Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This combined Form 10-K is separately filed by PSEG, PSE&G and Power. Information contained herein relating to any individual company is filed by such company on its own behalf. PSE&G and Power each make representations only as to itself and make no representations as to any other company.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Public Service Enterprise Group Incorporated

Newark, New Jersey

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Public Service Enterprise Group Incorporated and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, 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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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 States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 27, 2019

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Sole Stockholder of

Public Service Electric and Gas Company

Newark, New Jersey

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Public Service Electric and Gas Company and subsidiaries (the “Company”) as of December 31, 2018 and 2017, 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, 2018, 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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 27, 2019

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Sole Member of

PSEG Power LLC

Newark, New Jersey

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PSEG Power LLC and subsidiaries (the “Company”) as of December 31, 2018 and 2017, 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, 2018, 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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 27, 2019

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

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions, except per share data

			Years Ended December 31,
			2018				2017				2016
	OPERATING REVENUES		$	9,696			$	9,094			$	8,966
	OPERATING EXPENSES
	Energy Costs		3,225				2,778				2,901
	Operation and Maintenance		3,015				2,901				2,991
	Depreciation and Amortization		1,158				1,986				1,476
	Total Operating Expenses		7,398				7,665				7,368
	OPERATING INCOME		2,298				1,429				1,598
	Income from Equity Method Investments		15				14				11
	Net Gains (Losses) on Trust Investments		(143		)		134				(6		)
	Other Income (Deductions)		85				82				102
	Non-Operating Pension and OPEB Credits (Costs)		76				—				(22		)
	Interest Expense		(476		)		(391		)		(385		)
	INCOME BEFORE INCOME TAXES		1,855				1,268				1,298
	Income Tax Benefit (Expense)		(417		)		306				(411		)
	NET INCOME		$	1,438			$	1,574			$	887
	WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	BASIC		504				505				505
	DILUTED		507				507				508
	NET INCOME PER SHARE:
	BASIC		$	2.85			$	3.12			$	1.76
	DILUTED		$	2.83			$	3.10			$	1.75

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

		Years Ended December 31,
			2018				2017				2016
	NET INCOME		$	1,438			$	1,574			$	887
	Other Comprehensive Income (Loss), net of tax
	Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $11, $(37) and $(41) for the years ended 2018, 2017 and 2016, respectively		(17		)		44				42
	Unrealized Gains (Losses) on Cash Flow Hedges, net of tax (expense) benefit of $1, $1 and $(1) for the years ended 2018, 2017 and 2016, respectively		(1		)		(2		)		2
	Pension/Other Postretirement Benefit Costs (OPEB) adjustment, net of tax (expense) benefit of $(18), $(4) and $8 for the years ended 2018, 2017 and 2016, respectively		46				(8		)		(12		)
	Other Comprehensive Income (Loss), net of tax		28				34				32
	COMPREHENSIVE INCOME		$	1,466			$	1,608			$	919

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	ASSETS
	CURRENT ASSETS
	Cash and Cash Equivalents	$	177			$	313
	Accounts Receivable, net of allowances of $63 in 2018 and $59 in 2017	1,435				1,348
	Tax Receivable	242				127
	Unbilled Revenues	240				296
	Fuel	331				289
	Materials and Supplies, net	571				577
	Prepayments	94				118
	Derivative Contracts	11				29
	Regulatory Assets	389				211
	Other	17				4
	Total Current Assets	3,507				3,312
	PROPERTY, PLANT AND EQUIPMENT	44,201				41,231
	Less: Accumulated Depreciation and Amortization	(9,838		)		(9,434		)
	Net Property, Plant and Equipment	34,363				31,797
	NONCURRENT ASSETS
	Regulatory Assets	3,399				3,222
	Long-Term Investments	896				932
	Nuclear Decommissioning Trust (NDT) Fund	1,878				2,133
	Long-Term Receivable of VIEs	624				686
	Rabbi Trust Fund	224				231
	Goodwill	16				16
	Other Intangibles	143				114
	Derivative Contracts	1				7
	Other	275				266
	Total Noncurrent Assets	7,456				7,607
	TOTAL ASSETS	$	45,326			$	42,716

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	LIABILITIES AND CAPITALIZATION
	CURRENT LIABILITIES
	Long-Term Debt Due Within One Year	$	1,294			$	1,000
	Commercial Paper and Loans	1,016				542
	Accounts Payable	1,451				1,694
	Derivative Contracts	11				16
	Accrued Interest	110				103
	Accrued Taxes	26				48
	Clean Energy Program	143				128
	Obligation to Return Cash Collateral	136				129
	Regulatory Liabilities	311				47
	Other	437				461
	Total Current Liabilities	4,935				4,168
	NONCURRENT LIABILITIES
	Deferred Income Taxes and Investment Tax Credits (ITC)	5,713				5,240
	Regulatory Liabilities	3,221				2,948
	Asset Retirement Obligations	1,063				1,024
	Other Postretirement Benefit (OPEB) Costs	704				1,455
	OPEB Costs of Servco	501				542
	Accrued Pension Costs	791				537
	Accrued Pension Costs of Servco	109				129
	Environmental Costs	327				357
	Derivative Contracts	4				5
	Long-Term Accrued Taxes	181				175
	Other	232				221
	Total Noncurrent Liabilities	12,846				12,633
	COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
	CAPITALIZATION
	LONG-TERM DEBT	13,168				12,068
	STOCKHOLDERS’ EQUITY
	Common Stock, no par, authorized 1,000 shares; issued, 2018 and 2017— 534 shares	4,980				4,961
	Treasury Stock, at cost, 2018—30 shares; 2017—29 shares	(808		)		(763		)
	Retained Earnings	10,582				9,878
	Accumulated Other Comprehensive Loss	(377		)		(229		)
	Total Stockholders’ Equity	14,377				13,847
	Total Capitalization	27,545				25,915
	TOTAL LIABILITIES AND CAPITALIZATION	$	45,326			$	42,716

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

			Years Ended December 31,
			2018				2017				2016
	CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income		$	1,438			$	1,574			$	887
	Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
	Depreciation and Amortization		1,158				1,986				1,476
	Amortization of Nuclear Fuel		187				199				203
	Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual		97				103				109
	Impairment Costs for Early Plant Retirements		—				—				102
	Provision for Deferred Income Taxes (Other than Leases) and ITC		568				(167		)		474
	Non-Cash Employee Benefit Plan Costs		70				89				127
	Leveraged Lease Income, Adjusted for Rents Received and Deferred Taxes		(149		)		(159		)		(6		)
	Gain on Sale of Hudson and Mercer Units		(54		)		—				—
	Net (Gain) Loss on Lease Investments		5				48				92
	Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives		116				188				183
	Net Change in Regulatory Assets and Liabilities		(153		)		(188		)		(138		)
	Cost of Removal		(160		)		(107		)		(131		)
	Net (Gains) Losses and (Income) Expense from NDT Fund		98				(156		)		(26		)
	Net Change in Certain Current Assets and Liabilities
	Tax Receivable		17				65				303
	Accrued Taxes		(69		)		16				3
	Margin Deposit		(247		)		(90		)		(76		)
	Other Current Assets and Liabilities		70				(72		)		(179		)
	Employee Benefit Plan Funding and Related Payments		(101		)		(81		)		(103		)
	Other		22				12				13
	Net Cash Provided By (Used In) Operating Activities		2,913				3,260				3,313
	CASH FLOWS FROM INVESTING ACTIVITIES
	Additions to Property, Plant and Equipment		(3,912		)		(4,190		)		(4,199		)
	Purchase of Emissions Allowances and RECs		(146		)		(117		)		(99		)
	Proceeds from Sales of Trust Investments		1,501				2,319				824
	Purchases of Trust Investments		(1,473		)		(2,340		)		(856		)
	Other		114				72				82
	Net Cash Provided By (Used In) Investing Activities		(3,916		)		(4,256		)		(4,248		)
	CASH FLOWS FROM FINANCING ACTIVITIES
	Net Change in Commercial Paper and Loans		474				154				24
	Issuance of Long-Term Debt		2,750				2,175				2,675
	Redemption of Long-Term Debt		(1,350		)		(500		)		(824		)
	Cash Dividends Paid on Common Stock		(910		)		(870		)		(830		)
	Other		(77		)		(74		)		(79		)
	Net Cash Provided By (Used In) Financing Activities		887				885				966
	Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		(116		)		(111		)		31
	Cash, Cash Equivalents and Restricted Cash at Beginning of Period		315				426				395
	Cash, Cash Equivalents and Restricted Cash at End of Period		$	199			$	315			$	426
	Supplemental Disclosure of Cash Flow Information:
	Income Taxes Paid (Received)		$	99			$	(8	)		$	(245	)
	Interest Paid, Net of Amounts Capitalized		$	454			$	377			$	365
	Accrued Property, Plant and Equipment Expenditures		$	517			$	722			$	664

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Millions

			Common Stock							Treasury Stock							Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interest
			Shs.			Amount				Shs.			Amount					Total
	Balance as of January 1, 2016		534			$	4,915			(28	)		$	(671	)		$	9,117			$	(295	)		$	1			$	13,067
	Net Income		—			—				—			—				887				—				—				887
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(34)		—			—				—			—				—				32				—				32
	Comprehensive Income																												919
	Cash Dividends at $1.64 per share on Common Stock		—			—				—			—				(830		)		—				—				(830		)
	Other		—			21				(1	)		(46		)		—				—				(1		)		(26		)
	Balance as of December 31, 2016		534			$	4,936			(29	)		$	(717	)		$	9,174			$	(263	)		$	—			$	13,130
	Net Income		—			—				—			—				1,574				—				—				1,574
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(40)		—			—				—			—				—				34				—				34
	Comprehensive Income																												1,608
	Cash Dividends at $1.72 per share on Common Stock		—			—				—			—				(870		)		—				—				(870		)
	Other		—			25				—			(46		)		—				—				—				(21		)
	Balance as of December 31, 2017		534			$	4,961			(29	)		$	(763	)		$	9,878			$	(229	)		$	—			$	13,847
	Net Income		—			—				—			—				1,438				—				—				1,438
	Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments		—			—				—			—				176				(176		)		—				—
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(6)		—			—				—			—				—				28				—				28
	Comprehensive Income																												1,466
	Cash Dividends at $1.80 per share on Common Stock		—			—				—			—				(910		)		—				—				(910		)
	Other		—			19				(1	)		(45		)		—				—				—				(26		)
	Balance as of December 31, 2018		534			$	4,980			(30	)		$	(808	)		$	10,582			$	(377	)		$	—			$	14,377

See Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

			Years Ended December 31,
			2018				2017				2016
	OPERATING REVENUES		$	6,471			$	6,324			$	6,303
	OPERATING EXPENSES
	Energy Costs		2,520				2,421				2,644
	Operation and Maintenance		1,575				1,458				1,465
	Depreciation and Amortization		770				685				565
	Total Operating Expenses		4,865				4,564				4,674
	OPERATING INCOME		1,606				1,760				1,629
	Net Gains (Losses) on Trust Investments		(1		)		2				—
	Other Income (Deductions)		80				85				79
	Non-Operating Pension and OPEB Credits (Costs)		59				(8		)		(15		)
	Interest Expense		(333		)		(303		)		(289		)
	INCOME BEFORE INCOME TAXES		1,411				1,536				1,404
	Income Tax Expense		(344		)		(563		)		(515		)
	NET INCOME		$	1,067			$	973			$	889

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

		Years Ended December 31,
			2018				2017				2016
	NET INCOME		$	1,067			$	973			$	889
	Other Comprehensive Income (Loss), net of tax
	Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $1, $0 and $0 for the years ended 2018, 2017 and 2016, respectively		(1		)		(1		)		—
	COMPREHENSIVE INCOME		$	1,066			$	972			$	889

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	ASSETS
	CURRENT ASSETS
	Cash and Cash Equivalents	$	39			$	242
	Accounts Receivable, net of allowances of $63 in 2018 and $59 in 2017	879				882
	Tax Receivable	20				—
	Accounts Receivable—Affiliated Companies	123				—
	Unbilled Revenues	240				296
	Materials and Supplies	196				197
	Prepayments	10				44
	Regulatory Assets	389				211
	Other	11				4
	Total Current Assets	1,907				1,876
	PROPERTY, PLANT AND EQUIPMENT	31,633				29,117
	Less: Accumulated Depreciation and Amortization	(6,277		)		(6,101		)
	Net Property, Plant and Equipment	25,356				23,016
	NONCURRENT ASSETS
	Regulatory Assets	3,399				3,222
	Long-Term Investments	270				280
	Rabbi Trust Fund	45				46
	Other	132				114
	Total Noncurrent Assets	3,846				3,662
	TOTAL ASSETS	$	31,109			$	28,554

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	LIABILITIES AND CAPITALIZATION
	CURRENT LIABILITIES
	Long-Term Debt Due Within One Year	$	500			$	750
	Commercial Paper and Loans	272				—
	Accounts Payable	713				728
	Accounts Payable—Affiliated Companies	321				340
	Accrued Interest	84				78
	Clean Energy Program	143				128
	Obligation to Return Cash Collateral	136				129
	Regulatory Liabilities	311				47
	Other	345				311
	Total Current Liabilities	2,825				2,511
	NONCURRENT LIABILITIES
	Deferred Income Taxes and ITC	3,830				3,391
	OPEB Costs	486				1,103
	Accrued Pension Costs	400				226
	Regulatory Liabilities	3,221				2,948
	Environmental Costs	268				283
	Asset Retirement Obligations	302				212
	Long-Term Accrued Taxes	69				91
	Other	124				114
	Total Noncurrent Liabilities	8,700				8,368
	COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
	CAPITALIZATION
	LONG-TERM DEBT	8,684				7,841
	STOCKHOLDER’S EQUITY
	Common Stock; 150 shares authorized; issued and outstanding, 2018 and 2017—132 shares	892				892
	Contributed Capital	1,095				1,095
	Basis Adjustment	986				986
	Retained Earnings	7,928				6,861
	Accumulated Other Comprehensive Loss	(1		)		—
	Total Stockholder’s Equity	10,900				9,834
	Total Capitalization	19,584				17,675
	TOTAL LIABILITIES AND CAPITALIZATION	$	31,109			$	28,554

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

			Years Ended December 31,
			2018				2017				2016
	CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income		$	1,067			$	973			$	889
	Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
	Depreciation and Amortization		770				685				565
	Provision for Deferred Income Taxes and ITC		405				616				658
	Non-Cash Employee Benefit Plan Costs		37				50				72
	Cost of Removal		(160		)		(107		)		(131		)
	Net Change in Other Regulatory Assets and Liabilities		(153		)		(188		)		(138		)
	Net Change in Certain Current Assets and Liabilities
	Accounts Receivable and Unbilled Revenues		65				(106		)		(84		)
	Materials and Supplies		1				(13		)		(7		)
	Prepayments		14				(35		)		22
	Accounts Payable		64				1				(29		)
	Accounts Receivable/Payable—Affiliated Companies, net		(139		)		101				199
	Other Current Assets and Liabilities		5				15				9
	Employee Benefit Plan Funding and Related Payments		(85		)		(68		)		(82		)
	Other		(38		)		(86		)		(47		)
	Net Cash Provided By (Used In) Operating Activities		1,853				1,838				1,896
	CASH FLOWS FROM INVESTING ACTIVITIES
	Additions to Property, Plant and Equipment		(2,896		)		(2,919		)		(2,816		)
	Proceeds from Sales of Trust Investments		20				36				22
	Purchases of Trust Investments		(22		)		(37		)		(24		)
	Solar Loan Investments		(5		)		7				14
	Other		9				10				15
	Net Cash Provided By (Used In) Investing Activities		(2,894		)		(2,903		)		(2,789		)
	CASH FLOWS FROM FINANCING ACTIVITIES
	Net Change in Short-Term Debt		272				—				(153		)
	Issuance of Long-Term Debt		1,350				775				1,275
	Redemption of Long-Term Debt		(750		)		—				(271		)
	Contributed Capital		—				150				250
	Other		(14		)		(9		)		(14		)
	Net Cash Provided By (Used In) Financing Activities		858				916				1,087
	Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		(183		)		(149		)		194
	Cash, Cash Equivalents and Restricted Cash at Beginning of Period		244				393				199
	Cash, Cash Equivalents and Restricted Cash at End of Period		$	61			$	244			$	393
	Supplemental Disclosure of Cash Flow Information:
	Income Taxes Paid (Received)		$	94			$	(104	)		$	(295	)
	Interest Paid, Net of Amounts Capitalized		$	318			$	294			$	273
	Accrued Property, Plant and Equipment Expenditures		$	350			$	429			$	420

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY

Millions

			Common Stock				Contributed Capital				Basis Adjustment				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
	Balance as of January 1, 2016		$	892			$	695			$	986			$	4,999			$	1			$	7,573
	Net Income		—				—				—				889				—				889
	Other Comprehensive Income, net of tax (expense) benefit of $0		—				—				—				—				—				—
	Comprehensive Income																						889
	Contributed Capital		—				250				—				—				—				250
	Balance as of December 31, 2016		$	892			$	945			$	986			$	5,888			$	1			$	8,712
	Net Income		—				—				—				973				—				973
	Other Comprehensive Income, net of tax (expense) benefit of $0		—				—				—				—				(1		)		(1		)
	Comprehensive Income																						972
	Contributed Capital		—				150				—				—				—				150
	Balance as of December 31, 2017		$	892			$	1,095			$	986			$	6,861			$	—			$	9,834
	Net Income		—				—				—				1,067				—				1,067
	Other Comprehensive Income, net of tax (expense) benefit of $1		—				—				—				—				(1		)		(1		)
	Comprehensive Income																						1,066
	Balance as of December 31, 2018		$	892			$	1,095			$	986			$	7,928			$	(1	)		$	10,900

See disclosures regarding Public Service Electric and Gas Company included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

Millions

			Years Ended December 31,
			2018				2017				2016
	OPERATING REVENUES		$	4,146			$	3,860			$	3,861
	OPERATING EXPENSES
	Energy Costs		2,197				1,913				1,824
	Operation and Maintenance		999				1,046				1,139
	Depreciation and Amortization		354				1,268				881
	Total Operating Expenses		3,550				4,227				3,844
	OPERATING INCOME (LOSS)		596				(367		)		17
	Income from Equity Method Investments		15				14				11
	Net Gains (Losses) on Trust Investments		(140		)		125				(6		)
	Other Income (Deductions)		21				20				23
	Non-Operating Pension and OPEB (Costs) Credits		15				8				(4		)
	Interest Expense		(76		)		(50		)		(84		)
	INCOME (LOSS) BEFORE INCOME TAXES		431				(250		)		(43		)
	Income Tax Benefit (Expense)		(66		)		729				61
	NET INCOME		$	365			$	479			$	18

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions

		Years Ended December 31,
			2018				2017				2016
	NET INCOME		$	365			$	479			$	18
	Other Comprehensive Income (Loss), net of tax
	Unrealized Gains (Losses) on Available-for-Sale Securities, net of tax (expense) benefit of $9, $(39) and $(41) for the years ended 2018, 2017 and 2016, respectively		(13		)		46				42
	Pension/OPEB adjustment, net of tax (expense) benefit of $(16), $(3) and $9 for the years ended 2018, 2017 and 2016, respectively		41				(7		)		(13		)
	Other Comprehensive Income (Loss), net of tax		28				39				29
	COMPREHENSIVE INCOME		$	393			$	518			$	47

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	ASSETS
	CURRENT ASSETS
	Cash and Cash Equivalents	$	22			$	32
	Accounts Receivable	477				380
	Accounts Receivable—Affiliated Companies	274				221
	Fuel	331				289
	Materials and Supplies, net	373				376
	Derivative Contracts	11				29
	Prepayments	14				11
	Other	5				3
	Total Current Assets	1,507				1,341
	PROPERTY, PLANT AND EQUIPMENT	12,224				11,755
	Less: Accumulated Depreciation and Amortization	(3,382		)		(3,159		)
	Net Property, Plant and Equipment	8,842				8,596
	NONCURRENT ASSETS
	NDT Fund	1,878				2,133
	Long-Term Investments	86				87
	Goodwill	16				16
	Other Intangibles	143				114
	Rabbi Trust Fund	56				57
	Derivative Contracts	1				7
	Other	65				67
	Total Noncurrent Assets	2,245				2,481
	TOTAL ASSETS	$	12,594			$	12,418

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED BALANCE SHEETS

Millions

		December 31,
		2018				2017
	LIABILITIES AND MEMBER’S EQUITY
	CURRENT LIABILITIES
	Long-Term Debt Due Within One Year	$	44			$	250
	Accounts Payable	498				712
	Accounts Payable—Affiliated Companies	16				57
	Short-Term Loan from Affiliate	193				281
	Derivative Contracts	11				16
	Accrued Interest	21				20
	Other	59				99
	Total Current Liabilities	842				1,435
	NONCURRENT LIABILITIES
	Deferred Income Taxes and ITC	1,619				1,406
	Asset Retirement Obligations	758				810
	OPEB Costs	176				283
	Derivative Contracts	4				5
	Accrued Pension Costs	246				184
	Long-Term Accrued Taxes	76				52
	Other	122				140
	Total Noncurrent Liabilities	3,001				2,880
	COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
	LONG-TERM DEBT	2,791				2,136
	MEMBER’S EQUITY
	Contributed Capital	2,214				2,214
	Basis Adjustment	(986		)		(986		)
	Retained Earnings	5,051				4,911
	Accumulated Other Comprehensive Loss	(319		)		(172		)
	Total Member’s Equity	5,960				5,967
	TOTAL LIABILITIES AND MEMBER’S EQUITY	$	12,594			$	12,418

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions

			Years Ended December 31,
			2018				2017				2016
	CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income		$	365			$	479			$	18
	Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
	Depreciation and Amortization		354				1,268				881
	Amortization of Nuclear Fuel		187				199				203
	Provision for Deferred Income Taxes and ITC		206				(807		)		(208		)
	Interest Accretion on Asset Retirement Obligation		41				30				26
	Net Realized and Unrealized (Gains) Losses on Energy Contracts and Other Derivatives		116				188				183
	Emission Allowances and Renewable Energy Credit (REC) Compliance Accrual		97				103				109
	Impairment Costs for Early Plant Retirements		—				—				102
	Non-Cash Employee Benefit Plan Costs		23				28				39
	Gain on Sale of Hudson and Mercer Units		(54		)		—				—
	Net (Gains) Losses and (Income) Expense from NDT Fund		98				(156		)		(26		)
	Net Change in Certain Current Assets and Liabilities
	Fuel, Materials and Supplies		(39		)		42				31
	Margin Deposit		(247		)		(90		)		(76		)
	Accounts Receivable		51				(45		)		(71		)
	Accounts Payable		(13		)		39				(22		)
	Accounts Receivable/Payable—Affiliated Companies, net		(56		)		(2		)		6
	Other Current Assets and Liabilities		(40		)		10				10
	Employee Benefit Plan Funding and Related Payments		(9		)		(7		)		(13		)
	Other		4				47				63
	Net Cash Provided By (Used In) Operating Activities		1,084				1,326				1,255
	CASH FLOWS FROM INVESTING ACTIVITIES
	Additions to Property, Plant and Equipment		(996		)		(1,231		)		(1,343		)
	Purchase of Emissions Allowances and RECs		(146		)		(117		)		(99		)
	Proceeds from Sales of Trust Investments		1,423				2,182				739
	Purchases of Trust Investments		(1,392		)		(2,199		)		(766		)
	Short-Term Loan—Affiliated Company		—				87				276
	Other		60				46				46
	Net Cash Provided By (Used In) Investing Activities		(1,051		)		(1,232		)		(1,147		)
	CASH FLOWS FROM FINANCING ACTIVITIES
	Issuance of Long-Term Debt		700				—				700
	Cash Dividend Paid		(400		)		(350		)		(250		)
	Redemption of Long-Term Debt		(250		)		—				(553		)
	Short-Term Loan—Affiliated Company		(88		)		281				—
	Other		(5		)		(4		)		(6		)
	Net Cash Provided By (Used In) Financing Activities		(43		)		(73		)		(109		)
	Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		(10		)		21				(1		)
	Cash, Cash Equivalents and Restricted Cash at Beginning of Period		32				11				12
	Cash, Cash Equivalents and Restricted Cash at End of Period		$	22			$	32			$	11
	Supplemental Disclosure of Cash Flow Information:
	Income Taxes Paid (Received)		$	(92	)		$	77			$	50
	Interest Paid, Net of Amounts Capitalized		$	73			$	48			$	81
	Accrued Property, Plant and Equipment Expenditures		$	167			$	293			$	244

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

PSEG POWER LLC

CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY

Millions

			Contributed Capital				Basis Adjustment				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
	Balance as of January 1, 2016		$	2,214			$	(986	)		$	5,014			$	(240	)		$	6,002
	Net Income		—				—				18				—				18
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(32)		—				—				—				29				29
	Comprehensive Income																		47
	Cash Dividends Paid		—				—				(250		)		—				(250		)
	Balance as of December 31, 2016		$	2,214			$	(986	)		$	4,782			$	(211	)		$	5,799
	Net Income		—				—				479				—				479
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(42)		—				—				—				39				39
	Comprehensive Income																		518
	Cash Dividends Paid		—				—				(350		)		—				(350		)
	Balance as of December 31, 2017		$	2,214			$	(986	)		$	4,911			$	(172	)		$	5,967
	Net Income		—				—				365				—				365
	Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments		—				—				175				(175		)		—
	Other Comprehensive Income (Loss), net of tax (expense) benefit of $(7)		—				—				—				28				28
	Comprehensive Income																		393
	Cash Dividends Paid		—				—				(400		)		—				(400		)
	Balance as of December 31, 2018		$	2,214			$	(986	)		$	5,051			$	(319	)		$	5,960

See disclosures regarding PSEG Power LLC included in the Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Public Service Enterprise Group Incorporated (PSEG) is a holding company with a diversified business mix within the energy industry. Its operations are primarily in the Northeastern and Mid-Atlantic United States and in other select markets. PSEG’s principal direct wholly owned subsidiaries are:

•

Public Service Electric and Gas Company (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 regulated solar generation projects and energy efficiency and related programs in New Jersey, which are regulated by the BPU.

•

PSEG Power LLC (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 and fuel supply functions through competitive energy sales in well-developed energy markets 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 are: PSEG Long Island LLC (PSEG LI), which operates the Long Island Power Authority’s (LIPA) electric transmission and distribution (T&D) system under an Operations Services Agreement (OSA); 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.

Basis of Presentation

The respective financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) applicable to Annual Reports on Form 10-K and in accordance with accounting guidance generally accepted in the United States (GAAP).

Significant Accounting Policies

Principles of Consolidation

Each company consolidates those entities in which it has a controlling interest or is the primary beneficiary. See Note 5. Variable Interest Entity. Entities over which the companies exhibit significant influence, but do not have a controlling interest and/or are not the primary beneficiary, are accounted for under the equity method of accounting. For investments in which significant influence does not exist and the investor is not the primary beneficiary, the cost method of accounting is applied. All significant intercompany accounts and transactions are eliminated in consolidation.

PSE&G and Power also have undivided interests in certain jointly-owned facilities, with each responsible for paying its respective ownership share of construction costs, fuel purchases and operating expenses. PSE&G and Power consolidate their portion of any revenues and expenses related to their respective jointly-owned facilities in the appropriate revenue and expense categories.

Accounting for the Effects of Regulation

In accordance with accounting guidance for rate-regulated entities, PSE&G’s financial statements reflect the economic effects of regulation. PSE&G defers the recognition of costs (a Regulatory Asset) or records the recognition of obligations (a Regulatory Liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, PSE&G has deferred certain costs and recoveries, which are being amortized over various future periods. To the extent that collection of any such costs or payment of liabilities becomes no longer probable as a result of changes in regulation and/or competitive position, the associated Regulatory Asset or Liability is charged or credited to income. Management believes that PSE&G’s T&D businesses continue to meet the accounting requirements for rate-regulated entities. For additional information, see Note 7. Regulatory Assets and Liabilities.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Restricted cash consists primarily of deposits received related to various construction projects at PSE&G.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts for the beginning (December 31, 2017) and ending periods shown in the Consolidated Statements of Cash Flows for the year ended December 31, 2018.

		PSE&G				Power				Other (A)				Consolidated
		Millions
	As of December 31, 2017
	Cash and Cash Equivalents	$	242			$	32			$	39			$	313
	Restricted Cash in Other Current Assets	—				—				—				—
	Restricted Cash in Other Noncurrent Assets	2				—				—				2
	Cash, Cash Equivalents and Restricted Cash	$	244			$	32			$	39			$	315
	As of December 31, 2018
	Cash and Cash Equivalents	$	39			$	22			$	116			$	177
	Restricted Cash in Other Current Assets	8				—				—				8
	Restricted Cash in Other Noncurrent Assets	14				—				—				14
	Cash, Cash Equivalents and Restricted Cash	$	61			$	22			$	116			$	199

(A)	Includes amounts applicable to PSEG (parent corporation), Energy Holdings and Services.

Derivative Instruments

Each company uses derivative instruments to manage risk pursuant to its business plans and prudent practices.

Within PSEG and its affiliate companies, Power has the most exposure to commodity price risk. Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of Power’s expected generation. Changes in the fair market value of the derivative contracts are recorded in earnings.

Determining whether a contract qualifies as a derivative requires that management exercise significant judgment, including assessing the contract’s market liquidity. PSEG has determined that contracts to purchase and sell certain products do not meet the definition of a derivative under the current authoritative guidance since they do not provide for net settlement, or the markets are not sufficiently liquid to conclude that physical forward contracts are readily convertible to cash.

