Ladies and gentlemen, thank you for standing by. My name is Kanisha, and I will be your event operator today. I'd like to welcome everyone to today's conference, Public Service Enterprise Group Fourth Quarter 2010 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, February 22, 2011, and will be available for telephone replay beginning at 1:00 p.m. Eastern Time today, until 11:30 p.m. Eastern Time on March 1, 2011. 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, Kanisha, good morning. Good morning everyone who is on the phone call. We appreciate you participating in our call this morning. As you are aware, we did release our fourth quarter and full year 2010 earnings statements earlier today. And as mentioned, 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 December 31, 2010, is expected to be filed later this week. I'm not going to read the full disclaimer statement, but I do ask that you read all of those comments contained in our slides and on our website. The 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 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 strengths. 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. I'm going to ask that you limit yourself to one question and one followup. And we hope to have enough time for all of your questions. Thank you.

Thank you, Kathleen, and thanks, everyone, for joining us today on this call. Earlier this morning, we reported operating earnings for the fourth quarter of $0.60 per share, which resulted in operating earnings of $3.12 per share for 2010. I want to remind you that the results for 2010 reflect the movement of the Texas generating assets to discontinued operations. If we had left Texas in, our operating earnings would've been $3.15. We were able to achieve earnings within our guidance range for the year despite very difficult market conditions. Each year, our employees put a great deal of effort into meeting the objectives we established regarding the needs of our customers and shareowners. We are indebted to PSEG's workforce. We would not be able to achieve our financial and operational goals without their daily commitment. It is with their hard work that helped 2010 become a year of significant accomplishment despite the challenges of the marketplace. I want to take a few moments to review these accomplishments with you. At Power, 2010 represented a year of record output from our fleet with an increase in generation of 8.7%. We completed installation of the back-end technology at our New Jersey coal stations. These upgrades support their operation under more stringent environmental rules. We also committed to invest in the new peaking capacity in northern New Jersey, as well as initiated work on some nuclear upgrades. Power's Hope Creek nuclear station achieved a 100 INPO rating. This is the result of the investment in people, processes and equipment we have made to lift our nuclear program to world-class levels. Power announced that it has entered into contracts for the sale of its two Texas gas-fired combined-cycle generating units. The sales are expected to close in late March or early April. But…

Thank you, Ralph, and good morning, everyone. As Ralph just said, PSEG reported operating earnings for the fourth quarter of $0.60 per share, versus operating earnings of $0.66 per share in last year's fourth quarter. Our earnings for the fourth quarter brought operating earnings for the full year to $3.12 per share versus operating earnings per 2009 of $3.09 per share. The results fell in the middle of our operating earnings guidance for the year of $3 to $3.25 per share. The results for the quarter and the full year has been adjusted to reflect the reclassification of the Texas generating assets to discontinued operations. For your information as you complete your models, operating earnings from the Texas assets were $0.03 per share in 2010, and they were offset by a mark-to-market loss of $0.02 per share, resulting in earnings from discontinued Texas operations of $0.01 per share in 2010. In 2009, operating earnings included a $0.03 per share contribution from the Texas assets, which was offset by a mark-to-market loss of $0.03 per share as well. On Slide 4, we've provided you with a reconciliation of operating income to income from continuing operations and net income for the quarter. As you can see on Slide 10, PSEG Power provides the largest contribution to earnings. For the quarter, Power reported operating earnings of $0.42 per share compared with $0.51 per share last year. PSE&G reported operating earnings of $0.16 per share compared to $0.13 per share last year. And PSEG Energy Holdings reported operating earnings of $0.01 per share, compared with operating earnings of $0.03 per share in the year-ago quarter. Finally, the parent company reported earnings of $0.01 per share compared with a loss of $0.01 per share in last year's quarter. We've also provided you with waterfall charts…

[Operator Instructions] Your first question comes from Daniel Eggers. Dan Eggers - Crédit Suisse AG: Just on the migration issue, kind of the pickup in migration from previous expectations, if you could shed a little more color on how much of that, the incremental increases are coming from the residential side? And what's your level of confidence of the 38% to 40% switching by the year-end is a good number?

