Ladies and gentlemen, thank you for standing by. My name is Valerie and I am your event operator today. I would like to welcome everyone to today's conference; Public Service Enterprise Group's, Third Quarter Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session for members of the financial community. [Operator Instructions]. As a remainder, this conference is being recorded Friday, October 31, 2008 and will be available for telephone replay beginning at 2'o clock PM Eastern Time today until 2'o clock PM Eastern Time on November 10, 2008. It will also be available as an audio webcast on PSEG's corporate website at www.pseg.com. I would now like to turn the conference over to Kathleen Lally. Please go ahead.

Thank you, Valerie. Good morning, everyone. Thank you for participating in our call this morning. As you aware we released our third quarter 2008 earnings statement earlier today. The release and attachments are posted on our website at www.pseg.com under the investor section. We have also posted a series of slides that detail the operating results by company for the quarter. Our 10-Q for the period ended September 30, 2008 is expected to be filed later today. I am not going to fully read the disclaimer statements or the comments we have on the difference between operating earnings and GAAP results. But I do ask that you all read those comments as they are posted on our website. Disclaimer statement regards forward-looking statements detailing the number of risks and uncertainties that could cause actual results to differ materially from forward-looking statements made therein. And although we may elect to date forward-looking statements from time-to-time, we specifically disclaim any obligation to do so, even if our estimate changes, unless required by applicable Securities laws. We also present a commentary with regard to the difference between operating earnings and net incoming reported in accordance with generally accepted accounting principles in the United States. PSEG believes that the non-GAAP financial measure of operating earnings provides a consistent and comparable measure of performance of its business to help shareholders understand performance trends. I think with that, I would now like to turn the call over to Ralph Izzo, Chairman, Chief Executive Officer and President of Public Service Enterprise Group. Joining Ralph on the call will be Tom O'Flynn, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks there will be time for your questions and we ask that you limit yourself to one question and one follow-up. Ralph?

Thank you, Kathleen and thank you for joining us today. We realize how busy everyone is, given all of the volatility in the market place and I would be remiss if I didn't take a moment to simply say Happy Halloween to all. We reported operating earnings for the third quarter of $0.94 a share, compared to $0.97 per share report a year ago. Our operating results include the impact on earnings from a decline in the value of our NDT Fund that power our Nuclear Decommissioning trust fund. The results for the quarter were [ph] operating earnings for the nine months ended September 30 2008 to $2.43 a share and this is compare to $2.19 a share earned in the same period a year ago. We are experiencing some unprecedented turmoil in financial market as you are quite aware but despite the turmoil surrounding us, PSEG's work force continues to excel. This was demonstrated time and time again during the quarter. I'll give you some example of that PSE&G, our regulated utility was recognized for the third time in four years as America's most reliable electric utility. PSEG Power's employees also continue to exceed our expectation. Some examples of that is affecting [ph] our nuclear fleet performed at a 98% capacity factor in third quarter. As well as turbine replacement projects we conducted that hopefully we can [indiscernible] we hope even higher than anticipated levels of output. In addition, to these operating achievements the quarter was also characterized by progress in the regulatory and policy... in some regulatory and policy matters. First of all, the Federal Energy Regulatory Commission supported PSE&G's rate request for its transmission investment program. Secondly, FERC remains supportive of PJM's reliability pricing model as a means of securing new capacity. Third, the Regional Greenhouse Gas…

