Public Service Enterprise Group (PEG) 10-K risk factor changes: FY2017 vs FY2016

Lower gas prices have resulted in lower electricity prices, which [removed: has] [added: have] reduced our margins as nuclear and coal generation costs have not declined similarly.

[removed: In addition,] PSEG and Power continue to monitor their [removed: other] [added: remaining] coal assets, including the Keystone and Conemaugh generating stations, to ensure their economic viability through the end of their designated useful lives and their continued classification as held for use.

[removed: Low] [added: The decline in market prices of energy, resulting from low] natural gas [removed: prices, as well as] [added: prices driven by the growth of shale gas production since 2007, the] continuing [removed: costs for] [added: cost of] regulatory compliance and [added: enhanced security for nuclear facilities, both] federal and state-level policies that provide [removed: credits] [added: financial incentives] to [added: construct] renewable energy such as wind and [removed: solar, but do not apply] [added: solar and the failure] to [added: adequately compensate] nuclear generating [removed: stations,] [added: stations for the attributes they bring similar to renewable energy production] have been [removed: a] contributing [removed: factor] [added: factors] to the significantly reduced revenues from nuclear generating stations while simultaneously raising the unit cost of production.

The costs associated with any such retirement, which may include, among other things, accelerated depreciation and amortization or impairment charges, accelerated asset retirement costs, severance [removed: costs and] [added: costs,] environmental remediation [removed: costs, could] [added: costs and additional funding of the Nuclear Decommissioning Trust Fund (NDT) would] be [removed: material.][added: material to both PSEG and Power.]

Our fuel supply arrangements must be coordinated with transportation agreements, balancing agreements, storage services, financial hedging transactions and other contracts to ensure that the natural gas, coal and nuclear fuel [removed: is] [added: are] delivered to our power plants at the times, in the quantities and otherwise in a manner that meets the needs of our generation portfolio and our customers.

When extreme cold temperatures [removed: rapidly] [added: significantly] increase the demand for natural gas used for residential heating, it can also create constraints on natural gas pipelines that serve power generation assets.

[removed: Significant changes in the price of natural gas] and nuclear fuel could affect our future results and impact our liquidity needs.

| • | legislative or regulatory actions or requirements, including those related to [added: pipeline] integrity inspections, may increase the cost of such fuels; |

[removed: Our nuclear facilities and certain] [added: Certain] of our other generation facilities [added: also] require fuel [added: or other services] that may only be available from one or a limited number of suppliers.

This could have a material adverse impact on [added: our business,] the financial results of specific plants and on our results of operations.

Our nuclear units have a diversified portfolio of contracts and inventory that provide a substantial portion of our fuel [added: raw material] needs over the next several years.

Federal and state incentives for the development and production of renewable sources of power [removed: has] [added: have] allowed for the penetration of competing technologies, such as wind, solar, and commercial-sized power storage.

[removed: These factors could also materially affect our results of operations, cash flows or financial positions through, among other things, reduced operating] revenues, increased operating and maintenance expenses, and increased capital expenditures, as well as potential asset impairment charges or accelerated depreciation and decommissioning expenses over shortened remaining asset useful lives.

[added: Although our utility] business is subject to regulated allowable rates of return, overall declines in electricity and gas sold could materially adversely affect our financial condition, results of operations and cash flows.

[removed: Over time, customer adoption of these and other technologies and] increased energy efficiency could adversely impact PSE&G’s revenue and ability to fully recover [removed: the] [added: its] costs, which could require PSE&G to pursue a rate case to adjust revenue requirements or seek recovery though other mechanisms.

Established rates are also subject to subsequent reviews by state regulators, whereby various portions of rates could be adjusted, including recovery mechanisms for costs associated with the procurement of electricity or gas, bad debt, [removed: MGP] [added: manufactured gas plant (MGP)] remediation, smart grid infrastructure and energy efficiency, demand response and renewable energy programs.

[removed: NERC] [added: North American Electric Reliability Council (NERC)] Compliance—Mandatory NERC and Critical Infrastructure Protection standards have been established to ensure the reliability of the U.S. electric transmission and generation system and to prevent major system black-outs.

Oversight by the Commodity Futures Trading Commission (CFTC) relating to derivative transactions—The CFTC has regulatory oversight of the swap and futures [removed: markets,] [added: markets and options,] including energy trading, and licensed futures professionals such as brokers, clearing members and large traders.

The energy industry continues to be regulated and the rules to which our businesses are subject are always at risk of being [removed: changed, particularly in light of the change in administration following the 2016 U.S. presidential election.][added: changed.]

We could also be impacted by a number of other events, including regulatory or legislative actions such as direct and indirect subsidies, favoring [removed: non-competitive markets] [added: certain types of resources] and/or [removed: technologies and energy efficiency and demand response initiatives.][added: technologies.]

Further, some of the market-based mechanisms in which we participate, including BGS auctions, are at times the subject of review or discussion by some of the participants in the New Jersey and federal [removed: regulatory and political] arenas.

Moreover, through changes encouraged by FERC to transmission planning processes, or through RTO/ISO initiatives to change their planning processes, [removed: such as the recently accepted multi-driver project category in PJM,] more transmission may ultimately be built to facilitate renewable generation or support other public policy initiatives.

[removed: In connection with the assessment of the BTA of each facility that seeks permit renewal, the rule requires that facilities conduct a wide range of studies] related to impingement mortality and entrainment and submit the results with their permit applications.

If the NJDEP or the CTEEP were to require installation of closed-cycle cooling or its equivalent at any of our Salem, [removed: Bridgeport, Sewaren] [added: Bridgeport] or New Haven generating stations, the related increased costs and impacts would be material to our financial position, results of operations and cash flows and would require further economic review to determine whether to continue operations or decommission any such station.

[added: In addition, certain PJM cost allocation determinations have been] recently challenged at FERC, the resolution of which could impact costs borne by New Jersey ratepayers and increase customer bills.

[removed: The approval of our partners also] may be required for us to transfer our interest in such projects.

Any inability to recover the carrying amount of our [added: long-lived] assets and leveraged leases could result in future impairment charges which could have a material adverse impact on our financial condition and results of operations.

Long-lived assets represent approximately 74%, [removed: 79%] [added: 81%] and [removed: 70%] [added: 69%] of the total assets of PSEG, PSE&G and Power, respectively, as of December 31, [removed: 2016.][added: 2017.]

[removed: Although all lease payments are current,] PSEG cannot predict the outcome of GenOn’s efforts to restructure its portfolio and improve its liquidity and the possible related [added: impact on REMA.]

There can be no assurance that a continuation or worsening of the adverse economic conditions would not lead to additional write-downs at any of our other generation units in our leveraged lease portfolio, and such write-downs could be [removed: material.][added: material]

Challenges associated with [added: recruitment and/or] retention of key executives and a skilled workforce could adversely impact our businesses.

Our operations depend on the [added: recruitment and] retention of key executives and a skilled workforce.

As of December 31, [removed: 2016,] [added: 2017,] approximately 62% of our employees were covered by collective bargaining agreements.

[added: Inability to do so may result] in employee strikes or work stoppages which would disrupt our operations and could also result in increased costs, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our and third-party information technology systems may be [removed: impacted by] [added: vulnerable to] cybersecurity attacks [removed: or hostile technological intrusions] involving domestic or foreign [removed: sources (including nation states and special interest groups) or inadvertent disclosure of company and/or customer information.][added: sources.]

Cybersecurity [removed: threats] [added: impacts] to our operations include:

| • | theft of confidential company, employee, shareholder, vendor or customer information, [added: which may cause us to be in breach of certain covenants and contractual obligations,] |

[removed: We] [added: While we] have experienced and expect to continue to experience actual or attempted cyber-attacks on our information technology [removed: systems.][added: systems, none of these incidents has had a material impact on our operations or financial condition.]

Similarly, a significant cybersecurity event or breach experienced by a competitor, regulatory authority, [removed: RTO] [added: RTO, ISO,] or [removed: ISO] [added: vendor] could also materially impact our business and results of [removed: operations.][added: operations via enhanced legal and regulatory requirements.]

In the ordinary course, management, and in the case of the Salem units the co-owner, each makes a number of decisions that impact the operation of our nuclear units beyond the current year, including whether and to what extent these units participate in RPM capacity auctions, commitments relating to refueling outages and significant capital expenditures, and decisions regarding our hedging arrangements.

When considering whether to make these future commitments, management’s decisions will primarily be influenced by the financial outlook of the units, including the progress, timing and continued outlook for enactment of proposed legislation in the state of New Jersey.

We cannot predict whether the legislation will be enacted or, if enacted, whether our nuclear generating stations in New Jersey will be selected or whether the legislation will provide a sufficient safety net for the continued operation of nuclear generating stations in New Jersey.

If market prices continue to be depressed and legislation is not enacted that adequately compensates nuclear generating stations for their attributes, Power anticipates it will no longer be covering its costs nor be adequately compensated for its market and operational risks at the Salem and Hope Creek nuclear units and would anticipate retiring these units early.

Significant changes in the price of natural gas, coal

However, each of our nuclear units has contracted with a single fuel fabrication services provider, and transitioning to an alternative provider could take an extended period of time.

In March 2017, WEC announced that it had filed for Chapter 11 bankruptcy in New York.

WEC provides nuclear fuel fabrication services for Salem Units 1 and 2.

In January 2018, Brookfield Business Partners LP announced its intention to acquire WEC.

The acquisition is expected to close in 2018 if it receives the required approvals from the regulators and bankruptcy courts.

No assurances can be given that the acquisition will be approved.

In the event that WEC is unable to continue to provide fabrication services, we can provide no assurance that Power would be able to find alternative providers of such services in a timely manner or on acceptable terms.

A failure by WEC to perform its obligations during the pendency of, or following its emergence from, bankruptcy could have a material adverse impact on our business, the financial results of specific plants and on our results of operations.

Certain states, such as Massachusetts and California, are also considering mandating the use of power storage resources to replace uneconomic or retiring generation facilities.

These factors could also materially affect our results of operations, cash flows or financial positions through, among other things, reduced operating

In January 2018, PSE&G filed a distribution base rate case proceeding.

Over time, customer adoption of these and other technologies and

In particular, in January 2018, PSE&G filed a distribution base rate case proceeding.

In November 2017, FERC issued an order accepting the triennial filing made by the PSEG companies seeking authority to sell energy, capacity and ancillary services at market-based rates.

Decommissioning—NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available to decommission the facility at the end of its useful life.

PSEG Nuclear has established a Nuclear Decommissioning Trust (NDT) to satisfy these obligations.

However, forecasting trust fund investment earnings and costs to decommission nuclear generating stations requires significant judgment, and actual results could differ significantly from

current estimates.

If we determine that it is necessary to retire one of our nuclear generating stations before the end of its useful life, there is a risk that it will no longer meet the NRC minimum funding requirements due to the earlier commencement of decommissioning activities and a shorter time period over which the NDT investments could appreciate in value.

A shortfall could require PSEG to post parental guarantees or make additional cash contributions to ensure that the NDT continues to satisfy the NRC minimum funding requirements.

As a result, our financial position or cash flows could be significantly adversely affected.

PJM’s capacity market design rules and ISO-NE’s forward capacity market rules continue to evolve, most recently in response to efforts to integrate public policy initiatives into the wholesale markets.

While the EPA recently repealed these rules for existing power plants, actions by northeastern states, including New Jersey, could have cost implications for our fossil generation facilities.

The rule requires that facilities seeking permit renewals conduct a wide range of studies

In December 2017, the Tax Act was enacted, which made significant changes to U.S. tax law.

Among other things, under the Tax Act, the statutory U.S. corporate income tax rate decreased from a maximum of 35% to 21%, effective January 1, 2018, and certain changes were made to bonus depreciation rules.

However, the Tax Act is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service (IRS), as well as state tax authorities, and the Tax Act could be subject to potential amendments and technical corrections.

We cannot assess the impact that any such interpretations, regulations, amendments or corrections could have on our results of operations or financial condition.

In addition, the regulatory treatment of certain impacts of the Tax Act will be subject to the discretion of FERC and the state regulators which we are unable to determine at this time.

We are subject to the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification 740, Income Taxes (ASC 740), which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted.

The impact of the rate change in 2017’s financial statements is discussed in Item 8.

