Ralph Izzo - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of PSEG Power LLC, Chairman of Public Service Electric & Gas Company, Chief Executive Officer of PSEG Power LLC and Chief Executive Officer of Public Service Electric & Gas Company Caroline Dorsa - Chief Financial Officer and Executive Vice President Kathleen Lally - Vice President of Investor Relations

Dan Eggers - Crédit Suisse AG Paul Fremont - Jefferies & Company, Inc. Paul Patterson - Glenrock Associates Jonathan Arnold - Deutsche Bank AG Julien Dumoulin-Smith - UBS Investment Bank Andy Levy - Brencourt Advisors Gregg Orrill - Barclays Capital

Ladies and gentlemen, thank you for standing by. Welcome to the Public Service Enterprise Group Second Quarter 2011 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, August 3, 2011, and will be available for telephone replay beginning at 1:00 p.m. Eastern Standard Time, August 3, 2011, until August 10, 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, Natalia. Good morning, everyone. We appreciate your participating in our call this morning. As you were aware, PSEG released the second quarter 2011 earnings statement early this morning. The release and attachments are posted on our website at www.pseg.com, under the Investors Section of the website. We also posted a series of slides that detailed the operating results by company for the quarter. Our 10-Q for the period ended June 30, 2011, is expected to be filed shortly, in fact most likely by this evening. I'm not going to read the full disclaimer statement or the comments we have made on the difference between operating earnings and GAAP results. As you know, the earnings release and other matters that we will discuss in today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. 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 to do so. Our release also contains adjusted non-GAAP operating earnings. Please refer to today's 10-K or other filings for a discussion of factors that may cause results to differ from management's projections, forecasts and expectations, and for a reconciliation of operating earnings to GAAP results. 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 do ask that you limit yourself to one question and one follow-up, then we hope to have time for all. Thank you. Ralph?

Thank you, Kathleen. And thank you everyone for joining us today. Earlier this morning, we reported operating earnings for the second quarter of 2011 of $0.59 per share, compared with operating earnings of $0.63 per share, earned in 2010's second quarter. The results for the quarter bring operating earnings for the first half of 2011 to $1.44 per share, compared with the operating earnings of $1.50 per share earned in 2010's first half. We have achieved significant operational and regulatory successes during the past quarter. Although our results are being affected by lower realized energy prices, we are seeing a benefits of increased levels of investment at PSE&G, as well as the benefits to cost control and reliability that come with the operational focus of a dedicated workforce. Regulatory approval for several important initiatives should allow PSEG to maintain its position as a reliable supplier of low-cost, clean energy for the long term. The Nuclear Regulatory Commission approved PSEG's nuclear request to extend the operating license of the Hope Creek generating station and both sale in units for an additional 20 years. The approval was granted less than 2 years after PSEG Nuclear filed its request with the NRC in August 2009. This timely response speaks to the community support enjoyed by Power in Salem County, the preparedness of our workforce and the material condition and the facilities. The license renewal of these generating stations means clean nuclear energy will be available for New Jersey for years to come. The NRC has also released its assessment of the U.S. nuclear industry in response to the events at Fukushima earlier this year. We believe the report, which finds the U.S. plants are operated in safe manner to be objective. Bill Levis, President of PSEG Power and his team, have worked closely with the NRC, as well as with state and local officials, to keep them informed about the operations at Salem and Hope Creek. Also this quarter, the New Jersey Board of Public Utilities approved $368 million of additional spending by PSE&G on critical electric and gas infrastructure programs, as well as energy efficiency. These investments provide the opportunity to expand jobs at a time when the improvement in the economy appears to have stalled. Similarly, the Federal Energy Regulatory Commission granted approval for incentive rate treatment effective on June 14, 2011, for 3 of the 5 230 kilovolt projects with a total investment of about $1 billion. The incentive rates treatment covers approximately 80% of our request. A history of continuous engagement with our employees has supported the resolution of a labor contract with one of our larger unions that balances the needs of all parties. A focus on cost control helps us earn our returns and provides the opportunity for the growth implied by our investment program. We have been saying for some time that the future marketplace for energy will be influenced by environmental regulations. We are starting to see the forward market for energy begin to reflect the impact of EPA proposals. Without an increase in price, it won't be economic to maintain the operation of older coal-fire facilities. Our investment in environmental upgrades and our coal stations supports their operation under the more stringent rules proposed by the EPA. The recognition of a similar level of cost by other suppliers in the region will help to levelize the cost of supply between Connecticut, New Jersey and surrounding states. PSEG Power closed on the sale of the Odessa gas-fired generating plant in July for $335 million. The closing of the Odessa sale completed the Texas asset sale process announced by Power earlier this year, under which Power received a total of $687 million, which includes the sale of Guadalupe as well. We will use the proceeds from these asset sales and an already strong balance sheet to finance an expansion of our capital program while still preserving substantial financial flexibility. PSEG's capital investment program for 2011 through 2013 is now $6.9 billion compared to our prior forecast of capital spending over this period of $6.7 billion. As part of this revised forecast, PSE&G is now expected to invest $5.2 billion over this period, an increase of 15% from prior year levels, or the potential for growth in rate base of 11% to 12% per year. We are also evaluating the potential for increased to invest been under the state of New Jersey's Energy Master Plan. This could entail increase investment in our gas distribution system for enhanced reliability, as well as the expansion of our investment in solar depending upon the state's evaluation of the ability to meet its renewables promise at the least cost. And this growth, both planned and potential capital spending, can be financed without the need to access the equity markets. We start 2011 with good results. The energy markets have been strong than expected. We are, however, maintaining our forecast of operating earnings for 2011 of $2.50 to $2.75 per share. The expected decline in contracted energy and capacity prices with the year-ago levels that were effective on June 1, will continue to have an impact on our full-year operating earnings. Over the long term, a strong balance sheet, an asset mix well-positioned to meet environmental regulations, a longer life for our nuclear facilities and expanded capital program in areas that should provide the opportunity for good risk-adjusted growth and a focus on cost control should support our long-term objectives for top quartile shareholder returns. And now Caroline will review our operating results in more detail.

