Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Note 20. Income Taxes

A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,503		$	1,564		$	1,592
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax benefit		96			7			(2	)
Income from Continuing Operations		1,407			1,557			1,594
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	1,407		$	1,558		$	1,598
Income Taxes:
Operating Income:
Current Expense:
Federal	$	258		$	(166	)	$	560
State		32			157			257
Total Current		290			(9	)		817
Deferred Expense:
Federal		501			992			178
State		191			79			44
Total Deferred		692			1,071			222
Investment Tax Credit		(5	)		(3	)		3
Total Income Taxes	$	977		$	1,059		$	1,042
Pre-Tax Income	$	2,384		$	2,617		$	2,640
Tax Computed at Statutory Rate @ 35%	$	834		$	916		$	924
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		146			154			201
Uncertain Tax Positions		19			30			(73	)
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(5	)		(2	)		(3	)
Other		(10	)		(22	)		(10	)
Sub-Total		143			143			118
Total Income Tax Provision	$	977		$	1,059		$	1,042
Effective Income Tax Rate		41.0%			40.5%			39.5%

The following is an analysis of deferred income taxes for PSEG:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Current (net)	$	0	$	43
Noncurrent:
Unrecovered Investment Tax Credit	$	15	$	18
Accumulated Other Comprehensive Income (Loss)		39		79
Cumulative Effect of a Change in Accounting Principle		11		11
New Jersey Corporate Business Tax		0		17
OPEB		208		197
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
MTC		26		47
Related to Uncertain Tax Positions		104		73
Other		44		58
Total Non-Current Assets	$	533	$	586
Total Assets	$	533	$	629
Liabilities:
Current (net)	$	170	$	0
Noncurrent:
Plant-Related Items		3,894		3,169
Nuclear Decommissioning		155		171
New Jersey Corporate Business Tax		180		0
Securitization		495		686
Leasing Activities		527		839
Partnership Activity		18		18
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		129		189
AROs		302		287
Taxes Recoverable Through Future Rate (net)		158		158
Other		0		18
Total Noncurrent Liabilities	$	5,955	$	5,673
Total Liabilities	$	6,125	$	5,673
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Assets	$	0	$	43
Net Current Deferred Income Tax Liability	$	170	$	0
Net Noncurrent Deferred Income Tax Liabilities	$	5,422	$	5,087
Investment Tax Credit (ITC)		36		42
Net Total Noncurrent Deferred Income Taxes and ITC	$	5,458	$	5,129

A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,098		$	1,143		$	1,189
Income (Loss) from Discontinued Operations, net of tax		96			7			(2	)
Income from Continuing Operations	$	1,002		$	1,136		$	1,191
Income Taxes:
Operating Income:
Current Expense:
Federal	$	400		$	12		$	416
State		40			127			144
Total Current		440			139			560
Deferred Expense:
Federal		151			598			177
State		94			41			30
Total Deferred		245			639			207
Total Income Taxes	$	685		$	778		$	767
Pre-Tax Income	$	1,687		$	1,914		$	1,958
Tax Computed at Statutory Rate @ 35%	$	591		$	670		$	685
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		87			109			113
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Uncertain Tax Positions		11			10			(26	)
Other		(3	)		3			(5	)
Sub-Total		94			108			82
Total Income Tax Provision	$	685		$	778		$	767
Effective Income Tax Rate		40.6%			40.6%			39.2%

The following is an analysis of deferred income taxes for Power:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Cumulative Effect of a Change in Accounting Principle	$	11	$	11
New Jersey Corporate Business Tax		0		73
Pension Costs		53		12
Accumulated Other Comprehensive Income (Loss)		39		40
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
Related to Uncertain Tax Positions		4		0
Other		22		38
Total Noncurrent Assets	$	215	$	260
Total Assets	$	215	$	260
Liabilities:
Current (net)	$	53	$	64
Noncurrent:
Plant-Related Items	$	1,013	$	927
New Jersey Corporate Business Tax		7		0
Nuclear Decommissioning		155		171
AROs		302		287
Related to Uncertain Tax Positions		0		16
Total Noncurrent Liabilities	$	1,477	$	1,401
Total Liabilities	$	1,530	$	1,465
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liabilities	$	53	$	64
Net Noncurrent Deferred Income Tax Liabilities	$	1,262	$	1,141
Investment Tax Credit (ITC)		4		5
Net Total Noncurrent Deferred Income Taxes and ITC	$	1,266	$	1,146

