Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

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.

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 June 30, 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 June 30, 2011
Description	Total			Cash Collateral Netting (E)			Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	151		$	(2	)	$	0	$	139		$	14
Interest Rate Swaps (B)	$	47		$	0		$	0	$	47		$	0
NDT Funds: (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	168		$	0		$	20	$	148		$	0
Other Long-Term Investments (D)	$	4		$	0		$	4	$	0		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(88	)	$	0		$	0	$	(71	)	$	(17	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	141		$	(2	)	$	0	$	139		$	4
NDT Funds (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	32		$	0		$	4	$	28		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(79	)	$	0		$	0	$	(71	)	$	(8	)
PSE&G
Assets:
Derivative Contracts:
Energy Related Contracts (A)	$	10		$	0		$	0	$	0		$	10
Rabbi Trust—Mutual Funds (C)	$	56		$	0		$	7	$	49		$	0
Liabilities:
Energy Related Contracts (A)	$	(9	)	$	0		$	0	$	0		$	(9	)

	Recurring Fair Value Measurements as of December 31, 2010
Description	Total			Cash Collateral Netting(E)			Quoted Market Prices of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (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 of the bid/ask midpoints from multiple broker or dealer quotes or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs. Level 3—For energy-related contracts, which include more complex agreements where limited observable inputs or pricing information 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 United States 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 United States 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.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2011 follows:

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

for the Three Months Ended June 30, 2011

				Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2011			Included  in Income (A)			Included in Regulatory Assets/ Liabilities (B)		Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)		Balance as of June  30, 2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	2		$	(9	)	$	6	$	1	$	(3	)	$	0	$	(3	)
Power
Net Derivative Assets (Liabilities)	$	7		$	(9	)	$	0	$	1	$	(3	)	$	0	$	(4	)
PSE&G
Net Derivative Assets (Liabilities)	$	(5	)	$	0		$	6	$	0	$	0		$	0	$	1

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

for the Six Months Ended June 30, 2011

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2011		Included  in Income (E)			Included in Regulatory Assets/ Liabilities (B)			Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)			Balance as of June  30,  2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	47	$	(40	)	$	(4	)	$	19	$	(25	)	$	0		$	(3	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
Power
Net Derivative Assets (Liabilities)	$	42	$	(40	)	$	0		$	19	$	(25	)	$	0		$	(4	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
PSE&G
Net Derivative Assets (Liabilities)	$	5	$	0		$	(4	)	$	0	$	0		$	0		$	1

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2010 follows:

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

for the Three Months Ended June 30, 2010

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2010		Included in Income (A)			Included in Regulatory Assets/   Liabilities (B)		Purchases, (Sales) and Settlements			Balance as of June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	240	$	(86	)	$	0	$	14		$	168
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	16	$	0		$	0	$	0		$	16
Power
Net Derivative Assets	$	189	$	(86	)	$	0	$	14		$	117
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	3	$	0		$	0	$	0		$	3
PSE&G
Net Derivative Assets	$	51	$	0		$	0	$	0		$	51
Rabbi Trust Funds	$	5	$	0		$	0	$	0		$	5

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

for the Six Months Ended June 30, 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 June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	105	$	28	$	45	$	(10	)	$	168
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
Rabbi Trust Funds	$	14	$	0	$	0	$	2		$	16
Power
Net Derivative Assets	$	99	$	28	$	0	$	(10	)	$	117
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
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 $(7) million and $(81) are included in Operating Income, $(2) million and $(6) million are included in OCI, and less than $1 million and $1 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(7) million in Operating Income in 2011, $(24) million is unrealized and $17 million is realized. Of the $(81) million in Operating Income in 2010, $(78) million is unrealized and $(3) million is realized.

(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) Includes $37 million in purchases and $(36) million in sales for the three months ended June 30, 2011. Includes $55 million in purchases and $(36) in sales for the six months ended June 30, 2011.

(D) Includes $(9) million in issuances and $6 million in settlements for in the three months ended June 30, 2011. Includes $(20) million in issuances and $(5) million in settlements for the six months ended June 30, 2011.