Thanks Ralph. Good morning all. As Ralph said PSEG reported third quarter operating earnings for 2008 of $0.94 per share versus operating earnings of $0.97 per share in last year's third quarter. As you see in slide 10, PSEG Power provides the largest percentage of our earnings. Power reported operating earnings of $0.65 per share compared to $0.66 per share last year. PSE&G reported operating earnings of $0.19 per share compared to $0.21 last year, and PSEG Energy Holdings reported operating earnings of $0.11 per share compared with $0.12 per share over a year ago. The reduction in debt at the parent level during 2007 reduced parent company related expenses in the quarter to $0.01 per share from $0.02 per share of a year ago. We provide you with a waterfall chart on slide 30, taking you through the net changes in quarter-over-quarter operating earnings for each major business for the quarter. I will now go into each company in more detail. As I said Power reported operating earnings for the third quarter of $0.65 per share compared with $0.60... $0.66 per share a year ago. Power's results were aided by recontracting and stronger energy prices, particularly in PJM. Higher prices added $0.12 per share to Power's year-over-year earnings. We're also helped by strong performance of our generation fleet. And overall increasing output of 1.5% was led [ph] by 3% improvement in generation by nuclear fleet. Power's New Jersey fleet operated at 98% capacity factor during the quarter raising its capacity factor through September to 90.9%. Including Power's ownership interest in Peach Bottom the fleet operated at a capacity factor of 94.6% during the quarter and 93.1% for the nine months ended September 30. The performance was aided by the increase in capacity and the uprate and turbine replacement work…

Ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community. [Operator Instructions]. The first question is from Dan Eggers with Credit Suisse.

Hey, good morning. Tom I wonder if you could just expand a little bit more on the end around the Indonesian coal contract conversation. What are the alternatives that you guys see out there? Can you switch to a domestic coal and how do you see pricing comparisons between the $60 range pricing and what you could replace the coal with it if that's an option?

Yes, Dan I'd say the Indonesian coal has been good for us. We may have some flexibility... that flexibility would expand and be a Hudson once we finish our back-end at Hudson in late 2010 we will have a very broad flexibility to use lower grade coals specifically and that will be our expectations at Hudson. As we currently see it, there is still value in that coal. Prices have moved up. Let me try to kind of bracket that for you. So expectations is to work towards a resolution with our supplier over there that may result in some cost pressures and we want to make sure the people were aware of at least what the range of those could be.

Any idea, when resolution could come on that contract?

We are having discussions, I think it would be certainly, during this quarter, it's probably hard to put a final point out in that.

Okay. And then you talked about lowering the CapEx for 2009. Any commentary kind of on expectations for O&M cost inflation '9 versus '8 both utilities and the generation business in kind of in [indiscernible] mode.?

The utility has consistently, last five years respectively been seeing O&M increases at or below CPI. We had to make a few more investments on our fossil fleet. So that's has been slightly above, but next year we are targeting all business to be at about 3% levels.

And now the CapEx reductions. Is there any allocation between where those dollars has been pulled away right now between utility and generation?

Right across the board.

It probably about 60% of utility. And we are focusing on the state gas and electric loss of the transmission business, obviously the formula rate helps give the support for financing coverage there.

Okay. Thank you, guys.

Our next question comes from Greg Gordon with Citi.

Good morning.

Good morning.

Okay. Just the CapEx reduction number was $750 million?

No, the CapEx is the reduction is 275

Oh, 275.

To 325.

So I was... I got surprised for a moment I apologize. And that's the 60% at the utility?

Yes.

Okay. The $58 million of reversal of mark to market as holdings for 2010 in that online predominantly in '9 as it unwinds sort of relatively across the two years. How does that...?

It's pretty spread between 9 and 10.

Okay and then the 587 expense, should we assume for modeling purposes that that's sort of pro rata across the business?

Yes, and just to be clear the mark to market that holding that was the pre tax numbers.

Okay.

And based upon where we see the forward curve actually at this time. Pension expense yes, generally the overall pension is about 60%, utility about 30% Power and 10% other Holdings and other allocated cost. Some of the utility numbers are capitalized so, net-net utility cost fees just a shade less and half of that.

Great. The funding needs for the pension is that going to be incremental cash out flow next year?

Modestly, I mean we're expecting yes, year ago we saw we put $30 million to $50 million into the pension on annual basis at this point, be that numbers up by $75 million something like that.

Up $275 million or up to more like $125 million?

It's probably now in the $125 million range, $100 million to $125 million range. So a year ago, so our pension contribution numbers next year we're still looking through it obviously but and it depends on where you end up at the end of the year, but my guess is to be about a $100 million to $125 million total for the company for the year and that will be a run rate that we'd expect there. That's obviously furnished on what the... on the markets behaving in a reasonably normal fashion to the next couple of months. And it does taking our account the expectation there will be a higher discount rate at the end of the year.