A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended             December  31,
	2011			2010			2009
	Millions
Net Income	$	521		$	358		$	321
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	521		$	359		$	325
Income Taxes:
Operating Income:
Current Expense:
Federal	$	(225	)	$	(211	)	$	7
State		(6	)		(1	)		22
Total Current		(231	)		(212	)		29
Deferred Expense:
Federal		483			384			158
State		92			63			38
Total Deferred		575			447			196
Investment Tax Credit		(4	)		(3	)		1
Total Income Taxes	$	340		$	232		$	226
Pre-Tax Income	$	861		$	591		$	551
Tax Computed at Statutory Rate @ 35%	$	301		$	207		$	193
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		56			40			39
Uncertain Tax Positions		(1	)		(1	)		(3	)
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(4	)		(2	)		(3	)
Other		(6	)		(9	)		(3	)
Sub-Total		39			25			33
Total Income Tax Provision	$	340		$	232		$	226
Effective Income Tax Rate		39.5%			39.2%			41.0%

The following is an analysis of deferred income taxes for PSE&G:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Unrecovered ITC	$	10	$	12
OPEB		197		189
MTC		26		47
Related to Uncertain Tax Positions		30		24
Other		13		5
Total Noncurrent Assets	$	276	$	277
Total Assets	$	276	$	277
Liabilities:
Current (net)	$	32	$	19
Noncurrent:
Plant-Related Items	$	2,875	$	2,216
New Jersey Corporate Business Tax		146		0
Securitization		495		686
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		151		172
Taxes Recoverable Through Future Rate (net)		158		158
Total Noncurrent Liabilities	$	3,922	$	3,370
Total Liabilities	$	3,954	$	3,389
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liability	$	32	$	19
Net Noncurrent Deferred Income Tax Liability	$	3,646	$	3,093
Investment Tax Credit (ITC)		29		34
Net Total Noncurrent Deferred Income Taxes and ITC	$	3,675	$	3,127

As of December 31, 2011, PSE&G has New Jersey State income tax net operating loss (NOL) carryforwards of $127 million, which will expire in 2030. We believe that it is more likely than not that the benefit from the state NOL carryforwards will be realized.

Each of PSEG, Power and PSE&G provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G's customers in the future. These amounts were determined using the enacted federal income tax rate of 35% and state income tax rate of 9%. For additional information, see Note 6. Regulatory Assets and Liabilities.

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 received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. Although this change does not take effect immediately, the accounting impact was required to be recognized when the legislation was signed. 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 a 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 was realized in 2011. These tax benefits would have otherwise been received over an estimated average 20 year period.

During 2011, PSE&G accrued $51 million of Investment Tax Credits (ITC) associated with alternative energy projects. 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 recorded the following amounts related to its unrecognized tax benefits, which was primarily comprised of amounts recorded for Power, PSE&G and Energy Holdings:

2011	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2011	$	756		$	101		$	82		$	539
Increases as a Result of Positions Taken in a Prior Period		58			24			14			17
Decreases as a Result of Positions Taken in a Prior Period		(22	)		(9	)		0			(12	)
Increases as a Result of Positions Taken during the Current Period		37			8			18			11
Decreases as a Result of Positions Taken during the Current Period		(4	)		(3	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2011	$	825		$	121		$	113		$	555
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(379	)		(77	)		(65	)		(213	)
Regulatory Asset—Unrecognized Tax Benefits		(20	)		0			(20	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	426		$	44		$	28		$	342

2010	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2010	$	836		$	(42	)	$	35		$	820
Increases as a Result of Positions Taken in a Prior Period		290			111			79			90
Decreases as a Result of Positions Taken in a Prior Period		(450	)		(29	)		(38	)		(383	)
Increases as a Result of Positions Taken during the Current Period		82			63			6			12
Decreases as a Result of Positions Taken during the Current Period		(2	)		(2	)		0			0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2010	$	756		$	101		$	82		$	539
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(332	)		(67	)		(38	)		(204	)
Regulatory Asset—Unrecognized Tax Benefits		(16	)		0			(16	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	408		$	34		$	28		$	335

2009	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2009	$	1,403		$	30		$	27		$	1,323
Increases as a Result of Positions Taken in a Prior Period		37			1			8			26
Decreases as a Result of Positions Taken in a Prior Period		(580	)		(39	)		(9	)		(530	)
Increases as a Result of Positions Taken during the Current Period		15			1			10			4
Decreases as a Result of Positions Taken during the Current Period		(19	)		(18	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		(5	)		(5	)		0			0
Decreases due to Lapses of Applicable Statute of Limitations		(15	)		(12	)		0			(3	)
Total Amount of Unrecognized Tax Benefits at December 31, 2009	$	836		$	(42	)	$	35		$	820
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(508	)		37			22			(551	)
Regulatory Asset—Unrecognized Tax Benefits		(55	)		0			(55	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	273		$	(5	)	$	2		$	269

