. To date, 38 sites requiring some level of remedial action have been identified. The NJDEP has also announced initiatives to accelerate the investigation and subsequent remediation of the riverbeds underlying surface water bodies that have been impacted by hazardous substances from adjoining sites. In 2005, the NJDEP initiated a program on the Delaware River aimed at identifying the ten most significant sites for cleanup. One of the sites identified was PSE&G’s former Camden Coke facility.

During the third quarter of 2010, PSE&G updated the estimated cost to remediate all MGP sites to completion and determined that the cost to completion could range between $668 million and $774 million from September 30, 2010 through 2021. Since no amount within the range was considered to be most likely, PSE&G reflected a liability of $668 million on its Condensed Consolidated Balance Sheet as of September 30, 2010. Since September 30, 2010, PSE&G had $10 million of expenditures, reducing the liability to $658 million as of March 31, 2011. Of this amount, $59 million was recorded in Other Current Liabilities and $599 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $658 million Regulatory Asset with respect to these costs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Prevention of Significant Deterioration (PSD)/New Source Review (NSR)

The PSD/NSR regulations, promulgated under the Clean Air Act, require major sources of certain air pollutants to obtain permits, install pollution control technology and obtain offsets, in some circumstances, when those sources undergo a “major modification,” as defined in the regulations. The federal government may order companies that are not in compliance with the PSD/NSR regulations to install the best available control technology at the affected plants and to pay monetary penalties ranging from $25,000 to $37,500 per day for each violation, depending upon when the alleged violation occurred.

In November 2006, Power reached an agreement with the EPA and the NJDEP to achieve emissions reductions targets at certain of Power’s generating stations. Under this agreement, Power was required to undertake a number of technology projects, plant modifications and operating procedure changes at the Hudson and Mercer facilities designed to meet targeted reductions in emissions of sulfur dioxide (SO₂), nitrogen oxide (NO_x), particulate matter and mercury. Power completed the construction of all plant modifications by the end of 2010 at a cost of $1.3 billion. Performance testing to validate the agreed-upon emission reductions is ongoing.

In January 2009, the EPA issued a notice of violation to Power and the other owners of the Keystone coal fired plant in Pennsylvania, alleging, among other things, that various capital improvement projects were completed at the plant which are considered modifications (or major modifications) causing significant net emission increases of PSD/NSR air pollutants, beginning in 1985 for Keystone Unit 1 and in 1984 for Keystone Unit 2. The notice of violation states that none of these modifications underwent PSD/NSR permitting process prior to being put into service, which the EPA alleges was required under the Clean Air Act. The notice of violation states that the EPA may issue an order requiring compliance with the relevant Clean Air Act provisions and may seek injunctive relief and/or civil penalties. Power owns approximately 23% of the plant. Power cannot predict the outcome of this matter.

Hazardous Air Pollutants Regulation

In accordance with a court ruling, the EPA proposed a Maximum Achievable Control Technology (MACT) regulation in March 2011 which is expected to be finalized by November 2011. This regulation includes reduction of mercury and other hazardous air pollutants pursuant to the Clean Air Act. Until the final rule is adopted, the impact cannot be determined; however, if the rule is adopted as proposed, Power believes the back end technology environmental controls recently installed at its Hudson and Mercer coal facilities should meet the rule’s requirements. At Power’s Connecticut and some of the other New Jersey facilities, some additional controls could be necessary, pending engineering evaluation. The impact to Power’s jointly owned coal fired generating facilities in Pennsylvania is under evaluation.

New Jersey regulations required coal fired electric generating units to meet certain emissions limits or reduce mercury emissions by approximately 90% by December 15, 2007. Companies that are parties to multi-pollutant reduction agreements, such as Power, have been permitted to postpone such reductions on half of their coal fired electric generating capacity until December 15, 2012.

With its newly installed controls in New Jersey, Power is expected to achieve the required mercury reductions that are part of Power’s multi-pollutant reduction agreement that resolved issues arising out of the PSD/NSR air pollution control programs discussed above.

In 2007, Pennsylvania finalized its “state-specific” requirements to reduce mercury emissions from coal fired electric generating units. In 2009, the Commonwealth Court of Pennsylvania struck down the state rule, indicating that the rule violated Pennsylvania law because it was inconsistent with the Clean Air Act. This decision was affirmed by the Supreme Court of Pennsylvania.

NO_x Regulation

In April 2009, the NJDEP finalized revisions to NO_x emission control regulations that impose new NO_x emission reduction requirements and limits for New Jersey fossil fuel fired electric generating units. The rule

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

has a significant impact on Power’s generation fleet, as it imposes NO_x emissions limits that will require significant capital investment for controls or the retirement of up to 102 combustion turbines (approximately 2,000 MW) and five older New Jersey steam electric generating units (approximately 800 MW) by April 30, 2015.

Power has been working with the NJDEP throughout the development of this rulemaking to minimize financial impact and to provide for transitional lead time to address the retirement of electric generating units. Power cannot predict the financial impact resulting from compliance with this rulemaking.

Under current Connecticut regulations, Power’s Bridgeport and New Haven facilities have been utilizing Discrete Emission Reduction Credits (DERCs) to comply with certain NO_x emission limitations that were incorporated into the facilities’ operating permits. On April 30, 2010, Power negotiated new agreements with the State of Connecticut extending the continued use of DERCs for certain emission units and equipment until May 31, 2014.

New Jersey Industrial Site Recovery Act (ISRA)

Potential environmental liabilities related to the alleged discharge of hazardous substances at certain generating stations have been identified. In the second quarter of 1999, in anticipation of the transfer of PSE&G’s generation-related assets to Power, a study was conducted pursuant to ISRA, which applied to the sale of certain assets. Power had a $50 million liability related to these obligations, which was included in Environmental Costs on Power’s and PSEG’s Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010.

Clean Water Act Permit Renewals

Pursuant to the Federal Water Pollution Control Act (FWPCA), New Jersey Pollutant Discharge Elimination System (NJPDES) permits expire within five years of their effective date. In order to renew these permits, but allow a plant to continue to operate, an owner or operator must file a permit application no later than six months prior to expiration of the permit. Power has filed or will be filing applications for permits in a variety of states.

One of the most significant NJPDES permits governing cooling water intake structures at Power is for Salem. In 2001, the NJDEP issued a renewed NJPDES permit for Salem, expiring in July 2006, allowing for the continued operation of Salem with its existing cooling water intake system. In February 2006, Power filed with the NJDEP a renewal application allowing Salem to continue operating under its existing NJPDES permit until a new permit is issued. Power prepared its renewal application in accordance with the FWPCA Section 316(b) and the 316(b) rules published in 2004. Those rules did not mandate the use of cooling towers at large existing generating plants. Rather, the rules provided alternatives for compliance with 316(b), including the use of restoration efforts to mitigate for the potential effects of cooling water intake structures, as well as the use of site-specific analysis to determine the best technology available for minimizing adverse impact based upon a cost-benefit test. Power has used restoration and/or a site-specific cost-benefit test in applications filed to renew the permits at its once-through cooled plants, including Salem, Hudson and Mercer.

As a result of several challenges to the 2004 316(b) rule by certain northeast states, environmentalists and industry groups, the rule has been suspended and has been returned to the EPA to be consistent with a January 2007 U.S. Court of Appeals for the Second Circuit decision, as modified by an April 2009 United States Supreme Court decision. In sum, the Second Circuit issued a decision that remanded major portions of the regulations and determined that Section 316(b) of the FWPCA does not support the use of restoration and the site-specific cost-benefit test. In April 2009, the U.S. Supreme Court reversed the Second Circuit’s opinion concerning the cost-benefit test, concluding that the EPA could rely upon cost-benefit analysis in setting the national performance standards and in providing for cost-benefit variances from those standards as part of the Phase II regulations.

In late 2010, the EPA entered into a settlement agreement with environmental groups that established a schedule to develop a new 316(b) rule. On April 20, 2011, the EPA published the proposed rule and comments

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

are due 90 days thereafter. The proposed rule would establish certain standards for existing cooling water intake structures with a design flow of more than 2 million gallons per day. If the rule were to be adopted as proposed, the majority of Power’s electric generating facilities would be affected as they employ once-through cooling utilizing tidal river and tidal waters. Power is reviewing the proposed rule and assessing the potential impact on its generating facilities. Power is unable to predict the outcome of this proposed rulemaking, the final form that the proposed regulations may take and the effect, if any, that they may have on its future capital requirements, financial condition or results of operations which could be material.

The results of further proceedings on this matter could have a material impact on Power’s ability to renew permits at its larger once-through cooled plants, including Salem, Hudson, Mercer, Bridgeport and possibly Sewaren and New Haven, without making significant upgrades to existing intake structures and cooling systems. The costs of those upgrades to one or more of Power’s once-through cooled plants could be material, and would require economic review to determine whether to continue operations at these facilities. For example, in Power’s application to renew its Salem permit, filed with the NJDEP in February 2006, the estimated costs for adding cooling towers for Salem were approximately $1 billion, of which Power’s share would have been approximately $575 million. These cost estimates have not been updated. Currently, potential costs associated with any closed cycle cooling requirements are not included in Power’s forecasted capital expenditures.

In addition to the EPA rulemaking, several states, including California and New York, have begun setting policies that may require closed cycle cooling. It is unknown how these policies will ultimately impact the EPA’s rulemaking.

In January 2010, the NJDEP issued a draft NJPDES permit to another company which would require the installation of closed cycle cooling at that company’s nuclear generating station located in New Jersey. In December 2010, NJDEP and that company entered into an Administrative Consent Order (ACO) which would require the company to cease operations at the nuclear generating station no later than 2019. In the ACO, the NJDEP agreed that closed cycle cooling is not the best technology available for that facility and agreed to issue a new draft NJPDES permit for that facility without a requirement for construction of cooling towers or other closed cycle cooling facilities. The new draft NJPDES permit will be issued in substitution for the draft NJPDES permit issued in January 2010. We cannot predict at this time the final outcome of the NJDEP decision and the impact, if any, such a decision would have on any of Power’s once-through cooled generating stations.

Stormwater

In October 2008, the NJDEP notified Power that it must apply for an individual stormwater discharge permit for its Hudson generating station. Hudson stores its coal in an open air pile and, as a result, it is exposed to precipitation. Discharge of stormwater from Hudson has been regulated pursuant to a Basic Industrial Stormwater General Permit, authorization of which has been previously approved by the NJDEP. The NJDEP has determined that Hudson is no longer eligible to utilize this general permit.

In December 2010, the NJDEP issued a draft renewal NJPDES permit to Power which, among other things, proposed conditions regarding stormwater runoff from the Hudson coal pile. The NJDEP authorized a new discharge of stormwater runoff without further requirement to construct technologies preventing the discharge of stormwater to surface water or groundwater. The draft permit is subject to public comment. It is unclear when the NJDEP will issue a final NJPDES permit. To the extent the NJDEP reverses course and requires elimination of the exposure of coal to stormwater, or requires new technologies to prevent the discharge of stormwater to surface or groundwater, those costs could be material.

New Generation and Development

Nuclear

Power has approved the expenditure of approximately $192 million for a steam path retrofit and related upgrades at its co-owned Peach Bottom Units 2 and 3. Completion of these upgrades is expected to result in an

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

increase of Power’s share of nominal capacity by approximately 32 MW (14 MW at Unit 3 in 2011 and 18 MW at Unit 2 in 2012). Total expenditures through March 31, 2011 were $57 million and are expected to continue through 2012.

Power has begun expenditures in pursuit of additional output through an extended power uprate of the Peach Bottom nuclear units. The uprate is expected to be in service in 2015 for Unit 2 and 2016 for Unit 3. Power’s share of the increased capacity is expected to be approximately 133 MW with an anticipated cost of approximately $400 million. Total expenditures through March 31, 2011 were $22 million and are expected to continue through 2016.

Connecticut

Power has been selected by the Connecticut Department of Public Utility Control in a regulatory process to build 130 MW of gas fired peaking capacity. Final approval has been received and construction is expected to commence in the second quarter of 2011. The project is expected to be in service by June 2012. Power estimates the cost of these generating units to be $130 million to $140 million. Total capitalized expenditures through March 31, 2011 were $60 million, which are included in Property, Plant and Equipment on the Condensed Consolidated Balance Sheets of PSEG and Power.

PJM Interconnection L.L.C. (PJM)

Power plans to construct gas fired peaking facilities at its Kearny site. Capacity in the amount of 178 MW was bid into and cleared the PJM Reliability Pricing Model (RPM) base residual capacity auction for the 2012-2013 period. Final approval has been received and construction is expected to commence in the second quarter of 2011. The project is expected to be in service by June 2012. In addition, capacity in the amount of 89 MW was bid into and cleared the PJM RPM base residual capacity auction for the 2013-2014 period. Final approval has been received, and the project is expected to be in service by June 2012. Power estimates the cost of these generating units to be $250 million to $300 million. Total capitalized expenditures through March 31, 2011 were $64 million which are included in Property, Plant and Equipment on Power’s and PSEG’s Condensed Consolidated Balance Sheets.

PSE&G—Solar

As part of the BPU-approved Solar 4 All Program, PSE&G is installing up to 40 MW of solar generation on existing utility poles within its service territory. PSE&G has entered into an agreement to purchase solar units for this program. PSE&G’s commitments under this agreement are contingent upon, among other things, the availability of suitable utility poles for installation of the units. Approximately 18 MW have been installed as of March 31, 2011. PSE&G’s cumulative investments for these solar units were approximately $130 million, with additional purchases to be made on a quarterly basis during the remaining two-year term of the purchase agreement.

Another aspect of the Solar 4 All program is the installation of another 40 MW of solar systems on land and buildings owned by PSE&G and third parties. Through March 31, 2011, 19 MW representing 13 projects were placed into service with an investment of approximately $100 million.

Basic Generation Service (BGS) and Basic Gas Supply Service (BGSS)

PSE&G obtains its electric supply requirements for customers who do not purchase electric supply from third party suppliers through the annual New Jersey BGS auctions. Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreement (SMA) with the winners of these BGS auctions following the BPU’s approval of the auction results. PSE&G has entered into contracts with Power, as well as with other winning BGS suppliers, to purchase BGS for PSE&G’s load requirements. The winners of the auction (including Power) are responsible for fulfilling all the requirements of a PJM Load Serving Entity including the provision of capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume all volume risk and customer migration risk and must satisfy New Jersey’s renewable portfolio standards.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Power seeks to mitigate volatility in its results by contracting in advance for the sale of most of its anticipated electric output as well as its anticipated fuel needs. As part of its objective, Power has entered into contracts to directly supply PSE&G and other New Jersey electric distribution companies (EDCs) with a portion of their respective BGS requirements through the New Jersey BGS auction process, described above. In addition to the BGS-related contracts, Power also enters into firm supply contracts with EDCs, as well as other firm sales and commitments.

PSE&G has contracted for its anticipated BGS-Fixed Price eligible load, as follows:

	Auction Year
	2008		2009		2010		2011
36-Month Terms Ending		May 2011		May 2012		May 2013		May 2014	(A)
Load (MW)		2,800		2,900		2,800		2,800
$ per kWh		0.11150		0.10372		0.09577		0.09430

(A) Prices set in the 2011 BGS auction will become effective on June 1, 2011 when the 2008 BGS auction agreements expire.

PSE&G has a full requirements contract with Power to meet the gas supply requirements of PSE&G’s gas customers. The contract extends through March 31, 2012, and year-to-year thereafter. Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. For additional information, see Note 17. Related-Party Transactions. Current plans call for Power to hedge on behalf of PSE&G approximately 70 billion cubic feet or 50% of its residential gas supply annual requirements.

Minimum Fuel Purchase Requirements

Power has various long-term fuel purchase commitments for coal and oil to support its fossil generation stations and for supply of nuclear fuel for the Salem and Hope Creek nuclear generating stations and for firm transportation and storage capacity for natural gas.

Power’s various multi-year contracts for firm transportation and storage capacity for natural gas are primarily used to meet its gas supply obligations to PSE&G. These purchase obligations are consistent with Power’s strategy to enter into contracts for its fuel supply in comparable volumes to its sales contracts.

Power’s strategy is to maintain certain levels of uranium in inventory and to make periodic purchases to support such levels. As such, the commitments referred to below may include estimated quantities to be purchased that deviate from contractual nominal quantities. Power’s nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2012 and a portion for 2013, 2014 and 2015 at Salem, Hope Creek and Peach Bottom.

As of March 31, 2011, the total minimum purchase requirements included in these commitments were as follows:

Fuel Type	Commitments through 2015 Power’s Share
		Millions
Nuclear Fuel
Uranium	$	414
Enrichment	$	351
Fabrication	$	128
Natural Gas	$	803
Coal	$	1,196

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Included in the $1,196 million commitment for coal is $723 million related to a certain coal contract under which Power can cancel contractual deliveries at minimal cost. In 2011, Power has not cancelled any coal shipments.

Regulatory Proceedings

Electric Discount and Energy Competition Act (Competition Act)

In April 2007, PSE&G and Transition Funding were served with a purported class action complaint (Complaint) in New Jersey Superior Court challenging the constitutional validity of certain stranded cost recovery provisions of the Competition Act, seeking injunctive relief against continued collection from PSE&G’s electric customers of the Transition Bond Charge (TBC) of Transition Funding, as well as recovery of TBC amounts previously collected. Under New Jersey law, the Competition Act, enacted in 1999, is presumed constitutional.

In July 2007, the plaintiff filed an amended Complaint to also seek injunctive relief from continued collection of related taxes as well as recovery of such taxes previously collected. In July 2007, PSE&G filed a motion to dismiss the amended Complaint, which was granted in October 2007. In November 2007, the plaintiff filed a notice of appeal with the Appellate Division of the New Jersey Superior Court. In February 2009, the New Jersey Appellate Division affirmed the decision of the lower court dismissing the case. In May 2009, the New Jersey Supreme Court denied a request from the plaintiff to review the Appellate Division’s decision.

In July 2007, the same plaintiff also filed a petition with the BPU requesting review and adjustment to PSE&G’s recovery of the same stranded cost charges. In September 2007, PSE&G filed a motion with the BPU to dismiss the petition. In June 2010, the BPU granted PSE&G’s motion to dismiss. In April 2011, the BPU issued a written order memorializing this decision. The petitioner had previously stated that it would appeal the BPU’s written order to the New Jersey Appellate Division and has until June 6, 2011 to do so.

New Jersey Clean Energy Program

In 2008, the BPU approved funding requirements for each New Jersey utility applicable to its Renewable Energy and Energy Efficiency programs for the years 2009 to 2012. The aggregate funding amount is $1.2 billion for all years. PSE&G’s share is $705 million. PSE&G has recorded a discounted liability of $385 million as of March 31, 2011. Of this amount, $211 million was recorded as a current liability and $174 million as a noncurrent liability. The liability has been recorded with an offsetting Regulatory Asset, since the costs associated with this program are expected to be recovered from PSE&G ratepayers through the societal benefits charge.

Long-Term Capacity Agreement Pilot Program (LCAPP)

In January 2011, New Jersey enacted the LCAPP Act directing the BPU to conduct a process to procure and subsidize up to 2,000 megawatts of baseload or mid-merit electric power generation. In March 2011 the BPU issued a written order approving a form of agreement and selecting three generators to build a total of approximately 1,949 MWs of new combined-cycle generating facilities located in New Jersey. Each of the New Jersey EDCs, including PSE&G, executed standard offer capacity agreements (SOCA) with each of the three selected generators in compliance with the BPU’s directive, but did so under protest preserving its legal rights. The SOCA requires that the generator bid in and clear the PJM RPM base residual auction in each year of the SOCA term. The SOCA provides for the EDCs to make capacity payments to, or receive capacity payments from, the generators as calculated based on the difference between the RPM clearing price for each year of the term and the price bid and accepted for that generator in the BPU process. The LCAPP Act and the BPU order provide that, once the SOCAs are executed and approved by the BPU, they will be irrevocable and the EDCs will be entitled to full rate recovery of the prudently incurred costs. On April 27, 2011, the BPU approved the executed contracts and also announced that it will convene a proceeding to consider whether current mechanisms are adequate to incent needed generation construction in New Jersey.

30

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Leveraged Lease Investments

The IRS has issued reports with respect to its audits of PSEG’s consolidated federal corporate income tax returns for tax years 1997 through 2003, which disallowed all deductions associated with certain lease transactions. The IRS reports also proposed a 20% penalty for substantial understatement of tax liability. PSEG has filed protests of these findings with the Office of Appeals of the IRS.

PSEG believes its tax position related to these transactions was proper based on applicable statutes, regulations and case law in effect at the time that the deductions were taken. There are several pending tax cases involving other taxpayers with similar leveraged lease investments. To date, six cases have been decided at the trial court level, four of which were decided in favor of the government. The appeals of two of these decisions were affirmed, both in favor of the government. The fifth case involves a jury verdict that was challenged by both parties on inconsistency grounds but was later settled by the parties. One case, involving an investment in an energy transaction by a utility, was decided in favor of the taxpayer.

In order to reduce the cash tax exposure related to these leases, Energy Holdings pursued opportunities to terminate international leases with lessees that were willing to meet certain economic thresholds. As of December 31, 2010, Energy Holdings had terminated all of these leasing transactions and reduced the related cash tax exposure by $1.1 billion. PSEG has completely eliminated its gross investment in such transactions.

Cash Impact

As of March 31, 2011, an aggregate of approximately $263 million would become currently payable if PSEG conceded all deductions taken through that date. PSEG has deposited $320 million with the IRS to defray potential interest costs associated with this disputed tax liability, eliminating its cash exposure completely. In the event PSEG is successful in defense of its position, the deposit is fully refundable with interest. Penalties of $150 million would also become payable if the IRS successfully asserted and litigated a case against PSEG. PSEG has not established a reserve for penalties because it believes it has strong defenses to the assertion of penalties under applicable law. Interest and penalty exposure will grow at an average rate of $2 million per quarter during 2011. If the IRS is successful in a litigated case consistent with the positions it has taken in the generic settlement offer recently proposed, an additional $20 million to $40 million of tax would be due for tax positions through March 31, 2011.

Unless this matter is resolved with the IRS, PSEG currently anticipates that it may be required to pay between $110 million and $300 million in tax, interest and penalties for the tax years 1997-2000 during 2011 and subsequently commence litigation to recover those amounts. It is possible that an additional payment of between $220 million and $540 million could be required during 2011 for tax years 2001-2003 followed by further litigation to recover those amounts. The amounts that may be required to litigate differ from the potential net cash exposure noted above, as the former amounts include all potential deficiencies for only contested tax years 1997 through 2003. These litigation amounts also include penalties which are not included in the computation of potential net cash exposure as PSEG believes it has strong defenses. These amounts also exclude an offset for taxes paid on lease terminations, which is netted in the potential net cash exposure as PSEG would be entitled to a refund of such amounts under a loss scenario. Any potential claims PSEG would make to recover such amounts would include the deposit noted above.

Earnings Impact

PSEG’s current reserve position represents its view of the earnings impact that could result from a settlement related to these transactions, although a total loss, consistent with the broad settlement offer proposed by the IRS, would result in an additional earnings charge of $120 million to $140 million.

31

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 9. Changes in Capitalization

The following capital transactions occurred in the first three months of 2011:

Power

• paid a cash dividend of $175 million to PSEG in March.

PSE&G

• paid $46 million of Transition Funding’s securitization debt.

Energy Holdings

• paid $1 million of nonrecourse project debt.

In addition, Power paid its $606 million of 7.75% Senior Notes at maturity in April 2011.

Note 10. Financial Risk Management Activities

The operations of PSEG, Power and PSE&G are exposed to market risks from changes in commodity prices, interest rates and equity prices that could affect their results of operations and financial condition. Exposure to these risks is managed through normal operating and financing activities and, when appropriate, through hedging transactions. Hedging transactions use derivative instruments to create a relationship in which changes to the value of the assets, liabilities or anticipated transactions exposed to market risks are expected to be offset by changes in the value of these derivative instruments.

Commodity Prices

The availability and price of energy commodities are subject to fluctuations due to weather, environmental policies, changes in supply and demand, state and federal regulatory policies, market conditions, transmission availability and other events. Power uses physical and financial transactions in the wholesale energy markets to mitigate the effects of adverse movements in fuel and electricity prices. Derivative contracts that do not qualify for hedge accounting or normal purchases/normal sales treatment are marked to market (MTM) with changes in fair value recorded in the income statement. The fair value for the majority of these contracts is obtained from quoted market sources. Modeling techniques using assumptions reflective of current market rates, yield curves and forward prices are used to interpolate certain prices when no quoted market exists.

Cash Flow Hedges

Power uses forward sale and purchase contracts, swaps, futures and firm transmission right (FTR) contracts to hedge

• forecasted energy sales from its generation stations and the related load obligations and

• the price of fuel to meet its fuel purchase requirements.

These derivative transactions are designated and effective as cash flow hedges. As of March 31, 2011 and December 31, 2010, the fair value and the impact on Accumulated Other Comprehensive Income (Loss) associated with these hedges was as follows:

	As of March 31, 2011		As of December 31, 2010
		Millions
Fair Value of Cash Flow Hedges	$	152	$	196
Impact on Accumulated Other Comprehensive Income (Loss) (after tax)	$	82	$	114

32

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The expiration date of the longest-dated cash flow hedge at Power is in 2012. Power’s after-tax unrealized gains on these derivatives that are expected to be reclassified to earnings during the next 12 months and thereafter, are $81 million and $1 million, respectively. There was no material ineffectiveness associated with these hedges as of March 31, 2011.

Trading Derivatives

In general, the main purpose of Power’s wholesale marketing operation is to optimize the value of the output of the generating facilities via various products and services available in the markets we serve. Power does engage in trading of electricity and energy-related products where such transactions are not associated with the output or fuel purchase requirements of our facilities. This trading consists mostly of energy supply contracts where we secure sales commitments with the intent to supply the energy services from purchases in the market rather than from our owned generation. Such trading activities are marked to market through the income statement and represent less than one percent of gross margin (revenues less energy costs) on an annual basis.

Other Derivatives

Power enters into other contracts that are derivatives, but do not qualify for cash flow hedge accounting. Most of these contracts are used for fuel purchases for generation requirements and for electricity purchases for contractual sales obligations. Changes in fair market value of these contracts are recorded in earnings. The fair value of these contracts as of March 31, 2011 and December 31, 2010 was $2 million and $(4) million, respectively.

Interest Rates

PSEG, Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, we have used a mix of fixed and floating rate debt, interest rate swaps and interest rate lock agreements.

Fair Value Hedges

PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. Since 2009, PSEG has entered into eight interest rate swaps totaling $1.150 billion. These swaps convert $300 million of Power’s $600 million of 6.95% Senior Notes due June 2012, Power’s $250 million of 5% Senior Notes due April 2014, Power’s $300 million of 5.5% Senior Notes due 2015 and $300 million of Power’s $303 million of 5.32% Senior Notes due September 2016 into variable-rate debt. These interest rate swaps are designated and effective as fair value hedges. The fair value changes of the interest rate swaps are fully offset by the changes in the fair value of the underlying debt. As of March 31, 2011 and December 31, 2010, the fair value of all the underlying hedges was $30 million and $39 million, respectively.

Cash Flow Hedges

PSEG, Power and Energy Holdings use interest rate swaps and other derivatives, which are designated and effective as cash flow hedges, to manage their exposure to the variability of cash flows, primarily related to variable-rate debt instruments. As of March 31, 2011, there was no hedge ineffectiveness associated with these hedges. The total fair value of these interest rate derivatives was immaterial as of each of March 31, 2011 and December 31, 2010. The Accumulated Other Comprehensive Loss (after tax) related to interest rate derivatives designated as cash flow hedges was $3 million as of March 31, 2011 and December 31, 2010.