Thank you, Ralph. And good morning, everyone. I will review our quarterly operating earnings as well as the outlook for full year operating results by subsidiary company. As Ralph said, PSEG reported operating earnings for the second quarter of 2011 of $0.59 per share versus operating earnings of $0.63 per share in last year's second quarter. Slide 4 and 5 provide a reconciliation of operating income to income from continuing operations and net income for the quarter and the year-to-date. We have provided you with a waterfall chart on Slide 11 that takes you through the net changes in quarter-over-quarter operating earnings by major business and a similar chart on Slide 13 that provides you with the changes in operating earnings by each business on a year-to-date basis. So I'll now review each company in more detail starting with Power. As shown on Slide 15, PSEG Power reported operating earnings for the second quarter of $0.36 per share compared with $0.45 per share a year ago. Power's second quarter earnings were affected by a quarter-over-quarter decline in realized energy and capacity prices. A decline in capacity prices to $110 per megawatt day, from $174 per megawatt day on June 1 of this year reduced Power's earnings by $0.02 per share. A decline in energy prices under the most recent BGS contract to $94.30 per megawatt hour from $111.50 per megawatt hour, which was also effective on June 1, as well as the impact of other hedges, reduced earnings by $0.03 per share. A 6% decline in volume in comparison to abnormally warm conditions during the year-ago period, reduced earnings by $0.02 per share. An increase in customer migration from the BGS contract reduced earnings by $0.01 per share. As we said in the first quarter as well, higher depreciation expense coupled with the decline in capitalized interest associated with the commercial operation of the back-end technology at Hudson and Mercer would have an impact on Power's earnings. And in the second quarter, these items reduced Power's earnings by $0.02 per share. An increase in O&M expense on the Fossil's stations reduced earnings by $0.01 a share. The absence of trading related losses experienced in the year ago quarter and other miscellaneous items improved Power's earnings by $0.02 per share. I'd now like to go into a little more detail on the change in output and price experienced in the market and the markets served by Power's generating fleet. As I mentioned, total output declined by 6% in the quarter. This decline is partly the result of the more normal weather in June of this year compared with abnormally warm weather in the year ago quarter. Coal-fired output declined by 15% in the quarter. Our combined cycle units were also affected by the decline in weather-related demand and experienced a 5% decline in output during the quarter, from relatively high levels last year. The nuclear fleet experienced a 2% decline in output. Power's nuclear fleet operated at an average capacity factor of 90.3% during the second quarter, compared to an average capacity factor of 92.6% in the year ago quarter. Power's PJM-based assets, which provide 92% of the output generated in the quarter, experienced a 3% decline in output. The quarter-over-quarter reduction in output was mainly the result of a decline in output from our New Jersey based coal stations as output from the PJM-based combined cycle units actually increased by about 3%. Although our results have been hurt by a decline and realized prices for hedged capacity and energy in the quarter, market prices have improved with an expansion in heat rates. And as I'll mention later in more detail, we're poised to take advantage of that. Importantly, this improvement in market prices have also reduced the impact of migration on Power's earnings. Approximately 33% of BGS related volume had migrated to third-party suppliers by end of June, compared with 31% at the end of the first quarter. This level of customer migration was slightly less than our forecast and a continuation of the pattern witnessed in the first quarter. So we are as a result, reducing our full year estimate of average customer migration to 34% from the prior 35%. This estimate assumes between 37% and 39% of customer load will have migrated from BGS by the end of the year. Most importantly, however, headroom has declined during the quarter versus year ago levels and our expectations. A continuation of these trends would result in headroom for the full year at levels experienced in 2010. Remember that abnormal conditions experienced in the second half of 2010 caused headroom to completely collapse during 2 months of that second half period. The improved environment for pricing over the short term is partly the result of very warm weather conditions. As many of you may be aware, Newark hit a high of 108 degrees on July 22 and experienced a weeklong period of sustained hot and humid weather. And of course, you'll see these results as part of our third quarter earnings. Prices in the forward market also appear to anticipate the impact of new EPA rules governing the emission of sulfur and nitrous oxides. EPA's Cross-State Air Pollution Rules, often called CSAPR, which are the replacement for the Clean Air Transport Rule, proposes a greater reduction in SO2 and NOx for our New Jersey facilities and under the preliminary draft of the rule. The rule also exempts Connecticut and allows some trading of emission credits among the states subject to CSAPR, specifically among all the CSAPR states for NOx, and among the 16 Group 1 states for SO2, New Jersey's part of that 16 Group 1 states. Given the capital of investments made by Power over the past 5 years and equipment to reduce the emission of sulfur and nitrous oxides, Power is in good position in New Jersey and Pennsylvania to meet the requirements of CSAPR. Let me move now briefly to our hedge position. On Slide 20, we provide you with an update of Power's hedge position. For the balance of 2011, Power's base load output is fully hedged at an average price of $68 per megawatt hour. With 30% to 35% of our intermediate load hedged, approximately 70% to 75% of total expected generation for that period is hedged at an average price of $68 per megawatt hour. Power's assets by staying partially long in the summer as a result are well-positioned to capture the improvement in margin from current pricing, as well as over the long term, as we typically hedged with this type of strategy. For 2012, hedges are in place for approximately 75% to 80% of expected base load generation of 36 terawatt hours at an average price of $64 per megawatt hour. This equates to approximately 45% to 50% of expected total 2012 generation of 56 terawatt hours, hedged at an average price of $64 per megawatt hour. For 2013, approximately 35% to 40% of anticipated base load output is hedged at an average price of $63 per megawatt hour. Again, equating to hedges on approximately 20% to 25% of estimated total generation of 56 to 58 terawatt hours at the average price of $63 per megawatt hour. Our total hedged position for 2012 and '13 is slightly higher than our prior positions if you're comparing to first quarter. The prior positions were about 40% to 50% of total generation for 2012 hedged at $66 per megawatt hour and 10% to 20% of 2013's total generation hedged at $69 per megawatt hour. We're maintaining our forecast of Power's 2011 operating earnings at $765 million to $855 million. Although wholesale market prices have been stronger than forecast, Power's earnings during the remainder of the year will be influenced by a decline in contracted energy and capacity prices with the implementation of the new BGS and RPM capacity contracts at prices lower than year ago levels. Power's operating earnings in the second half of 2010 also benefited from those extreme weather conditions which supported output. While we've seen some of that in July, it's too early to forecast anything other than normal weather for the rest of the year. Power's results during the remainder of 2011 will also continue to reflect the increase in depreciation expense that we have noted in the first and second quarters of the year. Let's now turn to PSE&G. PSE&G reported operating earnings for the second quarter of 2011 of $0.21 per share, compared