On June 26, 2009, September 15, 2008 and December 17, 2007, PSEG made tax deposits with the IRS in the amount of $140 million, $80 million and $100 million, respectively, to defray potential interest costs associated with disputed tax assessments associated with certain lease investments (see Note 13. Commitments and Contingent Liabilities). The $320 million of deposits are fully refundable and are recorded in Current Accrued Taxes on PSEG's Consolidated Balance Sheets, but are not reflected in the amounts shown above. On January 31, 2012, PSEG signed a specific matter closing agreement with the IRS regarding this matter. Based on this agreement, these deposits will be applied against tax and interest due pursuant to the closing agreement.

PSEG and its subsidiaries include all accrued interest and penalties related to uncertain tax positions required to be recorded, as income tax expense. Interest and penalties on uncertain tax positions were as follows:

	Interest and Penalties on Uncertain Tax Positions Years Ended December 31,
	2011			2010			2009
	Millions
Power	$	(11	)	$	(17	)	$	(2	)
PSE&G		(24	)		(20	)		(22	)
Energy Holdings		420			407			370
Other		10			9			8
Total	$	395		$	379		$	354

It is reasonably possible that total unrecognized tax benefits will decrease within the next twelve months due to either agreements with various taxing authorities upon audit or the expiration of the Statute of Limitations. These potential decreases are as follows:

Possible Decrease in Total Unrecognized Tax Benefits including Interest	Over the next 12 Months
		Millions
PSEG	$	579
Power	$	64
PSE&G	$	27

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 $97 million, approximately $43 million of which related to PSE&G. Pursuant to an agreement signed with the IRS on January 31, 2012, this matter is settled and there will be a resulting increase in uncertain tax positions within the next twelve months. These amounts are not included in the table above.

Due to a specific matter closing agreement signed with the IRS on January 31, 2012, unrecognized tax benefits associated with the leasing tax issue discussed in Note 13. Commitments and Contingent Liabilities, will decrease by approximately $300 million within the next twelve months.

Description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:

	PSEG		Power		PSE&G
United States
Federal		2007-2010		2007-2010		2007-2010
New Jersey		2006-2010		N/A		2006-2010
Pennsylvania		2009-2010		N/A		2008-2010
Connecticut		2007-2010		N/A		N/A
Texas		2007-2010		N/A		N/A
California		2003-2010		N/A		N/A
New York		2004-2010		2004-2010		N/A

Power [Member]

Income Taxes

Note 20. Income Taxes

A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,503		$	1,564		$	1,592
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax benefit		96			7			(2	)
Income from Continuing Operations		1,407			1,557			1,594
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	1,407		$	1,558		$	1,598
Income Taxes:
Operating Income:
Current Expense:
Federal	$	258		$	(166	)	$	560
State		32			157			257
Total Current		290			(9	)		817
Deferred Expense:
Federal		501			992			178
State		191			79			44
Total Deferred		692			1,071			222
Investment Tax Credit		(5	)		(3	)		3
Total Income Taxes	$	977		$	1,059		$	1,042
Pre-Tax Income	$	2,384		$	2,617		$	2,640
Tax Computed at Statutory Rate @ 35%	$	834		$	916		$	924
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		146			154			201
Uncertain Tax Positions		19			30			(73	)
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(5	)		(2	)		(3	)
Other		(10	)		(22	)		(10	)
Sub-Total		143			143			118
Total Income Tax Provision	$	977		$	1,059		$	1,042
Effective Income Tax Rate		41.0%			40.5%			39.5%

The following is an analysis of deferred income taxes for PSEG:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Current (net)	$	0	$	43
Noncurrent:
Unrecovered Investment Tax Credit	$	15	$	18
Accumulated Other Comprehensive Income (Loss)		39		79
Cumulative Effect of a Change in Accounting Principle		11		11
New Jersey Corporate Business Tax		0		17
OPEB		208		197
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
MTC		26		47
Related to Uncertain Tax Positions		104		73
Other		44		58
Total Non-Current Assets	$	533	$	586
Total Assets	$	533	$	629
Liabilities:
Current (net)	$	170	$	0
Noncurrent:
Plant-Related Items		3,894		3,169
Nuclear Decommissioning		155		171
New Jersey Corporate Business Tax		180		0
Securitization		495		686
Leasing Activities		527		839
Partnership Activity		18		18
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		129		189
AROs		302		287
Taxes Recoverable Through Future Rate (net)		158		158
Other		0		18
Total Noncurrent Liabilities	$	5,955	$	5,673
Total Liabilities	$	6,125	$	5,673
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Assets	$	0	$	43
Net Current Deferred Income Tax Liability	$	170	$	0
Net Noncurrent Deferred Income Tax Liabilities	$	5,422	$	5,087
Investment Tax Credit (ITC)		36		42
Net Total Noncurrent Deferred Income Taxes and ITC	$	5,458	$	5,129