And one last thing when I think about your exposure to this coal contract negotiation. I mean it seems pretty simple 2.7 million tons. And if you were to be forced to replace that contract with a market based contract that would be a doubling of the cost on 2.7 million tons. Which looks like its works out to after tax impact of just under 9?

That's amount. Yes, we'll obviously want to have good relation with these guys for number of years with this folks. We're looking towards the constructive resolution but we laid those numbers out so you can understand what the worst case would be.

Thank you, take care.

Okay.

The next question is from Ashar Khan with SAC Capital.

Good morning

Hi.

Just wanted to... Tom just going back to what you are saying regarding '9, you expect utility earnings to be down versus '8 is that correct?

Yes, we've said that consistently. The utility probably in the state, are probably a bit north of their 10% kind of target return. We've some modest O&M escalation like any business I think that upline its 2.5% to 3%. We do have a new customer information system that goes live in January that would have some incremental expenses including depreciation. So net-net as we see we think in the state we are going to earn 8.5 to 9 and we expect to file our rate case sometime next year. That would then be outstanding through let's say the middle of '10.

Middle of '10, Okay. And so the new rates will come in the middle of '10.

That's right, that our base planning, obviously there is ways that we can look around and potentially improve that. But that's our base planning.

And that includes and you have taken into regard the slower growth and everything in this forecast?

Yes, that number would look at a sales growth electric at about 0.5% and gas flat to maybe modestly down.

Okay. And then you mentioned holding is going be down. What... to the levels which you are projecting this year in the beginning. I was trying to get a sense?

Yes, we haven't really looked at... we haven't put out let say subsidiary '09 guidance as we normally do that on our next call at year-end. The biggest things that have changed over the year, one is obviously the reduction in lease income that we took fully into accounts when we did that in the second quarter. The Texas market is down somewhat the spot's are a little bit backward dated '9 versus '8. So having said that Texas is materially above the result of this year versus what we had thought a year ago. So, it seems like a forward Texas spots are a little hard to accurately predict. But the unwind [ph] of the mark-to-market would be an incremental piece.

Okay. And than if I rate the hedging numbers that you gave did you hedge anything in the last three months, among any of the curves '8, '9 and '10?

Little bit not material. Those numbers are pretty consistent. We did a little bit in the summer, but those are pretty consistent with what we've done.

Okay. Thank you, sir.

Okay.

The next question is from Paul Fremont with Jefferies. Paul Fremont - Jefferies & co.: Yes, just going back to the share repurchase, given sort of what's going on in recent credit markets; have you guys at all thought about your target debt to total capitalization ratio. I think in the past it's been about 55% and does that change in the current environment or does stay the same?

Paul, we feel good about where we are. Paul, our debt to cap came down. I think it was... as we calculated in bank test its gone to about 50 to 48 end of year last year to end of Q3. So, and our credit scores were all improving. We think we've got incremental debt capacity and we'd look to potentially move forward on that once the markets settle down. So we're not, we'll continue at a same target. That being said we have to be mindful that it's a cautious environment. Some companies in other sectors in particular have had some credit related issues. So when we get into a more defense environment, I think you just have to be sensitive that you need to be attuned to potential changes in credit metrics let say. We're not aware of any, we're still keeping our eyes focused on the same metrics that we've been looking at for last couple of years. Paul Fremont - Jefferies & co.: And one other question relating to, I guess power prices in New Jersey. I guess in the past you guys had talked about potential short term buying [ph] in parts of the state particularly the northern part of the state. Does the new transmission lines relieve a lot of those bottle necks and should we or should we still view certain parts of the state as potentially short supply?

Paul this is Ralph. The new transmission lines that we are in a process of building are strictly borne out of PJM's, RTEP Regional Transmission Expansion Plan, which is solely related to reliability calculation and not driven by the desire or need to change the economics of wholesale power market. Paul Fremont - Jefferies & co.: So should I take that to mean that the northern part of the State still potentially either need incremental build or...?

