Public Service Enterprise Group

Strategic Presentation to the Financial Community

October 8, 2004Short Hills, NJ

2

Agenda• PSEG Strategic Overview Jim Ferland• PSE&G Ralph Izzo• PSEG Power Frank Cassidy

– PSEG Nuclear Chris Bakken– PSEG Fossil Mike Thomson– PSEG ER&T Steve Teitelman

Break• PSEG Energy Holdings Bob Dougherty• PSEG Financial Review Tom O’Flynn• Summary Jim Ferland• Final Q&A All

3

Readers are cautioned that statements contained in this presentation about our and our subsidiaries’ future performance, including future revenues, earnings, strategies, prospects 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. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance they will be achieved. The results or events predicted in these statements may differ materially from actual results or events. For further information, please refer to our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.

Go to http://media.corporate-ir.net/media files/nys/peg/reports/peg_10kp84.pdf for a full text of our Forward-Looking Statement. 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 estimates change, unless otherwise required by applicable securities laws.

Forward-Looking Statement

4

PSEG 2004 Guidance

Leveraged Leases

Earnings $750M - $800M*EPS $3.15 – $3.35*ROE 13% - 14%Assets $28B

Earnings $340M - $360M Earnings $300M - $350M Earnings $130M - $150M

Domestic/Int’l Energy

Regional Wholesale Energy

Traditional T&D

* Includes the parent impact of $(40)M - $(45)M

5

Developments in 2004• Significant fuel price increases

– Natural Gas (Henry Hub) + 39%– Oil (#6 Resid) + 30%– Coal (NJ) + 48%

• Higher electric energy prices– PJM (PS Zone) + 24%

• Key competitive pressures– Lower BGS and long-term contract margins– Flat ER&T profits as opposed to continued growth

• Higher nuclear and fossil replacement power and operating costs

6

$10

$20

$30

$40

$50

$60

Jan-00

Apr-00

Jul-0

0Oct-

00Ja

n-01Apr

-01Ju

l-01

Oct-01

Jan-02

Apr-02

Jul-0

2Oct-

02Ja

n-03Apr

-03Ju

l-03

Oct-03

Jan-04

Apr-04

Jul-0

4

$/M

Wh

BGS Auction 1

BGS Auction 2BGS Auction 3

PJM Western HubRound-The-Clock Forward Prices

Higher Energy Prices

2000 2001 2002 2003 2004

7

BGS and Long-term Contracts

PSEG Power Term Contracts

100

90

80

70

60

50

40

30

20

10

% o

f Pow

er G

ener

atio

n

2003 BGS (34 Month)

United Illuminating

2003

BG

S (1

0 M

onth

)

2004 BGS (36 Month)

2004 BGS (12 Month)

Other term energy contracts

Generation output not under contract

20082007200620052004

8

~$0~$0$1.2M$2M$3.2MMargin per Tranche*

~$0

$54.73

$3

$55.60

~$0$5$8Margin to Forwards

$55.15$53.86$51.12Price (PSE&G)

20,000

4,000

8,000

12,000

16,000

2002 2003 2004 2005 2006 2007 2008

1 Year

170 Tranches

10 months

104 Tranches

34 months

51 Tranches

1 Year

50 Tranches

3 Years

51 Tranches

2006 FP Auction Load (projected)

2005 FP Auction Load (projected)

2007 FP Auction Load (projected)

Tota

l NJ

BG

S Lo

ad (M

W)

NJ BGS Auction Structure

* Annualized margin to forward curve on date of BGS auction

Key Competitive Pressure: BGS Auction Results

9

Key Competitive Pressure: ER&T Results

$0$50

$100$150

$200$250$300

1997

1998

1999

2000

2001

2002

2003

2004

Plan20

04 Fo

recas

tM

illio

ns

$240M -$260M $170M -

$190M

10

2004 Plan Power PSE&G EnergyHoldings

Parent 2004 Estimate

($0.45)

($0.08)

PSEG 2004 Earnings Drivers

$3.60 - $3.80

$3.15 - $3.35$0.08 N/C

- Competitive Pressures

- BGS Margin

- Trading

+ Weather

+ Improved economy

- Interest

- Nuclear & Fossil O&M / Operations

+ Other O&M+ NDT

11

2004 Estimate Power PSE&G EnergyHoldings

Other 2005 Estimate

PSEG 2005 Guidance

+ Improved Nuclear & Fossil Operations

+ Modest Improvements on Contract Renewals

- NDT

- O&M

- Transmission Rate Case

- O&M Increases

$3.15 - $3.35$0.17 ($0.06) ($0.01) ($0.07)