A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,098		$	1,143		$	1,189
Income (Loss) from Discontinued Operations, net of tax		96			7			(2	)
Income from Continuing Operations	$	1,002		$	1,136		$	1,191
Income Taxes:
Operating Income:
Current Expense:
Federal	$	400		$	12		$	416
State		40			127			144
Total Current		440			139			560
Deferred Expense:
Federal		151			598			177
State		94			41			30
Total Deferred		245			639			207
Total Income Taxes	$	685		$	778		$	767
Pre-Tax Income	$	1,687		$	1,914		$	1,958
Tax Computed at Statutory Rate @ 35%	$	591		$	670		$	685
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		87			109			113
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Uncertain Tax Positions		11			10			(26	)
Other		(3	)		3			(5	)
Sub-Total		94			108			82
Total Income Tax Provision	$	685		$	778		$	767
Effective Income Tax Rate		40.6%			40.6%			39.2%

The following is an analysis of deferred income taxes for Power:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Cumulative Effect of a Change in Accounting Principle	$	11	$	11
New Jersey Corporate Business Tax		0		73
Pension Costs		53		12
Accumulated Other Comprehensive Income (Loss)		39		40
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
Related to Uncertain Tax Positions		4		0
Other		22		38
Total Noncurrent Assets	$	215	$	260
Total Assets	$	215	$	260
Liabilities:
Current (net)	$	53	$	64
Noncurrent:
Plant-Related Items	$	1,013	$	927
New Jersey Corporate Business Tax		7		0
Nuclear Decommissioning		155		171
AROs		302		287
Related to Uncertain Tax Positions		0		16
Total Noncurrent Liabilities	$	1,477	$	1,401
Total Liabilities	$	1,530	$	1,465
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liabilities	$	53	$	64
Net Noncurrent Deferred Income Tax Liabilities	$	1,262	$	1,141
Investment Tax Credit (ITC)		4		5
Net Total Noncurrent Deferred Income Taxes and ITC	$	1,266	$	1,146

A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended             December  31,
	2011			2010			2009
	Millions
Net Income	$	521		$	358		$	321
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	521		$	359		$	325
Income Taxes:
Operating Income:
Current Expense:
Federal	$	(225	)	$	(211	)	$	7
State		(6	)		(1	)		22
Total Current		(231	)		(212	)		29
Deferred Expense:
Federal		483			384			158
State		92			63			38
Total Deferred		575			447			196
Investment Tax Credit		(4	)		(3	)		1
Total Income Taxes	$	340		$	232		$	226
Pre-Tax Income	$	861		$	591		$	551
Tax Computed at Statutory Rate @ 35%	$	301		$	207		$	193
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		56			40			39
Uncertain Tax Positions		(1	)		(1	)		(3	)
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(4	)		(2	)		(3	)
Other		(6	)		(9	)		(3	)
Sub-Total		39			25			33
Total Income Tax Provision	$	340		$	232		$	226
Effective Income Tax Rate		39.5%			39.2%			41.0%

The following is an analysis of deferred income taxes for PSE&G:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Unrecovered ITC	$	10	$	12
OPEB		197		189
MTC		26		47
Related to Uncertain Tax Positions		30		24
Other		13		5
Total Noncurrent Assets	$	276	$	277
Total Assets	$	276	$	277
Liabilities:
Current (net)	$	32	$	19
Noncurrent:
Plant-Related Items	$	2,875	$	2,216
New Jersey Corporate Business Tax		146		0
Securitization		495		686
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		151		172
Taxes Recoverable Through Future Rate (net)		158		158
Total Noncurrent Liabilities	$	3,922	$	3,370
Total Liabilities	$	3,954	$	3,389
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liability	$	32	$	19
Net Noncurrent Deferred Income Tax Liability	$	3,646	$	3,093
Investment Tax Credit (ITC)		29		34
Net Total Noncurrent Deferred Income Taxes and ITC	$	3,675	$	3,127

As of December 31, 2011, PSE&G has New Jersey State income tax net operating loss (NOL) carryforwards of $127 million, which will expire in 2030. We believe that it is more likely than not that the benefit from the state NOL carryforwards will be realized.