Financial Statements and Supplementary Data—Note 20.

Income Taxes.

We do not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Act for the reporting period in which the Tax Act was enacted.

Accordingly, the amounts recognized in the current reporting period should be considered provisional, in accordance with SEC Staff Accounting Bulletin No. 118, and any revisions to these amounts could be material.

In October 2016, Power determined that it will cease generation operations of the existing coal/gas units at the Hudson and Mercer generating stations on June 1, 2017.

The primary factors considered during this process that contributed to the decision to retire these units early include significant declines in revenues and margin caused by the sustained period of depressed wholesale power prices and reduced capacity factors caused by lower natural gas prices making coal generation less economically competitive than natural gas-fired generation.

Despite experiencing recent warmer than normal weather in PJM this summer, Power did not experience the usual increase in electricity prices in PJM as it had in past hot summers.

This trend has a further adverse economic impact to these units because they generally dispatch and earn energy margin on peak hot and cold days.

In addition, the upcoming PJM capacity auction in May 2017 for the capacity period from June 2020 to May 2021 will be the first to require all generating units to meet the increased operating performance standards of PJM’s new capacity performance regulations.

During the current annual five-year strategic planning process, Power determined, on October 3, 2016, that the costs to upgrade the existing units at the Hudson and Mercer stations to comply with these higher reliability standards to be too significant and not economic given current market conditions, including anticipated future capacity prices, current forward energy prices and past operational performance results of the units.

The decision to retire the Hudson and Mercer units early had and will continue to have a material effect on PSEG’s and Power’s results of operations through the retirement date.

If these trends continue or worsen, our nuclear generating units could cease being economically competitive which may cause us to retire such units prior to the end of their useful lives.

However, it will be necessary to enter into additional arrangements to acquire nuclear fuel in the future.

Although our utility

As a result of our Energy Strong Order, we are required to file our next distribution base rate case proceeding no later than November 1, 2017.

Our next distribution base rate case proceeding is required to be filed no later than November 1, 2017.

In December 2016, the PSEG companies with MBR Authority filed their triennial market power analysis as required by FERC regulations.

A FERC order on the PSEG companies’ triennial filing is expected in the third quarter 2017.

In April 2016, during a scheduled refueling outage at Salem Unit 1, a visual inspection revealed degradation to a number of bolts inside the reactor vessel.

The required bolt replacement significantly extended the duration of the outage.

We expect to continue to inspect and replace degraded bolts at both Salem units over the next several refueling outage cycles and are developing a strategy to maintain the long-term health of both reactor vessel internals.

PJM’s locational capacity market

design rules and ISO-NE’s forward capacity market rules have been challenged in court and continue to evolve.

In 2011, New Jersey enacted a law that provided for the construction of subsidized electric power generation.

While this legislation was subsequently invalidated as unconstitutional, future state actions in New Jersey and elsewhere to subsidize the construction of new generation could have the effect of artificially depressing prices in the competitive wholesale market on both a short-term and long-term basis.

We may be required to incur significant costs to comply with these regulations and to continue operation of our fossil generation facilities, which could include the potential need to purchase CO2 emission allowances.

The EPA did not mandate closed cycle cooling as the BTA.

Instead, the EPA set a fish impingement mortality standard that relies on a technology-based approach.

There exists the potential for comprehensive tax reform in the U.S. that may significantly change the tax rules applicable to domestic businesses, including changes that may impact investment incentives, deductions for depreciation, interest or otherwise, and dividends.

We cannot assess what the overall effect of such potential legislation could be on our results of operations or cash flows.

In addition, certain PJM cost allocation determinations have been

During the third quarter of 2016, in connection with Energy Holdings’ annual review of estimated residual values embedded in the NRG REMA, LLC (REMA) leveraged leases, it was determined that the revised residual value estimates for such leases were lower than the recorded residual values and the decline was deemed to be other than temporary due to the adverse economic conditions experienced by coal generation in PJM.

As a result, a pre-tax write-down of $137 million was reflected in Operating Revenues in the quarter ended September 30, 2016.

During the fourth quarter of 2016, Energy Holdings recorded a $10 million pre-tax charge reflecting its best estimate of loss as a result of the current liquidity issues facing REMA.

In addition, REMA’s parent company, GenOn Energy, Inc. (GenOn), reported in August 2016 that it did not expect to have sufficient liquidity to repay their senior unsecured notes due in June 2017.

impact on REMA.

Inability to do so may result

We own and/or operate generating stations and transmission and distribution facilities, all of which are dependent on the operation of our information technology systems.

Our ability to market our generation output and acquire and hedge fuel and power are also dependent on our information technology systems as well as information technology systems owned and operated by third parties, such as ISOs and RTOs.

However, none of these actual or attempted cyber-attacks has had a material impact on our operations or financial condition.

If a significant cybersecurity event or breach should occur, we could (i) experience disruptions to our business, property damage, theft of unauthorized access to customer or other information; (ii) experience significant loss of revenue or incur material costs for repair, remediation and breach notification and increased capital and operating costs to implement increased security measures; and (iii) be subject to increased regulation, litigation and reputational damage.

Experiencing a cybersecurity incident could also cause us to be non-compliant with applicable laws and regulations, including those promulgated by the NRC and NERG, or contracts that require us to securely maintain confidential data, causing us to incur costs related to legal claims or proceedings, regulatory fines and increased scrutiny and possible damage to our reputation and brand, resulting in a reduction in customer confidence.

| • | PSE&G—which is a public utility engaged principally in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey. PSE&G is subject to regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). PSE&G also invests in solar generation projects and [removed: has implemented] energy efficiency and [removed: demand response] [added: related] programs in New Jersey, which are regulated by the BPU, and |

| • | Power—which is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses [added: and fuel supply functions] through competitive energy sales in well-developed energy markets [removed: and fuel supply functions] primarily in the Northeast and Mid-Atlantic United States through its principal direct wholly owned subsidiaries. In addition, Power owns and operates solar generation in various states. Power’s subsidiaries are subject to regulation by FERC, the Nuclear Regulatory Commission (NRC), the Environmental Protection Agency (EPA) and the states in which they operate. |

PSEG’s other direct wholly owned subsidiaries [removed: include PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily has investments in leveraged leases;] [added: are:] PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) transmission and distribution (T&D) system under an Operations Services Agreement (OSA); [added: PSEG Energy Holdings L.L.C. (Energy Holdings), which primarily has investments in leveraged leases;] and PSEG Services Corporation (Services), which provides certain management, administrative and general services to PSEG and its subsidiaries at cost.

The following discussion provides an overview of the significant events and business developments that have occurred during [removed: 2016] [added: 2017] and key factors that we expect may drive our future performance.

EXECUTIVE OVERVIEW OF [removed: 2016] [added: 2017] AND FUTURE OUTLOOK

| • | improving utility operations through growth in investment in T&D and other infrastructure projects designed to enhance system reliability and resiliency and to meet customer expectations and public policy objectives, [added: and] |

The results for PSEG, PSE&G and Power for the years ended December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] are presented below:

| | | | [added: 2017 | | | |] 2016 | | | | 2015 | | | |

| | PSE&G | | $ | [added: 973 | | | $ |] 889 | | | $ | 787 | | |

| | Power [added: (A)(B)] | | [added: 479 | | | |] 18 | | | | 856 | | | |

| | Other | | [removed: (20] [added: 30] | | [removed: )] | | [removed: 36] [added: 30] | | | | [added: 20 | | | |]

| | PSEG Net Income | | $ | [added: 1,574 | | | $ |] 887 | | | $ | 1,679 | | |

| | PSEG Net Income Per Share (Diluted) | | $ | [added: 3.10 | | | $ |] 1.75 | | | $ | 3.30 | | |

During [removed: 2016,] [added: 2017,] we maintained a strong balance sheet.

We [removed: also commenced] [added: are] modernizing PSE&G’s gas distribution systems as part of our Gas System Modernization Program (GSMP) that was approved by the BPU in late 2015.

Power manages [removed: these] [added: its existing firm pipeline transportation] contracts for the benefit of PSE&G’s customers through the [removed: BGSS] [added: basic gas supply service (BGSS)] arrangement.

When pipeline capacity beyond the customers’ needs is available, Power [removed: can] [added: may] use it to make third-party sales and supply gas to its generating units in New Jersey.

More than half of Power’s expected gross margin in [removed: the upcoming year] [added: 2018] relates to our hedging strategy, our expected revenues from the capacity market mechanisms and certain ancillary service payments such as reactive power.

Our investments in [removed: the latter half of 2015 and early 2016 in] Keys Energy Center (Keys), Sewaren 7 and Bridgeport Harbor Station 5 (BH5) reflect our recognition of the value of opportunistic growth in the Power business.

Since 2013, several nuclear generating stations in the United States have closed or announced early retirement due to economic reasons, or have announced [removed: as] being at risk for early retirement.

[removed: This situation is] [added: These closures and retirements are] generally due to [added: the decline in market prices of energy, resulting from] low natural gas prices [removed: resulting from] [added: driven by] the growth of shale gas production since 2007, the continuing cost of regulatory compliance [added: and enhanced security] for nuclear [removed: facilities and] [added: facilities,] both federal and state-level policies that provide [removed: credits] [added: financial incentives] to [added: construct] renewable energy such as wind and [removed: solar, but do not apply] [added: solar and the failure] to [added: adequately compensate nuclear generating stations for the attributes they bring similar to renewable energy production.]

These trends have significantly reduced the revenues [removed: to] [added: of] nuclear generating stations while [removed: simultaneously raising] [added: limiting their ability to reduce] the unit cost of production.

This may result in the electric generation industry experiencing a [added: further] shift from nuclear generation to natural gas-fired generation, creating [removed: greater reliance on natural gas pipelines for delivery and] less diversity of the generation fleet.

The costs associated with any such retirement, which may include, among other things, accelerated depreciation and amortization or impairment charges, accelerated asset retirement costs, severance [removed: costs and] [added: costs,] environmental remediation [removed: costs, could] [added: costs and additional funding of the Nuclear Decommissioning Trust Fund (NDT) would] be [removed: material.][added: material to both PSEG and Power.]

There are several matters pending before FERC [added: and the U. S. Court of Appeals for the District of Columbia Circuit] that concern the allocation of costs associated with transmission projects being constructed by PSE&G.

However, the result of these proceedings could ultimately impact the amount of costs borne by ratepayers in New [removed: Jersey and may cause increased scrutiny regarding PSE&G’s future capital investments.][added: Jersey.]

If the allocation of the costs associated with the transmission projects were to increase these BGS-related transmission costs, BGS suppliers may be entitled to [removed: an adjustment,] [added: recovery,] subject to BPU approval.

[removed: While we are not the subject of a challenge to the ROE employed in PSE&G’s transmission formula rate, the] [added: The] results of these other proceedings could set precedents for other transmission owners with formula rates in place, including PSE&G.

In May [removed: 2016,] [added: 2017,] PJM announced the results of the RPM capacity auction for the [removed: 2019-2020 delivery year.][added: 2020-2021 Delivery Year.]

Power cleared [removed: 8,895] [added: approximately 7,800] MW of its generating capacity at an average price of [removed: $116] [added: $174] per MW-day for the [removed: 2019-2020] [added: 2020-2021] delivery period.

In the two prior capacity auctions covering the [removed: 2017-2018] [added: 2019-2020] and 2018-2019 delivery years, Power cleared approximately [removed: 8,700] [added: 8,900] MW at [added: an] average [removed: prices] [added: price] of [removed: $177] [added: $116] per MW-day and [added: approximately 8,700 MW at an average price of] $215 per MW-day, respectively.

Prices in the most recent auction reflect PJM’s downwardly-revised demand forecast, changes in the [removed: capacity] emergency transfer limits due to transmission expansion and the effects of both the new generation and uncleared generation from the prior year’s auction.

As a result of the efforts of certain entities in PJM to obtain financial support arrangements from their state [removed: commission,] [added: commissions,] a group of suppliers requested that FERC direct PJM to expand the currently effective “minimum offer price rule” to apply to certain existing units seeking subsidies.

In particular, section 316(b) of the Federal Water Pollution Control Act [removed: (FWPCA)] requires that cooling water intake structures, which are a significant part of the generation of electricity at steam-electric generating stations, reflect the [removed: best technology available for minimizing adverse environmental impacts.]