Yes. We try to look at this and forecast it based on the best information that we have. Just to give you a little more color there on the migration, we talked about the 30%, remember, we talked about 24% at the end of the third quarter. We also talked about the fact that the end of the third quarter, there was more of a push for the residential, and we hadn't seen too much effect at that point in time. What we're seeing right now in terms of our estimates of migration at year-end, about 55% of the commercial and industrial customers who can be served by the BGS products have migrated. And for residentials, we see about a 7% net migration for those customers at year-end. In terms of forecasting, obviously, it's something we spend a lot of time internally looking at with a variety of models to try to triangulate it. And so we're giving you that guidance range of about 38% to 40%, as reasonable. Keep in mind there's a bit of a lag in the data, so we're working with the data that comes to us through about November. And then we're estimating it out during the period. Dan Eggers - Crédit Suisse AG: And then on the switching potential, are you guys re-evaluating, maybe your retail strategy, as far as you're trying to retain more of those customers or pursue them another route as this number gets bigger over time?

Dan, this is Ralph. We're not reconsidering a retail strategy. It's a very difficult business with razor-thin margins where one mistake wipes out a year's worth of effort. But what we are doing in the wholesale side is of course, we are working with third-party suppliers to meet their needs, and we remain active in that regard. You remember, over time, as BGS begins to more closely mirror the market, we at Power will be somewhat indifferent as to whether our customers or BGS customer or a third-party customer -- right now, the effects are painful because of a rapid drop in market prices. I think Carol may want to answer that.

Again, one other thing to keep in mind relative to the retail strategy, one of the things that we've talked about during the year, and as we saw with very, very warm weather and higher prices is that effective headroom does tend to move around quite a bit. And so to the extent that you think about the business being predicated on a certain amount of headroom that you might forecast based on, say, normal forward curves, we did see periods during the very hot summer and the very cold winter where that effective headroom collapsed to a very small number. And so the economics of those migrated versus the price that we achieved by selling through the market became much reduced in terms of a loss for us. And that's something that those dynamics would continue to happen because they are really the realities of the market as you do in pricing. Dan Eggers - Crédit Suisse AG: When you gave your 2012 forward power of sale, the hedged numbers you had, are you assuming kind of a 38% to 40% shopping number in that hedge percentage when you think about pricing and volumes?

We did forecast -- I won't go into those numbers at this point. But we did forecast a small amount of incremental migration in 2012 just consistent with the deltas that we see.

Your next question comes from Paul Patterson.

Just on the customer migration issue, the 30% to 40%, that's customers, correct, as opposed to megawatt-hours?

No. It's megawatt-hours.

So that's considerably less than what we see in Connecticut, and I know you guys operate in Connecticut. If we could get to see a difference in headroom there, and could you give us just a little bit of a flavor for what headroom is in 2011 that you're looking at here versus the retail side of the economics we're looking at?

Well, relative to headroom, we tracked headroom on a month-by-month basis. And you have to work it up based on looking at what the prices that you would achieve in the market versus the price that you achieve from your BGS. But you have to subtract all of those things that are costs that a retailer would also have to look at. And so what I can tell you is we've seen that number be in a mid-double digit to as low as almost zero, depending on the month-to-month variation of the prices in the market place. But you just have to work that up. I mean everybody I think, can work that up independently using the prices in the market, the costs that are associated and net margin that's actually left to someone who would go into that business and then compare it to that same calculation looking at the BGS price.

So for 2011, you guys are estimating low double-digits to -- is that low double-digit you said to zero?

So we're not giving the particular number from migration. But let me see if this helps you think about it. In 2010, because of the way in which we saw weather, warm summer weather, cold winter weather earlier in the year, you saw that headroom collapse in some periods to a very low number, a number that we don't think would support being in the Retail business. In 2011, what I'm signaling here is we're not forecasting higher weather. We usually just forecast normal weather. So we're forecasting the normal amount of headroom that you would get if you just worked up from using the current BGS price and in the new one that cleared and that rolls in June, comparing it to the forward curve and then working that up, and you could work that up based on normal weather and then come to your own estimates of what that would be.

When we're looking at the customer migration issue, there is some legislation, I guess dealing with municipal, I'm not sure if it's municipal aggregation or what the actual -- I looked at the legislation but I was a little confused by it that, that was being reported about in New Jersey. Do you see any customer aggregation issues? And also just in general, like I said you guys work in Connecticut as well as in New Jersey, and I guess the difference is between those markets seem pretty substantial. If you could just give us any flavor for the differences between those two things and opt out that aggregation maybe?