Each of PSEG, Power and PSE&G provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G's customers in the future. These amounts were determined using the enacted federal income tax rate of 35% and state income tax rate of 9%. For additional information, see Note 6. Regulatory Assets and Liabilities.

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 received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. Although this change does not take effect immediately, the accounting impact was required to be recognized when the legislation was signed. 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 a 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 was realized in 2011. These tax benefits would have otherwise been received over an estimated average 20 year period.

During 2011, PSE&G accrued $51 million of Investment Tax Credits (ITC) associated with alternative energy projects. 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 recorded the following amounts related to its unrecognized tax benefits, which was primarily comprised of amounts recorded for Power, PSE&G and Energy Holdings:

2011	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2011	$	756		$	101		$	82		$	539
Increases as a Result of Positions Taken in a Prior Period		58			24			14			17
Decreases as a Result of Positions Taken in a Prior Period		(22	)		(9	)		0			(12	)
Increases as a Result of Positions Taken during the Current Period		37			8			18			11
Decreases as a Result of Positions Taken during the Current Period		(4	)		(3	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2011	$	825		$	121		$	113		$	555
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(379	)		(77	)		(65	)		(213	)
Regulatory Asset—Unrecognized Tax Benefits		(20	)		0			(20	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	426		$	44		$	28		$	342

2010	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2010	$	836		$	(42	)	$	35		$	820
Increases as a Result of Positions Taken in a Prior Period		290			111			79			90
Decreases as a Result of Positions Taken in a Prior Period		(450	)		(29	)		(38	)		(383	)
Increases as a Result of Positions Taken during the Current Period		82			63			6			12
Decreases as a Result of Positions Taken during the Current Period		(2	)		(2	)		0			0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2010	$	756		$	101		$	82		$	539
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(332	)		(67	)		(38	)		(204	)
Regulatory Asset—Unrecognized Tax Benefits		(16	)		0			(16	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	408		$	34		$	28		$	335

2009	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2009	$	1,403		$	30		$	27		$	1,323
Increases as a Result of Positions Taken in a Prior Period		37			1			8			26
Decreases as a Result of Positions Taken in a Prior Period		(580	)		(39	)		(9	)		(530	)
Increases as a Result of Positions Taken during the Current Period		15			1			10			4
Decreases as a Result of Positions Taken during the Current Period		(19	)		(18	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		(5	)		(5	)		0			0
Decreases due to Lapses of Applicable Statute of Limitations		(15	)		(12	)		0			(3	)
Total Amount of Unrecognized Tax Benefits at December 31, 2009	$	836		$	(42	)	$	35		$	820
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(508	)		37			22			(551	)
Regulatory Asset—Unrecognized Tax Benefits		(55	)		0			(55	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	273		$	(5	)	$	2		$	269

On June 26, 2009, September 15, 2008 and December 17, 2007, PSEG made tax deposits with the IRS in the amount of $140 million, $80 million and $100 million, respectively, to defray potential interest costs associated with disputed tax assessments associated with certain lease investments (see Note 13. Commitments and Contingent Liabilities). The $320 million of deposits are fully refundable and are recorded in Current Accrued Taxes on PSEG's Consolidated Balance Sheets, but are not reflected in the amounts shown above. On January 31, 2012, PSEG signed a specific matter closing agreement with the IRS regarding this matter. Based on this agreement, these deposits will be applied against tax and interest due pursuant to the closing agreement.

PSEG and its subsidiaries include all accrued interest and penalties related to uncertain tax positions required to be recorded, as income tax expense. Interest and penalties on uncertain tax positions were as follows:

	Interest and Penalties on Uncertain Tax Positions Years Ended December 31,
	2011			2010			2009
	Millions
Power	$	(11	)	$	(17	)	$	(2	)
PSE&G		(24	)		(20	)		(22	)
Energy Holdings		420			407			370
Other		10			9			8
Total	$	395		$	379		$	354

It is reasonably possible that total unrecognized tax benefits will decrease within the next twelve months due to either agreements with various taxing authorities upon audit or the expiration of the Statute of Limitations. These potential decreases are as follows:

Possible Decrease in Total Unrecognized Tax Benefits including Interest	Over the next 12 Months
		Millions
PSEG	$	579
Power	$	64
PSE&G	$	27

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 $97 million, approximately $43 million of which related to PSE&G. Pursuant to an agreement signed with the IRS on January 31, 2012, this matter is settled and there will be a resulting increase in uncertain tax positions within the next twelve months. These amounts are not included in the table above.