Under current authoritative guidance, all derivatives are recognized on the balance sheet at their fair value, except for derivatives that are designated as normal purchases and normal sales (NPNS). Further, derivatives that qualify for hedge accounting can be designated as fair value or cash flow hedges. For fair value hedges, changes in fair values for both the derivative and the underlying hedged exposure are recognized in earnings each period.

Certain offsetting derivative assets and liabilities are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, these positions are offset on the Consolidated Balance Sheets of Power and PSEG.

For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the hedged cash flows of the underlying exposure is deferred in Accumulated Other Comprehensive Income (Loss) until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness is included in current period earnings.

For derivative contracts that do not qualify or are not designated as cash flow or fair value hedges or as NPNS, changes in fair value are recorded in current period earnings. PSEG does not currently elect fair value or cash flow hedge accounting on its commodity derivative positions.

Contracts that qualify for, and are designated, as NPNS are accounted for upon settlement. Contracts which qualify for NPNS are contracts for which physical delivery is probable, they will not be financially settled, and the quantities under contract are expected to be used or sold in the normal course of business over a reasonable period of time.

For additional information regarding derivative financial instruments, see Note 17. Financial Risk Management Activities.

Revenue Recognition

PSE&G’s regulated electric and gas revenues are recorded primarily based on services rendered to customers. PSE&G records unbilled revenues for the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period. The unbilled revenue is estimated each month based on usage per day, the number

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of unbilled days in the period, estimated seasonal loads based upon the time of year and the variance of actual degree-days and temperature-humidity-index hours of the unbilled period from expected norms.

Regulated revenues from the transmission of electricity are recognized as services are provided based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of estimated revenue requirement with rates effective January 1 of each year. After completion of the annual period ending December 31, PSE&G files a true-up whereby it compares its actual revenue requirement to the original estimate to determine any over or under collection of revenue. PSE&G records the estimated financial statement impact of the difference between the actual and the filed revenue requirement as a refund or deferral for future recovery when such amounts are probable and can be reasonably estimated in accordance with accounting guidance for rate-regulated entities.

The majority of Power’s revenues relate to bilateral contracts, which are accounted for on the accrual basis as the energy is delivered. Power’s revenue also includes changes in the value of energy derivative contracts that are not designated as NPNS. See Note 17. Financial Risk Management Activities for further discussion.

PJM Interconnection, L.L.C. (PJM), the Independent System Operator-New England (ISO-NE) and the New York Independent System Operator (NYISO) facilitate the dispatch of energy and energy-related products. Power generally reports electricity sales and purchases conducted with those individual ISOs on a net hourly basis in either Revenues or Energy Costs in its Consolidated Statement of Operations, the classification of which depends on the net hourly activity. Capacity revenue and expense is also reported net based on Power’s monthly net sale or purchase position in the individual ISOs.

PSEG LI is the primary beneficiary of Long Island Electric Utility Servco, LLC (Servco). For transactions in which Servco acts as principal, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and Operations and Maintenance (O&M) Expense, respectively. See Note 5. Variable Interest Entity for further information.

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.

For additional information regarding Revenues, see Note 3. Revenues.

Depreciation and Amortization (D&A)

PSE&G calculates depreciation under the straight-line method based on estimated average remaining lives of the several classes of depreciable property. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BPU or FERC. The depreciation rate stated as a percentage of original cost of depreciable property was as follows:

			2018			2017			2016
			Avg Rate			Avg Rate			Avg Rate
	Electric Transmission		2.42	%		2.41	%		2.39	%
	Electric Distribution		2.51	%		2.51	%		2.49	%
	Gas Distribution		1.61	%		1.63	%		1.63	%

Power calculates depreciation on generation-related assets under the straight-line method based on the assets’ estimated useful lives. The estimated useful lives are:

•	general plant assets—3 years to 20 years

•	fossil production assets—30 years to 67 years

•	nuclear generation assets—approximately 60 years

•	pumped storage facilities—76 years

•	solar assets—25 years

Allowance for Funds Used During Construction (AFUDC) and Interest Capitalized During Construction (IDC)

AFUDC represents the cost of debt and equity funds used to finance the construction of new utility assets at PSE&G. IDC represents the cost of debt used to finance construction at Power. The amount of AFUDC or IDC capitalized as Property, Plant and Equipment is included as a reduction of interest charges or other income for the equity portion. The amounts and average rates used to calculate AFUDC or IDC for the years ended December 31, 2018, 2017 and 2016 were as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			AFUDC/IDC Capitalized
			2018							2017							2016
			Millions				Avg Rate			Millions				Avg Rate			Millions				Avg Rate
	PSE&G		$	70			7.74	%		$	73			7.42	%		$	66			7.81	%
	Power		$	67			4.60	%		$	78			4.60	%		$	54			4.87	%

Income Taxes

PSEG and its subsidiaries file a consolidated federal income tax return and income taxes are allocated to PSEG’s subsidiaries based on the taxable income or loss of each subsidiary on a separate return basis in accordance with a tax sharing agreement between PSEG and each of its affiliated subsidiaries. Allocations between PSEG and its subsidiaries are recorded through intercompany accounts. Investment tax credits deferred in prior years are being amortized over the useful lives of the related property.

Uncertain income tax positions are accounted for using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more-likely-than-not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. See Note 21. Income Taxes for further discussion.

Impairment of Long-Lived Assets and Leveraged Leases

Management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation, business climate, counterparty credit worthiness or market conditions, including prolonged periods of adverse commodity and capacity prices or a current expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated useful life, could potentially indicate an asset’s or asset group’s carrying amount may not be recoverable. In such an event, an undiscounted cash flow analysis is performed to determine if an impairment exists. When a long-lived asset’s or asset group’s carrying amount exceeds the associated undiscounted estimated future cash flows, the asset/asset group is considered impaired to the extent that its fair value is less than its carrying amount. An impairment would result in a reduction of the value of the long-lived asset/asset group through a non-cash charge to earnings. See Note 4. Early Plant Retirements for more information.

For Power, cash flows for long-lived assets and asset groups are determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The cash flows from the generation units are generally evaluated at a regional portfolio level (PJM, NYISO, ISO-NE) along with cash flows generated from the customer supply and risk management activities, inclusive of cash flows from contracts, including those that are accounted for as derivatives and meet the NPNS scope exception. In certain cases, generation assets are evaluated on an individual basis where those assets are individually contracted on a long-term basis with a third party and operations are independent of other generation assets (typically Power’s solar plants and Kalaeloa).

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.

Accounts Receivable—Allowance for Doubtful Accounts

PSE&G’s accounts receivable are reported in the balance sheet as gross outstanding amounts adjusted for doubtful accounts. The allowance for doubtful accounts reflects PSE&G’s best estimates of losses on the accounts receivable balances. The allowance is based on accounts receivable aging, historical experience, write-off forecasts and other currently available evidence.

Accounts receivable are charged off in the period in which the receivable is deemed uncollectible. Recoveries of accounts receivable are recorded when it is known they will be received.

Materials and Supplies and Fuel

PSE&G’s and Power’s materials and supplies are carried at average cost and charged to inventory when purchased and expensed or capitalized to Property, Plant and Equipment, as appropriate, when installed or used. Fuel inventory at Power is valued at the lower of average cost or market and includes stored natural gas, coal, fuel oil and propane used to generate power

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and to satisfy obligations under Power’s gas supply contracts with PSE&G. The costs of fuel, including initial transportation costs, are included in inventory when purchased and charged to Energy Costs when used or sold. The cost of nuclear fuel is capitalized within Property, Plant and Equipment and amortized to fuel expense using the units-of-production method.

Property, Plant and Equipment

PSE&G’s additions to and replacements of existing property, plant and equipment are capitalized at cost. The cost of maintenance, repair and replacement of minor items of property is charged to expense as incurred. At the time units of depreciable property are retired or otherwise disposed of, the original cost, adjusted for net salvage value, is charged to accumulated depreciation.

Power capitalizes costs, including those related to its jointly-owned facilities, which increase the capacity, improve or extend the life of an existing asset, represent a newly acquired or constructed asset or represent the replacement of a retired asset. The cost of maintenance, repair and replacement of minor items of property is charged to appropriate expense accounts as incurred. Environmental costs are capitalized if the costs mitigate or prevent future environmental contamination or if the costs improve existing assets’ environmental safety or efficiency. All other environmental expenditures are expensed as incurred. Power also capitalizes spare parts that meet specific criteria. Capitalized spares are depreciated over the remaining lives of their associated assets.

Trust Investments

These securities comprise the Nuclear Decommissioning Trust (NDT) Fund, a master independent external trust account maintained to provide for the costs of decommissioning upon termination of operations of Power’s nuclear facilities and amounts that are deposited to fund a Rabbi Trust which was established to meet the obligations related to non-qualified pension plans and deferred compensation plans.

Effective January 1, 2018, unrealized gains and losses on equity security investments are recorded in Net Income instead of Other Comprehensive Income (Loss). The debt securities continue to be classified as available-for-sale with the unrealized gains and losses recorded as a component of Accumulated Other Comprehensive Income (Loss). Realized gains and losses on both equity and available-for-sale debt security investments are recorded in earnings and are included with the unrealized gains and losses on equity securities in Net Gains (Losses) on Trust Investments. Other-than-temporary impairments on NDT and Rabbi Trust securities are also included in Net Gains (Losses) on Trust Investments. See Note 10. Trust Investments for further discussion.

Pension and Other Postretirement Benefits (OPEB) Plans

The market-related value of plan assets held for the qualified pension and OPEB plans is equal to the fair value of those assets as of year-end. Fair value is determined using quoted market prices and independent pricing services based upon the security type as reported by the trustee at the measurement date (December 31) for all plan assets.

PSEG recognizes a long-term receivable primarily related to future funding by LIPA of Servco’s recognized pension and OPEB liabilities. This receivable is presented separately on the Consolidated Balance Sheet of PSEG as a noncurrent asset.

Pursuant to the OSA, Servco records expense for contributions to its pension plan trusts and for OPEB payments made to retirees.

See Note 13. Pension, Other Postretirement Benefits (OPEB) and Savings Plan for further discussion.

Basis Adjustment

PSE&G and Power have recorded a Basis Adjustment in their respective Consolidated Balance Sheets related to the generation assets that were transferred from PSE&G to Power in August 2000 at the price specified by the BPU. Because the transfer was between affiliates, the transaction was recorded at the net book value of the assets and liabilities rather than the transfer price. The difference between the total transfer price and the net book value of the generation-related assets and liabilities, $986 million, net of tax, was recorded as a Basis Adjustment on PSE&G’s and Power’s Consolidated Balance Sheets. The $986 million is an addition to PSE&G’s Common Stockholder’s Equity and a reduction of Power’s Member’s Equity. These amounts are eliminated on PSEG’s consolidated financial statements.

Use of Estimates

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Recent Accounting Standards

New Standards Adopted in 2018

Revenue from Contracts With Customers—Accounting Standard Update (ASU) 2014-09, updated by ASUs 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-13, 2017-14

This accounting standard, and related updates, were adopted on January 1, 2018 using the full retrospective transition method. There was no effect on Net Income as a result of adoption. However, certain retrospective adjustments were recorded in accordance with the new standard. At PSE&G, retrospective adjustments increased Operating Revenues by $90 million and $82 million, Energy Costs by $58 million and $77 million and O&M Expense by $32 million and $5 million for the years ended December 31, 2017 and 2016, respectively. At Power, retrospective adjustments reduced Operating Revenues and Energy Costs by $70 million and $162 million for the years ended December 31, 2017 and 2016, respectively. For disclosure requirements under this standard, including Nature of Goods and Services, Disaggregation of Revenues, and Remaining Performance Obligations under Fixed Consideration Contracts, see Note 3. Revenues.

Recognition and Measurement of Financial Assets and Financial Liabilities—ASU 2016-01

Power maintains an external master trust fund to provide for the costs of decommissioning upon termination of operations of its nuclear facilities. In addition, PSEG maintains a grantor trust which was established to meet the obligations related to its non-qualified pension plans and deferred compensation plans, commonly referred to as a “Rabbi Trust.”

This accounting standard was adopted on January 1, 2018. Under the new guidance, equity investments in Power’s NDT and PSEG’s Rabbi Trust Funds are measured at fair value with the unrealized gains and losses now recognized through Net Income instead of Other Comprehensive Income (Loss). A cumulative effect adjustment was made to reclassify the net unrealized gains related to equity investments of $342 million ($176 million, net of tax) from Accumulated Other Comprehensive Income to Retained Earnings on January 1, 2018. See Note 22. Accumulated Other Comprehensive Income (Loss), Net of Tax and Note 10. Trust Investments for further discussion.

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments—ASU 2016-15

This accounting standard reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows.

PSEG adopted this standard on January 1, 2018 using a retrospective transition method and had no changes in its presentation of its Statement of Cash Flows for each period presented.

Statement of Cash Flows: Restricted Cash—ASU 2016-18

This accounting standard was adopted on January 1, 2018. PSEG will continue the current balance sheet classification of restricted cash or restricted cash equivalents. PSEG has provided a reconciliation of cash and cash equivalents and restricted cash or restricted cash equivalents and has included a description of these amounts in Note 1. Organization, Basis of Presentation and Significant Accounting Policies. The effect of adoption on the December 31, 2018 Consolidated Statements of Cash Flows was immaterial.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (OPEB)—ASU 2017-07

This accounting standard was adopted on January 1, 2018. Under the new guidance, entities are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by their employees during the period. The other components of net benefit cost are required to be presented in the Statement of Operations separately from the service cost component after Operating Income. Additionally, only the service cost component is eligible for capitalization, when applicable. As a result of adopting this standard, PSE&G reduced its charge to expense for the year ended December 31, 2018 by approximately $58 million. The Consolidated Statements of Operations were recast to show retrospective adjustments of the non-service cost components of net benefit credits (costs) of $(8) million and $(15) million at PSE&G and $8 million and $(4) million at Power, for the years ended December 31, 2017 and 2016, respectively, from O&M Expense to a new line item after Operating Income entitled Non-Operating Pension and OPEB Credits (Costs). See Note 13. Pension, Other Postretirement Benefits (OPEB) and Savings Plan.

Stock Compensation - Scope of Modification Accounting—ASU 2017-09

This accounting standard was adopted on January 1, 2018. The standard will be applied prospectively to awards modified on or after January 1, 2018. There was no material impact on PSEG’s consolidated financial statements in 2018 from adoption of this new standard.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Standards Issued But Not Yet Adopted

Leases—ASU 2016-02, updated by ASUs 2018-01, 2018-10, 2018-11 and 2018-20

This accounting standard, and related updates, replace existing lease accounting guidance and require lessees to recognize leases with a term greater than 12 months on the balance sheet using a right-of-use asset approach. At lease commencement, a lessee will recognize a lease asset and corresponding lease obligation. A lessee will classify its leases as either finance leases or operating leases and a lessor will classify its leases as operating leases, direct financing leases, or as sales-type leases. The standard requires additional disclosure of key information. Existing guidance related to leveraged leases does not change. Effective January 1, 2019, PSEG elected the prospective transition approach for all existing leases. There was no cumulative effect adjustment required to be recorded to Retained Earnings at adoption.

PSEG elected various practical expedients allowed by the standard, including the package of three practical expedients related to not reassessing existing or expired contracts and initial direct costs; and excluding evaluation of land easements that exist or expired before adoption that were not previously accounted for as leases.

The impact of adoption on PSEG’s Consolidated Balance Sheet was to increase its assets and liabilities by approximately $280 million. PSE&G’s assets and liabilities each increased by approximately $100 million and Power’s assets and liabilities each increased by approximately $50 million. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and Power.

Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities—ASU 2017-12, updated by ASU 2018-16

This accounting standard’s amendments more closely align hedge accounting with companies’ risk management activities in the financial statements and ease the operational burden of applying hedge accounting.

The new guidance is effective for annual and interim periods beginning after December 15, 2018. PSEG adopted this standard on January 1, 2019. The standard requires using a modified retrospective method upon adoption. PSEG analyzed the impact of this standard on its consolidated financial statements and has determined that the standard could enable PSEG to enter into certain transactions that can be deemed hedges that previously would not have qualified. Adoption of this standard is not expected to have a material impact on PSEG’s financial statements.

Premium Amortization on Purchased Callable Debt Securities—ASU 2017-08

This accounting standard was issued to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the standard requires the premium to be amortized to the earliest call date.

The standard is effective for all entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. PSEG adopted this standard on January 1, 2019 on a modified retrospective basis through a cumulative effect adjustment directly to Retained Earnings as of the beginning of 2019. Adoption of this standard did not have a material impact on PSEG’s financial statements.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—ASU 2018-02

This accounting standard affects any entity that is required to apply the provisions of the Accounting Standards Codification (ASC) topic, “Income Statement-Reporting Comprehensive Income,” and has items of Other Comprehensive Income for which the related tax effects are presented in Other Comprehensive Income as required by GAAP. Specifically, this standard allows entities to record a reclassification from Accumulated Other Comprehensive Income to Retained Earnings for stranded tax effects resulting from the recent decrease in the federal corporate income tax rate.

The standard is effective for all entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. PSEG adopted this standard on January 1, 2019.

The impact of adoption on PSEG’s Consolidated Balance Sheet was to increase Retained Earnings and Accumulated Other Comprehensive Loss by approximately $81 million. Power’s Retained Earnings and Accumulated Other Comprehensive Loss increased by approximately $69 million. The impact on PSE&G’s Consolidated Balance Sheet was immaterial. PSEG’s adoption of this standard did not have a material impact on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows of PSEG, PSE&G and Power.

Measurement of Credit Losses on Financial Instruments—ASU 2016-13, updated by ASU 2018-19

This accounting standard provides a new model for recognizing credit losses on financial assets carried at amortized cost. The new model requires entities to use an estimate of expected credit losses that will be recognized as an impairment allowance rather than a direct write-down of the amortized cost basis. The estimate of expected credit losses is to be based on past events, current conditions and supportable forecasts over a reasonable period. For purchased financial assets with credit deterioration, a similar model is to be used; however, the initial allowance will be added to the purchase price rather than reported as an allowance. Credit losses on available-for-sale securities should be measured in a manner similar to current GAAP; however,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

this standard requires those credit losses to be presented as an allowance, rather than a write-down. This new standard also requires additional disclosures of credit quality indicators for each class of financial asset disaggregated by year of origination.

The standard is effective for annual and interim periods beginning after December 15, 2019; however, entities may adopt early beginning in the annual or interim periods after December 15, 2018. PSEG is currently analyzing the impact of this standard on its financial statements.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement—ASU 2018-13

This accounting standard modifies the disclosure requirements for fair value measurements. Certain current disclosure requirements relating to Level 3 fair value measurements, and transfers between Level 1 and Level 2 fair value measurements will be eliminated. The standard will also add certain other disclosure requirements for Level 3 fair value measurements.

The standard is effective for annual and interim periods beginning after December 15, 2019. Certain amendments in the standard should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments of the standard should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. PSEG is currently analyzing the impact of this standard on its financial statements.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract—ASU 2018-15

This accounting standard aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with capitalization requirements for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. The standard follows the guidance in ASC 350—Intangibles—Goodwill and Other to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The standard requires the amortization of capitalized costs to be presented in O&M Expense. In addition, the standard also adds presentation requirements for these costs in the statements of cash flows and financial position.

The standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. This standard should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. PSEG is currently analyzing the impact of this standard on its financial statements.

Targeted Improvements to Related Party Guidance for Variable Interest Entities (VIE)—ASU 2018-17

This accounting standard improves the VIE guidance in the area of decision-making fees. Consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE, indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

This standard is effective for annual and interim periods beginning after December 15, 2019. The standard is required to be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. PSEG is currently analyzing the impact of this standard on its financial statements.

Simplifying the Test for Goodwill Impairment—ASU 2017-04

This accounting standard requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

An entity should apply this standard on a prospective basis and will be required to disclose the nature of and reason for the change in accounting principle upon transition. The new standard is effective for impairment tests for periods beginning January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. PSEG does not expect adoption of this standard to have a material impact on its financial statements.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans—ASU 2018-14

This accounting standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including the elimination of certain current disclosure requirements. Certain other disclosure requirements related to interest crediting rates have been added and certain clarifications were made to other disclosure requirements.

The standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. An entity should apply the amendments in this standard on a retrospective basis to all periods presented. PSEG is currently analyzing the impact of this standard on its financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Revenues

Nature of Goods and Services

The following is a description of principal activities by reportable segment from which PSEG, PSE&G and Power generate their revenues.

PSE&G

Revenues from Contracts with Customers

Electric and Gas Distribution and Transmission Revenues—PSE&G sells gas and electricity to customers under default commodity supply tariffs. PSE&G’s regulated electric and gas default commodity supply and distribution services are separate tariffs which are satisfied as the product(s) and/or services are delivered to the customer. The electric and gas commodity and delivery tariffs are recurring contracts in effect until cancellation by the customer. Revenue is recognized over time as the service is rendered to the customer. Included in PSE&G’s regulated revenues are unbilled electric and gas revenues which represent the estimated amount customers will be billed for services rendered from the most recent meter reading to the end of the respective accounting period.

PSE&G’s transmission revenues are earned under a separate FERC tariff. The performance obligation of transmission service is satisfied over time as it is provided to and consumed by the customer. Revenue is recognized upon delivery of the transmission service. PSE&G’s revenues from the transmission of electricity are recorded based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of an estimated revenue requirement with rates effective January 1 of each year and a mechanism true-up to that estimate based on actual revenue requirements. The true-up mechanism is an alternative revenue which is outside the scope of revenue from contracts with customers.

Other Revenues from Contracts with Customers

Other revenues from contracts with customers, which are not a material source of PSE&G revenues, are generated primarily from appliance repair services and solar generation projects. The performance obligations under these contracts are satisfied and revenue is recognized as control of products is delivered or services are rendered.

Payment for services rendered and products transferred are typically due within 30 days of month of delivery.

Revenues Unrelated to Contracts with Customers

Other PSE&G revenues unrelated to contracts with customers are derived from alternative revenue mechanisms recorded pursuant to regulatory accounting guidance. These revenues, which include weather normalization, green energy program true-ups and transmission formula rate true-ups, are not a material source of PSE&G revenues.

Power

Revenues from Contracts with Customers

Electricity and Related Products—Wholesale and retail load contracts are executed in the different Independent System Operator (ISO) regions for the bundled supply of energy, capacity, renewable energy credits (RECs) and ancillary services representing Power’s performance obligations. Revenue for these contracts is recognized over time as the bundled service is provided to the customer. Transaction terms generally run from several months to three years. Power also sells to the ISOs energy and ancillary services which are separately transacted in the day-ahead or real-time energy markets. The energy and ancillary services performance obligations are typically satisfied over time as delivered and revenue is recognized accordingly. Power generally reports electricity sales and purchases conducted with those individual ISOs net on an hourly basis in either Operating Revenues or Energy Costs in its Consolidated Statements of Operations. The classification depends on the net hourly activity.

Power enters into capacity sales and capacity purchases through the ISOs. The transactions are reported on a net basis dependent on Power’s monthly net sale or purchase position through the individual ISOs. The performance obligations with the ISOs are satisfied over time upon delivery of the capacity and revenue is recognized accordingly. In addition to capacity sold through the ISOs, Power sells capacity through bilateral contracts and the related revenue is reported on a gross basis and recognized over time upon delivery of the capacity.

Gas Contracts—Power sells wholesale natural gas, primarily through an index based full requirements Basic Gas Supply Service (BGSS) contract with PSE&G to meet the gas supply requirements of PSE&G’s customers. The BGSS contract, which extends through March 2019, remains in effect thereafter unless terminated by either party with a two-year notice. The performance obligation is primarily delivery of gas which is satisfied over time. Revenue is recognized as gas is delivered. Based upon the availability of natural gas, storage and pipeline capacity beyond PSE&G’s daily needs, Power also sells gas and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pipeline capacity to other counterparties under bilateral contracts. The performance obligation under these contracts is satisfied over time upon delivery of the gas or capacity, and revenue is recognized accordingly.

Other Revenues from Contracts with Customers

Power enters into bilateral contracts to sell solar power and solar RECs from its solar facilities. Contract terms range from 15 to 30 years. The performance obligations are generally solar power and RECs which are transferred to customers upon generation. Revenue is recognized upon generation of the solar power.

Power has entered into long-term contracts with LIPA for energy management and fuel procurement services. Revenue is recognized over time as services are rendered.

Revenues Unrelated to Contracts with Customers

Power’s revenues unrelated to contracts with customers include electric, gas and certain energy-related transactions accounted for in accordance with Derivatives and Hedging accounting guidance. See Note 17. Financial Risk Management Activities for further discussion. Power is also a party to solar contracts that qualify as leases and are accounted for in accordance with lease accounting guidance.

Other

Revenues from Contracts with Customers

PSEG LI has a contract with LIPA which generates revenues. PSEG LI’s subsidiary, Servco records costs which are recovered from LIPA and records the recovery of those costs as revenues when Servco is a principal in the transaction.

Revenues Unrelated to Contracts with Customers

Energy Holdings generates lease revenues which are recorded pursuant to lease accounting guidance.

Disaggregation of Revenues

		PSE&G				Power				Other				Eliminations				Consolidated
		Millions
	Year Ended December 31, 2018
	Revenues from Contracts with Customers
	Electric Distribution	$	3,131			$	—			$	—			$	—			$	3,131
	Gas Distribution	1,756				—				—				(18		)		1,738
	Transmission	1,236				—				—				—				1,236
	Electricity and Related Product Sales
	PJM
	Third Party Sales	—				1,933				—				—				1,933
	Sales to Affiliates	—				609				—				(609		)		—
	New York ISO	—				209				—				—				209
	ISO New England	—				92				—				—				92
	Gas Sales
	Third Party Sales	—				151				—				—				151
	Sales to Affiliates	—				861				—				(861		)		—
	Other Revenues from Contracts with Customers (A)	275				44				532				(4		)		847
	Total Revenues from Contracts with Customers	6,398				3,899				532				(1,492		)		9,337
	Revenues Unrelated to Contracts with Customers (B)	73				247				39				—				359
	Total Operating Revenues	$	6,471			$	4,146			$	571			$	(1,492	)		$	9,696

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		PSE&G				Power				Other				Eliminations				Consolidated
		Millions
	Year Ended December 31, 2017
	Revenues from Contracts with Customers
	Electric Distribution	$	3,088			$	—			$	—			$	—			$	3,088
	Gas Distribution	1,684				—				—				(14		)		1,670
	Transmission	1,222				—				—				—				1,222
	Electricity and Related Product Sales
	PJM
	Third Party Sales	—				1,199				—				—				1,199
	Sales to Affiliates	—				734				—				(734		)		—
	New York ISO	—				181				—				—				181
	ISO New England	—				39				—				—				39
	Gas Sales
	Third Party Sales	—				134				—				—				134
	Sales to Affiliates	—				804				—				(804		)		—
	Other Revenues from Contracts with Customers (A)	265				42				511				(4		)		814
	Total Revenues from Contracts with Customers	6,259				3,133				511				(1,556		)		8,347
	Revenues Unrelated to Contracts with Customers (B)	65				727				(45		)		—				747
	Total Operating Revenues	$	6,324			$	3,860			$	466			$	(1,556	)		$	9,094

		PSE&G				Power				Other				Eliminations				Consolidated
		Millions
	Year Ended December 31, 2016
	Revenues from Contracts with Customers
	Electric Distribution	$	3,327			$	—			$	—			$	—			$	3,327
	Gas Distribution	1,582				—				—				(22		)		1,560
	Transmission	1,084				—				—				—				1,084
	Electricity and Related Product Sales
	PJM
	Third Party Sales	—				1,060				—				—				1,060
	Sales to Affiliates	—				805				—				(805		)		—
	New York ISO	—				169				—				—				169
	ISO New England	—				55				—				—				55
	Gas Sales
	Third Party Sales	—				114				—				—				114
	Sales to Affiliates	—				737				—				(737		)		—
	Other Revenues from Contracts with Customers (A)	292				35				482				(4		)		805
	Total Revenues from Contracts with Customers	6,285				2,975				482				(1,568		)		8,174
	Revenues Unrelated to Contracts with Customers (B)	18				886				(112		)		—				792
	Total Operating Revenues	$	6,303			$	3,861			$	370			$	(1,568	)		$	8,966

(A)	Includes primarily revenues from appliance repair services at PSE&G, solar power projects and energy management and fuel service contracts with LIPA at Power, and PSEG LI’s OSA with LIPA in Other.

(B)	Includes primarily alternative revenues at PSE&G, derivative contracts at Power, and lease contracts in Other. For the years ended December 31, 2018, 2017 and 2016, Other includes losses of $8 million, $77 million and $147 million, respectively, related to Energy Holdings’ investments in leases. For additional information, see Note 8. Long-Term Investments.

Contract Balances

PSE&G

PSE&G does not have any material contract balances (rights to consideration for services already provided or obligations to provide services in the future for consideration already received) as of December 31, 2018 and 2017. Substantially all of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSE&G’s accounts receivable result from contracts with customers. Allowances represented approximately seven percent and six percent of accounts receivable as of December 31, 2018 and 2017, respectively.

Power

Power generally collects consideration upon satisfaction of performance obligations, and therefore, Power had no material contract balances as of December 31, 2018 and 2017.

Power’s accounts receivable include amounts resulting from contracts with customers and other contracts which are out of scope of accounting guidance for revenues from contracts with customers. The majority of these accounts receivable are subject to master netting agreements. As a result, accounts receivable resulting from contracts with customers and receivables unrelated to contracts with customers are netted within Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets. In the wholesale energy markets in which Power operates, payment for services rendered and products transferred are typically due within 30 days of month of delivery. As such, there is little credit risk associated with these receivables and Power typically records no allowances.

Other

PSEG LI does not have any material contract balances as of December 31, 2018 and 2017.

