2. Forward-Looking Statement
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.
2
3. PSEG 2004 Guidance
Guidance $750M - $800M*
YTD 9/30 $638M**
EPS $3.15 – $3.35*
YTD 9/30 $2.68**
ROE 13% - 14%
Assets $28B
Domestic/Int’l Leveraged
Regional Wholesale Energy
Traditional T&D Energy Leases
Guidance $340M - $360M $300M - $350M $130M - $150M
YTD 9/30 $278M $292M $92M
* Includes the parent impact of $(40)M - $(45)M
** Income from continuing operations
3
4. PSEG 3rd Quarter 2004 Results
$1.04
$0.91
Earnings per Share
$0.55
$0.48
$0.39
$0.30
$0.17
$0.14
($0.04) ($0.04)
PSEG PSE&G Power Energy Holdings Parent
2003 2004
4
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
5
6. PSE&G Overview
• 10th largest electric o.
ex C .
ic Co
Suss Passa
distribution utility in U.S. –
2M customers n Co.
Berge
N
Co.
n
War re
W E
Co.
r is
Mo r
• 9th largest gas distribution S
.
x Co
Esse Co.
son
utility in the U.S. – 1.6M Hud
customers
.
. n Co
n Co Unio
terdo
H un
STATEN
ISLAND
• 2nd largest peak Co.
t
er se
So m
transmission utility in .
Co
lesex
M idd
traditional PJM – 1,411 circuit r Co.
Mer ce
miles
.
Co
outh
M onm
KEY:
COMBINED ELECTRIC & GAS TERRITORIES
ELECTRIC TERRITORY
GAS TERRITORY
• 2,600-square-mile service
0 10ml
1 2 3 4 5 6 7 8 9
territory .
n Co
Co. Ocea
ngto n
Bu r li
- 6 major cities
.
en Co
- 300 communities Camd
Co.
ester
G louc
6
7. 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
7
8. 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 will
be driving increased transmission investment for at least 3 – 5 years
8
9. PSE&G 2005 Guidance
$340M - $360M
Key Assumptions
$325M - 345M
• Normal weather
• Sales growth:
– 1.5% Electric
– 1.4% Gas
• Transmission rates
effective in June 2005
2004 Estimate Sales Depr. O&M, Int., 2005 Estimate
Increases, Misc.
Offset by
Transmission
Rate Case
9
10. PSE&G 2005-2009 Outlook and Drivers
1% -2%
$340M - $360M
$325M - $345M
2004 2005 2006 2007 2008 2009
Estimate Estimate
+ Electric and Gas sales growth
+ Rate relief
+ Infrastructure replacement and technology investments
- Transmission rate reset
10
11. PSEG Power Overview
• Low-cost portfolio
The Super Region
• Strong cash generator
• Leading market player in PJM
– Focus on “Super Region”
– Demonstrated BGS success
• Diverse asset mix mitigates risk and ISO New
New York
provides strong returns England
– 15,000 MW of nuclear, coal, gas, oil and
PJM
hydro facilities
ECAR
• Assets favorably located
– East of PJM constraint
– Southern NEPOOL/Connecticut constraint VACAR
– Near customers/load centers
• Integrated generation and trading
optimizes asset-based revenues
Comprises 37% of
• Expansion of PJM creates opportunities
U.S. power consumption
11
12. PSEG Power Key Issues
Issues 2004 2005 Long-Term
NRC Letter Received NRC letter NRC Monitoring NRC Resolved
NUCLEAR
Organization CNO Transition Organizational Stability Operational Excellence
O&M +$50 million +$50 million Mean/Top Quartile
Capacity Factor 85% 91% 89-92%
CapEx $150-$200 million $150-$175 million ~$100 million
Forced Outage-Coal 11% 10% 7%
FOSSIL
O&M Efficiency Base $5 million $25 million
Playbook Developed Implemented Realized
CapEx $350-$400 million $150-$175 million ~$100 million
Realize Higher Market Prices
Market Prices Contracted
ER&T
Contract Diversification
Diversification BGS Margins
Increased Origination & Market Liquidity
Trading Augment Staff