33

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair Values of Derivative Instruments

The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets:

	As of March 31, 2011
	Power												PSE&G			PSEG		Consolidated
	Cash Flow Hedges			Non Hedges			Netting (A)			Total Power			Non Hedges			Fair Value Hedges		Total Derivatives
Balance Sheet Location	Energy- Related Contracts			Energy- Related Contracts									Energy- Related Contracts			Interest Rate Swaps
		Millions
Derivative Contracts
Current Assets	$	156		$	348		$	(348	)	$	156		$	0		$	18	$	174
Noncurrent Assets		6			64			(38	)		32			6			12		50
Total Mark-to-Market Derivative Assets	$	162		$	412		$	(386	)	$	188		$	6		$	30	$	224
Derivative Contracts
Current Liabilities	$	(7	)	$	(386	)	$	340		$	(53	)	$	(11	)	$	0	$	(64	)
Noncurrent Liabilities		(3	)		(60	)		38			(25	)		0			0		(25	)
Total Mark-to-Market Derivative (Liabilities)	$	(10	)	$	(446	)	$	378		$	(78	)	$	(11	)	$	0	$	(89	)
Total Net Mark-to-Market Derivative Assets (Liabilities)	$	152		$	(34	)	$	(8	)	$	110		$	(5	)	$	30	$	135

	As of December 31, 2010
	Power												PSE&G			PSEG		Consolidated
	Cash Flow Hedges			Non Hedges			Netting (A)			Total Power			Non Hedges			Fair Value Hedges		Total Derivatives
Balance Sheet Location	Energy- Related Contracts			Energy- Related Contracts									Energy- Related Contracts			Interest Rate Swaps
		Millions
Derivative Contracts
Current Assets	$	204		$	403		$	(444	)	$	163		$	0		$	19	$	182
Noncurrent Assets		3			80			(41	)		42			17			20		79
Total Mark-to-Market Derivative Assets	$	207		$	483		$	(485	)	$	205		$	17		$	39	$	261
Derivative Contracts
Current Liabilities	$	(11	)	$	(454	)	$	374		$	(91	)	$	(12	)	$	0	$	(103	)
Noncurrent Liabilities		0			(72	)		50			(22	)		0			0		(22	)
Total Mark-to-Market Derivative (Liabilities)	$	(11	)	$	(526	)	$	424		$	(113	)	$	(12	)	$	0	$	(125	)
Total Net Mark-to-Market Derivative Assets (Liabilities)	$	196		$	(43	)	$	(61	)	$	92		$	5		$	39	$	136

(A) Represents the netting of fair value balances with the same counterparty and the application of collateral. As of March 31, 2011 and December 31, 2010, net cash collateral received of $8 million and

34

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

$61 million, respectively, was netted against the corresponding net derivative contract positions. Of the $8 million as of March 31, 2011, cash collateral of $(18) million and $(2) million were netted against current assets and noncurrent assets, respectively, and cash collateral of $10 million and $2 million were netted against current liabilities and noncurrent liabilities, respectively. Of the $61 million as of December 31, 2010, cash collateral of $(132) million and $(3) million were netted against current assets and noncurrent assets, respectively, and cash collateral of $62 million and $12 million were netted against current liabilities and noncurrent liabilities, respectively.

The aggregate fair value of energy-related contracts in a liability position as of March 31, 2011 that contain triggers for additional collateral was $261 million. This potential additional collateral is included in the $772 million discussed in Note 8. Commitments and Contingent Liabilities.

The following shows the effect on the Condensed Consolidated Statements of Operations and on Accumulated Other Comprehensive Income (AOCI) of derivative instruments designated as cash flow hedges for the three months ended March 31, 2011 and 2010:

Derivatives in Cash Flow Hedging Relationships	Amount of Pre-Tax Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)					Location of Pre-Tax Gain (Loss) Reclassified from AOCI into Income		Amount of Pre-Tax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)					Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)		Amount of Pre-Tax Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)
	Three  Months Ended March 31,							Three Months Ended March 31,							Three Months Ended March 31,
	2011		2010					2011		2010					2011			2010
		Millions
PSEG and Power
Energy-Related Contracts	$	13	$	208			Operating Revenues	$	66	$	76			Operating Revenues	$	(2	)	$	(2	)
Energy-Related Contracts		2		(2	)		Energy Costs		3		(1	)				0			0
Total PSEG	$	15	$	206				$	69	$	75				$	(2	)	$	(2	)

The following reconciles the Accumulated Other Comprehensive Income for derivative activity included in the Accumulated Other Comprehensive Loss of PSEG on a pre-tax and after-tax basis:

Accumulated Other Comprehensive Income	Pre-Tax			After-Tax
	Millions
Balance as of December 31, 2010	$	188		$	111
Gain Recognized in AOCI (Effective Portion)		15			9
Less: Gain Reclassified into Income (Effective Portion)		(69	)		(41	)
Balance as of March 31, 2011	$	134		$	79

35

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as normal purchases and sales for the three months ended March 31, 2011 and 2010:

Derivatives Not Designated as Hedges	Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives		Pre-Tax Gain (Loss) Recognized in Income on Derivatives
			Three Months Ended March 31,
			2011			2010
PSEG and Power			Millions
Energy-Related Contracts		Operating Revenues	$	(42	)	$	87
Energy-Related Contracts		Energy Costs		3			(10	)
Total PSEG and Power			$	(39	)	$	77

Power’s derivative contracts reflected in the preceding tables include contracts to hedge the purchase and sale of electricity and the purchase of fuel. Not all of these contracts qualify for hedge accounting. Most of these contracts are marked to market. The tables above do not include contracts for which Power has elected the normal purchase/normal sales exemption, such as its BGS contracts and certain other energy supply contracts that it has with other utilities and companies with retail load. In addition, PSEG has interest rate swaps designated as fair value hedges. The effect of these hedges was to reduce interest expense by approximately $6 million for each of the three month periods ended March 31, 2011 and 2010.

The following reflects the gross volume, on an absolute value basis, of derivatives as of March 31, 2011 and December 31, 2010:

Type	Notional		Total		PSEG		Power		PSE&G
	Millions
As of March 31, 2011
Natural Gas		Dth		979		0		715		264
Electricity		MWh		170		0		170		0
FTRs		MWh		12		0		12		0
Interest Rate Swaps		US Dollars		1,150		1,150		0		0
As of December 31, 2010
Natural Gas		Dth		704		0		424		280
Electricity		MWh		154		0		154		0
Capacity		MW days		1		0		1		0
FTRs		MWh		23		0		23		0
Interest Rate Swaps		US Dollars		1,150		1,150		0		0

Credit Risk

Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. We have established credit policies that we believe significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty.

In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on Power’s financial condition, results of operations or net cash flows. As of March 31, 2011, 95% of the credit exposure (MTM plus net receivables and payables, less cash collateral) for Power’s operations was with investment grade counterparties.

36

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table provides information on Power’s credit risk from others, net of collateral, as of March 31, 2011. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions. It further delineates that exposure by the credit rating of the counterparties and provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of the company’s credit risk by credit rating of the counterparties.

Rating	Current Exposure		Securities held as Collateral		Net Exposure		Number of Counterparties >10%		Net Exposure of Counterparties >10%
	Millions								Millions
Investment Grade— External Rating	$	908	$	45	$	905		2	$	572	(A)
Non-Investment Grade— External Rating		46		0		46		0		0
Investment Grade— No External Rating		9		0		9		0		0
Non-Investment Grade— No External Rating		7		0		7		0		0
Total	$	970	$	45	$	967		2	$	572

(A) Includes net exposure of $432 million with PSE&G. The remaining net exposure of $140 million is with a nonaffiliated power purchaser which is a regulated investment grade counterparty.

The net exposure listed above, in some cases, will not be the difference between the current exposure and the collateral held. A counterparty may have posted more cash collateral than the outstanding exposure, in which case there would be no exposure. When letters of credit have been posted as collateral, the exposure amount is not reduced, but the exposure amount is transferred to the rating of the issuing bank. As of March 31, 2011, Power had 208 active counterparties.

Note 11. 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, Power and PSE&G have the ability to access. These consist primarily of listed equity securities.

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 mainly of various FTRs, certain full requirements contracts and other longer term capacity and transportation contracts.

37

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present information about PSEG’s, Power’s and PSE&G’s respective assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, 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 Power and PSE&G.

	Recurring Fair Value Measurements as of March 31, 2011
				Cash Collateral			Quoted Market Prices of Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Total			Netting(E)			(Level 1)		(Level 2)			(Level 3)
	Millions
PSEG
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	194		$	(20	)	$	0	$	185		$	29
Interest Rate Swaps (B)	$	30		$	0		$	0	$	30		$	0
NDT Funds: (C)
Equity Securities	$	699		$	0		$	699	$	0		$	0
Debt Securities-Govt Obligations	$	296		$	0		$	0	$	296		$	0
Debt Securities-Other	$	261		$	0		$	0	$	261		$	0
Other Securities	$	110		$	0		$	5	$	105		$	0
Rabbi Trusts—Mutual Funds (C)	$	164		$	0		$	20	$	144		$	0
Other Long-Term Investments (D)	$	3		$	0		$	3	$	0		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(89	)	$	12		$	0	$	(74	)	$	(27	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	188		$	(20	)	$	0	$	185		$	23
NDT Funds: (C)
Equity Securities	$	699		$	0		$	699	$	0		$	0
Debt Securities-Govt Obligations	$	296		$	0		$	0	$	296		$	0
Debt Securities-Other	$	261		$	0		$	0	$	261		$	0
Other Securities	$	110		$	0		$	5	$	105		$	0
Rabbi Trusts—Mutual Funds (C)	$	32		$	0		$	4	$	28		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(78	)	$	12		$	0	$	(74	)	$	(16	)
PSE&G
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	6		$	0		$	0	$	0		$	6
Rabbi Trusts—Mutual Funds (C)	$	54		$	0		$	7	$	47		$	0
Liabilities:
Energy-Related Contracts (A)	$	(11	)	$	0		$	0	$	0		$	(11	)

38

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Recurring Fair Value Measurements as of December 31, 2010
				Cash Collateral			Quoted Market Prices of Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Total			Netting(E)			(Level 1)		(Level 2)			(Level 3)
	Millions
PSEG
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	222		$	(135	)	$	0	$	228		$	129
Interest Rate Swaps (B)	$	39		$	0		$	0	$	39		$	0
NDT Funds: (C)
Equity Securities	$	735		$	0		$	735	$	0		$	0
Debt Securities-Govt Obligations	$	303		$	0		$	0	$	303		$	0
Debt Securities-Other	$	255		$	0		$	0	$	255		$	0
Other Securities	$	70		$	0		$	0	$	62		$	8
Rabbi Trusts—Mutual Funds (C)	$	160		$	0		$	18	$	142		$	0
Other Long-Term Investments (D)	$	2		$	0		$	2	$	0		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(125	)	$	74		$	0	$	(117	)	$	(82	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	205		$	(135	)	$	0	$	228		$	112
NDT Funds: (C)
Equity Securities	$	735		$	0		$	735	$	0		$	0
Debt Securities-Govt Obligations	$	303		$	0		$	0	$	303		$	0
Debt Securities-Other	$	255		$	0		$	0	$	255		$	0
Other Securities	$	70		$	0		$	0	$	62		$	8
Rabbi Trusts—Mutual Funds (C)	$	32		$	0		$	4	$	28		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(113	)	$	74		$	0	$	(117	)	$	(70	)
PSE&G
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	17		$	0		$	0	$	0		$	17
Rabbi Trusts—Mutual Funds (C)	$	54		$	0		$	6	$	48		$	0
Liabilities:
Energy-Related Contracts (A)	$	(12	)	$	0		$	0	$	0		$	(12	)

(A) 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 midpoint 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.

39

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Level 3—For energy-related contracts, which include more complex agreements where limited observable inputs or pricing information is available, modeling techniques are employed using assumptions reflective of contractual terms, current market rates, forward price curves, discount rates and risk factors, as applicable. For certain energy-related option contracts where daily settled option prices are not observable, a traditional Black-Scholes valuation methodology is used which incorporates an internally developed volatility curve that is considered a significant unobservable input. Fair values of other energy contracts may be based on broker quotes that we cannot corroborate with actual market transaction data. We considered the creditworthiness of our counterparties in the valuation of our energy-related contracts and the impacts are immaterial.

(B) 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.

(C) Power’s NDT funds maintain investments in various equity and fixed income securities classified as “available for sale.” These securities are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. All fair value measurements for the fund securities are provided by the trustees of these funds. Investments in marketable equity securities within the NDT funds 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 (primarily Level 1).

Power’s NDT investments in fixed income securities are primarily with investment grade corporate bonds and U.S. Treasury obligations or Federal Agency mortgage-backed securities with a wide range of maturities. Fixed income securities are priced using an evaluated pricing methodology that reflects observable market information such as the most recent exchange price or quoted bid for similar securities (primarily Level 2). Short-term investments and certain commingled temporary investments are valued using observable market prices or market parameters such as time-to-maturity, coupon rate, quality rating and current yield (primarily Level 2).

The Rabbi Trust mutual funds are mainly invested in a U.S. bond index fund, an S&P 500 index fund and a commingled temporary investment fund. The equity index fund is valued based on quoted prices in an active market (Level 1) while the bond index fund is valued using recent exchange prices or a quoted bid (Level 2).

(D) Other long-term investments consist of equity securities and are valued using a market based approach based on quoted market prices.

(E) Cash collateral netting represents collateral amounts netted against derivative assets and liabilities as permitted under the accounting guidance for Offsetting of Amounts Related to Certain Contracts.

40

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months ended March 31, 2011 and 2010 follows:

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

for the Three Months Ended March 31, 2011

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2011		Included in Income(A)			Included in Regulatory Assets/   Liabilities(B)			Purchases, (Sales)(C)		(Issuances) (Settlements)(D)			Transfers  In (Out)			Balance as of March 31, 2011
	Millions
PSEG
Net Derivative Assets	$	47	$	(31	)	$	(10	)	$	18	$	(22	)	$	0		$	2
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
Power
Net Derivative Assets	$	42	$	(31	)	$	0		$	18	$	(22	)	$	0		$	7
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
PSE&G
Net Derivative Assets	$	5	$	0		$	(10	)	$	0	$	0		$	0		$	(5	)

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

for the Three Months Ended March 31, 2010

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2010		Included in Income (E)		Included in Regulatory Assets/   Liabilities (B)		Purchases, (Sales) and Settlements			Balance as of March 31,  2010
	Millions
PSEG
Net Derivative Assets	$	105	$	114	$	45	$	(24	)	$	240
NDT Funds	$	9	$	0	$	0	$	4		$	13
Rabbi Trust Funds	$	14	$	0	$	0	$	2		$	16
Power
Net Derivative Assets	$	99	$	114	$	0	$	(24	)	$	189
NDT Funds	$	9	$	0	$	0	$	4		$	13
Rabbi Trust Funds	$	3	$	0	$	0	$	0		$	3
PSE&G
Net Derivative Assets	$	6	$	0	$	45	$	0		$	51
Rabbi Trust Funds	$	5	$	0	$	0	$	0		$	5

(A) PSEG’s and Power’s gains and losses are mainly attributable to changes in net derivative assets and liabilities of which $(33) million is included in Operating Income, $(1) million is included in OCI, and $3 million is included in Income from Discontinued Operations. Of the $(33) million in Operating Income, $(32) million is unrealized and $(1) million is realized.

41

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

(C) Represents $18 million in purchases.

(D) Includes $(11) million in issuances and $(11) million in settlements.

(E) PSEG’s and Power’s gains and losses are mainly attributable to changes in net derivative assets and liabilities of which $72 million is included in Operating Income, $20 million is included in OCI, and $22 million is included in Income from Discontinued Operations. Of the $72 million in Operating Income, $55 million is unrealized and $17 million is realized.

As of March 31, 2011, PSEG carried $1.7 billion of net assets that are measured at fair value on a recurring basis, of which $2 million were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy. These Level 3 net assets represent less than 1% of PSEG’s total assets. During the quarter, $8 million of assets in the NDT fund were transferred from Level 3 to Level 2, due to more observable pricing for underlying securities. As per our company policy, this transfer was recognized as of the beginning of the quarter.

As of March 31, 2010, PSEG carried $1.7 billion of net assets that are measured at fair value on a recurring basis, of which $269 million were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy. These Level 3 net assets represent less than 1% of PSEG’s total assets and there were no transfers among levels during the three months ended March 31, 2010.

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, 2011 and December 31, 2010.

	March 31, 2011				December 31, 2010
	Carrying Amount		Fair Value (A)		Carrying Amount		Fair Value (A)
	Millions
Long-Term Debt:
PSEG (Parent)	$	2	$	30	$	10	$	39
Power -Recourse Debt		3,456		3,743		3,455		3,831
PSE&G		4,284		4,539		4,283		4,615
Transition Funding (PSE&G)		1,044		1,182		1,090		1,245
Transition Funding II (PSE&G)		55		59		55		59
Energy Holdings:
Project Level, Non-Recourse Debt		46		46		47		47
	$	8,887	$	9,599	$	8,940	$	9,836

(A) Fair value excludes unamortized discounts, including amounts related to the Debt Exchange between Power and Energy Holdings that is deferred at the PSEG parent level since the exchange was between subsidiaries of the same parent company.

42

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 12. Other Income and Deductions

Other Income	Power		PSE&G		Other(A)			Consolidated Total
	Millions
Three Months Ended March 31, 2011:
NDT Fund Gains, Interest, Dividend and Other Income	$	69	$	0	$	0		$	69
Other		1		5		1			7
Total Other Income	$	70	$	5	$	1		$	76
Three Months Ended March 31, 2010:
NDT Fund Gains, Interest, Dividend and Other Income	$	38	$	0	$	0		$	38
Other		1		5		(1	)		5
Total Other Income	$	39	$	5	$	(1	)	$	43

Other Deductions	Power		PSE&G		Other(A)		Consolidated Total
	Millions
Three Months Ended March 31, 2011:
NDT Fund Realized Losses and Expenses	$	9	$	0	$	0	$	9
Other		3		1		0		4
Total Other Deductions	$	12	$	1	$	0	$	13
Three Months Ended March 31, 2010:
NDT Fund Realized Losses and Expenses	$	13	$	0	$	0	$	13
Other		1		1		1		3
Total Other Deductions	$	14	$	1	$	1	$	16

(A) Other primarily consists of activity at PSEG (as parent company), Energy Holdings, Services and intercompany eliminations.

Note 13. Income Taxes

PSEG’s, Power’s and PSE&G’s effective tax rates for the three months ended March 31, 2011 and 2010 were as follows:

	Three Months Ended March 31,
	2011			2010
PSEG		41.6	%		42.0	%
Power		41.1	%		41.6	%
PSE&G		40.5	%		40.6	%

For the quarter ended March 31, 2011, there were no material changes in the effective tax rate for PSEG, Power or PSE&G.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 include various health care-related provisions which will go into effect over the next several years. One of the provisions eliminates the tax deductibility of retiree health care costs, to the extent of federal subsidies

43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. As a result, in the first quarter of 2010, PSEG recorded noncash after tax charges of $9 million for income tax expense to establish the related deferred tax liabilities, primarily related to Power. There was no immediate impact on PSE&G’s income tax expense or effective tax rate since the related amount of $78 million was deferred as a Regulatory Asset to be collected and amortized over future periods.

Two other tax provisions were enacted during 2010 that will have significant impact on PSEG’s cash position. The Small Business Jobs Act of 2010, enacted September 27, 2010, extended the tax deduction for 50% bonus depreciation through 2010 for qualified property. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, enacted December 17, 2010, included a provision making qualified property placed into service after September 8, 2010 and before January 1, 2012, eligible for 100% bonus depreciation for tax purposes. In addition, qualified property placed into service in 2012 will be eligible for 50% bonus depreciation for tax purposes. These provisions will generate cash for PSEG through tax benefits related to the accelerated depreciation most of which is anticipated to be realized in 2011. These tax benefits would have otherwise been received over an estimated average 20 year period.

PSE&G has accrued $18 million of Investment Tax Credits (ITC) associated with alternative energy projects in the first quarter of 2011. Because the law provides an option to claim either a grant or the ITC, the ITC has been accounted for as a reduction of the book basis of the related assets as opposed to being recorded in tax expense.

PSEG’s unrecognized tax benefits increased by approximately $38 million in the first quarter 2011, primarily attributable to PSE&G. This increase is primarily due to a prior period position raised by the IRS during its examination of the tax years 2004 to 2006 and a new position attributable to refund claims being filed for tax years 2004 to 2009 related to casualty loss deductions. The balance of unrecognized tax benefits that are reasonably likely to increase or decrease within the next 12 months reported at December 31, 2010, will increase by $17 million related to the prior period position discussed above.

PSEG made tax deposits with the IRS to defray interest costs associated with disputed tax assessments associated with certain lease investments. The deposits are fully refundable and are recorded as a reduction to Current Accrued Taxes on PSEG’s Condensed Consolidated Balance Sheets, but are not reflected in the unrecognized tax benefits.

As a result of a change in accounting method for the capitalization of indirect costs, PSEG reduced the net amount of its uncertain tax positions (including interest) by $96 million, approximately $42 million of which related to PSE&G. It is reasonably possible that PSE&G’s claim related to this matter will be settled with the IRS in the next 12 months, resulting in an increase in the uncertain tax positions.

It is reasonably possible that unrecognized tax benefits associated with the leasing tax issue discussed in Note 8. Commitments and Contingent Liabilities, will change significantly. This change could be triggered by a settlement with the IRS or developments in other litigated cases. Based upon these developments, unrecognized tax benefits could increase by as much as $193 million or decrease by as much as $302 million. It is not possible to predict the magnitude, timing or direction of any such change.

44

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 14. Comprehensive Income, Net of Tax

Comprehensive Income

	Power			PSE&G		Other(A)		Consolidated
	Millions
Three Months Ended March 31, 2011
Net Income	$	362		$	163	$	1	$	526
Other Comprehensive Income (Loss)		(33	)		1		1		(31	)
Comprehensive Income	$	329		$	164	$	2	$	495
Three Months Ended March 31, 2010
Net Income	$	364		$	118	$	9	$	491
Other Comprehensive Income (Loss)		91			0		1		92
Comprehensive Income	$	455		$	118	$	10	$	583

(A) Other consists of activity at PSEG (as parent company), Energy Holdings, Services and intercompany eliminations.

Accumulated Other Comprehensive Income (Loss)

	Balance as of December 31, 2010			Power			PSE&G		Other		Balance as of March 31, 2011
	Millions
Derivative Contracts	$	111		$	(32	)	$	0	$	0	$	79
Pension and OPEB Plans		(377	)		6			0		0		(371	)
NDT Funds		109			(7	)		0		0		102
Other		1			0			1		1		3
Accumulated Other Comprehensive Income (Loss)	$	(156	)	$	(33	)	$	1	$	1	$	(187	)

	Balance as of December 31, 2009			Power		PSE&G		Other		Balance as of March 31, 2010
	Millions
Derivative Contracts	$	180		$	78	$	0	$	0	$	258
Pension and OPEB Plans		(400	)		6		0		0		(394	)
NDT Funds		91			7		0		0		98
Other		13			0		0		1		14
Accumulated Other Comprehensive Income (Loss)	$	(116	)	$	91	$	0	$	1	$	(24	)

45

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 15. Earnings Per Share (EPS)

Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding or vesting of restricted stock awards granted under our stock compensation plans and upon payment of performance units or restricted stock units. The following table shows the effect of these stock options, performance units and restricted stock units on the weighted average number of shares outstanding used in calculating diluted EPS:

	Three Months Ended March 31,
	2011				2010
	Basic		Diluted		Basic			Diluted
EPS Numerator:
Earnings (Millions):
Continuing Operations	$	462	$	462	$	498		$	498
Discontinued Operations		64		64		(7	)		(7	)
Net Income	$	526	$	526	$	491		$	491
EPS Denominator (Thousands):
Weighted Average Common Shares Outstanding		505,979		505,979		505,950			505,950
Effect of Stock Options		0		155		0			141
Effect of Stock Performance Share Units		0		846		0			991
Effect of Restricted Stock Units		0		152		0			65
Total Shares		505,979		507,132		505,950			507,147
EPS:
Continuing Operations	$	0.91	$	0.91	$	0.99		$	0.99
Discontinued Operations		0.13		0.13		(0.02	)		(0.02	)
Net Income	$	1.04	$	1.04	$	0.97		$	0.97

	Three Months Ended March 31,
Dividend payments on Common Stock	2011		2010
Per Share	$	0.3425	$	0.3425
in Millions	$	173	$	173

46

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 16. Financial Information by Business Segments

	Power			PSE&G			Energy Holdings			Other(A)			Consolidated
	Millions
Three Months Ended March 31, 2011
Total Operating Revenues	$	1,967		$	2,306		$	20		$	(939	)	$	3,354
Income (Loss) From Continuing Operations		298			163			(3	)		4			462
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax		64			0			0			0			64
Net Income (Loss)		362			163			(3	)		4			526
Segment Earnings (Loss)		362			163			(3	)		4			526
Gross Additions to Long-Lived Assets		155			339			1			2			497
Three Months Ended March 31, 2010
Total Operating Revenues	$	2,196		$	2,444		$	36		$	(1,103	)	$	3,573
Income (Loss) From Continuing Operations		371			118			7			2			498
Income (Loss) from Discontinued Operations, net of tax		(7	)		0			0			0			(7	)
Net Income (Loss)		364			118			7			2			491
Preferred Securities Dividends		0			(1	)		0			1			0
Segment Earnings (Loss)		364			117			7			3			491
Gross Additions to Long-Lived Assets		174			217			35			1			427
As of March 31, 2011
Total Assets	$	11,192		$	16,616		$	2,210		$	(648	)	$	29,370
Investments in Equity Method Subsidiaries	$	25		$	0		$	108		$	0		$	133
As of December 31, 2010
Total Assets	$	11,452		$	16,873		$	2,234		$	(650	)	$	29,909
Investments in Equity Method Subsidiaries	$	25		$	0		$	105		$	0		$	130

(A) Other activities include amounts applicable to PSEG (as parent company), Services and intercompany eliminations, primarily relating to intercompany transactions between Power and PSE&G. No gains or losses are recorded on any intercompany transactions; rather, all intercompany transactions are priced in accordance with applicable regulations, including affiliate pricing rules, or at cost or, in the case of the BGS and BGSS contracts between Power and PSE&G, at rates prescribed by the BPU. For a further discussion of the intercompany transactions between Power and PSE&G, see Note 17. Related-Party Transactions.

47

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 17. Related-Party Transactions

The following discussion relates to intercompany transactions, the majority of which are eliminated during the PSEG consolidation process in accordance with GAAP.

Power

The financial statements for Power include transactions with related parties presented as follows:

	Three Months Ended March 31,
Related Party Transactions	2011			2010
	Millions
Revenue from Affiliates:
Billings to PSE&G through BGSS(A)	$	698		$	818
Billings to PSE&G through BGS(A)		233			273
Total Revenue from Affiliates	$	931		$	1,091
Expense Billings from Affiliates:
Administrative Billings from Services(B)	$	(37	)	$	(36	)
Total Expense Billings from Affiliates	$	(37	)	$	(36	)

Related Party Transactions	March 31, 2011			December 31, 2010
	Millions
Receivables from PSE&G through BGS and BGSS(A)	$	249		$	372
Receivables from PSE&G Related to Gas Supply Hedges for BGSS(A)		26			58
Payable to Services (B)		(27	)		(26	)
Tax Sharing Receivable from (Payable to) PSEG(C)		(5	)		380
Current Unrecognized Tax Receivable from PSEG(C)		2			1
Receivable from (Payable to) PSEG		5			(3	)
Accounts Receivable—Affiliated Companies, net	$	250		$	782
Short-Term Loan to Affiliate (demand Note to PSEG)(D)	$	1,324		$	398
Working Capital Advances to Services(E)	$	17		$	17
Long-Term Accrued Taxes Receivable(C)	$	16		$	16

PSE&G

The financials statements for PSE&G include transactions with related parties presented as follows:

	Three Months Ended March 31,
Related Party Transactions	2011			2010
	Millions
Expense Billings from Affiliates:
Billings From Power through BGSS(A)	$	(698	)	$	(818	)
Billings From Power through BGS(A)		(233	)		(273	)
Administrative Billings from Services(B)		(51	)		(50	)
Total Expense Billings from Affiliates	$	(982	)	$	(1,141	)

48

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Related Party Transactions	March 31, 2011			December 31, 2010
	Millions
Payable to Power through BGS and BGSS(A)	$	(249	)	$	(372	)
Payable to Power Related to Gas Supply Hedges for BGSS(A)		(26	)		(58	)
Payable to Power for SREC Liability(F)		(7	)		(7	)
Payable to Services(B)		(44	)		(48	)
Tax Sharing Receivable from PSEG(C)		241			321
Current Unrecognized Tax Receivable from PSEG(C)		57			73
Receivable from PSEG		8			6
Receivable from Services(B)		1			0
Accounts Payable—Affiliated Companies, net	$	(19	)	$	(85	)
Working Capital Advances to Services(E)	$	33		$	33
Long-Term Accrued Taxes Payable(C)	$	(44	)	$	(74	)

(A) PSE&G has entered into a requirements contract with Power under which Power provides the gas supply services needed to meet PSE&G’s BGSS and other contractual requirements through March 31, 2012 and year-to-year thereafter. Power has also entered into contracts to supply energy, capacity and ancillary services to PSE&G through the BGS auction process.