(E) PSEG's and Power's gains and losses are mainly attributable to changes in net derivative assets and liabilities of which $(40) million and $(9) million are included in Operating Income, $(3) million and $14 million are included in OCI, and $3 million and $23 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(40) million in Operating Income in 2011, $(56) million is unrealized and $16 million is realized. Of the $(9) million in Operating Income in 2010, $(23) million is unrealized and $14 million is realized.

As of June 30, 2011, PSEG carried $1.7 billion of net assets that are measured at fair value on a recurring basis, of which $(3) 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 six months ended June 30, 2011, $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 PSEG's policy, this transfer was recognized as of the beginning of the quarter in which the transfer occurred.

As of June 30, 2010, PSEG carried $1.6 billion of net assets that are measured at fair value on a recurring basis, of which $190 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 and six months ended June 30, 2010.

Non-recurring Fair Value Measurements

In accordance with accounting guidance, management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate or market conditions, could potentially indicate an asset's carrying amount may not be recoverable. There were no material impairments recorded during 2011.

• Due to a significant decline in market prices at June 30, 2010, Power assessed the recoverability of its SO₂ emission allowances not expected to be consumed. As a result of this evaluation, Power recorded a pre-tax impairment charge of $15 million related to its forecasted excess SO₂ allowances during the quarter ended June 30, 2010, which is included in Energy Costs on the Condensed Consolidated Statements of Operations.

• As a result of the execution of a new lease, Energy Holdings assessed the recoverability of existing property located in Michigan. As a result of the evaluation, Energy Holdings recorded a pre-tax impairment of $10 million during the quarter ended June 30, 2010, which is included in Operating Revenues on the Condensed Consolidated Statements of Operations.

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 June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value (A)		Carrying Amount		Fair Value (A)
	Millions
Long-Term Debt:
PSEG (Parent)	$	20	$	47	$	10	$	39
Power -Recourse Debt		2,851		3,189		3,455		3,831
PSE&G		4,284		4,617		4,283		4,615
Transition Funding (PSE&G)		999		1,127		1,090		1,245
Transition Funding II (PSE&G)		50		53		55		59
Energy Holdings:
Project Level, Non-Recourse Debt		46		46		47		47
	$	8,250	$	9,079	$	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.

Power [Member]

Fair Value Measurements

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.

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 June 30, 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 June 30, 2011
Description	Total			Cash Collateral Netting (E)			Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	151		$	(2	)	$	0	$	139		$	14
Interest Rate Swaps (B)	$	47		$	0		$	0	$	47		$	0
NDT Funds: (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	168		$	0		$	20	$	148		$	0
Other Long-Term Investments (D)	$	4		$	0		$	4	$	0		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(88	)	$	0		$	0	$	(71	)	$	(17	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	141		$	(2	)	$	0	$	139		$	4
NDT Funds (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	32		$	0		$	4	$	28		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(79	)	$	0		$	0	$	(71	)	$	(8	)
PSE&G
Assets:
Derivative Contracts:
Energy Related Contracts (A)	$	10		$	0		$	0	$	0		$	10
Rabbi Trust—Mutual Funds (C)	$	56		$	0		$	7	$	49		$	0
Liabilities:
Energy Related Contracts (A)	$	(9	)	$	0		$	0	$	0		$	(9	)

	Recurring Fair Value Measurements as of December 31, 2010
Description	Total			Cash Collateral Netting(E)			Quoted Market Prices of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (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 of the bid/ask midpoints from multiple broker or dealer quotes or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.