Due to a specific matter closing agreement signed with the IRS on January 31, 2012, unrecognized tax benefits associated with the leasing tax issue discussed in Note 13. Commitments and Contingent Liabilities, will decrease by approximately $300 million within the next twelve months.

Description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:

	PSEG		Power		PSE&G
United States
Federal		2007-2010		2007-2010		2007-2010
New Jersey		2006-2010		N/A		2006-2010
Pennsylvania		2009-2010		N/A		2008-2010
Connecticut		2007-2010		N/A		N/A
Texas		2007-2010		N/A		N/A
California		2003-2010		N/A		N/A
New York		2004-2010		2004-2010		N/A

PSE&G [Member]

Income Taxes

Note 20. Income Taxes

A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,503		$	1,564		$	1,592
Income (Loss) from Discontinued Operations, including Gain on Disposal, net of tax benefit		96			7			(2	)
Income from Continuing Operations		1,407			1,557			1,594
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	1,407		$	1,558		$	1,598
Income Taxes:
Operating Income:
Current Expense:
Federal	$	258		$	(166	)	$	560
State		32			157			257
Total Current		290			(9	)		817
Deferred Expense:
Federal		501			992			178
State		191			79			44
Total Deferred		692			1,071			222
Investment Tax Credit		(5	)		(3	)		3
Total Income Taxes	$	977		$	1,059		$	1,042
Pre-Tax Income	$	2,384		$	2,617		$	2,640
Tax Computed at Statutory Rate @ 35%	$	834		$	916		$	924
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		146			154			201
Uncertain Tax Positions		19			30			(73	)
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(5	)		(2	)		(3	)
Other		(10	)		(22	)		(10	)
Sub-Total		143			143			118
Total Income Tax Provision	$	977		$	1,059		$	1,042
Effective Income Tax Rate		41.0%			40.5%			39.5%

The following is an analysis of deferred income taxes for PSEG:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Current (net)	$	0	$	43
Noncurrent:
Unrecovered Investment Tax Credit	$	15	$	18
Accumulated Other Comprehensive Income (Loss)		39		79
Cumulative Effect of a Change in Accounting Principle		11		11
New Jersey Corporate Business Tax		0		17
OPEB		208		197
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
MTC		26		47
Related to Uncertain Tax Positions		104		73
Other		44		58
Total Non-Current Assets	$	533	$	586
Total Assets	$	533	$	629
Liabilities:
Current (net)	$	170	$	0
Noncurrent:
Plant-Related Items		3,894		3,169
Nuclear Decommissioning		155		171
New Jersey Corporate Business Tax		180		0
Securitization		495		686
Leasing Activities		527		839
Partnership Activity		18		18
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		129		189
AROs		302		287
Taxes Recoverable Through Future Rate (net)		158		158
Other		0		18
Total Noncurrent Liabilities	$	5,955	$	5,673
Total Liabilities	$	6,125	$	5,673
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Assets	$	0	$	43
Net Current Deferred Income Tax Liability	$	170	$	0
Net Noncurrent Deferred Income Tax Liabilities	$	5,422	$	5,087
Investment Tax Credit (ITC)		36		42
Net Total Noncurrent Deferred Income Taxes and ITC	$	5,458	$	5,129

A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended December 31,
	2011			2010			2009
	Millions
Net Income	$	1,098		$	1,143		$	1,189
Income (Loss) from Discontinued Operations, net of tax		96			7			(2	)
Income from Continuing Operations	$	1,002		$	1,136		$	1,191
Income Taxes:
Operating Income:
Current Expense:
Federal	$	400		$	12		$	416
State		40			127			144
Total Current		440			139			560
Deferred Expense:
Federal		151			598			177
State		94			41			30
Total Deferred		245			639			207
Total Income Taxes	$	685		$	778		$	767
Pre-Tax Income	$	1,687		$	1,914		$	1,958
Tax Computed at Statutory Rate @ 35%	$	591		$	670		$	685
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		87			109			113
Manufacturing Deduction		(15	)		(24	)		(7	)
Nuclear Decommissioning Trust		14			10			7
Uncertain Tax Positions		11			10			(26	)
Other		(3	)		3			(5	)
Sub-Total		94			108			82
Total Income Tax Provision	$	685		$	778		$	767
Effective Income Tax Rate		40.6%			40.6%			39.2%