with $0.15 per share for the second quarter of 2010, as you see on Slide 23. PSE&G's results were driven by rate release and improved returns on higher levels of capital investment. An increase in electric and gas rates that went into effect on June 7 and July 9, 2010, respectively, improved earnings by $0.01 per share. An annualized increase in transmission revenue of $45 million effective on January 1, 2011, added $0.01 per share to results. And return on investments made under capital adjustment clauses supporting our investments in renewables and energy and gas infrastructure programs added $0.02 per share to earnings. Quarter-over-quarter earnings comparisons were also aided by weather in the heating season and by the implementation as part of the rate case settlement of the gas weather normalization clause. In the second quarter heating season, it was cooler than last year but still warmer than normal. So this outcome added $0.02 per share to earnings. Lower volumes quarter-over-quarter reduced earnings by $0.01 a share and a reduction in operating and maintenance expense, as well as a result of the decline in pension costs and the absence of a write-off that occurred in the second quarter of 2010, combined to add $0.03 per share to earnings from O&M. An increase in depreciation expense as a result of an increase in capital spending, reduced earnings by $0.01 per share. Other miscellaneous items combine to reduce earnings by $0.01 per share. As Ralph mentioned, PSE&G received important regulatory support for its investment programs. FERC granted approval for incentive rate treatment effective on June 14 of this year, the 3 of the 5 230 kV projects with a total investment of about $1 billion. The incentive rate treatment covers 80% of our request and provides for a recovery of construction work in progress and 100% recovery of prudently incurred abandonment costs. These projects are authorized to earn a return on equity of 11.68 under formula rates. In addition, the New Jersey Board of Public Utilities recently approved an increase in PSE&G's spending on energy efficiency programs and electric and gas infrastructure of about $368 million. The BPU order also requires an additional $96 million of base capital spending on electric and gas distribution. So PSE&G, as a result of the supportive regulatory treatment, as well as an update of forecast spending on transmission, has increased its capital spending for the period 2011 through 2013 to $5.2 billion from the previous estimate of $4.6 billion. The revised capital program will provide the opportunity for annual rate based growth, as Ralph mentioned, of 11% to 12% from the year end 2010 period through the end of 2013. PSE&G's investment in transmission represents more than 50% of the proposed capital spending program over this period. We're maintaining our forecast for PSE&G's 2011 operating earnings of $495 million to $520 million. PSE&G is expected to earn its authorized return on equity in both the distribution and transmission businesses. The return is a result of full year of electric and gas rate relief granted in 2010, as well as increased transmission revenue. Our forecast of operating earnings for the full year assumes PSE&G is able to maintain its returns given a control of its expenses, as well as increased levels of capital investments. Now let me turn to PSEG Energy Holdings. Holdings reported operating earnings of $0.01 per share, the second quarter of 2011, versus operating earnings of $0.02 per share during the second quarter of 2010. The decline in operating earnings for the quarter reflects the absence of tax benefits recognized in the second quarter of 2010, associated with the startup of the solar projects in Ohio and Florida. We're maintaining our full year estimate of operating earnings for Holdings at 0 to $5 million. Holdings remained focused on investing in renewable projects that provide a reasonable return and scaling back its investments in non-core areas. Holdings currently has approximately $115 million invested in 3 solar projects with the capacity of 29 megawatts that meet our financial and operational goals. Our assessment is that it's difficult in the current market to find projects that meet our threshold for adequate returns and Holdings is, therefore, scaling back its planned level of capital spending over the 2011 to 2013 period to $40 million from $570 million. I'd also like to provide you with an update on one leverage lease investment within the portfolio of assets held by PSEG Energy Resources, which is a subsidiary of Holdings. Roseton LLC and Danskammer LLC, indirect subsidiaries of PSEG, are the owner Le Sueurs of the Roseton and Danskammer electric generating facilities, which are leased to indirect subsidiaries of Dynegy and Dynegy Holdings Inc., or DHI. DHI has guaranteed the payment obligation of the leases to these PSEG entities. As a result of DHI's proposed transfer of substantially all of its coal and natural gas-fired generation assets other than the Roseton and Danskammer facilities to new, quote, "bankruptcy remote subsidiaries," the PSEG entities filed suit against DHI in the Delaware Court of Chancery to halt DHI's proposed transfer and protect our rights under the DHI guarantees. The PSEG entities request for a temporary restraining order was denied on Friday, July 29, and we have since sought review with the Delaware Supreme Court. As of June 30, 2011, the PSEG entity had a gross investment in these leases of $264 million. A foreclosure event could result in an after-tax charge between $170 million and $180 million. As part of this potential foreclosure event, PSEG could be required to pay approximately $100 million to satisfy income tax obligations. This potential cash tax obligation is fully reflected in the overall estimate of the aggregate after-tax charge that I just mentioned. Please keep in mind that the numbers that I'm giving you here are worst-case scenarios and it is not a forecast of the outcome as we continue to pursue our rights in this matter. Please also note however, that given the active litigation status, we won't be able to answer any questions related to the Dynegy matter in the Q&A. Finally, let me just briefly mention what's happening on the financing side. PSEG ended the second quarter with $159 million in cash. As a reminder, PSEG Power retired $606 million of maturing 7.75% senior notes in April, using our cash on hand. And of course, cash at quarter end doesn't reflect the receipt of the proceeds from the sale of Odessa, which occurred in July. Also in April, PSEG, PSE&G and Power each entered into 5-year credit facilities totaling $2.1 billion in credit capacity. The company's total credit capacity is now $4.3 billion, an increase of $650 million since year end. And of this amount, approximately $3.7 billion was available at the end of June. Powers and PSE&G's operating cash flows have improved in 2011 primarily due to a decline in tax payments related to the benefits of bonus tax depreciation which we've spoken about before. The improvement in operating cash flow and the proceeds from asset sales have supported our financial strength. At the end of June, debt represented 42% of PSEG's capitalization and 35% of Power's capitalization, providing the corporation with significant financial flexibility to meet the planned expansion in capital spending. So overall, we're very pleased with the quarter and maintain our operating earnings guidance of $2.50 to $2.75 for 2011. Beyond being pleased with the quarter, we're also pleased with the operational progress that we believe positions us for future financial success, specifically, the nuclear license extension; the success of our environmental program, which positions us to benefit from the upcoming regulations; the continued success of our cost management efforts; and the future opportunity to make significant regulated investments, which support reliability for our customers and can be accomplished with the balance sheet that supports a good return to our shareholders. As Power markets appear to improve, we can take advantage of that while delivering, at the same time, a growing utility. With that, we're now ready to take your questions. So Natalia, I'll turn it back over to you to introduce the Q&A.