(B) Services provides and bills administrative services to Power and PSE&G at cost. In addition, Power and PSE&G have other payables to Services, including amounts related to certain common costs, such as pension and OPEB costs, which Services pays on behalf of each of the operating companies.

(C) PSEG files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PSEG and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PSEG. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PSEG to the extent that PSEG is able to utilize those benefits.

PSEG and its subsidiaries follow the accounting guidance for “Accounting for Uncertainty in Income Taxes”, which prescribes a model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return.

(D) Power’s short-term loans with PSEG are for working capital and other short-term needs. Interest Income and Interest Expense relating to these short-term funding activities were immaterial.

(E) Power and PSE&G have advanced working capital to Services. The amounts are included in Other Noncurrent Assets on Power’s and PSE&G’s Condensed Consolidated Balance Sheets.

(F) In January 2008, the BPU issued a decision that certain BGS suppliers will be reimbursed for the cost they incurred above $300 per Solar Renewable Energy Certificate (SREC) during the period June 1, 2008 through May 31, 2010. The BPU order further provided that the excess cost may be passed on to ratepayers. Following an appeal, on March 10, 2011, the New Jersey Supreme Court reversed and remanded the BPU’s 2008 order. The Court did not rule on the substantive issue of whether the pass-through of SREC costs was appropriate. The BPU is expected to begin a legislative hearing process to comply with the Court’s ruling in the next few months. PSE&G has estimated and accrued a total liability for the excess SREC cost of $17 million as of March 31, 2011 and December 31, 2010, including approximately $7 million for Power’s share which is included in PSE&G’s Accounts Payable—Affiliated Companies. Under current guidance, Power is unable to record the related intercompany receivable on its Condensed Consolidated Balance Sheet. As a result, PSE&G’s liability to Power is not eliminated in consolidation and is included in Other Current Liabilities on PSEG’s Condensed Consolidated Balance Sheet as of March 31, 2011 and December 31, 2010.

49

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 18. Guarantees of Debt

Each series of Power’s Senior Notes, Pollution Control Notes and its syndicated revolving credit facilities are fully and unconditionally and jointly and severally guaranteed by PSEG Fossil LLC (Fossil), PSEG Nuclear LLC (Nuclear), and PSEG Energy Resources & Trade LLC (ER&T). The following table presents condensed financial information for the guarantor subsidiaries, as well as Power’s non-guarantor subsidiaries.

	Power			Guarantor Subsidiaries			Other Subsidiaries			Consolidating Adjustments			Consolidated
	Millions
Three Months Ended March 31, 2011
Operating Revenues	$	0		$	2,278		$	50		$	(361	)	$	1,967
Operating Expenses		2			1,774			52			(362	)		1,466
Operating Income (Loss)		(2	)		504			(2	)		1			501
Equity Earnings (Losses) of Subsidiaries		382			60			0			(442	)		0
Other Income		10			71			0			(11	)		70
Other Deductions		(3	)		(9	)		0			0			(12	)
Other-Than-Temporary Impairments		(1	)		(1	)		0			0			(2	)
Interest Expense		(45	)		(11	)		(5	)		10			(51	)
Income Tax Benefit (Expense)		21			(232	)		3			0			(208	)
Income (Loss) on Discontinued Operations, net of tax		0			0			64			0			64
Net Income (Loss)	$	362		$	382		$	60		$	(442	)	$	362
Three Months Ended March 31, 2011
Net Cash Provided By (Used In) Operating Activities	$	350		$	1,202		$	(189	)	$	(460	)	$	903
Net Cash Provided By (Used In) Investing Activities	$	(175	)	$	(777	)	$	336		$	(113	)	$	(729	)
Net Cash Provided By (Used In) Financing Activities	$	(175	)	$	(426	)	$	(147	)	$	573		$	(175	)
Three Months Ended March 31, 2010
Operating Revenues	$	0		$	2,474		$	38		$	(316	)	$	2,196
Operating Expenses		(2	)		1,822			41			(316	)		1,545
Operating Income (Loss)		2			652			(3	)		0			651
Equity Earnings (Losses) of Subsidiaries		377			(14	)		0			(363	)		0
Other Income		9			41			0			(11	)		39
Other Deductions		(1	)		(13	)		0			0			(14	)
Other-Than-Temporary Impairments		0			(1	)		0			0			(1	)
Interest Expense		(31	)		(14	)		(6	)		11			(40	)
Income Tax Benefit (Expense)		8			(274	)		2			0			(264	)
Income (Loss) on Discontinued Operations, net of tax		0			0			(7	)		0			(7	)
Net Income (Loss)	$	364		$	377		$	(14	)	$	(363	)	$	364
Three Months Ended March 31, 2010
Net Cash Provided By (Used In) Operating Activities	$	343		$	999		$	(14	)	$	(380	)	$	948
Net Cash Provided By (Used In) Investing Activities	$	(170	)	$	(1,010	)	$	0		$	506		$	(674	)
Net Cash Provided By (Used In) Financing Activities	$	(174	)	$	8		$	(31	)	$	(128	)	$	(325	)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Power		Guarantor Subsidiaries		Other Subsidiaries		Consolidating Adjustments			Consolidated Total
	Millions
As of March 31, 2011
Current Assets	$	4,259	$	6,930	$	1,059	$	(9,090	)	$	3,158
Property, Plant and Equipment, net		56		5,404		909		0			6,369
Investment in Subsidiaries		4,586		964		0		(5,550	)		0
Noncurrent Assets		167		1,547		41		(90	)		1,665
Total Assets	$	9,068	$	14,845	$	2,009	$	(14,730	)	$	11,192
Current Liabilities	$	846	$	8,944	$	911	$	(9,090	)	$	1,611
Noncurrent Liabilities		301		1,318		131		(90	)		1,660
Long-Term Debt		2,740		0		0		0			2,740
Member’s Equity		5,181		4,583		967		(5,550	)		5,181
Total Liabilities and Member’s Equity	$	9,068	$	14,845	$	2,009	$	(14,730	)	$	11,192
As of December 31, 2010
Current Assets	$	3,988	$	6,807	$	1,117	$	(8,468	)	$	3,444
Property, Plant and Equipment, net		55		5,385		902		0			6,342
Investment in Subsidiaries		4,794		1,079		0		(5,873	)		0
Noncurrent Assets		170		1,549		41		(94	)		1,666
Total Assets	$	9,007	$	14,820	$	2,060	$	(14,435	)	$	11,452
Current Liabilities	$	751	$	8,519	$	849	$	(8,468	)	$	1,651
Noncurrent Liabilities		423		1,510		129		(93	)		1,969
Long-Term Debt		2,805		0		0		0			2,805
Member’s Equity		5,028		4,791		1,082		(5,874	)		5,027
Total Liabilities and Member’s Equity	$	9,007	$	14,820	$	2,060	$	(14,435	)	$	11,452

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

This combined MD&A is separately filed by PSEG, Power and PSE&G. Information contained herein relating to any individual company is filed by such company on its own behalf. Power and PSE&G each make representations only as to itself and make no representations whatsoever as to any other company.

PSEG’s business consists of three reportable segments, which are:

• Power, our wholesale energy supply company that integrates its generating asset operations with its wholesale energy, fuel supply, energy trading and marketing and risk management activities primarily in the Northeast and Mid Atlantic U.S.,

• PSE&G, our public utility company which provides transmission and distribution of electric energy and gas in New Jersey; implements demand response and energy efficiency programs and invests in solar generation, and

• Energy Holdings, which owns our energy-related leveraged leases and other investments.

Our discussion in Part I, Item 1. Business of our 2010 Annual Report on Form 10-K provides a review of the regions and markets where we operate and compete, as well as our strategy for conducting our businesses within these markets. Our risk factors section in Part II Item 1A provides information about factors that could have a material adverse impact on our businesses. The following supplements that discussion and the discussion included in the Overview of 2010 and Future Outlook provided in Item 7 in our Form 10-K by describing significant events and business developments that have occurred during 2011 and any changes to the key factors that we expect may drive our future performance. The following discussion refers to the Condensed Consolidated Financial Statements (Statements) and the Related Notes to Condensed Consolidated Financial Statements (Notes). This information should be read in conjunction with such Statements, Notes and the 2010 Annual Report on Form 10-K.

OVERVIEW OF 2011 AND FUTURE OUTLOOK

During the first quarter of 2011, we continued to be impacted by lower pricing at Power. We anticipate a greater impact beginning later in the year due to a significant decline in both PJM Reliability Pricing Model (RPM) and Basic Generation Service (BGS) rates which become effective in the second quarter. Our pricing also continues to be impacted by customer migration away from our BGS supply contracts as these volumes are replaced with lower priced spot market sales.

Partially offsetting this lower pricing at Power, our utility operations are expected to benefit from a full year of distribution rate relief from the base rate case settlement in 2010, which included an increase of $73.5 million and $26.5 million in annual electric and gas revenues, respectively, with a return on equity (ROE) of 10.3%. The new electric rates were effective on June 7, 2010 and the new gas rates were effective on July 9, 2010. We also expect an increase in transmission revenues from our 2011 Annual Formula Rate Update which provides for approximately $45 million in increased revenues in our 2011 transmission rates effective January 1, 2011.

In addition, our gas sales volumes improved for the first quarter of 2011 compared to the same period in 2010, due primarily to colder winter weather this year. Heating degree days, as a measure of winter weather in 2011, were 6% higher than in 2010. This favorable weather impact was partially offset by the gas weather normalization clause which was implemented effective with the base rate case settlement last year. The weather, the economy and other factors all contributed to an overall increase of approximately 2% in Power’s Basic Gas Supply Service (BGSS) sales volumes and PSE&G’s gas delivery volumes as compared to 2010.

For 2011 and beyond, the key issues our business will confront are:

• potential for sustained lower natural gas and electricity prices,

• uncertainty in the economic recovery,

• regulatory and political uncertainty, particularly around environmental regulation, and

• pressure on competitive markets in many states, including New Jersey.

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Our future success will also depend on our ability to respond to these challenges and take advantage of opportunities presented by these and other regulatory and legislative initiatives. In order to do this, we must:

• focus on controlling costs while maintaining our safety, reliability and compliance standards,

• successfully recontract open positions, and

• execute our capital investment program, including continued investments for growth that yield contemporaneous returns.

There have also been other significant regulatory and legislative developments during the year which may affect our operations in the future as new rules and regulations are adopted. For additional information on these issues, see Part II, Item 5. Other Information.

• In an attempt to stimulate the development of new generation capacity in New Jersey through a subsidized rate mechanism, in January 2011, New Jersey enacted the long-term capacity agreement pilot program Act (LCAPP) directing the New Jersey Board of Public Utilities (BPU) to conduct a process to procure and subsidize up to 2,000 megawatts of baseload or mid-merit electric power generation. This could result in artificially depressed pricing in the competitive wholesale market and thus has the potential to harm competitive markets, on both a short-term and a long-term basis. In March 2011, the BPU issued a written order approving a form of agreement and selecting three generators to build a total of 1,949 MWs of new combined-cycle generating facilities located in New Jersey. Each of the New Jersey electric distribution companies, including PSE&G, executed standard offer capacity agreements (SOCA) with the three generators in compliance with the BPU’s directive, but did so under protest reserving its legal rights. On April 27, 2011, the BPU approved the executed contracts and also announced that it will convene a proceeding to consider whether current mechanisms are adequate to incent needed generation construction in New Jersey.

The SOCA requires that the generator bid in and clear the PJM RPM base residual auction in each year of the SOCA term. The SOCA provides for the EDCs to make capacity payments to, or receive capacity payments from, the generators as calculated based on the difference between the RPM clearing price for each year of the term and the price bid and accepted for that generator in the BPU process. On April 12, 2011, the Federal Energy regulatory Commission (FERC) issued an order making effective changes to the PJM Tariff that would require new generation to clear in the RPM at competitive prices. In response to this decision the BPU has indicated that it may pursue other available options.

Various challenges relating to LCAPP legislation which were made by us and other parties are currently pending.

• The U.S. Environmental Protection Agency (EPA) published a proposed rule in April 2011 related to 316(b) Clean Water Act requirements. The proposed rule would establish a separate marine life entrainment mortality standard as well as new impingement mortality standards for certain existing cooling water intake structures. If the rule were to be adopted as proposed, the majority of our electric generating facilities could be affected as they employ once-through cooling utilizing tidal river and tidal waters. We are unable to predict the outcome of this proposed rulemaking, the final form that the proposed regulations may take or the effect, if any, that they may have on our future capital requirements, financial condition or results of operations which could be material.

• As a result of events at the Fukushima Daiichi nuclear facility in Japan following the earthquake and tsunami in March 2011, the Nuclear Regulatory Commission (NRC) will be performing additional operational and safety reviews of nuclear facilities in the United States. These reviews and the lessons learned from the events in Japan may result in additional regulation for the nuclear industry and could impact future operations and capital requirements for our facilities. We believe that our nuclear plants meet the stringent applicable design and safety specifications of the NRC. In addition, in April 2011, a petition was filed with the NRC seeking suspension of the operating licenses of all General Electric (GE) boiling water reactors (BWRs) utilizing the Mark 1 containment design in the United States, including our Hope Creek and Peach Bottom units, pending completion of the NRC review. The

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petition names 23 of the total 104 active commercial nuclear reactors in the United States. While we do not believe the petition will be successful, we are unable to predict the outcome of any action that the NRC may take in connection with its operational and safety reviews or any other regulatory or industry responses to the events in Japan.

• During 2011, the SEC and the Commodity Futures Trading Commission (CFTC) are continuing efforts to implement new rules to enact stricter regulation over swaps and derivatives. CFTC has issued Notices of Proposed Rulemakings (NOPRs) on many of the key issues. We cannot assess the exact scope of the new rules until they are issued by the SEC and CFTC. We will carefully monitor these new rules as they are developed to analyze the potential impact on our swap and derivatives transactions, including any potential increase in our collateral requirements.

• We expect the BPU to release a new draft Energy Master Plan (EMP) during the first half of 2011 with a final plan expected to be completed later next year. We cannot predict what modifications or new goals will be included in the new EMP or the potential impacts to our businesses.

Operational Excellence

Our generating stations continued to perform well in 2011. Generation volumes for the first quarter of 2011 were approximately 1% lower than in the first quarter of 2010, primarily at our coal facilities.

In addition, PSE&G continued to demonstrate its commitment to system reliability by limiting customer outages. In February 2011, our service territory experienced winter storms that impacted the electric transmission and distribution systems due to heavy icing and salt spray and in March 2011, our northern gas service territory was impacted by two heavy rainstorms that resulted in widespread flooding. Our personnel were prepared in each case for widespread outages and, as a result, were able to minimize the length of time our customers were without electric or gas service.

Financial Strength

Our cash from operations is expected to remain strong. During the first quarter, we made $497 million in capital expenditures, paid dividends of $173 million and made our entire planned pension contributions for the year 2011 of over $400 million. Cash from operations for the year is expected to benefit from two tax provisions enacted in 2010 which are expected to generate approximately $750 million of cash benefits for us through accelerated depreciation, most of which is expected to be realized in 2011. See Note 13. Income Taxes for additional information. These funds, combined with proceeds from the sales of our Texas facilities, will be used to support our anticipated capital expenditures in 2011 and dividend payments.

Disciplined Investment

We seek to invest in areas that complement our existing businesses and provide attractive risk-adjusted returns. These areas include upgrading critical energy infrastructure, responding to trends in environmental protection and providing new energy supplies in markets with growing demand. We also have several projects where we are investing to continue to improve our operational performance.

• In January 2011, we reached agreement to sell our two 1,000 MW combined-cycle generating facilities in Texas in separate transactions for a total of approximately $687 million. In March 2011, we completed the sale of one plant for $351 million. The sale of the second plant is expected to be closed in the second quarter of 2011.

• We are continuing to pursue obtaining the necessary regulatory approvals for the Susquehanna-Roseland transmission project but have incurred delays in obtaining environmental approvals. The failure to obtain these approvals on a timely basis has delayed the project implementation date. The estimated cost of construction is up to $750 million for this project. In October, the PJM Board approved a modified Branchburg to Hudson project, specifically a 230 kV project running from Roseland to Hudson. The Roseland to Hudson project has an expected in-service date of June 2015. The estimated cost of construction is up to $700 million for this project. Delays in the construction schedules of these projects could impact the timing of expected transmission revenues.

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• In April 2011, we filed a petition with FERC seeking incentive rates with an effective date of June 14, 2011 for five 230 kV transmission projects with a total estimated capital investment of approximately $1.3 billion.

• Our utility has made additional investments in solar initiatives. Under our solar loan program we have provided a total of $80 million in loans for 246 projects as of March 31, 2011, representing 22 MW to date. Under our Solar 4 All program we have had total program expenditures of approximately $260 million as of March 31, 2011. Over 18 MW of solar panels have been installed on distribution poles and another 19 MW representing 13 projects have been placed into service. Additional projects are in various stages of negotiation and development. Our total anticipated expenditures to develop all 80 MW approved is approximately $465 million. See Note 8. Commitments and Contingent Liabilities for additional information.

• We made additional expenditures under our Capital Economic Stimulus and Energy Efficiency Economic Stimulus programs. As of March 31, 2011, total expenditures since inception of these projects were $660 million and $107 million, respectively.

• We continued various construction activities at Power, including a steam path retrofit and extended power uprate at Peach Bottom and construction of new gas fired peaking units at Kearny and in Connecticut (see Note 8. Commitments and Contingent Liabilities for additional information). This additional capacity at Kearny was bid into and has cleared the RPM capacity auction, and the additional capacity in Connecticut is subject to a contract with a Connecticut utility.

• We are continuing to pursue 20-year license extensions for our Salem and Hope Creek facilities and continuing our efforts to obtain an Early Site Permit for a new nuclear generating station to be located at the current site of those stations. We expect a decision from the NRC regarding our license extension requests later this summer.

There is no guarantee that the projects described above or any future initiatives will be achieved since many issues need to be favorably resolved, such as regulatory approvals.

Our leveraged lease investments face risks with regard to the creditworthiness of the various counterparties. In March 2011, S&P downgraded one of these counterparties from “B” to “CC”. See Note 5. Financing Receivables for further information.

RESULTS OF OPERATIONS

The results for PSEG, PSE&G, Power and Energy Holdings for the three months ended March 31, 2011 and 2010 are presented below:

	Three Months Ended March 31,
Earnings (Losses)	2011			2010
		Millions
Power	$	298		$	371
PSE&G		163			118
Energy Holdings		(3	)		7
Other  (A)		4			2
PSEG Income from Continuing Operations		462			498
PSEG Income (Loss) from Discontinued Operations (B)		64			(7	)
PSEG Net Income	$	526		$	491

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	Three Months Ended March 31,
Earnings Per Share (Diluted)	2011		2010
PSEG Income from Continuing Operations	$	0.91	$	0.99
Income (Loss) from Discontinued Operations		0.13		(0.02	)
PSEG Net Income	$	1.04	$	0.97

(A) Other primarily includes parent company interest and financing costs, donations and certain administrative and general expenses.

(B) See Note 4. Discontinued Operations and Dispositions.

Our results include the realized gains, losses and earnings on Power’s Nuclear Decommissioning Trust (NDT) funds and other related NDT activity. This includes the net realized gains, interest and dividend income and other costs related to the NDT funds which are recorded in Other Income and Deductions. This also includes credit-related impairments on certain NDT securities which are included in Other-Than-Temporary Impairments and the interest accretion expense on Power’s nuclear asset retirement obligation (ARO), which is recorded in Operation and Maintenance Expense and the depreciation expense related to the ARO.

Our results also include the after-tax impacts of non-trading mark-to-market (MTM) activity.

The quarter-over-quarter decreases in our Income from Continuing Operations include the changes related to NDT and MTM shown in the chart below:

	Three Months Ended March 31,
	2011		2010
		Millions, after tax
NDT Fund Income (Expense)	$	27	$	10
Non-Trading Mark-to-Market Gains (Losses)	$	4	$	49

In addition to the changes in NDT and MTM, our decrease in Income from Continuing Operations for the three months ended March 31, 2011 was driven primarily by:

• losses on certain wholesale electric energy supply contracts,

• higher interest costs and depreciation expense related to the completion of installation of back end technology at two of our fossil plants,

• partially offset by higher transmission and distribution rates, and

• higher gas delivery volumes.

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PSEG

Our results of operations are primarily comprised of the results of operations of our operating subsidiaries, Power, PSE&G and Energy Holdings, excluding charges related to intercompany transactions, which are eliminated in consolidation. We also include certain financing costs, charitable contributions and general and administrative costs at the parent company. For additional information on intercompany transactions, see Note 17. Related-Party Transactions. For an explanation of the variances, see the discussions for Power, PSE&G and Energy Holdings that follow the table below.

	For the Three Months Ended March 31,					Increase / (Decrease)
	2011		2010			2011 vs 2010
		Millions					Millions		%
Operating Revenues	$	3,354	$	3,573		$	(219	)	(6	)
Energy Costs		1,563		1,688			(125	)	(7	)
Operation and Maintenance		651		670			(19	)	(3	)
Depreciation and Amortization		241		227			14		6
Income from Equity Method Investments		3		3			0		0
Other Income and (Deductions)		63		27			36		N/A
Other-Than-Temporary Impairments		4		1			3		300
Interest Expense		127		116			11		9
Income Tax Expense		329		361			(32	)	(9	)
Income (Loss) from Discontinued Operations, including Gain on Sale in 2011, net of tax		64		(7	)		71		N/A

Power

	Three Months Ended March 31,					Increase (Decrease)
	2011		2010			2011 vs 2010
		Millions
Income from Continuing Operations	$	298	$	371		$	(73	)
Income (Loss) from Discontinued Operations, net of tax	$	64	$	(7	)	$	71
Net Income	$	362	$	364		$	(2	)

For the three months ended March 31, 2011 the primary reasons for the $73 million decrease in Income from Continuing Operations were

• a decrease in amounts related to our MTM activity,

• losses on certain wholesale electric energy supply contracts,

• higher operation and maintenance expense related to refurbishments at certain of our fossil plants, and

• higher interest costs and depreciation expense related to the completion of installation of back end technology at two of our fossil plants,

• partially offset by lower fossil fuel costs used to generate electricity and lower congestion charges in 2011 in PJM, and

• favorable amounts related to our NDT activity.

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The quarter-over-quarter details for these variances are discussed below:

	Three Months Ended March 31,					Increase / (Decrease)
Power	2011		2010			2011 vs 2010
		Millions					Millions		%
Operating Revenues	$	1,967	$	2,196		$	(229	)	(10	)
Energy Costs		1,135		1,251			(116	)	(9	)
Operation and Maintenance		277		251			26		10
Depreciation and Amortization		54		43			11		26
Other Income (Deductions)		58		25			33		132
Other-Than-Temporary Impairments		2		1			1		100
Interest Expense		51		40			11		28
Income Tax Expense		208		264			(56	)	(21	)
Income (Loss) from Discontinued Operations		64		(7	)		71		N/A

For the three months ended March 31, 2011 as compared to 2010

Operating Revenues decreased $229 million due to

Generation Revenues decreased $118 million due primarily to

• lower net revenues of $97 million resulting principally from less favorable results from financial hedging transactions in the PJM, NE and NY power pools partly offset by higher volumes of generation sold in PJM, and

• a net decrease of $59 million due to a lower volume of electricity sold under our BGS contracts, reflecting customer migration to alternative suppliers,

• partially offset by an increase of $40 million from new wholesale load contracts in PJM and the NE regions commencing in January 2011 and May 2010, respectively.

Gas Supply Revenues decreased $84 million

• including a net decrease of $108 million in sales under the BGSS contract, substantially comprised of lower average gas sales prices partially mitigated by increased volumes of sales and higher net gains on financial hedging transactions in 2011,

• partially offset by a net increase of $24 million due to higher sales volumes at lower average prices to third party customers.

Trading Revenues decreased $27 million due primarily to net losses on certain electric energy supply contracts in 2011.

Operating Expenses

Energy Costs represent the cost of generation, which includes fuel purchases for generation as well as purchased energy in the market, and gas purchases to meet Power’s obligation under its BGSS contract with PSE&G. Energy Costs decreased by $116 million due to

• Gas costs decreased $85 million, principally related to Power’s obligations under the BGSS contract, reflecting lower average gas inventory costs partially offset by higher demand as well as higher demand by third party customers.

• Generation costs decreased $31 million due primarily to $32 million of lower net fossil fuel costs, primarily reflecting the utilization of lower volumes of coal partially offset by higher coal costs and the lower cost of natural gas on higher volumes, $25 million of lower net congestion charges incurred in 2011 from PJM and higher net gains of $8 million from financial hedging transactions. These decreases were partly offset by an increase of $35 million in spot energy purchases in 2011 in the NE and PJM power pools.

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Operation and Maintenance increased $26 million due primarily to

• a $21 million net increase due largely to hot gas path inspection outage costs at our gas-fired Bethlehem Energy and Linden facilities in New York and New Jersey, respectively, as well as to higher outage costs at our coal-fired Keystone facility in Pennsylvania, and

• an increase of $4 million due to refurbishment projects in the first quarter of 2011 at our Peach Bottom nuclear facility and typical annual increases in Nuclear Regulatory Commission inspection fees and state licensing permit fees.

Depreciation and Amortization increased $11 million due primarily to the completion of the installation of back end technology at the end of 2010 at our Mercer and Hudson generating facilities.

Other Income and (Deductions)—The net increase of $33 million was due primarily to $36 million of higher net realized gains on the NDT funds mainly resulting from the liquidation of an underperforming fund in 2011 and a rebalancing to move toward our target asset allocation.

Other-Than-Temporary Impairments experienced no material change.

Interest Expense increased $11 million due primarily to lower capitalized interest resulting primarily from the installation by year-end 2010 of back end technology at our Mercer and Hudson fossil stations.

Income Tax Expense decreased $56 million in 2011 due primarily to lower pre-tax income.

Income (Loss) from Discontinued Operations

In January 2011, we reached agreement to sell our two 1,000 MW combined-cycle generating facilities in Texas in separate transactions for a total of approximately $687 million. In March 2011, we completed the sale of one plant for proceeds of $351 million at an after-tax gain of $53 million. The sale of the second plant is expected to be closed in the second quarter of 2011. The results of operations for both plants, including the gain on sale are included in this category.

See Note 4. Discontinued Operations and Dispositions for additional information.

PSE&G

	Three Months Ended March 31,				Increase (Decrease)
	2011		2010		2011 vs 2010
		Millions
Income from Continuing Operations	$	163	$	118	$	45
Net Income	$	163	$	118	$	45

For the three months ended March 31, 2011, the primary reasons for the $45 million increase in Income from Continuing Operations were

• higher base rates for electric and gas delivery as well as transmission,

• higher gas delivery volumes, and

• lower operation and maintenance expense.

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The quarter-over-quarter details for these variances are discussed below:

	Three Months Ended March 31,				Increase / (Decrease)
PSE&G	2011		2010		2011 vs 2010
		Millions				Millions		%
Operating Revenues	$	2,306	$	2,444	$	(138	)	(6	)
Energy Costs		1,366		1,540		(174	)	(11	)
Operation and Maintenance		368		414		(46	)	(11	)
Depreciation and Amortization		179		177		2		1
Other Income (Deductions)		4		4		0		N/A
Other-Than-Temporary Impairments		1		0		1		100
Interest Expense		79		77		2		3
Income Tax Expense		111		80		31		39

For the three months ended March 31, 2011 as compared to 2010

Operating Revenues decreased $138 million due primarily to

Commodity Revenue decreased $174 million due to lower Electric and Gas revenues. This is entirely offset as savings in Energy Costs. PSE&G earns no margin on the provision of BGS and BGSS.