The following is an analysis of deferred income taxes for Power:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Cumulative Effect of a Change in Accounting Principle	$	11	$	11
New Jersey Corporate Business Tax		0		73
Pension Costs		53		12
Accumulated Other Comprehensive Income (Loss)		39		40
Cost of Removal		51		51
Contractual Liabilities & Environmental Costs		35		35
Related to Uncertain Tax Positions		4		0
Other		22		38
Total Noncurrent Assets	$	215	$	260
Total Assets	$	215	$	260
Liabilities:
Current (net)	$	53	$	64
Noncurrent:
Plant-Related Items	$	1,013	$	927
New Jersey Corporate Business Tax		7		0
Nuclear Decommissioning		155		171
AROs		302		287
Related to Uncertain Tax Positions		0		16
Total Noncurrent Liabilities	$	1,477	$	1,401
Total Liabilities	$	1,530	$	1,465
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liabilities	$	53	$	64
Net Noncurrent Deferred Income Tax Liabilities	$	1,262	$	1,141
Investment Tax Credit (ITC)		4		5
Net Total Noncurrent Deferred Income Taxes and ITC	$	1,266	$	1,146

A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 35% is as follows:

	For the Years Ended             December  31,
	2011			2010			2009
	Millions
Net Income	$	521		$	358		$	321
Preferred Dividends		0			(1	)		(4	)
Income from Continuing Operations, excluding Preferred Dividends	$	521		$	359		$	325
Income Taxes:
Operating Income:
Current Expense:
Federal	$	(225	)	$	(211	)	$	7
State		(6	)		(1	)		22
Total Current		(231	)		(212	)		29
Deferred Expense:
Federal		483			384			158
State		92			63			38
Total Deferred		575			447			196
Investment Tax Credit		(4	)		(3	)		1
Total Income Taxes	$	340		$	232		$	226
Pre-Tax Income	$	861		$	591		$	551
Tax Computed at Statutory Rate @ 35%	$	301		$	207		$	193
Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
State Income Taxes (net of federal income tax)		56			40			39
Uncertain Tax Positions		(1	)		(1	)		(3	)
Plant-Related Items		(6	)		(3	)		3
Tax Credits		(4	)		(2	)		(3	)
Other		(6	)		(9	)		(3	)
Sub-Total		39			25			33
Total Income Tax Provision	$	340		$	232		$	226
Effective Income Tax Rate		39.5%			39.2%			41.0%

The following is an analysis of deferred income taxes for PSE&G:

	As of December 31,
	2011		2010
	Millions
Deferred Income Taxes
Assets:
Noncurrent:
Unrecovered ITC	$	10	$	12
OPEB		197		189
MTC		26		47
Related to Uncertain Tax Positions		30		24
Other		13		5
Total Noncurrent Assets	$	276	$	277
Total Assets	$	276	$	277
Liabilities:
Current (net)	$	32	$	19
Noncurrent:
Plant-Related Items	$	2,875	$	2,216
New Jersey Corporate Business Tax		146		0
Securitization		495		686
Conservation Costs		97		62
Energy Clause Recoveries		0		76
Pension Costs		151		172
Taxes Recoverable Through Future Rate (net)		158		158
Total Noncurrent Liabilities	$	3,922	$	3,370
Total Liabilities	$	3,954	$	3,389
Summary of Accumulated Deferred Income Taxes:
Net Current Deferred Income Tax Liability	$	32	$	19
Net Noncurrent Deferred Income Tax Liability	$	3,646	$	3,093
Investment Tax Credit (ITC)		29		34
Net Total Noncurrent Deferred Income Taxes and ITC	$	3,675	$	3,127

As of December 31, 2011, PSE&G has New Jersey State income tax net operating loss (NOL) carryforwards of $127 million, which will expire in 2030. We believe that it is more likely than not that the benefit from the state NOL carryforwards will be realized.

Each of PSEG, Power and PSE&G provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G's customers in the future. These amounts were determined using the enacted federal income tax rate of 35% and state income tax rate of 9%. For additional information, see Note 6. Regulatory Assets and Liabilities.

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 received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D coverage. Although this change does not take effect immediately, the accounting impact was required to be recognized when the legislation was signed. 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 a 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 was realized in 2011. These tax benefits would have otherwise been received over an estimated average 20 year period.