[Operator Instructions] Dan Eggers with Credit Suisse. Dan Eggers - Crédit Suisse AG: I was wondering if you could just shed a little more light maybe on kind of what's going on in New Jersey with the reviews on the Commission on the need for new generation resource on a long run planning basis and kind of what your input has been, where you see that process playing through? And then kind of given all that happened with LCAPP this year, are there mechanisms the state has available, that if they wanted to force new generation outside of the RPM process, that you see their ability to do that?

Dan, I think there's been an announced schedule, I don't have specific dates, I believe there's another hearing expected in September. But what's planned is that by the end of the year, the state would like to reach some kind of conclusion as to whether or not additional capacity is needed and how it can be secured in a least cost manner. I think the big question in the state's mind is what happens to the HEDD units that are under some ground-level ozone challenges in the 2015 timeframe. And in particular, our concern about PS North zone which fairly consistently prices higher in RPM than other areas. The approach we're taking is that the sensible way to introduce new capacity into the region is by improving the efficiency of markets by making them more transparent and by reducing the risk of investors. And our advocacy has been to make some changes to the RPM process that are pretty straightforward, linking up the timeframe for RPM with the RTEP process, allowing a mechanism whereby people can get multiyear pricing as opposed to 1 year price, 3 years out, clarifying the interconnection process so that there's a little greater certainty for investors who are proposing new generation plants so they're not wondering what their interconnection cost will be. All of those things de-risk new investment and, therefore, I believe are a win for both the investor and the customer. And it's quite contrary to the approach the state took in the LCAPP process, which exacerbated the risk for investors, because you didn't know as an incumbent whether or not somebody was going to intervene in markets. And I think that, that approach is going to have a chilling effect on new investments until we come to some agreement on what the rules will be. So I think that there's a legitimate concern on the part of the state about future supply, and a genuine effort on their part to see how to incent that new supply, and an intelligent dialogue going on among all players about how do that in a way that's fair to existing investors and future investors. And that will play itself out over the next 6 month or so. But we are very active participants in that discussion. And as is always the case, look to do what's best for our customers, as well as investors. Dan Eggers - Crédit Suisse AG: Now do you -- kind of given that your government moves in one direction, they tend to get focused on one direction, unfortunately. When you think about kind of a revision of the PJM planning process and the time horizon to meet resource needs relative to the plant closures at the end of '15, can a solution be found in a timely fashion that meets the goals of where the state is headed, or is there going to be a -- is this going to become a more difficult process as the year moves on?