For further information regarding the matters described [removed: above] [added: above,] as well as other matters that may impact our financial condition and results of operations, see Item 8.

[removed: In October 2016,] [added: On June 1, 2017,] Power [removed: determined it will cease] [added: completed its previously announced retirement of the] generation operations of the existing coal/gas units at the Hudson and Mercer generating [removed: stations on June 1, 2017.][added: stations.]

The decision to retire the Hudson and Mercer units [removed: will have] [added: had] a material effect on PSEG’s and Power’s results of [removed: operations.][added: operations in 2016 and continued to adversely impact their results of operations in 2017.]

[removed: In addition to these charges,] [added: As of June 1, 2017,] Power [removed: recognized] [added: completed recognition of the] incremental Depreciation and Amortization [removed: during 2016] [added: (D&A)] of [removed: $555 million ($571 million in total) and expects to recognize an additional $931] [added: $938] million [removed: ($958] [added: ($964] million in total) [removed: in 2017] due to the significant shortening of the expected economic useful lives of Hudson and Mercer.

[removed: However, if] [added: If] Power determines not to use the sites for alternative industrial activity, the early retirement of the units at such sites would trigger obligations under certain environmental regulations, including possible remediation.

For additional [removed: information, including] [added: information on] our [removed: estimated costs through 2017,] [added: specific filings,] see Item 8.

2017 Overview

Our 2017 over 2016 increase in Net Income was due primarily to the favorable impacts of new tax legislation at Power and Energy Holdings in 2017, discussed below, partially offset by higher charges in 2017 related to the early retirement of our Hudson and Mercer units.

Higher transmission revenues in 2017 at PSE&G, lower charges in 2017 related to investments in certain leveraged leases at Energy Holdings and lower plant outage costs at Power, partially offset by lower volumes of electricity sold at lower average prices, also contributed to the increase in Net Income.

In July 2017, we filed a petition with the BPU for a GSMP II program, an extension of GSMP to continue to modernize our gas system, through which PSE&G has proposed investing $2.7 billion over five years beginning in 2019.

This matter is pending.

We believe the petition is consistent with the Infrastructure Investment Program (IIP) regulations that the BPU approved in December 2017.

In August 2017, the BPU approved PSE&G’s petition for an Energy Efficiency 2017 Program (EE 2017) to extend three existing energy efficiency subprograms (multi-family, direct install and hospital efficiency) and establish two new residential energy efficiency offerings.

The EE 2017 allows for $69 million of additional investment and $16 million of additional administrative and information technology costs.

The EE 2017 was added as the eleventh component of the Green Program Recovery Charges (GPRC) rate effective September 1, 2017.

In January 2018, PSE&G filed a distribution base rate case as required by the BPU as a condition of approval of its Energy Strong Program.

The filing requests an approximate one percent increase in revenues and seeks to recover investments made to strengthen electric and gas distribution systems.

In its filing, PSE&G requested that these rates take into account a reduction in the revenue requirement as a result of the federal corporate income tax rate reduction from 35% to 21% provided in new tax legislation enacted in December 2017 (Tax Act), including a one-time credit for estimated excess income taxes collected between January 1, 2018 and the time new rates go into effect, and the flow-back to customers of certain additional tax benefits.

PSE&G anticipates the new base rates will take effect in the fourth quarter of 2018.

Separately, in January 2018, the BPU issued an order commencing a proceeding to ensure that the rate revenue resulting from expenses relating to taxes reflected in rates but no longer owed as the result of the Tax Act shall be passed onto the ratepayers.

The BPU directed New Jersey utilities (including PSE&G) to make filings by March 2, 2018 setting forth interim rates to be effective April 1, 2018, reflecting the new federal corporate tax rate, and to subsequently file proposed final rates, effective July 1, 2018, incorporating all other effects of the Tax Act.

This proceeding is currently pending.

As a result of the enactment of the Tax Act, various state regulatory authorities, including the BPU, have taken action to ensure that excess federal income taxes previously collected in rates are returned to ratepayers.

We have made filings to adjust the revenue requirement in certain of our rate matters as a result of the change in federal income tax rate.

We continue to assess whether any further action needs to be taken by the company at this time.

Regulatory Assets and Liabilities.

Most recently, in February 2018, Exelon, a co-owner of the Salem units, announced its intention to accelerate the closure of its Oyster Creek nuclear plant located in New Jersey, one year earlier than previously planned for economic reasons.

If any or all of the Salem and Hope Creek units were shut down, it would significantly alter New Jersey’s energy supply predominately by increasing New Jersey’s reliance on natural gas generation.

Such a decrease in fuel diversity could also increase the market’s vulnerability to price fluctuations and power disruptions in times of high demand.

The New Jersey Legislature is assessing legislation that would provide a safety net in order to prevent the loss of environmental attributes from nuclear generating stations.

We cannot predict whether the legislation will be enacted or, if enacted, whether our nuclear generating stations in New Jersey will be selected or whether the legislation will provide a sufficient safety net for the continued operation of nuclear generating stations in New Jersey.

In the ordinary course, management, and in the case of the Salem units the co-owner, each makes a number of decisions that impact the operation of our nuclear units beyond the current year, including whether and to what extent these units participate in RPM capacity auctions, commitments relating to refueling outages and significant capital expenditures, and decisions regarding our hedging arrangements.

When considering whether to make these future commitments, management’s decisions will primarily be influenced by the financial outlook of the units, including the progress, timing and continued outlook for enactment of proposed legislation in the state of New Jersey.

If market prices continue to be depressed and legislation is not enacted that adequately compensates nuclear generating stations for their attributes, Power anticipates it will no longer be covering its costs nor be adequately compensated for its market and operational risks at the Salem and Hope Creek nuclear units and would anticipate retiring these units early.

During 2015, PJM implemented a new “Capacity Performance” (CP) mechanism that created a more robust capacity product with enhanced incentives for performance during emergency conditions and significant penalties for non-performance.

The CP product was implemented fully in the May 2017 RPM auction for the 2020-2021 Delivery Year.

Subsequent to its implementation, FERC approved changes to the CP construct that will enhance the participation of intermittent and demand response resources (seasonal resources).

However, two complaints remain pending that ask FERC to investigate the rules governing the participation of seasonal resources and extend the participation of the base resources for future auctions.

In June 2017, PJM issued an energy price formation proposal to address a flaw in the energy market in which energy prices during off-peak periods often do not reflect the production costs of generators during these periods even though they are serving load.

PJM’s proposal would allow large, inflexible units to set price.

If placed into effect, this proposal will improve price formation by ensuring that the marginal costs of units serving load will be better reflected in clearing prices.

We cannot predict the outcome of this matter.

Distribution

The BPU has enacted IIP regulations that allow utilities to construct, install, or remediate utility plant and facilities related to reliability, resiliency, and/or safety to support the provision of safe and adequate service.

Under these regulations, utilities can seek authority to make specified infrastructure investments in programs extending for up to five years with accelerated cost recovery mechanisms.

The BPU characterized the IIP regulations as a regulatory initiative intended to create a financial incentive for utilities to accelerate the level of investment needed to promote the timely rehabilitation and replacement of certain non-revenue producing infrastructure that enhances reliability, resiliency, and/or safety.

2016 Overview

Our 2016 over 2015 decrease in Net Income was due primarily to charges related to the early retirement of our Hudson and Mercer units, mark-to-market (MTM) losses in 2016 as compared to gains in 2015, lower volumes of electricity and gas sold at lower average realized sales prices, lower capacity and operating reserve revenues, storm insurance recoveries received primarily by Power in 2015 related to Superstorm Sandy, and charges in 2016 related to investments in certain leveraged leases at Energy Holdings.

These decreases were partially offset by higher transmission revenues, lower generation costs and higher costs incurred at Power for planned outages in 2015, and higher management fee revenues at PSEG LI pursuant to the OSA.

In 2017, as a result of our Energy Strong Order from the BPU, we will be required to file a distribution base rate case proceeding.

We cannot predict the impact such proceeding will have on our distribution business.

Despite the unseasonable warm winter weather patterns in 2016, Power’s results benefited from access to natural gas supplies through existing firm pipeline transportation contracts.

nuclear generating stations.

If trends noted above continue or worsen, our nuclear generating units could cease being economically competitive which may cause us to retire such units prior to the end of their useful lives.

We continue to advocate for sound policies that recognize nuclear power as a source of clean energy and an important part of a diverse and reliable energy portfolio.

In April 2013, PJM initiated its first “open window” solicitation process to allow both incumbents and non-incumbents the opportunity to submit transmission project proposals to address identified high voltage issues in New Jersey.

In February 2016, FERC issued an order granting PSE&G’s request that it be permitted to seek recovery of 100% of its portion of the project’s costs to address identified high voltage issues at Artificial Island in New Jersey if the project is canceled for reasons beyond PSE&G’s control.

In April 2016, PSE&G accepted construction responsibility for the three components of the project that PJM assigned to it, based on having reached agreement with PJM regarding an estimate for the project base cost of $273 million, plus risk and contingency for a total project cost of up to $340 million.

In August 2016, PJM announced that it had suspended the Artificial Island transmission project and would be performing a comprehensive analysis to support a future course of action.

PJM will submit its final recommendation to the PJM Board at the April 2017 Board meeting.

In April 2016, PJM filed at FERC to incorporate a voltage threshold into PJM’s Regional Transmission Expansion Plan (RTEP) process to exempt, except under certain circumstances, reliability violations on facilities below 200 kV from PJM’s proposal window process.

We generally support this reform as a measure to improve the efficiency of the open window procedure that will permit transmission developers to focus on the projects most likely to benefit from a competitive process.

In June 2015, FERC conditionally accepted a proposal from PJM for a capacity performance product to include generators, Demand Response and energy efficiency providers, which will be required to perform during emergency conditions, as a supplement to the base capacity product.

The proposal included enhanced performance-based incentives and penalties.

We believe that the auction pricing adequately reflects the increased costs that could result from operating under more stringent rules for generation availability.

Based on the auction results, the capacity performance mechanism appears to have provided the opportunity for enhanced capacity market revenue streams for Power, but future impacts cannot be assured.

Further, there may be requirements for additional investment and there are additional performance and financial risks.

Appeals of FERC’s capacity performance orders are pending.

Of the cleared

capacity, Power believes that nearly all is compliant with PJM’s capacity performance requirements.

The U.S. Supreme Court’s February 2016 decision to stay the implementation of the Clean Power Plan (CPP), a greenhouse gas emissions regulation under the Clean Air Act (CAA) for existing power plants, will delay deadlines for submission of state requests for extensions and final plans.

If the CPP is upheld, new deadlines will need to be established and the effective date of the compliance period may be impacted.

This investigation is ongoing.

The amounts of potential disgorgement and other potential penalties that we may incur span a wide range depending on the success of our legal arguments.

If our legal arguments do not prevail, in whole or in part with FERC or in a judicial challenge that we may choose to pursue, it is likely that Power would record losses that would be material to PSEG’s and Power’s results of operations in the quarterly and annual periods in which they are recorded.

The exact timing of the early retirement of these units may be impacted by operational and other conditions that could subsequently arise.

In 2016, PSEG and Power recognized pre-tax charges in Energy Costs and Operation and Maintenance (O&M) of $62 million and $53 million, respectively, related to coal inventory adjustments, capacity penalties, materials and supplies inventory reserve adjustments for parts that cannot be used at other generating units, employee-related severance benefits costs and construction work in progress impairments, among other shut down items.

Additional employee-related salary continuance and severance costs and various miscellaneous costs may also be incurred during the period prior to retirement.

Finally, Power currently anticipates using the

sites for alternative industrial activity.

Early Plant Retirements.

The primary factors considered during our annual five-year strategic planning process that contributed to the decision to retire these units early include significant declines in revenues and margin caused by a sustained period of depressed wholesale power prices and reduced capacity factors caused by lower natural gas prices making coal generation less economically competitive than natural gas-fired generation.

Despite experiencing recent warmer than normal weather in PJM this summer, Power did not experience the usual increase in electricity prices in PJM as it had in past hot summers.

This trend has a further adverse economic impact to these units because they generally dispatch and earn energy margin on peak hot and cold days.

