Ladies and gentlemen, thank you for standing by. My name is Kali, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group first quarter 2009 Earnings 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 reminder, this conference is being recorded Monday, May 04, 2009 and will be available for telephone replay, beginning at 2 PM Eastern Time today until 11:30 PM Eastern Standard Time on May 11, 2009. 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 very much Kali. Good morning. Thank you for participating in our call this morning. As you are aware, we released our first quarter 2009 earnings statement earlier today. The release and attachments are posted on our website, www.pseg.com under the Investors section. We also posted a series of slides that detail operating results by company for the quarter. Our 10-K for the period ended March 31, 2009 is expected to be filed shortly. I am not going to read the full disclaimer statement or the comments we have on the difference between operating earnings and GAAP results, but I do ask that you read all of these comments contained in our slides and on our website. The disclaimer statement with 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. Although we may elect to update 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 income 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 metrics to help shareholders understand performance trends. I would now like to turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. We ask that you limit yourself to one question and one follow-up question. Thank you.

Thanks Kathleen and thank you everyone for joining us today on this call. Earlier this morning, we reported operating earnings for the first quarter of 2009 of $0.95 per share compared with $0.86 per share reported a year ago. These operating results both in the current and in the prior year excludes the impact on earnings from a change in the value of our nuclear decommissioning trust funds, which I will refer to as the NDTF now on, as well as other charges related to mark-to-market accounting. It will come as no surprise that we are experiencing some very challenging markets, but the results for the first quarter demonstrate the strength of our operations and the flexibility of our asset mix under the direction of PSEG's very capable workforce. PSEG Power's asset mix and hedging profile supported attractive margins in a market characterized by weak demand. Performance was also aided by continued excellent performance from Power's nuclear fleet. The fleet performs at a capacity factor of nearly 98% in the quarter. We had fewer outage related days in 2009 versus 2008. You may recall, Salem 2 underwent stream generator replacement last year, and although it was the second fastest ever in our industry, it was longer than normal outage. On top of the fewer outage days, the additional capacity of 173 megawatts from the work completed in mid 2008 has helped (inaudible) in Salem also supported an increase in nuclear generation during the quarter. Now moving from Power to the Utility, PSE&G is focused on controlling expenses to meet the challenges of a difficult environment as it maintains its high standards for reliability. The New Jersey Board of Public Utilities recently approved PSE&G's plan to invest $694 million in electric and gas infrastructure projects over a period of 24 months.…

Thank you, Ralph, and good morning. It is a pleasure to be part of the PSEG management team, and I look forward to meeting many of you in the coming months. As Ralph has said, PSEG reported first quarter 2009 operating earnings of $0.95 per share versus $0.86 per share in last year's first quarter. I want to remind you that with the reporting of this year's results, our operating earnings exclude the impact of any change in valuation for NDT Fund, as well as other charges related to decommissioning, and any change in the value of transactions that don't qualify for hedge accounting which we often refer to as mark-to-market. We have also adjusted the prior year number to simplify your compares. However, including all of these items, earnings from continuing operations would have been $0.88 per share versus $0.85 per share a year ago. As you can see in slide eight, PSEG Power provides the largest contribution to earnings and represented the improvement in growth for the quarter. Power reported operating earnings of $0.71 per share compared to $0.55 per share last year. PSE&G reported operating earnings of $0.24 per share compared to $0.26 per share last year. PSEG Energy Holdings reported operating earnings of $0.01 per share compared with $0.06 a year ago. Parent company related expenses which are primarily interest were unchanged in this quarter with expenses of $0.01 per share, same as a year ago. We have provided you a waterfall chart on slide nine that takes you through the net changes in quarter-over-quarter operating earnings by major business. I would now like to turn to each company in some greater detail. First, let's go to PSEG Power. As shown on slide 11, PSEG Power reported operating earnings for the first quarter of $0.71 per…

Thank you, Caroline. Operator, if you can set up the queue for Q&A and indicate to us when you are ready?

(Operator Instructions). Your first question is from Paul Fremont with Jefferies.

I am not sure I am understanding PSEG Power. It looks like in the first quarter you have pretty much made it all the way to the bottom end of the PSEG Power guidance of $1.210 billion. If I factor in the type of prices or gross margin that you were projecting of $57 to $58 for the remainder of the year, there should be another $70 million or so of gross margin improvement which should take you to the top end of that guidance range. Am I missing something that is a potential offset that would put you at the higher end of that range? Also, given the fact that you are 100% hedged, I am not sure I understand why there is such a wide range to begin with in terms of the low end and the high end.