$3.15 - $3.35

- Minor Items - Impact of convertible securities

12

PSEG Business Drivers

ST: Stable, improving earningsLT: Improved value, opportunities for

asset monetization

Moderate growth, improving fundamentals

International Economies

ST: Fair resolution of transmission and distribution rate cases

LT: Acceptable rate treatment

Continuance of sound regulatory relations at state and federal level

Regulatory Relations

ST: Higher O&M costsLT: Greater output; O&M trending lower

Plans in place to improve overall performance

Nuclear / Fossil Operations

ST: Contract position dampens near-term benefit

LT: Better pricing as contracts renew

Higher prices near term, slow downward drift as fuel costs moderate

Energy Prices

ST: Reduced profitabilityLT: Benefits all units, especially load-

following and peaking units

Low prices for next two to three years, recovering as supply / demand come into balance

Capacity Prices / Recovery Mechanisms

ST: Increases costs to serve full-requirements contracts

LT: Improves earnings of nuclear fleet

High and volatile prices will moderate, but remain above historic levels

Fuel Prices

EffectViewIssue

13

2004 2005 2006 2007 2008 2009

Reduce Debt to Improve Credit

Improve Nuclear & Fossil Performance and Capability

Improve Profitability as Contracts Renew

Continue Modest Rate Base Growth at PSE&G

Continue to Monetize PSEG Energy Holdings Assets

Apply Improved Cash Flows to Share Buyback, Selective Asset Acquisition

Outlook for Market Fundamentals (Capacity Pricing, Energy Margins)

Weak / Depressed Improving

Business Strategy

14

2004Estimate

2005Estimate

2006 2007 2008 2009

2005-2009 Earnings Outlook

4% - 6%

$3.15 - $3.35

$3.15 - $3.35

PSE&G Strategic Direction

Ralph Izzo President and COO

16

• 10th largest electric distribution utility in U.S. –2M customers

• 9th largest gas distribution utility in the U.S. – 1.6M customers

• 2nd largest peak transmission utility in traditional PJM – 1,411 circuit miles

• 2,600-square-mile service territory

- 6 major cities

- 300 communities

PSE&G Overview

0 10ml1 2 3 4 5 6 7 8 9

Warren Co.

Hunterdon Co.

Morr is Co.

Bergen Co.

Essex Co.

Hudson Co.

Union Co.

Middlesex Co.

Mercer Co.

Monmouth Co.

Ocean Co.

Bur lington Co.

Camden Co.

Sussex Co.

Passaic Co.

Somerset Co.

STATEN ISLAND

Gloucester Co.

COMBINED ELECTRIC & GAS TERRITORIES

ELECTRIC TERRITORY

GAS TERRITORY

KEY:

N

EW

S

17

Provide safe, reliable, low-cost service

Manage the regulatory agenda

Invest in technology to benefit customers and investors

PSE&G Business Strategy

18

People Safe,Motivated, Productive

Customer Care

OperationsReliable, Low Cost

Financial Fair Return

•OSHA•Lost Time Rate•Total Availability•MVA Rate

•Overtime•Staffing

• SAIFI• MAIFI• Gas Leaks/Mile• Leak Response Rate• Transmission Availability

Index

• Perception Survey• Moment of Truth Survey• BPU Inquiry Ratio• Fix It Right• First Call Resolution• CAIDI

•Total Capital Expenditures•Return on assets•Accountability O&M•Non-Traditional Revenue

Strategy Focuses on Performance

Safe Top 10% Nationally

ReliableTop 25% Regionally

Low CostTop 25% Regionally

19

SafeTop Decile Nationally

ReliableTop Quartile

Regionally

Low CostTop Quartile

Regionally

Operations

Customer

Financial

People

Measuring Performance Against Strategy

OSHA IndexOSHA Severity Rate Motor Vehicle AccidentsTotal Availability

OvertimeStaffing/100k Cust

SAIFIMAIFILeak Response RateGas Leaks per MileTrans Avail Index

Cap Ex (Total per Deca-therm / Mwh)O&M (Total per Deca-therm / Mwh)Non-Traditional Revenues

Return on Assets

Perception (ACSI)DBMOTBPU Inquiry Ratio# BPU/Exec. InquiriesFix It RightFirst Contact Resolution CAIDI

2003 2004 2003 2004

2003 2004

Gas2003 2004

Worse than Mean Better than Mean Top Decile/Quartile

Electric 2003 2004

N/A

N/A

N/A

N/A

TBD

Total Utility2003 2004

N/A

20

Measuring Performance – Electric

Source: PA Consulting and PSE&G Peer Panel

Electric Delivery Peer Panel Trends

People (Top Decile National Basis)OSHA Incident RateLost Time Severity RateVehicle Accident RateAbsenteeism

Operations (Top Quartile Regional Basis)SAIFI (Excluding Major Storms)MAIFI (Excluding Major Storms)Transmission Availability

Customers (Top Quartile Regional Basis)CAIDI (Excluding Major Storms)

O&M Productivity (Top Quartile Regional Basis)O&M Expenditures per CustomerO&M Expenditures per MWh Sold

Capital Productivity (Top Quartile Regional Basis)T&D CapEx per Customer T&D CapEx per MWh Sold