• Gas revenues decreased $138 million due to lower BGSS prices of $164 million, partially offset by higher BGSS volumes of $26 million due to colder weather. The average price of gas was 20% lower in 2011 than in 2010.

• Electric revenues decreased $36 million due primarily to $55 million in lower BGS revenues, partially offset by $19 million in higher revenues from the sale of Non-Utility Generation (NUG) energy and collections of non-utility generation charges (NGC) due primarily to higher prices. BGS sales were down 13% due primarily to large customer migration to third party suppliers (TPS); in contrast delivery sales were up 1% due to colder weather.

Clause Revenues decreased $4 million due primarily to lower Securitization Transition Charge (STC) revenues of $20 million, which were partially offset by a higher Electric Societal Benefit Charge (SBC) of $16 million. The changes in STC and SBC amounts were entirely offset by the amortization of related costs (Regulatory Assets) in Operation and Maintenance, Depreciation and Amortization and Interest Expense. PSE&G earns no margins on SBC or STC collections.

Delivery Revenues increased $37 million due primarily to an increase in prices for electric and gas distribution and transmission.

• Electric distribution revenues were up $5 million due primarily to the impact of the June base rate increases of $6 million and higher sales volumes of $3 million, partially offset by lower stimulus revenue of $4 million.

• Transmission revenues were up $7 million due primarily to net rate increases.

• Gas distribution revenues were up $25 million due primarily to the impact of the July base rate increase of $19 million and higher sales volumes of $13 million, partially offset by lower capital stimulus revenue of $7 million.

Other Operating Revenues increased $3 million due primarily to increased revenues from our appliance repair business and miscellaneous electric operating revenues.

Energy Costs decreased $174 million. This is entirely offset by Commodity Revenue. Details are as follows:

• Gas costs decreased $138 million due to $164 million or 20% in lower prices, partially offset by $26 million or 3% in higher sales volumes due primarily to colder weather.

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• Electric costs decreased $36 million due to $87 million or 12% in lower BGS and NUG volumes due to large customer migration to TPS and NUG operations, partially offset by $11 million of higher BGS and NUG prices and $40 million for increased deferred cost recovery.

Operation and Maintenance decreased $46 million due to

• $14 million of lower net expenses associated with SBC, RGGI and Stimulus clauses,

• a $14 million reduction in storm restoration work,

• a $13 million decrease in pension and OPEB expenses, and

• a $4 million reduction in incentive payments.

Depreciation and Amortization increased $2 million due primarily to

• an increase of $8 million for additional plant in service, and

• an increase of $2 million in software amortization,

• partially offset by a decrease of $8 million for amortization of Regulatory Assets.

Other-Than-Temporary Impairments experienced no material change.

Interest Expense increased $2 million due primarily to higher average debt balances.

Income Tax Expense increased $31 million due primarily to higher pre-tax income.

Energy Holdings

	Three Months Ended March 31,					Increase (Decrease)
	2011			2010		2011 vs 2010
		Millions
Income from Continuing Operations	$	(3	)	$	7	$	(10	)
Net Income	$	(3	)	$	7	$	(10	)

For the three months ended March 31, 2011, the primary reason for the $10 million decrease in Income from Continuing Operations was the absence of any sales of leveraged lease assets in 2011, as compared to gains on sales of leveraged lease assets in 2010.

LIQUIDITY AND CAPITAL RESOURCES

The following discussion of our liquidity and capital resources is on a consolidated basis, noting the uses and contributions, where material, of our three direct operating subsidiaries.

Operating Cash Flows

Our operating cash flows combined with cash on hand and financing activities are expected to be sufficient to fund capital expenditures and shareholder dividend payments.

For the three months ended March 31, 2011, our operating cash flow decreased $30 million as compared to the same period in 2010. The net change was due primarily to net changes from Power, PSE&G and Energy Holdings, as discussed below.

Power

Power’s operating cash flow decreased $45 million from $948 million to $903 million for the three months ended March 31, 2011, as compared to the same period in 2010, primarily resulting from lower earnings for the quarter combined with

• a decrease of $131 million from higher net payments of counterparty payables,

• $46 million in higher benefit plan funding, and

• $77 million in higher net cash collateral payments,

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• partially offset by a $166 million increase in net collection of counterparty receivables, and

• a $44 million net increase in other working capital.

PSE&G

PSE&G’s operating cash flow decreased $3 million from $160 million to $157 million for the three months ended March 31, 2011, as compared to the same period in 2010, due primarily to an increase of $108 million in pension fund contributions and related payments offset by

• $51 million in higher collections of customer receivables,

• $44 million of cash savings primarily due to a decrease in accrued federal income taxes, and

• higher earnings.

Energy Holdings

Energy Holdings’ operating cash flow improved $22 million for the three months ended March 31, 2011, as compared to the same period in 2010, primarily due to a net increase in working capital.

Short-Term Liquidity

PSEG meets its short-term liquidity requirements, as well as those of Power, primarily through the issuance of commercial paper. PSE&G maintains its own separate commercial paper program to meet its short-term liquidity requirements. Both commercial paper programs are fully back-stopped by their own separate credit facilities.

The commitments under PSEG’s credit facilities are provided by a diverse bank group. As of March 31, 2011, no single institution represented more than 11% of the total commitments in our credit facilities.

As of March 31, 2011, our total credit capacity was in excess of our anticipated maximum liquidity requirements thorough 2011.

Each of our credit facilities is restricted as to availability and use to the specific companies as listed below; however, if necessary, the PSEG facilities can also be used to support our subsidiaries’ liquidity needs. Our total credit facilities and available liquidity as of March 31, 2011 were as follows:

	As of March 31, 2011
Company/Facility	Total Facility		Usage			Available Liquidity		Expiration     Date		Primary Purpose
		Millions
PSEG
5-year Credit Facility (A)	$	1,000	$	14	(C)	$	986		Dec 2012	Commercial Paper (CP) Support/Funding/Letters of Credit
Total PSEG	$	1,000	$	14		$	986
Power
5-year Credit Facility (B)	$	1,600	$	184	(C)	$	1,416		Dec 2012	Funding/Letters of Credit
2-year Credit Facility		350		0			350		July 2011	Funding
Bilateral Credit Facility		100		100	(C)		0		Sept 2015	Letters of Credit
Total Power	$	2,050	$	284		$	1,766
PSE&G
5-year Credit Facility	$	600	$	21		$	579		June 2012	CP Support/Funding/ Letters of Credit
Total PSE&G	$	600	$	21		$	579
Total	$	3,650	$	319		$	3,331

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(A) This facility was reduced by $500 million on April 15, 2011. In December 2011, this facility will be reduced by an additional $23 million.

(B) In December 2011, this facility will be reduced by $75 million.

(C) Includes amounts related to letters of credit outstanding.

On April 15, 2011, PSEG, Power and PSE&G entered into new 5-year credit agreements in the amounts of $500 million, $1 billion and $600 million, respectively. These new agreements will expire in April 2016. Concurrently PSEG reduced its existing $1 billion credit facility to $500 million, Power terminated its existing $350 million credit facility, and PSE&G terminated its existing $600 million credit facility. As a result of these changes, Power’s total credit capacity increased by $650 million which increased our total credit capacity to $4.3 billion.

Long-Term Debt Financing

For a discussion of our long-term debt transactions during 2011, see Note 9. Changes in Capitalization.

Common Stock Dividends

	Three Months Ended March 31,
Dividend Payments on Common Stock	2011		2010
Per Share	$	0.3425	$	0.3425
in Millions	$	173	$	173

We expect to continue to pay cash dividends on our common stock; however, the declaration and payment of future dividends to holders of our common stock will be at the discretion of the Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, alternate investment opportunities, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant.

Credit Ratings

If the rating agencies lower or withdraw our credit ratings, such revisions may adversely affect the market price of our securities and serve to materially increase our cost of capital and limit access to capital. Outlooks assigned to ratings are as follows: stable, negative (Neg) or positive (Pos). There is no assurance that the ratings will continue for any given period of time or that they will not be revised by the rating agencies, if, in their respective judgments, circumstances warrant. Each rating given by an agency should be evaluated independently of the other agencies’ ratings. The ratings should not be construed as an indication to buy, hold or sell any security. In April 2011, S&P published an updated credit opinion which left the ratings for PSEG, Power and PSE&G unchanged and improved their outlooks to positive from stable. In May 2011, Moody’s affirmed its ratings for PSEG, Power and PSE&G. PSE&G’s outlook was improved to positive from stable while the outlooks at PSEG and Power remain at stable.

	Moody’s(A)		S&P(B)		Fitch(C)
PSEG:
Outlook		Stable		Positive		Stable
Commercial Paper		P2		A2		F2
Power:
Outlook		Stable		Positive		Stable
Senior Notes		Baa1		BBB		BBB+
PSE&G:
Outlook		Positive		Positive		Stable
Mortgage Bonds		A2		A–		A
Commercial Paper		P2		A2		F2

(A) Moody’s ratings range from Aaa (highest) to C (lowest) for long-term securities and P1 (highest) to NP (lowest) for short-term securities.

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(B) S&P ratings range from AAA (highest) to D (lowest) for long-term securities and A1 (highest) to D (lowest) for short-term securities.

(C) Fitch ratings range from AAA (highest) to D (lowest) for long-term securities and F1 (highest) to D (lowest) for short-term securities.

CAPITAL REQUIREMENTS

We expect that the majority of funding for our capital requirements over the next three years will come from a combination of internally generated funds and external financings. Our projected construction and investment expenditures through 2013 are consistent with the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

Power

During the three months ended March 31, 2011, Power made $122 million of capital expenditures, including interest capitalized during construction (IDC) but excluding $33 million for nuclear fuel, primarily related to various projects at Fossil and Nuclear. For additional information regarding current projects, see Note 8. Commitments and Contingent Liabilities.

PSE&G

During the three months ended March 31, 2011, PSE&G made $349 million of capital expenditures, including $339 million of investment in plant, primarily for reliability of transmission and distribution systems and $10 million in solar loan investments. This does not include expenditures for cost of removal, net of salvage, of $13 million, which are included in operating cash flows.

ACCOUNTING MATTERS

For information related to recent accounting matters, see Note 2. Recent Accounting Standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our market-risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, equity security prices and interest rates as discussed in the Notes to Condensed Consolidated Financial Statements. It is our policy to use derivatives to manage risk consistent with business plans and prudent practices. We have a Risk Management Committee comprised of executive officers who utilize a risk oversight function to ensure compliance with our corporate policies and risk management practices.

Additionally, we are exposed to counterparty credit losses in the event of non-performance or non-payment. We have a credit management process, which is used to assess, monitor and mitigate counterparty exposure. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on our financial condition, results of operations or net cash flows.

Commodity Contracts

The availability and price of energy-related commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand, state and federal regulatory policies, market rules and other events. To reduce price risk caused by market fluctuations, we enter into supply contracts and derivative contracts, including forwards, futures, swaps and options with approved counterparties. These contracts, in conjunction with physical sales and other services, help reduce risk and optimize the value of owned electric generation capacity.

Value-at-Risk (VaR) Models

We use VaR models to assess the market risk of our commodity businesses. The portfolio VaR model includes our owned generation and physical contracts, as well as fixed price sales requirements, load requirements and financial derivative instruments. VaR represents the potential losses, under normal market conditions, for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. We estimate VaR across our commodity businesses.

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We manage our exposure at the portfolio level, which consists of owned generation, electric load-serving contracts, fuel supply contracts and energy derivatives designed to manage the risk around generation and load. While we manage our risk at the portfolio level, we also monitor separately the risk of our trading activities and hedges. Non-trading MTM VaR consists of MTM derivatives that are economic hedges, some of which qualify for hedge accounting. The non-trading MTM VaR calculation does not include market risks associated with activities that are subject to accrual accounting, primarily our generating facilities and some load serving activities. The MTM derivatives that are not hedges are included in the trading VaR.

The VaR models used are variance/covariance models adjusted for the change of positions with a 95% confidence level and a one-day holding period for the MTM trading and non-trading activities, and a 95% confidence level with a one-week holding period for the portfolio VaR. The models assume no new positions throughout the holding periods; however, we actively manage our portfolio.

As of March 31, 2011 and December 31, 2010, trading VaR was $2 million and $1 million, respectively.

For the Three Months Ended March 31, 2011	Trading     VaR		Non-Trading MTM VaR
	Millions
95% Confidence level,
Loss could exceed VaR one day in 20 days
Period End	$	2	$	6
Average for the Period	$	1	$	8
High	$	2	$	14
Low	$	0	$	4
99.5% Confidence level,
Loss could exceed VaR one day in 200 days
Period End	$	3	$	10
Average for the Period	$	1	$	12
High	$	3	$	21
Low	$	1	$	7

See Note 10. Financial Risk Management Activities for a discussion of credit risk.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures as defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported and is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer of each respective company, as appropriate, by others within the entities to allow timely decisions regarding required disclosure. We have established a disclosure committee which includes several key management employees and which reports directly to the Chief Financial Officer and Chief Executive Officer of each respective company. The committee monitors and evaluates the effectiveness of these disclosure controls and procedures. The Chief Financial Officer and Chief Executive Officer of each company have evaluated the effectiveness of the disclosure controls and procedures and, based on this evaluation, have concluded that disclosure controls and procedures at each respective company were effective at a reasonable assurance level as of the end of the period covered by the report.

Internal Controls

We continually review our disclosure controls and procedures and make changes, as necessary, to ensure the quality of our financial reporting. There have been no changes in internal control over financial reporting that occurred during the first quarter of 2011 that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to various lawsuits and regulatory matters in the ordinary course of business. For information regarding material legal proceedings, including updates to information reported under Item 3 of Part I of the respective 2010 Annual Reports on Form 10-K of PSEG, Power and PSE&G, see Note 8. Commitments and Contingent Liabilities and Item 5. Other Information.

Certain information reported under the 2010 Annual Report on Form 10-K is updated below. References are to the related pages on the Form 10-K as printed and distributed.

Long-Term Capacity Agreement Pilot Program (LCAPP)

December 31, 2010 Form 10-K page 47. In an attempt to stimulate the development of new generation capacity in New Jersey through a subsidized rate mechanism, New Jersey enacted LCAPP directing the BPU to conduct a process to procure and subsidize up to 2,000 megawatts of baseload or mid-merit electric power generation. In February 2011, we joined other plaintiffs in an action filed in the United States District Court for the District of New Jersey challenging the constitutionality of the LCAPP Act under the Supremacy and Commerce clauses of the United States Constitution. The complaint seeks declaratory and injunctive relief. Also in February 2011, PSEG and a group of other generators filed a complaint asking FERC to take steps to mitigate the impact of this subsidized generation on the capacity markets, and FERC so acted in an April 2011 order. For additional information, see Item 5. Other Information.

Electric Discount and Energy Competition Act (Competition Act)

December 31, 2010 Form 10-K page 48. In April 2007, PSE&G and Transition Funding were served with a purported class action complaint (Complaint) in New Jersey Superior Court challenging the constitutional validity of certain stranded cost recovery provisions of the Competition Act, seeking injunctive relief against continued collection from PSE&G’s electric customers of the Transition Bond Charge (TBC) of Transition Funding, as well as recovery of TBC amounts previously collected. Under New Jersey law, the Competition Act, enacted in 1999, is presumed constitutional.

In July 2007, the plaintiff filed an amended Complaint to also seek injunctive relief from continued collection of related taxes as well as recovery of such taxes previously collected. In July 2007, PSE&G filed a motion to dismiss the amended Complaint, which was granted in October 2007. In November 2007, the plaintiff filed a notice of appeal with the Appellate Division of the New Jersey Superior Court. In February 2009, the New Jersey Appellate Division affirmed the decision of the lower court dismissing the case. In May 2009, the New Jersey Supreme Court denied a request from the plaintiff to review the Appellate Division’s decision.

In July 2007, the same plaintiff also filed a petition with the BPU requesting review and adjustment to PSE&G’s recovery of the same stranded cost charges. In September 2007, PSE&G filed a motion with the BPU to dismiss the petition. In June 2010, the BPU granted PSE&G’s motion to dismiss. In April 2011, the BPU issued a written order memorializing this decision. The petitioner had previously stated that it would appeal the BPU’s written order to the New Jersey Appellate Division and has until June 6, 2011 to do so.

Con Edison (Con Ed)

December 31, 2010 Form 10-K page 48. In 2001, Con Ed filed a complaint with FERC against PSE&G, PJM and NYISO asserting a failure to comply with agreements between PSE&G and Con Ed covering 1,000 MW of transmission. On September 16, 2010, FERC approved a settlement agreement entered into by PSE&G, Con Ed, PJM, NYISO and others. This settlement provides the basis for moving forward with Con Ed after the current contracts expire in 2012 and settles all issues associated with the existing contracts, including cases pending in the D.C. Circuit Court of Appeals. However, dismissal of these court cases is contingent upon receipt of a final, non-appealable order from the FERC. One party to the proceeding sought rehearing of the FERC approval order, which FERC denied in an order issued on April 8, 2011. The party may appeal this decision and has until June 7, 2011 to do so.

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ITEM 1A. RISK FACTORS

The Risk Factor shown below is to be added to those disclosed in Part I Item 1A of our 2010 Annual Reports on Form 10-K.

Challenges associated with retention of a qualified workforce could adversely impact our businesses.

Our operations depend on the retention of a skilled workforce. The loss or retirement of key executives or other employees, including those with the specialized knowledge required to support our generation, transmission and distribution operations, could result in various operational challenges. These challenges may include the lack of appropriate replacements, the loss of institutional and industry knowledge and the increased costs to hire and train new personnel. This has the potential to become more critical over the next several years as a growing number of employees become eligible to retire.

In addition, because a significant portion of our employees are covered under collective bargaining agreements, our success will depend on our ability to successfully renegotiate these agreements as they expire. Inability to do so may result in employee strikes or work stoppages which would disrupt our operations and could also result in increased costs.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table indicates our common share repurchases in the open market to satisfy obligations under various equity compensation awards during the first quarter of 2011:

Three Months Ended March 31, 2011	Total Number of Shares Purchased		Average Price Paid per Share
January 1-January 31		0	$	0
February 1-February 28		0	$	0
March 1-March 31		158,328	$	32.15

ITEM 5. OTHER INFORMATION

Certain information reported under the 2010 Annual Report on Form 10-K is updated below. Additionally, certain information is provided for new matters that have arisen subsequent to the filing of the 2010 Annual Report on Form 10-K. References are to the related pages on the Form 10-K as printed and distributed.

EMPLOYEE RELATIONS

December 31, 2010 Form 10-K page 17. One of the collective bargaining agreements at PSE&G was set to expire on April 30, 2011. In an effort to continue negotiations, PSE&G and the union, which represents customer operations employees, have agreed to extend the contract to May 6, 2011.

FEDERAL REGULATION

FERC

Capacity Market Issues

December 31, 2010 Form 10-K page 19. In an attempt to stimulate the development of new generation capacity in New Jersey through a subsidized rate mechanism, on January 28, 2011, New Jersey enacted the LCAPP Act directing the BPU to conduct a process to procure and subsidize up to 2,000 megawatts of baseload or mid-merit electric power generation. On March 29, 2011, the BPU issued a written order approving a form of agreement and selecting three generators to build a total of 1,949 MWs of new combined-cycle generating facilities located in New Jersey. The BPU decision requires the New Jersey electric distribution companies, including PSE&G, to execute the BPU approved financially settled standard offer

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capacity agreements (SOCAs) with each of the three selected generators. The SOCA requires that the generator bid in and clear the PJM RPM base residual auction in each year of the SOCA term. The SOCA provides for the electric distribution companies (EDCs) to make capacity payments to, or receive capacity payments from, the generators as calculated based on the difference between the RPM clearing price for each year of the term and the price bid and accepted for that generator in the BPU process. The LCAPP Act and the BPU order provide that, once the SOCAs are executed and approved by the BPU, they will be irrevocable and the EDCs will be entitled to full rate recovery of the prudently incurred costs. On April 8, 2011 the EDCs jointly filed a motion for reconsideration of the BPU’s March 29 order, arguing that the order violated due process and failed to comply with the LCAPP Act. This motion for reconsideration is pending at the BPU.

Each of the New Jersey EDCs, including PSE&G, executed SOCAs with the three generators in compliance with the BPU’s directive, but did so under protest reserving its legal rights. On April 27, 2011, the BPU approved the executed contracts and also announced that it will convene a proceeding to consider whether current mechanisms are adequate to incent needed generation construction in New Jersey.

In an effort to prevent the LCAPP Act and other similar state actions from harming competitive wholesale markets, PSEG joined a group of generators and filed a complaint at FERC on February 1, 2011 which sought to correct a flaw in the PJM tariff that allowed for the artificial suppression of capacity prices by “buy side” resources. With a similar objective, on February 11, 2011, PJM filed with FERC to update and simplify the minimum offer price rule (MOPR). While there were some differences in the relief sought by the generator complaint and the PJM filing, both filings sought changes to the same MOPR tariff provisions for the purposes of preventing subsidized generation from artificially depressing the wholesale capacity markets. On April 12, 2011, FERC issued an order making effective changes to the PJM Tariff that would require new generation to clear in the RPM at competitive prices. In response to this FERC order, the BPU issued a press release indicating that it may pursue other available options.

The LCAPP Act is also being challenged in court. PSEG joined a group filing a complaint in federal district court arguing that the legislation is unconstitutional and should be invalidated. This court action is pending.

Transmission Regulation – Transmission Expansion

December 31, 2010 Form 10-K page 20. We have not received certain environmental approvals that are required for each of the Eastern and Western segments of the Susquehanna-Roseland line and believe that it is now unlikely that we will obtain these approvals until early 2013, at the earliest. The Western portion of the line also requires certain permits from the National Park Service. In May, we received a letter from the National Park Service that postpones the agency’s issuance of a Record of Decision for this project until January 2013, which represents a three month delay from the previous schedule. We are currently evaluating this additional delay from the National Park Service and any resulting impact on the previously expected in- service date of June 2014 for the Eastern segment and June 2015 for the Western segment. Further delays are also possible for both portions. Delays in the construction schedule could impact the timing of expected transmission revenues.

FERC has granted our request for incentive rate treatment for the Susquehanna-Roseland line, including an adder of 125 basis points above our base ROE, recovery of 100% of Construction Work in Progress (CWIP) in rate base and authorization to recover 100% of all prudently incurred development and construction costs if the project is abandoned or cancelled, in whole or in part, for reasons beyond our control.

In December 2008, PJM approved another 500 kV transmission project, originating in Branchburg and ending in Hudson County, New Jersey, with an estimated cost of $1.1 billion. In December 2009, FERC granted our request for the same incentive rate treatment on this project as the Susquehanna-Roseland line. Subsequently, PJM approved a modified 230 kV project, in place of the 500 kV line, originating in Roseland and terminating in Hudson County, at an estimated cost of up to $700 million (“North East Grid” project). The project has an expected in-service date of June 2015. Development and siting activities for this project are expected to commence in 2011. In November 2010, we filed a notice with FERC regarding the change in project scope. The BPU and the New Jersey Division of Rate Counsel each filed objections to the continuation of the previously-awarded rate incentives to the reconfigured project. We have filed responsive pleadings and believe

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that the modified project should be eligible for the same rate incentives as the original project, but the matter remains pending at FERC.

PJM has approved in its Regional Transmission Expansion Plan several other 230 kV transmission projects to be constructed by PSE&G. PSE&G filed at FERC for recovery of CWIP in rate base for four of these projects (Burlington-Camden project, North Central Reliability project (formerly known as the “West Orange” project), Middlesex Switch Rack project and Bayonne-Marion project) and 100% abandonment cost recovery for these projects. On December 30, 2010, the FERC denied PSE&G’s request without prejudice, finding that PSE&G had not met the requirements for incentive treatment on a project-by-project basis and affording PSE&G the option to re-file and justify the requested incentives on a project-by-project, rather than on an aggregate, basis. On April 14, 2011, we filed such a petition with FERC seeking incentive rates for the four above-listed projects, as well as the Mickleton-Gloucester-Camden project. The total estimated capital investment for the five projects is approximately $1.3 billion. For each of these projects, PSE&G has requested inclusion of 100% of CWIP in rate base and recovery of 100% of prudently incurred abandonment costs with an effective date of June 14, 2011.

Commodity Futures Trading Commission (CFTC)

December 31, 2010 Form 10-K page 22. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was passed in an attempt to reduce systemic risk in the financial markets thereby preventing future financial crises and market issues such as those experienced recently. As part of this new legislation, the SEC and the CFTC will be implementing new rules to enact stricter regulation over swaps and derivatives since many of the issues experienced were caused by derivative trading in connection with mortgage loans. Additionally, the Dodd-Frank Act will require many swaps and other derivative transactions to be standardized and traded on exchanges or other Derivative Clearing Organizations (DCOs).

CFTC has issued Notice of Proposed Rulemakings (NOPRs) on many of the key issues, including:

• defining swaps,

• defining swap dealers and major swap participants,

• the end-user exception from clearing requirements,

• position limits,

• margin requirements,

• capital requirements, and

• reporting requirements.

Exchanges and DCOs typically require full collateralization of all transactions taking place on the exchange or DCO. Although the Dodd-Frank Act specifically recognizes a commercial end user exemption from posting additional collateral in the bilateral Over the Counter swap and derivative markets, we cannot assess the exact scope of the new rules until the SEC and CFTC issue them. Under the current NOPRs, the broad definition of swap dealer could result in us being classified as a dealer, which would limit the benefits of the commercial end-user exemption recognized in the Act. We believe that any regulatory change that deviates from the original intent would need to be addressed by additional legislation.

Under the margin requirement NOPR, no margin would be applied to any transaction with an end-user, except for a proposal for banks that would impose a one-way margin flowing from the end-user to the bank for any transaction that exceeds a credit threshold set by the bank.

We will carefully monitor these new rules as they are developed to analyze the potential impact on our swap and derivatives transactions, including any potential increase in our collateral requirements.

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Nuclear Regulatory Commission (NRC)

As a result of events at the Fukushima Daiichi nuclear facility in Japan following the earthquake and tsunami in March 2011, the NRC will be performing additional operational and safety reviews of nuclear facilities in the US. These reviews and the lessons learned from the events in Japan may result in additional regulation for the nuclear industry and could impact future operations and capital requirements for our facilities. We believe that our nuclear plants meet the stringent applicable design and safety specifications of the NRC. In addition, in April 2011, a petition was filed with the NRC seeking suspension of the operating licenses of all General Electric (GE) boiling water reactors (BWRs) utilizing the Mark 1 containment design in the United States, including our Hope Creek and Peach Bottom units, pending completion of the NRC review. The petition names 23 of the total 104 active commercial nuclear reactors in the United States. While we do not believe the petition will be successful, we are unable to predict the outcome of any action that the NRC may take in connection with its operational and safety reviews or any other regulatory or industry responses to the events in Japan.

STATE REGULATION

Rates

Retail Gas Transportation Rates

December 31, 2010 Form 10-K page 23. Several stakeholder meetings have been held and briefs were submitted at the end of January 2011. The matter remains pending at the BPU.

SBC/NGC

December 31, 2010 Form 10-K page 26. In July 2009, a revision was filed requesting an increase in SBC/NGC rates of $104 million and $15 million for electric and gas, respectively. The Administrative Law Judge (ALJ) issued an initial decision in April 2010 that recommended a revenue increase of $119 million and a disallowance of approximately $254,000 in PJM costs from the NGC and approximately $540,000 of interest that accrued on the electric SBC. Although we filed exceptions to the recommendation, the BPU issued a written order in June 2010, adopting the ALJ’s initial decision. We filed a notice of appeal in August 2010 regarding the disallowances related to the NGC and electric SBC. The appeal was denied by the Superior Court of the New Jersey Appellate Division in March 2011.