Well, I think you're going to have a couple of processes in parallel that I'm optimistic will converge. I mean PJM recognizing that it has next May, another base residual auction coming up. It seems to me to be quite committed to a stakeholder process resulting in whatever modifications are needed to RPM sometime late this fall, I would say more of an October timeframe. The question then will be whether or not as in any stakeholder process, the stakeholders who don't get everything they want are satisfied with that, and then clearly a principle stakeholder that processes is the one we've talked about in New Jersey. I'm encouraged by the fact that in this multi-participant dialogue, which by the way focus on important constituency, there appears to be a recognition that a lot of good stuff has come from the market. One of the things we didn't talk about in our prepared remarks is that in some pretty significant heat, we've not set all-time peaks. That's probably coming from the fact that DSM has brought to the market and on much lower cost than new generation. So you're seeing RPM, which is a nondiscriminatory method for bringing in all solutions on both the supply and the demand side, really having a quite a powerful effect from a consumer point of view. And we like that approach because quite candidly, we're in modest enough to think that we're very strong competitors and what we don't like is interventions in that, that favor people who are not strong competitors. So I do think that there are several processes going on underway at the same time, there's the PJM stakeholder process and there's the BPU process. And I would like to believe and I do believe that those processes will convert if we allow them to play out in a rational way. Dan Eggers - Crédit Suisse AG: And one last question, Ralph, just on the peakers that are scheduled to close at '15, is there a potential, real potential that, that closure date can get extended for some period in time, is there a process going on right now? Or is that realistically, those are going to be done at the end of '15?

So there is a discussion underway right now with the Environmental Protection Agency. I mean, this is a classic example being of cost benefit. I'm not going to stand here and say that those peakers are the cleanest units in the fleet and that there aren't new capacity that doesn't have the potential to be cleaner. Clearly, those are 40-year-old FP4 [ph] units that are not the pride and joy of a company that talks about its environmental friendliness. On the other hand, they are a hell of a lot cheaper insurance policy than building new peakers or being replaced by combined cycle units which would have a grossly underutilized capacity factor. So the real question becomes, do you want to get a little bit more benefit out of the cost promised by those units for a couple of years in an economy that's really limping along, or do you want to be more aggressive on your environmental impact and retirement in '15, and that's a discussion we're having with all the relevant party.

Your next question is from the line of Paul Fremont with Jefferies. Paul Fremont - Jefferies & Company, Inc.: I guess, my first question is the lower coal volumes that we're seeing in Connecticut, is that -- should we assume that, that's going to continue going forward, and why such a steep drop off in output level in Connecticut?

Keep in mind one of the things that you always have to look at in the year-over-year is the weather impact, right? And so we have a significant weather impact in the business on a year-over-year basis in the second quarter. June was very warm last year and, in fact, if you look at our generation output, it was much higher than normal last year. So when you compare last year with this year with normal weather versus very, very hot weather, you have that reduction that you would expect to see.

It's a little tricky, right, Paul, because we've had a warmer than normal June this year, but compared to the extremely warmer than normal June last year, when we do the year-over-year comparisons, that output is down. Paul Fremont - Jefferies & Company, Inc.: And when I look at utility O&M levels and the reduction in the second quarter, I mean, are we going to see similar reductions in the second half of the year that you experienced in this quarter?

Right. So you remember that the utility post the rate case started some significant management, as it always has, but with renewed bigger on O&M management. But 2 things keep in mind, so this year versus last year, we recently announced some changes to our pension program and that has a significant benefit to the utility. You expect to see that continue and we just announced that in this quarter. But also keep in mind last year, when we settled the rate case, one of the things that we did was we took a write-off for some costs for our new customer system in the second quarter specifically that had an impact, negative impact to O&M in the second quarter of 2010. So when you compare that quarter-over-quarter, we look more favorable now because we took a hit in the second quarter, and it was $0.02. So you will continue to see the utility's O&M management. You will continue to see good compares O&M on a year-over-year basis, but you won't see replicated the kind of quarter-over-quarter because of that one-time effect that resulted from the rate case settlement. Paul Fremont - Jefferies & Company, Inc.: And last question would be, I mean, if one of the New Jersey plants were to succeed in next year's auction, I mean, can you give me a sense of what that would do to your pricing expectations in the auction?

The answer to that, Paul, is no, because we don't predict the future auction. But it's pretty safe to say however, when those that succeeded, that would mean the capacity prices would have to be equal to or greater than 0.9x MOPR, because you can rest assured that everyone of those plants will be bidding the minimum price they could possibly bid, which would be a number of PJM will publish in January. Paul Fremont - Jefferies & Company, Inc.: Any thoughts in terms of directionally in terms of MOPR next year versus this year? Would it be roughly the same, slightly higher?

Sir, what you have to ask yourself is what's happening to energy prices in '11 and we saw this important months ago versus what were energy prices doing in '08. And in '08 while we didn't have this kind of weather, we did have a fairly high gas price, and so '08 will be dropping off and '11 will be picking up. And then the coal will be updated and, typically, that does tick up a modest amount. So those are the factors you have to factor in.

Your next question is from the line of Paul Patterson with Glenrock Associates. Paul Patterson - Glenrock Associates: On Slide 25, the weather versus normal, I was wondering if -- I mean, sorry if I missed it, but is there any quantification as to what weather year-to-date versus normal was in terms of a bottom line impact? I can sort of see where the utility is but sort of a little more color maybe on the generation side.