We'll look to the RPM to decide that but as we pointed out in past we bid some new capacity to RPM in the northern part of the state. And I would safely say that our plans to do that in the coming months [ph] are likely to be the same. So we plan to bid new capacity, incremental capacity for northern areas in the mail [ph] option. Paul Fremont - Jefferies & co.: Thank you.

Your next question is from Michael Goldenberg with Luminus Management [ph].

Good morning

Hi.

I want to get a couple of numbers down, the pension expense increase that you expect in 2009 how much will be a hit to the income statement from all the units, utility, power and power holding [ph]

Michael, all $0.08.

Okay. So it would be a hit to the income statement.

Right, $0.08 plus portion that's capitalized but that's a different bucket, right.

Correct

Okay, the full amount... the rough numbers is close to $90 million I think it is. And than part of that, that 25% of that capitalized that's for utility capital work. And than so the remainder is a direct expense to O&M. Now obviously, when we go in for the rate case, part of that rate case would be cost of service at the utility and that would pick up incremental pension cost numbers. So we would expect to then and we any hope if you will for that incremental expense when the rate case get resolved in '10.

So as rates will be affect when beginning of 2010 and that should include high expenses or...?

More likely the middle of 2010, Michael.

It should take about a one year to process the rate case in this State.

Okay. And the CapEx cuts that you are making are they generally on the power side, not on the utility but on the power side. Are they usually are they joined to the growth projects or are you doing or pushing back some environmental, what exactly are doing with CapEx?

Well it's mostly maintenance CapEx spread over variety of places. And as we said about 60% of the capital is in the teen... is in the distribution business in the utility. And then reductions in plan, growth investments in holdings that makeup the balance.

Okay. Just to go back to you power question, I just want to emphasize that all of the headwinds that Tom describe these add to pension expense? The Indonesian Coal renegotiations as well as some of the ones that we previously talked about that are all factored into the lower half of the guidance for the next year. So those are not in addition to earnings growth?

And the mark-to-market stuff at Holdings as well others, used because commodity is down, that will hit you in 2009. How has been increased versus your previous expectations of mark-to-market hit? As you stated correctly you expect that some mark-to-market hit in '09 because of really good '08 and '7. But how much of that increase versus previous expectations and that's bringing down your 2009 number?

Yes. As I say Power the mark-to-market is very all into a year. So, as we talked about our last call we had some positive numbers, that was $0.08 up and then we had $0.05 down and then $0.02 also go up and come down. So I think we are basically back to where you stated. And now just quickly obviously when we enter into DGS, some uptake on our gas trends that implies [ph] gas forwards we just hedge work some option to manage our gas to be able to manage our risk. So some of that was mark-to-market. Especially all the options are mark-to-market. On the Holdings slide if you look at attachment twelve for 2008 you can see that the Holdings mark-to-market for this year is about $0.04 and much of that would be mark-to-market that we had not expected.

What about 2009?

Well that now would... in other words that as... most of that we had not expected... obviously the markets were where they where at the end of the year. And by definition you don't expect there to be futures. So we've got more the $0.04 and that would largely then reverse itself out over '9 and '10 in ratable fashion.

Okay. So simply for we can take $0.08 and $0.04 that's the $0.12 that are primarily the reasons for you to point to lower-end of 2009 guidance versus our previous communication with investors?

Well no Michael. I think the major things on that are new is one the financing cost, the pension financing that's $0.10 we... obviously no one predicted kind of markets that we've seen. going in the year we said our pension expense would be pretty flat. So, in the financing cost is all, we've got a lot of new financing but when financing moves by couple on a basis points then that adds up. So the financial numbers are about $0.10, direct impact as a result of the last six, eight weeks. The Indonesian issue is something that we have talked about, it was discussed in second quarter Q, but it's becoming I guess more of a front burner issue for us?

On the Indonesian, I am sorry I've taken up a lot of time. Are you saying that those cost should double, I think given the sliding commodity, coal commodity with last couple of weeks, do you really think it will still be doubled, if you had to recontract that?