In August 2010, we made our 2010 annual SBC/NGC filing requesting an $85.4 million electric increase and a $17.2 million gas decrease. On February 11, 2011, we filed a stipulation of settlement with the ALJ. The stipulation was executed by all parties and will allow us to increase electric SBC/NGC rates by $85.4 million and decrease gas SBC rates by $17.2 million, both on an annual basis. The stipulation was approved by the ALJ and adopted by the BPU by written order dated March 9, 2011, with rates effective April 1, 2011.

Remediation Adjustment Clause (RAC)

December 31, 2010 Form 10-K page 26. In November 2010, we filed a RAC 18 petition with the BPU requesting an increase in electric and gas RAC rates of approximately $3 million and $1 million, respectively. We are engaging in settlement discussions with the various parties.

Energy Supply

BGSS

December 31, 2010 Form 10-K page 27. In July 2010, PSE&G made its annual BGSS filing with the BPU. The filing requested a decrease in annual BGSS revenue of $123 million, excluding sales and use tax, to be effective October 1, 2010. This represented a reduction of approximately 6.8% for a typical residential gas heating customer. The new BGSS rate was approved by the BPU in September 2010, on a provisional basis, and was made effective immediately. Subsequent to these two reductions, we filed and self-implemented an additional reduction to the BGSS rate in December. This reduction targeted an approximate $69 million decrease in the BGSS deferred balance. The reduction in the BGSS-Residential Service Gas Commodity Charge for a typical gas residential heating customer was a decrease of approximately 5%. In March 2011, the BPU approved a stipulation that makes the current rate final and resolves all issues in the proceeding.

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Energy Policy

New Jersey Energy Master Plan (EMP)

December 31, 2010 Form 10-K page 27. On October 1, 2010, we filed a petition with the BPU for an increase in the RGGI Recovery Charge (RRC), seeking to recover approximately $48 million in electric revenue and $11 million in gas revenue on an annual basis. The required annual filing seeks to reset the RRC rate components for five programs. These include Carbon Abatement, the Energy Efficiency Economic Stimulus Program, the Demand Response Program, Solar 4 All, and the Solar Loan II Program.

During 2010, the Governor of New Jersey directed the BPU to review the State’s current EMP. We expect the BPU to release a new draft EMP during the first half of 2011 with a final plan expected to be completed later in the year. We cannot predict what modifications or new goals will be included in the new EMP or the potential impacts to our businesses.

Capital Economic Stimulus Infrastructure Program

December 31, 2010 Form 10-K page 29. In January 2009, we filed for approval of a capital economic stimulus infrastructure investment program. Under this initiative, we proposed to undertake $698 million of capital infrastructure investments over a 24 month period. The goal of these accelerated capital investments is to help improve the State’s economy through the creation of new jobs. We made this filing in response to the Governor of New Jersey’s proposal to help revive the economy through job growth and capital spending.

In April 2009, the BPU approved a settlement agreement which identified 38 qualifying projects totaling $694 million. The Capital Adjustment Charge (CAC) will be adjusted each January based on forecasted program expenditures and will be subject to deferred accounting.

We spent $180 million on approved infrastructure projects in 2009 and collected approximately $11 million through the CAC.

The CAC rates were adjusted on a provisional basis on January 1, 2010. At the conclusion of our base rate case in June and July 2010, the infrastructure projects that were placed in service through the end of 2009 were rolled into rate base rate and the CAC rates were adjusted accordingly, again on a provisional basis. We spent $408 million on approved infrastructure projects in 2010 and collected approximately $36 million through the CAC.

In November 2010, we made our second annual filing seeking an update to the CAC rates that would provide for approximately $25 million through June 2011 to cover the remaining $108 million infrastructure investments under the program.

Also in November 2010, we filed for an extension of the gas Capital Stimulus program, seeking BPU approval for approximately $78 million in gas infrastructure investments over a two-year period. We also filed to roll-in to rate base the unrecovered Capital Stimulus expenditures for projects that would be placed in service by June 30, 2011. If approved, this roll-in will result in an increase in the electric and gas base rates of $41 million and $22 million, respectively, with a corresponding reduction in the CAC. We are awaiting a decision on this matter.

In February 2011, we filed for an extension of the electric Capital Stimulus program, seeking BPU approval for approximately $229 million in electric infrastructure investments over a 26-month period.

Carbon Abatement Program

December 31, 2010 Form 10-K page 29. The BPU approved our proposal to invest up to $46 million over four years on a small scale carbon abatement program across specific customer segments. For each year of the program we will file a petition on October 1 to set forth the calculation of the electric and gas recovery charges for the subsequent year. The BPU approved a rate increase in December 2009, which resulted in a net annual revenue increase of $1.9 million in 2010. The petition filed in October 2010 for setting the recovery charges for 2011 is still pending. As of March 31, 2011, $25 million of the approved $46 million investment had been spent on energy efficiency measures.

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ENVIRONMENTAL MATTERS

Air Pollution Control

Hazardous Air Pollutants Regulation

December 31, 2010 Form 10-K page 32. In accordance with a court ruling, the EPA proposed a Maximum Achievable Control Technology (MACT) regulation in March 2011 which is expected to be finalized by November 2011. This regulation includes mercury reduction and other hazardous air pollutants pursuant to the Clean Air Act. In preparation for this action, the EPA solicited extensive stack-testing information from many coal and oil fired electric generating units through a mandatory Information Collection Request (ICR). We participated in this ICR and submitted the required information in 2010. According to the prescriptive MACT process, the EPA will select an emission rate from the best performing units, by pollutant and/or surrogate, and units within a given category yet to be determined will have to have a lower emission rate than the selected rate by a set date, typically three to five years after the final rule. Until the final rule is adopted, the impact cannot be determined; however, if the rule is adopted as proposed, Power believes the back end technology environmental controls recently installed at its Hudson and Mercer coal facilities should meet the rule’s requirements. At Power’s Connecticut facilities, some additional controls could be necessary, pending engineering evaluation. The impact to Power’s jointly owned coal fired generating facilities in Pennsylvania is under evaluation.

Water Pollution Control

Permit Renewals

December 31, 2010 Form 10-K page 33. The use of cooling water is a significant part of the generation of electricity at steam-electric generating stations. Section 316(b) of the Federal Water Pollution Control Act requires that cooling water intake structures reflect the best technology available (BTA) for minimizing adverse environmental impact. The impact of regulations under Section 316(b) can be significant, particularly at steam-electric generating stations which do not have closed cycle cooling through the use of cooling towers to recycle water for cooling purposes. The installation of cooling towers at an existing generating station can impose significant engineering challenges and significant costs, which can affect the economic viability of a particular plant. In late 2010, the EPA entered into a settlement agreement with environmental groups that established a schedule to develop a new 316(b) rule.

On April 20, 2011, the EPA published the proposed rule and comments are due 90 days thereafter. The proposed rule would establish a separate marine life entrainment mortality standard as well as new impingement mortality standards for existing cooling water intake structures with a design flow of more than 2 million gallons per day. The proposed impingement standard requires that such facilities must meet specific numeric criteria to comply, while the proposed entrainment standard provides for a site specific, case-by-case BTA assessment for mortality reduction. If the rule were to be adopted as proposed, the majority of our electric generating could be affected as they employ once-through cooling utilizing tidal river and tidal waters.

We are in the process of reviewing the proposed rule and assessing its potential impact on our generating facilities. We expect to file comments on the proposed rulemaking with the EPA within the prescribed time. We are unable to predict the outcome of this proposed rulemaking, the final form that the proposed regulations may take and the effect, if any, that they may have on our future capital requirements, financial condition or results of operations which could be material. See Note 8. Commitments and Contingent Liabilities for additional information.

Conemaugh NPDES permit

In April 2007, a Clean Water Act citizen suit was brought against GenOn Northeast Management Company (then known as Reliant Energy Northeast Management Company) (GenOn), as operator of the 1,711 MW Conemaugh Generating Station (Conemaugh), seeking civil penalties and injunctive relief for alleged violations of Conemaugh’s National Pollutant Discharge Elimination System (NPDES) permit. We have a 22.5% percent ownership interest in Conemaugh. Pursuant to a Consent Order and Agreement between Pennsylvania Department of Environmental Protection (PADEP) and GenOn, a variety of studies have been

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conducted, a water treatment facility for cooling tower blowdown has been designed and built, and a second treatment facility for flue gas desulfurization effluent has been designed (awaiting final PADEP approval for construction), in order to comply with the limits set in Conemaugh’s NPDES permit. On March 21, 2011, the court entered a partial summary judgment in the plaintiffs’ favor, declaring as a matter of law that discharges from Conemaugh had violated the NPDES permit. The case is set for a non-jury trial starting on June 1, 2011, at which the Court will determine what, if any, civil penalties and injunctive relief might be appropriate. If plaintiffs are ultimately successful, we could incur costs associated with civil penalties and the implementation of additional discharge reductions, in proportion to our share of ownership.

AMENDED EMPLOYMENT AGREEMENT WITH EXECUTIVE OFFICER

In our Proxy Statement for the 2011 Annual Meeting of Stockholders, we reported on a proposed amendment to the employment agreement with Randall E. Mehrberg, Executive Vice President—Strategy and Development of PSEG and President and Chief Operating Officer of Energy Holdings, originally effective September 8, 2008. The original agreement provided, among other things, that upon a termination by us without cause Mr. Mehrberg would receive full vesting of restricted stock and restricted stock units awarded under our 2004 Long-Term Incentive Plan (LTIP) unless a change in such provisions of the LTIP is applicable to all employees similar to Mr. Mehrberg. Subsequently, the applicable provisions of such awards under the LTIP provided for forfeiture upon a termination without cause. On May 4, 2011, we entered into the proposed amendment with Mr. Mehrberg and included a provision that provides for full vesting without proration of awards under our LTIP under certain circumstances if Mr. Mehrberg is terminated by us without cause between September 8, 2012 and December 31, 2016. For a complete recitation of all the terms of the amended employment agreement and the conditions under which Mr. Mehrberg may receive full vesting without proration, see Exhibit 10.2.

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ITEM 6. EXHIBITS

A listing of exhibits being filed with this document is as follows:

a. PSEG:

Exhibit 10: Amended and Restated Key Executive Severance Plan

Exhibit 10.1: 2004 Long-Term Incentive Plan, as amended

Exhibit 10.2: Amendment to Employment Agreement with Randall Mehrberg, dated as of May 4, 2011

Exhibit 12: Computation of Ratios of Earnings to Fixed Charges

Exhibit 31: Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (1934 Act)

Exhibit 31.1: Certification by Caroline Dorsa Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act

Exhibit 32: Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 32.1: Certification by Caroline Dorsa Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 101.INS: XBRL Instance Document*

Exhibit 101.SCH: XBRL Taxonomy Extension Schema*

Exhibit 101.CAL: XBRL Taxonomy Extension Calculation Linkbase*

Exhibit 101.LAB: XBRL Taxonomy Extension Labels Linkbase*

Exhibit 101.PRE: XBRL Taxonomy Extension Presentation Linkbase*

Exhibit 101.DEF: XBRL Taxonomy Extension Definition Document*

* XBRL information is furnished, not filed.

b. Power:

Exhibit 10: Amended and Restated Key Executive Severance Plan

Exhibit 10.1: 2004 Long-Term Incentive Plan, as amended

Exhibit 12.1: Computation of Ratios of Earnings to Fixed Charges

Exhibit 31.2: Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act

Exhibit 31.3: Certification by Caroline Dorsa Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act

Exhibit 32.2: Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 32.3: Certification by Caroline Dorsa Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

c. PSE&G:

Exhibit 10: Amended and Restated Key Executive Severance Plan

Exhibit 10.1: 2004 Long-Term Incentive Plan, as amended

Exhibit 12.2: Computation of Ratios of Earnings to Fixed Charges

Exhibit 12.3: Computation of Ratios of Earnings to Fixed Charges Plus Preferred Securities Dividend Requirements

Exhibit 31.4: Certification by Ralph Izzo Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act

Exhibit 31.5: Certification by Caroline Dorsa Pursuant to Rules 13a-14 and 15d-14 of the 1934 Act

Exhibit 32.4: Certification by Ralph Izzo Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 32.5: Certification by Caroline Dorsa Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(Registrant)
By:	/S/ DEREK M. DIRISIO
	Derek M. DiRisio Vice President and Controller (Principal Accounting Officer)

Date: May 5, 2011

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

PSEG POWER LLC
(Registrant)
By:	/S/ DEREK M. DIRISIO
	Derek M. DiRisio Vice President and Controller (Principal Accounting Officer)

Date: May 5, 2011

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Registrant)
By:	/S/ DEREK M. DIRISIO
	Derek M. DiRisio Vice President and Controller (Principal Accounting Officer)

Date: May 5, 2011

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EX-10

Exhibit 10

KEY EXECUTIVE SEVERANCE PLAN OF

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

Amended effective December 1, 2009

TABLE OF CONTENTS

		Page
ARTICLE I PURPOSE OF THE PLAN
1.1	Purpose		1
ARTICLE II DEFINITIONS
2.1	“Accrued Obligation”		1
2.2	“Affiliate”		1
2.3	“Annual Base Salary”		1
2.4	“Board”		1
2.5	“Cause”		1
2.6	“Change in Control”		2
2.7	“Code”		3
2.8	“Committee”		3
2.9	“Company”		3
2.10	“Confidential Information”		3
2.11	“Date of Termination”		4
2.12	“Disability”		4
2.13	“Disability Effective Date”		4
2.14	“Eligible Employee”		4
2.15	“Effective Date”		4
2.16	“Employer”		4
2.17	“Good Reason”		4
2.18	“Other Benefits”		5
2.19	“Participant”		5
2.20	“Plan”		5
2.21	“Prior Equity Awards”		5
2.22	“Retirement”		5
2.23	“Schedule A Participant”		5
2.24	“Schedule B Participant”		5
2.25	“Specified Employee”		6

ii

2.26	“Target Bonus”	6
2.27	“Target Long-Term Incentive”	6
ARTICLE III ELIGIBILITY AND PARTICIPATION
3.1	Eligible Employees	6
3.2	Participation	6
3.3	Release of Claims	6
ARTICLE IV SEVERANCE BENEFITS IN GENERAL
4.1	Termination by Employer Other than for Cause	7
4.2	Termination where a Participant experiences a cessation of employment in connection with a reduction in force or Employer reorganization where the only position offered to the Participant within the Company and Affiliates would require the Participant to increase his or her one-way commuting distance by more than 50 miles	9
ARTICLE V SEVERANCE BENEFITS AFTER A CHANGE IN CONTROL
5.1	Termination By Employer Other Than For Cause or By Participant For Good Reason (other than Good Reason as described in Subsection 2.17(d)) Within Two Years After a Change in Control	12
5.2	Termination By Participant For Good Reason as described in Subsection 2.17(d) Within Two Years After a Change in Control	14
5.3	Termination By Employer For Cause or By Participant Other Than For Good Reason	16
5.4	Death	16
5.5	Disability	17
5.6	Retirement	17
ARTICLE VI TIMING OF, LIMITATIONS ON AND ADJUSTMENTS TO PLAN PAYMENTS
6.1	Time of Payments	17
6.2	Payment Offsets	17
6.3	Cap on Excess Parachute Payments; Gross-Up Payments	17
6.4	Code Section 409A Compliance	18
6.5	Tax Withholding	18
ARTICLE VII RESTRICTIVE COVENANTS

iii

7.1	Confidentiality	18
7.2	Non-Compete	19
7.3	Non-Solicitation	19
7.4	Enforcement	19
ARTICLE VIII AMENDMENT AND TERMINATION
8.1	Amendment	19
8.2	Termination	20
ARTICLE IX ADMINISTRATION
9.1	Plan Administrator	20
9.2	Responsibilities of Committee	20
9.3	Allocation or Delegation of Duties and Responsibilities	20
9.4	Expenses	21
9.5	Indemnification of Plan Administrator	21
9.6	Reliance Upon Others	21
9.7	Notification	21
9.8	Multiple Capacities	21
ARTICLE X CLAIMS PROCEDURE
10.1	Submission of Claims	21
10.2	Computation and Review of Claims	22
ARTICLE XI GENERAL PROVISIONS
11.1	Construction	23
11.2	Unfunded Plan	23
11.3	No Right to Continued Employment	23
11.4	Partial Invalidity	23
11.5	Successors and Assigns	23
11.6	Waivers	24
11.7	Gender and Number	24
11.8	Headings	24

iv

Schedule A	Participants	25
Schedule B	Participants	26
Exhibit I	Form of Restrictive Covenant Agreement	27
Exhibit II	Form of Separation Agreement and General Release	29

v

ARTICLE I

PURPOSE OF THE PLAN

1.1 Purpose This Key Executive Severance Plan was established by the Company to provide severance benefits to certain key executive-level employees of the Company and its affiliates whose employment is terminated under the circumstances described herein.

The American Jobs Creation Act of 2004 (the “AJCA”), which became law on October 22, 2004, added new section 409A to the Code and imposes new restrictions on deferred compensation, including certain severance arrangements. It further provides that payments upon a separation from service will meet the requirements of Code Section 409A only to the extent provided by guidance issued by the Department of Treasury where such payments are made due to a change in the ownership or effective control of the Company. The AJCA and any Treasury guidance issued to implement the AJCA may result in additional restrictions on a Participant’s rights relating to compensation considered to be deferred under this Plan. This Plan automatically incorporates all applicable restrictions of the AJCA and such regulations, and the Company will amend the Plan from time to time to the extent necessary to comply with those requirements. The timing under which a Participant will have a right to receive any payment under this Plan will be deemed to be automatically modified, and a Participant’s rights under the Plan limited to conform to any requirements under the AJCA and such regulations.

ARTICLE II

DEFINITIONS

2.1 “Accrued Obligation” shall have the meaning set forth in Section 4.1(i)(A) or Section 5.1(i)(A), as applicable.

2.2 “Affiliate” means any corporation, trade or business if it or the Company are members of a controlled group of corporations, are under common control or are members of an affiliated service group, within the meanings of Sections 414(b), 414(c) and 414(m), respectively, of the Code. The term “Affiliate” shall also include any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.

2.3 “Annual Base Salary” means the annual rate of base salary payable to a Participant for services performed for an Employer, as in effect immediately prior to the Participant’s Date of Termination.

2.4 “Board” means the board of directors of the Company.

2.5 “Cause” means (a) the willful and continued failure by a Participant to substantially perform his employment duties, (b) the willful engaging by the Participant in gross misconduct that is materially and demonstrably injurious to the Employer, (c) the willful violation of the Company’s Standards of Integrity or other applicable corporate code of conduct, or (d) the conviction of the Participant on or pleas of nolo contetendere to a felony charge. No act or failure to act on the part of the Participant shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the

Participant’s action or omission was in the best interests of the Employer. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Employer, shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Employer.

Notwithstanding the forgoing, for purposes of the Plan, the termination of a Participant’s employment with an Employer shall not be deemed to be for Cause unless such termination is effected in accordance with the following procedures. The Employer shall give the Participant written notice (“Notice of Termination for Cause”) of its intention to terminate the Participant’s employment for Cause, setting forth in reasonable detail the specific conduct of the Participant that it considers to constitute Cause. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Employer alleges to constitute Cause. The Participant shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under clause (a), (b) or (c) above, if the Participant fails to cure such act or failure to the reasonable satisfaction of the Employer, the Employer shall give the Participant a second written notice stating that in the good faith opinion of the Employer, the Participant is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under the Plan.

2.6 “Change in Control” means the occurrence of any of the following events:

(a) any “person” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a “Beneficial Owner”), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or

(b) the following individuals cease for any reason to constitute a majority of the number of directors of the Company then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or

(c) there is consummated a merger or consolidation of the Company or any direct or indirect wholly-owned subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of

2

the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of its Affiliates, at least 75% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities; or

(d) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

2.7 “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

2.8 “Committee” means the Organization and Compensation Committee of the Board or any successor of such Committee.

2.9 “Company” means Public Service Enterprise Group Incorporated and any successors thereto.

2.10 “Confidential Information” means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its Affiliates, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its Affiliates has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Participant prior to employment with an Employer, and information received by the Participant from sources other than the Company or its Affiliates, without obligation of confidentiality.

3

2.11 “Date of Termination” means the date of a Participant’s death, Disability Effective Date, or the date on which the termination of the Participant’s employment by an Employer for Cause or without Cause or by the Participant for Good Reason or without Good Reason, including Retirement, is effective, as the case may be.

2.12 “Disability” means that the Participant (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of an Employer.

2.13 “Disability Effective Date” means the 30th day after the Participant’s receipt of written notice of the Employer’s intention to terminate the Participant’s employment on account of Disability, provided that, within the 30 days after the Participant’s receipt of such notice, the Participant shall not have returned to full-time performance of his employment duties.

2.14 “Eligible Employee” means an individual who is designated as such in accordance with Section 3.1.

2.15 “Effective Date” means the effective date of the Plan, December 20, 2004.

2.16 “Employer” means the Company and each Affiliate, and any successors thereto.

2.17 “Good Reason” means,

(a) any reduction in the Participant’s Annual Base Salary, Target Bonus or Target Long-Term Incentive, other than reductions pursuant to a broad-based compensation reduction program or policy affecting the Participant and all similarly situated employees of the Employer;

(b) any adverse change in the Participant’s title, authority, duties, or responsibilities or the assignment to the Participant of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of the Participant immediately prior to the Change in Control;

(c) the failure of any successor to the Company to assume this Plan in accordance with Section 11.5(b);

(d) where the only comparable position offered to the Participant within the Employer following a change in control would not otherwise meet the requirements of subsections (a) and (b) of this section 2.17, but would require the Participant to increase his or her one-way commuting distance from his or her principal residence by more than 50 miles; or

4

(e) any other material breach of the terms of the Plan by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Participant.

Notwithstanding the forgoing, for purposes of the Plan, the termination of a Participant’s employment with an Employer shall not be deemed to be for Good Reason unless such termination is effected in accordance with the following procedures. The Participant shall give his Employer a written notice (“Notice of Termination for Good Reason”) of the termination, setting forth in reasonable detail the specific acts or omissions of the Employer that constitute Good Reason and the specific provision(s) of the Plan on which the Participant relies. Unless the Committee determines otherwise, a Notice of Termination for Good Reason by the Participant must be made within 60 days after the Participant first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Participant alleges to constitute Good Reason, and the Employer shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Participant for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Employer has cured the specific conduct asserted by the Participant to constitute Good Reason to the reasonable satisfaction of the Participant.

For purposes of the Plan, a Participant’s determination that an act or failure to act constitutes Good Reason shall be presumed to be valid unless such determination is decided to be unreasonable by the Committee or its delegate pursuant to Article IX.

2.18 “Other Benefits” shall have the meaning set forth in Section 5.1, as applicable.

2.19 “Participant” means an Eligible Employee who has satisfied the conditions for participation in the Plan, as set out in Section 3.2, and is listed on either Schedule A or Schedule B hereto, as the same may be amended from time to time.

2.20 “Plan” means this Key Executive Severance Plan of Public Service Enterprise Group Incorporated, as set forth herein and as may be amended, modified or supplemented from time to time.

2.21 “Prior Equity Awards” shall have the meaning set forth in Article V.

2.22 “Retirement” means retirement under the terms of the Retirement Plan, as defined in Article V; except, however, that the term “Retirement” for the purposes of determining benefit entitlements under Article V shall not include forced retirements or any termination by an Employer without Cause or voluntary termination by the Participant for Good Reason that occurs on a date on which the Participant is Retirement eligible.

2.23 “Schedule A Participant” shall mean a Participant listed on Schedule A hereto.

2.24 “Schedule B Participant” shall mean a Participant listed on Schedule B hereto.

5

2.25 “Specified Employee” shall mean any individual who is a key employee (as defined in Section 416(i) of the Code without regard to Section 416(i)(5)) of the Code) of the Company at any time during the 12-month period ending on each December 31 (the “identification date”). If an individual is a key employee as of an identification date, the individual shall be treated as a Specified Employee for the 12-month period beginning on the April 1 following the identification date. Notwithstanding the foregoing, an individual shall not be treated as a Specified Employee unless any stock of the Company or an Affiliate is publicly traded on an established securities market or otherwise.

2.26 “Target Bonus” means the Participant’s target annual bonus, if any, under the applicable annual incentive compensation plan of the Company for the fiscal year in which the Date of Termination occurs.

2.27 “Target Long-Term Incentive” means the Participant’s target long-term incentive award, if any, under the applicable long-term incentive compensation plan of the Company.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.1 Eligible Employees. Eligibility to participate in the Plan shall be limited to certain key executives of an Employer who (a) are not parties to individual employment or change in control agreements that provide for severance benefits, and (b) are designated, by duly adopted resolution of the Committee, as Eligible Employees.

3.2 Participation. As a condition to becoming a Participant and being entitled to the benefits and protections provided under the Plan, each Eligible Employee must execute and deliver to the Company, within 30 days after the later of the Effective Date and the date such individual is designated by the Committee as an Eligible Employee, a written agreement in the form attached hereto as Exhibit I (or in such other form as may be satisfactory to the Company) to be bound by the restrictive covenants set forth in Article VII. Schedules A and B hereto list the Eligible Employees who have satisfied the conditions for Plan participation and the date as of which each such Eligible Employee became a Participant. The Committee shall cause Schedules A and B to be updated from time to time to reflect the Participants who are currently participating in the Plan.

3.3 Release of Claims. Notwithstanding anything in the Plan to the contrary, payment of any benefits under the Plan is expressly contingent upon the Participant’s execution and delivery to the Company, within 30 days after the Participant’s Date of Termination, of a written agreement, in the form attached hereto as Exhibit II (or in such other form as may be satisfactory to the Company) wherein the Participant releases and discharges the Company and each of its Affiliates of any and all claims against the Company and its Affiliates related in any way to the Participant’s employment with an Employer and the termination of such employment.

6

ARTICLE IV

SEVERANCE BENEFITS IN GENERAL

4.1 Termination by Employer Other than for Cause. Subject to Section 3.3 Section 4.2, Article V and Article VI, if a Participant’s employment is involuntarily terminated by an Employer due to a reduction in force or a reorganization of the Employer (or a Participant experiences a cessation of employment in connection with a reduction in force or Employer reorganization where the only position offered to the Participant within the Company and Affiliates would require the Participant to accept a reduction in his or her annual rate of base salary of more than 20% below the annual rate of base salary of the Participant’s position immediately prior to such action):

(a) the Company shall pay to the Participant, in a lump sum in cash, the aggregate of the amounts set forth in clauses (A) and (B) below (provided, however, that the following occurrences shall not constitute a termination of employment for purposes of this Article IV: (i) an involuntary termination of employment for Cause; (ii) an involuntary termination of employment resulting from the Participant’s unsatisfactory performance documented in accordance with his or her Employer’s customary practice; (iii) a cessation of employment with an Employer as the result of the Participant’s death, disability (as defined in the Company’s long-term disability plan) or Retirement; or (iv) a cessation of employment in connection with the sale of the Participant’s Employer, line or unit of business of the Employer within which the Participant’s position is located, business function of the Employer within which the Participant’s position is located, or the assets related to the Employer, line or unit or business, or business function within which the Participant’s position is located, and the Participant accepts employment with the purchaser within 90 days of the closing of the transaction in a position that has an annual rate of base salary that is at least 80 percent of the Participant’s annual rate of base salary immediately prior to the closing of the sale):

(A) The sum of:

(1) the Participant’s base salary through the Date of Termination;

(2) the product of (x) the Participant’s Target Bonus and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and

(3) any accrued vacation pay;

in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

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(B) An amount equal to the product of 1.0 times (0.5 times if the Participant were employed less than one year) the sum of the Participant’s Annual Base Salary and Target Bonus.

(b) Long-Term Incentive Awards. Any stock awards, stock options, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination (“Prior Equity Awards”) shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award;

(c) Annual Incentive Awards. As provided in subparagraph (a)(A)(2), Participant shall receive a prorated annual incentive award pursuant to the performance incentive program, if applicable, for the calendar year in which the Participant’s Termination of Employment occurs. The award shall be calculated based solely on 100 percent of the target incentive award and prorated based on the number of days of employment in the calendar year in which the participant’s Termination of Employment occurs through the employee’s Termination Date. Annual incentive awards with respect to the calendar year in which a Participant’s Termination Date occurs will be paid at the same time as awards for such calendar year are paid to active employees of the Employer.

