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February 23, 2012

PSEG Announces 2011 Results

Operating Earnings at Upper End of Guidance of $2.50 - $2.75 per Share

$2.77 Per Share from Continuing Operations
$2.74 Per Share of Operating Earnings

Company Guides to 2012 Operating Earnings of $2.25 - $2.50 per Share

(February 23, 2012 – Newark, NJ) - Public Service Enterprise Group (PSEG) reported today 2011 Income from Continuing Operations of $1,407 million or $2.77 per share as compared to Income from Continuing Operations of $1,557 million or $3.07 per share for 2010. Including Income from Discontinued Operations ($96 million or $0.19 per share), PSEG reported Net Income for 2011 of $1,503 million or $2.96 per share compared to Net Income for 2010 of $1,564 million or $3.08 per share.  Operating Earnings for the year 2011 were $1,389 million or $2.74 per share compared to 2010 Operating Earnings of $1,584 million or $3.12 per share.

PSEG also reported Income from Continuing Operations and Net Income for the fourth quarter of 2011 of $360 million, or $0.71 per share.  This compares to fourth quarter 2010 Income from Continuing Operations of $290 million, or $0.57 per share. Including a loss on Discontinued Operations ($8 million, or $0.01 per share), PSEG reported Net Income for the fourth quarter of 2010 of $282 million, or $0.56 per share.  Operating Earnings for the fourth quarter of 2011 were $237 million, or $0.47 per share compared to fourth quarter 2010 Operating Earnings of $303 million, or $0.60 per share.

“We closed out the year on a strong note with results at the upper end of our guidance” said Ralph Izzo, chairman, president and chief executive officer.  He went on to say “2011 was a year of significant accomplishment as we build an energy infrastructure for the future despite challenging conditions.  We received approval to renew and extend the Nuclear Regulatory Commission (NRC) operating licenses for our Hope Creek and Salem stations.  Our Hope Creek nuclear generating station exceeded its best annual generation operating at a 98.7% capacity factor.  Record generation from Power’s combined cycle fleet overcame weakness in coal-related generation demonstrating the benefits of the fleet’s fuel diversity. PSE&G’s strong, customer-focused operations withstood the impacts of two major storms in the second half of 2011.  Through focused planning and preparation, and with a highly skilled workforce, we restored hundreds of thousands of customers quickly and safely in both storms.  We made progress on our capital programs investing $2.1 billion in 2011 as we near completion in 2012 of 400 MW of new peaking capacity in New Jersey and Connecticut.  Major transmission projects designed to increase reliability remain on track for service in 2015.  In addition, we are expanding our interest in solar with the planned $75 million investment in a 25 MW facility in Arizona.”

PSEG believes that the non-GAAP financial measure of “Operating Earnings” provides a consistent and comparable measure of performance of its businesses to help shareholders understand performance trends.  Operating Earnings exclude the impact of returns/(losses) associated with Nuclear Decommissioning Trust (NDT) investments and Mark-To-Market accounting as well as other one-time items not related to ongoing operations.  The table below provides a reconciliation of PSEG’s Net Income to Operating Earnings (a non-GAAP measure) for the full year and fourth quarter.  See Attachment 12 for a complete list of items excluded from Income from Continuing Operations in the determination of Operating Earnings.

“We are issuing operating earnings guidance for 2012 of $2.25 - $2.50 per share”, said Ralph Izzo, chairman, president and chief executive officer.  He said that, “the contribution to earnings from our regulated business is expected to grow year-over-year; however, it will not be enough to offset the impact of lower power prices on our consolidated results.  We have made progress on our operational, capital investment and financial goals in 2011 which will take us through this period of low power prices, and provide for sustainable growth in value over the long term.  The Board of Directors recent decision on the common stock dividend established an indicated annual rate of $1.42 per share for 2012, a 3.6% increase.  The decision represents a change in our dividend policy.  We are moving from a strict earnings payout based approach to one that takes into consideration the growing contribution to earnings and cash from our regulated operations and continued cash flow from our generation business.  The dividend increase represents a re-set of the annual dividend rate.”