So, we're not... we don't want to get in the middle of speculating where we might go with discussions, I'll just say that the current Indonesian comparable coal index to get adjust a little bit that's mid 60, it had come down meaningfully. If you had asked us a couple of months ago, that number would be meaningfully higher and it does, it is coming down. So I might argue the time's on its side.

Okay, your current contract as of 60,000 ton delivered?

No, the current contract was negotiated at a time the market was in the 30 to $35 range.

Delivered.

Commodity freight we deal with separately with finance rate. But there is our supplier in conjunction with the government has brought forward the fact that the current market price is meaningfully higher and as I said mid 60s is a reasonable estimate of that. You are absolutely right, that number has been coming down, and coming down quite dramatically over the last six weeks.

And of course freights also moved in your favor considerably over the last?

Somewhat that we've got our freight set in the next couple of years.

Got it. Thank you, very much.

[Operator Instructions]. The next question is from Paul Patterson with Glenrock Associates.

Good morning, guys.

Morning.

Good morning, Paul.

Just to sort of clarify few things, to get a region [ph] contract impact, if I understood you correctly, that is in 2009 guidance correct?

It is as we say, we're sitting here today looking at the lower half of the 3.05 to 3.35 that would contemplate a renegotiation of the Indonesian contract.

As well as the pension expansion in the financing cost and the slower growth in the utility et cetera, et cetera.

Okay.

Really I didn't get a chance to finish the question of Michael. Many of these things were already in our guidance such as our lower ROE at PSE&G something we really talked about all year. I Think the three things that are new that will lead us to the lower half, we want to make sure we're responding to information as we get it is about $0.10 for financing cost, potential adjustment with respect to our Indonesian contract and forward markets have comedown, we largely hedge for '09 but we do have some modest open position that impact us as a forward.

Okay. Great. The second thing is the buyback which hope you might touched on. I'm just wondering did you guys did you guys have any activity with the lower stock price opportunity that was out there in last month or so. Or I mean you guys gave it as a September 30, I'm just wondering whether or not... you mentioned on the one hand that you guys still saw that as... I think you guys plan on executing but on the other hands you guys are being a little bit more cautious because of the credit environment we have? Could you just elaborate a little more on that?

Sure, sure. We obviously we're in the market. I think Tom just gave the numbers that 658 millions of the originally 750 authorizations were available to us. And good any self respecting company believes its stock is under priced we do to. But since late September we haven't in there because the market just became so unstable and liquidity become as such as premium even though we had $3.3 billion available we thought discretion was the better part of valor for that period.

Okay. But now you guys fell a little more comfortable, right?

As the authorization remains in place and we discussed that internally overtime and I just sort of leave it at that but we promise to all of you that we will continue to look better promises with that what we did when did it at every quarterly call.

Okay. And then what are adjusted sales growth for year-to-date in Q3, I am sorry I missed it what noted that has been [ph]?

If adjust for weather which was 2% lower in THI, temperature humidity index. If you just to that we're about 0.5% lower on a weather normalized basis. You understand the accuracy of theses models right so we're talking about 2% weather effect backing that out including that we had 0.5% weather normalize effect. So I would and want to get to you carried away with the precision of being able to separate those two phenomenon.

But you guys haven't seen negative sales growth...

We had being seeing that on the gas side. This is the first time we're seeing it on the electric side.

Didn't you guys see it on the electric side in the second quarter, I thought you did?

I'm sorry. Yes, I was thinking more year-over-year, yes that's correct.

Okay. So, now that brings me to my final question, the energy master plan had these pretty ambitious goals of a 20% reduction in peak and consumption by 2020. I mean can you comment on this I mean like and I guess 30% renewable, I mean whatever and these are the obviously goals but what does that do to the long-term outlook of PSEG Power? I mean if you really actually have... do you think it's a sustainable when do you start seeing those reductions happen, what is that due to demand and supply I think what that mean?

