Note 5. Financing Receivables

PSE&G

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


Credit Risk Profile Based on Payment Activity	As of		As of
	June 30,		December 31,
Consumer Loans	2011		2010
	Millions
Performing
Commercial/Industrial	$	80	$	62
Residential		6		4

	$	86	$	66

Energy Holdings

Energy Holdings has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG's Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings' investments in the leases are comprised of the total expected lease receivables by Energy Holdings on its equity investments over the lease terms plus the estimated residual values at end of lease term, and are reduced for any income on the leases not yet earned. This amount is included in Long-Term Investments on PSEG's Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG's Condensed Consolidated Balance Sheets. The table below shows Energy Holdings' gross and net lease investment as of June 30, 2011 and December 31, 2010, respectively.


	As of June 30,			As of December 31,
	2011			2010
	Millions
Lease Receivables (net of Non-Recourse Debt)	$	885		$	896
Estimated Residual Value of Leased Assets		891			905

		1,776			1,801
Unearned and Deferred Income		(523	)		(546	)

Gross Investments in Leases		1,253			1,255
Deferred Tax Liabilities		(888	)		(899	)

Net Investment in Leases	$	365		$	356

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


	Lease Receivables, net of Non-Recourse Debt
	As of June 30,		As of December 31,
Counterparties' Credit Rating (S&P)	2011		2010
	Millions
AAA - AA	$	21	$	21
A		110		112
BBB - BB		316		316
B		300		430
CC		121		0
Not Rated		17		17

	$	885	$	896

The "B" and "CC" ratings above represent lease receivables underlying coal, gas and oil fired assets in Illinois, New York and Pennsylvania. As of June 30, 2011, the gross investment in the leases of such assets, net of non-recourse debt, was $812 million ($138 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the table below. The counterparty with the "CC" credit rating is Dynegy Inc. (Dynegy).


Asset	Location	Gross Investment		% Owned		Total		Fuel Type	Counterparty
		Millions				MW
Powerton Station Units 5 and 6	IL	$	135		64%		1,538	Coal	Edison Mission Energy
Joliet Station Units 7 and 8	IL	$	84		64%		1,044	Coal	Edison Mission Energy
Danskammer Station Units 3 and 4	NY	$	70		100%		370	Coal	Dynegy
Roseton Station Units 1 and 2	NY	$	194		100%		1,200	Gas/Oil	Dynegy
Keystone Station Units 1 and 2	PA	$	111		17%		1,711	Coal	GenOn REMA, LLC
Conemaugh Station Units 1 and 2	PA	$	111		17%		1,711	Coal	GenOn REMA, LLC
Shawville Station Units 1, 2, 3 and 4	PA	$	107		100%		603	Coal	GenOn REMA, LLC

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

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

Relative to the assets subject to lease to Dynegy, Energy Holdings' lease collateral includes a guarantee from Dynegy Holdings Inc. (DHI), a subsidiary of Dynegy. DHI holds other generation assets that Energy Holdings believes were intended to support DHI's guarantee obligations to Energy Holdings. In Dynegy's annual report, its independent auditors noted in their opinion on the financial statements that there was substantial doubt about Dynegy's ability to continue as a going concern. Recently, management of Dynegy announced a plan to reorganize and recapitalize the legal entity structure for their generation assets. Under their plan, they would transfer substantially all of their coal and natural gas-fired generation assets, other than the Roseton and Danskammer facilities, to new "bankruptcy remote" subsidiaries. Following the announcement of this plan, in July 2011, Moody's lowered certain ratings of Dynegy and DHI.

Subsidiaries of Energy Holdings that hold our lessor interests filed a lawsuit in Delaware Chancery Court against DHI to halt DHI's proposed transfer of assets to two bankruptcy remote entities as part of a reorganization. In our complaint, we alleged that we believe that DHI's proposed transfers violate DHI's obligations under its Roseton and Danskammer guarantees. Our request for a temporary restraining order was denied on July 29, 2011 and we have since sought review with the Delaware Supreme Court.

No assurances can be given regarding the outcome of this litigation against Dynegy. As of June 30, 2011, our gross investment in these leases was $264 million. A foreclosure event could result in an aggregate after tax charge between $170 million and $180 million. As part of this potential foreclosure event, PSEG could be required to pay approximately $100 million to satisfy income tax obligations. This potential cash tax obligation is fully reflected in the overall estimate of the aggregate after tax charge.