Welcome to the Public Service Enterprise Group third quarter 2006 earnings conference call and webcast. (Operator Instructions) I would now like to turn the conference over to Mort Plawner. Please go ahead, sir.

Thank you and good morning. We appreciate your listening in today, either by telephone or over our website. I will be turning the call over to Tom O'Flynn, PSEG's CFO, for a review of our third quarter results. First, I need to make a few points. We issued our earnings release this morning. In case you have not seen it, a copy is posted on our website. We expect to file our 10-Q with the SEC later today, which will contain additional information. In today's webcast, Tom will discuss our future outlook and so I must refer you to our forward-looking disclaimer. Although we believe our forecasts are based on reasonable assumptions, we can give no assurance that they will be achieved. The results or events forecast in our statements today may differ materially from actual results or events. The last word on any of our businesses is contained in the various reports we file with the SEC. As a reminder, our guidance speaks as of the date it is issued. Any confirmation or update in guidance will only be done in a public manner, generally in the form of a press release or webcast such as this. PSEG may or may not confirm or update guidance with every press release. As a matter of policy, we will not comment on guidance during any one-on-one meeting or individual phone call. In the body of our earnings release we provided a table that reconciled net income to operating earnings. We've adopted this format to improve the readability of the release and to provide the required reconciliation between the GAAP term “net income” and the non-GAAP term “operating earnings”. The attachments to the press release provide a reconciliation for each of our major businesses. Operating earnings exclude the merger-related costs and the net impact of certain asset sales during the period presented. Operating earnings is our standard for comparing 2006 results to 2005 for all our businesses. We exclude such costs so that we can better compare our current period results with prior or future periods. Finally, Tom will take your questions at the conclusion of the prepared remarks. Please limit yourself to one question and one follow-up. Thank you, I will now turn the call over to Tom. Tom O'Flynn: Thanks, Mort. Good morning, everyone. Thanks for joining us. I hope you've had a chance to review the release we put out this morning. On this call, I will briefly go over our results for the third quarter, and discuss some of the major issues. Briefly, operating earnings for PSEG were $372 million for the quarter, an increase of $93 million or $0.34 from the third quarter of last year. Can you just make sure the mic is on mute, please? We've got a little bit of speaker interference or listener interference. Operator, if you're still there?

Yes, sir. Tom O'Flynn: Can you make sure all the phones are on mute with the exception of mine?

All lines are muted, sir. Tom O'Flynn: As I said, the operating earnings for PSEG were $372 million for the quarter, an increase of $93 million, or $0.34 from the third quarter of last year. Third quarter results were strong for power and holdings and slightly off for utility. At Power, higher prices for generation output and strong operations boosted margins for the quarter. However, high depreciation and the absence of an NDT restructuring gain in the same quarter last year somewhat dampened the quarter over quarter impact. PSEG results reflect the delay of rate relief caused by merger-related issues. However, we are pleased that earlier this week we reached an agreement to settle the outstanding gas and electric cases, which will allow us the opportunity to earn a fair rate of return. I'll provide more details in a moment. For holdings, our two Texas plants provided a significant uplift in our earnings for the quarter, both in terms of cash earnings as well as mark-to-market gains. Our overall results continue to support our 2006 operating earnings guidance of $3.45 to $3.75 a share, as well as our guidance for 2007, which is $4.60 to $5 per share. Power reported operating earnings of $203 million or $0.81 per share for the quarter, $67 million or $0.26 per share above '05 results. ESEG reported operating earnings of $86 million, or $0.34 for the quarter, lower than last year's results of $115 million or $0.47 per share. Finally, holdings reported operating earnings of $101 million or $0.40 per share for the quarter, an increase of $53 million or $0.20 over last year. As I go through the three major businesses, I'll provide more insight into the changes from last year, using earnings per share as the measure. I should note that PSEG…

It was a bit of a driver this quarter. It does move around, I think over the long run it is expected to be zero, to be honest. If you just go back, even in the first couple of quarters, the first quarter of this year it was down $0.07; the second quarter it was positive $0.06 so halfway through the year we are basically at zero. We were $0.17 up this year, the biggest part of that was Texas. It is one of the few contracts we mark-to-market. As I said, about one-third of that is based on quarter end forward prices we expect to reverse. Tom O'Flynn: Just in terms of our contracts, really the majority of our activities are either hedge accounting, which is not mark-to-market, or get normal purchase and sale. That is for the majority of our contracts at Power and most of our contracts at Holdings. The one major exception we have is a long-term contract we’ve got for 250 megawatts for four-and-a-half more years at Texas.