Sure. So, let's just talk a little bit about the dynamics of this quarter related to the dynamics for the full year. As we pointed out, the quarter was unusual given the fact that we were able to displace a lot of our coal with gas, and given the low gas prices, as we noted, you see a dramatic drop in the total cost of fuel and therefore a strong margin. As we come into the warmer weather and into the summer season, what you should expect is those coal units that really were quite reduced for this quarter would come back online and of course you know that the higher price of coal relative to gas would have an impact on our margin going forward. That being said, that is why we are still comfortable with our full year margin, even given the results we saw this quarter were somewhat unusual, but we will go back to putting in coal in the forward period.

I guess I am using your numbers of $57 to $58 for gross margin on the rest of the year which is still improved from last year's second, third and fourth quarter numbers of $54 and like $56. I guess the only one that is sort of comparable is the third quarter.

Paul, this may help a little bit. Don't forget, when we talk about our hedging, we are talking only about the baseload units. It is actually our nuclear and all of our coal which includes some of the mid-merit coal. So, gas is not sold into just to remain long for some of the peaks and valleys particularly of the summer months, and with lower gas prices, we are seeing spark spreads that are not at the high end of what we have seen in the past. So, I am not following all your arithmetic, but I think the combination what Caroline offered and I offered should help you get to the confidence we feel with the existing range of Power's full year performance.

Thanks Paul. Next question.

The next question is from Kit Konolige with Soleil. Please proceed with your question.

Caroline, welcome. You know, you are replacing a former colleague of mine, but you have got to be a better golfer than he was, because that part isn't a problem, so you know. I wanted to get a sense from you guys both at a federal and a state level. It seems to me that you have been talking a lot and are well positioned to grab a lot of these multibillions that are floating around out there for rebuilding infrastructure, and getting green, and building windmills out in two miles of water and all of this stuff. So, that question and then you just got approval from the New Jersey regulators for more work on, if I recall, the gas infrastructure. That is one clear direction that the government wants to go in and that you want to go in and that you are well positioned to go in. Pushing against that, is I assume all the people who get bills from you guys in New Jersey, if they know and which maybe they don't that this could cost money, but I would say more specifically, politically, we are clearly seeing for example the Waxman-Markey bill is getting held up; that is not even getting out of their committee in the House despite strong support at the White House level.

I think you have got five questions in one very long sentence.

It is a long, but I guess what I am asking is what is realistic for us to think that where you guys can get some upside, I assume a lot of this would be in the regulated business.

So, Kit I will take a try at those few questions. So, in terms of the regulated business, you are right. We do think that there is a high probability that we will get approval of our additional request for $190 million in energy efficiency which should reduce customer bill.

Right.

As well as our $700 million in solar for all, which will increase customer bill. Recognize that that is about 120 megawatts of electricity on a service territory that has about a 12,000 megawatt peak. So, in terms of the overall customer impact, it is pennies per month when you amortize this over the course of the investment. The policy assumption is that while you are paying a lot per kilowatt hour in the near-term, you aren't producing many kilowatt hours, and therefore the overall bill impact is small but you are helping to grow an industry which with advances in technology will reduce the cost per kilowatt hour as it contributes more kilowatt hours. New Jersey has demonstrated a willingness to pay $3.50 per ton of carbon through RGGI, to pay $677 per S-REC in the form of an Energy Master Plan and all of that is already baked into the rate. So, what you will see is as the contribution grows and the cost declines, some trade-offs of rate impacts to customers. On the federal side, we are going to pursue stimulus funds in a couple of areas. I don't think we have released that information, but those will not have significant earnings impacts but will help us in some of the areas that we have talked about in particular in our compressed-air energy storage systems and in our offshore wind projects. I continue to testify and the energy industry continues to rally behind getting a national climate change bill approved so that we can get some certainty before the industry and therefore some clearer path as to how we want to invest shareholder dollars going forward.

Can I just follow with that? This is a very short, simple question, but it does go back to the [actually a] market question which is your RGGI is $3. Pelosi and those guys were talking about $20 and $30 a megawatt hour in 2012, but that doesn't appear like that is in the cards right at the moment. Can you give us some sense; obviously, you can't predict what is going to happen and when, but give us an idea of what you think a reasonable investor would be thinking about in terms of you guys benefit from high market prices which would be driven by CO2 costs, right? So, when can we expect something higher than $3? Let me ask that.