The following table outlines PSEG 2011 operating earnings by subsidiary and expectations for 2012.


Operating Earnings Review and Outlook by Operating Subsidiary

See Attachments 6 and 7 for detail regarding the quarter-over-quarter and year-over-year earnings reconciliations for each of PSEG’s businesses.

PSEG Power

PSEG Power reported operating earnings of $134 million ($0.27 per share) for the fourth quarter of 2011 bringing full year operating earnings to $845 million ($1.67 per share).  On a comparative basis, PSEG Power reported operating earnings of $212 million ($0.42 per share) and $1,091 million ($2.15 per share) for the fourth quarter and full year 2010 respectively.

Power’s quarterly earnings were affected primarily by a quarter-over-quarter decline in realized energy and capacity prices.  A decline in capacity prices to $110/MW-day on June 1, 2011 from $174/MW-day reduced Power’s earnings in the quarter by $0.07 per share.  A decline in energy prices under the Basic Generating Service contract (BGS) to $94.30 per MWh, also effective on June 1, 2011, from the prior $111.50 per MWh, as well as migration and other recontracting efforts reduced earnings in the quarter by $0.05 per share.  Demand in the fourth quarter was affected by above normal temperatures in the 2011 fourth quarter which compared unfavorably with below normal temperatures in the year ago quarter.  A 4.8% decline in volume lowered earnings comparisons by $0.01 per share.  Higher depreciation expense and lower capitalized interest reduced Power’s earnings by $0.02 per share. Power continued to sell surplus coal supply.  These sales added $0.02 per share to results in the quarter.  A premium paid on the early extinguishment of debt resulted in higher other deductions in the quarter and reduced earnings by $0.02 per share.  An increase in operating and maintenance expense reduced Power’s earnings by $0.01 per share.  Included in Power’s operating and maintenance expense in the fourth quarter is $0.03 per share of expense associated with the cancellation and re-negotiation of a major contractual arrangement for parts and services at our combined cycle facilities.  Other miscellaneous items added $0.01 per share to earnings.

Customer migration represented an estimated 34% of BGS volumes at year-end. This level of migration was in line with expectations, and compared with migration levels of 33% at the end of September 2011 and 27% at the end of 2010.  Despite the small increase in customer migration levels during the fourth quarter, Power’s energy margin and earnings were reduced by $0.02 per share in the quarter as a result of migration.  The impact on earnings is attributed to the increase in migration quarter-over-quarter coupled with a decline in market prices in the fourth quarter of 2011 relative to the year-ago period.

PSEG Power’s nuclear and combined cycle fleet continued their strong performance with generation for both improving quarter-over-quarter.  This strength offset a decline in the dispatch of Power’s intermediate load coal units which continue to be affected by a decline in dark spreads and low gas prices.

PSEG Power’s nuclear fleet operated at an average capacity factor of 91.3% during the fourth quarter resulting in a capacity factor for 2011 of 92.8%.  The Hope Creek nuclear facility, 100%-owned by PSEG Power, produced record levels of generation in 2011 operating at a capacity factor 98.7% for the year.  The combined cycle fleet’s strong fourth quarter operation resulted in a capacity factor of 54% for the year.

Power’s forecast output for 2012 of 53 TWh is approximately 75% -80% hedged at an average price of $59 per MWh compared with an average hedge price in 2011 of $68 per MWh.  For 2013, forecast output of 52 TWh is approximately 55% - 60% hedged at an average price of $53 per MWh.  The forecast represents a decline in output from 2011’s output of 54 TWh given the sharp decline in natural gas prices and compression in dark spreads which we expect may continue to limit the output from Power’s coal-fired units in the near-term. We forecast Power’s output returns to 54 TWh in 2014. Power has hedged 20% - 25% of that year’s forecast output at an average price of $57 per MWh.

Power’s operating earnings for 2012 are forecast at $575 million - $665 million.  The decline in forecasted operating earnings is due to lower energy prices in 2012 due to the roll-off of high-priced legacy hedges.  The recently completed BGS auction for PSE&G cleared at an average price of $83.88 per MWh effective on June 1, 2012 and will replace the BGS contract for $103.72 per MWh which expires on May 31, 2012.  The forecast (and our hedge data) reflect assumed customer migration levels of 36% - 40% at the end of 2012 versus 34% at year-end 2011.