So Paul, I'm not familiar with the specifics of the Retail markets in Connecticut to be candid. In New Jersey, there has been an ongoing bit of aggregation that's taken place amongst schools and municipalities. So that's been an active market for years. The legislation you're referring to relates to multiple systems and municipal systems, as opposed to anything that customers have not already been empowered to do in New Jersey. So I don't see that as having a major impact on BGS.

Your next question comes from Leslie Rich.

You said that CapEx would be $6.7 billion over the 2011 to '13 time frame, and I think that's up about $800 million. I wondered if you could walk through, not to steal your thunder from the analyst’s day, but walk through just broadly where that capital is being allocated?

Sure, Leslie. Happy to do that. We did give the numbers then, you're right, for 2011 through 2013. And as you know from the disclosures that we've given out before relative to where most of that capital is going to be spent, it will be at the utility as we implement the key programs at the utility. And so as you look out in '11, '12 and '13 and you'll see this as, the 10-K is filed, what you see for capital spend for PSE&G is approximately $1.5 billion in each of the three years of 2011, '12 and '13. And you know from the conversations we've had before that the single biggest piece of that by far is what we're doing in transmission. And then for Power, you see numbers for Power that's basically the delta. There's a small piece that's clearly of non-utility renewables as well. But Power's numbers in '11, '12 and '13 are about $670 million in '11, slightly less than $500 million in '12, and about $340 million in '13, and then there's a small piece for non-utility renewables. And these numbers that we just described don't include the numbers that Ralph just mentioned relative to the opportunities for new filings that we're looking at for potentially for the electric that we just mentioned. So when you think about these numbers, we're always looking at those opportunities for more investment on the utility side subject to getting contemporaneous return. I think the other thing to point out we've talked about before, but just to remind everyone, because we have the back-end technology going into effect, when you look at our total profile here in terms of the amount we're spending, in total in excess of $2 billion each of the next three years, when you look to the environmental and regulatory in Power, you're seeing numbers that are less than $100 million in each of those years, because of so much of that spending already being behind us. Hope that helps.

Your next question comes from Jack D'Angelo.

Can you guys provide any color as to what sort of step-up in O&M you expect to see in '11 at Power?

Sure. So at Power, we see a small step-up in O&M, low single-digit number based on the fact that we have -- obviously with the back-end technology going into effect with some small incremental costs there. But consistent with our theme that we've talked about for a long period of time, O&M control is a critical thing that we focus on in the company. And so we'll continue that strong O&M control at the utility, such that we continue to have a very low growth rate in O&M for the company on a three-year basis.

So we can think of '11 as maybe a little bit higher than usual step-up because of the items you just spoke about?

No. I would say a small step-up for Power that low single-digit number, you've got the major maintenance on the combined cycle unit, that sort of thing happens on a scheduled basis. But you don't build it in some base because after it occurs, you don't have it in the subsequent year. And so you've got a little more cost for Power in this year because of that. But our overall focus is strong O&M control across the company on a multiyear horizon, and we're committed to that.

Your next question comes from Paul Fremont. Paul Fremont - Jefferies & Company, Inc.: On the bonus depreciation, you talked about $900 million for total, how much of that is utility, and how much of that is unregulated?

Good question, Paul. I think the way to think about it, because this is a bit of a moving target as we finalize and understand all the IRS rules. But slightly more than half of it is in the Utility and the remainder is at Power. So there's a significant amount for each of our companies, a little more in the Utility than in Power. Paul Fremont - Jefferies & Company, Inc.: And between that cash and also the cash that you're getting from the sale of the Texas plant, we should assume that most of that is being reinvested into Utility infrastructure projects?

That's right, Paul. We think we have some great uses for the capital, and we think that we're getting a reasonable risk adjusted return for that. And as long as we have those good ideas, we'll continue to re-invest that capital. If we don't have those good ideas, we won’t be shy about returning it to shareholders. But right now, we think we have some good uses for it.

Your next question comes from Jonathan Arnold.

My question is just on the migration topic again. I got from your comments, Caroline, you think you have headroom not being as tight as it was in the fourth quarter that the impact would've been less. Is that in terms of seeing less customers switch or your ability to sell the Power at better prices, or a combination of those two? And if they're embedded within your statements, some view of what switching would've been if you haven't had the weather we had in Q4?