In addition, the upcoming PJM capacity auction in May 2017 will be the first to require all generating units to meet the increased operating performance standards of PJM’s new capacity performance construct.

Power determined that the costs to upgrade the existing units at the Hudson and Mercer stations to be able to comply with these higher reliability standards are too significant and not economic given current market conditions.

[removed: We have a Risk Management] Committee comprised of executive officers who utilize a risk oversight function to ensure compliance with our corporate policies and risk management practices.

| | Years Ended December 31, | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | |

| | Period End | | $ | [removed: 26] [added: 39] | | | $ | [removed: 24] [added: 26] | | |

| | Average for the Period | | $ | [removed: 16] [added: 10] | | | $ | [removed: 17] [added: 16] | | |

| | High | | $ | [removed: 32] [added: 39] | | | $ | [removed: 40] [added: 32] | | |

| | Low | | $ | [removed: 10] [added: 5] | | | $ | [removed: 8] [added: 10] | | |

| | Period End | | $ | [removed: 40] [added: 60] | | | $ | [removed: 38] [added: 40] | | |

| | Average for the Period | | $ | [removed: 25] [added: 15] | | | $ | [removed: 26] [added: 25] | | |

| | High | | $ | [removed: 51] [added: 60] | | | $ | [removed: 63] [added: 51] | | |

| | Low | | $ | [removed: 16] [added: 8] | | | $ | [removed: 12] [added: 16] | | |

As of December 31, [removed: 2016,] [added: 2017,] a hypothetical 10% increase in market interest rates would result in

| • | [removed: less than] $1 million of additional annual interest costs related to both the current and long-term portion of long-term debt, and |

| • | a [removed: $366] [added: $370] million decrease in the fair value of debt, including a [removed: $303] [added: $16] million decrease at [added: PSEG, a $309 million decrease at] PSE&G and a [removed: $57] [added: $45] million decrease at Power. |

As of December 31, [removed: 2016,] [added: 2017,] the portfolio included [removed: $957 million] [added: $1.1 billion] of equity securities and [removed: $857] [added: $986] million in fixed income securities.

As of December 31, [removed: 2016,] [added: 2017,] a hypothetical 10% change in the equity market would impact the value of the equity securities in the NDT Fund by approximately [removed: $96] [added: $106] million.

The benchmark for the fixed income component of the NDT Fund currently has a duration of [removed: 5.89] [added: 5.98] years and a yield of [removed: 2.61%.][added: 2.72%.]

As of December 31, [removed: 2016,] [added: 2017,] a hypothetical 1% increase in interest rates would result in a decline in the market value for the fixed income portfolio of approximately [removed: $50] [added: $59] million.

Energy Holdings has credit risk related to its investments in leases, which totaled [removed: $(25)] [added: $85] million, net of deferred taxes of [removed: $674] [added: $480] million, as of December 31, [removed: 2016.][added: 2017.]

Some of the leasing transactions include covenants that restrict the flow of dividends from the lessee to its parent, over-collateralization of the lessee with non-leased assets, [added: and] historical and forward cash flow coverage tests that prohibit discretionary capital expenditures and dividend payments to the parent/lessee if stated minimum coverages are not [removed: met and similar cash flow restrictions if ratings are not maintained at stated levels.][added: met.]

We have a Risk Management

We have $6.3 billion of assets in a trust for our pension and OPEB plans.

We have $5.6 billion of assets in our pension plan trusts.

| | A New Jersey corporation, incorporated in 1924, which is a franchised public utility in New Jersey. It is also the provider of last resort for gas and electric commodity service for end users in its service territory. Earns revenues from its regulated rate tariffs under which it provides electric transmission and electric and gas distribution to residential, commercial and industrial customers in its service territory. It also offers appliance services and repairs to customers throughout its service territory. [removed: Has also implemented regulated demand response] [added: Also invests in solar generation projects] and [added: regulated] energy efficiency [removed: programs] and [removed: invested] [added: related programs] in [removed: solar generation within] New Jersey. | | A Delaware limited liability company formed in 1999 as a result of the deregulation and restructuring of the electric power industry in New Jersey. It integrates the operations of its merchant nuclear and fossil generating assets with its [removed: wholesale] power marketing businesses [added: and fuel supply functions] through competitive energy sales in well-developed energy [removed: markets and fuel supply functions.] [added: markets.] Earns revenues from the generation and marketing of power and natural gas to hedge business risks and optimize the value of its portfolio of power plants, other contractual arrangements and oil and gas storage facilities. This is achieved primarily by selling power and transacting in natural gas and other energy-related products, on the spot market or using short-term or long-term contracts for physical and financial products. Also earns revenues from solar generation [added: facilities] under long-term sales contracts for power and environmental products. | |

Our other direct wholly owned subsidiaries are: PSEG [removed: Energy Holdings L.L.C. (Energy Holdings), which earns its revenues primarily from its portfolio of lease investments; PSEG] Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) [added: electric] transmission and distribution (T&D) system under a contractual agreement; [added: PSEG Energy Holdings L.L.C. (Energy Holdings), which earns its revenues primarily from its portfolio of lease investments;] and PSEG Services Corporation (Services), which provides us and our operating subsidiaries with certain management, administrative and general services at cost.

[removed: .][added: .]

These projects focus on reliability improvements and replacement of aging infrastructure with [removed: anticipated] [added: planned] capital spend of [removed: $4.1] [added: $3.8] billion for transmission in [removed: 2017-2019] [added: 2018-2020] as disclosed in Item 7.

Our load requirements are split among residential, commercial and industrial customers, as described in the following table for [removed: 2016:][added: 2017:]

| | Residential | | [removed: 33%] [added: 32%] | | 59% | |

| | Industrial | | [removed: 9%] [added: 10%] | | 4% | |

While our customer base has modestly increased since [removed: 2012,] [added: 2013,] electric load has declined and gas load has increased as illustrated below:

| | | Number of Customers | | | | Electric Sales and Gas Firm Sales (A) | | | | Historical Annual Load Growth [removed: 2012-2016] [added: 2013-2017] | |

| | Electric | 2.2 | | Million | | [removed: 41,580] [added: 40,740] | | Gigawatt hours (GWh) | | (0.4)% | |

| | Gas | 1.8 | | Million | | [removed: 2,360] [added: 2,397] | | Million Therms | | [removed: 0.7%] [added: 2.8%] | |

Gas firm sales increased as a result of [removed: lower] [added: customer response to continued low] gas prices.

[removed: During 2016,] PSE&G, as part of its BPU-approved [removed: $1.2 billion] Energy Strong Program, completed the replacement and modernization of 240 miles of low-pressure cast iron gas mains in or near flood areas.

PSE&G continues to execute the Energy Strong Program to [removed: (1)] upgrade all of its electric substations that were damaged by water in recent storms; make investments that will create redundancy in the electric distribution system, reducing outages when damage occurs; and deploy technologies to better monitor system operations, enabling PSE&G to restore customers more quickly in the event of an electric outage, and [removed: (2)] with respect to PSE&G’s gas system, upgrade five natural gas metering stations and a liquefied natural gas station recently affected by severe weather or located in flood zones.

PSE&G [removed: also commenced] [added: continues] modernizing its gas distribution system as part of our Gas System Modernization Program (GSMP) which was approved by the BPU in late 2015.

The GSMP, through which we [removed: will] [added: expect to] invest $905 million over three years, will replace approximately 510 miles of cast iron and unprotected steel gas mains and about 38,000 unprotected steel service lines to homes and businesses, including the uprating of the mains to higher pressure.

Although commodity revenues make up almost [removed: 41%] [added: 38%] of our revenues, we make no margin on the default supply of electricity and gas since the actual costs are passed through to our customers.

MD&A—Executive Overview of [removed: 2016] [added: 2017] and Future Outlook.

[removed: On March 19,] [added: In] 2014, the BPU approved an extension of the long-term BGSS contract to March 31, 2019 and then year-to-year thereafter unless terminated by either party with a two year notice.

In addition to its nuclear and fossil generation fleet, Power owns and operates [removed: 326] [added: 414] MW direct current (dc) of PV solar generation [removed: facilities and has an additional 70 MW dc of PV solar generation in construction.][added: facilities.]

Power [added: also] has a 50% ownership interest in a 208 MW oil-fired generation facility in Hawaii.

Nearly all of our generation capacity consists of nuclear and fossil generation [removed: (11,681] [added: (10,562] MW) that is located in the Northeast and Mid-Atlantic regions of the United States in some of the country’s largest and most developed electricity markets.

The map below shows the locations of our Northeast and Mid-Atlantic nuclear and fossil generation [removed: facilities and] [added: facilities, including] projects [added: currently] under construction:

[removed: ][added: ]

As of December 31, [removed: 2016,] [added: 2017,] our fuel mix was comprised of [removed: 41%] [added: 47%] gas, [removed: 32%] [added: 35%] nuclear, [removed: 20%] [added: 11%] coal, 5% oil and 2% pumped storage.

Our total generating output in [removed: 2016] [added: 2017] was approximately [removed: 52,000] [added: 51,100] GWh.

The following table indicates the proportionate share of generating output by fuel type in [removed: 2016.][added: 2017.]

| | Generation by Fuel Type (A) | | Actual [removed: 2016] [added: 2017] | | |

| | New Jersey facilities | | [removed: 36%] [added: 41%] | | |

| | Pennsylvania facilities | | [removed: 9%] [added: 11%] | | |

| | New Jersey facilities | | [removed: —%] [added: 17%] | [removed: (B)] | |

| (A) | Excludes pumped storage, solar facilities and fossil generation in Hawaii which account for less than [removed: two] [added: 2.5] percent of total generation. |

We are also executing the following growth projects which are included in the [removed: 2017-2019] [added: 2018-2020 planned] capital spend of [removed: $1.3 billion] [added: $520 million] for Fossil Growth Opportunities disclosed in Item 7.

| | Major Growth Projects | | | | | | [added: |]

| | Project | | Location | | Expected In-Service Date | | [added: |]

| | Keys Energy Center gas-fired combined cycle generating station (755 MW) | | Maryland | | 2018 | | [added: |]

| | Sewaren 7 dual-fueled combined cycle generating station (540 MW) | | New Jersey | | 2018 | | [added: |]

| | Bridgeport Harbor 5 gas-fired combined cycle generating station (485 MW) | | Connecticut | | 2019 | | [added: |]

| | Bethlehem Energy Center (BEC) combined cycle uprate [removed: (58] [added: (56] MW) | | New York | | [removed: 2017/2018] [added: 2019] | [added: (A)] | [added: |]

| • | Base Load Units run the most and typically are called to operate whenever they are available. These units generally derive revenues from both energy and capacity sales. Variable operating costs are low due to the combination of highly efficient operations and the use of relatively lower-cost fuels. Performance is generally measured by the unit’s “capacity factor,” or the ratio of the actual output to the theoretical maximum output. In [removed: 2016,] [added: 2017,] our base load capacity factors were as follows: |

In January 2018, we filed a distribution base rate case requesting an adjustment in electric and gas base delivery rates that, if approved by the BPU, would increase overall revenues by approximately one percent.

PSE&G anticipates that new base rates will take effect in the fourth quarter of 2018.

| | | | % of 2017 Sales | | | |

| | | December 31, 2017 | | | | | | | | | |

In July 2017, we filed a petition with the BPU for a GSMP II program, an extension of our GSMP through which PSE&G has proposed investing $2.7 billion over five years beginning in 2019 to continue to modernize our gas system.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | |

| | | | | | | | |

| | As of December 31, 2017 | | | | | | |

| | | | | | | | |

| | Bergen dual-fueled combined cycle uprate (32 MW) | | New Jersey | | 2020 | | |

| | | | | | | | |

| (A) | Two-thirds of the project is complete and operational. |

| | Keystone | | 79.4% | |

| | Conemaugh | | 75.7% | |

These variations can be considerable.

We have coal inventory at the Bridgeport Station as well as off-site storage to meet the plant’s projected requirements.

For additional information and a discussion of risks, see Item 1A.

Risk Factors, Item 7.

| | June 2020 to May 2021 | | $174 | |

Power began these marketing activities in 2017 and has been granted retail energy supplier licenses in New Jersey, Pennsylvania and Maryland.

| | Generation Sales | | 100% | | 95%-100% | | 50%-55% | |

In March 2017, Westinghouse Electric Company (WEC) announced that it had filed for Chapter 11 bankruptcy in New York.