Remaining Performance Obligations under Fixed Consideration Contracts

Power and PSE&G primarily record revenues as allowed by the guidance, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity's performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. PSEG has future performance obligations under contracts with fixed consideration as follows:

Power

As stated above, capacity transactions with ISOs are reported on a net basis dependent on Power’s monthly net sale or purchase position through the individual ISOs.

Capacity Payments from the PJM Reliability Pricing Model (RPM) Annual Base Residual and Incremental Auctions—The Base Residual Auction is conducted annually three years in advance of the operating period. Power expects to realize the following average capacity prices for capacity obligations to be satisfied resulting from the base and incremental auctions which have been completed:

	Delivery Year		$ per MW-Day		MW Cleared
	June 2018 to May 2019		$205		9,200
	June 2019 to May 2020		$116		8,900
	June 2020 to May 2021		$170		8,100
	June 2021 to May 2022		$178		7,700

Capacity Payments from the New England ISO Forward Capacity Market—The Forward Capacity Market (FCM) Auction is conducted annually three years in advance of the operating period. The table below includes Power’s cleared capacity in the FCM Auction for the Bridgeport Harbor Station 5, which cleared the 2019/2020 auction at $231/MW-day for seven years, with escalations based on the Handy-Whitman Index and the planned retirement of Bridgeport Harbor Station 3 in 2021. Power expects to realize the following average capacity prices for capacity obligations to be satisfied resulting from the FCM auctions which have been completed:

	Delivery Year		$ per MW-Day		MW Cleared
	June 2018 to May 2019		$314		820
	June 2019 to May 2020		$231		1,330
	June 2020 to May 2021		$195		1,330
	June 2021 to May 2022		$192		950
	June 2022 to May 2023		$231		480
	June 2023 to May 2024		$231		480
	June 2024 to May 2025		$231		480
	June 2025 to May 2026		$231		480

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bilateral capacity contracts—Capacity obligations pursuant to contract terms through 2029 are anticipated to result in revenues totaling $170 million.

Other

The LIPA OSA is a 12-year services contract ending in 2025 with annual fixed and incentive components. The fixed fee for the provision of services thereunder in 2018 is $64 million and could increase each year based on the change in the Consumer Price Index (CPI). The incentive for 2018 can range from zero to approximately $10 million and could increase each year thereafter based on the change in the CPI.

Note 4. Early Plant Retirements

Nuclear

In May 2018, the governor of New Jersey signed legislation, referred to as the ZEC legislation, that recognizes that nuclear power is a critical component of New Jersey’s clean energy portfolio and an important element of a diverse energy generation portfolio that currently meets approximately 40 percent of New Jersey’s electric power needs. The ZEC legislation creates a Zero Emission Certificate (ZEC) program to be administered by the BPU. The BPU subsequently established processes to evaluate applications by qualified nuclear plants and to review and approve changes to the New Jersey’s electric distribution companies’ tariffs to provide for the purchase of ZECs from selected nuclear plants and recover those ZEC payments through a non-bypassable distribution charge (ZEC charge) in the amount of $0.004 per kilowatt-hour (which is equivalent to approximately $10 per MWh in payments to selected nuclear plants). ZECs will be awarded to selected nuclear plants, if any, in April 2019 at which time ZEC revenue would commence and would continue for approximately three years. Nuclear plants receiving ZEC payments will be obligated to maintain operations, subject to exceptions specified in the ZEC legislation. The ZEC legislation requires nuclear plants to reapply for any subsequent three year periods. The ZEC payment may be adjusted by the BPU (a) at any time to offset environmental or fuel diversity payments that a selected nuclear plant may receive from another source or (b) at certain times specified in the ZEC legislation if the BPU determines that the purposes of the ZEC legislation can be achieved through a reduced charge that will nonetheless be sufficient to achieve the state’s air quality and other environmental objectives by preventing the retirement of nuclear plants.

In December 2018, Power submitted applications to the BPU for the Salem 1 and 2 and Hope Creek nuclear plants. These were the only applications received by the BPU. As required, Power’s three applications each included a certification pursuant to which Power confirmed that each of the Salem 1, Salem 2 and Hope Creek plants will cease operations within three years absent a material financial change. Power’s submittal further attested that the nuclear plants are not expected to cover their costs and operating and market risks as defined in the ZEC legislation, absent a material financial change. As a result, absent a material financial change, Power will retire all three plants unless all of the plants receive ZECs. Power operates its nuclear plants as an interdependent fleet on a common site with shared costs and services, which allows them to achieve economies of scale. A decision to retire one nuclear plant would also adversely impact Power’s ability to attract and retain qualified employees at its remaining plants. Power believes that the retirement of any individual nuclear plant would have the effect of decreasing the scale of its nuclear operations; however, the complex nature of operating nuclear plants would not decrease the attention required from management for the safe operation of the remaining nuclear operations. As a result, Power’s decision to retire any nuclear plant would be made at the site level and would result in the retirement of all of these New Jersey nuclear plants.

Given the anticipated timing of the BPU’s decision on which nuclear plants, if any, have been selected to receive ZECs, which is expected in April 2019, in March 2019 Power will submit to the PJM Independent Market Monitor and the PJM Office of Interconnection a request for a preliminary exception to PJM’s RPM must-offer requirement with respect to Power’s interest for each of the Salem 1, Salem 2 and Hope Creek plants in connection with the 2022/2023 capacity auction expected to be held in August 2019. Power will also submit a deactivation notice to the extent that its filing deadline occurs prior to the award of ZECs by the BPU. If all of the Salem and Hope Creek plants are selected to receive ZECs, the preliminary exception and requested deactivation notice, as applicable, would be withdrawn.

In the event that any of the Salem 1, Salem 2 and Hope Creek plants is not selected to receive ZEC payments in April 2019 by the BPU and do not otherwise experience a material financial change, Power will take all necessary steps to retire all of these plants at or prior to their refueling outages scheduled for the Fall 2019 in the case of Hope Creek, Spring 2020 in the case of Salem 2 and Fall 2020 in the case of Salem 1. Alternatively, if all of the Salem 1, Salem 2 and Hope Creek plants are selected to receive ZEC payments in April 2019 but the financial condition of the plants is materially adversely impacted by potential changes to the capacity market construct being considered by FERC (absent sufficient capacity revenues provided under a program approved by the BPU in accordance with a FERC authorized capacity mechanism), Power would still take all necessary steps to retire all of these plants. The costs and accounting charges associated with any such retirement, which may include, among other things, accelerated D&A or impairment charges, potential penalties associated with the early termination of capacity obligations and fuel

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contracts, accelerated asset retirement costs, severance costs, environmental remediation costs and, in certain circumstances, potential additional funding of the NDT Fund, would be material to both PSEG and Power.

The following table provides the balance sheet amounts by generating station as of December 31, 2018 for significant assets and liabilities associated with Power’s owned share of its nuclear assets.

			As of December 31, 2018
			Hope Creek				Salem				Support Facilities and Other (A)				Peach Bottom
			Millions
	Assets
	Materials and Supplies Inventory		$	84			$	65			$	—			$	41
	Nuclear Production, net of Accumulated Depreciation		635				626				197				777
	Nuclear Fuel In-Service, net of Accumulated Depreciation		139				110				—				148
	Construction Work in Progress (including nuclear fuel)		131				132				5				20
	Total Assets		$	989			$	933			$	202			$	986
	Liabilities
	Asset Retirement Obligation		$	253			$	240			$	—			$	215
	Total Liabilities		$	253			$	240			$	—			$	215
	Net Assets		$	736			$	693			$	202			$	771
	NRC License Renewal Term		2046				2036/2040				N/A				2033/2034
	% Owned		100		%		57		%		Various				50		%

(A)	Includes Hope Creek’s and Salem’s shared support facilities and other nuclear development capital.

Fossil

On June 1, 2017, Power completed its previously announced retirement of the generation operations of the existing coal/gas units at the Hudson and Mercer generating stations.

In the latter half of 2016, PSEG and Power recognized pre-tax charges in Energy Costs and 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 shutdown items. In addition to these charges, Power recognized D&A during 2016 of $571 million due to the significant shortening of the expected economic useful lives of Hudson and Mercer.

During the year ended December 31, 2017, Power recognized total D&A of $964 million for the Hudson and Mercer units to reflect the significant shortening of their expected economic useful lives. During the year ended December 31, 2017, Power recognized pre-tax charges in Energy Costs of $15 million, primarily for coal inventory lower of cost or market adjustments. Power also recognized pre-tax charges in O&M of $23 million, including shut down costs and an increase in the Asset Retirement Obligation due to settlements and changes in cash flow estimates, partially offset by changes in employee-related severance costs. During the year ended December 31, 2018, Power recognized pre-tax charges in Energy costs of $3 million for coal inventory lower of cost or market adjustments.

In December 2018, Power completed the sale of the sites of the retired Hudson and Mercer units. Power transferred all land rights and structures on the sites to a third party purchaser, along with the assumption of the environmental liabilities for the sites. As a result of the sale and transfer of liabilities, Power recorded a pre-tax gain in 2018 of $54 million in O&M Expense.

PSEG and Power continue to monitor their other coal assets, including their interest in the Keystone and Conemaugh generating stations, to assess their economic viability through the end of their designated useful lives and their continued classification as held for use. The precise timing of a change in useful lives may be dependent upon events out of PSEG’s and Power’s control and may impact their ability to operate or maintain certain assets in the future. These generating stations may be impacted by factors such as environmental legislation, co-owner capital requirements and continued depressed wholesale power prices or capacity factors, among other things. Any early retirement or change in the held for use classification of our remaining coal units may have a material adverse impact on PSEG’s and Power’s future financial results.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Variable Interest Entity (VIE)

VIE for which PSEG LI is the Primary Beneficiary

PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.

Pursuant to the OSA, Servco’s operating costs are reimbursable entirely by LIPA, and therefore, PSEG LI’s risk is limited related to the activities of Servco. PSEG LI has no current obligation to provide direct financial support to Servco. In addition to reimbursement of Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contractual management fee, in certain situations, could be partially offset by Servco’s annual storm costs not approved by the Federal Emergency Management Agency, limited contingent liabilities and penalties for failing to meet certain performance metrics.

For transactions in which Servco acts as principal and controls the services provided to LIPA, such as transactions with its employees for labor and labor-related activities, including pension and OPEB-related transactions, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and O&M Expense, respectively. In 2018, 2017 and 2016, Servco recorded $458 million, $438 million and $410 million, respectively, of O&M costs, the full reimbursement of which was reflected in Operating Revenues. For transactions in which Servco acts as an agent for LIPA, it records revenues and the related expenses on a net basis, resulting in no impact on PSEG’s Consolidated Statement of Operations.

Note 6. Property, Plant and Equipment and Jointly-Owned Facilities

Information related to Property, Plant and Equipment as of December 31, 2018 and 2017 is detailed below:

		PSE&G				Power				Other				PSEG Consolidated
		Millions
	2018
	Transmission and Distribution:
	Electric Transmission	$	11,991			$	—			$	—			$	11,991
	Electric Distribution	8,989				—				—				8,989
	Gas Distribution and Transmission	7,854				—				—				7,854
	Construction Work in Progress	1,170				—				—				1,170
	Other	624				—				—				624
	Total Transmission and Distribution	30,628				—				—				30,628
	Generation:
	Fossil Production	—				6,541				—				6,541
	Nuclear Production	—				2,971				—				2,971
	Nuclear Fuel in Service	—				765				—				765
	Other Production-Solar	623				833				—				1,456
	Construction Work in Progress	—				1,011				—				1,011
	Total Generation	623				12,121				—				12,744
	Other	382				103				344				829
	Total	$	31,633			$	12,224			$	344			$	44,201

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			PSE&G				Power				Other				PSEG Consolidated
			Millions
	2017
	Transmission and Distribution:
	Electric Transmission		$	10,425			$	—			$	—			$	10,425
	Electric Distribution		8,455				—				—				8,455
	Gas Distribution and Transmission		7,122				—				—				7,122
	Construction Work in Progress		1,735				—				—				1,735
	Other		512				—				—				512
	Total Transmission and Distribution		28,249				—				—				28,249
	Generation:
	Fossil Production		—				4,923				—				4,923
	Nuclear Production		—				2,893				—				2,893
	Nuclear Fuel in Service		—				745				—				745
	Other Production-Solar		593				757				—				1,350
	Construction Work in Progress		—				2,339				—				2,339
	Total Generation		593				11,657				—				12,250
	Other		275				98				359				732
	Total		$	29,117			$	11,755			$	359			$	41,231

As part of its solar production portfolio, Power owns and operates two California-based solar facilities with an aggregate capacity of approximately 30 MW direct current whose output is sold to Pacific Gas and Electric Company (PG&E) under power purchase agreements (PPAs) with twenty year terms. The net book value of these solar facilities was approximately $57 million as of December 31, 2018. In January 2019, PG&E and its parent company PG&E Corporation filed for Chapter 11 bankruptcy protection. Power cannot predict the ultimate outcome that this bankruptcy proceeding will have on its ability to collect all of the future revenues from these facilities due under the PPAs; however, any adverse changes to the terms of Power’s PPAs as a result of this bankruptcy proceeding could result in the future impairment of these assets in amounts up to their current net book value.

PSE&G and Power have ownership interests in and are responsible for providing their respective shares of the necessary financing for the following jointly-owned facilities to which they are a party. All amounts reflect PSE&G’s or Power’s share of the jointly-owned projects and the corresponding direct expenses are included in the Consolidated Statements of Operations as Operating Expenses.

						As of December 31,
						2018								2017
			Ownership							Accumulated								Accumulated
			Interest			Plant				Depreciation				Plant				Depreciation
						Millions
	PSE&G:
	Transmission Facilities		Various			$	162			$	58			$	162			$	58
	Power:
	Coal Generating:
	Conemaugh		23	%		$	417			$	192			$	408			$	178
	Keystone		23	%		$	416			$	200			$	409			$	187
	Nuclear Generating:
	Peach Bottom		50	%		$	1,334			$	389			$	1,328			$	348
	Salem		57	%		$	1,196			$	333			$	1,147			$	277
	Nuclear Support Facilities		Various			$	244			$	95			$	239			$	81
	Pumped Storage Facilities:
	Yards Creek		50	%		$	48			$	26			$	44			$	26
	Merrill Creek Reservoir		14	%		$	1			$	—			$	1			$	—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Power holds undivided ownership interests in the jointly-owned facilities above. Power is entitled to shares of the generating capability and output of each unit equal to its respective ownership interests. Power also pays its ownership share of additional construction costs, fuel inventory purchases and operating expenses. Power’s share of expenses for the jointly-owned facilities is included in the appropriate expense category. Each owner is responsible for any financing with respect to its pro rata share of capital expenditures.

Power co-owns Salem and Peach Bottom with Exelon Generation. Power is the operator of Salem and Exelon Generation is the operator of Peach Bottom. A committee appointed by the co-owners provides oversight. Proposed O&M budgets and requests for major capital expenditures are reviewed and approved as part of the normal Power governance process.

GenOn Northeast Management Company is the operator for Keystone Generating Station and Conemaugh Generating Station. A committee appointed by the co-owners provides oversight. Proposed O&M budgets and requests for major capital expenditures are reviewed and approved as part of the normal Power governance process.

Power is a co-owner in the Yards Creek Pumped Storage Generation Facility. Jersey Central Power & Light Company (JCP&L) is also a co-owner and the operator of this facility. JCP&L submits separate capital and O&M budgets, subject to Power’s approval as part of the normal Power governance process.

Power is a minority owner in the Merrill Creek Reservoir and Environmental Preserve in Warren County, New Jersey. Merrill Creek Owners Group is the owner-operator of this facility. The operator submits separate capital and O&M budgets, subject to Power’s approval as part of the normal Power governance process.

Note 7. Regulatory Assets and Liabilities

PSE&G prepares its financial statements in accordance with GAAP for regulated utilities as described in Note 1. Organization, Basis of Presentation and Significant Accounting Policies. PSE&G has deferred certain costs based on rate orders issued by the BPU or FERC or based on PSE&G’s experience with prior rate proceedings. Most of PSE&G’s Regulatory Assets and Liabilities as of December 31, 2018 are supported by written orders, either explicitly or implicitly through the BPU’s treatment of various cost items. These costs will be recovered and amortized over various future periods.

Regulatory Assets and other investments and costs incurred under our various infrastructure filings and clause mechanisms are subject to prudence reviews and can be disallowed in the future by regulatory authorities. To the extent that collection of any infrastructure or clause mechanism revenue, Regulatory Assets or payments of Regulatory Liabilities is no longer probable, the amounts would be charged or credited to income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PSE&G had the following Regulatory Assets and Liabilities:

			As of December 31,
			2018				2017
			Millions
	Regulatory Assets
	Current
	New Jersey Clean Energy Program		$	143			$	128
	Electric Energy Costs—Basic Generation Service (BGS)		115				23
	Storm Damage and Other		56				—
	Green Program Recovery Charges (GPRC)		34				8
	Weather Normalization Clause (WNC)		2				40
	Other		39				12
	Total Current Regulatory Assets		$	389			$	211
	Noncurrent
	Pension and OPEB Costs		$	1,090			$	1,488
	Deferred Income Tax Regulatory Assets		896				282
	Manufactured Gas Plant (MGP) Remediation Costs		321				358
	Electric Transmission and Gas Cost of Removal		223				199
	Storm Damage and Other		214				241
	Remediation Adjustment Charge (RAC) (Other Societal Benefits Charge (SBC))		175				172
	Asset Retirement Obligation		166				162
	GPRC		95				98
	Unamortized Loss on Reacquired Debt and Debt Expense		49				55
	Gas Costs—BGSS		31				30
	Other		139				137
	Total Noncurrent Regulatory Assets		$	3,399			$	3,222
	Total Regulatory Assets		$	3,788			$	3,433

			As of December 31,
			2018				2017
			Millions
	Regulatory Liabilities
	Current
	Deferred Income Tax Regulatory Liabilities		$	299			$	—
	Gas Costs —BGSS		—				30
	Gas Margin Adjustment Clause		8				12
	Other		4				5
	Total Current Regulatory Liabilities		$	311			$	47
	Noncurrent
	Deferred Income Tax Regulatory Liabilities		$	3,170			$	2,868
	Electric Distribution Cost of Removal		51				80
	Total Noncurrent Regulatory Liabilities		$	3,221			$	2,948
	Total Regulatory Liabilities		$	3,532			$	2,995

All Regulatory Assets and Liabilities are excluded from PSE&G’s rate base unless otherwise noted. The Regulatory Assets and Liabilities in the table above are defined as follows:

•	Asset Retirement Obligation: These costs represent the differences between rate-regulated cost of removal accounting and asset retirement accounting under GAAP. These costs will be recovered in future rates as assets are retired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•	Deferred Income Tax Regulatory Assets: These amounts represent the portion of deferred income taxes that will be recovered through future rates, based upon established regulatory practices and orders from the BPU.

•

Deferred Income Tax Regulatory Liabilities: These amounts represent the future refunds to customers of PSE&G’s excess Accumulated Deferred Income Tax liabilities as a result of the reduction in the federal corporate income tax rate effective January 1, 2018 and the flow-back of tax repair-related accumulated deferred income taxes that PSE&G agreed to as part of the settlement of its 2018 distribution base rate proceeding.

•	Electric and Gas Cost of Removal: PSE&G accrues and collects in rates for the cost of removing, dismantling and disposing of its T&D assets upon retirement. The Regulatory Asset or Liability for non-legally required cost of removal represents the difference between amounts collected in rates and costs actually incurred.

•

Electric Energy Costs—BGS: These costs represent the over or under recovered amounts associated with BGS, as approved by the BPU. Pursuant to BPU requirements, PSE&G serves as the supplier of last resort for electric customers within its service territory that are not served by another supplier. Pricing for those services are set by the BPU as a pass-through, resulting in no margin for PSE&G’s operations. Over or under recovered balances with interest are returned or recovered through monthly filings.

•

Gas Costs—BGSS: These costs represent the over or under recovered amounts associated with BGSS, as approved by the BPU. Pursuant to BPU requirements, PSE&G serves as the supplier of last resort for gas customers within its service territory that are not served by another supplier. Pricing for those services are set by the BPU as a pass-through, resulting in no margin for PSE&G’s operations. Over or under collected balances are returned or recovered through an annual filing. Interest is accrued only on over recovered balances.

•

Gas Margin Adjustment Clause: This mechanism credits Firm delivery customers for net distribution margin revenue collected from Transportation Gas Service Non-Firm (TSG-NF) delivery customers. The balance represents the difference between the net margin collected from the TSG-NF Customers versus bill credits provided to Firm delivery customers. Over or under recovered balances with interest are returned or recovered through the subsequent annual filing.

•

GPRC: This amount represents costs of the over or under collected balances associated with various renewable energy and energy efficiency programs. PSE&G files annually with the BPU for recovery of amounts that include a return on and of its investment over the lives of the underlying investments and capital assets which range from five to ten years. Interest is accrued monthly on any over or under recovered balances. Components of the GPRC include: Carbon Abatement, Energy Efficiency Economic Stimulus Program (EEE), EEE Extension Program, EEE Extension II Program, the Demand Response Program, Solar Generation Investment Program (Solar 4 All®), Solar 4 All® Extension, Solar 4 All® Extension II, Solar Loan II Program, Solar Loan III Program and the Energy Efficiency 2017 Program.

•	MGP Remediation Costs: Represents the low end of the range for the remaining environmental investigation and remediation program cleanup costs for MGPs that are probable of recovery in future rates. Once these costs are incurred, they are recovered through the RAC in the SBC over a seven year period with interest.

•	New Jersey Clean Energy Program: The BPU approved future funding requirements for Energy Efficiency and Renewable Energy Programs through the first half of 2018. The BPU funding requirements are recovered through the SBC.

•

Pension and OPEB Costs: Pursuant to the adoption of accounting guidance for employers’ defined benefit pension and OPEB plans, PSE&G recorded the unrecognized costs for defined benefit pension and other OPEB plans on the balance sheet as a Regulatory Asset. These costs represent actuarial gains or losses and prior service costs which have not been expensed. These costs are amortized and recovered in future rates.

•	RAC (Other SBC): Costs incurred to clean up MGPs which are recovered over seven years with interest through an annual filing.

•

SBC: The SBC, as authorized by the BPU and the New Jersey Electric Discount and Energy Competition Act, includes costs related to PSE&G’s electric and gas business as follows: (1) the Universal Service Fund (USF); (2) Energy Efficiency and Renewable Energy Programs; (3) Electric bad debt expense; and (4) the RAC for incurred MGP remediation expenditures. Over or under recovered balances with interest are to be returned or recovered through an annual filing.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•	Storm Damage and Other: Represents deferred costs, primarily comprised of storm costs incurred in the cleanup of major storms from 2010 through 2018, which are being amortized over five years.

•	Unamortized Loss on Reacquired Debt and Debt Expense: Represents losses on reacquired long-term debt and expenses associated with issuances of new debt, which are recovered through rates over the remaining life of the debt.

•

WNC: This represents the over or under recovery of gas margin which is filed annually with the BPU. The WNC requires PSE&G to calculate, at the end of each October-to-May period, the level by which margin revenues differed from what would have resulted if normal weather had occurred. Over recoveries are returned to customers in the next winter season while under recoveries (subject to an earnings cap) are recovered from customers in the next winter season.

Significant 2018 regulatory orders received and currently pending rate filings with FERC and the BPU by PSE&G are as follows:

•

Electric and Gas Distribution Base Rate Filings—In October 2018, the BPU issued an Order approving the settlement of PSE&G’s distribution base rate proceeding with new rates effective November 1, 2018. The settlement resulted in a net reduction in overall annual revenues of approximately $13 million, comprised of a $212 million increase in base revenues, including recovery of deferred storm costs, offset by the return of tax benefits of approximately $225 million. The tax benefits include the flow-back to customers of excess accumulated deferred income taxes resulting from the reduction of the federal income tax rates provided in the Tax Cuts and Jobs Act of 2017 (Tax Act) as well as the accumulated deferred income taxes from previously realized tax repair deductions and tax benefits from future tax repair deductions as realized. The Order provided for a $9.5 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 54% equity component of its capitalization structure. In addition to the $13 million annual revenue reduction, the Order provided for a $28 million one-time refund to customers in November and December 2018 for taxes collected at the higher federal income tax rate for the January 1 to March 31, 2018 period. Previously, the BPU had approved a rate reduction effective April 1, 2018, to PSE&G’s then current electric and gas base rates of approximately $71 million and $43 million, respectively, on an annual basis, to reflect the lower federal income tax rate for the period April 1 and forward. As a result of the agreement to flow back tax repair-related accumulated deferred income taxes in the settlement, PSE&G has recognized a Regulatory Liability and a corresponding Regulatory Asset.

•

Transmission Formula Rate Filings—In October 2018, PSE&G made two FERC filings with respect to its Transmission Formula Rate. PSE&G filed its 2019 Annual Transmission Formula Rate Update with FERC requesting new rates for 2019 with an effective date of January 1, 2019. In addition, PSE&G filed a Section 205 filing that sought FERC approval to modify its existing Formula Rate template in order to refund approximately $114 million of transmission-related “unprotected excess deferred income tax benefits” in 2019. In December 2018, FERC approved PSE&G’s Section 205 filing, subject to the submission of a compliance filing which was submitted to FERC in January 2019. As a result, PSE&G filed a revised 2019 Annual Transmission Formula Rate Update to include the refund of the approved excess deferred income tax benefits. The revised 2019 Annual Transmission Formula Rate, as filed with FERC in January 2019, decreases overall annual transmission revenues by approximately $54 million, subject to true-up.

In June 2018, PSE&G filed its 2017 true-up adjustment pertaining to its transmission formula rates in effect for 2017. This resulted in an adjustment of $27 million more than the 2017 originally filed revenues, the impact of which PSE&G had primarily recognized in its Consolidated Statement of Operations for the year ended December 31, 2017.

•	Gas System Modernization Program I (GSMP I)—In December 2018, the BPU approved recovery of PSE&G’s GSMP I capital investment recovery petition for an annual gas revenue requirement increase of $21 million effective January 1, 2019.

•

RAC—In January 2019, PSE&G updated its RAC 26 recovery request with the BPU seeking recovery of $73 million of net MGP costs from August 1, 2017 through July 31, 2018. This matter is pending. In October 2018, the BPU approved PSE&G’s filing with respect to its RAC 25 petition allowing recovery of $63 million effective November 1, 2018 related to MGP expenditures from August 1, 2016 through July 31, 2017.

•	GPRC—In October 2018, the BPU approved PSE&G’s 2017 GPRC cost recovery petition requesting recovery of approximately $58 million and $15 million in electric and gas revenues, respectively, on an annual basis.

In June 2018, PSE&G filed its 2018 GPRC cost recovery petition requesting recovery of approximately $65 million and $6 million in electric and gas revenues, respectively, on an annual basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•

Energy Strong Program I (ES I) Recovery Filing—In August 2018, the BPU approved recovery of PSE&G’s ES I capital investment petition for an annual revenue requirement increase of $0.6 million and $0.1 million associated with electric and gas investment costs, respectively. This represents the final recovery of electric and gas ES I capital investment costs consistent with the BPU Order of Approval of the Energy Strong Program.

In February 2018, the BPU approved recovery of an annual revenue requirement of $8 million associated with electric ES I capital investment costs placed in service from June 1, 2017 through November 30, 2017.

•

WNC—In October 2018, the BPU approved PSE&G’s 2017-2018 WNC petition on a provisional basis allowing a net recovery of $14 million to be collected over the 2018-2019 Winter Period with the new rate effective November 1, 2018. The $14 million net recovery is the result of $9 million of excess revenues from the colder than normal 2017-2018 Winter Period offset by $23 million of remaining prior Winter Period undercollection.

In April 2018, the BPU gave final approval to PSE&G’s petition to collect $55 million in net deficiency gas revenues as a result of the warmer than normal 2016-2017 Winter Period, which resulted in a deficiency of $31 million, plus a carryover balance of $24 million from the 2015-2016 Winter Period.

•	SBC—In February 2018, the BPU approved PSE&G’s petition to increase electric rates by approximately $20 million on an annual basis and to decrease gas rates by approximately $0.8 million on an annual basis, in order to recover electric and gas costs incurred through May 31, 2017 under its Energy Efficiency and Renewable Energy and Social Programs. The new rates were effective April 1, 2018.

•	BGSS—In September 2018, the BPU provisionally approved PSE&G’s request to decrease its BGSS rates which will decrease annual BGSS revenues by $26 million. The BGSS rate decreased from approximately 37 cents to 35 cents per therm for residential gas customers effective October 1, 2018.

In April 2018, the BPU approved the final BGSS rates which were effective October 1, 2017.

Note 8. Long-Term Investments

Long-Term Investments as of December 31, 2018 and 2017 included the following:

			As of December 31,
			2018				2017
			Millions
	PSE&G
	Life Insurance and Supplemental Benefits		$	121			$	130
	Solar Loans		149				150
	Power
	Partnerships and Corporate Joint Ventures (Equity Method Investments) (A)		86				87
	Energy Holdings
	Lease Investments		540				565
	Total Long-Term Investments		$	896			$	932

(A)	During the three years ended December 31, 2018, 2017 and 2016, dividends from these investments were $16 million, $18 million and $18 million, respectively.