12
13. 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
13
14. 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
14
15. 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
15
16. Value of Nuclear Improvements
Nuclear has a strong plan for performance improvement, resulting
in considerable financial upside to Power
$45 M - $55 M
O&M
Uprates $35 M - $40 M
Unit Performance $65 M - $80 M
Pretax margin opportunity $ 145 M - $175 M
16
17. Value of Fossil Improvements
$95 m
• Enhance unit performance
- $60-$70 million
People
• Capture O&M efficiencies in $75 m
execution of planned maintenance
- $15-$25 million Hardware
Current Performance
36 Month Plan
Gap
Playbook
Analysis
Existing Fleet
2004 17
18. Role of ER&T
PSEG Power’s portfolio optimization strategy provides incremental
profit opportunities while mitigating risks
PSEG Power LLC
PSEG Energy Energy Other
Energy
&
Resources &
&
Energy
Capacity
Capacity
Trade (ER&T)
$
Related
$
Products
Wholesale
Gas
$ and
PSEG PSEG
& Storage
Services
Fossil Nuclear
Gas Contracts
& Storage
Wholesale
Electric Energy
Markets
• BGS
• Other firm contracts
Gas
• Spot market
Markets
• Wholesale gas customers
• Retail gas customers
18
19. ER&T Portfolio Management - Net Position
Power’s objective is to contract over 75% of its planned
generation for the next 18-24 months
Total Fleet Monthly RTC GWh Position
7,000
6,000
5,000
4,000
GWh
3,000
2,000
1,000
-
2004 2005 2006 2007
Nuclear Baseload Coal Intermediate Coal CC
Steam / CT Contracted Load & Sales Contracted Load
19
20. ER&T Fuel Strategy - Coal
Source of Supply Continuity of Supply
7 100%
90%
6
South
80%
America
Indonesia 5 70%
6%
24% 60%
Million Tons
4
70%
50%
3
40%
30%
2
Domestic
20%
1
10%
- 0%
2005 2006 2007 2008
Keystone Conemaugh Bridgeport Harbor
Year
Mercer Hudson Contracted
20
21. ER&T Historical Performance
ER&T’s diverse portfolio has provided growth through varying market conditions,
with an increasing reliance on lower risk products
ER&T Margins ($ millions)
200
180
Asset Based Margins
160
- Greater predictability
140
120
100
80
60
Trading
40
-Reduced market making
20
opportunities
0
-Shift from fundamental
1997 1998 1999 2000 2001 2002 2003 2004
to financial players
Est.
Reduced market exposure at ER&T is aligned with shifting market conditions
21
22. Attractive Future Pricing Environment
Replacement of existing contracts at current higher market prices
could yield incremental earnings of $0.75 to $1.00 per share
PJM Western Hub
Round-The-Clock Forward Prices
$60
$50
Current market prices
Current market prices ~ $45/mwh
Contracted prices ~ $37/mwh
$40
Price delta $ 8/mwh
$/MW h
Generation volume 40,000 gwh
Pre- tax margin $320 million
$30
BGS After tax margin $190 million
BGS Auction 3 EPS Impact $0.80
Auction 2
$20
BGS
Auction 1
$10
0
1
2
3
4
Ja 0
Ja 1
Ja 2
Ja 3
Ap 0
Ap 1
Ap 2
Ap 3
Ap 4
Oc 0
1
Oc 2
3
4
r -0
r -0
r -0
r -0
r -0
t -0
t -0
t -0
t -0
0
0
0
0
0
l-0
l-0
l-0
l-0
l-0
n-
n-
n-
n-
n-
Ju
Ju
Ju
Ju
Ju
Oc
Oc
Ja
22
23. 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
23
24. 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
24
25. Power 2005 Guidance
$335M - $385M
$300M - $350M
2004 Estimate Replacement New MW O&M & Depr NDT 2005 Estimate
Power &
Branchburg
25
27. PSEG Energy Holdings Overview
Total Assets $7.2 billion
as of 9/30/04
• domestic and • primarily energy-