PSE&G

PSE&G reported operating earnings of $99 million ($0.19 per share) for the fourth quarter bringing full year operating earnings to $521 million ($1.03 per share).  On a comparative basis, PSE&G reported operating earnings of $83 million ($0.16 per share) and $430 million ($0.85 per share) for the fourth quarter and full year 2010, respectively.

PSE&G’s results benefited from increased levels of capital investment and a tight control on operating expenditures which offset the impact of below normal weather on sales and the cost of storm-related outages.  An annualized increase in transmission revenue of $45 million effective on January 1, 2011 added $0.02 per share to earnings in the quarter.  A return on investments made under capital adjustment clauses supporting investments in energy efficiency, solar and electric and gas infrastructure programs added $0.01 per share to results.  Warmer weather compared to the fourth quarter of 2010 reduced earnings by $0.02 per share.  A decline in pension related costs more than offset the impact of the October 2011 snow storm and increased tree trimming work on operating expenses.  Higher levels of capital investment led to an increase in depreciation expense which reduced quarterly earnings comparisons by $0.01 per share.  A lower tax rate and other items added $0.03 per share to results.

Electric and gas sales comparisons in the fourth quarter were affected by warm weather and weak economic conditions.  Heating degree days in the fourth quarter were 24% below the level experienced in 2010’s fourth quarter and 18% below normal.  Weather normalized electric sales declined 4.4% in the quarter from year-ago levels resulting in an estimated 2.3% decline in weather normalized electric sales for the year.  The decline was led by reduced demand from the commercial and industrial sectors.  On a weather normalized basis, gas sales increased 0.8% in the fourth quarter resulting in 1.9% growth for the year.  The improvement in gas sales was experienced in the industrial sector as demand from residential customers was flat quarter-over-quarter.

The Federal Energy Regulatory Commission (FERC) granted incentive rate-making treatment for the $895 million North-East Grid Reliability Project at the end of 2011.  The rate-making treatment, effective on January 1, 2012, provides for construction work in progress in rate base, recovery of abandonment costs and a 25 basis point adder to return on equity.

PSE&G’s operating earnings for 2012 are forecast at $530 million - $560 million compared to 2011’s operating earnings of $521 million.  Operating earnings will be influenced by higher transmission revenues, higher levels of capital investment and a forecasted increase in pension expense.

PSEG Energy Holdings and Parent

PSEG Energy Holdings reported a loss in operating earnings for the fourth quarter of $1 million compared to operating earnings of $5 million ($0.01 per share) for the fourth quarter of 2010.  The results for the fourth quarter brought Energy Holdings’ full year 2011 operating earnings to $5 million ($0.01 per share).  The results for 2011 compare with 2010’s operating earnings of $49 million ($0.10 per share).  Holdings’ fourth quarter operating earnings reflect our on-going efforts to reduce the legacy portfolio which results in a decline in lease income and the absence of asset sales gains than recorded in the year ago quarter.

PSEG entered into a definitive agreement with the Internal Revenue Service (IRS) in January 2012 that settles the tax treatment for challenged lease transactions (LILO/SILO) for all tax years.  In addition, the company closed the federal tax audit for the period 1997 through 2003.  These agreements were consistent with expectations, and will not have a material impact on earnings in 2012, but should eventually yield a net refund of approximately $100 million in cash.

Energy Holdings reached a settlement agreement in December 2011 with Dynegy in regard to the lease arrangements for the Roseton and Danskammer facilities leased to subsidiaries of Dynegy Holdings LLC (DH).  The agreement calls for the payment by DH of $7.5 million (received in January 2012), and an agreed $110 million claim payable through a mix of cash, senior secured notes and mandatorily convertible notes.  The agreement and the amount received are subject to final approval of the DH re-organization by the Bankruptcy Court.

Energy Holdings, also in December, sold its investment in an office building in Denver, Colorado for $215 million.  The sale resulted in an after-tax gain of $34 million recorded as part of 2011’s Income from Continuing Operations but is not included in Holdings Operating Earnings.