Leases

Energy Holdings, through several of its indirect subsidiary companies, has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third-party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Consolidated Balance Sheets. As an equity investor, Energy Holdings’ equity investments in the leases are comprised of the total expected lease receivables over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Consolidated Balance Sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Due to liquidity issues facing NRG REMA, LLC (REMA) prior to its emergence from bankruptcy protection, economic challenges facing coal generation in PJM as discussed in Note 4. Early Plant Retirements, and based upon ongoing reviews of available alternatives as well as certain discussions with REMA management leading up to and in connection with REMA’s bankruptcy, Energy Holdings recorded pre-tax charges of $20 million, $77 million and $147 million in 2018, 2017 and 2016, respectively. Included in these charges were residual value impairments of $7 million and $137 million in 2017 and 2016, respectively. Pre-tax charges were reflected in Operating Revenues in each year and are included in Gross Investment in Leases as of December 31, 2018.

In December 2018, REMA emerged from its in-court proceeding under Chapter 11 of the Bankruptcy Code. Upon emergence, PSEG received $31.5 million in cash in exchange for transferring the ownership interests in Keystone and Conemaugh to the debtholders of REMA and satisfaction of all other claims asserted against REMA, as well as certain amendments to the Shawville lease. The Shawville lease amendments, among other things, will allow REMA to express interest in a renewal on or after November 24, 2019. In addition, REMA has agreed to fund qualifying credit support up to $36 million. As a result of the restructuring, Energy Holdings recognized a pre-tax gain in Operating Revenues of approximately $12 million ($9 million after tax). In addition, the remaining deferred tax liabilities related to these lease investments were reclassified to current tax liabilities. PSEG expects to pay approximately $120 million to taxing authorities in 2019 resulting from this restructuring activity.

The following table shows Energy Holdings’ gross and net lease investment as of December 31, 2018 and 2017.

			As of December 31,
			2018				2017
			Millions
	Lease Receivables (net of Non-Recourse Debt)		$	504			$	546
	Estimated Residual Value of Leased Assets		326				326
	Total Investment in Rental Receivables		830				872
	Unearned and Deferred Income		(290		)		(307		)
	Gross Investments in Leases		540				565
	Deferred Tax Liabilities		(354		)		(480		)
	Net Investments in Leases		$	186			$	85

In December 2017, new tax legislation was enacted (Tax Act), reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSEG is subject to 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 was enacted. The impact of the reduced tax rate is the primary reason for the decrease in Deferred Tax Liabilities. For additional information, see Note 21. Income Taxes.

The pre-tax income (loss) and income tax effects related to investments in leases, excluding gains and losses on sales and the impacts of the Tax Act, were as follows:

			Years Ended December 31,
			2018				2017				2016
			Millions
	Pre-Tax Income (Loss) from Leases		$	17			$	(69	)		$	(135	)
	Income Tax Expense (Benefit) on Income from Leases		$	6			$	(26	)		$	(51	)

Equity Method Investments

Power had the following equity method investments as of December 31, 2018 and 2017:

			As of December 31,
	Name		2018				2017				Location		% Owned
			Millions
	Power
	Keystone Fuels, LLC		$	9			$	8			PA		23%
	Conemaugh Fuels, LLC		8				8				PA		23%
	Kalaeloa		69				71				HI		50%
	Total		$	86			$	87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Financing Receivables

PSE&G

PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. Interest income on the loans is recorded on an accrual basis. The loans are generally paid back with solar renewable energy certificates (SRECs) generated from the installed solar electric system. In the event of a loan default, the basis of the solar loan would be recovered through a regulatory recovery mechanism. None of the solar loans are impaired; however, in the event a loan becomes impaired, the basis of the loan would be recovered through a regulatory recovery mechanism. A substantial portion of these amounts are noncurrent and reported in Long-Term Investments on PSEG’s and PSE&G’s Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which would be considered “non-performing.”

	Outstanding Loans by Class of Customer
			As of December 31,
	Consumer Loans		2018				2017
			Millions
	Commercial/Industrial		$	164			$	158
	Residential		9				10
	Total		$	173			$	168
	Current Portion (included in Other Current Assets)		(24		)		(18		)
	Noncurrent Portion (included in Long-Term Investments)		$	149			$	150

Energy Holdings

Energy Holdings had a net investment in domestic energy and real estate assets subject to leveraged lease accounting of $186 million as of December 31, 2018 and $85 million as of December 31, 2017 (See Note 8. Long-Term Investments).

The corresponding receivables associated with the lease portfolio are reflected as follows, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings.

			Lease Receivables, Net of Non-Recourse Debt
	Counterparties’ Credit Rating Standard & Poor’s (S&P) as of December 31, 2018		As of December 31, 2018
			Millions
	AA		$	14
	BBB+ — BBB-		316
	BB		133
	NR		41
	Total		$	504

The “BB” and the “NR” ratings in the preceding table represent lease receivables related to coal and gas-fired assets in Illinois and Pennsylvania, respectively. As of December 31, 2018, the gross investment in the leases of such assets, net of non-recourse debt, was $296 million ($10 million, net of deferred taxes). A more detailed description of such assets under lease follows:

	Asset		Location		Gross Investment				% Owned			Total MW			Fuel Type		Counterparties’ S&P Credit Ratings		Counterparty
					Millions
	Powerton Station Units 5 and 6		IL		$	133			64	%		1,538			Coal		BB		NRG Energy, Inc.
	Joliet Station Units 7 and 8		IL		$	85			64	%		1,036			Gas		BB		NRG Energy, Inc.
	Shawville Station Units 1, 2, 3 and 4		PA		$	78			100	%		596			Gas		NR		REMA (A)

(A)	REMA emerged from Chapter 11 of the U.S. Bankruptcy Code in December 2018. For additional information, see Note 8. Long-Term Investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease structures. These credit enhancement features vary from lease to lease. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital and trigger certain material tax obligations which could, for certain leases, wholly or partially be mitigated by tax indemnification claims against the counterparty. A bankruptcy of a lessee would likely delay and potentially limit any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims.

Additional factors that may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel, electricity and capacity, overall financial condition of lease counterparties and their affiliates and the quality and condition of assets under lease.

Note 10. Trust Investments

NDT Fund

In accordance with NRC regulations, entities owning an interest in nuclear generating facilities are required to determine the costs and funding methods necessary to decommission such facilities upon termination of operation. As a general practice, each nuclear owner places funds in independent external trust accounts it maintains to provide for decommissioning. Power is required to file periodic reports with the NRC demonstrating that its NDT Fund meets the formula-based minimum NRC funding requirements.

Power maintains an external master NDT to fund its share of decommissioning for its five nuclear facilities upon their respective termination of operation. The trust contains two separate funds: a qualified fund and a non-qualified fund. Section 468A of the Internal Revenue Code limits the amount of money that can be contributed into a qualified fund. Power’s share of decommissioning costs related to its five nuclear units was estimated to be between $2.8 billion and $3.0 billion, including contingencies. The liability for decommissioning recorded on a discounted basis as of December 31, 2018 was approximately $708 million and is included in the Asset Retirement Obligation. The funds are managed by third-party investment managers who operate under investment guidelines developed by Power.

The following tables show the fair values and gross unrealized gains and losses for the securities held in the NDT Fund.

			As of December 31, 2018
			Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
			Millions
	Equity Securities
	Domestic		$	447			$	153			$	(29	)		$	571
	International		323				36				(30		)		329
	Total Equity Securities		770				189				(59		)		900
	Available-for Sale Debt Securities
	Government		498				2				(9		)		491
	Corporate		501				1				(15		)		487
	Total Available-for-Sale Debt Securities		999				3				(24		)		978
	Total NDT Fund Investments		$	1,769			$	192			$	(83	)		$	1,878

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			As of December 31, 2017
			Cost				Gross Unrealized Gains					Gross Unrealized Losses				Fair Value
			Millions
	Equity Securities
	Domestic		$	497			$	245				$	(2	)		$	740
	International		311				99			—		(3		)		407
	Total Equity Securities		808				344					(5		)		1,147
	Available-for Sale Debt Securities
	Government		586				2					(4		)		584
	Corporate		400				4					(2		)		402
	Total Available-for-Sale Debt Securities		986				6					(6		)		986
	Total NDT Fund Investments		$	1,794			$	350				$	(11	)		$	2,133

Net unrealized gains (losses) on debt securities of $(12) million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s and Power’s Consolidated Balance Sheets as of December 31, 2018. The portion of net unrealized gains (losses) recognized during 2018 related to equity securities still held at the end of December 31, 2018 was $(127) million.

The amounts in the preceding tables do not include receivables and payables for NDT Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets as shown in the following table.

			As of December 31, 2018				As of December 31, 2017
			Millions
	Accounts Receivable		$	17			$	24
	Accounts Payable		$	5			$	74

The following table shows the value of securities in the NDT Fund that have been in an unrealized loss position for less than and greater than 12 months.

			As of December 31, 2018																As of December 31, 2017
			Less Than 12 Months								Greater Than 12 Months								Less Than 12 Months								Greater Than 12 Months
			Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
			Millions
	Equity Securities (A)
	Domestic		$	147			$	(26	)		$	5			$	(3	)		$	40			$	(2	)		$	—			$	—
	International		131				(28		)		5				(2		)		29				(3		)		2				—
	Total Equity Securities		278				(54		)		10				(5		)		69				(5		)		2				—
	Available-for-Sale Debt Securities
	Government (B)		51				—				317				(9		)		343				(2		)		91				(2		)
	Corporate (C)		150				(5		)		222				(10		)		191				(1		)		27				(1		)
	Total Available-for-Sale Debt Securities		201				(5		)		539				(19		)		534				(3		)		118				(3		)
	NDT Trust Investments		$	479			$	(59	)		$	549			$	(24	)		$	603			$	(8	)		$	120			$	(3	)

(A)	Equity Securities—Investments in marketable equity securities within the NDT Fund are primarily in common stocks

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

within a broad range of industries and sectors. Effective January 1, 2018, unrealized gains and losses on these securities are recorded in Net Income.

(B)

Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on Power’s NDT investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. Power also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle for less than their amortized cost. Since Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, Power does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2018.

(C)

Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). Power’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since Power does not intend to sell these securities nor will it be more-likely-than-not required to sell, Power does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2018.

The proceeds from the sales of and the net gains (losses) on securities in the NDT Fund were:

			Years Ended December 31,
			2018				2017				2016
			Millions
	Proceeds from Sales (A)		$	1,398			$	2,137			$	711
	Net Realized Gains (Losses):
	Gross Realized Gains		$	121			$	157			$	53
	Gross Realized Losses		(51		)		(23		)		(32		)
	Net Realized Gains (Losses) on NDT Fund (B)		$	70			$	134			$	21
	Unrealized Gains (Losses) on Equity Securities in NDT Fund (C)		(209		)		N/A				N/A
	Other-Than-Temporary-Impairments (OTTI)		—				(12		)		(28		)
	Net Gains (Losses) on NDT Fund Investments		$	(139	)		$	122			$	(7	)

(A)	Includes activity in accounts related to the liquidation of funds being transitioned to new managers.

(B)	The cost of these securities was determined on the basis of specific identification.

(C)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded in Net Income instead of Other Comprehensive Income (Loss).

The NDT Fund debt securities held as of December 31, 2018 had the following maturities:

	Time Frame		Fair Value
			Millions
	Less than one year		$	13
	1 - 5 years		254
	6 - 10 years		211
	11 - 15 years		40
	16 - 20 years		77
	Over 20 years		383
	Total NDT Available-for-Sale Debt Securities		$	978

Power periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). Any subsequent recoveries in the value of these securities would be recognized in Accumulated Other Comprehensive Income (Loss) unless the securities are

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

sold, in which case, any gain would be recognized in income. The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities.

Rabbi Trust

PSEG maintains certain unfunded nonqualified benefit plans to provide supplemental retirement and deferred compensation benefits to certain key employees. Certain assets related to these plans have been set aside in a grantor trust commonly known as a “Rabbi Trust.”

The following tables show the fair values, gross unrealized gains and losses and amortized cost basis for the securities held in the Rabbi Trust.

			As of December 31, 2018
			Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
			Millions
	Equity Securities
	Domestic		$	22			$	1			$	—			$	23
	International		—				—				—				—
	Total Equity Securities		22				1				—				23
	Available-for-Sale Debt Securities
	Government		110				1				(2		)		109
	Corporate		96				—				(4		)		92
	Total Available-for-Sale Debt Securities		206				1				(6		)		201
	Total Rabbi Trust Investments		$	228			$	2			$	(6	)		$	224

			As of December 31, 2017
			Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
			Millions
	Equity Securities
	Domestic		$	24			$	3			$	—			$	27
	International		—				—				—				—
	Total Equity Securities		24				3				—				27
	Available-for-Sale Debt Securities
	Government		85				1				(1		)		85
	Corporate		118				2				(1		)		119
	Total Available-for-Sale Debt Securities		203				3				(2		)		204
	Total Rabbi Trust Investments		$	227			$	6			$	(2	)		$	231

Net unrealized gains (losses) on debt securities of $(4) million (after-tax) were included in Accumulated Other Comprehensive Loss on PSEG’s Consolidated Balance Sheet as of December 31, 2018. The portion of net unrealized gains (losses) recognized during 2018 related to equity securities still held at the end of December 31, 2018 was $(2) million.

The amounts in the preceding tables do not include receivables and payables for Rabbi Trust Fund transactions which have not settled at the end of each period. Such amounts are included in Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets as shown in the following table.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			As of December 31, 2018				As of December 31, 2017
			Millions
	Accounts Receivable		$	2			$	2
	Accounts Payable		$	—			$	1

The following table shows the value of securities in the Rabbi Trust Fund that have been in an unrealized loss position for less than and greater than 12 months:

			As of December 31, 2018																As of December 31, 2017
			Less Than 12 Months								Greater Than 12 Months								Less Than 12 Months								Greater Than 12 Months
			Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
			Millions
	Available-for-Sale Debt Securities
	Government (A)		$	18			$	—			$	59			$	(2	)		$	28			$	—			$	25			$	(1	)
	Corporate (B)		50				(3		)		29				(1		)		39				(1		)		9				—
	Total Available-for-Sale Debt Securities		68				(3		)		88				(3		)		67				(1		)		34				(1		)
	Rabbi Trust Investments		$	68			$	(3	)		$	88			$	(3	)		$	67			$	(1	)		$	34			$	(1	)

(A)

Debt Securities (Government)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). The unrealized losses on PSEG’s Rabbi Trust investments in U.S. Treasury obligations and Federal Agency mortgage-backed securities were caused by interest rate changes. These investments are guaranteed by the U.S. government or an agency of the U.S. government. PSEG also has investments in municipal bonds that are primarily in investment grade securities. It is not expected that these securities will settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2018.

(B)

Debt Securities (Corporate)—Unrealized gains and losses on these securities are recorded in Accumulated Other Comprehensive Income (Loss). PSEG’s investments in corporate bonds are primarily in investment grade securities. It is not expected that these securities would settle for less than their amortized cost. Since PSEG does not intend to sell these securities nor will it be more-likely-than-not required to sell, PSEG does not consider these debt securities to be other-than-temporarily impaired as of December 31, 2018.

The proceeds from the sales of and the net gains (losses) on securities in the Rabbi Trust Fund were:

			Years Ended December 31,
			2018				2017				2016
			Millions
	Proceeds from Rabbi Trust Sales (A)		$	103			$	182			$	113
	Net Realized Gains (Losses):
	Gross Realized Gains		$	2			$	17			$	6
	Gross Realized Losses		(4		)		(5		)		(5		)
	Net Realized Gains (Losses) on Rabbi Trust (B)		(2		)		12				1
	Unrealized Gains (Losses) on Equity Securities in Rabbi Trust (C)		(2		)		N/A				N/A
	Net Gains (Losses) on Rabbi Trust Investments		$	(4	)		$	12			$	1

(A)	Includes activity in accounts related to the liquidation of funds being transitioned to new managers.

(B)	The cost of these securities was determined on the basis of specific identification.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(C)	Effective January 1, 2018, unrealized gains (losses) on equity securities are recorded in Net Income instead of Other Comprehensive Income (Loss).

The Rabbi Trust debt securities held as of December 31, 2018 had the following maturities:

	Time Frame		Fair Value
			Millions
	Less than one year		$	1
	1 - 5 years		35
	6 - 10 years		27
	11 - 15 years		8
	16 - 20 years		21
	Over 20 years		109
	Total Rabbi Trust Available-for-Sale Debt Securities		$	201

PSEG periodically assesses individual debt securities whose fair value is less than amortized cost to determine whether the investments are considered to be other-than-temporarily impaired. For these securities, management considers its intent to sell or requirement to sell a security prior to expected recovery. In those cases where a sale is expected, any impairment would be recorded through earnings. For fixed income securities where there is no intent to sell or likely requirement to sell, management evaluates whether credit loss is a component of the impairment. If so, that portion is recorded through earnings while the noncredit loss component is recorded through Accumulated Other Comprehensive Income (Loss). The assessment of fair market value compared to cost is applied on a weighted average basis taking into account various purchase dates and initial cost of the securities. The fair value of the Rabbi Trust related to PSEG, PSE&G and Power are detailed as follows:

			As of December 31,				As of December 31,
			2018				2017
			Millions
	PSE&G		$	45			$	46
	Power		56				57
	Other		123				128
	Total Rabbi Trust Investments		$	224			$	231

Note 11. Goodwill and Other Intangibles

As of December 31, 2018 and 2017, Power had goodwill of $16 million related to the Bethlehem Energy Center facility. Power conducted an annual review for goodwill impairment in the fourth quarter of 2018 and concluded that goodwill continues to remain unimpaired. In addition to goodwill, as of December 31, 2018 and 2017, Power had intangible assets of $143 million and $114 million, respectively, related to emissions allowances and RECs. Emissions allowances and RECs are recorded at cost and evaluated for impairment at least annually. Emissions expense includes impairments of emissions allowances, if any, and costs for emissions, which is recorded as emissions occur. As load is served under contracts requiring energy from renewable sources, the related expense is recorded. The changes to Power’s intangible assets during 2017 and 2018 are presented in the following table:

			Emissions Allowances				RECs				Total Other Intangibles
			Millions
	Balance as of January 1, 2017		$	54			$	44			$	98
	Retirements		(7		)		(93		)		(100		)
	Purchases		27				90				117
	Sales and Transfers, net		—				(1		)		(1		)
	Balance as of December 31, 2017		$	74			$	40			$	114
	Retirements		(26		)		(90		)		(116		)
	Purchases		36				110				146
	Sales and Transfers, net		—				(1		)		(1		)
	Balance as of December 31, 2018		$	84			$	59			$	143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Asset Retirement Obligations (AROs)

PSEG, PSE&G and Power recognize liabilities for the expected cost of retiring long-lived assets for which a legal obligation exists to remove or dispose of an asset or some component of an asset at retirement. These AROs are recorded at fair value in the period in which they are incurred and are capitalized as part of the carrying amount of the related long-lived assets. PSE&G, as a rate-regulated entity, recognizes Regulatory Assets or Liabilities as a result of timing differences between the recording of costs and costs recovered through the rate-making process. We accrete the ARO liability to reflect the passage of time with the corresponding expense recorded in O&M.

PSE&G has conditional AROs primarily for legal obligations related to the removal of treated wood poles and the requirement to seal natural gas pipelines at all sources of gas when the pipelines are no longer in service. PSE&G does not record an ARO for its protected steel and poly-based natural gas lines, as management believes that these categories of gas lines have an indeterminable life.

Power’s ARO liability primarily relates to the decommissioning of its nuclear power plants in accordance with NRC requirements. Power has an independent external trust that is intended to fund decommissioning of its nuclear facilities upon termination of operation. For additional information, see Note 10. Trust Investments. Power also identified conditional AROs primarily related to Power’s fossil generation units and solar facilities, including liabilities for removal of asbestos, ash ponds, stored hazardous liquid material and underground storage tanks from industrial power sites, and demolition of certain plants, and the restoration of the sites at which they reside, when the plants are no longer in service. To estimate the fair value of its AROs, Power uses a probability weighted, discounted cash flow model which, on a unit by unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on third-party decommissioning cost estimates, cost escalation rates, inflation rates and discount rates.

Updated cost studies are obtained triennially unless new information necessitates more frequent updates. The most recent cost study was done in 2018. When assumptions are revised to calculate fair values of existing AROs, generally, the ARO balance and corresponding long-lived asset are adjusted which impact the amount of accretion and depreciation expense recognized in future periods. For PSE&G, Regulatory Assets and Regulatory Liabilities result when accretion and amortization are adjusted to match rates established by regulators resulting in the regulatory deferral of any gain or loss.

The changes to the ARO liabilities for PSEG, PSE&G and Power during 2017 and 2018 are presented in the following table:

			PSEG				PSE&G				Power				Other
			Millions
	ARO Liability as of January 1, 2017		$	726			$	213			$	511			$	2
	Liabilities Settled		(29		)		(8		)		(21		)		—
	Liabilities Incurred		1				—				1				—
	Accretion Expense		30				—				30				—
	Accretion Expense Deferred and Recovered in Rate Base (A)		12				12				—				—
	Revision to Present Values of Estimated Cash Flows		284				(5		)		289				—
	ARO Liability as of December 31, 2017		$	1,024			$	212			$	810			$	2
	Liabilities Settled		(10		)		(9		)		(1		)		—
	Liabilities Incurred		1				—				1				—
	Accretion Expense		41				—				41				—
	Accretion Expense Deferred and Recovered in Rate Base (A)		12				12				—				—
	Revision to Present Values of Estimated Cash Flows		(5		)		87				(93		)		1
	ARO Liability as of December 31, 2018		$	1,063			$	302			$	758			$	3

(A)	Not reflected as expense in Consolidated Statements of Operations

During 2018, PSE&G recorded an increase to its ARO liabilities primarily due to the impact of an increase in labor rates. These changes had no impact in PSE&G’s Consolidated Statement of Operations.

During 2017, Power recorded an increase to its ARO liabilities primarily due to a higher assumed probability of early retirement of its nuclear units of $276 million. During 2018, Power recorded a reduction to its ARO liabilities, primarily due to changes in discount rates and decommissioning assumptions related to nuclear. The changes in decommissioning assumptions, including a reduction for the lower probability of early retirement of the nuclear units, were due in part to the enactment of the New Jersey ZEC legislation in May 2018 and that the Salem and Hope Creek Units were the sole applicants under the ZEC program. This reduction was also due to the sale of the Hudson and Mercer units, partially offset by increases in estimated costs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to decommission Power’s fossil units pursuant to its most recent cost study. These changes had an immaterial impact in Power’s Consolidated Statement of Operations. See Note 4. Early Plant Retirements for additional information.

Note 13. Pension, Other Postretirement Benefits (OPEB) and Savings Plans

PSEG sponsors qualified and nonqualified pension plans and OPEB plans covering PSEG’s and its participating affiliates’ current and former employees who meet certain eligibility criteria. Eligible employees participate in non-contributory pension and OPEB plans sponsored by PSEG and administered by Services. In addition, represented and nonrepresented employees are eligible for participation in PSEG’s two defined contribution plans described below.

PSEG, PSE&G and Power are required to record the under or over funded positions of their defined benefit pension and OPEB plans on their respective balance sheets. Such funding positions of each PSEG company are required to be measured as of the date of its respective year-end Consolidated Balance Sheets. For underfunded plans, the liability is equal to the difference between the plan’s benefit obligation and the fair value of plan assets. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. For OPEB plans, the benefit obligation is the accumulated postretirement benefit obligation. In addition, GAAP requires that the total unrecognized costs for defined benefit pension and OPEB plans be recorded as an after-tax charge to Accumulated Other Comprehensive Income (Loss), a separate component of Stockholders’ Equity. However, for PSE&G, because the amortization of the unrecognized costs is being collected from customers, the accumulated unrecognized costs are recorded as a Regulatory Asset. The unrecognized costs represent actuarial gains or losses and prior service costs which had not been expensed.

For PSE&G, the Regulatory Asset is amortized and recorded as net periodic pension cost in the Consolidated Statements of Operations. For Power, the charge to Accumulated Other Comprehensive Income (Loss) is amortized and recorded as net periodic pension cost in the Consolidated Statements of Operations.

In December 2018, PSEG amended certain provisions of its OPEB plans applicable to all current and future Medicare-eligible retirees and spouses who receive or will receive subsidized healthcare from PSEG. Effective January 1, 2021, the PSEG-sponsored Medicare-eligible plans will be replaced by a Medicare private exchange. For each Medicare-eligible retiree and spouse, PSEG will provide annual credits to a Health Reimbursement Arrangement, which can be used to pay for medical, prescription drug, and dental plan premiums, as well as certain out-of-pocket costs. The amendment resulted in a $559 million reduction in PSEG’s OPEB obligation as of December 31, 2018.

Amounts for Servco are not included in any of the following pension and OPEB benefit information for PSEG and its affiliates but rather are separately disclosed later in this note.

The following table provides a roll-forward of the changes in the benefit obligation and the fair value of plan assets during each of the two years in the periods ended December 31, 2018 and 2017. It also provides the funded status of the plans and the amounts recognized and amounts not recognized on the Consolidated Balance Sheets at the end of both years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Pension Benefits								Other Benefits
			2018				2017				2018				2017
			Millions
	Change in Benefit Obligation
	Benefit Obligation at Beginning of Year (A)		$	6,359			$	5,772			$	1,976			$	1,754
	Service Cost		130				114				18				17
	Interest Cost		208				204				66				63
	Actuarial (Gain) Loss		(460		)		564				(222		)		199
	Gross Benefits Paid		(316		)		(295		)		(76		)		(57		)
	Plan Amendments		—				—				(559		)		—
	Benefit Obligation at End of Year (A)		$	5,921			$	6,359			$	1,203			$	1,976
	Change in Plan Assets
	Fair Value of Assets at Beginning of Year		$	5,812			$	5,193			$	511			$	420
	Actual Return on Plan Assets		(388		)		903				(36		)		77
	Employer Contributions		12				11				89				71
	Gross Benefits Paid		(316		)		(295		)		(76		)		(57		)
	Fair Value of Assets at End of Year		$	5,120			$	5,812			$	488			$	511
	Funded Status
	Funded Status (Plan Assets less Benefit Obligation)		$	(801	)		$	(547	)		$	(715	)		$	(1,465	)
	Additional Amounts Recognized in the Consolidated Balance Sheets
	Current Accrued Benefit Cost		(10		)		(10		)		(11		)		(10		)
	Noncurrent Accrued Benefit Cost		(791		)		(537		)		(704		)		(1,455		)
	Amounts Recognized		$	(801	)		$	(547	)		$	(715	)		$	(1,465	)
	Additional Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Regulated Assets and Deferred Assets (B)
	Prior Service Cost		$	(28	)		$	(46	)		$	(561	)		$	(3	)
	Net Actuarial Loss		2,005				1,721				420				629
	Total		$	1,977			$	1,675			$	(141	)		$	626

(A)	Represents projected benefit obligation for pension benefits and the accumulated postretirement benefit obligation for other benefits. The vested benefit obligation is the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of separation of retirement.

(B)

Includes $619 million ($360 million, after-tax) and $683 million ($406 million, after-tax) in Accumulated Other Comprehensive Loss related to Pension and OPEB as of December 31, 2018 and 2017, respectively. Also includes Regulatory Assets of $1,090 million and Deferred Assets of $127 million as of December 31, 2018 and Regulatory Assets of $1,485 million and Deferred Assets of $133 million as of December 31, 2017.

The pension benefits table above provides information relating to the funded status of the qualified and nonqualified pension and OPEB plans on an aggregate basis. As of December 31, 2018, PSEG had funded approximately 86% of its projected benefit obligation. This percentage does not include $224 million of assets in the Rabbi Trust as of December 31, 2018 which were used partially to fund the nonqualified pension plans. As of December 31, 2018, the nonqualified pension plans included in the projected benefit obligation in the above table were $156 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Benefit Obligation

The accumulated benefit obligation for all PSEG’s defined benefit pension plans was $5.7 billion as of December 31, 2018 and $6.1 billion as of December 31, 2017.

The following table provides the components of net periodic benefit cost relating to all qualified and nonqualified pension and OPEB plans on an aggregate basis for PSEG, excluding Servco for the years ended December 31, 2018, 2017 and 2016. Amounts shown do not reflect the impacts of capitalization and co-owner allocations. Effective with the adoption of ASU 2017-07 on January 1, 2018, only the service cost component is eligible for capitalization, when applicable. For additional information, see Note 2. Recent Accounting Standards.

