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PSEG Announces Third Quarter 2007 Earnings


2007 Earnings guidance increased to $5.15 - $5.45
Improved earnings reflect strong performance by PSEG Power and PSE&G

PSEG Power pursuing new peaking capacity
PSEG Energy Holdings reduces ownership interest in Latin America

Public Service Enterprise Group (PSEG) reported today income from continuing operations for the third quarter of 2007 of $500 million or $1.97 per share compared to income from continuing operations of $372 million or $1.47 per share for the comparable period in 2006. Excluding an impairment of $7 million recognized during the third quarter of 2007, operating earnings for the third quarter of 2007 were $507 million or $2.00 per share. During the third quarter of 2006, merger-related expenses of $2 million recognized earlier were reversed resulting in operating earnings for the third quarter of $370 million or $1.47 per share. Including earnings from discontinued operations of $6 million or $0.02 per share, PSEG reported net income for the third quarter of 2007 of $506 million or $1.99 per share. Income from discontinued operations raised net income for the third quarter of 2006 by $2 million, or $0.01 per share to $374 million or $1.48 per share.

Ralph Izzo, chairman, president and chief executive officer of PSEG, said “the results reported by PSEG are a tremendous tribute to the hard work and focus of our employees. Strong operational performance combined with better than anticipated market prices place us on track to exceed our business plan objectives for the year.”

“We are raising our full year 2007 earnings guidance to $5.15-$5.45 per share from $4.90-$5.30 per share.” Izzo went on to say “Based on the normal performance of our current businesses, results are expected to be at the upper end of the range. We continue to forecast 2008 earnings growth expectations of 10%.”

Operating earnings exclude the impact of the sale of certain non-core domestic and international assets and costs stemming from the merger agreement with Exelon Corporation that was terminated in September 2006. The table below provides a reconciliation of PSEG’s net income to operating earnings (a non-GAAP) measure for the third quarter.

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 financial trends.

“We have been successful on many fronts”, Izzo said. “In addition to operating our assets at top quartile levels, we have reduced our investment exposure in Latin America, and we have identified areas for investment in domestic markets that strengthen our reliability as well as advance our growth.”

Operating Earnings Review and Outlook by Operating Subsidiary

See Attachment 8 for detail regarding the quarter over quarter reconciliations for each of PSEG’s businesses.

PSEG Power

PSEG Power reported operating earnings of $338 million ($1.33 per share) for the third quarter compared with operating earnings of $205 million ($0.82 per share) reported during the third quarter of 2006.

PSEG Power’s margins benefited from higher pricing in all markets and an increase in output. Higher realized prices and stronger operations added $0.55 per share to earnings. The impact of higher prices was partly offset by lower mark-to-market for the quarter of $0.03 per share. Approximately half of the increase in earnings was driven by a full quarter of higher prices (including capacity revenues) under the BGS contract effective on June 1. The continued strong performance of the nuclear fleet, coupled with improved performance from the combined cycle units, also allowed PSEG Power to take advantage of strong market dynamics during the quarter. An increase in operating costs of $0.03 per share was offset by an equivalent decrease in taxes during the quarter.

The nuclear fleet maintained its outstanding performance from last year. During the quarter, output for the fleet increased 1.1% over last year’s very strong results. The results for the quarter brought the year to date capacity factor for the fleet to 94%; in line with expectations for a full year 2007 capacity factor of 92%. Supporting these full year expectations, Peach Bottom No. 3 resumed operations 19 days after entering its refueling outage on September 23; and, Hope Creek is scheduled to return to service in early November from a refueling outage which began on October 12.

William Levis, president and chief operating officer of PSEG Power, has indicated that the physical work at Hope Creek associated with the planned 125Mw uprate in the unit’s capacity is expected to be completed during the current refueling outage. However, the Nuclear Regulatory Commission’s review and approval of the work is anticipated by the second quarter of 2008. Although a delay from earlier expectations, the unit should be operating at higher capacity levels for the critical summer period.

PSEG Power also, Levis said, “expects to be in a position to resume independent operation of its nuclear facilities by year-end.” He mentioned that “our organization has been strengthened considerably over the past three years. We are prepared for the resumption of independent operations, which will establish a new milestone in our development.”

PJM released the results of its Reliability Pricing Model (RPM) Base Residual Auction for the 2009/2010 delivery year on October 12, 2007. This represented the third in a series of auctions held throughout 2007 to provide the market with greater clarity around the value of investments in new and existing capacity to meet reliability requirements.

PSEG Power has requested that PJM perform feasibility studies to determine its ability to add a total of 1,000Mw of new gas-fired capacity at some of its existing generating stations located in the Eastern MAAC reliability region. The company intends to bid as much as 300-400Mw of the new capacity into the 2008 RPM auctions. Levis said, “the final decision to proceed with the investment will take into account issues such as capital and interconnection-costs, available siting and any potential environmental permitting restrictions.” He also added that “the new capacity will complement PSEG Power’s existing PJM fleet, improve the overall efficiency of the fleet, and enhance reliability, in particular for New Jersey customers, where PJM indicates additional energy is needed.”

PSEG Power anticipates fourth quarter results will continue to benefit from higher pricing from recontracting. The improvement in margins, however, will be partially offset by the cost of the fourth quarter refueling outage at Power’s 100% owned Hope Creek nuclear unit as compared to the 2006 fourth quarter refueling outage for Power’s 57% owned Salem Unit No. 1. The year-to-date and anticipated performance supports an increase in the operating earnings guidance for PSEG Power to $890-$940 million from $840-$920 million.


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