WEC provides nuclear fuel fabrication services for Salem Units 1 and 2.

In January 2018, Brookfield Business Partners LP announced its intention to acquire WEC.

The acquisition is expected to close in 2018 if it receives the required approvals from the regulators and bankruptcy courts.

No assurances can be given that the acquisition will be approved.

In the event that WEC is unable to continue to provide fabrication services, we can provide no assurance that Power would be able to find alternative providers of such services in a timely manner or on acceptable terms.

A failure by WEC to perform its obligations during the pendency of, or following its emergence from, bankruptcy could have a material adverse impact on our business, the financial results of specific plants and on our results of operations.

Adverse changes in energy industry law, policies and regulation could have significant economic, environmental and reliability consequences.

| | Non-Union | | 1,959 | | | 1,118 | | | 881 | | | 988 | | |

| | Union | | 5,209 | | | 1,293 | | | 1,486 | | | 11 | | |

| | Total Employees | | 7,168 | | | 2,411 | | | 2,367 | | | 999 | | |

In November 2017, FERC issued an order accepting the triennial filing made by the PSEG companies seeking authority to sell energy, capacity and ancillary services at market-based rates.

These FERC rules provide an opportunity for bonus payments or require the payment of penalties depending on whether a unit is available during a performance hour.

In June 2017, PJM issued an energy price formation proposal to address a flaw in the energy market in which energy prices during off-peak periods often do not reflect the production costs of generators during these periods even though they are serving load.

PJM’s proposal would allow large, inflexible units to set price.

If placed into effect, this proposal will improve price formation by ensuring that the marginal costs of units serving load will be better reflected in clearing prices.

We cannot predict the outcome of this matter.

We are required to file our next distribution base rate case proceeding no later than November 1, 2017.

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | |

| | | | % of 2016 Sales | | | |

| | | | | | | |

| | | December 31, 2016 | | | | | | | | | |

Financial Statements and Supplementary Data—Note 13.

See Item 8.

This fuel mix does not give effect to our previously announced decision to cease generation operations of the existing coal/gas units at our Hudson and Mercer generating stations on June 1, 2017.

| | Coal and Natural Gas: | | | | |

| | New Jersey facilities | | 24% | | |

| | | | | | | |

| | As of December 31, 2016 | | | | | |

| | Keystone | | 68.4% | |

| | Conemaugh | | 61.7% | |

We currently have a coal supply contract from Indonesia under contract through 2017 for the Bridgeport facility and believe that additional coal would be available after 2017 as required.

produced in adjacent states (e.g. Pennsylvania).

| | June 2016 to May 2017 | | $172 | |

Prices in the most recent auction reflect PJM’s downwardly-revised demand forecast, changes in the emergency transfer limits due to transmission expansion and the effects of both the new generation and uncleared generation from the prior year’s auction.

Power was granted licenses in 2016 to sell both electricity and gas in the states of New Jersey and Pennsylvania and expects to begin its marketing efforts in 2017.

| | Generation Sales | | 100% | | 80%-85% | | 35%-40% | |

and also allow us to seek opportunities to build in other service territories.

Adverse changes in energy industry law, policies and regulation, including market structures and a potential shift away from competitive markets toward subsidized market mechanisms, would have the effect of artificially depressing prices in the competitive wholesale market and thus have the potential to harm competitive markets, on both a short-term and a long-term basis.

Since the beginning of 2016, six of our eight labor unions ratified extensions of their collective bargaining agreements with us, with expiration dates from 2019 to 2021.

The collective bargaining agreements for the remaining two unions expire in June 2017 and May 2018.

| | Non-Union | | 1,898 | | | 1,165 | | | 811 | | | 1,030 | | |

| | Union | | 5,108 | | | 1,549 | | | 1,496 | | | 8 | | |

| | Total Employees | | 7,006 | | | 2,714 | | | 2,307 | | | 1,038 | | |

As a result of the change in administration following the U.S. presidential election, FERC does not currently have the quorum required to issue certain substantive orders.

Until quorum is obtained, FERC Staff has been delegated authority, which allows FERC to continue carrying out its regulatory obligations in the absence of a quorum of Commissioners.

The FERC order delegated to FERC Staff the ability to take certain actions to avoid filings going into effect by operation of law until FERC again has a quorum and moves to lift the delegation order.

For a requesting company to receive MBR Authority, FERC must

In December 2016, the PSEG companies with MBR Authority filed their triennial market power analysis as required by FERC regulations.

A FERC order on the PSEG companies’ triennial filing is expected in the third quarter 2017.

These FERC rules have a direct impact on the prices received by our units.

However, aspects of FERC’s order are currently pending appeal in the Court of Appeals for the D.C. Circuit (D.C. Circuit).

The CP product will be implemented fully for the 2020-2021 Delivery Year.

Based upon the August 2015 base residual auction results, the CP mechanism appears to have provided the opportunity for enhanced capacity market revenue streams for Power but future impacts cannot be assured.

We are party to various lawsuits and [added: environmental and] regulatory matters, including in the ordinary course of business.

For information regarding material legal proceedings, [removed: other than those discussed below,] see Item 1.

Ewing Explosion

In 2014, pursuant to an existing contract, PSE&G assigned Henkels and McCoy (Henkels) to replace the electrical service at a home in the South Fork Townhouse Community in Ewing Township, Mercer County, New Jersey.

As Henkels began work to install new electric service, a gas explosion occurred in the townhouse community resulting in damage to numerous properties, personal injuries and one fatality.

Twenty-two lawsuits have been filed to date relating to the gas explosion, of which PSE&G was named as a defendant in nineteen cases.

To date, six of these cases have resolved through private negotiations and/or mediation.

In one of the remaining pending matters, plaintiffs representing the estate of the decedent are seeking damages under the New Jersey Wrongful Death Act and the New Jersey Survivors Act as well as punitive damages.

PSE&G has denied all allegations of liability.

We intend to continue to vigorously defend these lawsuits.

At this stage of the litigation, we are unable to determine or predict the ultimate outcome of any of the remaining lawsuits.

Henkels has agreed to indemnify PSE&G for all compensatory damages awarded as a result of this incident unless it is proven that PSE&G is solely responsible.

Any award for punitive damages against PSE&G would not be covered by such indemnity.

Environmental Matters

The following items are environmental matters involving governmental authorities not discussed elsewhere in this Form 10-K.

We do not expect expenditures for any such site relating to the items listed below, individually or for all such current sites in the aggregate, to have a material effect on our financial condition, results of operations or net cash flows.

| | |

| --- | --- |

| (1) | Claim by the EPA, Region III, under CERCLA with respect to the Cottman Avenue Superfund Site, a former non-ferrous scrap reclamation facility located in Philadelphia, Pennsylvania, owned and formerly operated by Metal Bank of America, Inc. PSE&G, other utilities and the former and current site owners are alleged to be liable for contamination at the site and PSE&G has been named as a Potentially Responsible Party (PRP). The EPA approved the Final Revised Remedial Design for the Site in early 2008. This document presented the design details of the EPA’s selected remedy. PSE&G and other utility companies as members of a PRP group entered into a Consent Decree and agreed to implement the negotiated EPA selected remedy. The EPA settled its claims against the site owners who did not join the Consent Decree to implement the remedy. The PRP group’s implementation of the remedy was completed in 2010; however, an additional estimated cost of $200,000 was incurred by PSE&G in 2016 to repair part of the remedy. Although the PRP Group has not received a formal Certification of Completion of the Remedy from the EPA, the PRP Group does not anticipate further significant costs at this time. Although subject to EPA approval and oversight, long-term monitoring, operations, and maintenance activities are anticipated through 2018 at a total estimated cost to PSE&G of $200,000. |

| | |

| --- | --- |

| (2) | The EPA sent PSE&G, Power and approximately 157 other entities a notice that the EPA considered each of the entities to be a PRP with respect to contamination in Berry’s Creek in Bergen County, New Jersey and requesting that the PRPs perform a Remedial Investigation and Feasibility Study (RI/FS) on Berry’s Creek and the connected tributaries and wetlands. Berry’s Creek flows through approximately 6.5 miles of areas that have been used for a variety of industrial purposes and landfills. The EPA estimates that the study could cost approximately $18 million. As members of a PRP Group, Power and certain of the other entities named in the EPA Notice entered into an Administrative Settlement Agreement and Order on Consent in 2008 to conduct the RI/FS, which is estimated to be completed in 2017/2018. |

| | |

| --- | --- |

| (3) | In January 2010, we, as the current owner of the Gates Construction Corporation Landfill, received a letter from the NJDEP asserting that the subject landfill has not been properly closed in accordance with the NJDEP Solid Waste Regulations. Power has retained an environmental consultant to prepare a closure plan acceptable to the NJDEP. |

FOR THE FISCAL YEAR ENDED DECEMBER 31, [removed: 2016][added: 2017]

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated [removed: filer or a] [added: filer,] smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act.

| Public Service Enterprise Group Incorporated | [removed: |] Large accelerated filer x | [removed: |] Accelerated filer [removed: ¨ |] [added: o] | Non-accelerated filer [removed: ¨] [added: o] | [added: Smaller reporting company o] | [added: Emerging growth company o |]

| Public Service Electric and Gas Company | [removed: |] Large accelerated filer [removed: ¨ |] [added: o] | Accelerated filer [removed: ¨ |] [added: o] | Non-accelerated filer x | [added: Smaller reporting company o] | [added: Emerging growth company o |]

| PSEG Power LLC | [removed: |] Large accelerated filer [removed: ¨ |] [added: o] | Accelerated filer [removed: ¨ |] [added: o] | Non-accelerated filer x | [added: Smaller reporting company o] | [added: Emerging growth company o |]

The aggregate market value of the Common Stock of Public Service Enterprise Group Incorporated held by non-affiliates as of June 30, [removed: 2016] [added: 2017] was [removed: $23,504,828,537] [added: $21,673,743,255] based upon the New York Stock Exchange Composite Transaction closing price.

The number of shares outstanding of Public Service Enterprise Group Incorporated’s sole class of Common Stock as of February [removed: 17, 2017] [added: 16, 2018] was [removed: 506,217,300.][added: 504,764,707.]

As of February [removed: 17, 2017,] [added: 16, 2018,] Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record, by Public Service Enterprise Group Incorporated.

| III | | Portions of the definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March [removed: 14, 2017,] [added: 12, 2018,] as specified herein. |

| FORWARD-LOOKING STATEMENTS | | [removed: [iii](#sCDBB773448A2595BADAE7C87F707AA54)] [added: [iii](#s0335F598D568578ABE0A62A00000F8E1)] |

| FILING FORMAT AND GLOSSARY | | [removed: [1](#s75D76B23DFDD59358F3A66F00DA5FAF0)] [added: [1](#sE8D36B0121F4593F8EA42B147DA182BA)] |

| WHERE TO FIND MORE INFORMATION | | [removed: [1](#s543F0812CD965049BCEC8A7188F7C15C)] [added: [1](#s156B23D2D3C45356A9F5833756541948)] |

| Item 1. | Business | [removed: [1](#sF82397B9A5B057489D3DB153BC4C7E68)] [added: [1](#s6A9E0C6AB4B955208AB6DCA46BB7772B)] |

| | Regulatory Issues | [removed: [15](#s45AB265F77345C12B3D4BCCF7E09E865)] [added: [15](#sCA7D371321855518B12F41D826AB5C32)] |

| | Environmental Matters | [removed: [21](#s5FE1C577DFEB568CA6A478C42AE5CA4C)] [added: [22](#sBE206738DE345635862BFC1944C5427B)] |

| | Segment Information | [removed: [26](#s336930AC980C5ADC8A9E157648B88582)] [added: [25](#s9C3C1E8053815388A6C49F24C5A28559)] |

| | Executive Officers of the Registrant (PSEG) | [removed: [27](#s82F59EA0B8C4582EB371E1C767398DFB)] [added: [26](#s0DE6F7D275C0587C8B77D8DAB35A84BE)] |

| Item 1A. | Risk Factors | [removed: [28](#s6466BE2185D65AB8AC98131887C7FF96)] [added: [27](#sF344EDFA890F5E49BB37DD4C9943382D)] |