			Pension Benefits Years Ended December 31,												Other Benefits Years Ended December 31,
			2018				2017				2016				2018				2017				2016
			Millions
	Components of Net Periodic Benefit (Credits) Costs
	Service Cost (included in O&M Expense)		$	130			$	114			$	109			$	18			$	17			$	17
	Non-Service Components of Pension and OPEB (Credits) Costs
	Interest Cost		208				204				202				66				63				59
	Expected Return on Plan Assets		(441		)		(394		)		(394		)		(41		)		(34		)		(31		)
	Amortization of Net
	Prior Service Credit		(18		)		(18		)		(19		)		(1		)		(11		)		(14		)
	Actuarial Loss		85				97				158				64				51				40
	Non-Service Components of Pension and OPEB (Credits) Costs		(166		)		(111		)		(53		)		88				69				54
	Total Benefit (Credits) Costs		$	(36	)		$	3			$	56			$	106			$	86			$	71

Pension costs and OPEB costs for PSEG, PSE&G and Power are detailed as follows:

			Pension Benefits Years Ended December 31,												Other Benefits Years Ended December 31,
			2018				2017				2016				2018				2017				2016
			Millions
	PSE&G		$	(31	)		$	(4	)		$	29			$	68			$	54			$	43
	Power		(9		)		1				16				32				27				23
	Other		4				6				11				6				5				5
	Total Benefit (Credits) Costs		$	(36	)		$	3			$	56			$	106			$	86			$	71

The following table provides the pre-tax changes recognized in Accumulated Other Comprehensive Income (Loss), Regulatory Assets and Deferred Assets:

			Pension								OPEB
			2018				2017				2018				2017
			Millions
	Net Actuarial (Gain) Loss in Current Period		$	369			$	55			$	(145	)		$	156
	Amortization of Net Actuarial Gain (Loss)		(85		)		(97		)		(64		)		(50		)
	Prior Service Cost (Credit) in current period		—				—				(559		)		—
	Amortization of Prior Service Credit		18				18				1				11
	Total		$	302			$	(24	)		$	(767	)		$	117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts that are expected to be amortized from Accumulated Other Comprehensive Loss, Regulatory Assets and Deferred Assets into Net Periodic Benefit Cost in 2019 are as follows:

			Pension Benefits				Other Benefits
			2019				2019
			Millions
	Actuarial Loss		$	107			$	50
	Prior Service Credit		$	(18	)		$	(128	)

The following assumptions were used to determine the benefit obligations and net periodic benefit costs:

			Pension Benefits									Other Benefits
			2018			2017			2016			2018				2017				2016
	Weighted-Average Assumptions Used to Determine Benefit Obligations as of December 31
	Discount Rate		4.41	%		3.73	%		4.29	%		4.31		%		3.76		%		4.37		%
	Rate of Compensation Increase		3.90	%		3.90	%		3.61	%		3.90		%		3.90		%		3.61		%
	Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31
	Discount Rate		3.73	%		4.29	%		4.54	%		3.76		%		4.37		%		4.58		%
	Service Cost Interest Rate		3.88	%		4.53	%		4.81	%		3.90		%		4.64		%		4.87		%
	Interest Cost Interest Rate		3.35	%		3.63	%		3.75	%		3.39		%		3.69		%		3.76		%
	Expected Return on Plan Assets		7.80	%		7.80	%		8.00	%		7.80		%		7.80		%		8.00		%
	Rate of Compensation Increase		3.90	%		3.61	%		3.61	%		3.90		%		3.61		%		3.61		%
	Assumed Health Care Cost Trend Rates as of December 31
	Health Care Costs
	Immediate Rate											7.28		%		7.93		%		7.55		%
	Ultimate Rate											4.75		%		4.75		%		4.75		%
	Year Ultimate Rate Reached											2026				2026				2025
												Millions
	Effect of a 1% Increase in the Assumed Rate of Increase in Health Care Benefit Costs
	Total of Service Cost and Interest Cost											$	1			$	13			$	11
	Postretirement Benefit Obligation											$	21			$	240			$	191
	Effect of a 1% Decrease in the Assumed Rate of Increase in Health Care Benefit Costs
	Total of Service Cost and Interest Cost											$	(1	)		$	(10	)		$	(9	)
	Postretirement Benefit Obligation											$	(20	)		$	(198	)		$	(160	)

Plan Assets

The investments of pension and OPEB plans are held in a trust account by the Trustee and consist of an undivided interest in an investment account of the Master Trust. The investments in the pension and OPEB plans are measured at fair value within a hierarchy that prioritizes the inputs to fair value measurements into three levels. See Note 18. Fair Value Measurements for more information on fair value guidance. Use of the Master Trust permits the commingling of pension plan assets and OPEB plan assets for investment and administrative purposes. Although assets of the plans are commingled in the Master Trust, the Trustee maintains supporting records for the purpose of allocating the net gain or loss of the investment account to the respective participating plans. The net investment income of the investment assets is allocated by the Trustee to each participating plan based on the relationship of the interest of each plan to the total of the interests of the participating plans. As of December 31, 2018, the pension plan interest and OPEB plan interest in such assets of the Master Trust were approximately 91% and 9%, respectively.

The following tables present information about the investments measured at fair value on a recurring basis as of December 31, 2018 and 2017, including the fair value measurements and the levels of inputs used in determining those fair values.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Recurring Fair Value Measurements as of December 31, 2018
							Quoted Market Prices for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
	Description		Total				(Level 1)				(Level 2)				(Level 3)
			Millions
	Cash Equivalents (A)		$	99			$	88			$	11			$	—
	Equity Securities
	Common Stock (B)		1,156				1,156				—				—
	Commingled (C)		1,338				960				378				—
	Preferred Stock (B)		7				7				—				—
	Other (D)		1				1				—				—
	Debt Securities (E)
	U.S. Treasury		526				—				526				—
	Government—Other		302				—				302				—
	Corporate		948				—				948				—
	Subtotal Fair Value		$	4,377			$	2,212			$	2,165			$	—
	Measured at net asset value practical expedient
	Commingled—Equities (F)		1,208
	Private Equity (G)		10
	Total Fair Value (H)		$	5,595

			Recurring Fair Value Measurements as of December 31, 2017
							Quoted Market Prices for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
	Description		Total				(Level 1)				(Level 2)				(Level 3)
			Millions
	Cash Equivalents (A)		$	133			$	117			$	16			$	—
	Equity Securities
	Common Stock (B)		1,275				1,275				—				—
	Commingled (C)		1,401				1,218				183				—
	Preferred Stock (B)		6				6				—				—
	Debt Securities (E)
	U.S. Treasury		571				—				571				—
	Government—Other		272				—				272				—
	Corporate		963				—				963				—
	Subtotal Fair Value		$	4,621			$	2,616			$	2,005			$	—
	Measured at net asset value practical expedient
	Commingled—Equities (F)		1,675
	Private Equity (G)		14
	Total Fair Value (H)		$	6,310

(A)	The Collective Investment Fund publishes a daily net asset value (NAV) which participants may use for daily redemptions without restrictions (Level 1). Certain temporary investments are valued using inputs such as time-to-maturity, coupon rate, quality rating and current yield (Level 2).

(B)	Common stocks and preferred stocks are measured using observable data in active markets and considered Level 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(C)	Commingled Funds that allow daily redemption at their daily published NAV without restrictions are classified as Level 1. Commingled Funds that publish daily NAV but with certain near-term redemption restrictions which prevent redemption at the published daily NAV are classified as Level 2.

(D)	Investment in a publicly traded limited partnership.

(E)

Debt securities include mainly investment grade corporate and municipal bonds, U.S. Treasury obligations and Federal Agency asset-backed securities with a wide range of maturities. These investments are valued using an evaluated pricing approach that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads or the most recent quotes for similar securities which are a Level 2 measure.

(F)

Certain commingled equity funds are not included in the fair value hierarchy as they are measured at fair value using the NAV per share (or its equivalent) practical expedient. These funds do not meet the definition of readily determinable fair value due to limitations in published NAV (last business day of the month) and include certain redemption restrictions ranging from one to fifteen days advance notice prior to redemption days and limitations on withdrawals over 25% of the total fund. The objectives of these funds are mainly tracking the S&P Index or achieving long-term growth through investment in foreign equity securities and the MSCI Emerging Markets Index.

(G)

Private equity investments primarily include various limited partnerships that invest in either operating companies through acquisitions or developing a portfolio of non-US distressed investments to maximize total return on capital. These investments are valued at NAV (or its equivalent) on an annual basis and have significant redemption restrictions preventing redemption until fund liquidation and limited ability to sell these investments. Fund liquidation is not expected to occur for several more years. These investments have been removed from the fair value hierarchy in accordance with the guidance on NAV practical expedient.

(H)	Excludes net receivables of $14 million and $13 million at December 31, 2018 and 2017, respectively, which consist of interest, dividends and receivables and payables related to pending securities sales and purchases.

The following table provides the percentage of fair value of total plan assets for each major category of plan assets held for the qualified pension and OPEB plans as of the measurement date, December 31:

			As of December 31,
	Investments		2018			2017
	Equity Securities		66	%		69	%
	Debt Securities		32			29
	Other Investments		2			2
	Total Percentage		100	%		100	%

PSEG utilizes forecasted returns, risk, and correlation of all asset classes in order to develop an efficient portfolio. PSEG’s latest asset/liability study indicates that a long-term target asset allocation of 70% equities and 30% fixed income is consistent with the funds’ financial objectives. Derivative financial instruments are used by the plans’ investment managers primarily to adjust the fixed income duration of the portfolio and hedge the currency risk component of foreign investments. The expected long-term rate of return on plan assets was 7.8% for 2018 and will be 7.8% for 2019. This expected return was determined based on the study discussed above, including a premium for active management and considered the plans’ historical annualized rate of return since inception.

Plan Contributions

PSEG has no planned contributions to its pension plans in 2019. PSEG plans to make discretionary contributions of $10 million into its OPEB plan during 2019.

Estimated Future Benefit Payments

The following pension benefit and postretirement benefit payments are expected to be paid to plan participants.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Year			Pension Benefits				Other Benefits
				Millions
	2019			$	345			$	91
	2020			341				95
	2021			352				87
	2022			364				88
	2023			373				89
	2024-2028			2,004				428
	Total			$	3,779			$	878

401(k) Plans

PSEG sponsors two 401(k) plans, which are defined contribution retirement plans subject to the Employee Retirement Income Security Act (ERISA). Eligible represented employees of PSEG’s subsidiaries participate in the PSEG Employee Savings Plan (Savings Plan), while eligible non-represented employees of PSEG’s subsidiaries participate in the PSEG Thrift and Tax-Deferred Savings Plan (Thrift Plan). Eligible employees may contribute up to 50% of their compensation to these plans, not to exceed the Internal Revenue Service (IRS) maximums, including any catch-up contributions for those employees age 50 and above. PSEG matches 50% of such employee contributions up to 7% of pay for Savings Plan participants and up to 8% of pay for Thrift Plan participants. The amount paid for employer matching contributions to the plans for PSEG, PSE&G and Power are detailed as follows:

			Thrift Plan and Savings Plan
			Years Ended December 31,
			2018				2017				2016
			Millions
	PSE&G		$	26			$	25			$	24
	Power		10				11				12
	Other		5				5				5
	Total Employer Matching Contributions		$	41			$	41			$	41

Servco Pension and OPEB

At the direction of LIPA, effective January 1, 2014, Servco established benefit plans that provide substantially the same benefits to its employees as those previously provided by National Grid Electric Services LLC (NGES), the predecessor T&D system manager for LIPA. Since the vast majority of Servco’s employees had worked under NGES’ T&D operations services arrangement with LIPA, Servco’s plans provide certain of those employees with pension and OPEB vested credit for prior years’ services earned while working for NGES. The benefit plans cover all employees of Servco for current service. Under the OSA, all of these and any future employee benefit costs are to be funded by LIPA. See Note 5. Variable Interest Entity. These obligations, as well as the offsetting long-term receivable, are separately presented on the Consolidated Balance Sheet of PSEG.

The following table provides a roll-forward of the changes in Servco’s benefit obligation and the fair value of its plan assets during the years ended December 31, 2018 and 2017. It also provides the funded status of the plans and the amounts recognized and amounts not recognized on the Consolidated Balance Sheets at the end of both years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Pension Benefits								Other Benefits
			2018				2017				2018				2017
			Millions
	Change in Benefit Obligation
	Benefit Obligation at Beginning of Year		$	320			$	262			$	542			$	452
	Service Cost		30				27				18				15
	Interest Cost		12				11				20				19
	Actuarial (Gain) Loss		(38		)		22				(73		)		60
	Gross Benefits Paid		(3		)		(2		)		(6		)		(4		)
	Plan Amendments		—				—				—				—
	Benefit Obligation at End of Year (A)		$	321			$	320			$	501			$	542
	Change in Plan Assets
	Fair Value of Assets at Beginning of Year		$	191			$	134			$	—			$	—
	Actual Return on Plan Assets		(16		)		24				—				—
	Employer Contributions		40				35				6				4
	Gross Benefits Paid		(3		)		(2		)		(6		)		(4		)
	Fair Value of Assets at End of Year		$	212			$	191			$	—			$	—
	Funded Status
	Funded Status (Plan Assets less Benefit Obligation)		$	(109	)		$	(129	)		$	(501	)		$	(542	)
	Additional Amounts Recognized in the Consolidated Balance Sheets
	Accrued Pension Costs of Servco		$	(109	)		$	(129	)		N/A				N/A
	OPEB Costs of Servco		N/A				N/A				(501		)		(542		)
	Amounts Recognized (B)		$	(109	)		$	(129	)		$	(501	)		$	(542	)

(A)	Represents projected benefit obligation for pension benefits and the accumulated postretirement benefit obligation for other benefits. The vested benefit obligation is the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee’s expected date of separation of retirement.

(B)	Amounts equal to the accrued pension and OPEB costs of Servco are offset in Long-Term Receivable of VIE on PSEG’s Consolidated Balance Sheets.

Pension and OPEB costs of Servco are accounted for according to the OSA. Servco recognizes expenses for contributions to its pension plan trusts and for OPEB payments made to retirees. Operating Revenues are recognized for the reimbursement of these costs. The pension-related revenues and costs for 2018, 2017 and 2016 were $40 million, $35 million and $28 million, respectively. Servco has contributed its entire planned contribution amount to its pension plan trusts during 2018. The OPEB-related revenues earned and costs incurred were $6 million, $4 million and $2 million in 2018, 2017 and 2016, respectively. The following assumptions were used to determine the benefit obligations of Servco:

			Pension Benefits									Other Benefits
			2018			2017			2016			2018				2017				2016
	Weighted-Average Assumptions Used to Determine Benefit Obligations as of December 31
	Discount Rate		4.60	%		3.90	%		4.61	%		4.67		%		3.96		%		4.71		%
	Rate of Compensation Increase		3.25	%		3.25	%		3.25	%		3.25		%		3.25		%		3.25		%
	Assumed Health Care Cost Trend Rates as of December 31
	Health Care Costs
	Immediate Rate											8.03		%		7.69		%		7.55		%
	Ultimate Rate											4.75		%		4.75		%		4.75		%
	Year Ultimate Rate Reached											2026				2026				2025
												Millions
	Effect of a 1% Increase in the Assumed Rate of Increase in Health Care Benefit Costs
	Postretirement Benefit Obligation											$	108			$	131			$	97
	Effect of a 1% Decrease in the Assumed Rate of Increase in Health Care Benefit Costs
	Postretirement Benefit Obligation											$	(83	)		$	(99	)		$	(75	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets

All the investments of Servco’s pension plans are held in a trust account by the Trustee and consist of an undivided interest in an investment account of the Master Trust. The investments in the pension are measured at fair value within a hierarchy that prioritizes the inputs to fair value measurements into three levels. See Note 18. Fair Value Measurements for more information on fair value guidance. The Actuary maintains supporting records for the purpose of allocating the net gain or loss of the investment account to the respective participating plans. The net investment income of the investment assets is allocated by the Actuary to each participating plan based on the relationship of the interest of each plan to the total of the interests of the participating plans.

The following tables present information about Servco’s investments measured at fair value on a recurring basis as of December 31, 2018 and 2017, including the fair value measurements and the levels of inputs used in determining those fair values.

			Recurring Fair Value Measurements as of December 31, 2018
							Quoted Market Prices for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
	Description		Total				(Level 1)				(Level 2)				(Level 3)
			Millions
	Commingled Equities (A)		$	141			$	—			$	141			$	—
	Commingled Bonds (A)		71				—				71				—
	Total		$	212			$	—			$	212			$	—

			Recurring Fair Value Measurements as of December 31, 2017
							Quoted Market Prices for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
	Description		Total				(Level 1)				(Level 2)				(Level 3)
			Millions
	Commingled Equities (A)		$	137			$	—			$	137			$	—
	Commingled Bonds (A)		54				—				54				—
	Total		$	191			$	—			$	191			$	—

(A)	Investments in commingled equity and bond funds have a readily determinable fair value as they publish a daily NAV available to investors which is the basis for current transactions and contain certain redemption restrictions requiring advance notice of one to two days for withdrawals (Level 2).

The following table provides the percentage of fair value of total plan assets for each major category of plan assets held for the qualified pension and OPEB plans of Servco as of the measurement date, December 31:

			As of December 31,
	Investments		2018			2017
	Equity Securities		67	%		72	%
	Debt Securities		33			28
	Total Percentage		100	%		100	%

Servco utilizes forecasted returns, risk, and correlation of all asset classes in order to develop an efficient portfolio. The results from Servco’s latest asset/liability study indicated that a long-term target asset allocation of 70% equities and 30% fixed income is consistent with the funds’ financial objectives. The expected long-term rate of return on plan assets was 7.6% for 2018 and will be 7.6% for 2019. This expected return was determined based on the study discussed above, including a premium for active management.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Contributions

Servco plans to contribute $28 million into its pension plan during 2019.

Estimated Future Benefit Payments

The following pension benefit and postretirement benefit payments are expected to be paid to Servco’s plan participants:

	Year			Pension Benefits				Other Benefits
				Millions
	2019			$	4			$	6
	2020			6				8
	2021			7				10
	2022			9				12
	2023			11				14
	2024-2028			91				99
	Total			$	128			$	149

Servco 401(k) Plans

Servco sponsors two 401(k) plans, which are defined contribution retirement plans subject to ERISA. Eligible non-represented employees of Servco participate in the Long Island Electric Utility Servco LLC Incentive Thrift Plan I (Thrift Plan I), and eligible represented employees of Servco participate in the Long Island Electric Utility Servco LLC Incentive Thrift Plan II (Thrift Plan II). Participants in the plans may contribute up to 50% of their eligible compensation to these plans, not to exceed the IRS maximums, including any catch-up contributions for those employees age 50 and above. Servco does not provide an employer match or core contribution for employees in Thrift Plan II. For employees in Thrift Plan I, Servco matches 50% of such employee contributions up to 8% of eligible compensation and provides core contributions (based on years of service and age) to employees who do not participate in Servco’s Retirement Income Plan. The amounts expensed by Servco for employer matching contributions for the years ended December 31, 2018, 2017 and 2016 were $7 million, $6 million and $5 million, respectively, and pursuant to the OSA, Servco recognizes Operating Revenues for the reimbursement of these costs.

Note 14. Commitments and Contingent Liabilities

Guaranteed Obligations

Power’s activities primarily involve the purchase and sale of energy and related products under transportation, physical, financial and forward contracts at fixed and variable prices. These transactions are with numerous counterparties and brokers that may require cash, cash-related instruments or guarantees as a form of collateral.

Power has unconditionally guaranteed payments to counterparties by its subsidiaries in commodity-related transactions in order to

•	support current exposure, interest and other costs on sums due and payable in the ordinary course of business, and

•	obtain credit.

Power is subject to

•	counterparty collateral calls related to commodity contracts, and

•	certain creditworthiness standards as guarantor under performance guarantees of its subsidiaries.

Under these agreements, guarantees cover lines of credit between entities and are often reciprocal in nature. The exposure between counterparties can move in either direction.

In order for Power to incur a liability for the face value of the outstanding guarantees, its subsidiaries would have to

•	fully utilize the credit granted to them by every counterparty to whom Power has provided a guarantee, and

•	the net position of the related contracts would have to be “out-of-the-money” (if the contracts are terminated, Power would owe money to the counterparties).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Power believes the probability of this result is unlikely. For this reason, Power believes that the current exposure at any point in time is a more meaningful representation of the potential liability under these guarantees. Current exposure consists of the net of accounts receivable and accounts payable and the forward value on open positions, less any collateral posted.

Changes in commodity prices can have a material impact on collateral requirements under such contracts, which are posted and received primarily in the form of cash and letters of credit. Power also routinely enters into futures and options transactions for electricity and natural gas as part of its operations. These futures contracts usually require a cash margin deposit with brokers, which can change based on market movement and in accordance with exchange rules.

In addition to the guarantees discussed above, Power has also provided payment guarantees to third parties on behalf of its affiliated companies. These guarantees support various other non-commodity related contractual obligations.

The following table shows the face value of Power’s outstanding guarantees, current exposure and margin positions as of December 31, 2018 and 2017.

			As of December 31, 2018				As of December 31, 2017
			Millions
	Face Value of Outstanding Guarantees		$	1,772			$	1,701
	Exposure under Current Guarantees		$	198			$	153
	Letters of Credit Margin Posted		$	115			$	103
	Letters of Credit Margin Received		$	26			$	32
	Cash Deposited and Received
	Counterparty Cash Margin Deposited		$	—			$	—
	Counterparty Cash Margin Received		$	(10	)		$	(1	)
	Net Broker Balance Deposited (Received)		$	403			$	147
	Additional Amounts Posted
	Other Letters of Credit		$	52			$	61

As part of determining credit exposure, Power nets receivables and payables with the corresponding net fair values of energy contracts. See Note 17. Financial Risk Management Activities for further discussion. In accordance with PSEG’s accounting policy, where it is applicable, cash (received)/deposited is allocated against derivative asset and liability positions with the same counterparty on the face of the Consolidated Balance Sheet. The remaining balances of net cash (received)/deposited after allocation are generally included in Accounts Payable and Receivable, respectively.

In addition to amounts for outstanding guarantees, current exposure and margin positions, PSEG and Power have posted letters of credit to support Power’s various other non-energy contractual and environmental obligations. See preceding table.

Environmental Matters

Passaic River

Historic operations of PSEG companies and the operations of hundreds of other companies along the Passaic and Hackensack Rivers are alleged by Federal and State agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex in violation of various statutes as discussed as follows.

Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA)

The U.S. Environmental Protection Agency (EPA) has determined that a 17-mile stretch of the lower Passaic River from Newark to Clifton, New Jersey is a “Superfund” site under CERCLA and a comprehensive study of the entire 17 miles of the lower Passaic River needed to be performed. PSE&G and certain of its predecessors conducted operations at properties in this area of the Passaic River. The properties included one operating electric generating station (Essex Site), which was transferred to Power, one former generating station and four former manufactured gas plant (MGP) sites.

In early 2007, certain Potentially Responsible Parties (PRPs), including PSE&G and Power, formed a Cooperating Parties Group (CPG) and agreed to assume responsibility for conducting a Remedial Investigation and Feasibility Study (RI/FS) of the 17 miles of the lower Passaic River. The CPG has agreed to allocate, on an interim basis, the associated costs of the RI/FS among its members on the basis of a mutually agreed upon formula. For the purpose of this interim allocation, which has been revised as parties have exited the CPG, approximately 7.6 percent of the RI/FS costs are currently deemed attributable to PSE&G’s former MGP sites and approximately 1.9 percent is attributable to Power’s generating stations. These interim

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

allocations are not binding on PSE&G or Power in terms of their respective shares of the costs that will be ultimately required to remediate the 17 miles of the lower Passaic River. PSEG has provided notice to insurers concerning this potential claim.

The CPG’s draft FS set forth various alternatives for remediating the lower Passaic River with an estimated cost to remediate the lower 17 miles of the Passaic River ranging from approximately $518 million to $3.2 billion on an undiscounted basis.

In March 2016, the EPA released its Record of Decision (ROD) for the EPA’s own Focused Feasibility Study (FFS) which requires the removal of 3.5 million cubic yards of sediment from the Passaic River’s lower 8.3 miles at an estimated cost of $2.3 billion on an undiscounted basis (ROD Remedy). The EPA estimated the total project length to be about 11 years, including a one year period of negotiation with the PRPs, three to four years to design the project and six years for implementation. Occidental Chemical Corporation (OCC), one of the PRPs, has commenced performance of the remedial design required by the ROD Remedy, reserving its right of cost contribution from all other PRPs.

In September 2017, the EPA concluded that an Agency-commenced allocation process for the Passaic River’s lower 8.3 miles should include only certain PRPs. The allocation is intended to lead to a consent decree in which certain of the PRPs agree to perform and pay for the remedial action under EPA oversight. Due to delays from the partial federal government shutdown in late 2018 through early 2019, the timeline for completing the allocation process has been delayed.

In October 2018, the EPA Region 2 issued a Directive to the CPG instructing the CPG to focus the ongoing RI/FS evaluation on various adaptive management scenarios for remediation of the upper 9 miles of the Passaic River, which approach has been agreed to in concept by the EPA and the CPG. The Directive does not contain estimates for anticipated costs. Adaptive management focuses on removing targeted “hot spots” of contaminated sediments rather than removing all of the Passaic River’s sediments as in a “bank to bank” approach.

In a separate matter, two PRPs, Tierra Solutions, Inc. (Tierra) and Maxus Energy Corporation (Maxus), filed for Chapter 11 bankruptcy in Delaware Federal Bankruptcy Court. In June 2018, the trust representing the creditors in this proceeding filed a complaint asserting claims against the current and former parent entities of Tierra and Maxus, among other parties, for up to $14 billion. Any damages awarded may be used to fund, in part, the remediation costs of the lower 8.3 miles of the Passaic River. The creditor trust has reserved its right to file contribution claims against 28 PRPs, including PSEG. This matter is ongoing.

In June 2018, OCC filed a complaint in Federal District Court in Newark against various defendants, including PSE&G, seeking cost recovery and contribution under CERCLA for the remediation of the lower 8.3 miles of the Passaic River. The complaint does not quantify damages sought.

The Complaint alleges that “no single hazardous substance” is to blame for the contamination of the lower Passaic River and lists the eight Contaminants of Concern (COCs) identified by the EPA in the ROD. OCC alleges PSE&G is responsible for a portion of six of the eight COCs. PSE&G cannot predict the outcome of this matter.

Based upon the estimated cost of the ROD Remedy and PSEG’s estimate of PSE&G’s and Power’s shares of that cost, as of December 31, 2018, PSEG has accrued approximately $57 million. Of this amount, PSE&G has accrued $46 million as an Environmental Costs Liability and a corresponding Regulatory Asset based on its continued ability to recover such costs in its rates. Power has accrued $11 million as an Other Noncurrent Liability with the corresponding O&M Expense recorded in prior years when the liability was accrued.

The EPA has broad authority to implement its selected remedy through the ROD and PSEG cannot at this time predict how the implementation of the ROD might impact PSE&G’s and Power’s ultimate liability. Until (i) the RI/FS, which covers the entire 17 miles of the lower Passaic River, is finalized either in whole or in part, (ii) an agreement by the PRPs to perform either the ROD Remedy as issued, or an amended ROD Remedy determined through negotiation or litigation, and an agreed upon remedy for the remaining 8.7 miles of the river, are reached, (iii) PSE&G’s and Power’s respective shares of the costs, both in the aggregate as well as individually, are determined, and (iv) PSE&G’s continued ability to recover the costs in its rates is determined, it is not possible to predict this matter’s ultimate impact on PSEG’s financial statements. It is possible that PSE&G and Power will record additional costs beyond what they have accrued, and that such costs could be material, but PSEG cannot at the current time estimate the amount or range of any additional costs.

Natural Resource Damage Claims

In 2003, the New Jersey Department of Environmental Protection (NJDEP) directed PSEG, PSE&G and 56 other PRPs to arrange for a natural resource damage assessment and interim compensatory restoration of natural resource injuries along the lower Passaic River and its tributaries pursuant to the New Jersey Spill Compensation and Control Act. The NJDEP alleged that hazardous substances had been discharged from the Essex Site and the Harrison Site. The NJDEP estimated the cost of interim natural resource injury restoration activities along the lower Passaic River at approximately $950 million. In 2007, agencies of the U.S. Department of Commerce and the U.S. Department of the Interior (the Passaic River federal trustees) sent letters to PSE&G and other PRPs inviting participation in an assessment of injuries to natural resources that the agencies intended to perform. In 2008, PSEG and a number of other PRPs agreed to share certain immaterial costs the trustees have incurred and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

will incur going forward, and to work with the trustees to explore whether some or all of the trustees’ claims can be resolved in a cooperative fashion. That effort is continuing. PSE&G and Power are unable to estimate their respective portions of the possible loss or range of loss related to this matter.

Newark Bay Study Area

The EPA has established the Newark Bay Study Area, which it defines as Newark Bay and portions of the Hackensack River, the Arthur Kill and the Kill Van Kull. In August 2006, the EPA sent PSEG and 11 other entities notices that it considered each of the entities to be a PRP with respect to contamination in the Study Area. The notice letter requested that the PRPs fund an EPA-approved study in the Newark Bay Study Area. The notice stated the EPA’s belief that hazardous substances were released from sites owned by PSEG companies and located on the Hackensack River, including two electric generating stations (Hudson and Kearny sites) and one former MGP site. PSEG has participated in and partially funded the second phase of this study. Notices to fund the next phase of the study have been received but PSEG has not consented to fund the third phase. PSE&G and Power are unable to estimate their respective portions of the possible loss or range of loss related to this matter. In December 2018, Power completed the sale of the site of the Hudson electric generating station. Power transferred all land rights and structures on the site to a third party purchaser, along with the assumption of the environmental liabilities for the site.

MGP Remediation Program

PSE&G is working with the NJDEP to assess, investigate and remediate environmental conditions at its former MGP sites. To date, 38 sites requiring some level of remedial action have been identified. Based on its current studies, PSE&G has determined that the estimated cost to remediate all MGP sites to completion could range between $321 million and $366 million on an undiscounted basis through 2021, including its $46 million share for the Passaic River as discussed above. Since no amount within the range is considered to be most likely, PSE&G has recorded a liability of $321 million as of December 31, 2018. Of this amount, $56 million was recorded in Other Current Liabilities and $265 million was reflected as Environmental Costs in Noncurrent Liabilities. PSE&G has recorded a $321 million Regulatory Asset with respect to these costs. PSE&G periodically updates its studies taking into account any new regulations or new information which could impact future remediation costs and adjusts its recorded liability accordingly. NJDEP, PSEG and EPA representatives have had discussions regarding to what extent sampling in the Passaic River is required to delineate coal tar from MGP sites that abut the Passaic River Superfund site. PSEG cannot determine at this time whether this will have an impact on the Passaic River Superfund remedy.

Clean Water Act (CWA) Permit Renewals

Pursuant to the Federal Water Pollution Control Act, National Pollutant Discharge Elimination System permits expire within five years of their effective date. In order to renew these permits, but allow a plant to continue to operate, an owner or operator must file a permit application no later than six months prior to expiration of the permit. States with delegated federal authority for this program manage these permits. The NJDEP manages the permits under the New Jersey Pollutant Discharge Elimination System (NJPDES) program. Connecticut and New York also have permits to manage their respective pollutant discharge elimination system programs.