Total Expenditures (Top Quartile Regional Basis)T&D Expenditures per CustomerExpenditures per MWh Sold

Below Mean Above Mean Above StrategyN/A

2000 2001 2002 2003 2004 Forecast

21

Measuring Performance - Gas

Below Mean Above Mean Above StrategyN/A

Source: PA Consulting and PSE&G Peer Panel

Gas Delivery Peer Panel Trends2000 2001 2002 2003People (Top Decile National Basis)

OSHA Incident RateVehicle Accident RateAbsenteeism

Operations (Top Quartile Regional Basis)CI Breaks Repaired / Mile of CI Main3rd Party Damages / Miles of Main & ServiceLeak Response / Within 1 Hour

Customers (Top Quartile Regional Basis)Regulatory Complaint Rate

O&M Productivity (Top Quartile Regional Basis)O&M$/CustomerO&M$/Mile of Mains & ServicesO&M$/DKtm

Capital Productivity (Top Quartile Regional Basis)CapEx$/CustomerCapEx$ /Mile of Mains & ServicesCapEx$/DThm

Total Expenditures (Top Quartile Regional Basis)Total Expenditures per CustomerTotal Expenditures per Mile of Mains & ServicesTotal Expenditures per DKtm

O&M is sum of FERC gas distribution O&M for operation and maintenance of mains & services

CapEx is sum of direct capital costs for new and replacement mains & services

2004 Forecast

22

-1.75%$/kWh ’99-’03

0.75%$/kWh ’90-’99

Annual Usage

6,960 kWh

$844Annual Cost

Residential Bill

PSE&G RatesR

esid

entia

l Rat

e ($

/kW

h)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003$0.00$0.02$0.04$0.06$0.08$0.10$0.12$0.14

Res

iden

tial R

ate

($/th

erm

)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

9.7%$/therm ’99-’03

1.8%$/therm’90–’99

Annual Usage

1,252 therms

$1,401Annual Cost

Residential Bill

Electric

Gas

23

Provide safe, reliable, low-cost service

Manage the regulatory agenda

Invest in technology to benefit customers and investors

PSE&G Business Strategy

24

NJ Regulatory Structure

Board of Public Utilities (BPU) Term ExpirationJeanne Fox, Board President 2008Jack Alter 2005 Fred Butler 2009Connie Hughes 2007Vacant*

*Carol Murphy resigned effective 9/2004, remainder of term to be filled with appointee

NJ BPU is rated “A2” (Average) by Regulatory Research Associates

25

New Jersey Regulatory Agenda

• Restructuring, completed in 2003, continues to work well

• No commodity risk - - gas and electric

• Upcoming events– Legislation on Performance and Quality of Service Standards– BGS Auction - - February 2005– Elimination of $64 million electric revenue credit

26

FERC Electric Transmission Rate Filing

• FERC order issued in January 2004, with PSE&G filing scheduled early 2005

• New rates expected to be effective in June 2005

• Formula rates for both existing and new facilities

• New rates will likely place downward pressure on earnings in near term

Socio-political, regulatory, economic and environmental pressures willbe driving increased transmission investment for at least 3 – 5 years

27

Provide safe, reliable, low-cost service

Manage the regulatory agenda

Invest in technology to benefit customers and investors

PSE&G Business Strategy

28

Investing in Electric Transmission• Replace assets that have increasing maintenance costs

or are approaching end-of-life cycle

• Replace aging systems with state-of-the-art technology to reduce outage duration/occurrences

• Minimize risk and exposure associated with customer outages

• $350M investment over next five years

29

Two-Way Customer Communications• Pilot program

• Initial scope involves 3,500-4,000 residential customers

• Duration: 12-18 months

• Launch date: Q1, 2005

• Market research will help determine program’s future

30

Two-Way Customer Communication Benefits

• Customers– Elimination of estimated bills– Demand control– Competitive supply pricing

• Third-Party Suppliers– Risk management– Flexible pricing

• Utility– More efficient outage reporting, restoration and back office

operations – Curtailment of meter tampering– Growth of rate base

31

PSE&G 2005 Guidance

2004 Estimate SalesIncreases,Offset by

TransmissionRate Case

Depr. O&M, Int.,Misc.

2005 Estimate

Key Assumptions• Normal weather

• Sales growth:

– 1.5% Electric

– 1.4% Gas

• Transmission rates effective in June 2005

$340M - $360M$325M - 345M

32

2004Estimate

2005 2006 2007 2008 2009

2005-2009 Earnings Outlook and Drivers

$340M - $360M

+ Electric and Gas sales growth+ Rate relief

+ Infrastructure replacement and technology investments

- Transmission rate reset

$325M - $345M

1% -2%

Estimate

33

Key Takeaways• Operational excellence

• Positive regulatory relationships

• Technology investment

• Solid returns and predictable cash flow into the future