In the long run, Paul, I think it is going to move around quarter to quarter, but as we think about our business going forward, it is a net neutral. Paul Patterson – Glenrock Associates: Weather versus normal, you had mentioned what it was versus the year-over-year, but what is it versus normal? Do you have a rough idea of the last nine months how much weather has contributed? Tom O'Flynn: The last nine months were below normal by about $0.12. About two-thirds of that is gas. Paul Patterson – Glenrock Associates: So about $0.12 a share is lower than what normal weather would have brought in? Tom O'Flynn: Yes, and that is largely gas from January/February. Paul Patterson – Glenrock Associates: Finally, when is the settlement effective? I know you probably mentioned it, but somehow I got distracted when you were talking about it. When does the settlement become effective after the BPU rules on it? Tom O'Flynn: The settlement has to be reviewed by the BPU, we're hopeful that can be done in the near term. We are hopeful that upon it being approved, rates would be effective very shortly thereafter. We are obviously especially sensitive and optimistic that they will become effective before the winter heating season. Paul Patterson – Glenrock Associates: Was this expected in your 2007 guidance? Was this anticipated or something similar to this? Tom O'Flynn: We generally anticipated getting a fair resolution of this, though this is within the range of expectations. Paul Patterson – Glenrock Associates: Thanks a lot.

Your next question comes from Ashar Khan - SAC Capital Management. Ashar Khan - SAC Capital Management : Good morning, Tom. Could you just go back, you had mentioned reaching debt targets at September. I was going back to the call a month ago. At what point, based on your outlook for next year, do you start having excess cash or capital return to shareholders? Where does that happen in your forecast? Tom O'Flynn: Sure, Ashar. Just to review our debt to cap is 53%; there are different ways to look at it, but the one we look at the most consistently is how our lenders define it. We expect to have continued improvements to that. In terms of when excess cash can be used to grow the business as opposed to retire debt, if that's what you're getting to, I think that's really an ’08 question. We still want to use cash fourth quarter in '07 to continue to improve our credit profile. And as you know, it's a mixture of cash flow coverage, cash flow to debt, as well as debt to cap. So as we look at the majority of those, I think it's realistically '08 before we would have cash flow that could be used for discretionary growth of the business. That's outside. We clearly feel comfortable we have the cash flow to run the business, including some CapEx and other fundamental business requirements, but in terms of cash for additional investments or share repurchase, things like that, in my mind that's an '08 question.

Tom, can you just mention, I don't know if could you update us on what your hedging is for the next couple of years? Where you are? Tom O'Flynn: It's pretty consistent, at least the ranges are still within where we are. We've shown this slide before. For 2006, we're at over 95% for the remaining couple of months. For '07 we're 85% to 95%, for ‘08 we're in the 65% to 80% range. '09 would be less than 50% is probably how I would characterize it right now. As we characterize those percentages, the denominator is really our base load nuke and coal. That's the majority of our margin, that's the easiest to project. As you know, looking forward your gas generation (a) it’s less profitable and (b) the volume is a little harder to measure because it’s based on regional prices, weather and all sorts of things. Ashar Khan - SAC Capital Management : Just going to, I don't know if Ralph or you could address it, as earnings grow huge, the next couple of years, how do you look at the dividend in respect to earnings in terms of payout? If could you give some indication as to how you would look at it? Tom O'Flynn: Ashar, this will be the last question and then we have to move on. I think in general, we’ve shown the dividend over the last couple of years, to grow through the dividend. Clearly our financial picture is better so as we assess the dividend in conjunction with our year end financial planning process, we will look to whether we have the ability to continue our growth and whether we can do better. But other than that, it's going to be hard for us to comment. Those are things that we do in conjunction with our year end financial and business planning process that culminates in our December board meeting. Next question, please.

Your next question comes from Gerald Chung - Banc of America Securities. Analyst for Gerald Chung - Banc of America Securities: Can you give us an update on the supply contract you have in Connecticut? I think it's supposed to reprice in '07? Tom O'Flynn: Yes. Our contract with the utility up in Connecticut does end at the end of this year. We would, if it was signed three years ago at this time, I think I've said before, it looked like a good contract then, but it is materially below market. So as we go forward in '07 we would expect materially better profitability out of our Connecticut unit, even for its 375 megawatt coal plant, New Haven is largely RMR, that's not going to change as much. We've done some forward hedging as you might expect, but we would expect to get prices running through our income statement in January more reflective of the market. Analyst for Gerald Chung - Banc of America Securities: Okay. So, going forward, we should expect a bit of an upside from the current Connecticut contract? Tom O'Flynn: Yes, only because we'd expect to be earning margins that are reflective of current market conditions as opposed to very old market conditions. Analyst for Gerald Chung - Banc of America Securities: Okay. Just one more question. Holdings has been monetizing assets quite a bit. Going forward, how should we be thinking about Holdings as a part of PSEG? Is this something that you guys are continuing to fold completely in the long term? Or is this something that we should see as a part of PSEG in the long term? Tom O'Flynn: I think we'll continue to look for opportunities to monetize assets. I think we've shown a couple this year that have been quite beneficial for debt holders and for PSEG equity holders. That's been out there for a while. I think as we look forward, as we’ve done before, we'll assess markets, assess the fit. But we'd likely continue to seek opportunities to monetize assets. No material change in the pace of those. That's one of the things we'll look at going forward. Analyst for Gerald Chung - Banc of America Securities: Thanks.