| Item 1B. | Unresolved Staff Comments | [removed: [40](#s93AEEC17EDD45765A23EFE4C7750F1C4)] [added: [40](#s2D91EC7D14375249A1B51EDEC0357421)] |

| Item 2. | Properties | [removed: [41](#s2427D0C446C15209831E4DC9445B8A77)] [added: [41](#s570B12C4023F5CA285834A5CFAC7ADEF)] |

| Item 3. | Legal Proceedings | [removed: [43](#sD55C24FC576E5BD5ADDA80273AED165A)] [added: [42](#s68B94869EE065B5796033FC5122B3666)] |

| Item 4. | Mine Safety Disclosures | [removed: [43](#s85153FCC421E54B0AB24341A11545518)] [added: [42](#s3E2F8ABFC1BE5E448437B0ED6F4C5A0D)] |

| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | [removed: [44](#s068691E0AA8655FBBB2C1F9870A6B7CE)] [added: [43](#sB425DB9608665A66906D316CD7A630C5)] |

| Item 6. | Selected Financial Data | [removed: [46](#s5F70DEE7457958BC8822BE19EA45BC53)] [added: [45](#sF8550EAB751B511F8296E7D9C02E152E)] |

| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | [removed: [47](#s500D376C7B4A5D71884B4C96D2229355)] [added: [46](#s71D157F7E94D5C69BA4D1DAA102FCF2A)] |

| | Executive Overview of [removed: 2016] [added: 2017] and Future Outlook | [removed: [47](#sD02D918702B55E42990F40F37E226777)] [added: [46](#s3BEFFA953A6154A4981F2128AB0BFE1C)] |

| | Results of Operations | [removed: [54](#s63FF00831D4358ABBFE581639C8F91DC)] [added: [54](#sDEC19EB56E3556DAB030B0408923ACC2)] |

| | Liquidity and Capital Resources | [removed: [61](#sD8933926D1635E16BC4085903D25BBAE)] [added: [62](#sC154676B8A5B5FB89A95F6D23CA6B138)] |

| | Capital Requirements | [removed: [66](#s9E92EFEBD3CA595699D2AA58261E8F4E)] [added: [66](#s00CBFD03257358D1A620CF2AD3E6B5CE)] |

| | Off-Balance Sheet Arrangements | [removed: [68](#sD011EBFB2FB25077BB9100F2E52058D5)] [added: [68](#s4C89FE094AFF5A3FBB2DD42B0D8C447F)] |

| | Critical Accounting Estimates | [removed: [68](#sC9954A01703B5D2DAB2F227D1AA19206)] [added: [68](#s6D06D327E64652A997F4D2F26F3DCCCC)] |

| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | [removed: [72](#s195993B5570F50B9A43BE1726A59DFC9)] [added: [71](#s1F82A2FDD3B6513E978C06286CB487D8)] |

| Item 8. | Financial Statements and Supplementary Data | [removed: [74](#s7928B32FD7895B28994639AB3EB0DD1B)] [added: [73](#sF89F0E7B43E45F89A229D3526A32181B)] |

| | Report of Independent Registered Public Accounting Firm | [removed: [75](#s42663A290AB454F3AB5BE1A5AB57D17A)] [added: [74](#s2E8776E86A46522AA454824CBB4678E2)] |

| | Consolidated Financial Statements | [removed: [78](#s06FCF86B8273517FB801691834A3527A)] [added: [77](#s67DB4A4902C5557CAA6E06684542A62C)] |

| | Note 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies | [removed: [96](#s4E712ED42A025C8BABB0348394B5B7F1)] [added: [95](#sA50DDAA8F74C5B2F852714829CF19771)] |

| | Note 2. Recent Accounting Standards | [removed: [100](#s36A20633CC1254E78994C96EAED0255D)] [added: [99](#s219B3B8B472B56C4B104B7325BA6C05E)] |

| | Note 3. Early Plant Retirements | [removed: [102](#sb7e39050acad411c9887047ef3d61dfa)] [added: [103](#s4AC1D15B646D5116B175DFB5C1842444)] |

| | Note 5. Property, Plant and Equipment and Jointly-Owned Facilities | [removed: [104](#sA2BE695976A85601B4E5FCE67CF163EE)] [added: [105](#sE87116958ADC5A668E29E786E5A48AF4)] |

10-K 1 pseg201710kq4.htm 10-K

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| | | | | | |

| | | | | | |

If any of the registrants is an emerging growth company, indicate by check mark if such registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

| | Note 4. Variable Interest Entity | [104](#s0D353ABC8CB150F19CD6BD2089BF64EF) |

| | Glossary of Terms | [194](#sC23ADF525685578EA2FF6A3656670F94) |

| | Signatures | [196](#s92BB82EF06275CAD8D2774399E65E80D) |

| • | any inability to recover the carrying amount of our long-lived assets and leveraged leases; |

| | |

| --- | --- |

10-K 1 pseg201610kq4.htm 10-K

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| --- | --- | --- | --- | --- | --- | --- | --- |

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| | Note 4. Variable Interest Entities | [103](#s1557B5ECFD6B505380C2E93B8D5F87F8) |

| | Glossary of Terms | [193](#s71D9E9FD23C95D8F9A76A46E2F1EDB69) |

| | Signatures | [195](#sF58A6DC1A5EF502385E957C8CC7815B1) |

| | Exhibit Index | [198](#sBD289BE1AF365E5B915A93A93F573CEF) |

As of December 31, [removed: 2016,] [added: 2017,] Power’s share of installed fossil and nuclear generating capacity is shown in the following table:

| | Keystone [removed: (B)] [added: (A)] | | PA | | 1,711 | | | 23% | | 391 | | | Coal | |

| | Conemaugh [removed: (B)] [added: (A)] | | PA | | 1,711 | | | 23% | | 385 | | | Coal | |

| | Hope Creek | | NJ | | [removed: 1,172] [added: 1,180] | | | 100% | | [removed: 1,172] [added: 1,180] | | | Nuclear | |

| | Salem 1 & 2 | | NJ | | [removed: 2,296] [added: 2,282] | | | 57% | | [removed: 1,318] [added: 1,310] | | | Nuclear | |

| | Peach Bottom 2 & 3 [removed: (C)] [added: (B)] | | PA | | 2,450 | | | 50% | | 1,225 | | | Nuclear | |

| | Total Nuclear | | | | [removed: 5,918] [added: 5,912] | | | | | 3,715 | | | | |

| | Linden | | NJ | | [removed: 1,230] [added: 1,274] | | | 100% | | [removed: 1,230] [added: 1,274] | | | Gas/Oil | |

| | Bethlehem | | NY | | [removed: 757] [added: 790] | | | 100% | | [removed: 757] [added: 790] | | | Gas | |

| | Total Combined Cycle | | | | [removed: 3,424] [added: 3,501] | | | | | [removed: 3,320] [added: 3,397] | | | | |

| | New Haven Harbor | | CT | | [removed: 129] [added: 130] | | | 100% | | [removed: 129] [added: 130] | | | Gas/Oil | |

| | Total Combustion Turbine | | | | [removed: 1,187] [added: 1,188] | | | | | [removed: 1,187] [added: 1,188] | | | | |

| | Yards Creek [removed: (D)] [added: (C)] | | NJ | | 420 | | | 50% | | 210 | | | | |

| | Total Power Plants | | | | [removed: 16,844] [added: 15,719] | | | | | [removed: 11,681] [added: 10,562] | | | | |

| [removed: (B)] [added: (A)] | Operated by GenOn Northeast Management Company. |

| [removed: (C)] [added: (B)] | Operated by Exelon Generation. |

| [removed: (D)] [added: (C)] | Operated by Jersey Central Power & Light Company. |

As of December 31, [removed: 2016,] [added: 2017,] Power also owned and operated [removed: 326] [added: 414] MW dc of photovoltaic solar generation facilities in various states.

As of December 31, [removed: 2016,] [added: 2017,] PSE&G’s electric transmission and distribution system included approximately 24,000 circuit miles, and [removed: 851,000] [added: 853,000] poles, of which 65% are jointly-owned.

In addition, PSE&G owns and operates [removed: 47] [added: 50] switching stations with an aggregate installed capacity of [removed: 30,037] [added: 36,023] megavolt-amperes (MVA) and [removed: 246] [added: 244] substations with an aggregate installed capacity of [removed: 8,179] [added: 8,250] MVA.

As of December 31, [removed: 2016,] [added: 2017,] PSE&G’s gas system included approximately 18,000 miles of gas mains, 12 gas distribution headquarters, two sub-headquarters, and one meter shop serving all of its gas territory in New Jersey.

In addition, PSE&G operates [removed: 61] [added: 58] natural gas metering and regulating stations, of which [removed: 25] [added: 22] are located on land owned by customers or natural gas pipeline suppliers and are operated under lease, easement or other similar arrangement.

As of December 31, [removed: 2016,] [added: 2017,] PSE&G had 123 MW dc of installed solar capacity throughout New Jersey.

| | Total Steam | | | | 4,698 | | | | | 2,052 | | | | |

| | Hudson (A) | | NJ | | 565 | | | 100% | | 565 | | | Coal/Gas | |

| | Mercer (A) | | NJ | | 632 | | | 100% | | 632 | | | Coal/Gas | |

| | Total Steam | | | | 5,895 | | | | | 3,249 | | | | |

| | |

| --- | --- |

| (A) | In October 2016, Power determined that it would cease generation operations of the existing coal/gas units at the Hudson and Mercer generating stations on June 1, 2017. See Item 8. Financial Statements and Supplementary Data—Note 3. Early Plant Retirements for additional information. |

Our common stock is listed on the New York Stock Exchange, Inc. As of February [removed: 17, 2017,] [added: 16, 2018,] there were [removed: 63,718] [added: 60,868] registered holders.

The graph below shows a comparison of the five-year cumulative return assuming $100 invested on December 31, [removed: 2011] [added: 2012] in our common stock and the subsequent reinvestment of quarterly dividends, the S&P Composite Stock Price Index, the Dow Jones Utilities Index and the S&P Electric Utilities Index.

| | | | [removed: 2011 | | | |] 2012 | | | | 2013 | | | | 2014 | | | | 2015 | | | | 2016 | | | | [added: 2017 | | | |]

[removed: ][added: ]

On February [removed: 21, 2017,] [added: 20, 2018,] our Board of Directors approved a [removed: $0.43] [added: $0.45] per share common stock dividend for the first quarter of [removed: 2017.][added: 2018.]

This reflects an indicative annual dividend rate of [removed: $1.72] [added: $1.80] per share.