No. I'd say, Jonathan, if the headroom has been greater than we saw it in the fourth quarter because of the higher market prices based on the cold weather, we would've had a higher impact than our $0.01 per share, right? So I think there's also a bit of a lead lag effect as well, right? So you've got headroom moving with how the weather or demand changes, market prices and therefore, the net effect to us. That's going to have a feedback effect on how retailers think about being in this market longer-term. Those two things would've happen in exactly the same months. But as the dynamics of headroom have suggested that it really does move quite a bit in our market as it probably does in every market. It makes for some different choices presumably for retailers of how aggressively to think about this market. But in general, think about it as higher market prices, reduced headroom. Reduced headroom means lower net impact for us for every customer that has migrated in terms of our bottom line.

But less migration, I guess?

No. Less impact in terms of the dollar impact to our bottom line from that customer having left because keep in mind, if that customer has left BGS, they're still ultimately buying power from a retailer who is, in most cases, not a generator and has to buy from the market, and we supply the market. So the question is, what's the price that we achieved when we supply the market? If we supply the market through BGS, it's the BGS price. If we supply the market through PJM or through other hedges or directly into the market, we're getting the market price to the extent that pressure because of weather pushes that market price up, and the BGS price is fixed, the gap between BGS and market shrinks when there's pressure. And therefore, it costs us less to have lost the customer than it would otherwise cost us.

Your next question comes from Ashar Khan.

Can I just get a little bit perspective, I'm trying to figure out the drop in earnings from '10 to '11? And you've mentioned, if I'm right, there's some depreciation from the plants, and of course, lower margin. Is there something that you could give us which would break down those items precisely from the 1,091 to say, the 805 midpoint as to the impacts of the items that you kind of pointed out?

So we don't do that breakdown precisely. But let me just remind you of a couple of the factors that hopefully should help you in the modeling. So you're right, on the back-end technology going into service, that's going to be an easy one to specifically identify. Remember, we've talked about the fact that we've spent about $1 billion on the back-end technologies for Hudson and Mercer. That incremental depreciation for Power on a year-on-year basis, almost all of which relates to BET, is about $45 million. That's a pretax expense hit. We also just talked about the fact that there's a small, again, low single-digit impact on O&M on a year-on-year basis combined cycle major maintenance. Again, that's something that you should bake in on a year-on-year basis, that's important for 2011. And then the two things that I would focus you back on, in terms of doing the calculations when you think about margin is the hedge price that we talked about. So recall that we said that we are 95% hedged for our coal and nuclear generation, about 40 terawatt-hours at a $68/MWh price. And that compares to 2010 hedges of about 91% at $72/MWh. So you've got a $4/MWh differential on 95% or 91% of 40 terawatt-hours. And if you do the math on that, you'll obviously see that, that's a significant contributor to the year-on-year. The other thing to keep in mind with that is, we're 95% hedged now, we were 91% last year. That left us a little bit more open to the market, and as we just talked about, the market had some hot weather and higher prices that enabled us to capture a little bit more from the open position. Now we don't know what this year's weather will be. But what…

If I could just follow up, based on previous slides that you have provided in the decks, am I right that coal costs are expected to be like lower in '11 versus '10? I mean will nuclear fuel costs are expected to be higher versus '11 or versus '10?

Yes. So nuclear fuel costs have been going up. And you're right, we have talked about that in our prior decks. Relative to coal, a couple of things, so we do have some of these higher-priced Adaro coal as you probably recall that we used at Bridgeport. But in Hudson, because of the completion of back-end technology, we now no longer have to use Adaro at that location. So if you think about overall and through our coal fleet, total coal costs are down about $1/MWh, so not dramatically different when you do a weighted average and you recognize that Adaro is no longer required for Hudson. The other thing to keep in mind as we think about coal dispatch within our region is don't forget the BET costs. Obviously, will get folded into how we think about our dispatch, and that increases the cost for those units, Mercer and Hudson, on a megawatt-hour basis. So net-net total, slightly up per megawatt hour in total coal dispatch costs when you think about those economics.

Your next question comes from Julien Dumoulin.

I just wanted to ask more on the capacity market expectations, what are you guys thinking for this upcoming auction latest in light of the latest revisions, and then also with respect to PS North, is that something that you would anticipate clearing potentially separately? And I'll begin there.

Julien, as you know, we don't forecast the results of the auctions, not for BGS North RPM. I do believe PJM came out with their latest load forecast which is available on OASIS. It's modestly less robust than prior forecast but don't mean to be disrespectful. We just don't like to forecast what those outcomes might look like.

And then beyond that, as I can tell from your comments, it seems that you're looking at participating in the New Jersey auction itself or a New Jersey arbitration for the new capacity. Is that operating simultaneously with your litigation? I mean, how are the various pieces moving there with regard to your decision of participating on that side?

