Public Service Enterprise Group

EEI Annual Financial ConferenceOctober 24-27, 2004

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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 www.pseg.com/forward 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

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PSEG 2004 Guidance

Leveraged Leases

Guidance $750M - $800M*YTD 9/30 $638M**EPS $3.15 – $3.35*YTD 9/30 $2.68**ROE 13% - 14%Assets $28B

Guidance $340M - $360M $300M - $350M $130M - $150MYTD 9/30 $278M $292M $92M

Domestic/Int’l EnergyRegional Wholesale EnergyTraditional T&D

* Includes the parent impact of $(40)M - $(45)M** Income from continuing operations

4

$0.91

$0.30

$0.48

$0.17

($0.04)

$1.04

$0.39

$0.55

$0.14($0.04)

PSEG PSE&G Power Energy Holdings Parent

Earn

ings

per

Sha

re

2003 2004

PSEG 3rd Quarter 2004 Results

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

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• 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

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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

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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

9

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

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2004Estimate

2005 2006 2007 2008 2009

PSE&G 2005-2009 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

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PSEG Power Overview• Low-cost portfolio

• Strong cash generator

• Leading market player in PJM– Focus on “Super Region”– Demonstrated BGS success

• Diverse asset mix mitigates risk and provides strong returns

– 15,000 MW of nuclear, coal, gas, oil and hydro facilities

• Assets favorably located– East of PJM constraint– Southern NEPOOL/Connecticut constraint– Near customers/load centers

• Integrated generation and trading optimizes asset-based revenues

• Expansion of PJM creates opportunities

The Super Region

Comprises 37% of U.S. power consumption

VACAR

PJMECAR

ISO New England

New York

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PSEG Power Key Issues

NRC ResolvedOperational ExcellenceMean/Top Quartile89-92%~$100 million

7%$25 millionRealized~$100 million

Received NRC letterCNO Transition+$50 million 85%$150-$200 million

11%BaseDeveloped$350-$400 million

Contracted

BGS Margins

Augment Staff

NRC LetterOrganizationO&MCapacity FactorCapEx

Forced Outage-CoalO&M EfficiencyPlaybookCapEx

Market Prices

Diversification

Trading

2004 2005 Long-Term

NRC MonitoringOrganizational Stability+$50 million 91%$150-$175 million

10%$5 millionImplemented$150-$175 million

Realize Higher Market Prices

Contract Diversification

Increased Origination & Market Liquidity

Issues

NU

CLE

AR

FOSS

ILER

&T

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PSEG Power Business Objectives• Nuclear Operations

– Operate safely– Improve capacity factor– Upgrade assets– Operate at industry mean O&M levels

• Fossil Operations– Operate safely and predictably– Implement industry best practices– Reduce O&M

• ER&T Operations– Realize value of diverse electric and gas asset portfolio

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Nuclear Work Environment

• NRC closed investigation

• Two cross-cutting issues– Problem Identification and Resolution– Safety Conscious Work Environment

• Issues being addressed– PSEG/Exelon employee exchange

• NRC concurrence with approach

• Monitor progress going forward

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Hope Creek Status• Hope Creek was manually taken out of service on

October 10 as a result of a steam pipe failure

• Incremental replacement power costs and O&M estimated at $12M, or $0.05 per share, in 4Q04

• Unit will return to service after the fall refueling outage, originally scheduled to begin October 28 and conclude in mid-December

• Earlier start of the refueling outage may provide an opportunity for an earlier return-to-service date

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Value of Nuclear ImprovementsNuclear has a strong plan for performance improvement, resulting

in considerable financial upside to Power

$45 M - $55 MO&M

Uprates

Unit Performance

$35 M - $40 M

$65 M - $80 M

Pretax margin opportunity $ 145 M - $175 M

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Value of Fossil Improvements

Existing Fleet

2004

Playbook Gap Analysis

36 Month Plan

Cur

rent

Per

form

ance

Hardware

$95 m

$75 mPeople

• Enhance unit performance- $60-$70 million

• Capture O&M efficiencies inexecution of planned maintenance

- $15-$25 million

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Role of ER&TPSEG Power’s portfolio optimization strategy provides incremental

profit opportunities while mitigating risks

PSEG EnergyResources & Trade (ER&T)