international generation related financial
and distribution investments
• focusing on operations • focusing on credit
quality
• monetizing of assets
selectively • monitoring tax issues
27
28. PSEG Global: Focus on Operations
EBIT Contribution ($223M*) Invested Capital ($2.5B)
(After non-recourse interest) (excluding non-recourse debt)
YTD 9/30/04 At 9/30/04
Europe
North America
India
Europe
India & Oman Asia
Asia North America Pacific
Pacific 4%
9%
6% 16%
11%
8%
5% 37%
16% 31%
32%
25%
Latin America
Latin America Chile
Chile
(other than Chile)
(other than Chile)
• Capital investments going forward limited to maintenance of existing
business
• Emphasis on improved performance
• Opportunistic monetization of assets
*Includes Unallocated G&A ($22)M
28
29. 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
29
30. PSEG Resources: Focus on Credit
• Key contributor of reliable
Total Assets $3B earnings and steady cash
9/30/04 flow
LBO & Limited
• Most of the cash return is in
Partnerships
Real Estate,
1%
Transportation
the form of tax benefits
Other 1%
& Industrial Leases
13%
• 68% of lessees investment
grade
85% Energy
Leases
• Weighted average rating is A-
/A3
98% Lease Related
30
31. 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
31
32. PSEG Energy Holdings 2005 Guidance
$130M - $150M $135M - $155M
Key Assumptions
• No new
investments
• Fairly stable F/X
environment
• Maintain current
lease portfolio
2004 Estimate Resources Global Other 2005 Estimate
32
33. Holdings 2005-2009 Outlook and Drivers
2% - 3%
$130M – $150M
$135M – $155M
2004 2005 2006 2007 2008 2009
Estimate Estimate
+ TIE + Texas Market Recovery
+ Skawina & Elcho
- Eagle Point - Bridgewater
33
34. 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
34
35. PSEG 2005 Guidance
($0.06)
$0.17 ($0.01) ($0.07)
$3.15 - $3.35
$3.15 - $3.35
+ Improved - Transmission - Minor Items - Impact of
Nuclear & Rate Case convertible
Fossil securities
- O&M Increases
Operations
- Other
+ Modest
Improvements
on Contract
Renewals
- NDT
- O&M
2004 Estimate Power PSE&G Energy Other 2005 Estimate
Holdings
35
36. Key Business Objectives & Approach
2005 2006 2007 2008 2009
• FERC Transmission Rate Case
• Electric Distribution Rate Case
• Continued Capital Investment for Safe, Reliable Service
• 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
• Use Cash to Retire Debt, Strengthen Credit
• Secure and Potentially Increasing Dividends
• Opportunity for Share Repurchase,
Selective Asset Acquisition
36
37. PSEG 2005-2009 Outlook and Drivers
4% - 6%
$3.15 - $3.35
$3.15 - $3.35
2004 2005 2006 2007 2008 2009
Estimate Estimate
PSEG Power + Improved Nuclear / Fossil Performance
+ ER&T Contracts
10% - 14%
+ Nuclear Uprates
+ Capacity Prices
- New CC Plants
- Increased Fuel Costs
- Potential Hudson Retirement
PSE&G + Electric and Gas Sales Growth
+ Rate Relief
1% - 2%
- Transmission Rate Reset
PSEG Energy Holdings + Texas Market Recovery
+ TIE
+ Skawina & Elcho
2% - 3%
- Eagle Point
37
38. 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
38
39. Key Takeaways
• 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 prices
driven by worldwide demand
• Improving earnings, cash flow create opportunities in the longer
term for share repurchase or selective asset acquisition
• Visible earnings growth drivers after 2005
• Attractive dividend yield with potential for modest increases
39