So, Kit, RGGI is about, as I said $3.50 per ton of carbon, and that is driven by the fact that the RGGI allowances that are being auctioned off today exceed the demand for RGGI allowances and the fact that there is anything above the reservation price is really attributed to the bank ability, if you will, if I could just create a verb, bank ability of those allowances going forward. I can tell you this, that in the President's 10-year budget, based upon his aggregate numbers for what he expects to achieve in terms of auctioning of federal allowances and given how much we emit per year, that his administration apparently is counting on price of about $15 to $20 per ton, but that is based upon a 14% reduction in CO2 emissions from the 2005 level by 2020. As you know, Waxman and Markey are talking about a 20% reduction, so compared to the present 14% reduction by 2020. So, that is safe to assume that that would produce something north of $20 per ton, and you are right, that as for as many analyses that have been published, there is a wide dispersion in estimates. So, if you are going to peg me to a number, I will guess $25 a ton, but it is truly a guess and I would refer you to EPA studies and various other studies.

I know the studies. I think it is more important to know what the Democratic Senators from Michigan and so on are going to do. Would you agree with that?

I do think that there is a set of more moderate, middle of the road members of the House and Senate who will determine whether or not we see legislation this year. I agree with you.

Thank you, Kit. Operator, the next question.

The next question is from Michael Goldenberg with Luminous Management.

Congrats on an excellent quarter. I will keep my questions short. The mark-to-market NDT losses or gains, should we assume that tax rate on these is always the standard mid-30s rate when we try to back out that of other expenses and income?

Yes, you should assume generally that rate applies.

Okay and then my only other question, wanted to get an update, I am sorry, I missed maybe you touched upon it in the discussion. What is the latest on the issue with the IRS?

Sure. Relative to the issue, if you are talking about LILO and SILO with the IRS.

Right, yes.

So, there has been no update in terms of any of our activities with the IRS. If you look at some of the cases that are out there, the ConEd case, there has been no decision on that either. So, there is really nothing new on the IRS side. What I would point out though as we talked about in the opening remarks is we continue economically to actively manage the lease portfolio and to we terminated some leases this quarter, we continue to look at that as economic transactions, and to the extent that those leases are terminated, we essentially cut off the net cash exposure with the IRS as we pay those taxes. It doesn't handle those issues that go backwards in terms of the interest. That is still at issue with the IRS, but we think we have the right approach which is to manage these leases as we go forward actively, appropriately and then deal with the issues relative to the IRS as they come, but there is no specific IRS update at this time.

Just to confirm, I think about a year ago, you said that you were going to make $900 million in payments over three years in lieu of that, of actual cash payments. Are you still planning to do that or have you decided maybe to hold onto the cash if the situation is looking better?

Michael, it is Kathleen Lally. The number remains the same, but when we pay and how much we pay depends on getting notice from the IRS and that has not happened. We are still planning or potentially having to make a sizable payment to the IRS during the second half of this year that could be in excess of $500 million.

Again, nothing has been defined at this point.

Okay, cool. All righty. Thank you very much.

The next question is from Angie Storozynski with Macquarie Capital.

First of all, you are saying now that your coal output is 100% hedged and I just wondered is it related to the fact that you are now projecting a lower output and so for your projected output, you are just fully hedged or did you add additional hedges?

Angie, we typically in the current year strive to hedged 100% of our nuclear and coal. So, there is nothing unique about that. That is consistent with the way we have operated those units and managed the portfolio in the past. Also, what we have seen is that there has been a reduction in BGS demand. So, combined with the economics of coal, we have seen just a lessening of the output of those units.

Secondly, that is going to be probably related to your IRS settlement and I understand that the potential payment is coming, but your cash position has improved so dramatically. Should we have hopes for potential share buybacks?

This is Caroline. I will take that question, Angie. Thank you. So, you are right. We had a good cash result for this quarter, but a couple of dynamics to keep in mind in that regard. First of all, the cash position and the cash benefit that we get in the first quarter is typically the strongest because of that roll off of the gas inventory as we sell through under BGSS. So, you are normally are going to see the strongest cash flow from ops in the first quarter of any of our quarters of the year. The other things that I mentioned that affected cash during this particular quarter release of restricted funds, collateral margin, think of those things as a little more onetime in nature in addition to termination of leases. So, when we look at the total cash flow, we are very pleased with the cash for the quarter. We were using it to do things like pay down debt as I mentioned as we did on April 1 and given all of those dynamics and of course the uncertainties we see in the market at this point, we don't see treasury stock as something that we will be doing share buyback in the current period, just given all the uncertainties in the market. We do have obviously $658 million left in the remaining authorization, but given the markets as we see it now and the good uses that we see for our cash to reinvest in the business for shareholder returns, some of the things that we talked about at the utility that we filed for, we don't see share buyback right now.

Okay and the last question. Could you give us any color or any comments about your expectation about demand, response, resources for the upcoming RPM auction?

Angie, we don't typically comment on what we think will fill in the various components of the RPM auction. As you know, the auction begins today. Final bids are due by the end of the week and we will all hear the results of that in just a week from Friday. So, rather than conjecture what it might look like in 10 days, we will know exactly what it looks like.