During 2011, PSE&G accrued $51 million of Investment Tax Credits (ITC) associated with alternative energy projects. 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 recorded the following amounts related to its unrecognized tax benefits, which was primarily comprised of amounts recorded for Power, PSE&G and Energy Holdings:

2011	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2011	$	756		$	101		$	82		$	539
Increases as a Result of Positions Taken in a Prior Period		58			24			14			17
Decreases as a Result of Positions Taken in a Prior Period		(22	)		(9	)		0			(12	)
Increases as a Result of Positions Taken during the Current Period		37			8			18			11
Decreases as a Result of Positions Taken during the Current Period		(4	)		(3	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2011	$	825		$	121		$	113		$	555
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(379	)		(77	)		(65	)		(213	)
Regulatory Asset—Unrecognized Tax Benefits		(20	)		0			(20	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	426		$	44		$	28		$	342

2010	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2010	$	836		$	(42	)	$	35		$	820
Increases as a Result of Positions Taken in a Prior Period		290			111			79			90
Decreases as a Result of Positions Taken in a Prior Period		(450	)		(29	)		(38	)		(383	)
Increases as a Result of Positions Taken during the Current Period		82			63			6			12
Decreases as a Result of Positions Taken during the Current Period		(2	)		(2	)		0			0
Decreases as a Result of Settlements with Taxing Authorities		0			0			0			0
Decreases due to Lapses of Applicable Statute of Limitations		0			0			0			0
Total Amount of Unrecognized Tax Benefits at December 31, 2010	$	756		$	101		$	82		$	539
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(332	)		(67	)		(38	)		(204	)
Regulatory Asset—Unrecognized Tax Benefits		(16	)		0			(16	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	408		$	34		$	28		$	335

2009	PSEG			Power			PSE&G			Energy Holdings
	Millions
Total Amount of Unrecognized Tax Benefits at January 1, 2009	$	1,403		$	30		$	27		$	1,323
Increases as a Result of Positions Taken in a Prior Period		37			1			8			26
Decreases as a Result of Positions Taken in a Prior Period		(580	)		(39	)		(9	)		(530	)
Increases as a Result of Positions Taken during the Current Period		15			1			10			4
Decreases as a Result of Positions Taken during the Current Period		(19	)		(18	)		(1	)		0
Decreases as a Result of Settlements with Taxing Authorities		(5	)		(5	)		0			0
Decreases due to Lapses of Applicable Statute of Limitations		(15	)		(12	)		0			(3	)
Total Amount of Unrecognized Tax Benefits at December 31, 2009	$	836		$	(42	)	$	35		$	820
Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(508	)		37			22			(551	)
Regulatory Asset—Unrecognized Tax Benefits		(55	)		0			(55	)		0
Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)	$	273		$	(5	)	$	2		$	269

On June 26, 2009, September 15, 2008 and December 17, 2007, PSEG made tax deposits with the IRS in the amount of $140 million, $80 million and $100 million, respectively, to defray potential interest costs associated with disputed tax assessments associated with certain lease investments (see Note 13. Commitments and Contingent Liabilities). The $320 million of deposits are fully refundable and are recorded in Current Accrued Taxes on PSEG's Consolidated Balance Sheets, but are not reflected in the amounts shown above. On January 31, 2012, PSEG signed a specific matter closing agreement with the IRS regarding this matter. Based on this agreement, these deposits will be applied against tax and interest due pursuant to the closing agreement.

PSEG and its subsidiaries include all accrued interest and penalties related to uncertain tax positions required to be recorded, as income tax expense. Interest and penalties on uncertain tax positions were as follows:

	Interest and Penalties on Uncertain Tax Positions Years Ended December 31,
	2011			2010			2009
	Millions
Power	$	(11	)	$	(17	)	$	(2	)
PSE&G		(24	)		(20	)		(22	)
Energy Holdings		420			407			370
Other		10			9			8
Total	$	395		$	379		$	354

It is reasonably possible that total unrecognized tax benefits will decrease within the next twelve months due to either agreements with various taxing authorities upon audit or the expiration of the Statute of Limitations. These potential decreases are as follows:

Possible Decrease in Total Unrecognized Tax Benefits including Interest	Over the next 12 Months
		Millions
PSEG	$	579
Power	$	64
PSE&G	$	27

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 $97 million, approximately $43 million of which related to PSE&G. Pursuant to an agreement signed with the IRS on January 31, 2012, this matter is settled and there will be a resulting increase in uncertain tax positions within the next twelve months. These amounts are not included in the table above.

Due to a specific matter closing agreement signed with the IRS on January 31, 2012, unrecognized tax benefits associated with the leasing tax issue discussed in Note 13. Commitments and Contingent Liabilities, will decrease by approximately $300 million within the next twelve months.

Description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:

	PSEG		Power		PSE&G
United States
Federal		2007-2010		2007-2010		2007-2010
New Jersey		2006-2010		N/A		2006-2010
Pennsylvania		2009-2010		N/A		2008-2010
Connecticut		2007-2010		N/A		N/A
Texas		2007-2010		N/A		N/A
California		2003-2010		N/A		N/A
New York		2004-2010		2004-2010		N/A