Yes. The answer to that is they are operating simultaneously. And we don't think that having government-managed supply is the best way to go. And we are making that case both in the courts. And having said that, if people disagree with us, we have to make sure the lights stay on and that we participate in whatever mechanism our policymakers choose to provide supply. So unfortunately, these things cannot happen sequentially. They are all going on at the same time. So yes, we are participating in the New Jersey process.

Your next question comes from Brian Chen.

So you've raised the transmission CapEx outlook while the things now in PJM lowered the load forecast a little bit, and then New Jersey did the power plant legislation. If you could just give a little bit more color on how much of the '11 to '13 CapEx is locked-in versus how much is potentially subject to delay? If you could kind of clarify that, or maybe just give some color on that?

So Brian, I don't think we lowered the transmission forecast if I'm not mistaken. I'll go back to doublecheck that number. But as you know, our transition forecast is a direct offshoot of the PJM RTEP process, the regional transmission expansion program. So that has multiple elements that go into it. One element of course as you pointed out is what's happening to demand. But a second component is what's happening to supply, both additions and retirements, and then single, double and subsequent contingency analysis. So I won't bore you with the rigorous engineering analysis of why certain 60, 90, KV projects needed, versus 230, versus 500 But we don't make up that transmission capital program. It's a direct offshoot of PJM's RTEP which factors in their demand forecast. With regard to any substantial increase in generation that results from the New Jersey process, well, we'll just have to see where that pans up. Our position has been and remains that the market has not been calling for the need for 2,000 additional megawatts. And that this will be a subsidized oversupplies circumstance if it does go through to completion. And I think that PJM is being consistent in its view of the world. They have filed at FERC something similar to the P3 group that is filing, which really sets at a lower cost way to make sure that reliability preserve right now is through RPM and the RTEP, and that would best meet the needs of the customers in the near and long term.

And then one extra question, on that court challenge versus the New Jersey legislation, can you just give us a sense of timeline and what sort of things to expect over, say, that six months or so?

So I think from the point of the court challenge that is very difficult to do. I would like to have you join me when I talk to our attorneys in-house to force them to give us that answer. But of course, no one is willing to predict court schedules or court outcomes. But we do believe that in the other venue namely at FERC, which is obviously a regulatory discussion, there the timetables are a bit more predictable, and we're believing a mid-April timetable for FERC to respond to our pleading and the PJM's pleading.

If that was an offer for me to join you with your attorneys, I'll take it.

But Brian, I think from the FERC perspective, what's really important is prior to the RPM auction in May.

Your next question comes from Michael Lapides.

One, what's the latest just in terms of the citing and permitting sides for Susquehanna-Roseland, that's question one? And question two, what are your thoughts about when you're going to file another distribution rate case?

Michael, so Susquehanna-Roseland remains with a critical path item of the National Park Service. And I don't believe we have anything we would report in that regard. So it's looking like a decision from them late in 2012 with in-service dates of the eastern part in 2014 middle of the year, in the western part in 2015 middle of the year. And then distribution base rate case, not as far as the eye can see, so we'd like to control costs and manage our CapEx in a way that we avoid having to seek rate release.

Is there kind of a rule of thumb, you mentioned you're just under 10% earned ROE. Is there a rule of thumb though kind of what your typical trigger point, meaning when you reach below a certain level of earned ROE, when you say, okay, now it's gone.

There is no magic number or bright line. Remember that 97 was because we had rate relief for half the year. So we would expect with our cost control to do modestly better than that this year. And also, we are making sure that any capital expansion programs that we have, and we've talked about several of them, both in transmission and distribution, have clause-like treatment that avoids the regulatory leg that can be so harmful to our shareholders. So I think we're -- just let me repeat as far as the eye can see, we're not anticipating base rate case preceding.

Operator, I'm just going to turn the call over to Ralph Izzo so at this point, if I may. Thank you.

So let me express my thanks to all of you for joining us today and your many questions. And allow me to remind you that on March 7, we'll have our Investor Conference in New York City. If you need the specifics of that, Kathleen and Carlotta will be happy to make that known to you. And we hope to see you there. If you have additional questions that arise between now and then, we'll have plenty of time to spend with you to go over that. And again, thank you for being with us today and hope to see you on March 7. Take care, everyone.

This concludes today's conference call. You may now disconnect.