Financing Receivables

9 Months Ended

Sep. 30, 2011

Financing Receivables

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
	September 30,		December 31,
Consumer Loans	2011		2010
	Millions
Commercial/Industrial	$	86	$	62
Residential		7		4
	$	93	$	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 on its investments over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. 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 September 30, 2011 and December 31, 2010, respectively.

	As of September 30,			As of December 31,
	2011			2010
	Millions
Lease Receivables (net of Non-Recourse Debt)	$	763		$	896
Estimated Residual Value of Leased Assets		684			905
		1,447			1,801
Unearned and Deferred Income		(450	)		(546	)
Gross Investments in Leases		997			1,255
Deferred Tax Liabilities		(804	)		(899	)
Net Investment in Leases	$	193		$	356

Note: The above table does not include $264 million of Gross Investment in Leases to subsidiaries of Dynegy Incorporated (Dynegy) as of September 30, 2011 as we have fully reserved our Gross Investment in the Dynegy leases.

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 September 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 - B-		300		430
Not Rated		16		17
	$	763	$	896

Note: The above table does not include $121 million of lease receivables as of September 30, 2011 related to subsidiaries of Dynegy as we fully reserved our Gross Investments in the Dynegy leases.

The "B" and "B-" ratings above represent lease receivables underlying coal fired assets in Illinois and Pennsylvania. As of September 30, 2011, the gross investment in the leases of such assets, net of non-recourse debt, was $550 million ($54 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the table below.

Asset	Location		Gross Investment		% Owned		Total		Fuel Type	Counterparties' S&P Credit Rating	Counterparty
			Millions				MW
Powerton Station Units 5 and 6		IL	$	135		64%		1,538	Coal	B-	Edison Mission Energy
Joliet Station Units 7 and 8		IL	$	84		64%		1,044	Coal	B-	Edison Mission Energy
Keystone Station Units 1 and 2		PA	$	112		17%		1,711	Coal	B	GenOn REMA, LLC
Conemaugh Station Units 1 and 2		PA	$	112		17%		1,711	Coal	B	GenOn REMA, LLC
Shawville Station Units 1, 2, 3 and 4		PA	$	107		100%		603	Coal	B	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 and regulation regarding air quality, water 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.

Energy Holdings' collateral related to the lease to two affiliates (the Dynegy lessees) of Dynegy Incorporated (Dynegy), includes a guarantee from Dynegy Holdings LLC (DH), a subsidiary of Dynegy. In early August 2011, Dynegy reorganized the legal entity structure for its generation assets. It transferred substantially all of its coal and natural gas-fired generation assets, other than the Dynegy lessees that lease the Roseton Station Units 1 and 2 and Danskammer Station Units 3 and 4, to new subsidiaries which Dynegy termed as "bankruptcy remote". This resulted in a lowering of certain credit ratings of Dynegy and DH. Dynegy's credit is currently rated "CC" by S&P and "Caa3" by Moody's. On July 22, 2011, subsidiaries of Energy Holdings that hold the lessor interests filed a lawsuit in Delaware Chancery Court to halt the proposed transfer of assets to the new subsidiaries alleging that the proposed transfers would violate DH's obligations under its Roseton and Danskammer guarantees. The request for a temporary restraining order was denied on July 29, 2011 and on August 5, 2011, the Delaware Supreme Court denied Energy Holdings' application for certification of an interlocutory appeal and motions to expedite and for injunctive relief. Thereafter on August 8, 2011, Energy Holdings voluntarily dismissed this lawsuit without prejudice.

In September 2011, Dynegy continued its corporate reorganization, transferring DH's interests in its newly formed coal generation subsidiary directly to the parent company, Dynegy, in exchange for an undertaking. It also launched an exchange offer for a substantial portion of DH's debt in exchange for Dynegy debt at various discounts. Dynegy has indicated that in the absence of a debt restructuring and/or refinancing, it may not have sufficient resources to pay its indebtedness under the lease. The consummation of these transactions triggered the filing of two separate lawsuits, one by a group of corporate unsecured bondholders of DH and a second on behalf of a majority of the holders of certain debt certificates related to the Dynegy lessee facilities; these lawsuits asserted fraudulent conveyance claims among several other causes of action. In addition to claims asserted against DH, one of the suits included claims against several members of DH's Board of Directors.

As a result of the above actions, Energy Holdings has evaluated its likely recovery under the lease arrangements for the Roseton and Danskammer facilities leased to subsidiaries of DH, considering the overall value of the underlying assets subject to lease, and has fully reserved its $264 million gross investment. This gross charge is reflected as a reduction to Operating Revenues and resulted in an after-tax charge of approximately $170 million. In the absence of a negotiated resolution of the disputes with Dynegy, Energy Holdings intends to assert claims against DH, its directors and various Dynegy affiliates relative to the reorganization activities which have diminished the value of assets available to satisfy DH's lease guarantee obligations. In addition, Energy Holdings has a tax indemnity agreement, which is designed to protect it from adverse tax consequences should the lease structure not be maintained. Should there be adverse consequences, Energy Holdings intends to assert its claims under this agreement, notwithstanding any attempt by Dynegy in contravention of current case law to limit such claims in a bankruptcy proceeding of DH. In the event of a bankruptcy filing or the failure of DH to honor its obligations under the lease guarantee, it is possible that the lease certificate holders could foreclose on the underlying facilities in partial satisfaction of their indebtedness. Should this occur, Energy Holdings could be required to pay approximately $100 million to satisfy income tax obligations, an amount for which it would seek reimbursement from DH under the tax indemnity agreement. This potential cash tax obligation is fully reflected in the overall estimate of the aggregate after-tax charge.