In May 2014, the EPA issued a final cooling water intake rule that establishes requirements for the regulation of cooling water intakes at existing power plants and industrial facilities with a design flow of more than two million gallons of water per day.

The EPA has structured the rule so that each state Permitting Director will continue to consider renewal permits for existing

power facilities on a case by case basis, based on studies related to impingement mortality and entrainment by the facilities seeking renewal permits.

Several environmental organizations and certain energy industry groups have filed suit under the CWA and the Endangered Species Act. The cases were consolidated at the Second Circuit, and in July 2018 the Second Circuit upheld the EPA’s final cooling water intake rule. The Court’s decision allows Permitting Directors to continue to issue permits in accordance with the flexible, site-specific provisions of the final rule.

In June 2016, the NJDEP issued a final NJPDES permit for Salem. The final permit does not mandate specific service water system modifications, but consistent with Section 316 (b) of the CWA, it requires additional studies and the selection of technology to address impingement for the service water system. In July 2016, the Delaware Riverkeeper Network (Riverkeeper) filed a request challenging the NJDEP’s issuance of the final NJPDES renewal permit for Salem. NJDEP has granted the hearing request, but it has not yet been scheduled. The Riverkeeper’s filing does not change the effective date of the permit. If the Riverkeeper’s challenge were successful, Power may be required to incur additional costs to comply with the CWA. Potential cooling water system modification costs could be material and could adversely impact the economic competitiveness of this facility.

State permitting decisions at Bridgeport and possibly New Haven could also have a material impact on Power’s ability to renew permits at its existing larger once-through cooled plants without making significant upgrades to existing intakes and cooling systems.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Power is unable to predict the outcome of these permitting decisions and the effect, if any, that they may have on Power’s future capital requirements, financial condition or results of operations.

Power is actively engaged with the Connecticut Department of Energy and Environmental Protection (CTDEEP) regarding renewal of the current permit for the cooling water intake structure at Bridgeport Harbor Station Unit 3 (BH3). To address compliance with the EPA’s CWA Section 316(b) final rule, Power has proposed to continue to operate BH3 without making the capital expenditures for modification to the existing intake structure and retire BH3 in 2021, which is four years earlier than the previously estimated useful life ending in 2025. Power is currently awaiting action by the CTDEEP to issue a draft and then a final permit.

Power has entered into a Community Environmental Benefit Agreement (CEBA) with the City of Bridgeport, Connecticut and local community organizations. That CEBA provides that Power would retire BH3 early if all of its conditions precedent occur, which include receipt of all final permits to build and operate a proposed new combined cycle generating facility on the same site that BH3 currently operates. Absent those conditions being met, and the permit for the cooling water intake structure referred to above not being issued, Power may seek to operate BH3 through the previously estimated useful life.

In February 2016, the proposed new generating facility at Bridgeport Harbor was awarded a capacity obligation. The Connecticut Siting Council issued an order to approve siting Bridgeport Harbor Station Unit 5. Operations are expected to begin in mid-2019. Power’s obligations under the CEBA are being monitored regularly and carried out as needed.

Jersey City, New Jersey Subsurface Feeder Cable Matter

In October 2016, a discharge of dielectric fluid from subsurface feeder cables located in the Hudson River near Jersey City, New Jersey, was identified and reported to the NJDEP. The feeder cables are located within a subsurface easement granted to PSE&G by the property owners, Newport Associates Development Company (NADC) and Newport Associates Phase I Developer Limited Partnership. The feeder cables are subject to agreements between PSE&G and Consolidated Edison Company of New York, Inc. (Con Edison) and are jointly owned by PSE&G and Con Edison, with PSE&G owning the portion of the cables located in New Jersey and Con Edison owning the portion of the cables located in New York. The NJDEP declared an emergency and an emergency response action was undertaken to investigate, contain, remediate and stop the fluid discharge; to assess, repair and restore the cables to good working order, if feasible; and to restore the property. The regulatory agencies overseeing the emergency response, including the U.S. Coast Guard, the NJDEP and the Army Corps of Engineers, issued multiple notices, orders and directives to the various parties related to this matter and the parties may also be subject to the assessment of civil penalties related to the discharge and response. The U.S. Coast Guard transitioned control of the federal response to the EPA in May 2018. In August 2018, the EPA ended the federal response to the matter. The response has now transitioned to the NJDEP site remediation program.

The impacted cable was repaired in late September 2017; however, small amounts of residual dielectric fluid believed to be contained within the marina sediment continue to appear on the surface and response actions related to the fluid discharge are ongoing, although at a significantly reduced scale. PSE&G remains concerned about future leaks and potential environmental impacts as a result of reintroduction of fluid back into these lines and has determined that retirement of the affected facilities is appropriate. PSE&G has been unable to reach an agreement with Con Edison and, as a result, in May 2018, PSE&G filed an action at FERC to resolve the matter. FERC dismissed PSE&G’s Complaint against Con Edison in September 2018 and PSE&G has challenged FERC’s decision. Also ongoing is the lawsuit in federal court to determine ultimate responsibility for the costs to address the leak among PSE&G, Con Edison and NADC. In addition, Con Edison filed counter claims against PSE&G and NADC, including seeking injunctive relief and damages. Based on the information currently available and depending on the outcome of the federal court action, PSE&G’s portion of the costs to address the leak may be material; however, PSE&G anticipates that it will recover these costs through regulatory proceedings.

Steam Electric Effluent Guidelines

In September 2015, the EPA issued a new Effluent Limitation Guidelines Rule (ELG Rule) for steam electric generating units. The rule establishes new best available technology economically achievable (BAT) standards for fly ash transport water, bottom ash transport water, flue gas desulfurization and flue gas mercury control wastewater. Power’s Bridgeport Harbor station and the jointly-owned Keystone and Conemaugh stations, have bottom ash transport water discharges that are regulated under the ELG Rule. Keystone and Conemaugh also have flue gas desulfurization wastewaters regulated by the ELG Rule.

Through various orders, the EPA has stayed the compliance dates in the ELG Rule and has announced plans to further revise the requirements and compliance dates of the ELG Rule. Power is unable to determine how this will ultimately impact its compliance requirements or its financial condition and results of operations.

Basic Generation Service (BGS) and Basic Gas Supply Service (BGSS)

PSE&G obtains its electric supply requirements through the annual New Jersey BGS auctions for two categories of customers who choose not to purchase electric supply from third-party suppliers. The first category, which represents about 80% of PSE&G’s load requirement, is residential and smaller commercial and industrial customers (BGS-Residential Small

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commercial Pricing (RSCP)). The second category is larger customers that exceed a BPU-established load (kW) threshold (BGS-Commercial and Industrial Energy Pricing (CIEP)). Pursuant to applicable BPU rules, PSE&G enters into the Supplier Master Agreement with the winners of these BGS auctions following the BPU’s approval of the auction results. PSE&G has entered into contracts with winning BGS suppliers, including Power, to purchase BGS for PSE&G’s load requirements. The winners of the auction (including Power) are responsible for fulfilling all the requirements of a PJM Load-Serving Entity including the provision of capacity, energy, ancillary services, transmission and any other services required by PJM. BGS suppliers assume all volume risk and customer migration risk and must satisfy New Jersey’s renewable portfolio standards.

The BGS-CIEP auction is for a one-year supply period from June 1 to May 31 with the BGS-CIEP auction price measured in dollars per MW-day for capacity. The final price for the BGS-CIEP auction year commencing June 1, 2019 is $281.78 per MW-day, replacing the BGS-CIEP auction year price ending May 31, 2019 of $287.76 per MW-day. Energy for BGS-CIEP is priced at hourly PJM locational marginal prices for the contract period.

PSE&G contracts for its anticipated BGS-RSCP load on a three-year rolling basis, whereby each year one-third of the load is procured for a three-year period. The contract prices in dollars per MWh for the BGS-RSCP supply, as well as the approximate load, are as follows:

		Auction Year
		2016			2017			2018			2019
	36-Month Terms Ending	May 2019			May 2020			May 2021			May 2022		(A)
	Load (MW)	2,800			2,800			2,900			2,800
	$ per MWh	$96.38			$90.78			$91.77			$98.04

(A)	Prices set in the 2019 BGS auction will become effective on June 1, 2019 when the 2016 BGS auction agreements expire.

Power seeks to mitigate volatility in its results by contracting in advance for the sale of most of its anticipated electric output as well as its anticipated fuel needs. As part of its objective, Power has entered into contracts to directly supply PSE&G and other New Jersey electric distribution companies with a portion of their respective BGS requirements through the New Jersey BGS auction process, described above.

PSE&G has a full-requirements contract with Power to meet the gas supply requirements of PSE&G’s gas customers. Power has entered into hedges for a portion of these anticipated BGSS obligations, as permitted by the BPU. The BPU permits PSE&G to recover the cost of gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. Current plans call for Power to hedge on behalf of PSE&G approximately 70 billion cubic feet or 50% of its residential gas supply annual requirements. For additional information, see Note 25. Related-Party Transactions.

Minimum Fuel Purchase Requirements

Power’s nuclear fuel strategy is to maintain certain levels of uranium and to make periodic purchases to support such levels. As such, the commitments referred to in the following table may include estimated quantities to be purchased that deviate from contractual nominal quantities. Power’s nuclear fuel commitments cover approximately 100% of its estimated uranium, enrichment and fabrication requirements through 2020 and a significant portion through 2021 at Salem, Hope Creek and Peach Bottom.

Power has various multi-year contracts for natural gas and firm transportation and storage capacity for natural gas that are primarily used to meet its obligations to PSE&G. When there is excess delivery capacity available beyond the needs of PSE&G’s customers, Power can use the gas to supply its fossil generating stations in New Jersey.

Power also has various long-term fuel purchase commitments for coal through 2023 to support its fossil generation stations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018, the total minimum purchase requirements included in these commitments were as follows:

	Fuel Type		Power's Share of Commitments through 2023
			Millions
	Nuclear Fuel
	Uranium		$	222
	Enrichment		$	358
	Fabrication		$	167
	Natural Gas		$	1,102
	Coal		$	429

Pending FERC Matters

In June 2015, Transource LLC, a merchant transmission developer, filed a complaint against PJM claiming that PJM wrongfully refused to provide data and a transparent process for evaluating transmission network upgrade requests that the transmission developer had submitted to PJM. Although not named as a respondent, the complaint identifies PSE&G as one of the companies claimed to have been involved. In January 2018, a FERC administrative law judge (ALJ) issued an order generally finding that PJM and transmission owners, including PSE&G, did not engage in wrongful conduct. In addition, the developer’s assertion of an entitlement to monetary damages was expressly denied. However, in a determination disputed by PSE&G, the order found that the PJM process lacked transparency. The judge’s order has been briefed by all parties for additional determinations by FERC. We are unable to predict the outcome of these proceedings.

Subsequent to the ALJ decision, PSE&G received requests for information from FERC’s Office of Enforcement concerning a transmission project. PSE&G is complying with these requests and cannot predict the outcome of this matter.

Litigation

Sewaren 7 Construction

In June 2018, a complaint was filed in federal court in Newark, New Jersey against PSEG Fossil LLC, a wholly owned subsidiary of Power, regarding an ongoing dispute with Durr Mechanical Construction, Inc. (Durr), a contractor on the Sewaren 7 project. Among other things, Durr seeks damages of $93 million and alleges that Power withheld money owed to Durr and that Power’s intentional conduct led to the inability of Durr to obtain prospective contracts. Power intends to vigorously defend against these allegations. In December 2018, Durr filed for Chapter 11 bankruptcy in the federal court in the Southern District of New York (SDNY). The SDNY bankruptcy court has allowed the New Jersey litigation to proceed. Power has accrued an amount related to outstanding invoices which does not reflect an assessment of claims and potential counterclaims in this matter. Due to its preliminary nature, Power cannot predict the outcome of this matter.

Newark Customer Incident

On the morning of July 5, 2018, PSE&G discontinued electricity to the home of a customer residing in Newark because of outstanding arrears on that customer’s account. Subsequent to the discontinuation of electricity, that customer died on the afternoon of July 5th. The family of the customer, who was on hospice care, raised allegations in the media regarding PSE&G’s conduct surrounding the discontinuation and restoration of electricity to the home of the customer, claiming that the discontinuation of electric service prevented the customer from using life sustaining medical equipment. The BPU initiated an investigation into the matter and that investigation is ongoing. In addition, PSE&G received a grand jury subpoena from the Essex County Prosecutor’s Office (ECPO) for records and correspondence between PSE&G and the customer. PSE&G is fully cooperating with the BPU and the ECPO in both proceedings. PSEG cannot predict the outcome of the pending proceedings regarding this incident at this time.

The PSEG Board of Directors (PSEG Board) retained outside counsel to conduct an independent investigation of the facts surrounding this incident with the full support and cooperation of management. The independent investigation concluded that the disconnection itself was not improper; however, it did identify issues related to PSE&G’s response once it was notified of the disconnection. The PSEG Board reviewed and considered the findings and conclusions of the investigation and PSE&G’s proposed corrective actions. PSE&G’s progress on implementation of the corrective actions will continue to be overseen by the PSEG Board.

Caithness Energy, L.L.C. (Caithness)

In August 2018, Caithness, a Long Island power plant developer, filed a complaint in federal district court in the Eastern District of New York against PSEG and PSEG LI alleging violations of state and federal antitrust laws and a claim of intentional interference of prospective business relations. Caithness alleges that PSEG and PSEG LI interfered with LIPA’s

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consideration of the Caithness proposal for a 750 MW combined cycle generation project that was identified as a finalist for a Request For Proposal issued by LIPA. In addition, Caithness claims that PSEG and PSEG LI induced LIPA to agree to eliminate the proposed project as a potential competitor to other PSEG affiliates with power supply operations. The complaint alleges hundreds of millions of dollars of harm and seeks treble and punitive damages. PSEG intends to vigorously defend against these allegations. Based upon the preliminary nature of this matter, a loss is not considered probable nor is the amount of loss, if any, estimable as of December 31, 2018.

Transource LLC (Transource)

In January 2019, Transource filed a complaint against PJM, PSE&G and three other transmission owners in Pennsylvania state court. Transource has sued the transmission owner defendants for fraud and intentional misrepresentation relating to information provided to PJM and FERC regarding the costs of upgrades for Transource’s proposed project. These allegations appear to be based on alleged conduct that is the subject of the pending FERC proceeding discussed under “Pending FERC Matters.” Based upon the preliminary nature of this matter, a loss is not considered probable nor is the amount of loss, if any, estimable as of December 31, 2018.

Other Litigation and Legal Proceedings

PSEG and its subsidiaries are party to various lawsuits in the ordinary course of business. In view of the inherent difficulty in predicting the outcome of such matters, PSEG, PSE&G and Power generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of these matters, or the eventual loss, fines or penalties related to each pending matter.

In accordance with applicable accounting guidance, a liability is accrued when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. PSEG will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.

Based on current knowledge, management does not believe that loss contingencies arising from pending matters, other than the matters described herein, could have a material adverse effect on PSEG’s, PSE&G’s or Power’s consolidated financial position or liquidity. However, in light of the inherent uncertainties involved in these matters, some of which are beyond PSEG’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to PSEG’s, PSE&G’s or Power’s results of operations or liquidity for any particular reporting period.

Nuclear Insurance Coverages and Assessments

Power is a member of the joint underwriting association, American Nuclear Insurers (ANI), which provides nuclear liability insurance coverage at the Salem and Hope Creek site and the Peach Bottom site. The ANI policies are designed to satisfy the financial protection requirements outlined in the Price-Anderson Act, which sets the limit of liability for claims that could arise from an incident involving any licensed nuclear facility in the United States. The limit of liability per incident per site is composed of primary and excess layers. As of December 31, 2018, nuclear sites were required to purchase $450 million of primary liability coverage for each site (through ANI). The primary layer is supplemented by an excess layer, which is an industry self-insurance pool. In the event a nuclear site, which is part of the industry self-insurance pool, has a claim that exceeds the primary layer, each licensee would be assessed a prorated share of the excess layer. The excess layer limit is $13.6 billion. Power’s maximum aggregate assessment per incident is $433 million (based on Power’s ownership interests in Salem, Hope Creek and Peach Bottom) and its maximum aggregate annual assessment per incident is $65 million. If the damages exceed the limit of liability, Congress could impose further revenue-raising measures on the nuclear industry to pay claims. Further, a decision by the U.S. Supreme Court, not involving Power, held that the Price-Anderson Act did not preclude punitive damage awards based on state law claims.

Power is also a member of an industry mutual insurance company, Nuclear Electric Insurance Limited (NEIL), which provides the property, decontamination and decommissioning liability insurance at the Salem and Hope Creek site and the Peach Bottom site. NEIL also provides replacement power coverage through its accidental outage policy. NEIL policies may make retrospective premium assessments in the case of adverse loss experience. The current maximum aggregate annual retrospective premium obligation for Power is approximately $62 million. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium, or some other means of assurance. Certain provisions in the NEIL policies provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on that site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit down.

The ANI and NEIL policies all include coverage for claims arising out of acts of terrorism. However, NEIL policies are subject to an industry aggregate limit of $3.2 billion plus such additional amounts as NEIL recovers for such losses from reinsurance, indemnity and any other source applicable to such losses.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Minimum Lease Payments

The total future minimum payments under various operating leases as of December 31, 2018 are:

			PSE&G				Power				Services				Other				Total
			Millions
	2019		$	15			$	11			$	14			$	1			$	41
	2020		11				13				14				2				40
	2021		10				13				15				1				39
	2022		8				14				15				1				38
	2023		8				8				15				—				31
	Thereafter		66				51				105				—				222
	Total Minimum Lease Payments		$	118			$	110			$	178			$	5			$	411

Note 15. Debt and Credit Facilities

Long-Term Debt

					As of December 31,
			Maturity		2018				2017
					Millions
	PSEG
	Term Loan:
	Variable		2019		$	350			$	700
	Variable		2020		700				—
	Total Term Loan				1,050				700
	Senior Notes:
	1.60%		2019		400				400
	2.00%		2021		300				300
	2.65%		2022		700				700
	Total Senior Notes				1,400				1,400
	Principal Amount Outstanding				2,450				2,100
	Amounts Due Within One Year				(750		)		—
	Net Unamortized Discount and Debt Issuance Costs				(7		)		(9		)
	Total Long-Term Debt of PSEG				$	1,693			$	2,091

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

`

					As of December 31,
			Maturity		2018				2017
					Millions
	PSE&G
	First and Refunding Mortgage Bonds (A):
	9.25%		2021		$	134			$	134
	8.00%		2037		7				7
	5.00%		2037		8				8
	Total First and Refunding Mortgage Bonds				149				149
	Medium-Term Notes (MTNs) (A):
	5.30%		2018		—				400
	2.30%		2018		—				350
	1.80%		2019		250				250
	2.00%		2019		250				250
	3.50%		2020		250				250
	7.04%		2020		9				9
	1.90%		2021		300				300
	2.38%		2023		500				500
	3.25%		2023		325				—
	3.75%		2024		250				250
	3.15%		2024		250				250
	3.05%		2024		250				250
	3.00%		2025		350				350
	2.25%		2026		425				425
	3.00%		2027		425				425
	3.70%		2028		375				—
	3.65%		2028		325				—
	5.25%		2035		250				250
	5.70%		2036		250				250
	5.80%		2037		350				350
	5.38%		2039		250				250
	5.50%		2040		300				300
	3.95%		2042		450				450
	3.65%		2042		350				350
	3.80%		2043		400				400
	4.00%		2044		250				250
	4.05%		2045		250				250
	4.15%		2045		250				250
	3.80%		2046		550				550
	3.60%		2047		350				350
	4.05%		2048		325				—
	Total MTNs				9,109				8,509
	Principal Amount Outstanding				9,258				8,658
	Amounts Due Within One Year				(500		)		(750		)
	Net Unamortized Discount and Debt Issuance Costs				(74		)		(67		)
	Total Long-Term Debt of PSE&G				$	8,684			$	7,841

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

					As of December 31,
			Maturity		2018				2017
					Millions
	Power
	Senior Notes:
	2.45%		2018		$	—			$	250
	5.13%		2020		406				406
	3.00%		2021		700				700
	4.15%		2021		250				250
	3.85%		2023		700				—
	4.30%		2023		250				250
	8.63%		2031		500				500
	Total Senior Notes				2,806				2,356
	Pollution Control Notes:
	Floating Rate (B)		2019		44				44
	Total Pollution Control Notes				44				44
	Principal Amount Outstanding				2,850				2,400
	Amounts Due Within One Year				(44		)		(250		)
	Net Unamortized Discount and Debt Issuance Costs				(15		)		(14		)
	Total Long-Term Debt of Power				$	2,791			$	2,136

(A)	Secured by essentially all property of PSE&G pursuant to its First and Refunding Mortgage.

(B)	The Pennsylvania Economic Development Authority (PEDFA) bond that is serviced and secured by Power Pollution Control Notes is a variable rate bond that is in weekly reset mode.

Long-Term Debt Maturities

The aggregate principal amounts of maturities for each of the five years following December 31, 2018 are as follows:

	Year		PSEG				PSE&G				Power				Total
	2019		$	750			$	500			$	44			$	1,294
	2020		700				259				406				1,365
	2021		300				434				950				1,684
	2022		700				—				—				700
	2023		—				825				950				1,775
	Thereafter		—				7,240				500				7,740
	Total		$	2,450			$	9,258			$	2,850			$	14,558

Long-Term Debt Financing Transactions

During 2018, PSEG and its subsidiaries had the following Long-Term Debt issuances, maturities and redemptions:

PSEG

•	entered into an agreement for a new term loan maturing November 2020. The term loan has a balance of $700 million at an interest rate of 1 month LIBOR + 0.60% and can be terminated at any time without penalty, and

•	redeemed $350 million of a $700 million term loan at an interest rate of 1 month LIBOR + 0.80% maturing June 2019.

PSE&G

•	issued $375 million of 3.70% Secured Medium-Term Notes, Series M, due May 2028,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•	issued $325 million of 4.05% Secured Medium-Term Notes, Series M, due May 2048,

•	issued $325 million of 3.25% Secured Medium-Term Notes, Series M, due September 2023,

•	issued $325 million of 3.65% Secured Medium-Term Notes, Series M, due September 2028,

•	retired $400 million of 5.30% Medium-Term Notes at maturity, and

•	retired $350 million of 2.30% Medium-Term Notes at maturity.

Power

•	issued $700 million of 3.85% Senior Notes due June 2023, and

•	retired $250 million of 2.45% Senior Notes at maturity.

Short-Term Liquidity

PSEG meets its short-term liquidity requirements, as well as those of Power, primarily with cash and through the issuance of commercial paper. PSE&G maintains its own separate commercial paper program to meet its short-term liquidity requirements. Each commercial paper program is fully back-stopped by its own separate credit facilities.

The commitments under the $4.2 billion credit facilities are provided by a diverse bank group. As of December 31, 2018, the total available credit capacity was $3.0 billion.

As of December 31, 2018, no single institution represented more than 9% of the total commitments in the credit facilities.

As of December 31, 2018, the total credit capacity was in excess of the anticipated maximum liquidity requirements over PSEG’s 12-month planning horizon.

Each of the credit facilities is restricted as to availability and use to the specific companies as listed in the following table; however, if necessary, the PSEG facilities can also be used to support our subsidiaries’ liquidity needs.

The total credit facilities and available liquidity as of December 31, 2018 were as follows:

			As of December 31, 2018
	Company/Facility		Total Facility				Usage				Available Liquidity				Expiration Date		Primary Purpose
			Millions
	PSEG
	5-year Credit Facilities (A)		$	1,500			$	759			$	741			Mar 2022		Commercial Paper Support/Funding/Letters of Credit
	Total PSEG		$	1,500			$	759			$	741
	PSE&G
	5-year Credit Facility (A)		$	600			$	288			$	312			Mar 2022		Commercial Paper Support/Funding/Letters of Credit
	Total PSE&G		$	600			$	288			$	312
	Power
	3-year Letter of Credit Facilities		$	200			$	114			$	86			Sept 2021		Letters of Credit
	5-year Credit Facilities		1,900				40				1,860				Mar 2022		Funding/Letters of Credit
	Total Power		$	2,100			$	154			$	1,946
	Total		$	4,200			$	1,201			$	2,999

(A)	The primary use of PSEG’s and PSE&G’s credit facilities is to support their respective Commercial Paper Programs under which as of December 31, 2018, PSEG had $744 million outstanding at a weighted average interest rate of 2.95%. PSE&G had $272 million outstanding at a weighted average interest rate of 2.96% under its Commercial Paper Program as of December 31, 2018.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Debt

The estimated fair values, carrying amounts and methods used to determine fair value of long-term debt as of December 31, 2018 and 2017 are included in the following table and accompanying notes as of December 31, 2018 and 2017. See Note 18. Fair Value Measurements for more information on fair value guidance and the hierarchy that prioritizes the inputs to fair value measurements into three levels.

			December 31, 2018								December 31, 2017
			Carrying Amount				Fair Value				Carrying Amount				Fair Value
			Millions
	Long-Term Debt:
	PSEG (A) (B)		$	2,443			$	2,397			$	2,091			$	2,081
	PSE&G (B)		9,184				9,374				8,591				9,322
	Power (B)		2,835				2,996				2,386				2,659
	Total Long-Term Debt		$	14,462			$	14,767			$	13,068			$	14,062

(A)	As of December 31, 2018 and 2017, fair value includes floating rate term loans of $1,050 million and $700 million, respectively. The fair value of the term loan debt (Level 2 measurement) approximates the carrying value because the interest payments are based on LIBOR rates that are reset monthly and the debt is redeemable at face value by PSEG at any time.

(B)

Given that these bonds do not trade actively, the fair value amounts of taxable debt securities (primarily Level 2 measurements) are generally determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. In order to incorporate the credit risk into the discount rates, pricing is obtained (i.e. U.S. Treasury rate plus credit spread) based on expected new issue pricing across each of the companies’ respective debt maturity spectrum. The credit spreads of various tenors obtained from this information are added to the appropriate benchmark U.S. Treasury rates in order to determine the current market yields for the various tenors. The yields are then converted into discount rates of various tenors that are used for discounting the respective cash flows of the same tenor for each bond or note.

Note 16. Schedule of Consolidated Capital Stock

			As of December 31,
			Outstanding Shares						Book Value
			2018			2017			2018				2017
			Millions
	PSEG Common Stock (no par value) (A)
	Authorized 1,000 shares		504			505			$	4,172			$	4,198

(A)	PSEG did not issue any new shares under the Dividend Reinvestment and Stock Purchase Plan (DRASPP) or the Employee Stock Purchase Plan (ESPP) in 2018 or 2017.

As of December 31, 2018, PSE&G had an aggregate of 7.5 million shares of $100 par value and 10 million shares of $25 par value Cumulative Preferred Stock, which were authorized and unissued and which, upon issuance, may or may not provide for mandatory sinking fund redemption.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Financial Risk Management Activities

Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include NPNS, cash flow hedge and fair value hedge accounting. PSEG, Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow or fair value hedges. Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value.

Commodity Prices

Within PSEG and its affiliate companies, Power has the most exposure to commodity price risk. Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of Power’s expected generation. Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 14. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings.

Interest Rates

PSEG, Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps.

Fair Value Hedges

PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding interest rate swaps as of December 31, 2018 or 2017. The fair value hedges reduced interest expense by $6 million for the year ended December 31, 2016.

Cash Flow Hedges

PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments. PSEG interest rate hedges totaling $500 million were executed and terminated during the second quarter of 2018 and a loss of $(1) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of Power’s $700 million of 3.85% Senior Notes due June 2023. For additional information see Note 15. Debt and Credit Facilities. There were no outstanding interest rate hedges as of December 31, 2018 and December 31, 2017. The Accumulated Other Comprehensive Income (Loss) (after tax) related to existing and terminated interest rate derivatives designated as cash flow hedges was $(1) million as of December 31, 2018, immaterial as of December 31, 2017 and $2 million as of December 31, 2016. The after-tax unrealized gains (losses) on these hedges expected to be reclassified to earnings during the next 12 months is immaterial.

Fair Values of Derivative Instruments

The following are the fair values of derivative instruments on the Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Consolidated Balance Sheets of Power and PSEG. For additional information see Note 18. Fair Value Measurements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tabular disclosure does not include the offsetting of trade receivables and payables.

		As of December 31, 2018
		Power (A)													Consolidated
			Not Designated
	Balance Sheet Location		Energy- Related Contracts				Netting (B)				Total Power				Total Derivatives
		Millions
	Derivative Contracts
	Current Assets		$	426			$	(415	)		$	11			$	11
	Noncurrent Assets		137				(136		)		1				1
	Total Mark-to-Market Derivative Assets		$	563			$	(551	)		$	12			$	12
	Derivative Contracts
	Current Liabilities		$	(521	)		$	510			$	(11	)		$	(11	)
	Noncurrent Liabilities		(198		)		194				(4		)		(4		)
	Total Mark-to-Market Derivative (Liabilities)		$	(719	)		$	704			$	(15	)		$	(15	)
	Total Net Mark-to-Market Derivative Assets (Liabilities)		$	(156	)		$	153			$	(3	)		$	(3	)

		As of December 31, 2017
		Power (A)													Consolidated
			Not Designated
	Balance Sheet Location		Energy- Related Contracts				Netting (B)				Total Power				Total Derivatives
		Millions
	Derivative Contracts
	Current Assets		$	391			$	(362	)		$	29			$	29
	Noncurrent Assets		78				(71		)		7				7
	Total Mark-to-Market Derivative Assets		$	469			$	(433	)		$	36			$	36
	Derivative Contracts
	Current Liabilities		$	(403	)		$	387			$	(16	)		$	(16	)
	Noncurrent Liabilities		(95		)		90				(5		)		(5		)
	Total Mark-to-Market Derivative (Liabilities)		$	(498	)		$	477			$	(21	)		$	(21	)
	Total Net Mark-to-Market Derivative Assets (Liabilities)		$	(29	)		$	44			$	15			$	15

(A)	Substantially all of Power's derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of December 31, 2018 and 2017. PSE&G does not have any derivative contracts subject to master netting or similar agreements.