Energy Holdings operating earnings for 2012 will be consolidated with the Parent company.  On this basis, operating earnings are forecast at $35 million - $45 million compared with consolidated operating earnings in 2011 of $23 million.

The following attachments can be found on www.pseg.com:

Attachment 1 - Operating Earnings and Per Share Results by Subsidiary
Attachment 2 - Consolidating Statements of Operations
Attachment 3 - Consolidating Statements of Operations
Attachment 4 - Capitalization Schedule
Attachment 5 - Condensed Consolidated Statements of Cash Flows
Attachment 6 - Quarter-over-Quarter EPS Reconciliation
Attachment 7 – Year-over-Year EPS Reconciliation
Attachment 8 - Generation Measures
Attachment 9 – Retail Sales and Revenues
Attachment 10 – Retail Sales and Revenues
Attachment 11 - Statistical Measures
Attachment 12 - Reconciling Items Excluded from Continuing Operations to Compute Operating Earnings 

Forward Looking Statement
Readers are cautioned that statements contained in this presentation about our future performance, including, future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical, are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995.  When used herein, the words “anticipate”, “intend”, “estimate”, “believe”, “expect”, “plan”, “should”, “hypothetical”, “potential”, “forecast”, “project”, variations of such words and similar expressions are intended to identify forward-looking statements.  Although we believe that our expectations are based on reasonable assumptions, they are subject to risks and uncertainties and we can give no assurance they will be achieved.  The results or developments projected or predicted in these statements may differ materially from what may actually occur.  Factors which could cause results or events to differ from current expectations include, but are not limited to:
•  adverse changes in the demand for or price of the capacity and energy that we sell into wholesale electricity markets,
•  adverse changes in energy industry law, policies and regulation, including market structures and a potential shift away from competitive markets toward subsidized market mechanisms, transmission planning and cost allocation rules, including rules regarding how transmission is planned and who is permitted to build transmission in the future, and reliability standards,
•  any inability of our transmission and distribution businesses to obtain adequate and timely rate relief and regulatory approvals from federal and state regulators,
•  changes in federal and state environmental regulations that could increase our costs or limit our operations,
•  changes in nuclear regulation and/or general developments in the nuclear power industry, including various impacts from any accidents or incidents experienced at our facilities or by others in the industry, that could limit operations of our nuclear generating units,
•  actions or activities at one of our nuclear units located on a multi-unit site that might adversely affect our ability to continue to operate that unit or other units located at the same site,
•  any inability to balance our energy obligations, available supply and trading risks,
•  any deterioration in our credit quality, or the credit quality of our counterparties, including in our leveraged leases,
•  availability of capital and credit at commercially reasonable terms and conditions and our ability to meet cash needs,
•  any inability to realize anticipated tax benefits or retain tax credits,
•  changes in the cost of, or interruption in the supply of, fuel and other commodities necessary to the operation of our generating units,
•  delays in receipt of necessary permits and approvals for our construction and development activities,
•  delays or unforeseen cost escalations in our construction and development activities,
•  any inability to achieve or continue to sustain, our expected levels of operating performance,
•  increase in competition in energy markets in which we compete,
•  challenges associated with recruitment and/or retention of a qualified workforce,
•  adverse performance of our decommissioning and defined benefit plan trust fund investments and changes in discount rates and funding requirements, and
• changes in technology and customer usage patterns.
 

For further information, please refer to our Annual Report on Form 10-K, including Item 1A. Risk Factors, and subsequent reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.  These documents address in further detail our business, industry issues and other factors that could cause actual results to differ materially from those indicated in this presentation.  In addition, any  forward-looking statements included herein represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date.  While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our internal estimates change, unless otherwise required by applicable securities laws.


Public Service Enterprise Group (NYSE:PEG) is a publicly traded diversified energy company with annual revenues of more than $12 billion, and three principal subsidiaries: PSEG Power, Public Service Electric and Gas Company (PSE&G) and PSEG Energy Holdings.    

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Mike Jennings

Phone: 973-430-6406

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