On the generation side? Yes. So it's $0.01 for weather on the generation side of the business. And keep in mind, Paul, as we talk about weather in each of our businesses, we have 2 different things going on, right? So in the weather for the utility we're often very focused on the gas business, because the gas business supports the heating season and that's a big contributor from a weather perspective to PSE&G. And so that's the gas discussion that I commented on earlier in my remarks of a $0.02 impact from the weather. For PSEG Power, we're typically talking about the electric side and the air-conditioning season, right? So even in this quarter, I'm effectively talking about both, right? I'm having an impact for the air-conditioning season in June, not being as robust as last year's June. And then for PSE&G, I'm talking about the heating season at the beginning of the second quarter. So if you look at the kind of the overall for the businesses, if you look at our waterfall on Page 11, you can see that for PSEG Power for the quarter, it's a $0.02 negative in total for volume and weather. And then if you look at PSE&G for volume and weather, you have a positive $0.01. And whether this aggregation from volume can be a little bit tricky. So if you think about that together, you've got a little bit of positive for the gas business in PSE&G. Paul Patterson - Glenrock Associates: Right, I guess, what I'm thinking is, I'm wondering versus normal?

Oh, so well for Power, weather this year was closer to normal, particularly in the second quarter, closer to normal. And as I mentioned relative to PSE&G, it was cooler than last year but still a little warmer than normal for the heating season. So it's normal on the things on the electric side relative to air-conditioning, if you will, for this quarter. And still a little warmer than normal, so that's sort of a negative on the heating season side for PSE&G. Paul Patterson - Glenrock Associates: So the generation wasn't impacted by weather that much?

The generation was impacted by weather and volume to the extent of about $0.02 for the quarter. Paul Patterson - Glenrock Associates: For the quarter versus the other quarter, but I guess versus normal, I'm just looking at this, it didn't have a big impact versus normal?

Not a big impact versus normal. Remember when we do quarter-over-quarter, the compare to last year's second quarter was an extraordinarily warm quarter and, therefore, a lot of weather based air-conditioning utilization. Paul Patterson - Glenrock Associates: And then just finally, we've got more clarity on EPA, obviously, on your CapEx program. And we have a pretty accommodating debt market, it seems. Is there any thought about maybe changing the debt equity mix going forward, or what are your thoughts when you look at sort of the future here and your strong balance sheet and what have you, and opportunities that might be there?

I think, Paul, we're still marching to the same tune, in terms of volume, preserve FFO to debt ratios at Power in the mid-30s and preserving the utility capital structure as per the regulatory agreements. And clearly, we're strong those measures right now at Power, but we do think we have some opportunities for further investment. We talked about some of them on the call today, we're looking forward to the six-month discussion on finalizing the Energy Master Plan and what that might mean. And we're looking forward to further clarification on some of the EPA rules and what that could mean for transmission enhancements going forward to preserve reliabilities and units to come out. So we're not at this point interested in changing the capital structure of the business and how we run it. But we do think the $670 million increase in PSE&G investment from the last time we spoke may hold the opportunity for the revisits as the E&P plays out. Carol, do you want to add anything to that?

Just to add, we're having the financial flexibility on the balance sheet gives us the opportunity to consider all of this, of course, without issuing equity. And when you look at the increases in the capital expenditures for PSE&G, as Ralph mentioned, the $670 million from what we last discussed, keep in mind that although transmission is the significant portion -- the single biggest portion of the 3 items there, as we talked about a lot of our transmission capital expenditures, as we talk about programs like Susquehanna-Roseland and the Northeast grid, outside the 2013 period, if you looked at our total CapEx by those particular projects, we've still got slightly in excess of $900 million in completion of those projects, particularly Susquehanna-Roseland and the Northeast grid, that are outside the forecast we've given you through 2013. So there's a lot of money that we expect to be putting to work in the utility, and our balance sheet supports our ability to do that, not just what we forecast through '13, but that additional amount that goes from completing these important reliability projects that we've been talking about for quite a while.

Your next question from the line of Jonathan Arnold from Deutsche Bank. Jonathan Arnold - Deutsche Bank AG: Just a quick clarification. What is your CapEx forecast assumed for the timing of specifically Susquehanna-Roseland?

Sure, so for Susquehanna-Roseland, we're basically still on the same timing that we've talked about before. And that is the eastern portion done by the mid '14 and the western portion, meaning the part with the transferred capacity from Susquehanna-Roseland, done by mid '15. And based on discussions that have been underway at various forums, including with the federal government, we're still keeping with that timeline. Jonathan Arnold - Deutsche Bank AG: And is that commensurate with sort of a decision being pushed into early '13, which is what I think your last disclosure was?

No. We talked about the fact that we had just gotten notified last quarter when we were on the call relative to reconsideration. But we're still working on the expected timeline of a decision by the Parks Department relative to the route by October 2012, which we still think is a fair way to think about how that program will roll out. Jonathan Arnold - Deutsche Bank AG: If that doesn't occur -- if there is further slippage, that would affect the dates we just talked about?

It could. I mean, always, slippage could affect the dates. But at this point, we don't have any information that suggests to us that we need to change the expected dates at this point. Jonathan Arnold - Deutsche Bank AG: Okay. And then on the capital discussion that you were just having, it seems like you've kind of dialed back a decent amount of spending that was going to happen at Holdings. And then most of the additional is going into the utility, which we imagine kind of primarily financed at the utility level. What's the -- the incremental kind of reason for the holding back, is there more spending you see potentially out of some of the things you talked about at Power or outside of PSE&G, or is it using the flexibility to bolster of the utilities? I'm just kind of not fully clear.