(B)

Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Consolidated Balance Sheets. As of December 31, 2018 and 2017, Power had net cash collateral/margin payments to counterparties of $393 million and $146 million, respectively. Of these net cash collateral/margin payments, $153 million as of December 31, 2018 and $44 million as of December 31, 2017 were netted against the corresponding net derivative contract positions. Of the $153 million as of December 31, 2018, $(2) million was netted against current assets, $(3) million was netted against noncurrent assets, $96 million was netted against current liabilities and $62 million was netted against noncurrent

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

liabilities. Of the $44 million as of December 31, 2017, $(3) million was netted against current assets, $28 million was netted against current liabilities and $19 million was netted against noncurrent liabilities.

Certain of Power’s derivative instruments contain provisions that require Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Power’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for Power would represent a three level downgrade from its current S&P or Moody’s ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. Power also enters into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements.

The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $22 million and $30 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, Power had the contractual right of offset of $7 million and $13 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $15 million and $17 million as of December 31, 2018 and 2017, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral.

The following shows the effect on the Consolidated Statements of Operations and on Accumulated Other Comprehensive Loss (AOCL) of derivative instruments designated as cash flow hedges for the years ended December 31, 2018, 2017 and 2016.

			Amount of Pre-Tax Gain (Loss) Recognized in AOCL on Derivatives (Effective Portion)												Location of Pre-Tax Gain (Loss) Reclassified from AOCL into Income		Amount of Pre-Tax Gain (Loss) Reclassified from AOCL into Income (Effective Portion)
	Derivatives in Cash Flow Hedging Relationships	Years Ended December 31,														Years Ended December 31,
			2018				2017				2016						2018				2017				2016
			Millions														Millions
	PSEG
	Interest Rate Swaps		$	(2	)		$	—			$	3			Interest Expense		$	—			$	3			$	—
	Total PSEG		$	(2	)		$	—			$	3					$	—			$	3			$	—

There were no pre-tax gains (losses) recognized in income on derivatives (ineffective portion) as of December 31, 2018, 2017 and 2016.

The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the AOCL of PSEG on a pre-tax and after-tax basis.

	Accumulated Other Comprehensive Income (Loss)		Pre-Tax				After-Tax
			Millions
	Balance as of December 31, 2016		$	3			$	2
	Gain Recognized in AOCI		—				—
	Less: Gain Reclassified into Income		(3		)		(2		)
	Balance as of December 31, 2017		$	—			$	—
	Loss Recognized in AOCI		(2		)		(1		)
	Less: Loss Reclassified into Income		—				—
	Balance as of December 31, 2018		$	(2	)		$	(1	)

The following shows the effect on the Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the years ended December 31, 2018, 2017 and 2016. Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel. The table does not include contracts which Power has designated as NPNS, such as its BGS contracts and certain other energy supply

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contracts that it has with other utilities and companies with retail load.

	Derivatives Not Designated as Hedges		Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives		Pre-Tax Gain (Loss) Recognized in Income on Derivatives
					Years Ended December 31,
					2018				2017				2016
					Millions
	PSEG and Power
	Energy-Related Contracts		Operating Revenues		$	(182	)		$	66			$	218
	Energy-Related Contracts		Energy Costs		(9		)		(11		)		4
	Total PSEG and Power				$	(191	)		$	55			$	222

The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of December 31, 2018 and 2017.

	Type		Notional		Total			PSEG			Power			PSE&G
			Millions
	As of December 31, 2018
	Natural Gas		Dth		358			—			358			—
	Electricity		MWh		(74	)		—			(74	)		—
	Financial Transmission Rights (FTRs)		MWh		18			—			18			—
	As of December 31, 2017
	Natural Gas		Dth		154			—			154			—
	Electricity		MWh		(63	)		—			(63	)		—
	FTRs		MWh		6			—			6			—

Credit Risk

Credit risk relates to the risk of loss that Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on Power’s and PSEG’s financial condition, results of operations or net cash flows.

The following table provides information on Power’s credit risk from wholesale counterparties, net of collateral, as of December 31, 2018. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of Power’s credit risk by credit rating of the counterparties.

As of December 31, 2018, 99% of the net credit exposure for Power’s operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).

	Rating		Current Exposure				Securities held as Collateral				Net Exposure				Number of Counterparties >10%			Net Exposure of Counterparties >10%
			Millions															Millions
	Investment Grade		$	264			$	12			$	252			1			$	179		(A)
	Non-Investment Grade		1				—				1				—			—
	Total		$	265			$	12			$	253			1			$	179

(A)	Represents net exposure with PSE&G.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018, collateral held from counterparties where Power had credit exposure includes $12 million in letters of credit.

As of December 31, 2018, Power had 151 active counterparties.

PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guaranty or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of December 31, 2018, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of December 31, 2018, PSE&G had no net credit exposure with suppliers, including Power.

PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.

Note 18. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance for fair value measurement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entity’s own assumptions. The hierarchy prioritizes the inputs to fair value measurement into three levels:

Level 1—measurements utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that PSEG, PSE&G and Power have the ability to access. These consist primarily of listed equity securities and money market mutual funds, as well as natural gas futures contracts executed on NYMEX.

Level 2—measurements include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs such as interest rates and yield curves that are observable at commonly quoted intervals. These consist primarily of non-exchange traded derivatives such as forward contracts or options and most fixed income securities.

Level 3—measurements use unobservable inputs for assets or liabilities, based on the best information available and might include an entity’s own data and assumptions. In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. As of December 31, 2018, these consisted primarily of certain electric load contracts and gas contracts.

Certain derivative transactions may transfer from Level 2 to Level 3 if inputs become unobservable and internal modeling techniques are employed to determine fair value. Conversely, measurements may transfer from Level 3 to Level 2 if the inputs become observable.

The following tables present information about PSEG’s, PSE&G’s and Power’s respective assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2018 and December 31, 2017, including the fair value measurements and the levels of inputs used in determining those fair values. Amounts shown for PSEG include the amounts shown for PSE&G and Power.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Recurring Fair Value Measurements as of December 31, 2018
	Description		Total				Netting (D)				Quoted Market Prices for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
			Millions
	PSEG
	Assets:
	Cash Equivalents (A)		$	100			$	—			$	100			$	—			$	—
	Derivative Contracts:
	Energy-Related Contracts (B)		$	12			$	(551	)		$	29			$	527			$	7
	NDT Fund (C)
	Equity Securities		$	900			$	—			$	898			$	2			$	—
	Debt Securities—U.S. Treasury		$	171			$	—			$	—			$	171			$	—
	Debt Securities—Govt Other		$	320			$	—			$	—			$	320			$	—
	Debt Securities—Corporate		$	487			$	—			$	—			$	487			$	—
	Rabbi Trust (C)
	Equity Securities		$	23			$	—			$	23			$	—			$	—
	Debt Securities—U.S. Treasury		$	69			$	—			$	—			$	69			$	—
	Debt Securities—Govt Other		$	40			$	—			$	—			$	40			$	—
	Debt Securities—Corporate		$	92			$	—			$	—			$	92			$	—
	Liabilities:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	(15	)		$	704			$	(36	)		$	(677	)		$	(6	)
	PSE&G
	Assets:
	Rabbi Trust (C)
	Equity Securities		$	5			$	—			$	5			$	—			$	—
	Debt Securities—U.S. Treasury		$	14			$	—			$	—			$	14			$	—
	Debt Securities—Govt Other		$	8			$	—			$	—			$	8			$	—
	Debt Securities—Corporate		$	18			$	—			$	—			$	18			$	—
	Power
	Assets:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	12			$	(551	)		$	29			$	527			$	7
	NDT Fund (C)
	Equity Securities		$	900			$	—			$	898			$	2			$	—
	Debt Securities—U.S. Treasury		$	171			$	—			$	—			$	171			$	—
	Debt Securities—Govt Other		$	320			$	—			$	—			$	320			$	—
	Debt Securities—Corporate		$	487			$	—			$	—			$	487			$	—
	Rabbi Trust (C)
	Equity Securities		$	6			$	—			$	6			$	—			$	—
	Debt Securities—U.S. Treasury		$	17			$	—			$	—			$	17			$	—
	Debt Securities—Govt Other		$	10			$	—			$	—			$	10			$	—
	Debt Securities—Corporate		$	23			$	—			$	—			$	23			$	—
	Liabilities:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	(15	)		$	704			$	(36	)		$	(677	)		$	(6	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Recurring Fair Value Measurements as of December 31, 2017
	Description		Total				Netting (D)				Quoted Market Prices for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
			Millions
	PSEG
	Assets:
	Cash Equivalents (A)		$	223			$	—			$	223			$	—			$	—
	Derivative Contracts:
	Energy-Related Contracts (B)		$	36			$	(433	)		$	15			$	442			$	12
	NDT Fund (C)
	Equity Securities		$	1,147			$	—			$	1,145			$	2			$	—
	Debt Securities—U.S. Treasury		$	314			$	—			$	—			$	314			$	—
	Debt Securities—Govt Other		$	270			$	—			$	—			$	270			$	—
	Debt Securities—Corporate		$	402			$	—			$	—			$	402			$	—
	Rabbi Trust (C)
	Equity Securities		$	27			$	—			$	27			$	—			$	—
	Debt Securities—U.S. Treasury		$	51			$	—			$	—			$	51			$	—
	Debt Securities—Govt Other		$	34			$	—			$	—			$	34			$	—
	Debt Securities—Corporate		$	119			$	—			$	—			$	119			$	—
	Liabilities:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	(21	)		$	477			$	(8	)		$	(485	)		$	(5	)
	PSE&G
	Assets:
	Cash Equivalents (A)		$	223			$	—			$	223			$	—			$	—
	Rabbi Trust (C)
	Equity Securities		$	5			$	—			$	5			$	—			$	—
	Debt Securities—U.S. Treasury		$	10			$	—			$	—			$	10			$	—
	Debt Securities—Govt Other		$	7			$	—			$	—			$	7			$	—
	Debt Securities—Corporate		$	24			$	—			$	—			$	24			$	—
	Power
	Assets:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	36			$	(433	)		$	15			$	442			$	12
	NDT Fund (C)
	Equity Securities		$	1,147			$	—			$	1,145			$	2			$	—
	Debt Securities—U.S. Treasury		$	314			$	—			$	—			$	314			$	—
	Debt Securities—Govt Other		$	270			$	—			$	—			$	270			$	—
	Debt Securities—Corporate		$	402			$	—			$	—			$	402			$	—
	Rabbi Trust (C)
	Equity Securities		$	6			$	—			$	6			$	—			$	—
	Debt Securities—U.S. Treasury		$	13			$	—			$	—			$	13			$	—
	Debt Securities—Govt Other		$	8			$	—			$	—			$	8			$	—
	Debt Securities—Corporate		$	30			$	—			$	—			$	30			$	—
	Liabilities:
	Derivative Contracts:
	Energy-Related Contracts (B)		$	(21	)		$	477			$	(8	)		$	(485	)		$	(5	)

(A)	Represents money market mutual funds.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(B)	Level 1—These contracts represent natural gas futures contracts executed on NYMEX, and are being valued solely on settled pricing inputs which come directly from the exchange.

Level 2—Fair values for energy-related contracts are obtained primarily using a market-based approach. Most derivative contracts (forward purchase or sale contracts and swaps) are valued using settled prices from similar assets and liabilities from an exchange, such as NYMEX, ICE and Nodal Exchange, or auction prices. Prices used in the valuation process are also corroborated independently by management to determine that values are based on actual transaction data or, in the absence of transactions, bid and offers for the day. Examples may include certain exchange and non-exchange traded capacity and electricity contracts and natural gas physical or swap contracts based on market prices, basis adjustments and other premiums where adjustments and premiums are not considered significant to the overall inputs.

Level 3—Unobservable inputs are used for the valuation of certain contracts. See “Additional Information Regarding Level 3 Measurements” below for more information on the utilization of unobservable inputs.

(C)	The NDT Fund maintains investments in various equity and fixed income securities. The Rabbi Trust maintains investments in a Russell 3000 index fund and various fixed income securities. These securities are generally valued with prices that are either exchange provided (equity securities) or market transactions for comparable securities and/or broker quotes (fixed income securities).

Level 1—Investments in marketable equity securities within the NDT Fund are primarily investments in common stocks across a broad range of industries and sectors. Most equity securities are priced utilizing the principal market close price or, in some cases, midpoint, bid or ask price. Certain other equity securities in the NDT and Rabbi Trust Funds consist primarily of investments in Dreyfus money market funds which seek a high level of current income as is consistent with the preservation of capital and the maintenance of liquidity. To pursue its goals, the funds normally invest in diversified portfolios of high quality, short-term, dollar-denominated debt securities and government securities. The funds’ NAV is priced and published daily. The Rabbi Trust also has an equity index fund which is valued based on quoted prices in an active market.

Level 2—NDT and Rabbi Trust fixed income securities include investment grade corporate bonds, collateralized mortgage obligations, asset-backed securities and certain government and U.S. Treasury obligations or Federal Agency asset-backed securities and municipal bonds with a wide range of maturities. Since many fixed income securities do not trade on a daily basis, they are priced using an evaluated pricing methodology that varies by asset class and reflects observable market information such as the most recent exchange price or quoted bid for similar securities. Market-based standard inputs typically include benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The preferred stocks are not actively traded on a daily basis and therefore, are also priced using an evaluated pricing methodology. Certain short-term investments are valued using observable market prices or market parameters such as time-to-maturity, coupon rate, quality rating and current yield.

(D)	Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. See Note 17. Financial Risk Management Activities for additional detail.

Additional Information Regarding Level 3 Measurements

For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations for contracts with tenors that extend into periods with no observable pricing. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 because the model inputs generally are not observable. PSEG’s Risk Management Committee (RMC) approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval and the monitoring and reporting of risk exposures. The RMC reports to the Corporate Governance and Audit Committees of the PSEG Board on the scope of the risk management activities and is responsible for approving all valuation procedures at PSEG. Forward price curves for the power market utilized by Power to manage the portfolio are maintained and reviewed by PSEG’s Enterprise Risk Management market pricing group and used for financial reporting purposes. PSEG considers credit and nonperformance risk in the valuation of derivative contracts categorized in Levels 2 and 3, including both historical and current market data, in its assessment of credit and nonperformance risk by counterparty. The impacts of credit and nonperformance risk were not material to the financial statements.

The fair value of Power’s electric load contracts in which load consumption may change hourly based on demand are measured using certain unobservable inputs, such as historic load variability and, accordingly, are categorized as Level 3. The fair value of Power’s gas physical contracts at certain illiquid delivery locations are measured using average historical basis and, accordingly, are categorized as Level 3. While these physical gas contracts have an unobservable component in their respective

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

forward price curves, the fluctuations in fair value have been driven primarily by changes in the observable inputs. The following tables provide details surrounding significant Level 3 valuations as of December 31, 2018 and 2017.

			Quantitative Information About Level 3 Fair Value Measurements
	Commodity		Level 3 Position		Fair Value as of December 31, 2018								Valuation Technique(s)		Significant Unobservable Input		Range
					Assets				(Liabilities)
					Millions
	Power
	Electricity		Electric Load Contracts		$	2			$	(5	)		Discounted Cash flow		Historic Load Variability		0% to 15%
	Gas		Gas Physical Contracts		5				(1		)		Discounted Cash flow		Average Historical Basis		-40% to 0%
	Total Power				$	7			$	(6	)
	Total PSEG				$	7			$	(6	)

			Quantitative Information About Level 3 Fair Value Measurements
	Commodity		Level 3 Position		Fair Value as of December 31, 2017								Valuation Technique(s)		Significant Unobservable Input		Range
					Assets				(Liabilities)
					Millions
	Power
	Electricity		Electric Load Contracts		$	1			$	(3	)		Discounted Cash flow		Historic Load Variability		0% to 10%
	Gas		Gas Physical Contracts		11				(2		)		Discounted Cash flow		Average Historical Basis		-40% to -10%
	Total Power				$	12			$	(5	)
	Total PSEG				$	12			$	(5	)

Significant unobservable inputs listed above would have a direct impact on the fair values of the above Level 3 instruments if they were adjusted. For energy-related contracts in cases where Power is a seller, an increase in the load variability would decrease the fair value. For gas-related contracts in cases where Power is a buyer, an increase in the average historical basis would increase the fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the beginning and ending balances of Level 3 derivative contracts and securities for the years ended December 31, 2018 and 2017, respectively, follows:

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Year Ended December 31, 2018

							Total Gains or (Losses) Realized/Unrealized
	Description		Balance as of January 1, 2018				Included in Income (A)				Included in Regulatory Assets/ Liabilities (B)				Purchases, (Sales)				Issuances/ Settlements (C)				Transfers In/Out				Balance as of December 31, 2018
			Millions
	PSEG
	Net Derivative Assets (Liabilities)		$	7			$	(6	)		$	—			$	—			$	—			$	—			$	1
	Power
	Net Derivative Assets (Liabilities)		$	7			$	(6	)		$	—			$	—			$	—			$	—			$	1

Changes in Level 3 Assets and (Liabilities) Measured at Fair Value on a Recurring Basis

for the Year Ended December 31, 2017

							Total Gains or (Losses) Realized/Unrealized
	Description		Balance as of January 1, 2017				Included in Income (A)				Included in Regulatory Assets/ Liabilities (B)				Purchases, (Sales)				Issuances/ Settlements (C)				Transfers In/Out (D)				Balance as of December 31, 2017
			Millions
	PSEG
	Net Derivative Assets (Liabilities)		$	1			$	26			$	5			$	—			$	(24	)		$	(1	)		$	7
	PSE&G
	Net Derivative Assets (Liabilities)		$	(5	)		$	—			$	5			$	—			$	—			$	—			$	—
	Power
	Net Derivative Assets (Liabilities)		$	6			$	26			$	—			$	—			$	(24	)		$	(1	)		$	7

(A)Unrealized gains (losses) in the following table represent the change in derivative assets and liabilities still held as of December 31, 2018 and 2017.

			Years Ended December 31,
			2018								2017
			Total Gains (Losses)				Unrealized Gains (Losses)				Total Gains (Losses)				Unrealized Gains (Losses)
			Millions
	PSEG and Power
	Operating Revenues		$	(2	)		$	—			$	14			$	(9	)
	Energy Costs		(4		)		(6		)		12				12
	Total		$	(6	)		$	(6	)		$	26			$	3

(B)	Mainly includes gains/losses on PSE&G’s derivative contracts that are not included in either earnings or Accumulated Other Comprehensive Income, as they are deferred as a Regulatory Asset/Liability and are expected to be recovered from/returned to PSE&G’s customers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(C)	Represents $(24) million in settlements for derivative contracts in 2017.

(D)	During the year ended December 31, 2017, $(1) million of net derivatives assets/liabilities were transferred from Level 2 to Level 3. There were no transfers in 2018.

As of December 31, 2018, PSEG carried $2.2 billion of net assets that are measured at fair value on a recurring basis, of which $1 million of net assets were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

As of December 31, 2017, PSEG carried $2.6 billion of net assets that are measured at fair value on a recurring basis, of which $7 million of net assets were measured using unobservable inputs and classified as Level 3 within the fair value hierarchy.

Note 19. Stock Based Compensation

PSEG’s Amended and Restated 2004 Long-Term Incentive Plan (LTIP) is a broad-based equity compensation program that provides for grants of various long-term incentive compensation awards, such as stock options, stock appreciation rights, performance share units, restricted stock, restricted stock units, cash awards or any combination thereof. The types of long-term incentive awards that have been granted and remain outstanding under the LTIP are non-qualified options to purchase shares of PSEG’s common stock, restricted stock unit awards and performance share unit awards. The type of equity award that is granted and the details of that award may vary from time to time and is subject to the approval of the Organization and Compensation Committee of PSEG’s Board of Directors (O&CC), the LTIP’s administrative committee.

The LTIP currently provides for the issuance of equity awards with respect to approximately 16 million shares of common stock. As of December 31, 2018, there were approximately 13 million shares available for future awards under the LTIP.

Stock Options

Under the LTIP, non-qualified options to acquire shares of PSEG common stock may be granted to officers and other key employees selected by the O&CC. Option awards are granted with an exercise price equal to the market price of PSEG’s common stock at the grant date. The options generally vest over four years of continuous service. Vesting schedules may be accelerated upon the occurrence of certain events, such as a change-in-control (unless substituted with an equity award of equal value), retirement, death or disability. Options are exercisable over a period of time designated by the O&CC (but not prior to one year or longer than ten years from the date of grant) and are subject to such other terms and conditions as the O&CC determines. Payment by option holders upon exercise of an option may be made in cash or, with the consent of the O&CC, by delivering previously acquired shares of PSEG common stock. No options have been granted since 2009.

Restricted Stock Units

Under the LTIP, PSEG has granted restricted stock unit awards to officers and other key employees. These awards, which are bookkeeping entries only, are subject to risk of forfeiture until vested by continued employment. Until distributed, the units are credited with dividend equivalents proportionate to the dividends paid on PSEG common stock. Distributions are made in shares of common stock. The restricted stock unit grants for 2018 and 2017 generally vest at the end of three years. Vesting may be accelerated (pro-rated basis or full vesting) upon certain events such as change-in-control, retirement, disability or death.

Performance Share Units

Under the LTIP, PSEG has granted performance share units to officers and other key employees. These provide for distribution in shares of PSEG common stock based on achievement of certain financial goals over a three-year performance period. Following the end of the performance period, the payout varies from 0% to 200% of the number of performance units granted depending on PSEG’s performance with respect to certain financial targets, including targets related to comparative performance against other companies in a peer group of energy companies. The performance share units are credited with dividend equivalents proportionate to the dividends paid on PSEG common stock. Distributions are made in shares of common stock. Vesting may be accelerated on a pro-rated basis for the period of the employee’s service during the performance period as a result of certain events, such as change-in-control, retirement, death or disability.

Stock-Based Compensation

PSEG recognizes compensation expense for stock options based on their grant date fair values, which are determined using the Black-Scholes option-pricing model. Stock option awards are expensed on a tranche-specific basis over the requisite service period of the award. Ultimately, compensation expense for stock options is recognized for awards that vest.

PSEG recognizes compensation expense for restricted stock units over the vesting period based on the grant date fair value of the shares, which is equal to the market price of PSEG’s common stock on the date of the grant.

PSEG recognizes compensation expense for the total shareholder return target for its performance share unit awards based on the grant date fair values of the award, which are determined using the Monte Carlo model. The accrual of compensation cost is based on the probable achievement of the performance conditions, which result in a payout from 0% to 200% of the initial grant. PSEG recognizes compensation expense for the return on invested capital target for its performance share units based on

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the grant date fair value of the awards, which is equal to the market price of PSEG’s common stock on the date of the grant. The accrual during the year of grant is estimated at 100% of the original grant. Such accrual may be adjusted to reflect the actual outcome.

			2018				2017				2016
			Millions
	Compensation Cost included in Operation and Maintenance Expense		$	30			$	31			$	29
	Income Tax Benefit Recognized in Consolidated Statement of Operations		$	9			$	13			$	12

For 2018, 2017 and 2016 the excess tax benefit of $3 million, $4 million and $4 million, respectively was included as financing cash flows on the Consolidated Statements of Cash Flow.

PSEG recognizes compensation cost of awards issued over the shorter of the original vesting period or the period beginning on the date of grant and ending on the date an individual is eligible for retirement and the award vests.

Stock Options

Changes in stock options for 2018 are summarized as follows:

			Options			Weighted Average Exercise Price				Weighted Average Remaining Years Contractual Term		Aggregate Intrinsic Value
	Outstanding as of January 1, 2018		347,900			$	33.49
	Exercised		115,967			$	33.49
	Canceled/Forfeited		—			$	—
	Outstanding as of December 31, 2018		231,933			$	33.49			1.0		$	4,304,676
	Exercisable at December 31, 2018		231,933			$	33.49			1.0		$	4,304,676

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. There were no option grants in 2018, 2017 and 2016.

Activity for options exercised for the years ended December 31, 2018, 2017 and 2016 is shown below:

			2018				2017				2016
			Millions
	Total Intrinsic Value of Options Exercised		$	2			$	5			$	7
	Cash Received from Options Exercised		$	4			$	26			$	22
	Tax Benefit Realized from Options Exercised		$	—			$	—			$	1

No options were vested during the years ended December 31, 2018, 2017 and 2016.

Restricted Stock Units

Changes in restricted stock units for the year ended December 31, 2018 are summarized as follows:

			Shares			Weighted Average Grant Date Fair Value				Weighted Average Remaining Years Contractual Term		Aggregate Intrinsic Value
	Non-vested as of January 1, 2018		213,899			$	42.32
	Granted		277,261			$	49.34
	Vested		220,105			$	46.02
	Canceled/Forfeited		13,472			$	44.94
	Non-vested as of December 31, 2018		257,583			$	46.58			1.2		$	13,407,195

The weighted average grant date fair value per share for restricted stock units during the years ended December 31, 2018, 2017 and 2016 was $49.34, $44.33 and $42.28 per share, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total intrinsic value of restricted stock units distributed during the years ended December 31, 2018, 2017 and 2016 was

$12 million, $13 million and $17 million, respectively.

As of December 31, 2018, there was approximately $5 million of unrecognized compensation cost related to the restricted stock units, which is expected to be recognized over a weighted average period of 1.2 years. Dividend equivalents units of 26,987 accrued on the restricted stock units during the year.

Performance Share Units

Changes in performance share units for the year ended December 31, 2018 are summarized as follows:

			Shares			Weighted Average Grant Date Fair Value				Weighted Average Remaining Years Contractual Term		Aggregate Intrinsic Value
	Non-vested as of January 1, 2018		332,461			$	45.29
	Granted		378,800			$	54.95
	Vested		310,425			$	49.63
	Canceled/Forfeited		23,295			$	48.57
	Non-vested as of December 31, 2018		377,541			$	51.94			1.7		$	19,651,009

The weighted average grant date fair value per share for performance share units during the years ended December 31, 2018, 2017 and 2016 was $54.95, $45.02 and $45.97 per share, respectively.

The total intrinsic value of performance share units distributed during the years ended December 31, 2018, 2017 and 2016 was

$17 million, $18 million and $17 million, respectively.

As of December 31, 2018, there was approximately $21 million of unrecognized compensation cost related to the performance share units, which is expected to be recognized over a weighted average period of 1.7 years. Dividend equivalents units of 37,156 accrued on the performance share units during the year.

Outside Directors

Under the Directors Equity Plan, annually, on the first business day of May, each non-employee member of the Board of Directors is awarded stock units based on the amount of annual compensation to be paid at the closing price of PSEG common stock on that date. Dividend equivalents are credited quarterly and distributions will commence upon the director leaving the Board as specified by him/her in accordance with the provisions of the Directors Equity Plan.

The fair value of these awards is recorded as compensation expense in the Consolidated Statements of Operations. Compensation expense for the plan was immaterial for each of the years ended December 31, 2018, 2017 and 2016.

Employee Stock Purchase Plan (ESPP)

PSEG maintains an ESPP for all eligible employees of PSEG and its subsidiaries. Under the ESPP, shares of PSEG common stock may be purchased at 95% of the fair market value for represented employees and 90% for non-represented employees through payroll deductions. Dividends will be reinvested for all employees at 95% of the fair market price unless the participant elects to receive a cash dividend. All employees are required to hold the shares purchased under the ESPP for at least three months from the purchase date. In any year, employees may purchase shares having a value not exceeding 10% of their base pay. Compensation expense recognized under this program was immaterial for each of the years ended December 31, 2018, 2017 and 2016.