The following table indicates our common share repurchases in the open market during the fourth quarter of [removed: 2016] [added: 2017] to satisfy obligations under various equity compensation award grants:

| | Three Months Ended December 31, [removed: 2016] [added: 2017] | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | |

The following table indicates the securities authorized for issuance under equity compensation plans as of December 31, [removed: 2016:][added: 2017:]

| | Employee Stock Purchase Plan | | — | | | — | | | | [removed: 3,463,447] [added: 3,174,168] | | |

| | PSEG | | $ | 100.00 | | | $ | 109.35 | | | $ | 146.73 | | | $ | 142.46 | | | $ | 167.57 | | | $ | 204.11 | | |

| | S&P 500 | | $ | 100.00 | | | $ | 132.31 | | | $ | 150.35 | | | $ | 152.47 | | | $ | 170.59 | | | $ | 207.74 | | |

| | DJ Utilities | | $ | 100.00 | | | $ | 112.67 | | | $ | 147.01 | | | $ | 142.57 | | | $ | 168.26 | | | $ | 190.76 | | |

| | S&P Electrics | | $ | 100.00 | | | $ | 113.20 | | | $ | 145.82 | | | $ | 138.80 | | | $ | 161.20 | | | $ | 180.76 | | |

| | 2017 | | | | | | | | | | | | | |

| | First Quarter | | $ | 46.14 | | | $ | 42.77 | | | $ | 0.43 | | |

| | Second Quarter | | $ | 45.94 | | | $ | 42.47 | | | $ | 0.43 | | |

| | Third Quarter | | $ | 47.47 | | | $ | 41.67 | | | $ | 0.43 | | |

| | Fourth Quarter | | $ | 53.28 | | | $ | 46.05 | | | $ | 0.43 | | |

| | November 1-November 30 | | 486,635 | | | $ | 49.86 | | |

| | December 1-December 31 | | — | | | $ | — | | |

In December 2017, we entered into a share repurchase plan that complies with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, solely with respect to the repurchase of shares to satisfy obligations under equity compensation awards that are expected to vest or be exercised in 2018.

| | Long-Term Incentive Plan | | 347,900 | | | $ | 33.49 | | | 13,771,542 | | |

| | Total | | 347,900 | | | $ | 33.49 | | | 16,945,710 | | |

| | PSEG | | $ | 100.00 | | | $ | 96.96 | | | $ | 106.03 | | | $ | 142.26 | | | $ | 138.12 | | | $ | 162.47 | | |

| | S&P 500 | | $ | 100.00 | | | $ | 115.93 | | | $ | 153.39 | | | $ | 174.30 | | | $ | 176.76 | | | $ | 197.77 | | |

| | DJ Utilities | | $ | 100.00 | | | $ | 101.59 | | | $ | 114.46 | | | $ | 149.35 | | | $ | 144.84 | | | $ | 170.94 | | |

| | S&P Electrics | | $ | 100.00 | | | $ | 101.24 | | | $ | 114.61 | | | $ | 147.63 | | | $ | 140.53 | | | $ | 163.20 | | |

| | 2015 | | | | | | | | | | | | | |

| | First Quarter | | $ | 44.45 | | | $ | 39.00 | | | $ | 0.39 | | |

| | Second Quarter | | $ | 43.97 | | | $ | 38.93 | | | $ | 0.39 | | |

| | Third Quarter | | $ | 43.91 | | | $ | 38.16 | | | $ | 0.39 | | |

| | Fourth Quarter | | $ | 44.18 | | | $ | 36.80 | | | $ | 0.39 | | |

| | November 1-November 30 | | 127,128 | | | $ | 40.97 | | |

| | December 1-December 31 | | 30,000 | | | $ | 41.42 | | |

| | Long-Term Incentive Plan | | 1,029,900 | | | $ | 37.93 | | | 14,517,886 | | |

| | Total | | 1,029,900 | | | $ | 37.93 | | | 17,981,333 | | |

| | Years Ended December 31, | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | |

| | Operating Revenues (A) | | $ | [removed: 9,061] [added: 9,084] | | | $ | [removed: 10,415] [added: 9,061] | | | $ | [removed: 10,886] [added: 10,415] | | | $ | [removed: 9,968] [added: 10,886] | | | $ | [removed: 9,781] [added: 9,968] | | |

| | Income from Continuing Operations [removed: (B)] [added: (B)(C)] | | $ | [removed: 887] [added: 1,574] | | | $ | [removed: 1,679] [added: 887] | | | $ | [removed: 1,518] [added: 1,679] | | | $ | [removed: 1,243] [added: 1,518] | | | $ | [removed: 1,275] [added: 1,243] | | |

| | Net Income [added: (B)(C)] | | $ | [removed: 887] [added: 1,574] | | | $ | [removed: 1,679] [added: 887] | | | $ | [removed: 1,518] [added: 1,679] | | | $ | [removed: 1,243] [added: 1,518] | | | $ | [removed: 1,275] [added: 1,243] | | |

| | Basic [removed: (A)] | | $ | [removed: 1.76] [added: 3.12] | | | $ | [removed: 3.32] [added: 1.76] | | | $ | [removed: 3.00] [added: 3.32] | | | $ | [removed: 2.46] [added: 3.00] | | | $ | [removed: 2.52] [added: 2.46] | | |

| | Diluted [removed: (A)] | | $ | [removed: 1.75] [added: 3.10] | | | $ | [removed: 3.30] [added: 1.75] | | | $ | [removed: 2.99] [added: 3.30] | | | $ | [removed: 2.45] [added: 2.99] | | | $ | [removed: 2.51] [added: 2.45] | | |

| | Basic | | $ | [removed: 1.76] [added: 3.12] | | | $ | [removed: 3.32] [added: 1.76] | | | $ | [removed: 3.00] [added: 3.32] | | | $ | [removed: 2.46] [added: 3.00] | | | $ | [removed: 2.52] [added: 2.46] | | |

| | Diluted | | $ | [removed: 1.75] [added: 3.10] | | | $ | [removed: 3.30] [added: 1.75] | | | $ | [removed: 2.99] [added: 3.30] | | | $ | [removed: 2.45] [added: 2.99] | | | $ | [removed: 2.51] [added: 2.45] | | |

| | Dividends Declared per Share | | $ | [removed: 1.64] [added: 1.72] | | | $ | [removed: 1.56] [added: 1.64] | | | $ | [removed: 1.48] [added: 1.56] | | | $ | [removed: 1.44] [added: 1.48] | | | $ | [removed: 1.42] [added: 1.44] | | |

| | Total Assets | | $ | [removed: 40,070] [added: 42,716] | | | $ | [removed: 37,535] [added: 40,070] | | | $ | [removed: 35,287] [added: 37,535] | | | $ | [removed: 32,480] [added: 35,287] | | | $ | [removed: 31,694] [added: 32,480] | | |

| | Long-Term Obligations [removed: (C)] [added: (D)] | | $ | [removed: 10,897] [added: 12,071] | | | $ | [removed: 8,837] [added: 10,897] | | | $ | [removed: 8,218] [added: 8,837] | | | $ | [removed: 7,830] [added: 8,218] | | | $ | [removed: 6,670] [added: 7,830] | | |

| (A) | Operating Revenues for [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] includes [removed: $410] [added: $438] million, [removed: $375] [added: $410] million and [removed: $389] [added: $375] million, respectively, for Long Island Electric Utility Servco, LLC (Servco), a wholly owned subsidiary of PSEG [removed: Long Island LLC (PSEG LI).] [added: LI.] See Item 8. Financial Statements and Supplementary Data—Note 4. Variable Interest [removed: Entities] [added: Entity] for additional information. |

| (B) | Income from Continuing Operations [added: and Net Income for 2017 and 2016] includes after-tax expenses of [removed: $396] [added: $577] million [added: and $396 million, respectively,] related to the early retirement of Power’s Hudson and Mercer coal/gas generation plants and after-tax charges [added: for 2017 and 2016] totaling [removed: $92] [added: $45] million [added: and $92 million, respectively,] related to investments in [removed: NRG REMA, LLC’s] [added: REMA’s] leveraged leases [removed: for 2016] and an after-tax insurance recovery for Superstorm Sandy of $102 million for 2015. See Item 8. Financial Statements and Supplementary Data—Note 3. Early Plant Retirements, Note 7. Long-Term Investments and Note 8. Financing Receivables for additional information for [removed: 2016.] [added: 2017.] |

| [removed: (C)] [added: (D)] | Includes capital lease obligations. |

| (C) | Income from Continuing Operations and Net Income for 2017, include the non-cash net income benefit of $745 million, primarily resulting from the remeasurement of deferred tax liabilities required due to the enactment of the Tax Act in December 2017. See Item 8. Financial Statements and Supplementary Data—See Note 20. Income Taxes for additional information for 2017. |

| | |

| --- | --- |

We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and subsidiaries (the “Company”) as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of operations, comprehensive income, [removed: stockholders’] [added: stockholders'] equity, and cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(a) (collectively referred to as the “financial statements”).]

These [removed: consolidated] financial statements [removed: and consolidated financial statement schedule] are the responsibility of the [removed: Company’s] [added: Company's] management.

Our responsibility is to express an opinion on the [removed: consolidated] [added: Company's] financial statements [removed: and consolidated financial statement schedule] based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (“PCAOB”),] the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 27, 2017] [added: 26, 2018,] expressed an unqualified opinion on the [removed: Company’s] [added: Company's] internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of Public Service Electric and Gas Company and subsidiaries (the “Company”) as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the related consolidated statements of operations, comprehensive income, common stockholder’s equity, and cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(b) (collectively referred to as the “financial statements”).]

These [removed: consolidated] financial statements [removed: and consolidated financial statement schedule] are the responsibility of the [removed: Company’s] [added: Company's] management.

Our responsibility is to express an opinion on the [removed: consolidated] [added: Company's] financial statements [removed: and consolidated financial statement schedule] based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: Our audits included consideration] [added: As part] of [added: our audits, we are required to obtain an understanding of] internal control over financial reporting [removed: as a basis for designing audit procedures that are appropriate in the circumstances,] but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

[removed: An audit] [added: Our audits] also [removed: includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of PSEG Power LLC and subsidiaries (the “Company”) as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of operations, comprehensive income, member’s equity, and cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, the related notes and the consolidated financial statement schedule listed in the Index at Item 15(B)(c) (collectively referred to as the “financial statements”).]

These [removed: consolidated] financial statements [removed: and consolidated financial statement schedule] are the responsibility of the [removed: Company’s] [added: Company's] management.

Our responsibility is to express an opinion on the [removed: consolidated] [added: Company's] financial statements [removed: and consolidated financial statement schedule] based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: Our audits included consideration] [added: As part] of [added: our audits, we are required to obtain an understanding of] internal control over financial reporting [removed: as a basis for designing audit procedures that are appropriate in the circumstances,] but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

[removed: An audit] [added: Our audits] also [removed: includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

| | | | Years Ended December 31, | | | | | | | | | | | | [added: | | | | | | | | | | | |]

| | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | |

| | OPERATING REVENUES | | $ | [removed: 9,061] [added: 9,084] | | | $ | [removed: 10,415] [added: 9,061] | | | $ | [removed: 10,886] [added: 10,415] | | |

| | Energy Costs | | [removed: 3,001] [added: 2,800] | | | | [removed: 3,261] [added: 3,001] | | | | [removed: 3,886] [added: 3,261] | | | |

| | Operation and Maintenance | | [removed: 3,008] [added: 2,869] | | | | [removed: 2,978] [added: 3,008] | | | | [removed: 3,150] [added: 2,978] | | | |

| | Depreciation and Amortization | | [removed: 1,476] [added: 1,986] | | | | [removed: 1,214] [added: 1,476] | | | | [removed: 1,227] [added: 1,214] | | | |

| | Total Operating Expenses | | [removed: 7,485] [added: 7,655] | | | | [removed: 7,453] [added: 7,485] | | | | [removed: 8,263] [added: 7,453] | | | |

| | OPERATING INCOME | | [removed: 1,576] [added: 1,429] | | | | [removed: 2,962] [added: 1,576] | | | | [removed: 2,623] [added: 2,962] | | | |

| | Income from Equity Method Investments | | [removed: 11] [added: 14] | | | | [removed: 12] [added: 11] | | | | [removed: 13] [added: 12] | | | |

| | Other Income | | [removed: 191] [added: 319] | | | | [removed: 254] [added: 191] | | | | [removed: 290] [added: 254] | | | |

| | Other Deductions | | [removed: (67] [added: (91] | | ) | | [removed: (102] [added: (67] | | ) | | [removed: (61] [added: (102] | | ) | |

| | Other-Than-Temporary Impairments | | [removed: (28] [added: (12] | | ) | | [removed: (53] [added: (28] | | ) | | [removed: (20] [added: (53] | | ) | |

| | Interest Expense | | [removed: (385] [added: (391] | | ) | | [removed: (393] [added: (385] | | ) | | [removed: (389] [added: (393] | | ) | |

| | INCOME BEFORE INCOME TAXES | | [removed: 1,298] [added: 1,268] | | | | [removed: 2,680] [added: 1,298] | | | | [removed: 2,456] [added: 2,680] | | | |

| | Income Tax [removed: Expense] [added: Benefit (Expense)] | | [removed: (411] [added: 306] | | [removed: )] | | [removed: (1,001] [added: (411] | | ) | | [removed: (938] [added: (1,001] | | ) | |

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

| February 26, 2018 |

We have served as the Company's auditor since 1934.

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

| February 26, 2018 |

We have served as the Company's auditor since 1934.