Your next question comes from Michael Goldenberg – Loomis Management. Michael Goldenberg – Loomis Management: Good morning, gentlemen. I think I missed a couple of things I just wanted to confirm. Did you say on the Hudson plant capital expenditures of $400 million to $500 million? Tom O'Flynn: Yes, That would be the environmental CapEx that I think we had in our Q last quarter, and we'll have it again. Michael Goldenberg – Loomis Management: Has that been updated? I'm just trying to understand if it's a view that hasn’t been changed or it has been updated and you still believe it's $400 million to $500 million. Tom O'Flynn: We still believe it. It is consistent with the number that we'll have in our Q that we expect to file later today. It was in our Q -- at least the prior Q, maybe going back a year or so -- it might have been $50 million less. Michael Goldenberg – Loomis Management: Should a settlement not be reached, you do not plan to shut the plant off on December 31st, right? Or in fact would PJM just not allow you to? Tom O'Flynn: That's hard to forecast. I think as I said, we are hopeful of a constructive resolution. The fact that we took a reserve of $15 million, though being a negative this quarter would be consistent with us having a reasonable expectation of getting a constructive resolution. We have just for technical reasons, we did put PJM on notice that we do not have a final resolution and, therefore, that could cause an issue in January. But that was more of a technical filing. At this point, it's hard to get into other “what ifs”. Michael Goldenberg – Loomis Management: My other question deals with the current…

Your next question comes from David Frank – Piqua Capital Management. David Frank – Piqua Capital Management: Good morning. Maybe I was a little confused before. The total mark-to-market for the quarter was $0.17 or was that for the nine months? Tom O'Flynn: That is for the quarter. For the nine months it's $0.16. It's on the attachment to the press release. David Frank – Piqua Capital Management: So the 148 has $0.17 of end-to-end gains in there. Tom O'Flynn: Correct. David Frank – Piqua Capital Management: Texas spark spreads, could you tell us what the realized spark spread was for you guys in the third quarter? The average? Tom O'Flynn: I've got it year-to-date. Generally year-to-date it's in the 19, 20 range. David Frank – Piqua Capital Management: And in the quarter, it was something significantly higher than that, I would imagine? Tom O'Flynn: It was, because I'm thinking year-to-date in June it was 16, 17. So it did average up during the quarter. Expectations for the year, the average in the fall it will be in the 18 range and next year, I think the forwards are in the 14, 15 range, last I saw. David Frank – Piqua Capital Management: Thank you.

Your next question comes from Steven Huang - Citadel Investment Group. Steven Huang - Citadel Investment Group: I wanted to just follow up with your lease portfolio. Has there been any new developments in that regard with the IRS? Tom O'Flynn: No, there have not been any developments. We will update the rolling exposure we have in our Q, but no, there have not been any meaningful developments. Steven Huang - Citadel Investment Group: And it continues to be something that you can't easily unwind, right? If you wanted to, to help generate some cash proceeds? Tom O'Flynn: I'd say in general, the leasing portfolio is one we expect to be in for a long period of time. Most of the time the leases do have tax recapture if there's sale or exits at an early time. That being said, there have been some leases we bought in the secondary market that are coming to the latter part of their lives and we have had some gains. But those are generally exceptions, rather than expectations. Just as examples we had the Seminole deal that we sold and had a nice gain at the end of '05. Prior, about a year-and-a-half ago, we did have a lease out in the Midwest with one of the generation companies, that they bought us out of. Steven Huang - Citadel Investment Group: Tom, do you have any other leases that are close to the end where the counterparty may look to buy out the leases again? Tom O'Flynn: Some pieces here and there, there is a lease out in the Northwest that we expect to file. It will be in our Q. We expect to buy out in the mid $20 million range, something like that. It's out about two years, 08/09. But nothing, certainly on the Seminole side. Steven Huang - Citadel Investment Group: On your Connecticut plants, following up on a previous question, when you said that you are now looking to re-contract, does that mean you do not win the latest auction? Tom O'Flynn: I'm not sure for confidentiality we're not allowed to comment on what we did and didn't win. I would say that there's no material contract that we won such that we would feel an obligation to report it, put it that way. There's obviously forward hedging that we do but nothing of a material size that we feel it was reasonable or meaningful to an investor to report a specific contract. Steven Huang - Citadel Investment Group: Can you remind us again under the hypothetical situation of you guys looking to split your regulated and unregulated, would you need New Jersey BPU approval?