Level 3—For energy-related contracts, which include more complex agreements where limited observable inputs or pricing information 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 United States 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 United States 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.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2011 follows:

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

for the Three Months Ended June 30, 2011

				Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2011			Included  in Income (A)			Included in Regulatory Assets/ Liabilities (B)		Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)		Balance as of June  30, 2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	2		$	(9	)	$	6	$	1	$	(3	)	$	0	$	(3	)
Power
Net Derivative Assets (Liabilities)	$	7		$	(9	)	$	0	$	1	$	(3	)	$	0	$	(4	)
PSE&G
Net Derivative Assets (Liabilities)	$	(5	)	$	0		$	6	$	0	$	0		$	0	$	1

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

for the Six Months Ended June 30, 2011

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2011		Included  in Income (E)			Included in Regulatory Assets/ Liabilities (B)			Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)			Balance as of June  30,  2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	47	$	(40	)	$	(4	)	$	19	$	(25	)	$	0		$	(3	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
Power
Net Derivative Assets (Liabilities)	$	42	$	(40	)	$	0		$	19	$	(25	)	$	0		$	(4	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
PSE&G
Net Derivative Assets (Liabilities)	$	5	$	0		$	(4	)	$	0	$	0		$	0		$	1

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2010 follows:

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

for the Three Months Ended June 30, 2010

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2010		Included in Income (A)			Included in Regulatory Assets/   Liabilities (B)		Purchases, (Sales) and Settlements			Balance as of June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	240	$	(86	)	$	0	$	14		$	168
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	16	$	0		$	0	$	0		$	16
Power
Net Derivative Assets	$	189	$	(86	)	$	0	$	14		$	117
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	3	$	0		$	0	$	0		$	3
PSE&G
Net Derivative Assets	$	51	$	0		$	0	$	0		$	51
Rabbi Trust Funds	$	5	$	0		$	0	$	0		$	5

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

for the Six Months Ended June 30, 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 June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	105	$	28	$	45	$	(10	)	$	168
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
Rabbi Trust Funds	$	14	$	0	$	0	$	2		$	16
Power
Net Derivative Assets	$	99	$	28	$	0	$	(10	)	$	117
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
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 $(7) million and $(81) are included in Operating Income, $(2) million and $(6) million are included in OCI, and less than $1 million and $1 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(7) million in Operating Income in 2011, $(24) million is unrealized and $17 million is realized. Of the $(81) million in Operating Income in 2010, $(78) million is unrealized and $(3) million is realized.

(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) Includes $37 million in purchases and $(36) million in sales for the three months ended June 30, 2011. Includes $55 million in purchases and $(36) in sales for the six months ended June 30, 2011.

(D) Includes $(9) million in issuances and $6 million in settlements for in the three months ended June 30, 2011. Includes $(20) million in issuances and $(5) million in settlements for the six months ended June 30, 2011.

(E) PSEG's and Power's gains and losses are mainly attributable to changes in net derivative assets and liabilities of which $(40) million and $(9) million are included in Operating Income, $(3) million and $14 million are included in OCI, and $3 million and $23 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(40) million in Operating Income in 2011, $(56) million is unrealized and $16 million is realized. Of the $(9) million in Operating Income in 2010, $(23) million is unrealized and $14 million is realized.

As of June 30, 2011, PSEG carried $1.7 billion of net assets that are measured at fair value on a recurring basis, of which $(3) 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 six months ended June 30, 2011, $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 PSEG's policy, this transfer was recognized as of the beginning of the quarter in which the transfer occurred.

As of June 30, 2010, PSEG carried $1.6 billion of net assets that are measured at fair value on a recurring basis, of which $190 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 and six months ended June 30, 2010.

Non-recurring Fair Value Measurements

In accordance with accounting guidance, management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate or market conditions, could potentially indicate an asset's carrying amount may not be recoverable. There were no material impairments recorded during 2011.

• Due to a significant decline in market prices at June 30, 2010, Power assessed the recoverability of its SO₂ emission allowances not expected to be consumed. As a result of this evaluation, Power recorded a pre-tax impairment charge of $15 million related to its forecasted excess SO₂ allowances during the quarter ended June 30, 2010, which is included in Energy Costs on the Condensed Consolidated Statements of Operations.

• As a result of the execution of a new lease, Energy Holdings assessed the recoverability of existing property located in Michigan. As a result of the evaluation, Energy Holdings recorded a pre-tax impairment of $10 million during the quarter ended June 30, 2010, which is included in Operating Revenues on the Condensed Consolidated Statements of Operations.