The next question is from Vedula Murti with CDP US.

My question, I want to make sure I understand and it has to do with the pricing of RGGI. It is like $3.50 versus what people are talking about at $15 to $20 a ton in terms of CO2. I know you touched on it briefly into an earlier conversation, but if you can explain at least from your perspective what accounts for that significant difference? Then I would assume that if there is some federal standards or program put in place that that would then supersede RGGI and then that regime would then be put in place? Can you talk a little bit about that difference?

Absolutely, and I will keep it very high level. If you want more detail, just let me know. So, if you think about the price for an allowance, it is set by the supply of allowances versus the demand for those allowances and the RGGI states basically took a four or five-year average of emissions and set the cap above that level until the year, I believe it is 2014, at which point it begins to then decline. So, right now, the number of allowances that the RGGI states are making available to emitters of carbon exceed the number of tons of carbon that people are emitting. So, the only reason why those allowances are worth anything other than zero is because people believe that they can bank them and use them in the future when the amount of emissions exceed the amount of allowances either because of pickup in the economy or because the cap begins to come down

There is no expiration on an allowance to bank?

I want to say that there is a five-year expiration. There is no expiration going forward. There is a limitation on how much you can buy forward to use today. So, I don't believe that there is any limitation of what you can use going forward. So, that is a separate system and a separate regulatory regime. In the RGGI MoUs that were signed by the 10 states, there is language that says is there is a federal program that is more stringent than RGGI, then it is anticipated that RGGI will go away and the federal program that is being discussed today really falls into a range and that is truly being discussed in terms of legislative circles. It is not enacted and it ranges from the President's expectation of 14% emission reductions, quite a bit more sizable by 2020 over the 2005 levels to what is in the Waxman-Markey bill which is the primary vehicle being discussed in Congress right now which has a 20% reduction in CO2 emissions by 2020. So, because of the more stringent cap, the greater amount of reduction, the expectations are that since you lower the supply of the emissions credits that the price for them will be higher than what you are seeing in RGGI.

RGGI contemplates what type of reduction versus the 14 and the 20 you referenced?

The 2.5% reduction beginning in 2014, so it would be about 10% reduction.

Okay. So, RGGI is 10% and the other ones are 14 and 20. Good, we want apples-to-apples. Okay, thank you very much.

The next question is from David Frank with Catapult.

Ralph, you said at the analyst day presentation not long ago that while you did not want to give specific guidance beyond '09, you did say consensus for 2009 looked a little too low and a little too high for 2010. Is that statement still accurate?

Yes, and I am absolutely delighted that people heard us and refreshed their numbers and everything worked the way we were trying to signal. So, there are a couple of folks out there who I think are still maybe joined to refresh their gas numbers, but we were quite pleased that we were speaking English and people heard us in English and it all worked out well.

Then Ralph, in the press release this morning you talked about a challenging market and you cited weak power prices, softening demand, but over the next couple of years, the company has seemed to insulate itself very well given that you have gone out and you have done a very good job in hedging the output from your generation fleet at prices that are well above the current prices or even the forward market prices. I am however wondering what steps if any can you take or are you taking to keep 2010 from being sort of a peakish earnings year?

David, as I mentioned at the investor conference, we have a habit and we has a polite way of including us and others in the industry of taking the forward price curve from this morning and taking the forward price curve of this afternoon and forecasting it forward for the next 10 years. What we are doing is what we have done before. As a BGS, which accounts for about half of our baseload capacity is a six-year blend of prices and that is a very good thing given the types of earnings volatility we would have otherwise seen if it had been just all in one year at any point time. We are making, as Caroline pointed out, some smart investments in climate change and aging infrastructure at the utility with on time almost real-time returns coming from that. We have a base rate case that we will be filing in a couple months. We will be bidding 150 to 300 megawatts of additional peaking capacity in the RPM auction. So, we have a variety of good investment opportunities that and that doesn't say anything about some of the other things that are going on and Holdings that I think will help us continue to deliver attractive returns for our shareholders. Now, we don't control the economy and we don't control gas prices, but we are not sitting back and just letting it happen to us.

That sounds good. Thanks Ralph.

Mr. Izzo, Ms. Dorsa, there are no further questions at this time. Please continue with your presentation or closing remarks.

Thank you. Thanks Caroline, thanks Kathleen, and thank you all for joining us today. We hope you do agree that our first quarter results, support the things we highlighted in that March conference that we first of all live up to our commitments, we are delivering value today and we are well positioned for the future, but that future, given the problems in the economy will rely on the talents and efforts of our employees to focus on cost control while we wait for markets recover and they will recover. Similarly, those employees have never let us down. So, thank you for being with us today. We will see you at various conferences and on our next call.

Thanks very much.

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