We generally don't believe that we do. That being said, I want to be cautious to not be providing detailed legal opinions, but we generally provide that the current structure would allow for a separation. I think we've said that is something that we would think about over the longer term but certainly it is not on the near-term action list. Steven Huang - Citadel Investment Group: Great, thank you. Tom O'Flynn: The near-term action list is very much in the meat and potatoes – and Ralph will address this when he is out there for a couple days -- very much meat and potatoes, getting our feet on the ground, getting fair rate for PSE&G which we seem to be close to doing; getting the operations running well which certainly Salem with their return to ops is super; and other blocking and tackling. Steven Huang - Citadel Investment Group: Tom, one last thing. In your analyst day coming up in December, what should we be expecting for that, other than segment details? Are you guys going to help us out with longer-term guidance? What are you guys thinking about? Tom O'Flynn: We may touch on that a little bit at the EI. We'll hopefully give folks a good update. As I said, I'll be out there, Ralph will be out there for the duration for two-and-a-half days. I'm looking forward to showing him that there's not a lot of fun and games, not a lot of time at the gambling table at these things. So we hope to give people a detailed update. We want to circle shortly after that and just make sure that the December 4th date is the right time to have our investor conference. We just had a discussion over the last couple of days as to whether that may be too close to the EI such that it might be some of the same commentary, but we'll get back to you out there. Steven Huang - Citadel Investment Group: Okay. So at EI, you will give us the longer-term drivers? Tom O'Flynn: Yes. At EI, we'll speak to some of the longer-term drivers and then we want to come back and add a half-day investor conference that's currently scheduled for December. We just want to think about whether if we push that off until the first couple of months of '07, whether that wouldn't just allow us to have more time between EI and provide more depth to the story. We'll update you next week. Steven Huang - Citadel Investment Group: Okay. Sounds good.

Your next question comes from Andrew Levy – Bear Wagner Specialists. Andrew Levy – Bear Wagner Specialists : What do you mean no gambling? Tom O'Flynn: I can't stay up that late. Andrew Levy – Bear Wagner Specialists : Most of my questions have been asked. But just to understand, your comments from before, I guess after the conference call that you did after the merger ended, there was probably a little bit more emotion. So it sounds like on the conference call you seemed a little bit more hot and heavy back then about possibly taking a look at breaking yourselves up. But I guess for the time being, which is probably the wise thing, is just really get the house back in order, focus on the regulatory environment, get that back in order and go from there. Is that kind of where we're at?

I think that’s right. I think it was a combination that we perhaps discussed it more and then I think some of the subsequent reports in the press may have picked it up as suggesting it might have been more imminent. Clearly it's something that we and other companies like ourselves need to assess. But I think it's something we would look at over a longer-term basis. Certainly not an imminent question. Andrew Levy – Bear Wagner Specialists : Just real quick, you're not 100% sure whether you would need regulatory approval from the State of New Jersey, is that up in the air? Or is that something you're pretty certain that if you wanted to do some type of transaction a year or two down the line, it would be fairly easy to do, as far as the regulatory aspect of it?

I'd stay with where we are, Andy. We don't expect that we would need it, but I'm not in a position of giving definitive legal opinions. We think that there's the route for us to do it if we go like that. Andrew Levy – Bear Wagner Specialists : Great. Thanks. Tom O'Flynn: And your rates are going down, Andy both at gas and only up a little on electric. I don’t want to see any customer letter. Andrew Levy – Bear Wagner Specialists : I hear you. Have fun this weekend.

I have no further questions at this time. Tom O'Flynn: Okay. Thanks very much. Thanks for joining. We look forward to seeing everybody, Ralph, I and the team look forward to seeing everybody and are certainly pleased with the quarter. Earnings up, we appear poised to have a settlement at PSE&G, which is really one of our key action items coming in. We continue to have a good ops story, congrats once again to Bill Levis, Tom Joyce and the Island team for a 20 day, 10 hour refueling. See you next week.

Ladies and gentlemen, that does conclude your conference call for today.