What we've been saying to policy makers is that the market is not going to achieve those goals, and the only... any of these goals. Not the renewable goals, not the energy efficiency goal. The only way that's going be achieved is with the prominent role of the utility. So you may see if we actually achieve those 30% renewable goals like 2020 and the others that you articulated. A shift in the earnings power of the PSEG [ph] subsidiary some power to the utility. But surprise to say that I find it hard to believe that left to its own devices that people favorably investing in onshore wind in New Jersey or in some of the other things that are anticipated in energy master plan.

Then also with this consumption reduction I guess what I'm wondering is I mean, there's different way that's could be done and one might be actual opportunities for you guys to reduce demand and return on it. But others might be things like appliance efficiency standard and stuff like that, relatively this might create a reduction in demand. This won't give you guys money. Just how do we think about that. and do you think that's when do you start to think these reductions in demand might actually happen, if they do happen?

Well meaningful long-term reductions in demand require capital investment. And I would maintain that's likelihood of our customers making those capital investments on a broad scale unassisted by utility programs is very, very low. So we just need to think about the roll of the utility in the future may not simply be a prevail of electrons and molecules of gas, but someone who is permitted to invest in those energy consuming devices that customers left won't in invest in themselves. In other words, have much different and expanded definition of rate base, otherwise I just not see it happening.

So in other words, you feel that the utility would basically get the earnings that would be coming... it will be basically be shifting from a one bucket to other so just you can because that is actually having...

Yes, and in fact with that all utilities available [ph] with some potential upside. But what you are talking about here is that the lion's share of any utility customer's bill in its integrated form including the supply component is to pay fossil fuels and PSEG is not a fossil fuel business. We're in the business to converting that and delivering that. And if we can make money by helping people, by investing on behalf of people in assets that help them consume less fossil fuel, then this thing potential at what is less going to Power could be more and than some going to the utility, now obviously that's a case by case basis.

Okay. Great.

What else we do.

I appreciate it.

Thank you, Paul. The next question is from Rudy Tolentino with Morgan Stanley.

Hi, good morning. Can you give us an update on the leverage lease issue, I know that if we recall last quarter you talked about potential settlements or at least that discussions about settlements, if you can just a give an update please?

Yes, Ruddy. It was a broad based settlement offered by the service to all people who had entered into these types of transactions, and there was a date to accept that was earlier this month. We did not accept that. The cost of that was quite high. I should say a shade higher than the economics that underpinned the reserve that we talk in June, is that make sense. So we're accessing our options that we may well pursue a litigation path as we talked about in second quarter is not lot new, there is we continue to think that our transactions were fair and based upon good tax lot of time we think that our fact [ph] is that owner of utility assets gives us a much better in fact better than some other financial parties that we're also offered this settlement. So what, the only thing I would say is that we did make another $80 million deposit which is to a voluntary deposit. So our voluntary deposits we see it service are about $180 million and that's just as we said in June that we are going to take the reserve, we're going to run our company from a financial perspective as if that was going to be an ultimate cost. So we're mindful of that and finance the business on a quarterly basis in that fashion, same time we are quite likely pursue a litigation pattern.

And as far as I presume litigation you have no timeline I think or do you have timeline or is...

No specific, I mean without going to much on the details it something we would pursue over the next three to six months that we initiate over the next few three to six months. It is generally a two to three year path ultimately towards, those out of one other case that's some that may we'll reach a final decision in our industry. So when we'll have a better fact pattern in our industry, so have some news on that end of this year, first quarter next year.

Okay. Thanks. Thanks so much for you updates.

Yes.

Mr. Izzo, Mr. O'Flynn, there are no further questions at this time. Please continue with your presentation or closing remark.

Thank you all for participating again. We are feeling quite confident about our operational performance throughout the business at our nuclear plans, at our combined cycle plans, we're pleased with the construction schedule and the cost control of our major back-end technology projects at our coal units and we're delighted again to receive the recognition we've received in Utility, these are difficult markets. We're not sitting back we're adjusting our spending patterns, we're adjusting them both at the capital and O&M level. And we think we have our risk under control and we're looking forward to a strong fourth quarter and some growth in 2009. And we'll see you here. Thanks for your attention.

Ladies and gentlemen, that does conclude your conference call for today. You may disconnect and thank you for participating. .