(d) Outplacement Services. Outplacement services approved by the Committee, which may include individual or group counseling and administrative assistance or workshops, shall be available beginning on the participant’s Termination Date or such earlier date designated by the Participant’s business unit leadership. Outplacement services shall continue to be available for the period up to 12 months.

(e) Educational Assistance. The Employer shall reimburse 90 percent of the costs (up to a total of $3,000) of tuition, required books and mandatory fees incurred for classes approved by the Committee that are successfully completed within two years after a Participant’s Termination Date. “Successful completion” shall mean the attainment of a final course grade of “C” or better. Reimbursement will be made only upon the submission of bills or receipts in such form as the Committee may require.

(f) Health Care Benefits.

Retiree Health Care Coverage. A Participant who has not otherwise satisfied the eligibility criteria for participation prior to his or her Termination Date, shall be entitled to elect retiree coverage under the Employer’s applicable retiree group health care plans as though he or she otherwise satisfied such plans’ eligibility requirements if:

(A) the Participant has attained age 50 and completed ten or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80; or

(B) the Participant has attained age 49 and completed 20 or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80.

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Such coverage shall commence no earlier than the Participant’s Termination Date. The Participant shall be charged the full cost of retiree coverage under these plans.

COBRA Continuation Coverage. Each Participant who is not eligible for, or does not elect, the retiree health care coverage described in this subsection (f) shall be entitled, pursuant to any continuation coverage rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to continue individual and dependent coverage under the Company’s group health care plans following the Participant’s Termination Date. If continuation coverage is elected, the Employer shall pay the same portion of the cost of medical coverage that it paid immediately prior to the Participant’s Termination Date for active employees during the one-year period following the participant’s termination date that the Participant is receiving severance pay under Section 4.1, and the Participant shall pay the balance. The Participant shall be charged the full expense of medical coverage (102 percent of the cost of coverage) during the remainder of the statutory coverage period, if any, and the full expense of dental and (if applicable) vision and hearing coverage (102 percent of the cost of coverage) during the entire statutory coverage period.

(g) Life Insurance. A Participant who is not eligible for coverage under the Employer’s retiree life insurance plan shall be entitled, for the one-year period following the Participant’s termination date to life insurance coverage at the Employer’s expense in an amount equal to the group term life insurance coverage in effect for such Participant under the Employer’s group term life insurance plan for active employees as of his or her Termination Date.

(h) Other Benefits. A Participant shall not be entitled to any severance, separation or early retirement incentive pay or benefits other than as provided hereunder or under any qualified or nonqualified retirement plan or deferred compensation arrangement maintained by the Employer. Except as provided in the foregoing sentence, a Participant’s rights under any other employee benefit plans maintained by the Company or an Affiliate shall be determined in accordance with the provisions of such plans, including the Company’s right to amend or terminate such plans at any time. (The amounts and benefits payable to the Participant pursuant to sub paragraphs (b) (c), (d), (e), (f), and (g) shall be hereinafter referred to as the “Other Benefits”).

4.2 Termination where a Participant experiences a cessation of employment in connection with a reduction in force or Employer reorganization where the only position offered to the Participant within the Company and Affiliates would require the Participant to increase his or her one-way commuting distance by more than 50 miles. Subject to Section 3.3 and Article V, if a Participant experiences a cessation of employment in connection with a reduction in force or Employer reorganization where the only position offered to the Participant within the Company and Affiliates would require the Participant to increase his or her one-way commuting distance by more than 50 miles:

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(a) Severance Pay. The Participant shall receive, in bi-weekly payments concurrent with his or her Employer’s normal payroll cycle, an amount of severance pay from his or her Employer calculated based upon the amount of the Participant’s base salary, the number of Years of Service completed as of the Participant’s Termination Date, as indicated below:

(A) Less than Thirteen Years of Service: If, as of the Participant’s Termination Date he or she has completed fewer than thirteen Years of Service, the amount of severance pay shall equal 26 weeks of base salary.

(B) Thirteen or More Years of Service: If, as of the Participant’s Termination Date, he or she has completed thirteen or more Years of Service, the amount of severance pay shall equal two weeks of base salary for each Year of Service, up to a maximum of 52 weeks of base salary.

(b) Annual Incentive Awards. A Participant shall receive a prorated annual incentive award pursuant to the performance incentive program, if applicable, for the calendar year in which the Participant’s Termination of Employment occurs. The award shall be calculated based solely on 100 percent of the target incentive award and prorated based on the number of days of employment in the calendar year in which the participant’s Termination of Employment occurs through the employee’s Termination Date. Annual incentive awards with respect to the calendar year in which a Participant’s Termination Date occurs will be paid at the same time as awards for such calendar year are paid to active employees of the Employer.

(c) Outplacement Services. Outplacement services approved by the Committee, which may include individual or group counseling and administrative assistance or workshops, shall be available beginning on the participant’s Termination Date or such earlier date designated by the participant’s business unit leadership. Outplacement services shall continue to be available for the period up to 12 months.

(d) Educational Assistance. The Employer shall reimburse 90 percent of the costs (up to a total of $3,000) of tuition, required books and mandatory fees incurred for classes approved by the Committee that are successfully completed within two years after a Participant’s Termination Date. “Successful completion” shall mean the attainment of a final course grade of “C” or better. Reimbursement will be made only upon the submission of bills or receipts in such form as the Committee may require.

(e) Health Care Benefits.

Retiree Health Care Coverage. An Eligible Employee who has not otherwise satisfied the eligibility criteria for participation prior to his or her Termination Date, shall be entitled to elect retiree coverage under the Employer’s applicable retiree

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group health care plans as though he or she otherwise satisfied such plans’ eligibility requirements if:

(A) the Participant has attained age 50 and completed ten or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80; or

(B) the Participant has attained age 49 and completed 20 or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80.

Such coverage shall commence no earlier than the Participant’s Termination Date. The Participant shall be charged the full cost of retiree coverage under these plans.

COBRA Continuation Coverage. Each Participant who is not eligible for, or does not elect, the retiree health care coverage described in this subsection (v) shall be entitled, pursuant to any continuation coverage rights under COBRA to continue individual and dependent coverage under the Company’s group health care plans following the Participant’s Termination Date. If continuation coverage is elected, the Employer shall pay the same portion of the cost of medical coverage that it paid immediately prior to the Participant’s Termination Date for active employees during the period that the Participant is receiving severance pay under Section 5.2, and the Participant shall pay the balance. The Participant shall be charged the full expense of medical coverage (102 percent of the cost of coverage) during the remainder of the statutory coverage period, if any, and the full expense of dental and (if applicable) vision and hearing coverage (102 percent of the cost of coverage) during the entire statutory coverage period.

(f) Life Insurance. A Participant who is not eligible for coverage under the Employer’s retiree life insurance plan shall be entitled, during the period that the Participant is receiving severance pay under this Section 5.2, to life insurance coverage at the Employer’s expense in an amount equal to the group term life insurance coverage in effect for such Participant under the Employer’s group term life insurance plan for active employees as of his or her Termination Date.

(g) Other Benefits. A Participant shall not be entitled to any severance, separation or early retirement incentive pay or benefits other than as provided under the Plan or under any qualified or nonqualified retirement plan or deferred compensation arrangement maintained by the Employer. Except as provided in the foregoing sentence, a Participant’s rights under any other employee benefit plans maintained by the Company or an Affiliate shall be determined in accordance with the provisions of such plans, including the Company’s right to amend or terminate such plans at any time.

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ARTICLE V

SEVERANCE BENEFITS AFTER A CHANGE IN CONTROL

5.1 Termination By Employer Other Than For Cause or By Participant For Good Reason (other than Good Reason as described in Subsection 2.17(d)) Within Two Years After a Change in Control. Subject to Section 3.3 and Article VI, if, within two years following the occurrence of a Change in Control, either (a) an Employer shall terminate a Participant’s employment other than for Cause or Disability or (b) a Participant shall voluntarily terminate his employment for Good Reason pursuant to Subsections 2.17 (a), (b), (c) or (e):

(a) the Company shall pay to the Participant, in a lump sum in cash, the aggregate of the amounts set forth in clauses A and B below:

A. The sum of:

(1) the Participant’s base salary through the Date of Termination;

(2) the product of (x) the Participant’s Target Bonus and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and

(3) any accrued vacation pay;

in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

 B. (1) in the case of a Schedule A Participant, the amount equal to the product of two times the sum of the Schedule A Participant’s Annual Base Salary and Target Bonus; or

(2) in the case of a Schedule B Participant, the amount equal to the product of three times the sum of the Schedule B Participant’s Annual Base Salary and Target Bonus.

(b) any stock awards, stock options, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination (“Prior Equity Awards”) shall vest and/or become exercisable in accordance with the underlying plan for such Prior Equity Award;

(c) the Company shall pay the cost of the continued coverage of the Participant and/or the Participant’s family under the Company’s medical and dental employee benefit plans for 18 months after the Date of Termination provided that the Participant makes an election to continue such coverage in the Company’s medical and dental employee benefit plans under COBRA, subject to the requirements and limitations

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thereof, and thereafter for an additional period of six months, in the case of a Schedule A Participant, or 18 months, in the case of a Schedule B Participant; provided however, that if the Participant becomes re-employed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits provided by the Company under this Plan shall be secondary to those provided under such other plan during the applicable period of eligibility;

(d) for two years after the Date of Termination in the case of a Schedule A Participant or three years after the Date of Termination in the case of a Schedule B Participant (or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy), the Company shall continue benefits (other than medical and dental benefits) to the Participant and/or the Participant’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies maintained by the Company if the Participant’s employment had not been terminated or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer executives of the Employer and their families;

(e) the Participant’s eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to the welfare plans, programs, practices and policies maintained by the Company shall be determined as if the Participant had (A) remained employed until two years (in the case of a Schedule A Participant) or three years (in the case of a Schedule B Participant) after the Date of Termination and (B) retired on the last day of such period;

(f) the Participant shall be paid, in a lump sum payment in cash, an amount equal to the excess of:

(A) the actuarial equivalent of the benefit under the Company’s applicable qualified defined benefit retirement plan in which the Participant is participating immediately prior to his Date of Termination (the “Retirement Plan”) (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Participant than those in effect under the Retirement Plan immediately prior to the Effective Date), any supplemental executive retirement plans (“SERPs”) in which the Participant participates and, to the extent applicable, any other defined benefit retirement arrangement between the Participant and the Company (“Other Pension Benefits”) which the Participant would receive if the Participant’s employment continued for two or three additional years (for Schedule A Participants and Schedule B Participants, respectively) beyond the Date of Termination and, assuming that the Participant’s compensation for such deemed additional period was the Participant’s Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over

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(B) the actuarial equivalent of the Participant’s actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Participant than those in effect under the Retirement Plan immediately prior to the effective date of the Change in Control);

(g) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Participant (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred to the extent permitted by guidance issued by the U.S. Department of Treasury under Section 409A of the Code;

(h) the Company shall, at its sole expense as incurred, provide the Participant with outplacement services suitable to the Participant’s position for a period not to exceed one year following the Date of Termination with a nationally recognized outplacement firm; and,

(i) to the extent not theretofore paid or provided, the Company shall pay or provide to the Participant any other amounts or benefits required to be paid or provided or which the Participant is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company (or other Employer), including earned but unpaid stock and similar compensation, but excluding medical or dental benefits if the Participant is eligible for such benefits to be provided by a subsequent employer, and benefits payable under any severance plan or policy (such other amounts and benefits that are payable to the Participant shall be hereinafter referred to as the “Other Benefits”).

5.2 Termination By Participant For Good Reason as described in Subsection 2.17(d) Within Two Years After a Change in Control. Subject to Section 3.3 and Article V, if, within two years following the occurrence of a Change in Control, a Participant shall voluntarily terminate his or her employment for Good Reason as described in Subsection 2.17(d):

(a) Severance Pay. The Participant shall receive, in bi-weekly payments concurrent with his or her Employer’s normal payroll cycle, an amount of severance pay from his or her Employer calculated based upon the amount of the Participant’s base salary, the number of Years of Service completed as of the Participant’s Termination Date, as indicated below:

(A) Less than Thirteen Years of Service: If, as of the Participant’s Termination Date he or she has completed fewer than thirteen Years of Service, the amount of severance pay shall equal 26 weeks of base salary.

(B) Thirteen or More Years of Service: If, as of the Participant’s Termination Date, he or she has completed thirteen or more Years of

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Service, the amount of severance pay shall equal two weeks of base salary for each Year of Service, up to a maximum of 52 weeks of base salary.

(b) Annual Incentive Awards. A Participant shall receive a prorated annual incentive award pursuant to the performance incentive program, if applicable, for the calendar year in which the Participant’s Termination of Employment occurs. The award shall be calculated based solely on 100 percent of the target incentive award and prorated based on the number of days of employment in the calendar year in which the participant’s Termination of Employment occurs through the employee’s Termination Date. Annual incentive awards with respect to the calendar year in which a Participant’s Termination Date occurs will be paid at the same time as awards for such calendar year are paid to active employees of the Employer.

(c) Outplacement Services. Outplacement services approved by the Committee, which may include individual or group counseling and administrative assistance or workshops, shall be available beginning on the participant’s Termination Date or such earlier date designated by the participant’s business unit leadership. Outplacement services shall continue to be available for the period up to 12 months.

(d) Educational Assistance. The Employer shall reimburse 90 percent of the costs (up to a total of $3,000) of tuition, required books and mandatory fees incurred for classes approved by the Committee that are successfully completed within two years after a Participant’s Termination Date. “Successful completion” shall mean the attainment of a final course grade of “C” or better. Reimbursement will be made only upon the submission of bills or receipts in such form as the Committee may require.

(e) Health Care Benefits.

Retiree Health Care Coverage. An Eligible Employee who has not otherwise satisfied the eligibility criteria for participation prior to his or her Termination Date, shall be entitled to elect retiree coverage under the Employer’s applicable retiree group health care plans as though he or she otherwise satisfied such plans’ eligibility requirements if:

(A) the Participant has attained age 50 and completed ten or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80; or

(B) the Participant has attained age 49 and completed 20 or more Years of Service as of his or her Termination Date but the sum of the Participant’s age and Years of Service is less than 80.

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Such coverage shall commence no earlier than the Participant’s Termination Date. The Participant shall be charged the full cost of retiree coverage under these plans.

COBRA Continuation Coverage. Each Participant who is not eligible for, or does not elect, the retiree health care coverage described in this subsection (v) shall be entitled, pursuant to any continuation coverage rights under COBRA to continue individual and dependent coverage under the Company’s group health care plans following the Participant’s Termination Date. If continuation coverage is elected, the Employer shall pay the same portion of the cost of medical coverage that it paid immediately prior to the Participant’s Termination Date for active employees during the period that the Participant is receiving severance pay under Section 5.2, and the Participant shall pay the balance. The Participant shall be charged the full expense of medical coverage (102 percent of the cost of coverage) during the remainder of the statutory coverage period, if any, and the full expense of dental and (if applicable) vision and hearing coverage (102 percent of the cost of coverage) during the entire statutory coverage period.

(f) Life Insurance. A Participant who is not eligible for coverage under the Employer’s retiree life insurance plan shall be entitled, during the period that the Participant is receiving severance pay under this Section 5.2, to life insurance coverage at the Employer’s expense in an amount equal to the group term life insurance coverage in effect for such Participant under the Employer’s group term life insurance plan for active employees as of his or her Termination Date.

(g) Other Benefits. A Participant shall not be entitled to any severance, separation or early retirement incentive pay or benefits other than as provided under the Plan or under any qualified or nonqualified retirement plan or deferred compensation arrangement maintained by the Employer. Except as provided in the foregoing sentence, a Participant’s rights under any other employee benefit plans maintained by the Company or an Affiliate shall be determined in accordance with the provisions of such plans, including the Company’s right to amend or terminate such plans at any time.

5.3 Termination By Employer For Cause or By Participant Other Than For Good Reason. If, at any time after a Change in Control, either (a) an Employer shall terminate a Participant’s employment for Cause or (b) the Participant shall voluntarily terminate his employment other than for Good Reason, the Employer shall have no further payment obligations to the Participant other than for the Participant’s base salary through the Date of Termination and any accrued but unpaid vacation pay. In such case, all such amounts shall be paid to the Participant in a lump sum.

5.4 Death. If a Participant’s employment terminates by reason of the Participant’s death after a Change in Control, all Accrued Obligations as of the time of death shall be paid to the Participant’s estate or beneficiary, as applicable, in a lump sum in cash and the Participant’s estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. Any

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Prior Equity Awards shall vest and/or become exercisable, as the case may be in accordance with the terms of such Prior Equity Awards and the Participant’s estate or beneficiary, as the case may be, shall have the right to exercise any such Prior Equity Award in accordance with its terms.

5.5 Disability. If a Participant’s employment is terminated by reason of Disability after a Change in Control, all Accrued Obligations shall be paid to the Participant in a lump sum in cash. Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, in accordance with the terms of such Prior Equity Awards and the Participant shall have the right to exercise any such Prior Equity Award in accordance with its terms.

5.6 Retirement. If a Participant’s employment terminates as a result of Retirement after a Change in Control, the Participant shall be paid the Accrued Obligations in a lump sum in cash and the Participant shall be entitled to any Other Benefits in accordance with their terms.

ARTICLE VI

TIMING OF, LIMITATIONS ON AND ADJUSTMENTS TO PLAN PAYMENTS

6.1 Time of Payments. Payments under the Plan shall be made as soon as practicable after the Participant’s Date of Termination, except, however, that any payment to a Participant that is a Specified Employee, shall be made as soon as practicable after the earlier of (a) the six-month anniversary of the Participant’s Date of Termination (other than by reason of death) and (b) the date of the Participant’s death. Provided, however, that all payments hereunder that are reimbursements of covered expenses incurred by the Participant shall be made within the taxable year in which the expense is incurred.

6.2 Payment Offsets. Notwithstanding anything in the Plan to the contrary, in the event a Participant is entitled to receive severance payments both under this Plan and under the terms of either (a) an individual change of control or employment agreement, (b) another severance pay plan or policy of an Employer or (c) any existing or future law or regulation, the benefits payable under this Plan shall be reduced by the amount of any severance benefits such Participant is entitled to receive under such individual agreement, plan, policy, law or regulation.

6.3 Cap on Excess Parachute Payments; Gross-Up Payments. Notwithstanding anything in the Plan to the contrary, if (a) a Participant is a “disqualified individual” (as defined in Section 280G(c) of the Code) and (b) the severance benefits provided under Articles IV or V, as applicable, together with any other payments the Participant has the right to receive from an Employer, would constitute a “parachute payment” (as defined in Section 280G(b) of the Code) (“Parachute Payments”), the following provisions shall apply:

(a) the severance benefits under Articles IV or V shall not exceed an amount which, together with any other Parachute Payments the Participant has a right to receive from the Employer, would be 2.99 times the Participant’s “base amount” (as defined in Section 280G of the Code) so that no portion of the amounts received by the Participant shall be subject to the excise tax imposed under Section 4999 of the Code.

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(b) The determination of whether any limitation on the severance benefits payable under Articles IV or V is necessary shall be made by the Company’s independent auditor or such other certified public accounting firm as may be jointly designated by the Participant and the Company (the “Accounting Firm”), which shall provide detailed supporting calculations to the Participant and the Company. The determinations of the Accounting Firm shall be conclusive and binding on the Company and the Participant. All fees and expenses of the Accounting Firm shall be borne solely by the Company.

(c) If through error or otherwise, a Participant shall receive payments under the Plan, together with other Parachute Payments the Participant has the right to receive from an Employer, in excess of 2.99 times his base amount, the Participant shall immediately repay the excess to the Employer upon notification from the Employer that an overpayment has been made. If the Participant fails to repay the excess to the Employer within 10 business days of the date of the Employer’s notification, the Participant will become liable to the Employer for an amount equal to two (2) times the excess amount.

6.4 Code Section 409A Compliance. Notwithstanding anything in the Plan to the contrary, all Plan benefit obligations and payments are subject to guidance issued by the U.S. Department of Treasury under Section 409A of the Code. To the extent required, the Company may modify the severance benefits payable hereunder to comply with such guidance; provided, however, that the present value of the aggregate Plan benefits payable to a Participant after such modification shall not be less than the present value of the Plan benefits payable to the Participant prior to the modification.

6.5 Tax Withholding. Notwithstanding any other provision of this Plan, the Company may withhold from any amounts payable under this Plan such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

ARTICLE VII

RESTRICTIVE COVENANTS

7.1 Confidentiality. As a condition to participation in the Plan, each Participant agrees to hold in a fiduciary capacity for the benefit of the Company and its Affiliates all Confidential Information which shall have been obtained by the Participant during the Participant’s employment by the Employer; except, however, that this Section 7.1 shall not apply to Confidential Information that is or becomes public knowledge, unless such Confidential Information became or becomes public knowledge due to acts of the Participant or representatives of the Participant in violation of this Section 7.1. Upon termination of the Participant’s employment, he shall return to the Company all Confidential Information in his possession. After termination of the Participant’s employment with the Employer, the Participant shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such Confidential Information to

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anyone other than the Company and those designated by it, except (a) otherwise publicly available information, (b) as may be necessary to enforce his rights under the Plan or as necessary to defend himself against a claim asserted directly or indirectly by the Company or its Affiliates or (c) as may be compelled by service of a valid subpoena or other legal process. If the Participant is served with a valid subpoena or other legal process, he must so notify the Company within three business days. Unless and until a determination has been made in accordance with Section 7.4 that the Participant has violated this Section 7.1, an asserted violation of the provisions of this Section 7.1 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Participant under the Plan.

7.2 Non-Compete. As a condition to participation in the Plan, each Participant agrees, that, in the event the Participant voluntarily terminates his employment other than for Good Reason, for the period of one year from Date of Termination he will not, without the written consent of the Company, directly or indirectly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company or its Affiliates.

7.3 Non-Solicitation. As a condition to participation in the Plan, each Participant agrees that, in the event the Participant voluntarily terminates his employment other than for Good Reason, for the period of one year following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring by any employer other than the Company or its Affiliates, for any position as an employee, independent contractor, consultant or otherwise, any person who was a managerial or higher level employee of an Employer at any time during the term of the Participant’s employment by the Employer; provided, however, that this provision shall not apply with respect to the solicitation of any person after six months from the date on which such person’s employment by an Employer has terminated.

7.4 Enforcement. In the event of a breach by the Participant of any of the covenants set forth in this Article VII, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such covenants by the Participant. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Article VII and the Company does not prevail in such action, the Company shall promptly reimburse the Participant the full amount of any court costs, filing fees, attorney’s fees which the Participant incurs in defending such action, and any loss of income during the period of such litigation.

ARTICLE VIII

AMENDMENT AND TERMINATION

8.1 Amendment. The Company may amend this Plan at any time, and from time to time, by action of the Committee; provided, however, that no amendment adopted after the

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effective date of a Change in Control shall have the effect of either (a) removing an individual from the list of Participants, (b) adding conditions for participation or the entitlement to receive benefits hereunder, (c) reducing the amount of benefits payable to a Participant or (d) otherwise restricting a Participant’s right to receive benefits under the Plan, except as may otherwise be required to conform such payments to the requirements of Section 409A of the Code, as provided in Section 1.1.

8.2 Termination. The Committee may terminate the Plan at any time prior to a Change in Control. The Plan may not be terminated after the effective date of a Change in Control.

ARTICLE IX

ADMINISTRATION

9.1 Plan Administrator. The Plan shall be administered by the Committee, which shall have the duties and responsibilities for administering the Plan as are specifically set forth in this Article IX.

9.2 Responsibilities of Committee.

(a) The Committee shall have responsibility for the day to day administration of the Plan. In addition, the Committee shall have the specific powers, duties, responsibilities and obligations specifically provided for herein.

(b) Subject to the express provisions of the Plan, the Committee shall have full and exclusive authority to interpret the Plan and to make all other factual determinations deemed necessary or advisable in the implementation and administration of the Plan, including but not limited to determinations with respect to the eligibility of Participants to receive benefits under the Plan and the status and rights of such Participants and all other persons affected hereunder. The Committee’s interpretation and construction of the Plan shall be conclusive and binding on all persons.

(c) The Committee shall have sole authority to adopt rules and regulations, which shall be administered by the Committee. In addition, the Committee shall have the discretionary authority to issue rulings and interpretations concerning the Plan and all matters arising thereunder, on a uniform and nondiscriminatory basis, provided the same shall not be contrary to or inconsistent with any provision of the Plan.

(d) As a condition of distributing any benefit under the Plan, the Committee may prescribe the use of such forms and require the furnishing of such information as the Plan Committee may deem appropriate for administering the Plan.

9.3 Allocation or Delegation of Duties and Responsibilities. In furtherance of its duties and responsibilities under the Plan, the Committee may:

(a) Employ agents to carry out non-fiduciary responsibilities;

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(b) Employ agents to carry out fiduciary responsibilities;

(c) Consult with counsel, who may be counsel to the Company; and

(d) Delegate any of its duties and responsibilities hereunder to such officer or officers of the Company as the Committee shall designate; except, however, that the Committee may not delegate to any other person the designation of Eligible Employees under Section 3.1 or the authority to consider and determine appeals of alleged adverse benefit determinations.

9.4 Expenses. Unless otherwise agreed to by the Company, no person acting as a fiduciary hereunder (who is an employee of an Employer) shall receive any compensation for services as such. Expenses incurred by fiduciaries in connection with the administration of the Plan shall be paid by the Company.

9.5 Indemnification of Plan Administrator. The Company shall indemnify, to the fullest extent permitted by law, each person made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that he, or his testator or intestate, was a member of the Committee, or a delegate of the Committee, acting in the capacity of Plan administrator.

9.6 Reliance Upon Others. The Committee, any person to whom it may delegate such of its duties and powers as provided herein, and the officers and directors of the Company shall be entitled to rely conclusively upon and shall be fully protected in any action taken by them in good faith in reliance upon any tables, valuations, certificates, opinions, reports or other advice furnished to them by any duly appointed actuary, accountant, legal counsel (who may be counsel for the Company) or other specialist.

9.7 Notification. All notices, reports and statements in connection with the Plan that are given, made, delivered or transmitted to a Participant shall be deemed duly given, made, delivered, or transmitted when mailed, by such class as the sender may deem appropriate, with postage prepaid and addressed to the Participant at the address last appearing on the records of the Employer with respect to this Plan. All notices, direct actions or other communications given, made, delivered or transmitted by a Participant to an Employer or Committee shall not be deemed to have been duly given, made, delivered, transmitted or received unless and until actually received by the Employer or Committee.

9.8 Multiple Capacities. A person may serve in more than one fiduciary capacity with respect to the Plan.

ARTICLE X

CLAIMS PROCEDURE

10.1 Submission of Claims. The initial claim by any Participant for benefits under this Plan shall be submitted in writing to the Committee within 60 days after the occurrence of

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the termination of employment that the Participant claims to have triggered entitlement to Plan benefits.

10.2 Computation and Review of Claims. All benefits shall be computed by the Committee or its delegate. All claims shall be approved or denied by the Committee (or its delegate) as soon as practicable, but in no event later than 90 days after application by the claimant.

(a) Initial Denial of Claim—Any denial of a claim shall include:

(i) Reason or reasons for the denial;

(ii) Reference to pertinent Plan provisions on which the denial is based;

(iii) Description of any additional material or information necessary for the claimant to perfect the claim together with an explanation of why the material or information is necessary; and

(iv) Explanation of the Plan’s claim review procedure, described below.

(b) Review of a Denied Claim—A claimant shall have a reasonable opportunity to appeal a denied claim to the Committee (or its delegate) for a full and fair review. The claimant or a duly authorized representative:

(i) Shall have 60 days, after receipt of written notification of the denial of claim in which to request a review.

(ii) May request a review upon written application to the Committee.

(iii) Shall submit written comments, documents, records and other information relating to the claim.

(iv) May review, free of charge, pertinent Plan documents, records and other information relevant to the claim.