No, that's a good question, Jonathan. So the way we think of it is we look at the opportunities and one of the things that we always talked about is the disciplined investment strategy maturing that we can put our capital to work and good risk-adjusted returns for our shareholders. So when we look at the 3 businesses, we look at the opportunity to see any and each of those businesses. So for Power, we've not adjusted the forecast because the significant CapEx for EPA related or environmental is basically completed, as you know. The things that are still in for Power's capital spending are things like the peakers that we've bid and cleared in previous capacity auctions, and things like the nuclear operated Peach Bottom which we still forecast, which you know has a good return for us. When we look at PSE&G, we increased this capital spending because of the opportunities we saw to put money to work at a good risk-adjusted return, whether it's formula rate for transmission or incremental spending that was authorized by the BPU that enhances customer reliability. When we look at holdings, it's not a matter of saying that because we had the opportunity to increase PSE&G that we had to decrease Holdings, because as we just talked about on the last question, our balance sheet gives us the strength to really pursue those areas across our businesses that have good returns. What we're saying at this point is in the Holdings business, some of the returns that we see some of these solar projects clearing at are not the kinds of returns that we think makes sense from a shareholder perspective on a risk-adjusted basis. So it's not about we have to reduce one to increase the other because we have the balance sheet to pursue these 3 businesses robustly, it's really about where are the opportunities and where might the opportunities appear to be at this point less robust. I just want to add one thought to your comment about the utility financing. Keep in mind, of course, that when we talk about these utility capital expenditures, you should always assume in your model that the financing of them is consistent with the utility's capital structure; i.e., an equity ratio of 51:2, which means that you've got half of them being -- half of the spending financed by debt and the other half is financed by the company overall. So what that effectively means is the utilities get to keep its earnings and cash flow to reinvest in its business because Power is generating cash flow in excess of its needs and that cash flow supports our ability to support the shareholder dividend and to make other investments in the business. So each business keeps an appropriate capital structure, it's opportunistic across all 3 based on opportunities, not a bad place to be when you have a balance sheet that allows you to say you can increase one without having to take down the other, but just pursue opportunities across your businesses wherever you find them. Jonathan Arnold - Deutsche Bank AG: Is it fair to say the utility plan to you have now is self-financing, as in the equity is coming out of retained earnings and the debt you'll finance in the market?

No, so we finance the debt in the market to keep that capital structure, right? And then the utility generates cash flow, keeps its cash flow, and we put money in or take money out just depending on how to spend rolls out over time to enable us to keep that capital structure. So I think the way I would suggest you think about it is, Power has the excess cash flow that supports the shareholder dividend and putting money into the other business as need be, and the utility rose its debt consistent with its capital structure and keeps its cash flow, and then we balance whether there's net money moving up or down from the utility based on the progression of the capital expenditures and based on the cash flow. Jonathan Arnold - Deutsche Bank AG: Based off the sort of next 3-year forecast that you have before us now, is the utility consuming some cash or is it actually still self-financing?

On this period that we're talking about here, utility is net cash consumer to some extent. But remember one of the other things that's positive for both of our businesses over this period is bonus depreciation. So don't forget as you think about the forecast that we've given before and we've given that stacked bar chart for cash flow, both of our businesses, both Power and Utility, significantly benefit from bonus depreciation and you may recall that we talked about its impact over this period actually out through 2013, to be a net impact in both businesses, net of $800 million about $900 million this year and next offset by about $100 million going the other way, if you will, with tax depreciation unwinds versus normal. And that benefit was a little more than half to the utility and a little less than half the Power. So versus what you would normally think of when you put capital to work, the cash flow benefits from tax depreciation make that a higher number than your models might otherwise normally assume.

But Jonathan, just to be sure, Carol has already said it a couple of times, PSEG is self-financing. Jonathan Arnold - Deutsche Bank AG: I thought she just said it wasn't.

PSEG, the parent.

The parent versus PSE&G. Jonathan Arnold - Deutsche Bank AG: And within the competitive businesses, for want of a better term, should we think that you have dry powder currently within the plan that you could deploy without incremental equity needs, you're holding back for things we don't yet know about, or how should we think about that?

So the first part of your question, in terms of dry powder, the answer is yes. Those kinds of debt to cap ratios that I mentioned in my prepared remarks that's 42% for the company and about 35% for Power, right? In terms of debt to cap, give us FFO ratios for Power, for example, that are well in excess of what we need on the floor for our solid BBB rating. So we have dry powder that we can put incremental financing in Power, but it's not to do things that we're holding back, or not telling you about, it's when we see good opportunities that provide good returns, I think the real bottom line to that is, we have the balance sheet that if we see those we can go get them. And we can go get opportunities if we see them in Power and Holdings without putting anything at risk on the ability to execute the PSE&G plan.

Your next question comes the line of Gregg Orrill with Barclays Capital. Gregg Orrill - Barclays Capital: Just wanted to follow up on capacity rules. There was for a FERC technical conference last week, technical conference at FERC about PJM and one of the things that PJM brought up was 5 to 9-year timeline for new capacity in the auction. Where do you see that consensus developing and discussion right now?

Gregg, that's an impossible question to answer. I don't think there is a consensus right now. Except to say that most folks realized at a 40-year asset life was the 1-year price signal, we could do better than that. So whether it's going to be 3 or 5 or 7, it's not going to be 9 or 15. But my prediction, and it's just that -- maybe I do want Kathleen to read the disclaimer statement now -- is that it will be something greater than 1 in the 3 to 5-year timeframe, is just an educated guess. Gregg Orrill - Barclays Capital: And then maybe just touching on the hedge rules. Again, is there any way to know or what is your view maybe on how much of that capacity has been taken in PJM auctions such that if the rules did come down 2015, how would that have a financial impact?