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 June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value (A)		Carrying Amount		Fair Value (A)
	Millions
Long-Term Debt:
PSEG (Parent)	$	20	$	47	$	10	$	39
Power -Recourse Debt		2,851		3,189		3,455		3,831
PSE&G		4,284		4,617		4,283		4,615
Transition Funding (PSE&G)		999		1,127		1,090		1,245
Transition Funding II (PSE&G)		50		53		55		59
Energy Holdings:
Project Level, Non-Recourse Debt		46		46		47		47
	$	8,250	$	9,079	$	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.

PSE&G [Member]

Fair Value Measurements

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.

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 June 30, 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 June 30, 2011
Description	Total			Cash Collateral Netting (E)			Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	Millions
PSEG
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	151		$	(2	)	$	0	$	139		$	14
Interest Rate Swaps (B)	$	47		$	0		$	0	$	47		$	0
NDT Funds: (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	168		$	0		$	20	$	148		$	0
Other Long-Term Investments (D)	$	4		$	0		$	4	$	0		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(88	)	$	0		$	0	$	(71	)	$	(17	)
Power
Assets:
Derivative Contracts:
Energy-Related Contracts (A)	$	141		$	(2	)	$	0	$	139		$	4
NDT Funds (C)
Equity Securities	$	689		$	0		$	689	$	0		$	0
Debt Securities—Govt Obligations	$	339		$	0		$	0	$	339		$	0
Debt Securities—Other	$	283		$	0		$	0	$	283		$	0
Other Securities	$	130		$	0		$	1	$	129		$	0
Rabbi Trusts—Mutual Funds (C)	$	32		$	0		$	4	$	28		$	0
Liabilities:
Derivative Contracts:
Energy-Related Contracts (A)	$	(79	)	$	0		$	0	$	(71	)	$	(8	)
PSE&G
Assets:
Derivative Contracts:
Energy Related Contracts (A)	$	10		$	0		$	0	$	0		$	10
Rabbi Trust—Mutual Funds (C)	$	56		$	0		$	7	$	49		$	0
Liabilities:
Energy Related Contracts (A)	$	(9	)	$	0		$	0	$	0		$	(9	)

	Recurring Fair Value Measurements as of December 31, 2010
Description	Total			Cash Collateral Netting(E)			Quoted Market Prices of Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (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 of the bid/ask midpoints from multiple broker or dealer quotes or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.

Level 3—For energy-related contracts, which include more complex agreements where limited observable inputs or pricing information 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 United States 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 United States 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.

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2011 follows:

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

for the Three Months Ended June 30, 2011

				Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2011			Included  in Income (A)			Included in Regulatory Assets/ Liabilities (B)		Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)		Balance as of June  30, 2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	2		$	(9	)	$	6	$	1	$	(3	)	$	0	$	(3	)
Power
Net Derivative Assets (Liabilities)	$	7		$	(9	)	$	0	$	1	$	(3	)	$	0	$	(4	)
PSE&G
Net Derivative Assets (Liabilities)	$	(5	)	$	0		$	6	$	0	$	0		$	0	$	1

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

for the Six Months Ended June 30, 2011

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of January 1, 2011		Included  in Income (E)			Included in Regulatory Assets/ Liabilities (B)			Purchases, (Sales) (C)		Issuances Settlements (D)			Transfers  In (Out)			Balance as of June  30,  2011
	Millions
PSEG
Net Derivative Assets (Liabilities)	$	47	$	(40	)	$	(4	)	$	19	$	(25	)	$	0		$	(3	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
Power
Net Derivative Assets (Liabilities)	$	42	$	(40	)	$	0		$	19	$	(25	)	$	0		$	(4	)
NDT Funds	$	8	$	0		$	0		$	0	$	0		$	(8	)	$	0
PSE&G
Net Derivative Assets (Liabilities)	$	5	$	0		$	(4	)	$	0	$	0		$	0		$	1

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the three months and six months ended June 30, 2010 follows:

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

for the Three Months Ended June 30, 2010

			Total Gains or (Losses) Realized/Unrealized
Description	Balance as of April 1, 2010		Included in Income (A)			Included in Regulatory Assets/   Liabilities (B)		Purchases, (Sales) and Settlements			Balance as of June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	240	$	(86	)	$	0	$	14		$	168
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	16	$	0		$	0	$	0		$	16
Power
Net Derivative Assets	$	189	$	(86	)	$	0	$	14		$	117
NDT Funds	$	13	$	0		$	0	$	(7	)	$	6
Rabbi Trust Funds	$	3	$	0		$	0	$	0		$	3
PSE&G
Net Derivative Assets	$	51	$	0		$	0	$	0		$	51
Rabbi Trust Funds	$	5	$	0		$	0	$	0		$	5

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

for the Six Months Ended June 30, 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 June 30,  2010
	Millions
PSEG
Net Derivative Assets	$	105	$	28	$	45	$	(10	)	$	168
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
Rabbi Trust Funds	$	14	$	0	$	0	$	2		$	16
Power
Net Derivative Assets	$	99	$	28	$	0	$	(10	)	$	117
NDT Funds	$	9	$	0	$	0	$	(3	)	$	6
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 $(7) million and $(81) are included in Operating Income, $(2) million and $(6) million are included in OCI, and less than $1 million and $1 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(7) million in Operating Income in 2011, $(24) million is unrealized and $17 million is realized. Of the $(81) million in Operating Income in 2010, $(78) million is unrealized and $(3) million is realized.

(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) Includes $37 million in purchases and $(36) million in sales for the three months ended June 30, 2011. Includes $55 million in purchases and $(36) in sales for the six months ended June 30, 2011.

(D) Includes $(9) million in issuances and $6 million in settlements for in the three months ended June 30, 2011. Includes $(20) million in issuances and $(5) million in settlements for the six months ended June 30, 2011.

(E) PSEG's and Power's gains and losses are mainly attributable to changes in net derivative assets and liabilities of which $(40) million and $(9) million are included in Operating Income, $(3) million and $14 million are included in OCI, and $3 million and $23 million are included in Income from Discontinued Operations in 2011 and 2010, respectively. Of the $(40) million in Operating Income in 2011, $(56) million is unrealized and $16 million is realized. Of the $(9) million in Operating Income in 2010, $(23) million is unrealized and $14 million is realized.

As of June 30, 2011, PSEG carried $1.7 billion of net assets that are measured at fair value on a recurring basis, of which $(3) 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 six months ended June 30, 2011, $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 PSEG's policy, this transfer was recognized as of the beginning of the quarter in which the transfer occurred.

As of June 30, 2010, PSEG carried $1.6 billion of net assets that are measured at fair value on a recurring basis, of which $190 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 and six months ended June 30, 2010.

Non-recurring Fair Value Measurements

In accordance with accounting guidance, management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate or market conditions, could potentially indicate an asset's carrying amount may not be recoverable. There were no material impairments recorded during 2011.

• Due to a significant decline in market prices at June 30, 2010, Power assessed the recoverability of its SO₂ emission allowances not expected to be consumed. As a result of this evaluation, Power recorded a pre-tax impairment charge of $15 million related to its forecasted excess SO₂ allowances during the quarter ended June 30, 2010, which is included in Energy Costs on the Condensed Consolidated Statements of Operations.

• As a result of the execution of a new lease, Energy Holdings assessed the recoverability of existing property located in Michigan. As a result of the evaluation, Energy Holdings recorded a pre-tax impairment of $10 million during the quarter ended June 30, 2010, which is included in Operating Revenues on the Condensed Consolidated Statements of Operations.

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 June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value (A)		Carrying Amount		Fair Value (A)
	Millions
Long-Term Debt:
PSEG (Parent)	$	20	$	47	$	10	$	39
Power -Recourse Debt		2,851		3,189		3,455		3,831
PSE&G		4,284		4,617		4,283		4,615
Transition Funding (PSE&G)		999		1,127		1,090		1,245
Transition Funding II (PSE&G)		50		53		55		59
Energy Holdings:
Project Level, Non-Recourse Debt		46		46		47		47
	$	8,250	$	9,079	$	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.