(c) Committee Review—The Committee’s (or its delegate’s) review shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

(d) Written Decision—The Committee (or its delegate) shall issue a decision on the reviewed claim promptly but no later than 60 days after receipt of the review. The Committee’s decision shall be in writing and shall include:

(i) Reasons for the decision,

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(ii) References to the Plan provisions on which the decision is based, and

(iii) Statement that the claimant is entitled to receive, upon request, reasonable access to, and copies of, all documents, records and other information relevant to the claim

(e) Binding Effect—The Committee’s (or its delegate’s) decision shall be final and binding on the claimant and the Employer.

ARTICLE XI

GENERAL PROVISIONS

11.1 Construction. This Plan shall be construed and enforced in accordance with and governed by the internal substantive laws (and not the laws relating to conflict of laws or choice of laws) of the State of New Jersey, except to the extent that such laws are preempted by Federal law.

11.2 Unfunded Plan. The obligations of the Company under this Plan are not required to be funded in advance. Nothing contained in this Plan shall give an Eligible Employee or Participant any right, title or interest in any property of the Company or any of its Affiliates.

11.3 No Right to Continued Employment. Nothing contained herein shall be deemed to give any Eligible Employee or Participant the right to be retained in the employment of an Employer or to limit the rights of any Employer to discharge any Eligible Employee or Participant at any time, with or without notice and with or without Cause.

11.4 Partial Invalidity. The invalidity or unenforceability of any term or provision, or any clause, or portion thereof, of this Plan shall in no way impair or affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.

11.5 Successors and Assigns.

(a) This Plan shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(b) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform the Company’s obligations under the Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

(c) In no event shall a Participant assign his interests under the Plan to any other person without the prior written consent of the Committee.

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11.6 Waivers. Failure to strictly comply with any term, condition or requirement set forth in the Plan shall not be deemed a waiver of such term, condition or requirement, nor shall any waiver of any such term, condition or requirement at any one time or times be deemed to result in a waiver of such term, condition or requirement at any other time or times.

11.7 Gender and Number. Masculine pronouns include the feminine as well as the neuter genders, and the singular shall include the plural, unless indicated otherwise by the context.

11.8 Headings. The headings of the Plan are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

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SCHEDULE A

As Amended as of November 17, 2009

PARTICIPANTS

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SCHEDULE B

As Amended as of November 17, 2009

PARTICIPANTS

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EXHIBIT I

Form of Restrictive Covenant Agreement

AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation (the “Company”) and [                    ] (“Executive”), dated as of [                    ].

WHEREAS, the Company maintains the Key Executive Severance Plan of Public Service Enterprise Group Incorporated (the “Plan”), effective December 20, 2004, and as thereafter amended, modified or supplemented;

WHEREAS, Executive was designated as an Eligible Employee under the Plan by the Organization and Compensation Committee of the Company’s Board of Directors;

WHEREAS, pursuant to Section 3.2 of the Plan, in order to be a Participant in and be entitled to benefits and protections under the Plan, Executive must execute and delivery to the Company within 30 days after Executive was designated as an Eligible Employee a written agreement to be bound by the terms and conditions of certain covenants set out in Article VII of the Plan, which is hereby incorporated herein;

NOW THEREFORE, the parties agree as follows:

1. Executive has received a copy of the Plan and has read and understands the terms of conditions of Section 7.1, Confidentiality, Section 7.2, Non-Compete, and Section 7.3, Non-Solicitation, therein, as applied to Executive (the “Covenants”).

2. Executive agrees to be bound by and comply with the terms of the Covenants in consideration for becoming a Participant in the Plan.

3. Executive acknowledges that the Covenants are reasonable in the scope of the activities restricted, the geographic area covered by the restrictions, the duration of the restrictions, and that such Covenants are reasonably necessary to protect the Company’s legitimate interests in its Confidential Information and its relationships with its employees, customers and suppliers.

4. Executive acknowledges that the Covenants will not deprive Executive of the ability to earn a livelihood or to support Executive’s dependents.

5. Executive shall be a Participant in the Plan and be entitled to all of the rights and benefits provided thereunder as of the date of this Agreement.

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6. This Agreement shall be construed and enforced in accordance with and governed by the internal substantive laws (and not the laws relating to conflict of laws or choice of laws) of the State of New Jersey, except to the extent that such laws are preempted by Federal law.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

[This Agreement may be executed in counterparts.]

EXECUTIVE

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

By:

Title: 

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EXHIBIT II

Form of Separation Agreement and General Release

SEPARATION AGREEMENT AND GENERAL RELEASE, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation, (the “Company”) and [                    ] (“Executive”), dated as of [                    ], (“this Agreement”).

WHEREAS, the Company maintains the Key Executive Severance Plan of Public Service Enterprise Group Incorporated (the “Plan”), effective December 20, 2004, and as thereafter amended, modified or supplemented;

WHEREAS, Executive was designated as an Eligible Employee under the Plan by the Organization and Compensation Committee of the Company’s Board of Directors;

WHEREAS, the Company or one of its Affiliates terminated Executive’s employment effective [date] (the “Termination Date”);

WHEREAS, pursuant to Section 3.3 of the Plan, in order to be a Participant in and be entitled to benefits and protections under the Plan, Executive must execute and delivery this Agreement to the Company within twenty-one days after Executive receives this Agreement; and

WHEREAS, Executive and the Company desire to settle fully and finally any differences, rights and duties arising between them, including, but in no way limited to, any differences, rights and duties that have arisen or might arise out of or are in any way related to Executive’s employment with the Company, and the conclusion of that employment;

NOW THEREFORE, Executive and the Company agree as follows:

1. Terms. All capitalized terms in this Agreement shall have the same meanings and definitions as assigned to such terms in the Plan.

2. Separation Payment. The Company acknowledges that the Executive is entitled to and that the Company will provide the payments and benefits described in Article IV or Article V of the Plan, all such payments and benefits to be paid to Executive less all applicable withholdings.

3. Release of Claims. Executive, for himself and for his children, heirs, administrators, representatives, executors, successors and assigns, releases and gives up any and all claims and rights which he has, may have or hereafter may have against the Company, its Affiliates and their respective subsidiaries, affiliates, predecessors, successors, assigns, officers, directors, shareholders, employees and agents and all of their predecessors, successors and assigns (the “Releasees”) from the beginning of the world until the date of the execution of this Agreement, including, but not limited to, any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys’ fees and costs) of any nature whatsoever, whether known or unknown, whether in law or equity (collectively,

29

“Claims”), including, but not limited to, any Claims related to Executive’s employment with the Company and the conclusion thereof, any Claims based on wrongful termination, any Claims based on contract whether express or implied, written or oral, and any Claims arising under the United States and/or State Constitutions, federal and/or common law, and/or rights arising out of alleged violations of any federal, state or other government statutes, regulations or ordinances including, without limitation, the National Labor Relations Act, Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, the Older Workers’ Benefit Protection Act, the Sarbanes-Oxley Act, the New Jersey Law Against Discrimination, the New Jersey Conscientious Employee Protection Act, the Americans with Disabilities Act, the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Civil Rights Act of 1991, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act and the Employee Retirement Income Security Act of 1974, the New Jersey Wage and Hour Law, the New Jersey Family Leave Act, the New Jersey Civil Union Law and the New Jersey Domestic Partnership Act, all as amended. This release specifically includes, but is not limited to, the right to the payment of wages, vacation, pension benefits or any other employee benefits, and any other rights arising under federal, state or local laws prohibiting discrimination and/or harassment on the basis of age, race, color, religion, creed, sex, national origin, ancestry, mental or physical disability, alienage or citizenship status, marital status, or any other basis prohibited by law.

4. Covenant Not To Sue. Executive has not filed against the Company or any of the Releasees, any complaints, charges or lawsuits with any government agency, arbitral tribunal, self-regulatory body, or any court arising out of Executive’s employment by the Company or any other matter arising on or prior to the date hereof. Executive will not, directly or indirectly, commence or prosecute, or assist in the filing, commencement or prosecution in any court, arbitral tribunal, self-regulatory body or local or state government agency, any claim or charge against the Company or any of the Releasees arising out of any of the matters set forth in this Agreement or based upon any common law or statutory claim against the Company or any of the Releasees that can be brought under federal, state or local law. Notwithstanding the foregoing, Executive shall not be limited from commencing a proceeding for the sole purpose of enforcing his rights under this Agreement or under the Plan, provided Executive first complies with the Claims Review procedures described in Article X of the Plan.

5. No Admission of Liability. This Agreement does not constitute or imply an admission of liability or wrongdoing by Executive, the Company or any of the Releasees.

6. No Disparagement. Executive and the officers and directors of the Company and its Affiliates agree that they will not make, or cause to be made, any statements, observations or opinions, or communicate any information (whether oral or written) that disparages or is likely in any way to harm the reputation in the case of the officers and directors of the Company and its Affiliates, Executive, and in the case of Executive, the Company, its Affiliates or any of the Releasees.

7. Confidentiality. The terms of this Agreement are CONFIDENTIAL. Executive agrees not to tell anyone about this Agreement and not to disclose any information contained in this Agreement to anyone, other than to his lawyer, financial advisor or immediate family members, to enforce this Agreement, or to respond to a valid subpoena or other legal process. If

30

Executive does tell his lawyer, financial advisor or immediate family members about this Agreement or its contents, he must immediately tell them that they must keep it confidential as well. The Company agrees that it will keep the terms of this Agreement confidential, except as is necessary to administer this Agreement, as required by law or to respond to a valid subpoena or other legal process.

8. No Reliance. Executive represents that in executing this Agreement he does not rely and has not relied upon any representation or statement not set forth in this Agreement that the Company or any of its agents, representatives or attorneys may have made with regard to the subject matter, basis or effect of this Agreement.

9. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New Jersey without regard to any state’s conflict of law provisions.

10. Remedy for Breach. In the event of any breach of this Agreement, the parties may only institute an action for specific enforcement of the terms of this Agreement and the Plan and seek damages resulting from such breach. Executive may not institute any proceeding based on any Claims related to his employment with the Company or the conclusion of his employment because of a breach of this Agreement or the Plan by the Company. The prevailing party in any such action shall be entitled to an award of attorneys’ fees and costs in addition to any other legal or equitable relief, except that the Company will not be entitled to its attorneys’ fees or other damages if Executive challenges the validity or enforceability of this Agreement.

11. Severability. If at any time, after the date of the execution of this Agreement, any provision of this Agreement shall be held in any court or agency of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect. In the event that a court or agency of competent jurisdiction concludes that the release contained in paragraph 3 or the covenant not to sue contained in paragraph 4 are illegal, void or unenforceable, Executive agrees to execute a release and covenant not to sue that are legal, valid and enforceable.

12. Entire Agreement. This Agreement, the Plan and the Restrictive Covenant Agreement required by Section 3.2 of the Plan set forth the entire agreement between the parties with respect to the termination of Executive’s employment and supersede any and all prior understandings and agreements between the parties. Neither party shall have any obligation toward the other except as set forth herein and therein.

13. Modifications. This Agreement may not be modified except in writing signed by all parties.

14. Enforceability. The parties are bound by this Agreement. Anyone who succeeds to the parties’ rights and responsibilities, such as their heirs, executors, successors or assigns, is also bound.

15. Headings. The headings contained in this Agreement are for the convenience of reference only and are not intended to define, limit, expand or describe the scope or intent of any provision of this Agreement.

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16. Acknowledgements. Executive acknowledges that:

a. Executive has carefully read and understands this Agreement;

b. Executive has been given twenty-one (21) days to consider his rights and obligations under this Agreement and to consult with an attorney;

c. The Company advised Executive to consult with an attorney and/or any other advisors of his choice before signing this Agreement;

d. Executive understands that this Agreement is LEGALLY BINDING and by signing it he gives up certain rights;

e. Executive has voluntarily chosen to enter into this Agreement and has not been forced or pressured in any way to sign it;

f. Executive KNOWINGLY AND VOLUNTARILY RELEASES the Company and the Releasees from any and all claims Executive may have, known or unknown, in exchange for the benefits Executive has obtained by signing, and that these benefits are in addition to any benefit Executive would have otherwise received if he did not sign this Agreement;

g. The General Release in this Agreement includes a WAIVER OF ALL RIGHTS AND CLAIMS Executive may have under the Age Discrimination In Employment Act of 1967 (29 U.S.C. §621 et seq.); and

h. Executive has seven (7) days after he signs this Agreement to revoke it by notifying the Company in writing. Executive must deliver the written revocation to the Company’s General Counsel so that it is actually received by the Company within seven (7) days of the date Executive signs this Agreement. This Agreement will not become effective or enforceable until the Company receives a copy of this Agreement signed by Executive and the seven (7) day revocation period has expired without Executive revoking this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

EXECUTIVE	PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
	By:
	Name:
	Title:

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EX-10.1

Exhibit 10.1

Public Service Enterprise Group Incorporated

2004 Long-Term Incentive Plan

Amended Effective December 1, 2009

1. Purposes.

The purposes of the Plan are to promote the growth and profitability of the Company and its Subsidiaries by enabling them to attract and retain the best available personnel for positions of substantial responsibility; to motivate Participants, by means of appropriate incentives, to achieve long-range goals; to provide incentive compensation opportunities that are competitive with those of other similar companies; and to align Participants’ interests with those of the Company’s shareholders and thereby promote the long-term financial interest of the Company and its Subsidiaries, including the growth in value of the Company’s equity and enhancement of long-term shareholder return.

2. Effective Date.

The Plan was effective as of April 20, 2004. The Plan shall have a term of ten years from its Effective Date. In the event of Plan termination or expiration, any then-outstanding Award shall remain in effect pursuant to the terms of its Award Grant. On and after the Effective Date, no Options or other awards shall be granted under any of the Prior Plans. This Plan was amended, effective December 1, 2009 to change the provisions of Subsection 8(b) regarding option vesting following a Change in Control.

3. Definitions.

Capitalized terms used in this Plan have the meanings specified in this Section 3:

“Award” means a grant to a Participant of Options, Stock Appreciation Rights, Restricted Stock, Stock Units, Performance Shares, Cash Awards or any combination thereof.

“Award Grant” means the written notification or agreement confirming an Award and setting forth the terms and conditions thereof.

“Board of Directors” means the Board of Directors of the Company and, when used in the context or actions taken or authorized to be taken by the Board of Directors, means not less than a quorum of the whole Board of Directors of the Company.

“Cash Award” means the right to receive a Performance Award denominated in cash with the eventual payment amount subject to achievement of goals relating to specified Performance Measures and subject to such other restrictions and conditions as may be established by the Committee.

“Cause” means an act of dishonesty, moral turpitude or an intentional or grossly negligent act, in each case, detrimental to the best interests of the Company or a Subsidiary, including violation of the Company’s Standards of Integrity, as determined by the Committee.

“Change in Control” means the occurrence of any of the following events:

(1) any “Person” (within the meaning of Section 13(d) of the Exchange Act) ‘is or becomes the beneficial owner within the meaning of Rule l3d-3 under the Exchange Act (a “Beneficial Owner”), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (3) below; or

(2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on April 21, 2004, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on April 21, 2004 or whose appointment, election or nomination for election was previously so approved or recommended; or

(3) there is consummated a merger or consolidation of the Company or any direct or indirect wholly owned Subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary , at least 75% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company

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representing 25% or more of the combined voting power of the Company’s then outstanding securities; or

(4) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 75% of the combined voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

Notwithstanding the foregoing subparagraphs (1), (2), (3) and (4), a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Organization and Compensation Committee of the Board of Directors described in Section 4, or any committee or other person or persons designated by the Board of Directors as successor to the powers and duties of the Organization and Compensation Committee as described in Section 4.

“Common Stock” means the Company’s authorized Common Stock, no par value, except as this definition may be modified as provided in Section 13.

“Company” means Public Service Enterprise Group Incorporated, a New Jersey corporation, or any successor thereto.

“Covered Employee” means a person defined as such in Code section 162(m)(3) and regulations thereunder.

“Date of Termination” means the first day occurring on or after the date or grant of an Award on which the Participant is not performing services as an Employee for the Company or any Subsidiary, regardless of the reason for cessation of services; provided that a cessation of services shall not be deemed to occur by reason of a transfer of a Participant between the Company and a Subsidiary or between two Subsidiaries; and further provided that a Participant’s services shall not be considered terminated while the Participant is on an approved leave of absence from the Company or a Subsidiary. Unless determined otherwise by the Committee, if, as a result of a sale or other transaction, the

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organization for which a Participant is performing services as an Employee ceases to be the Company or a Subsidiary and the Participant is not, at the end of the 30-day period following the transaction, performing services as an Employee for the Company or an organization that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Participant’s Date of Termination.

“Director” means any member of the Board of Directors who is not an Employee.

“Disability” shall have the meaning ascribed to such term in the Company’s Long-Term Disability Plan. For the purposes of this Plan, the question whether a Participant’s condition shall be considered a Disability shall be determined in each case by the Committee and such determination by the Committee shall be final.

“Effective Date” shall have the meaning set forth in Section 2.

“Employee” means any employee of the Company or a Subsidiary who is receiving remuneration for personal services rendered to the Company or Subsidiary, including any such person who is an officer of the Company or Subsidiary, other than (1) solely as a director of the Company or a Subsidiary, (2) as a consultant, (3) as an independent contractor, (4) as an individual who is a “leased employee” within the meaning of Code section 414(n), or (5) any other individual engaged by the Company or Subsidiary in a relationship that the Company characterizes as other than an employment relationship or who has waived his rights to coverage as an employee (regardless of whether a determination is made by the Internal Revenue Service or other governmental agency or court after the individual is engaged to perform such services that the individual is an employee of the Company or Subsidiary for the purposes of the Code or otherwise).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Period” means the period from the date of grant of an Option or Stock Appreciation Right to the Expiration Date of such Option or Stock Appreciation Right.

“Exercise Price” means the price established by the Committee (or determined according to a method established by the Committee) at the time an Option is granted and shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the Option.

“Expiration Date” means, with respect to an Option or Stock Appreciation Right, the date specified in the Award Grant after which such Option or Stock Appreciation Right may not be exercised; provided that the Expiration Date shall not be later than the earliest to occur of:

(i) the ten-year anniversary of the date of grant;

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(ii) if the Participant’s Date of Termination occurs by reason of Retirement, death or Disability, the three-year anniversary of such Date of Termination;

(iii) if the Participant’s Date of Termination occurs by reason of involuntary termination without Cause, the 90th day after the Date of Termination;

(iv) if the Participant’s Date of Termination occurs by reason of involuntary termination for Cause, the Date of Termination;

(v) if the Participant’s Date of Termination occurs voluntarily or for any other reason not described above, the Date of Termination.

The Committee in its sole discretion may establish an Expiration Date later than as described above, but not later than the ten-year anniversary of the date of grant. Notwithstanding the foregoing, if the Participant’s Date of Termination occurs by reason of death or Disability or if death or Disability of the Participant occurs after Retirement or involuntary termination without Cause and before the otherwise applicable Expiration Date, the Expiration Date for a Non-Statutory Option or a Stock Appreciation Right which was exercisable as of the date of death or Disability or which becomes exercisable by reason of death or Disability shall not be earlier than the first anniversary of the date of Date of Termination.

“Fair Market Value” as of any specified date means the closing sale price of the Common Stock on the New York Stock Exchange—Composite Tape on such date or, if there are no sales on such date, on the next preceding day on which there are sales. If the shares are not then listed on the NYSE, and if the shares of Common Stock are then listed on any other national securities exchange or traded on the over-the-counter market, the fair market value shall be the closing price on such exchange or on the NASDAQ National Market System or the mean of the closing bid and asked prices of the shares of Common Stock on the over-the-counter market, as reported by the NASDAQ, the National Association of Securities Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as the case may be, on such date or, if there is no closing price or bid or asked price on that day, the closing price or mean of the closing bid and asked prices on the most recent day preceding such date for which such prices are available.

“Incentive Option” means an Option which is an “incentive stock option” as defined in Code section 422.

“Non-Statutory Option” means an Option which is not intended to qualify as an Incentive Option as defined above.

“NYSE” means the New York Stock Exchange.

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“Option” means an Incentive Option or a Non-Statutory Option granted by the Company pursuant to the Plan to purchase shares of Common Stock at an Exercise Price established by the Committee.

“Participant” means an Employee selected by the Committee to receive an Award. The term shall include any transferee or transferees of any person who has received an Award to the extent the transfer is permitted by the Plan and the applicable Award Grant.

“Performance Award” means an Award of Performance Shares and/or a Cash Award.

“Performance Goal” means a target based on Performance Measures that is established by the Committee in connection with a Performance Award; Performance Goals may be established on a corporate-wide basis or with respect to one or more business units, divisions, or Subsidiaries, and may be in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.

“Performance Measures” means criteria established by the Committee relating to any of the following: revenue; earnings before interest, taxes, depreciation and amortization (EBITDA); operating income; pre- or after-tax income; cash flow; cash flow per share; net earnings; earnings per share; return on equity; return on invested capital; return on assets; economic value added (or an equivalent metric); share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; safety performance; OSHA recordable rate; lost time accident rate; forced outage rate; nuclear capacity factor; INPO rating; availability factor; customer average interruption duration index (CAIDI); system average interruption frequency index (SAIFI); or leak rate per mile. Performance Measures may be applied by excluding the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles.

“Performance Share” means a grant of shares of Common Stock which is contingent on achievement of Performance Goals and satisfaction of such other restrictions and conditions as may be established by the Committee.

“Plan” means this Public Service Enterprise Group Incorporated 2004 Long-Term Incentive Plan.

“Prior Plans” mean the Public Service Enterprise Group Incorporated 1989 Long-Term Incentive Plan and Public Service Enterprise Group Incoporated 2001 Long-Term Incentive Plan.

“Restricted Stock” means a grant of shares of Common Stock subject to transfer restrictions and a risk of forfeiture or other restrictions that will lapse upon the

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completion of a period of service by the Participant, or achievement of other objectives, including Performance Goals, as determined by the Committee. Subject to any such forfieture, the Participant shall be currently entitled to dividends on such shares and shall be entitled to vote such shares.

“Restricted Stock Unit” means a grant of a Stock Unit which is subject to transfer restrictions and a risk of forfeiture or other restrictions that will lapse upon the completion of service by the Participant, or achievement of other objectives, as determined by the Committee.

“Retirement” means cessation of services as an Employee for the Company or a Subsidiary by reason of retirement under the provisions of any formal retirement plan of the Company or Subsidiary.

“Stock Appreciation Right” means a grant of an award that will enable the Participant to receive shares of Common Stock or cash equal to the appreciation in value, if any, of the Common Stock between the the Fair Market Value of the Common Stock on date the Stock Appreciation Right is granted and the Fair Market Value of the Common Stock on a future exercise date.

“Stock Unit” means a right to receive shares of Common Stock in the future.

“Subsidiary” means any corporation, limited liability company, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.

“Successor” means the person or persons entitled in lieu of the Participant to receive any shares of Common Stock or other benefits under the Plan by reason of a beneficiary designation, will, laws of intestacy, or family assignments as permitted under the Plan. The Successor of a deceased Participant shall be the person or persons entitled to do so under a beneficiary designation in accordance with Section 11 or, if none, under the Participant’s will or, if the Participant shall have failed to designate a beneficiary or make testamentary disposition of such Awards or shall have died intestate, by the Participant’s legal representative or representatives.

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4. Administration.

The Plan shall be administered by the Organization and Compensation Committee of the Board of Directors which shall consist of not less than three Directors of the Company appointed by the Board of Directors. No person shall be eligible or continue to serve as a member of such Committee unless such person is an “outside director” within the meaning of regulations under Code section 162(m) and a “non-employee director” within the meaning of Exchange Act Rule 16b-3.

The Committee shall keep minutes of its meetings. One-third of the entire Committee, or two members, whichever is greater, shall constitute a quorum thereof and the acts of a majority of the members present at any meeting of the Committee at which a quorum is present, or acts approved in writing by the entire Committee, shall be the acts of the Committee.

Within the limits of the express provisions of the Plan, the Committee shall have the authority, subject to such orders or resolutions, not inconsistent with the provisions of the Plan, as may from time to time be issued or adopted by the Board of Directors, in its discretion to determine the individuals to whom, and the time or times at which, Awards shall be granted, the type of Award grants, the number of shares of Common Stock to be subject to each Award, the limitations, restrictions and conditions applicable to each Award grant, the terms and provisions of agreements that may be entered into in connection with Award grants (which need not be identical), to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations and take all other actions necessary or advisable for the administration of the Plan.

In making its determinations relating to Award grants, the Committee may consult with the Chief Executive Officer of the Company and may take into account the recommendations of the Chief Executive Officer with respect to grants made to other Employees. The Committee may also take into account the nature of the services rendered by such individuals, their present and potential contributions to the Company’s success and such other factors as the Committee, in its discretion, shall deem relevant.

The Committee’s determinations on the matters regarding this Plan (including matters referred to in this Section 4) shall be conclusive and shall be binding on the Company, its Stockholders, its Affiliates, all Participants, all other Employees and all other persons. Except to the extent prohibited by applicable law or the applicable NYSE rules, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to the Chief Executive Officer of the Company or a committee of officers of the Company, except with respect to Awards to any Covered Employee or to an officer or other person subject to Section 16 of the Exchange Act. Any such allocation or delegation may be revised or revoked by the Committee at any time.

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5. Eligibility.

Subject to the provisions of the Plan, the Committee shall determine and designate, from time to time, those Employees who will be granted one or more Awards under the Plan, and who thereby will become “Participants” in the Plan.

(A) In determining eligibility to receive an Award, as well as in determining the type and amount of the Award to any Participant, the Committee shall consider the position and responsibilities of the Employee being considered, the nature and value to the Company or a Subsidiary of such Employee’s services and accomplishments, such Employee’s present and potential contribution to the success of the Company or its Subsidiaries and such other factors as the Committee may deem relevant.

(B) The Plan does not constitute a contract of employment or for provision of other services, and selection as a Participant will not give any Participant or other individual the right to be retained in the employ of or continue to provide services to the Company or any Subsidiary or give any Participant or other individual any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan, nor shall the Plan in any way interfere with the right of the Company or any Subsidiary to terminate the employment or services of any Participant or other individual at any time.

(C) Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Common Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.

(D) Awards need not be uniform among Participants. The receipt of an Award by a Participant shall not entitle that Participant to receive an Award in the future.

6. Shares Available.

The type and number of shares of Common Stock for which Awards may be granted under the Plan shall be determined in accordance with this Section 6:

(A) The shares of Common Stock with respect to which Awards may be made under the Plan shall be shares authorized but unissued or currently held or shares

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reacquired by the Company and held as treasury shares, including shares purchased in the open market or in private transactions, all at the time of the Award.

(B) Subject to adjustment as provided in Section 13 herein, the maximum number of shares of Common Stock available for issuance to Participants under the Plan (the “Share Authorization”) shall be the 12,975,150 authorized shares of Common Stock not issued or subject to outstanding awards under the Prior Plans as of the Effective Date and (b) any shares of Common Stock subject to the 8,864,265 outstanding awards as of the Effective Date under the Prior Plans that on or after the Effective Date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares), up to an aggregate maximum of 20,000,000 shares of Common Stock.

(C) Subject to Section 13, the following additional maximums are imposed under the Plan:

(1) The maximum number of shares of Common Stock that may be issued by Options intended to be Incentive Options shall be one million (1,000,000) shares.

(2) The maximum number of shares of Common Stock that may be issued by Options that are not intended to be Incentive Options shall be, in the aggregate, fifty percent (50%) of the total shares reserved for Awards pursuant to paragraph (B) above.

(3) The maximum number of shares of Common Stock that may be issued in conjunction with Awards granted pursuant to Section 9 (relating to Other Stock Awards) and Section 10 (relating to Performance Shares) shall be, in the aggregate, fifty percent (50%) of the total shares reserved for Awards pursuant to paragraph (B) above.

(4) The maximum number of shares that may be covered by Awards granted to any one individual pursuant to this Plan shall be one million (1,000,000) shares during any 36 month period.