PSE&G [Member]

Financing Receivables

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
	September 30,		December 31,
Consumer Loans	2011		2010
	Millions
Commercial/Industrial	$	86	$	62
Residential		7		4
	$	93	$	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 on its investments over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. 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 September 30, 2011 and December 31, 2010, respectively.

	As of September 30,			As of December 31,
	2011			2010
	Millions
Lease Receivables (net of Non-Recourse Debt)	$	763		$	896
Estimated Residual Value of Leased Assets		684			905
		1,447			1,801
Unearned and Deferred Income		(450	)		(546	)
Gross Investments in Leases		997			1,255
Deferred Tax Liabilities		(804	)		(899	)
Net Investment in Leases	$	193		$	356

Note: The above table does not include $264 million of Gross Investment in Leases to subsidiaries of Dynegy Incorporated (Dynegy) as of September 30, 2011 as we have fully reserved our Gross Investment in the Dynegy leases.

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 September 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 - B-		300		430
Not Rated		16		17
	$	763	$	896

Note: The above table does not include $121 million of lease receivables as of September 30, 2011 related to subsidiaries of Dynegy as we fully reserved our Gross Investments in the Dynegy leases.

The "B" and "B-" ratings above represent lease receivables underlying coal fired assets in Illinois and Pennsylvania. As of September 30, 2011, the gross investment in the leases of such assets, net of non-recourse debt, was $550 million ($54 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the table below.

Asset	Location		Gross Investment		% Owned		Total		Fuel Type	Counterparties' S&P Credit Rating	Counterparty
			Millions				MW
Powerton Station Units 5 and 6		IL	$	135		64%		1,538	Coal	B-	Edison Mission Energy
Joliet Station Units 7 and 8		IL	$	84		64%		1,044	Coal	B-	Edison Mission Energy
Keystone Station Units 1 and 2		PA	$	112		17%		1,711	Coal	B	GenOn REMA, LLC
Conemaugh Station Units 1 and 2		PA	$	112		17%		1,711	Coal	B	GenOn REMA, LLC
Shawville Station Units 1, 2, 3 and 4		PA	$	107		100%		603	Coal	B	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 and regulation regarding air quality, water 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.

Energy Holdings' collateral related to the lease to two affiliates (the Dynegy lessees) of Dynegy Incorporated (Dynegy), includes a guarantee from Dynegy Holdings LLC (DH), a subsidiary of Dynegy. In early August 2011, Dynegy reorganized the legal entity structure for its generation assets. It transferred substantially all of its coal and natural gas-fired generation assets, other than the Dynegy lessees that lease the Roseton Station Units 1 and 2 and Danskammer Station Units 3 and 4, to new subsidiaries which Dynegy termed as "bankruptcy remote". This resulted in a lowering of certain credit ratings of Dynegy and DH. Dynegy's credit is currently rated "CC" by S&P and "Caa3" by Moody's. On July 22, 2011, subsidiaries of Energy Holdings that hold the lessor interests filed a lawsuit in Delaware Chancery Court to halt the proposed transfer of assets to the new subsidiaries alleging that the proposed transfers would violate DH's obligations under its Roseton and Danskammer guarantees. The request for a temporary restraining order was denied on July 29, 2011 and on August 5, 2011, the Delaware Supreme Court denied Energy Holdings' application for certification of an interlocutory appeal and motions to expedite and for injunctive relief. Thereafter on August 8, 2011, Energy Holdings voluntarily dismissed this lawsuit without prejudice.

In September 2011, Dynegy continued its corporate reorganization, transferring DH's interests in its newly formed coal generation subsidiary directly to the parent company, Dynegy, in exchange for an undertaking. It also launched an exchange offer for a substantial portion of DH's debt in exchange for Dynegy debt at various discounts. Dynegy has indicated that in the absence of a debt restructuring and/or refinancing, it may not have sufficient resources to pay its indebtedness under the lease. The consummation of these transactions triggered the filing of two separate lawsuits, one by a group of corporate unsecured bondholders of DH and a second on behalf of a majority of the holders of certain debt certificates related to the Dynegy lessee facilities; these lawsuits asserted fraudulent conveyance claims among several other causes of action. In addition to claims asserted against DH, one of the suits included claims against several members of DH's Board of Directors.

As a result of the above actions, Energy Holdings has evaluated its likely recovery under the lease arrangements for the Roseton and Danskammer facilities leased to subsidiaries of DH, considering the overall value of the underlying assets subject to lease, and has fully reserved its $264 million gross investment. This gross charge is reflected as a reduction to Operating Revenues and resulted in an after-tax charge of approximately $170 million. In the absence of a negotiated resolution of the disputes with Dynegy, Energy Holdings intends to assert claims against DH, its directors and various Dynegy affiliates relative to the reorganization activities which have diminished the value of assets available to satisfy DH's lease guarantee obligations. In addition, Energy Holdings has a tax indemnity agreement, which is designed to protect it from adverse tax consequences should the lease structure not be maintained. Should there be adverse consequences, Energy Holdings intends to assert its claims under this agreement, notwithstanding any attempt by Dynegy in contravention of current case law to limit such claims in a bankruptcy proceeding of DH. In the event of a bankruptcy filing or the failure of DH to honor its obligations under the lease guarantee, it is possible that the lease certificate holders could foreclose on the underlying facilities in partial satisfaction of their indebtedness. Should this occur, Energy Holdings could be required to pay approximately $100 million to satisfy income tax obligations, an amount for which it would seek reimbursement from DH under the tax indemnity agreement. This potential cash tax obligation is fully reflected in the overall estimate of the aggregate after-tax charge.