PSEG Power LLC

PSEGNuclear

PSEGFossil

Energy &

Capacity$

Energy &

Capacity

$

Other Energy Related

Products and

Services

Wholesale Electric Energy

Markets• BGS• Other firm contracts• Spot market Gas

Markets

• Wholesale gas customers• Retail gas customers

Gas Contracts& Storage

$Wholesale

Gas & Storage

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ER&T Portfolio Management - Net PositionPower’s objective is to contract over 75% of its planned

generation for the next 18-24 months

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

GW

h

Nuclear Baseload Coal Intermediate Coal CC

Steam / CT Contracted Load & Sales Contracted Load

2004 2005 2006 2007

Total Fleet Monthly RTC GWh Position

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ER&T Fuel Strategy - Coal

Domestic

South America

Indonesia

24% 6%

70%

Source of Supply

-

1

2

3

4

5

6

7

2005 2006 2007 2008Year

Milli

on T

ons

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Keystone Conemaugh Bridgeport HarborMercer Hudson Contracted

Continuity of Supply

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ER&T Historical PerformanceER&T’s diverse portfolio has provided growth through varying market conditions,

with an increasing reliance on lower risk products

020406080

100120140160180200

1997 1998 1999 2000 2001 2002 2003 2004Est.

ER&T Margins ($ millions)

Asset Based Margins- Greater predictability

Trading -Reduced market making opportunities-Shift from fundamentalto financial players

Reduced market exposure at ER&T is aligned with shifting market conditions

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Attractive Future Pricing EnvironmentReplacement of existing contracts at current higher market prices

could yield incremental earnings of $0.75 to $1.00 per share

Current market prices ~ $45/mwhContracted prices ~ $37/mwhPrice delta $ 8/mwhGeneration volume 40,000 gwhPre- tax margin $320 millionAfter tax margin $190 millionEPS Impact $0.80

PJM Western HubRound-The-Clock Forward Prices

$10

$20

$30

$40

$50

$60

Jan-00

Apr-00

Jul-00

Oct-00

Jan-01

Apr-01

Jul-0

1Oct-

01Ja

n-02Apr-

02Ju

l-02

Oct-02

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-0

4

$/M

Wh

BGS Auction 1

BGS Auction 2

BGS Auction 3

Current market prices

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Attractive Capacity Pricing Prospects

• Current overbuild situation begins to subside, reflecting tightening market conditions

• Increase of $1/kw-yr translates into about $15M incremental margin for Power

• Likelihood for locational capacity increasing in PJM and NEPOOL – Power’s assets well-positioned to benefit

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Locational Capacity• PJM

– Reliability pricing approach underway at PJM– Payment for capacity consistent with contribution to reliability

objective• Location, unit flexibility• Target date of spring 2005 for implementation in 2006/2007

• NEPOOL– Locational installed capacity market planned for New England– Target date of January 2006

• Alternate Compensatory Arrangements– Pursuit of fair return on 1,100MW in PJM– “Reliability Must Run” payments in Connecticut

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Power 2005 Guidance

2004 Estimate ReplacementPower &

Branchburg

New MW O&M & Depr NDT 2005 Estimate

$300M - $350M

$335M - $385M

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10% - 14%

$300M - $350M

+ Capacity Prices

+ Improved Nuclear / Fossil Performance

+ Nuclear Uprates+ ER&T Contracts

- New Combined Cycle Plants

- Increased Fuel Costs

$335M - $385M

Power 2005-2009 Outlook and Drivers

- Potential Hudson Retirement

2004Estimate

2005Estimate

2006 2007 2008 2009

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PSEG Energy Holdings Overview

• domestic and international generation and distribution

• focusing on operations• monetizing of assets

selectively

• primarily energy-related financial investments

• focusing on credit quality

• monitoring tax issues

Total Assets $7.2 billionas of 9/30/04

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PSEG Global: Focus on OperationsInvested Capital ($2.5B)

(excluding non-recourse debt)At 9/30/04

EBIT Contribution ($223M*)(After non-recourse interest)

YTD 9/30/04

• Capital investments going forward limited to maintenance of existing business

• Emphasis on improved performance

• Opportunistic monetization of assets

Latin America(other than Chile)

31%

8%9% 4% 16%

32%

Asia Pacific

Europe India North America

ChileChile

5%6%

37%

25%

Asia Pacific

Europe

North America

Latin America(other than Chile)

16%

*Includes Unallocated G&A ($22)M

India & Oman

11%

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PSEG Global: Recent Activities• MPC, China –

– In October 2004, Global entered into a definitive purchase and sale agreement to sell its 50% equity interest to BTU Power for approximately $220 million; sale is expected to close by the year end and is expected to be earnings neutral