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

| February 26, 2018 |

We have served as the Company's auditor since 2000.

| | Balance as of December 31, 2017 | | 534 | | | $ | 4,961 | | | (29 | ) | | $ | (763 | ) | | $ | 9,878 | | | $ | (229 | ) | | $ | — | | | $ | 13,847 | | |

| | Balance as of December 31, 2017 | | $ | 892 | | | $ | 1,095 | | | $ | 986 | | | $ | 6,861 | | | $ | — | | | $ | 9,834 | | |

| | | 2017 | | | | 2016 | | | |

| | Short-Term Loan from Affiliate | 281 | | | | — | | | |

| | Short-Term Loan—Affiliated Company | | 281 | | | | — | | | | — | | | |

| | Other | | (4 | | ) | | (6 | | ) | | (2 | | ) | |

| | Net Income | | — | | | | — | | | | 479 | | | | — | | | | 479 | | | |

| | Balance as of December 31, 2017 | | $ | 2,214 | | | $ | (986 | ) | | $ | 4,911 | | | $ | (172 | ) | | $ | 5,967 | | |

Certain offsetting derivative assets and liabilities are subject to a master netting or similar agreement.

Accordingly, these positions are offset on the Consolidated Balance Sheets of Power and PSEG.

The majority of Energy Holdings' revenues relate to its investments in leveraged leases.

Income on leveraged leases is recognized by a method which produces a constant rate of return on the outstanding net investment in the lease, net of the related deferred tax liability, in the years in which the net investment is positive.

Any gains or losses incurred as a result of a lease termination are recorded as revenues as these events occur in the ordinary course of business of managing the investment portfolio.

| | Electric Transmission | | 2.41 | % | | 2.39 | % | | 2.42 | % | |

| | Electric Distribution | | 2.51 | % | | 2.49 | % | | 2.50 | % | |

Energy Holdings’ leveraged leases are comprised of Lease Receivables (net of non-recourse debt), the estimated residual value of leased assets, and unearned and deferred income.

Residual values are the estimated values of the leased assets at the end of the respective lease per the original lease terms, net of any subsequent impairments.

A review of the residual valuations, which are calculated by discounting the cash flows related to the leased assets after the lease term, is performed at least annually for each plant subject to lease using specific assumptions tailored to each plant.

Those valuations are compared to the recorded residual values to determine if an impairment is warranted.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(B)(a).

Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

| February 27, 2017 |

Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(B)(b).

Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

| February 27, 2017 |

Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(B)(c).

Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

| February 27, 2017 |

| | Noncontrolling Interest | — | | | | 1 | | | |

| | Total Stockholders’ Equity | 13,130 | | | | 13,067 | | | |

| | Proceeds from Sale of Capital Leases and Investments | | — | | | | 14 | | | | 25 | | | |

| | Balance as of January 1, 2014 | | 534 | | | $ | 4,861 | | | (28 | ) | | $ | (615 | ) | | $ | 7,457 | | | $ | (95 | ) | | $ | 1 | | | $ | 11,609 | | |

| | Commercial Paper and Loans | — | | | | 153 | | | |

| | Balance as of January 1, 2014 | | $ | 892 | | | $ | 520 | | | $ | 986 | | | $ | 3,487 | | | $ | 1 | | | $ | 5,886 | | |

| | Derivative Contracts | 8 | | | | 76 | | | |

| | Derivative Contracts | 3 | | | | 16 | | | |

| | Other | | (6 | | ) | | (2 | | ) | | (3 | | ) | |

| | Net Income | | — | | | | — | | | | 760 | | | | — | | | | 760 | | | |

| | Balance as of December 31, 2014 | | $ | 2,214 | | | $ | (986 | ) | | $ | 4,558 | | | $ | (228 | ) | | $ | 5,558 | | |

| | |

| --- | --- |

| | |

| --- | --- |

PSEG has determined that contracts to purchase and sell certain products do not meet

| | PSE&G Depreciation Rate | | 2.45 | % | | 2.46 | % | | 2.47 | % | |

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

The $986

The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses.

Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements.

Stock Compensation-Improvements to Employee Share-Based Payment Accounting

We have conducted assessments of our internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] as required by Section 404 of the Sarbanes-Oxley Act, using the framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as “COSO.” Managements’ reports on PSEG’s, PSE&G’s and Power’s internal control over financial reporting are included on pages [removed: 180, 181] [added: 181, 182] and [removed: 182,] [added: 183,] respectively.

The Independent Registered Public Accounting Firm’s report with respect to the effectiveness of PSEG’s internal control over financial reporting is included on page [removed: 183.][added: 184.]

Management has concluded that internal control over financial reporting is effective as of December 31, [removed: 2016.][added: 2017.]

There have been no changes in internal control over financial reporting that occurred during the fourth quarter of [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, each registrant’s internal control over financial reporting.

Based on the assessment performed, management has concluded that PSEG’s internal control over financial reporting is effective and provides reasonable assurance regarding the reliability of PSEG’s financial reporting and the preparation of its financial statements as of December 31, [removed: 2016] [added: 2017] in accordance with generally accepted accounting principles.

Further, management has not identified any material weaknesses in internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

PSEG’s external auditors, Deloitte & Touche LLP, have audited PSEG’s financial statements for the year ended December 31, [removed: 2016] [added: 2017] included in this annual report on Form 10-K and, as part of that audit, have issued a report on the effectiveness of PSEG’s internal control over financial reporting, a copy of which is included in this annual report on Form 10-K.

Based on the assessment performed, management has concluded that PSE&G’s internal control over financial reporting is effective and provides reasonable assurance regarding the reliability of PSE&G’s financial reporting and the preparation of its financial statements as of December 31, [removed: 2016] [added: 2017] in accordance with generally accepted accounting principles.

Further, management has not identified any material weaknesses in internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

Based on the assessment performed, management has concluded that Power’s internal control over financial reporting is effective and provides reasonable assurance regarding the reliability of Power’s financial reporting and the preparation of its financial statements as of December 31, [removed: 2016] [added: 2017] in accordance with generally accepted accounting principles.

Further, management has not identified any material weaknesses in internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

We have audited the internal control over financial reporting of Public Service Enterprise Group Incorporated and subsidiaries (the “Company”) as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (“COSO”).]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

A company’s internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Also, projections of any evaluation of [removed: the] effectiveness [removed: of the internal control over financial reporting] to future periods are subject to the risk that [removed: the] controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in Internal Control - Integrated Framework (2013) issued by [removed: the Committee of Sponsoring Organizations of the Treadway Commission.][added: COSO.]

We have also [removed: audited,] [added: audited] in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (“PCAOB”),] the consolidated financial statements and [added: the] consolidated financial statement schedule listed in the Index at Item [removed: 15 (B)(a)] [added: 15(B)(a)] as of and for the year ended December 31, [removed: 2016] [added: 2017] of the [removed: Company] [added: Company,] and our report dated February [removed: 27, 2017] [added: 26, 2018,] expressed an unqualified opinion on those [removed: consolidated] financial [removed: statements and the consolidated financial statement schedule.][added: statements.]

| February 26, 2018 | |

| February 26, 2018 | |

| February 26, 2018 | |

Opinion on Internal Control over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

February 26, 2018

| February 27, 2017 | |

| February 27, 2017 | |

| February 27, 2017 | |

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

February 27, 2017

The information required by Item 10 of Form 10-K with respect to (i) present directors of PSEG who are nominees for election as directors at PSEG’s [removed: 2017] [added: 2018] Annual Meeting of Stockholders, (ii) the director nomination process, and (iii) the composition of the Audit Committee of the Board, is set forth under the headings “Nominees and Election-Board Composition and Individual Qualifications,” “Nominees and Election-Nomination Process,” and “Corporate Governance-Board Committee Responsibilities-Audit Committee,” respectively, in PSEG’s definitive Proxy Statement for such Annual Meeting of Stockholders, which definitive Proxy Statement is expected to be filed with the U.S. Securities and Exchange Commission (SEC) on or about March [removed: 14, 2017] [added: 12, 2018] and which information set forth under said heading is incorporated herein by this reference thereto.

Our Standards of [removed: Integrity] [added: Conduct] (Standards) is a code of ethics applicable to us and our subsidiaries.

| • | Any grant by us of a waiver from the Standards that applies to any [removed: director, principal] [added: director or] executive [removed: officer, principal financial officer, principal accounting] officer [removed: or Controller, or persons performing similar functions, for us or our direct subsidiaries noted above,] and that relates to any element enumerated by the SEC. |

In [removed: 2016,] [added: 2017,] we did not grant any waivers to the Standards.

[removed: The information required by Item 10 of Form 10-K with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is set forth under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” in] PSEG’s definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders, which definitive Proxy Statement is expected to be filed with the SEC on or about March [removed: 14, 2017] [added: 12, 2018] and which information set forth under said heading is incorporated herein by this reference thereto.

Standards of Conduct

The information required by Item 10 of Form 10-K with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is set forth under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” in

Code of Ethics

The information required by Item 11 of Form 10-K is set forth in PSEG’s definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders which definitive Proxy Statement is expected to be filed with the SEC on or about March [removed: 14, 2017] [added: 12, 2018] and such information set forth under such heading is incorporated herein by this reference thereto.

The information required by Item 12 of Form 10-K with respect to directors, executive officers and certain beneficial owners is set forth under the heading “Security Ownership of Directors, Management and Certain Beneficial Owners” in PSEG’s definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders which definitive Proxy Statement is expected to be filed with the SEC on or about March [removed: 14, 2017] [added: 12, 2018] and such information set forth under such heading is incorporated herein by this reference thereto.

The information required by Item 13 of Form 10-K is set forth under the heading “Corporate Governance—Transactions with Related Persons” in PSEG’s definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders which definitive Proxy Statement is expected to be filed with the SEC on or about March [removed: 14, 2017] [added: 12, 2018] and such information set forth under such heading is incorporated herein by this reference thereto.

The information required by Item 14 of Form 10-K is set forth under the heading “Fees Billed by Deloitte & Touche LLP for [removed: 2016] [added: 2017] and [removed: 2015”] [added: 2016”] in PSEG’s definitive Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders which definitive Proxy Statement is expected to be filed with the SEC on or about March [removed: 14, 2017.][added: 12, 2018.]

| a. | Public Service Enterprise Group Incorporated’s Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows and Stockholders’ Equity for the three years ended December 31, [removed: 2016] [added: 2017] on pages [removed: 78] [added: 77] through [removed: 83.] [added: 82.] |

| b. | Public Service Electric and Gas Company’s Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows and Common Stockholder’s Equity for the three years ended December 31, [removed: 2016] [added: 2017] on pages [removed: 84] [added: 83] through [removed: 89.] [added: 88.] |

| c. | PSEG Power LLC’s Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows and Capitalization and Member’s Equity for the three years ended December 31, [removed: 2016] [added: 2017] on pages [removed: 90] [added: 89] through [removed: 95.] [added: 94.] |

Schedule II—Valuation and Qualifying Accounts for each of the three years in the period ended December 31, [removed: 2016] [added: 2017] (page [removed: 192).][added: 193).]

Schedule II—Valuation and Qualifying Accounts for each of the three years in the period ended December 31, [removed: 2016] [added: 2017] (page [removed: 192).][added: 193).]

Schedule II—Valuation and Qualifying Accounts for each of the three years in the period ended December 31, [removed: 2016] [added: 2017] (page [removed: 192).][added: 193).]

| [removed: 3a] [added: [3a](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1a.txt)] | | [removed: Certificate] [added: [Certificate] of Incorporation Public Service Enterprise Group [removed: Incorporated(1)] [added: Incorporated](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1a.txt)(1)] |

| [removed: 3b] [added: [3b](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1b.txt)] | | [removed: Certificate] [added: [Certificate] of Amendment of Certificate of Incorporation of Public Service Enterprise Group Incorporated, effective April 23, [removed: 1987(2)] [added: 1987](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1b.txt)(2)] |

| [removed: 3c] [added: [3c](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1c.txt)] | | [removed: Certificate] [added: [Certificate] of Amendment of Certificate of Incorporation of Public Service Enterprise Group Incorporated, effective April 20, [removed: 2007(3)] [added: 2007](http://www.sec.gov/Archives/edgar/data/81033/000093041307004140/ex_3-1c.txt)(3)] |

| [removed: 3d] [added: [3d](http://www.sec.gov/Archives/edgar/data/788784/000119312515404982/d44592dex991.htm)] | | [removed: By-Laws] [added: [By-Laws] of Public Service Enterprise Group Incorporated effective December 15, [removed: 2015(4)] [added: 2015](http://www.sec.gov/Archives/edgar/data/788784/000119312515404982/d44592dex991.htm)(4)] |