It's pretty been much all of it, so you can think of it as about 2000 megawatts or thereabouts. So that has cleared in prior auctions.

And keep in mind we're replacing that with our peakers 270 megawatts that is being replaced by the peakers that we've previously bid and cleared, that goes against that 2100.

Your next question is from the line of Andy Levy with Caris & Company. Andy Levy - Brencourt Advisors: As far as M&A, what I mean by M&A, just more -- just looking at your Power assets, are you looking to add any Power assets, whether it's in your region or outside? I mean, obviously, I know you just got rid of the Texas assets, but what are your thoughts there on just keeping what you got, changing around what you've got, adding to what you got?

Andy, so relative to Texas, you're right, we did just complete the Odessa transaction and so that completes the sale of both of our assets both Odessa and Guadalupe in the first and the third quarter, and we're pleased with the those results, as I'm sure you know. We are always looking for asset opportunities, focus more, if you will, on our core markets, so PJM, New York, New England. I mean, I said we just talked about in the last 2 questions ago, we certainly have the balance sheet to do that. What we look at are obviously, those assets where we can see the opportunity for a positive NPV when we look at the long-term cash flows. So what that means is either assets where we see that opportunity just by doing the modeling, using 4 curve assumptions, or assets where we see opportunities that we can, perhaps, bring some of the operational excellence focus and we have the Power to either run those units better or put them in the market through our hedging capabilities better, so we see our way clear to that money can be put to work at a positive NPV. So we left Texas because it wasn't core market but also because as we were looking at other assets in that market, we saw clearing prices that seemed to be much higher than we would ever want to spend to buy. And after you see that, enough times you ask yourself whether it might makes sense to sell given the value that might be there. So we're pleased with that result. But that should not be interpreted as we're not always looking for opportunities where were could assets in our core markets. We absolutely are. They just have to meet our financial hurdles.

Your next question comes on the line of Julien Dumoulin-Smith with UBS. Julien Dumoulin-Smith - UBS Investment Bank: In light of what you guys have discussed thus far for Power, I just want to make it explicit, you wouldn't expect paying down any further data at Power, right? It seems that you've achieved your 35% FFO targets, respectively?

Right. So in terms of Power debt paydown, really the only major Power notes that's up for maturity is not until next year. So the pay down that we made of the $600 million in April, we don't have anything close to that until next year. The next maturity is June of next year for significant dollars of the $600 million. Julien Dumoulin-Smith - UBS Investment Bank: And wouldn't you anticipate refinancing that more likely than paying it down, correct?

Well, I mean, if you look at the capital structure and the cash needs, you would expect that Power would be doing refinancing over the planning horizon, that would just be consistent with the way we fund the business. Remember that our ability to pay down this debt in April was, in part, the reflection of the fact that we had Texas proceeds so we're not expecting to have something like that in upcoming periods. We always try to keep appropriate capital structure not be too under levered. Julien Dumoulin-Smith - UBS Investment Bank: And then maybe just a follow-up to that, you've kind of discussed or alluded to EMP opportunities on the gas side. Any kind of timing around that, sizing around that? Anything we should pay attention to in terms of getting sort of the next data point around the CapEx cycle?

I wouldn't want to be precise about timing, Julien, but I think you're seeing a series of dialogues taking place. It really began with the water companies in New Jersey who had been in a position -- I'm not an expert on this, so I may use words that are a little bit more aggressive than they need to be. But it had appeared under investment in their infrastructure and a recognition by the Board of public utilities that this was partly a result of the regulatory lag that they were experiencing, and the desire to engage in the conversation around clause type of recovery mechanisms for their business. Then fast-forward to this year, where we've had the benefit of 2 years of significant declines in gas prices, I think PSE&G has reduced the gas supply rates by over 30% in that period of time, and yet has an aging infrastructure. So the rational thinking point of both the BPU staff and us in the direction of, Okay, if we have an aging infrastructure and we have an opportunity here with the availability of construction labor and greatly reduced gas prices to reinvest in that system to preserve its reliability going forward, now is a good time to be thinking of that. So I believe all that gas utilities collectively are going in, in the not-too-distant future, with a similar proposal to what the water utilities have done. So we don't see ourselves as unique in terms of regular treatment with respect to that group. What makes us a little different is just the size of our system compared to the others. And I think that's part and parcel of that EMP dialogue that's going on right now. So I do want to say it's a September or December event, but it's an active discussion and one that's more out of the confluence of lower gas prices availability of construction labor and an aging infrastructure that could use some help. And the Energy Master Plan, itself, is expected to be finalized by the end of this year.

Operator, since we're over the time, we're going to just conclude with some remarks from Ralph.

Thank you, Kathleen. So thanks, again, everyone for being on the call. Look, I'm not going to pretend that I don't wish I could report on fuel commodity price rise, but I can't report on that. But I can tell you that we're beginning to see the expected effects of long overdue EPA regulations driven by the Clean Air Act, and the benefits what this means to us, given our advanced positioning with respect to environmental impact. We also take pride in the long-term implications of our Salem and Hope Creek life extensions, the focus and discipline we implied to our investment portfolio, which is reflected most recently in the successful sale of our Texas assets, and the recasting of our capital program. Now you can see an even greater emphasis on regulated investments and they range from energy efficiency to electric and gas distribution to transmission. And all of these at fair risk-adjusted returns, and all of them yielding important customer benefits. So all of this progress continues forward with a healthy balance sheet ensuring continued financial flexibility. So thank you for being with us, and I wish you all very happy remainder of the summer.

Thank you.

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