(5) For Cash Awards that are intended to be “performance-based compensation” (within the meaning of regulations under Code section 162(m)), the maximum Awards payable in cash to any one individual for a 36-month performance period shall not exceed ten million dollars ($10,000,000). Such maximum shall be reduced proportionately in the case of a performance period of less than 36 months and shall be increased proportionately for a performance period of longer than 36 months (but no further adjustment shall be made in the case of a performance period of greater than 60 months). If, after an amount has been earned with respect

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to a Cash Award, the delivery of such amount is deferred pursuant to Section 7(B), any additional amount attributable to earnings during the deferral period shall be disregarded for purposes of this limitation.

(D) Shares of Common Stock covered by an Award shall only be counted as used to the extent they are actually issued and delivered to a Participant, or, if permitted by the Committee, a Participant’s designated transferee. Any shares of Common Stock related to Awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance, are settled in cash in lieu of shares, or are exchanged with the Committee’s permission, prior to the issuance of the Common Stock, for Awards not involving shares of Common Stock, shall be available again for grant under the Plan. Moreover, if the Exercise Price of any Option granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering shares of Common Stock to the Company (by either actual delivery or by attestation), or if an SAR is exercised, only the number of shares of Common Stock issued, net of the shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of shares of Common Stock available for delivery under the Plan. The maximum number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, or Other Stock-Based Awards.

7. Awards.

The Committee shall have full and complete authority, in its discretion, subject to the provisions of the Plan, to grant Awards to Participants consisting of Options, Stock Appreciation Rights, Restricted Stock, Stock Units, Performance Shares, Cash Awards or any combination thereof, as more fully described in Sections 8 through 10, subject to such terms and conditions as the Committee deems appropriate. Awards may be granted singly, in combination or in tandem so that the settlement or payment of one automatically reduces or cancels the other. Awards may also be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for, grants or rights under any other compensation plan of the Company or any Subsidiary, including the plan of any acquired entity. The Committee may permit or require that any Award be prorated to the date of any termination of employment.

(A) Dividends and Dividend Equivalents

The Committee may provide that Awards denominated in Common Stock earn dividends or dividend equivalents. Such dividend equivalents may be paid currently in cash or shares of Common Stock or may be credited to an account established by the Committee under the Plan in the name of the Participant. In addition, dividends or dividend equivalents paid on outstanding awards or issued shares may be credited to such account rather than paid currently. Any crediting

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of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional shares or share equivalents.

(B) Deferrals

The Committee may require or permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under the Plan. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts, conversion of deferred amounts into deferred Common Stock equivalents, or the payment or crediting of dividend equivalents on deferred settlements denominated in shares.

(C) Settlements

Settlement of Awards may be in the form of cash, shares of Common Stock, other Awards, or in such combinations thereof as the Committee shall determine at the time of grant, and with such restrictions as it may impose.

8. Options and Stock Appreciation Rights.

The Committee may grant Options containing such terms and conditions as shall be requisite, in the judgment of the Committee, to constitute either Incentive Options or Non-Statutory Options. Non-Statutory Options shall be identified as such in the Award Grant. The Committee may grant Stock Appreciation Rights either (i) independently of Options or (ii) in tandem with Options such that the exercise of the Option or Stock Appreciation Right with respect to a share of Common Stock cancels the tandem Stock Appreciation Right or Option, respectively, with respect to such share. The grant of each Option or Stock Appreciation Right shall be confirmed in writing by an Award Grant in the form prescribed by the Committee.

(A) Exercise Price.

At the time an Option or Stock Appreciation Right is granted, the Committee shall determine the Exercise Price. Except for adjustments as provided in Section 13, the Exercise Price for any outstanding Option or Stock Appreciation Right may not be decreased after the date of grant nor may any outstanding Option or Stock Appreciation Right be surrendered to the Company as consideration for the grant of a new Option or Stock Appreciation Right with a lower Exercise Price.

(B) Exercise Period.

Each Option or Stock Appreciation Right granted under this Plan shall be exercisable during such period and under such circumstances as the Committee shall determine, subject to the following rules:

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(1) An Option or Stock Appreciation Right must be exercised prior to the Expiration Date.

(2) Each Option or Stock Appreciation Right shall become exercisable upon the occurance of a Change in Control unless it is replaced by an award of equivalent value provided by the continuing entity, which replacement award vests not later than the outstanding Option or Stock Appreciation Right and, to the extent not previously vested, vests in full in the event the Participant’s employment is involuntarily terminated, other than for Cause, within eighteen months following the Change in Control whether or not otherwise then exercisable under the provisions of the applicable Award Grant relating thereto.

(3) The effect of a Participant’s cessation of performance of services as an Employee for the Company or a Subsidiary shall be as follows:

(i) Retirement. If cessation of performance of services as an Employee is the result of Retirement, the Participant may exercise any outstanding Option or Stock Appreciation Right that had become exercisable under the terms of the applicable Award Grant prior to the Date of Termination before the Expiration Date.

(ii) Death. If a Participant dies while the Participant is continuing to perform services as an Employee for the Company or a Subsidiary or during the period following Retirement and before the Expiration Date, the Successor may exercise the Participant’s Options or Stock Appreciation Rights at any time prior to the Expiration Date, whether or not such Options or Stock Appreciation Rights were exercisable on the date of the Participant’s death under the applicable Award Grant.

(iii) Disability. If the Committee determines that a Participant ceased to perform services as an Employee for the Company or a Subsidiary because of Disability, any Option or Stock Appreciation Right held by such Participant on the Date of Termination may be exercised (whether or not such Option or Stock Appreciation Right was exercisable on the Date of Termination under the provisions of the Award Grant relating thereto) at any time prior to the Expiration Date.

(iv) Involuntary Termination without Cause. If the Participant ceases to perform services as an Employee for the Company or a Subsidiary involuntarily without Cause, the Participant may exercise any

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outstanding Option or Stock Appreciation Right which was vested on the Date of Termination at any time before the Expiration Date.

(v) Involuntary Termination for Cause. If the Participant ceases to perform services as an Employee for the Company or a Subsidiary involuntarily for Cause, any outstanding Option or Stock Appreciation Right held by such Participant shall be immediately cancelled.

(vi) Other Termination. If the Participant ceases to perform services for the Company or a Subsidiary for any reason other than as set forth in subparagraphs (i) through (v) above, any outstanding Option or Stock Appreciation Right held by such Participant shall be immediately cancelled.

(C) Exercise Procedures.

Each Option or Stock Appreciation Right granted under this Plan may be exercised to the extent exercisable, in whole or in part at any time during the Exercise Period, for such number of shares as shall be prescribed by the provisions of the Award Grant evidencing such Option or Stock Appreciation Right, provided that:

(1) An Option or Stock Appreciation Right may be exercised by the Participant or a Successor only by written notice (in the form prescribed by the Committee) to the Company specifying the number of shares to which such notice applies.

(2) The aggregate Exercise Price of the shares as to which an Option may be exercised shall be, in the discretion of the Committee, (a) paid in U.S. funds by any one or any combination of the following: cash, (including check, draft or wire transfer made payable to the order of the Company), or delivery of Common Stock certificates endorsed in blank or accompanied by executed stock powers with signatures guaranteed by a national bank or trust company or a member of a national securities exchange evidencing shares of Common Stock which have been held for more than six months, whose value shall be deemed to be the Fair Market Value on the date of exercise of such Common Stock, or (b) deemed to be paid in full provided the notice of the exercise of an Option is accompanied by a copy of irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds sufficient to cover the Exercise Price or (c) paid upon such terms and conditions, including provision for securing the payment of the same, as the Committee, in its discretion, shall provide.

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(3) As soon as practicable after receipt by the Company of notice of exercise and of payment in full of the Exercise Price of the shares with respect to which an Option has been exercised, a certificate or certificates representing such shares shall be registered in the name or names of the Participant or Successor and shall be delivered to the Participant, Participant’s agent or Successor. If any part of the Exercise Price is paid on a deferred basis (to the extent such deferral is permitted by the Committee), the shares for which payment has been deferred shall be registered in the name of the Participant or Successor but the certificate or certificates representing such shares shall not be delivered to the Participant or Successor until the Exercise Price for such shares has been paid in full.

(D) Special Rules Relating to Incentive Options.

(1) No Incentive Option may be granted to an individual who is not an Employee of the Company or a Subsidiary.

(2) The aggregate Fair Market Value (determined as of the time the Option is granted) of the Common Stock with respect to which Incentive Options are exercisable for the first time during any calendar year by an Employee under all plans of the Company and its Subsidiaries shall not exceed the greater of $100,000 or such sum as may from time to time be permitted under Code section 422.

9. Other Stock Awards.

The Committee may make Awards consisting of Restricted Stock or Stock Units containing such terms and conditions, and subject to such restrictions and contingencies as the Committee shall determine, subject to the provisions of the Plan. Unless otherwise authorized by the Committee, as a condition of receiving an Award consisting of Restricted Stock, a Participant must waive in writing the right to make an election under Section 83(b) of the Code to report the value of the Restricted Stock as income on the Date of Grant. If the right to become vested in a Restricted Stock Award granted under this Section 9 is conditioned on the completion of a specified period of service as an Employee with the Company or the Subsidiaries, without achievement of Performance Measures or other performance objectives being required as a condition of vesting, and without it being granted in lieu of other compensation or to replace forfeited awards from a prior service recipient, then, unless otherwise determined by the Committee and set forth in a Participant’s Award Grant, the required period of service for full vesting shall be not less than three years, subject to acceleration of vesting in the following circumstances:

(A) to the extent permitted by the Committee, in the event of the Participant’s Retirement, death, Disability, or termination by the Company without Cause;

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(B) in the event of a Change in Control, unless such Award is replaced by an award of equivalent value provided by the continuing entity which replacement award vests not later than the replaced Award and, to the extent not previously vested, vests in full in the event of any involuntary cessation of performance of services for the continuing entity within 18 months following the Change in Control (other than involuntary termination for Cause).

10. Performance Awards.

The Committee may make Awards consisting of Performance Shares, containing such terms and conditions, and subject to such restrictions and contingencies as the Committee shall determine, subject to the provisions of the Plan. Performance Awards shall be conditioned on the achievement of Performance Goals, based on one or more Performance Measures, as determined by the Committee, over a performance period (not less than one year) prescribed by the Committee. For Awards under this Section 10 intended to be “performance-based compensation” within the meaning of regulations under Code section 162(m), the grant of the Awards and the performance goals shall be made during the period required under Code section 162(m). In the event that a Change in Control occurs after a Performance Award has been granted but before completion of the performance period, a pro rata portion of such Award shall become payable as of the date of the Change in Control to the extent otherwise earned on the basis of achievement of the pro rata portion of the Performance Goals relating to the portion of the performance period completed as of the date of the Change in Control. Unless otherwise directed by the Committee, as a condition of receiving an Award consisting of Performance Shares, a Participant must waive in writing the right to make an election under Section 83(b) of the Code to report the value of the Performance Shares as income on the Date of Grant.

11. Non-Transferability.

Unless otherwise designated by the Committee to the contrary, each Award granted under the Plan shall by its terms be non-transferable by the Participant (except by will or the laws of descent and distribution). An Option or Stock Appreciation Right shall be exercisable during the Participant’s lifetime only by the Participant, his or her guardian or legal representative or by such other means as the Committee may approve from time to time that is not inconsistent with or contrary to the provisions of either Section 16(b) of the Exchange Act or Rule 16b-3, as either may be amended from time to time, or any law, rule, regulation or other provision that may hereafter replace such Rule. A Participant may also designate a beneficiary to exercise his or her Awards after the Participant’s death. The Committee may amend outstanding Awards to provide for transfer, without payment of consideration, to immediate family members of the Participant or to trusts or partnerships for such family members.

12. Listing and Registration of Shares and Restrictions on Shares.

If at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of any of the shares subject to Awards under the Plan upon any securities

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exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the purchase or issue of shares thereunder, no outstanding Awards which would result in the purchase or issuance of shares may be exercised or otherwise settled unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors or the Committee. The Board of Directors or the Committee may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the shares in compliance with applicable law and shall have the authority to cause the Company at its expense to take any action related to the Plan which may be required in connection with such listing, registration, qualification, consent or approval.

The Committee may impose such restrictions on any shares acquired pursuant to Restricted Stock Awards as it may deem advisable, including, without limitation, restrictions to comply with applicable Federal securities laws, with the requirements of any stock exchange or market upon which such shares are then listed and/or traded and with any blue sky or state securities laws applicable to such shares.

Certificates representing shares subject to Restricted Stock Awards may bear a legend substantially as follows:

“The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer as set forth in the Public Service Enterprise Group Incorporated 2004 Long-Term Incentive Plan, and in an award document. A copy of such Plan and award documents may be obtained from Public Service Enterprise Group Incorporated.”

The Company shall have the right to retain certificates of shares that are subject to Restricted Stock Awards until such time as all restrictions applicable to such shares have been satisfied. Shares subject to Restricted Stock Awards shall become freely transferrable (subject to applicable laws and Company imposed trading restrictions), and legends on share certificates shall be removed, once all restrictions applicable to such shares have been satisfied.

The Committee may require Participants to execute stock powers or other similar instruments in order to facilitate the return to the Company of shares upon forfeiture of Restricted Stock Awards.

13. Adjustments.

The Committee may make such adjustments as it deems appropriate to meet the intent of the Plan in the event of changes that impact the Company’s share price or share status, provided that any such actions are consistently and equitably applicable to all affected Participants and provided, further, that no such adjustment shall be made to Awards to Covered Employees if it would cause

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such Awards to no longer qualify as “performance-based compensation” for purposes of Code section 162(m).

In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting shares, such adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change shall be made with respect to (i) the aggregate number of shares that may be issued under the Plan or that may be subject to Awards of a specified type and/or to any individual; (ii) the number of shares covered by outstanding Awards to any individual under the Plan; and/or (iii) the applicable price per share with respect to any outstanding Options, Stock Appreciation Rights and other Awards under the Plan.

14. Tax Withholding.

Delivery of any cash, shares, dividends or any other benefits under the Plan is subject to withholding of applicable taxes. The Committee unilaterally or by arrangement with the Participant or Successor shall make appropriate provision for satisfaction of withholding taxes in the case of any transaction under the Plan, which gives rise to a withholding requirement. The Committee, in its discretion, and subject to such requirements as the Committee may impose prior to the occurrence of such withholding, may permit such withholding obligations to be satisfied through cash payment by the Participant, through the surrender of shares of Common Stock which the Participant already owns and which have been held for more than six months, or (to the extent of minimum statutory withholding requirements) through withholding of shares of Common Stock to which the Participant is otherwise entitled under the Plan.

15. Amendments and Termination.

The Board of Directors may amend this Plan as it shall deem advisable, except that the Board of Directors may not, without further approval of the shareholders of the Company, (a) increase the total number of shares of Common Stock which may be issued under the Plan as set forth in Section 6(B) or the maximum number of shares that may be issued, as Awards pursuant to Sections 8 through 10, to any individual, or (b) change the class of individuals eligible for Awards. The Board of Directors may, in its discretion, terminate this Plan at any time. No amendment or termination may, in the absence of written consent to the amendment or termination by the affected Participant (or, if the Participant is not then living, the affected Successor), adversely affect the rights of any Participant or Successor under any Award granted under the Plan prior to the date such amendment or termination is effective, provided that adjustments pursuant to Section 13 are not subject to such limitation. Subject to the foregoing and the requirements of Code section 162(m), the Board of Directors may without further action on the part of the shareholders of the Company or the consent of Participants, amend the Plan to preserve the Company’s tax deduction under Code section 162(m).

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16. Foreign Jurisdictions.

The Committee may, from time to time, adopt, amend, and terminate under the Plan such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable, to make available tax or other benefits of laws of any foreign jurisdiction to Participants who are subject to such laws and who receive Awards under the Plan.

17. Compliance with Code section 162(m).

With respect to Covered Employees, transactions under the Plan are intended to avoid loss of the deduction referred to in paragraph (1) of Code section 162(m). Anything in the Plan or elsewhere to the contrary notwithstanding, to the extent any provision of the Plan or action by the Committee would result in the loss of such deduction, it shall be deemed null and void as relates to Covered Employees, to the extent permitted by law and deemed advisable by the Committee.

18. Notices.

All notices under the Plan shall be in writing, and if to the Company, shall be delivered to the Secretary of the Company or mailed to its principal office, 80 Park Plaza, Newark, New Jersey 07102, addressed to the attention of the Secretary; and if to the Participant, shall be delivered personally or mailed to the Participant at the address appearing in the payroll records of the Company or Subsidiary or, if applicable, to the Participant’s Successor at the last known address appearing in the records of the Company. Such addresses may be changed at any time by written notice to the other party.

19. General.

Except where otherwise indicated by the context, any masculine term used herein shall also include the feminine; the singular shall include the plural and the plural shall include the singular.

The titles and headings of the sections of the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

If any part of the Plan is declared to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any part of the Plan so declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to the terms of such part to the fullest extent possible while remaining lawful and valid.

The provisions of the Plan shall take precedence over any conflicting provision contained in an Award. All matters relating to the Plan or an Award granted hereunder shall, to the extent not

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preempted by Federal law, be governed and construed in accordance with the laws of the State of New Jersey, without regard to the principles of conflict of laws.

The Plan and Award Grants shall be binding on Successors and on successors to the Company, whether the existence of such successor to the Company is the result of a direct or indirect purchase of all or substantially all of the business and/or assets of the Company, or a merger, consolidation, or otherwise.

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EX-10.2

Exhibit 10.2

Margaret M. Pego Senior Vice President-Human Resources and Chief Human Resources Officer Human Resources 80 Park Plaza, T21, Newark, NJ 07102 tel: 973-430-7243 fax: 973-643-6063 email: Margaret.Pego@pseg.com

May 3, 2011

Mr. Randall E. Mehrberg

80 Park Plaza,

Newark, New Jersey 07101

Dear Randy,

This letter serves as an Addendum to your offer letter dated June 30, 2008 regarding the treatment of certain equity awards granted to you under the Long-Term Incentive Plan (“LTIP”).

Any award of stock options, restricted stock units and/or performance stock units granted to you under the LTIP through, and including the 2016 award (which based on the Company’s current practice would be granted in December 2015) and earned shall fully vest (without proration) if on or after September 8, 2012 and before January 1, 2017, you (i) resign to hold a position with a governmental entity or other employer approved by the Company’s CEO, (ii) retire and the CEO approves full vesting, (iii) die, (iv) become Disabled (as defined under the LTIP), or (v) are involuntarily terminated by the Company without cause. For the avoidance of any doubt, the 2017 award granted in December 2016 (based on the Company’s current practice) will not be subject to the foregoing treatment and the terms of the grant agreement will apply.

Stock options that become vested pursuant to this Addendum shall be immediately exercisable for the lesser of (i) the remaining term of the stock option, or (ii) five years following your termination from employment.

The distribution date of restricted stock units that becomes vested pursuant to this Addendum shall be the distribution date that is specified in the restricted stock unit award agreement. For the avoidance of any doubt, the distribution date of an award shall not be accelerated as a result of the vesting of the restricted stock unit awards under this Addendum.

The distribution date of performance stock units that becomes vested pursuant to this Addendum shall be the distribution date that is specified in the performance stock unit awards agreement (i.e., the end of the performance cycle).

If the foregoing is in accordance with your understanding please sign the enclosed copy of this letter and return it to me.

Sincerely,

/s/ Margaret M. Pego

Margaret M. Pego

Senior Vice President-Human Resources

and Chief Human Resources Officer

Agreed to this 4^th day of May 2011

/s/ Randall E. Merhberg

Randall E. Mehrberg

EX-12

EXHIBIT 12

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

	For the Three Months Ended March 31,						For the Years Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
	(Millions, except ratios)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations	$	791		$	859		$	2,616		$	2,636		$	1,806		$	2,303		$	1,000
(Income) Loss from Equity Investees, net of Distributions		0			(5	)		(19	)		(25	)		(5	)		(10	)		(33	)
Fixed Charges		137			142			571			600			633			755			821
Capitalized Interest		(2	)		(15	)		(68	)		(45	)		(37	)		(26	)		(32	)
Preferred Securities Dividend Requirements of Subsidiaries		0			(2	)		(2	)		(6	)		(6	)		(6	)		(6	)
Total Earnings	$	926		$	979		$	3,098		$	3,160		$	2,391		$	3,016		$	1,750
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense	$	134		$	135		$	555		$	581		$	615		$	737		$	803
Interest Factor in Rentals		3			5			14			13			12			12			12
Preferred Securities Dividend Requirements of Subsidiaries		0			2			2			6			6			6			6
Total Fixed Charges	$	137		$	142		$	571		$	600		$	633		$	755		$	821
Ratio of Earnings to Fixed Charges		6.76			6.89			5.43			5.27			3.78			3.99			2.13

(A) The term “earnings” shall be defined as pre-tax Income from Continuing Operations before income or loss from equity investees plus distributed income from equity investees. Add to pre-tax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred securities dividend requirements of majority-owned subsidiaries stated on a pre-tax level.

(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals and (d) preferred securities dividend requirements of majority-owned subsidiaries stated on a pre-tax level.

EX-12.1

EXHIBIT 12.1

PSEG POWER LLC

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

	For the Three Months Ended March 31,						For the Years Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
	(Millions, except ratios)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations	$	506		$	635		$	1,914		$	1,958		$	1,711		$	1,590		$	878
Fixed Charges		58			60			238			221			210			193			190
Capitalized Interest		(1	)		(14	)		(63	)		(43	)		(31	)		(23	)		(30	)
Total Earnings	$	563		$	681		$	2,089		$	2,136		$	1,890		$	1,760		$	1,038
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense	$	57		$	58		$	235		$	219		$	208		$	192		$	189
Interest Factor in Rentals		1			2			3			2			2			1			1
Total Fixed Charges	$	58		$	60		$	238		$	221		$	210		$	193		$	190
Ratio of Earnings to Fixed Charges		9.71			11.35			8.78			9.67			9.00			9.12			5.46

(A) The term “earnings” shall be defined as pre-tax Income from Continuing Operations. Add to pre-tax income amortization of capitalized interest and the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period.

(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense and (c) an estimate of interest implicit in rentals.

EX-12.2

EXHIBIT 12.2

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

	For the Three Months Ended March 31,				For the Years Ended December 31,
	2011		2010		2010			2009			2008		2007		2006
	(Millions, except ratios)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations	$	274	$	198	$	591		$	551		$	592	$	637	$	448
Fixed Charges		80		78		325			317			325		332		346
Capitalized Interest		0		0		(2	)		(1	)		0		0		0
Total Earnings	$	354	$	276	$	914		$	867		$	917	$	969	$	794
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense	$	79	$	77	$	320		$	313		$	325	$	332	$	346
Interest Factor in Rentals		1		1		5			4			0		0		0
Total Fixed Charges	$	80	$	78	$	325		$	317		$	325	$	332	$	346
Ratio of Earnings to Fixed Charges		4.43		3.54		2.81			2.74			2.82		2.92		2.29

(A) The term “earnings” shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period.

(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense and (c) an estimate of interest implicit in rentals.

EX-12.3

EXHIBIT 12.3

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

Plus Preferred Security Dividend Requirements

	For the Three Months Ended March 31,					For the Years Ended December 31,
	2011		2010			2010			2009			2008			2007			2006
	(Millions, except ratios)
Earnings as Defined in Regulation S-K (A):
Pre-tax Income from Continuing Operations	$	274	$	198		$	591		$	551		$	592		$	637		$	448
Fixed Charges		80		80			327			323			332			339			353
Capitalized Interest		0		0			(2	)		(1	)		0			0			0
Preferred Securities Dividend Requirements of Subsidiaries		0		(2	)		(2	)		(6	)		(6	)		(6	)		(6	)
Total Earnings	$	354	$	276		$	914		$	867		$	918		$	970		$	795
Fixed Charges as Defined in Regulation S-K (B)
Interest Expense	$	79	$	77		$	320		$	313		$	325		$	332		$	346
Interest Factor in Rentals		1		1			5			4			0			0			0
Preferred Securities Dividends		0		1			1			4			4			4			4
Adjustments to state Preferred Securities Dividends on a pre-income tax basis		0		1			1			2			2			2			2
Total Fixed Charges	$	80	$	80		$	327		$	323		$	331		$	338		$	352
Ratio of Earnings to Fixed Charges		4.43		3.45			2.80			2.68			2.77			2.87			2.26

(A) The term “earnings” shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period (b) the actual amount of any preferred securities dividend requirements of majority owned subsidiaries (c) preferred stock dividends which were included in such fixed charges amount but not deducted in the determination of pre-tax income.

(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount and premium expense (c) an estimate of interest implicit in rentals and (d) preferred securities dividend requirements of majority owned subsidiaries and preferred stock dividends, increased to reflect the pre-tax earnings requirement for PSE&G.

EX-31

EXHIBIT 31

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Ralph Izzo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Enterprise Group Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Ralph Izzo
	Ralph Izzo Public Service Enterprise Group Incorporated Chief Executive Officer

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Caroline Dorsa, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Enterprise Group Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Caroline Dorsa
	Caroline Dorsa Public Service Enterprise Group Incorporated Chief Financial Officer

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Ralph Izzo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Power LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Ralph Izzo
	Ralph Izzo PSEG Power LLC Chief Executive Officer

EX-31.3

EXHIBIT 31.3

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Caroline Dorsa, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PSEG Power LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Caroline Dorsa
	Caroline Dorsa PSEG Power LLC Chief Financial Officer

EX-31.4

EXHIBIT 31.4

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Ralph Izzo, certify that:

2. I have reviewed this Quarterly Report on Form 10-Q of Public Service Electric and Gas Company;

3. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

4. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

6. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Ralph Izzo
	Ralph Izzo Public Service Electric and Gas Company Chief Executive Officer

EX-31.5

EXHIBIT 31.5

Certification Pursuant to Rules 13a-14 and 15d-14

of the 1934 Securities Exchange Act

I, Caroline Dorsa, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Electric and Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2011	/s/ Caroline Dorsa
	Caroline Dorsa Public Service Electric and Gas Company Chief Financial Officer

EX-32

EXHIBIT 32

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Ralph Izzo, Chief Executive Officer of Public Service Enterprise Group Incorporated, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Enterprise Group Incorporated on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Enterprise Group Incorporated.

/s/ Ralph Izzo

Ralph Izzo

Public Service Enterprise Group Incorporated

Chief Executive Officer

May 5, 2011

EX-32.1

EXHIBIT 32.1

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Caroline Dorsa, Chief Financial Officer of Public Service Enterprise Group Incorporated, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Enterprise Group Incorporated on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Enterprise Group Incorporated.

/s/ Caroline Dorsa

Caroline Dorsa

Public Service Enterprise Group Incorporated

Chief Financial Officer

May 5, 2011

EX-32.2

EXHIBIT 32.2

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Ralph Izzo, Chief Executive Officer of PSEG Power LLC, to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Power LLC on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PSEG Power LLC.

/s/ Ralph Izzo

Ralph Izzo

PSEG Power LLC

Chief Executive Officer

May 5, 2011

EX-32.3

EXHIBIT 32.3

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Caroline Dorsa, Chief Financial Officer of PSEG Power LLC, to the best of my knowledge, certify that (i) the Quarterly Report of PSEG Power LLC on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PSEG Power LLC.

/s/ Caroline Dorsa

Caroline Dorsa

PSEG Power LLC

Chief Financial Officer

May 5, 2011

EX-32.4

EXHIBIT 32.4

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Ralph Izzo, Chief Executive Officer of Public Service Electric and Gas Company, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Electric and Gas Company on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Electric and Gas Company.

/s/ Ralph Izzo

Ralph Izzo

Public Service Electric and Gas Company

Chief Executive Officer

May 5, 2011

EX-32.5

EXHIBIT 32.5

Certification Pursuant to Section 1350 of Chapter 63 of Title 18

of the United States Code

I, Caroline Dorsa, Chief Financial Officer of Public Service Electric and Gas Company, to the best of my knowledge, certify that (i) the Quarterly Report of Public Service Electric and Gas Company on Form 10-Q for the quarter ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Public Service Electric and Gas Company.

/s/ Caroline Dorsa

Caroline Dorsa

Public Service Electric and Gas Company

Chief Financial Officer

May 5, 2011