• Texas Independent Energy, Texas –– Acquired for a nominal price the 50% of TIE (additional 1000 MWs) held by its

former partner; transaction expected to be modestly accretive to PSEG's earnings

• Rades, Tunisia –– Global sold its majority interest to BTU Power for approximately $43 million;

agreement was approved by the lenders, Tunisian government and Marubeni Corp

• Luz del Sur, Peru –– Global and Sempra jointly sold 12% of Luz del Sur stock in a tender offer

bringing PSEG’s ownership from 44% to 38%; sale netted approximately $30M to Global

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• Key contributor of reliable earnings and steady cash flow

• Most of the cash return is in the form of tax benefits

• 68% of lessees investment grade

• Weighted average rating is A-/A3

PSEG Resources: Focus on Credit

Energy Leases

13%

85%

98% Lease Related

Real Estate, Transportation

& Industrial Leases

LBO & Limited Partnerships

1%Other 1%

Total Assets $3B9/30/04

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PSEG Resources: Recent Activities• Collins Lease Termination –

– In March 2004, Resources terminated its lease investment in the Collins generating facilities

– Received $184M of cash (received net cash of $84M)– Original investment - $136M– Earned over 5% after tax vs. 8% proforma– Reduced Resources’ and PSEG’s overall risk exposure– Recorded loss of $17M

• KKR – Sale of Borden and Amphenol– Resources received cash distributions totaling approximately

$26M– Transactions resulted in a pretax gain of $1.7M– Remaining investment in KKR reduced to approximately $18M

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PSEG Energy Holdings 2005 Guidance

Key Assumptions

• No new investments

• Fairly stable F/X environment

• Maintain current lease portfolio

2004 Estimate Resources Global Other 2005 Estimate

$130M - $150M $135M - $155M

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2004Estimate

2005Estimate

2006 2007 2008 2009

2% - 3%

$130M – $150M

+ Texas Market Recovery

+ Skawina & Elcho

+ TIE

- Eagle Point - Bridgewater

$135M – $155M

Holdings 2005-2009 Outlook and Drivers

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PSEG Financial Review• Reducing Leverage

– Mandatory Convert adds $460M equity in 2005– Significant excess cash flow enables further delevering

• Focusing on Credit Ratings– Addressing concerns and committed to maintaining and/or

improving

• Preserving Substantial Liquidity– $2B of liquidity available– Very modest maturity requirements

• Strengthening Free Cash Flow– Improving cash from operations– Construction nearing completion

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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

- Other

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Key Business Objectives & Approach

2005 2006 2007 2008 2009

• Strengthen Nuclear and Fossil Operations• Reposition Power Contracts

• Capitalize on Improving Market Fundamentals

• Manage for Earnings and Cash Flow• Execute Plans To Selectively Monetize Assets

• FERC Transmission Rate Case• Electric Distribution Rate Case

• Continued Capital Investment for Safe, Reliable Service

• Use Cash to Retire Debt, Strengthen Credit• Secure and Potentially Increasing Dividends

• Opportunity for Share Repurchase, Selective Asset Acquisition

37

2004Estimate

2005Estimate

2006 2007 2008 2009

PSEG 2005-2009 Outlook and Drivers4% - 6%

$3.15 - $3.35

+ Capacity Prices

+ Texas Market Recovery

+ Skawina & Elcho

+ Improved Nuclear / Fossil Performance

+ Nuclear Uprates+ ER&T Contracts

+ Rate Relief+ Electric and Gas Sales Growth

- New CC Plants

- Increased Fuel Costs

- Eagle Point

- Transmission Rate Reset+ TIE

PSEG Power

10% - 14%

PSE&G

1% - 2%

PSEG Energy Holdings

2% - 3%

$3.15 - $3.35

- Potential Hudson Retirement

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Dividend Prospects

• Long History of Dividend Payments– Uninterrupted annual dividend since 1907– Modest increase in January, 2004

• Attractive Current Yield of 5% +

• Ability to continue modest increases– Improved cash flow– Reasonable payout ratio – Important to shareholders– Subject to Board of Directors approval

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• Attractive portfolio balance between regulated and non-regulated businesses

• Well-run utility with strong reliability record and predictable earnings and cash flow

• Well-located generating fleet, positioned to benefit from improving market conditions and improved nuclear / fossil operations

• Nuclear fleet positioned to benefit from high fossil fuel pricesdriven by worldwide demand

• Improving earnings, cash flow create opportunities in the longerterm for share repurchase or selective asset acquisition

• Visible earnings growth drivers after 2005

• Attractive dividend yield with potential for modest increases

Key Takeaways