During the years ended December 31, 2018, 2017 and 2016, employees purchased 286,559 shares, 288,527 shares and 262,763 shares, respectively, at an average price of $47.44, $42.07 and $40.70 per share, respectively. As of December 31, 2018, 2.9 million shares were available for future issuance under this plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Other Income (Deductions)

			PSE&G				Power				Other (A)				Consolidated Total
			Millions
	Year Ended December 31, 2018
	NDT Fund Interest and Dividends		$	—			$	52			$	—			$	52
	Allowance for Funds Used During Construction		54				—				—				54
	Solar Loan Interest		18				—				—				18
	Donations		—				—				(17		)		(17		)
	Other		8				(31		)		1				(22		)
	Total Other Income (Deductions)		$	80			$	21			$	(16	)		$	85
	Year Ended December 31, 2017
	NDT Fund Interest and Dividends		$	—			$	45			$	—			$	45
	Allowance for Funds Used During Construction		56				—				—				56
	Solar Loan Interest		21				—				—				21
	Donations		(1		)		(2		)		(25		)		(28		)
	Other		9				(23		)		2				(12		)
	Total Other Income (Deductions)		$	85			$	20			$	(23	)		$	82
	Year Ended December 31, 2016
	NDT Fund Interest and Dividends		$	—			$	43			$	—			$	43
	Allowance for Funds Used During Construction		49				—				—				49
	Solar Loan Interest		22				—				—				22
	Donations		(1		)		(1		)		—				(2		)
	Other		9				(19		)		—				(10		)
	Total Other Income (Deductions)		$	79			$	23			$	—			$	102

(A)	Other consists of activity at PSEG (as parent company), Energy Holdings, Services, PSEG LI and intercompany eliminations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. Income Taxes

A reconciliation of reported income tax expense for PSEG with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:

			Years Ended December 31,
	PSEG		2018				2017				2016
			Millions
	Net Income		$	1,438			$	1,574			$	887
	Income Taxes:
	Operating Income:
	Current (Benefit) Expense:
	Federal		$	(97	)		$	86			$	(74	)
	State		83				(31		)		61
	Total Current		(14		)		55				(13		)
	Deferred Expense (Benefit):
	Federal		373				(482		)		311
	State		71				92				28
	Total Deferred		444				(390		)		339
	Investment Tax Credit (ITC)		(13		)		29				85
	Total Income Tax Expense (Benefit)		$	417			$	(306	)		$	411
	Pre-Tax Income		$	1,855			$	1,268			$	1,298
	Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016		$	390			$	444			$	454
	Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
	State Income Taxes (net of federal income tax)		123				36				56
	Uncertain Tax Positions		(24		)		(3		)		(31		)
	Manufacturing Deduction		—				(13		)		(17		)
	NDT Fund		(13		)		19				3
	Plant-Related Items		(10		)		(23		)		(20		)
	Tax Credits		(16		)		(22		)		(25		)
	Audit Settlement		—				6				—
	Tax Adjustment Credit		(30		)		—				—
	Deferred Tax Expense (Benefit) - Tax Act		3				(755		)		—
	Other		(6		)		5				(9		)
	Sub-Total		27				(750		)		(43		)
	Total Income Tax Expense (Benefit)		$	417			$	(306	)		$	411
	Effective Income Tax Rate		22.5		%		(24.1		)%		31.7		%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for PSEG:

			As of December 31,
	PSEG		2018				2017
			Millions
	Deferred Income Taxes
	Assets:
	Noncurrent
	Regulatory Liability Excess Deferred Tax		$	606			$	602
	OPEB		163				217
	Related to Uncertain Tax Position		71				142
	Total Noncurrent Assets		$	840			$	961
	Liabilities:
	Noncurrent:
	Plant-Related Items		$	4,817			$	4,257
	New Jersey Corporate Business Tax		756				674
	Leasing Activities		307				384
	AROs and NDT Fund		196				233
	Pension Costs		111				123
	Taxes Recoverable Through Future Rates (net)		89				80
	Other		12				171
	Total Noncurrent Liabilities		$	6,288			$	5,922
	Summary of Accumulated Deferred Income Taxes:
	Net Noncurrent Deferred Income Tax Liabilities		$	5,448			$	4,961
	ITC		265				279
	Net Total Noncurrent Deferred Income Taxes and ITC		$	5,713			$	5,240

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.

In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSEG is subject to 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 was enacted.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of reported income tax expense for PSE&G with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:

			Years Ended December 31,
	PSE&G		2018				2017				2016
			Millions
	Net Income		$	1,067			$	973			$	889
	Income Taxes:
	Operating Income:
	Current (Benefit) Expense:
	Federal		$	(62	)		$	(52	)		$	(153	)
	State		1				(1		)		10
	Total Current		(61		)		(53		)		(143		)
	Deferred Expense:
	Federal		287				492				551
	State		122				129				102
	Total Deferred		409				621				653
	ITC		(4		)		(5		)		5
	Total Income Tax Expense		$	344			$	563			$	515
	Pre-Tax Income		$	1,411			$	1,536			$	1,404
	Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016		$	296			$	538			$	491
	Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
	State Income Taxes (net of federal income tax)		98				83				72
	Uncertain Tax Positions		(1		)		(9		)		(18		)
	Plant-Related Items		(10		)		(23		)		(20		)
	Tax Credits		(8		)		(9		)		(7		)
	Tax Adjustment Credit		(30		)		—				—
	Deferred Tax Benefit - Tax Act		—				(10		)		—
	Other		(1		)		(7		)		(3		)
	Sub-Total		48				25				24
	Total Income Tax Expense		$	344			$	563			$	515
	Effective Income Tax Rate		24.4		%		36.7		%		36.7		%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for PSE&G:

			As of December 31,
	PSE&G		2018				2017
			Millions
	Deferred Income Taxes
	Assets:
	Noncurrent:
	Regulatory Liability Excess Deferred Tax		$	606			$	602
	OPEB		114				116
	Total Noncurrent Assets		$	720			$	718
	Liabilities:
	Noncurrent:
	Plant-Related Items		$	3,622			$	3,311
	New Jersey Corporate Business Tax		486				378
	Pension Costs		159				152
	Conservation Costs		36				24
	Taxes Recoverable Through Future Rates (net)		89				80
	Other		84				86
	Total Noncurrent Liabilities		$	4,476			$	4,031
	Summary of Accumulated Deferred Income Taxes:
	Net Noncurrent Deferred Income Tax Liabilities		$	3,756			$	3,313
	ITC		74				78
	Net Total Noncurrent Deferred Income Taxes and ITC		$	3,830			$	3,391

The deferred tax effect of certain assets and liabilities is presented in the table above net of the deferred tax effect associated with the respective regulatory deferrals.

In December 2017, new tax legislation was enacted, reducing the statutory U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. PSE&G is subject to 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 was enacted.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of reported income tax expense for Power with the amount computed by multiplying pre-tax income by the statutory federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 is as follows:

			Years Ended December 31,
	Power		2018				2017				2016
			Millions
	Net Income		$	365			$	479			$	18
	Income Taxes:
	Operating Income:
	Current (Benefit) Expense:
	Federal		$	(164	)		$	95			$	107
	State		24				(17		)		40
	Total Current		(140		)		78				147
	Deferred Expense (Benefit):
	Federal		214				(804		)		(222		)
	State		1				(37		)		(68		)
	Total Deferred		215				(841		)		(290		)
	ITC		(9		)		34				82
	Total Income Tax Expense (Benefit)		$	66			$	(729	)		$	(61	)
	Pre-Tax Income (Loss)		$	431			$	(250	)		$	(43	)
	Tax Computed at Statutory Rate @ 21% in 2018 and 35% in 2017 and 2016		$	91			$	(88	)		$	(15	)
	Increase (Decrease) Attributable to Flow-Through of Certain Tax Adjustments:
	State Income Taxes (net of federal income tax)		21				(36		)		(18		)
	Manufacturing Deduction		—				(13		)		(17		)
	NDT Fund		(13		)		19				3
	Tax Credits		(7		)		(12		)		(18		)
	Uncertain Tax Positions		(24		)		7				9
	Audit Settlement		—				1				—
	Deferred Tax Benefit - Tax Act		(1		)		(610		)		—
	Other		(1		)		3				(5		)
	Sub-Total		(25		)		(641		)		(46		)
	Total Income Tax Expense (Benefit)		$	66			$	(729	)		$	(61	)
	Effective Income Tax Rate		15.3		%		291.6		%		141.9		%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is an analysis of deferred income taxes for Power:

			As of December 31,
	Power		2018				2017
			Millions
	Deferred Income Taxes
	Assets:
	Noncurrent:
	Related to Uncertain Tax Positions		$	60			$	45
	Pension Costs		52				40
	Contractual Liabilities & Environmental Costs		9				12
	Other		98				93
	Total Noncurrent Assets		$	219			$	190
	Liabilities:
	Noncurrent:
	Plant-Related Items		$	1,189			$	935
	AROs and NDT Fund		197				235
	New Jersey Corporate Business Tax		260				225
	Total Noncurrent Liabilities		$	1,646			$	1,395
	Summary of Accumulated Deferred Income Taxes:
	Net Noncurrent Deferred Income Tax Liabilities		$	1,427			$	1,205
	ITC		192				201
	Net Total Noncurrent Deferred Income Taxes and ITC		$	1,619			$	1,406

PSEG, PSE&G and Power each provide deferred taxes at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Management believes that it is probable that the accumulated tax benefits that previously have been treated as a flow-through item to PSE&G customers will be recovered from or refunded to PSE&G’s customers in the future. See Note 7. Regulatory Assets and Liabilities.

In December 2017, the U.S. government enacted comprehensive tax legislation. The Tax Act establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the manufacturing deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80% of taxable income with an indefinite carryforward period. In addition, certain changes were made to the bonus depreciation rules that impacted 2017. In 2018 and beyond, it is expected that Power will be entitled to 100% expensing and bonus depreciation will no longer apply to PSE&G.

As required under ASC 740, the ending 2017 deferred tax balances were adjusted to reflect the enacted lower tax rate, which resulted in a deferred tax benefit of $755 million, including $610 million related to Power and $149 million related to Energy Holdings (including other impacts related to the new tax legislation, PSEG’s net non-cash provisional earnings benefit was $745 million, including $588 million related to Power and $147 million related to Energy Holdings). There were no further material deferred tax benefits recorded in 2018 as a result of the Tax Act. In addition, PSE&G had excess deferred taxes of approximately $2.1 billion as of December 31, 2017 and recorded a $2.9 billion revenue impact of these excess deferred taxes as Regulatory Liabilities. In 2018, PSE&G recorded an additional $34 million of excess deferred taxes and a $46 million revenue impact of these excess taxes as Regulatory Liabilities associated with the 2017 return to accrual. PSEG, PSE&G and Power completed their accounting for the Tax Act based on the current regulatory guidance available at the end of the Staff Accounting Bulletin No. 118 measurement period, not to extend beyond one year from the enactment date of the Tax Act.

The Tax Act has led to lower customer rates due to lower income tax expense recoveries and the BPU and FERC have approved our proposals to refund excess deferred income tax Regulatory Liabilities. See Note 7. Regulatory Assets and Liabilities for additional information.

In August 2018, the IRS issued a Notice of Proposed Rulemaking (Notice) regarding the application of tax depreciation rules as amended by the Tax Act. While the Notice provides some guidance as to the application of the changes made by the Tax Act to the bonus depreciation rules, certain aspects still remain unclear. Further, in November 2018 the IRS issued Proposed Regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018, PSEG and Power expect that a portion of the interest will be disallowed in the current period but realized in future periods. As a result, PSEG and Power recorded a deferred tax asset of $54 million and $8 million, respectively, in 2018. However, certain aspects of the proposed regulations are unclear; therefore, PSEG recorded taxes based on its interpretation of the relevant statute.

Depreciation amounts recorded in 2018 were based on PSEG’s interpretation of the Tax Act and the depreciation rules contained in the Notice. Such amounts are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing final guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and Power’s financial statements.

The Protecting Americans from Tax Hikes Act of 2015 (2015 Tax Act), among other provisions, included an extension of the bonus depreciation rules and the 30% investment tax credit for qualified property placed into service after 2016. Qualified property that is placed into service from January 1, 2015 through December 31, 2017 is eligible for the 50% bonus depreciation. The provisions of the 2015 Tax Act have generated significant cash tax benefits for PSEG, PSE&G and Power through tax benefits related to the accelerated depreciation. For the period beginning September 28, 2017, subject to the transition rules, the Tax Act has modified the bonus depreciation rules of the 2015 Tax Act.

In 2018, Power generated a $14 million consolidated federal income tax NOL and PSE&G generated a $21 million New Jersey Corporate Business tax NOL. Both PSE&G and Power expect to fully realize their respective NOLs. There are no other material tax carryforwards in other jurisdictions.

PSEG recorded the following amounts related to its unrecognized tax benefits, which were primarily comprised of amounts recorded for PSE&G, Power and Energy Holdings:

	2018		PSEG				PSE&G				Power				Energy Holdings
			Millions
	Total Amount of Unrecognized Tax Benefits as of January 1, 2018		$	334			$	135			$	142			$	53
	Increases as a Result of Positions Taken in a Prior Period		11				4				4				3
	Decreases as a Result of Positions Taken in a Prior Period		(70		)		(31		)		(37		)		(2		)
	Increases as a Result of Positions Taken during the Current Period		52				3				48				—
	Decreases as a Result of Positions Taken during the Current Period		(3		)		(3		)		—				—
	Decreases as a Result of Settlements with Taxing Authorities		(6		)		—				(6		)		—
	Decreases due to Lapses of Applicable Statute of Limitations		—				—				—				—
	Total Amount of Unrecognized Tax Benefits as of December 31, 2018		$	318			$	108			$	151			$	54
	Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(173		)		(57		)		(104		)		(12		)
	Regulatory Asset—Unrecognized Tax Benefits		(46		)		(46		)		—				—
	Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)		$	99			$	5			$	47			$	42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2017		PSEG				PSE&G				Power				Energy Holdings
			Millions
	Total Amount of Unrecognized Tax Benefits as of January 1, 2017		$	328			$	140			$	128			$	57
	Increases as a Result of Positions Taken in a Prior Period		40				15				18				8
	Decreases as a Result of Positions Taken in a Prior Period		(32		)		(11		)		(10		)		(13		)
	Increases as a Result of Positions Taken during the Current Period		12				5				6				1
	Decreases as a Result of Positions Taken during the Current Period		(1		)		(1		)		—				—
	Decreases as a Result of Settlements with Taxing Authorities		—				—				—				—
	Decreases due to Lapses of Applicable Statute of Limitations		(13		)		(13		)		—				—
	Total Amount of Unrecognized Tax Benefits as of December 31, 2017		$	334			$	135			$	142			$	53
	Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(157		)		(73		)		(72		)		(12		)
	Regulatory Asset—Unrecognized Tax Benefits		(56		)		(56		)		—				—
	Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)		$	121			$	6			$	70			$	41

	2016		PSEG				PSE&G				Power				Energy Holdings
			Millions
	Total Amount of Unrecognized Tax Benefits as of January 1, 2016		$	386			$	181			$	111			$	93
	Increases as a Result of Positions Taken in a Prior Period		12				3				6				2
	Decreases as a Result of Positions Taken in a Prior Period		(62		)		(23		)		(1		)		(38		)
	Increases as a Result of Positions Taken during the Current Period		19				6				12				—
	Decreases as a Result of Positions Taken during the Current Period		—				—				—				—
	Decreases as a Result of Settlements with Taxing Authorities		—				—				—				—
	Decreases due to Lapses of Applicable Statute of Limitations		(27		)		(27		)		—				—
	Total Amount of Unrecognized Tax Benefits as of December 31, 2016		$	328			$	140			$	128			$	57
	Accumulated Deferred Income Taxes Associated with Unrecognized Tax Benefits		(200		)		(106		)		(74		)		(20		)
	Regulatory Asset—Unrecognized Tax Benefits		(31		)		(31		)		—				—
	Total Amount of Unrecognized Tax Benefits that if Recognized, would Impact the Effective Tax Rate (including Interest and Penalties)		$	97			$	3			$	54			$	37

PSEG and its subsidiaries include accrued interest and penalties related to uncertain tax positions required to be recorded, as Income Tax Expense in the Consolidated Statements of Operations. Accumulated interest and penalties that are recorded on the Consolidated Balance Sheets on uncertain tax positions were as follows:

			Accumulated Interest and Penalties on Uncertain Tax Positions as of December 31,
			2018				2017				2016
			Millions
	PSE&G		$	12			$	25			$	22
	Power		9				24				17
	Energy Holdings		22				21				20
	Total		$	43			$	70			$	59

It is reasonably possible that total unrecognized tax benefits will significantly increase or decrease within the next twelve months due to either agreements with various taxing authorities upon audit, the expiration of the Statute of Limitations, or other pending tax matters. These potential increases or decreases are as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Possible (Increase)/Decrease in Total Unrecognized Tax Benefits		Over the next 12 Months
			Millions
	PSEG		$	112
	PSE&G		$	62
	Power		$	34

A description of income tax years that remain subject to examination by material jurisdictions, where an examination has not already concluded are:

			PSEG		PSE&G		Power
	United States
	Federal		2011-2017		N/A		N/A
	New Jersey		2006-2017		2011-2017		N/A
	Pennsylvania		2015-2017		2015-2017		N/A
	Connecticut		2016-2017		N/A		N/A
	California		2006-2017		N/A		N/A
	New York		2017		N/A		2017

New Jersey State Tax Reform

In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. At this time, PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group. In 2018, PSEG’s non-utility business recorded $7 million of surtax as a result of these new provisions. This New Jersey tax legislation did not have a material impact on PSEG’s deferred income tax balance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22. Accumulated Other Comprehensive Income (Loss), Net of Tax

	PSEG		Other Comprehensive Income (Loss)
	Accumulated Other Comprehensive Income (Loss)		Cash Flow Hedges				Pension and OPEB Plans				Available-for -Sale Securities				Total
			Millions
	Balance as of December 31, 2015		$	—			$	(386	)		$	91			$	(295	)
	Other Comprehensive Income before Reclassifications		2				(45		)		40				(3		)
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—				33				2				35
	Net Current Period Other Comprehensive Income (Loss)		2				(12		)		42				32
	Balance as of December 31, 2016		$	2			$	(398	)		$	133			$	(263	)
	Other Comprehensive Income before Reclassifications		—				(32		)		109				77
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		(2		)		24				(65		)		(43		)
	Net Current Period Other Comprehensive Income (Loss)		(2		)		(8		)		44				34
	Balance as of December 31, 2017		$	—			$	(406	)		$	177			$	(229	)
	Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings		—				—				(176		)		(176		)
	Current Period Other Comprehensive Income (Loss)
	Other Comprehensive Income before Reclassifications		(1		)		17				(25		)		(9		)
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—				29				8				37
	Net Current Period Other Comprehensive Income (Loss)		(1		)		46				(17		)		28
	Net Change in Accumulated Other Comprehensive Income (Loss)		(1		)		46				(193		)		(148		)
	Balance as of December 31, 2018		$	(1	)		$	(360	)		$	(16	)		$	(377	)
	Power		Other Comprehensive Income (Loss)
	Accumulated Other Comprehensive Income (Loss)		Cash Flow Hedges				Pension and OPEB Plans				Available-for -Sale Securities				Total
			Millions
	Balance as of December 31, 2015		$	—			$	(327	)		$	87			$	(240	)
	Other Comprehensive Income before Reclassifications		—				(42		)		39				(3		)
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—				29				3				32
	Net Current Period Other Comprehensive Income (Loss)		—				(13		)		42				29
	Balance as of December 31, 2016		$	—			$	(340	)		$	129			$	(211	)
	Other Comprehensive Income before Reclassifications		—				(28		)		106				78
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—				21				(60		)		(39		)
	Net Current Period Other Comprehensive Income (Loss)		—				(7		)		46				39
	Balance as of December 31, 2017		$	—			$	(347	)		$	175			$	(172	)
	Cumulative Effect Adjustment to Reclassify Unrealized Net Gains on Equity Investments to Retained Earnings		—				—				(175		)		(175		)
	Current Period Other Comprehensive Income (Loss)
	Other Comprehensive Income before Reclassifications		—				16				(19		)		(3		)
	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—				25				6				31
	Net Current Period Other Comprehensive Income (Loss)		—				41				(13		)		28
	Net Change in Accumulated Other Comprehensive Income (Loss)		—				41				(188		)		(147		)
	Balance as of December 31, 2018		$	—			$	(306	)		$	(13	)		$	(319	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	PSEG				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2016
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		$	12			$	(5	)		$	7
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(68		)		28				(40		)
	Total Pension and OPEB Plans				(56		)		23				(33		)
	Available-for-Sale Securities
	Realized Gains (Losses) and Other-Than-Temporary Impairments (OTTI)		Net Gains (Losses) on Trust Investments		(6		)		4				(2		)
	Total Available-for-Sale Securities				(6		)		4				(2		)
	Total				$	(62	)		$	27			$	(35	)
	Power				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2016
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		$	11			$	(5	)		$	6
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(59		)		24				(35		)
	Total Pension and OPEB Plans				(48		)		19				(29		)
	Available-for-Sale Securities
	Realized Gains (Losses) and OTTI		Net Gains (Losses) on Trust Investments		(6		)		3				(3		)
	Total Available-for-Sale Securities				(6		)		3				(3		)
	Total				$	(54	)		$	22			$	(32	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	PSEG				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2017
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Cash Flow Hedges
	Interest Rate Swaps		Interest Expense		$	3			$	(1	)		$	2
	Total Cash Flow Hedges				3				(1		)		2
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		10				(4		)		6
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(51		)		21				(30		)
	Total Pension and OPEB Plans				(41		)		17				(24		)
	Available-for-Sale Securities
	Realized Gains (Losses) and OTTI		Net Gains (Losses) on Trust Investments		134				(69		)		65
	Total Available-for-Sale Securities				134				(69		)		65
	Total				$	96			$	(53	)		$	43
	Power				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2017
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		$	9			$	(4	)		$	5
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(44		)		18				(26		)
	Total Pension and OPEB Plans				(35		)		14				(21		)
	Available-for-Sale Securities
	Realized Gains (Losses) and OTTI		Net Gains (Losses) on Trust Investments		125				(65		)		60
	Total Available-for-Sale Securities				125				(65		)		60
	Total				$	90			$	(51	)		$	39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	PSEG				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2018
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		$	6			$	(2	)		$	4
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(47		)		14				(33		)
	Total Pension and OPEB Plans				(41		)		12				(29		)
	Available-for-Sale Securities
	Realized Gains (Losses) and OTTI		Net Gains (Losses) on Trust Investments		(13		)		5				(8		)
	Total Available-for-Sale Securities				(13		)		5				(8		)
	Total				$	(54	)		$	17			$	(37	)
	Power				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Income Statement
					Year Ended December 31, 2018
	Description of Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		Location of Pre-Tax Amount In Statement of Operations		Pre-Tax Amount				Tax (Expense) Benefit				After-Tax Amount
					Millions
	Pension and OPEB Plans
	Amortization of Prior Service (Cost) Credit		Non-Operating Pension and OPEB Credits (Costs)		$	5			$	(1	)		$	4
	Amortization of Actuarial Loss		Non-Operating Pension and OPEB Credits (Costs)		(40		)		11				(29		)
	Total Pension and OPEB Plans				(35		)		10				(25		)
	Available-for-Sale Securities
	Realized Gains (Losses) and OTTI		Net Gains (Losses) on Trust Investments		(11		)		5				(6		)
	Total Available-for-Sale Securities				(11		)		5				(6		)
	Total				$	(46	)		$	15			$	(31	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Earnings Per Share (EPS) and Dividends

EPS

Diluted EPS is calculated by dividing Net Income by the weighted average number of shares of common stock outstanding, including shares issuable upon exercise of stock options outstanding or vesting of restricted stock awards granted under PSEG’s stock compensation plans and upon payment of performance units or restricted stock units. For additional information on PSEG’s stock compensation plans see Note 19. Stock Based Compensation. The following table shows the effect of these stock options, performance units and restricted stock units on the weighted average number of shares outstanding used in calculating diluted EPS:

			Years Ended December 31,
			2018								2017								2016
			Basic				Diluted				Basic				Diluted				Basic				Diluted
	EPS Numerator:
	(Millions)
	Net Income		$	1,438			$	1,438			$	1,574			$	1,574			$	887			$	887
	EPS Denominator:
	(Millions)
	Weighted Average Common Shares Outstanding		504				504				505				505				505				505
	Effect of Stock Based Compensation Awards		—				3				—				2				—				3
	Total Shares		504				507				505				507				505				508
	EPS:
	Net Income		$	2.85			$	2.83			$	3.12			$	3.10			$	1.76			$	1.75

There were approximately 0.4 million stock options excluded from the weighted average common shares used for diluted EPS due to their antidilutive effect for the year ended December 31, 2016.

For additional information on all the types of long-term incentive awards, see Note 19. Stock Based Compensation.

Dividends

			Years Ended December 31,
	Dividend Payments on Common Stock		2018				2017				2016
	Per Share		$	1.80			$	1.72			$	1.64
	in Millions		$	910			$	870			$	830

On February 19, 2019, PSEG’s Board of Directors approved a $0.47 per share common stock dividend for the first quarter of 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 24. Financial Information by Business Segment

Basis of Organization

PSEG’s, PSE&G’s and Power’s operating segments were determined by management in accordance with GAAP. These segments were determined based on how management measures performance based on segment Net Income, as illustrated in the following table, and how resources are allocated to each business. PSEG’s reportable segments are PSE&G and Power. PSE&G and Power each represent a single reportable segment and therefore no separate segment information is provided for these Registrants.

PSE&G

PSE&G earns revenues from its tariffs, under which it provides electric transmission and electric and gas distribution services to residential, commercial and industrial customers in New Jersey. The rates charged for electric transmission are regulated by FERC while the rates charged for electric and gas distribution are regulated by the BPU. Revenues are also earned from several other activities such as solar investments, sundry sales, the appliance service business, wholesale transmission services and other miscellaneous services.

Power

Power earns revenues by selling energy, capacity and ancillary services on a wholesale basis under contract to power marketers and to load-serving entities and by bidding energy, capacity and ancillary services into the markets for these products. A significant portion of Power’s revenue is obtained from the various ISOs in which Power operates. The ISOs act similarly to a clearing house for all of its members in that all revenues paid out are collected from market participants based on their consumption of energy and energy-related products. Power also enters into bilateral contracts for energy, capacity, FTRs, gas, emission allowances and other energy-related contracts to optimize the value of its portfolio of generating assets and its electric and gas supply obligations.

Other

This category includes amounts applicable to Energy Holdings and PSEG LI, which are below the quantitative threshold for separate disclosure as reportable segments. Other also includes amounts applicable to PSEG (parent corporation) and Services.

			PSE&G				Power				Other (A)				Eliminations (B)				Consolidated Total
			Millions
	Year Ended December 31, 2018
	Operating Revenues		$	6,471			$	4,146			$	571			$	(1,492	)		$	9,696
	Depreciation and Amortization		770				354				34				—				1,158
	Operating Income (Loss)		1,606				596				96				—				2,298
	Income from Equity Method Investments		—				15				—				—				15
	Interest Income		21				5				9				(6		)		29
	Interest Expense		333				76				73				(6		)		476
	Income (Loss) before Income Taxes		1,411				431				13				—				1,855
	Income Tax Expense (Benefit)		344				66				7				—				417
	Net Income (Loss)		$	1,067			$	365			$	6			$	—			$	1,438
	Gross Additions to Long-Lived Assets		$	2,896			$	996			$	20			$	—			$	3,912
	As of December 31, 2018
	Total Assets		$	31,109			$	12,594			$	2,604			$	(981	)		$	45,326
	Investments in Equity Method Subsidiaries		$	—			$	86			$	—			$	—			$	86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			PSE&G				Power				Other (A)				Eliminations (B)				Consolidated Total
			Millions
	Year Ended December 31, 2017
	Operating Revenues		$	6,324			$	3,860			$	466			$	(1,556	)		$	9,094
	Depreciation and Amortization		685				1,268				33				—				1,986
	Operating Income (Loss)		1,760				(367		)		36				—				1,429
	Income from Equity Method Investments		—				14				—				—				14
	Interest Income		24				3				5				(2		)		30
	Interest Expense		303				50				40				(2		)		391
	Income (Loss) before Income Taxes		1,536				(250		)		(18		)		—				1,268
	Income Tax Expense (Benefit)		563				(729		)		(140		)		—				(306		)
	Net Income (Loss)		$	973			$	479			$	122			$	—			$	1,574
	Gross Additions to Long-Lived Assets		$	2,919			$	1,231			$	40			$	—			$	4,190
	As of December 31, 2017
	Total Assets		$	28,554			$	12,418			$	2,666			$	(922	)		$	42,716
	Investments in Equity Method Subsidiaries		$	—			$	87			$	—			$	—			$	87

			PSE&G				Power				Other (A)				Eliminations (B)				Consolidated Total
			Millions
	Year Ended December 31, 2016
	Operating Revenues		$	6,303			$	3,861			$	370			$	(1,568	)		$	8,966
	Depreciation and Amortization		565				881				30				—				1,476
	Operating Income (Loss)		1,629				17				(48		)		—				1,598
	Income from Equity Method Investments		—				11				—				—				11
	Interest Income		24				4				4				(2		)		30
	Interest Expense		289				84				14				(2		)		385
	Income (Loss) before Income Taxes		1,404				(43		)		(63		)		—				1,298
	Income Tax Expense (Benefit)		515				(61		)		(43		)		—				411
	Net Income (Loss)		$	889			$	18			$	(20	)		$	—			$	887
	Gross Additions to Long-Lived Assets		$	2,816			$	1,343			$	40			$	—			$	4,199
	As of December 31, 2016
	Total Assets		$	26,288			$	12,193			$	2,373			$	(784	)		$	40,070
	Investments in Equity Method Subsidiaries		$	—			$	102			$	—			$	—			$	102

(A)	Includes amounts applicable to Energy Holdings and PSEG LI, which are below the quantitative threshold for separate disclosure as reportable segments. Other also includes amounts applicable to PSEG (parent corporation) and Services.

(B)	Intercompany eliminations primarily relate to intercompany transactions between PSE&G and Power. For a further discussion of the intercompany transactions between PSE&G and Power, see Note 25. Related-Party Transactions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 25. Related-Party Transactions

The following discussion relates to intercompany transactions, which are eliminated during the PSEG consolidation process in accordance with GAAP.

PSE&G

The financial statements for PSE&G include transactions with related parties presented as follows:

			Years Ended December 31,
	Related Party Transactions		2018				2017				2016
			Millions
	Billings from Affiliates:
	Net Billings from Power primarily through BGS and BGSS (A)		$	1,514			$	1,580			$	1,587
	Administrative Billings from Services (B)		333				331				312
	Total Billings from Affiliates		$	1,847			$	1,911			$	1,899

			Years Ended December 31,
	Related Party Transactions		2018				2017
			Millions
	Receivables from PSEG (C)		$	123			$	—
	Payable to Power (A)		$	245			$	221
	Payable to Services (B)		76				78
	Payable to PSEG (C)		—				41
	Accounts Payable—Affiliated Companies		$	321			$	340
	Working Capital Advances to Services (D)		$	33			$	33
	Long-Term Accrued Taxes Payable		$	69			$	91

Power

The financial statements for Power include transactions with related parties presented as follows:

			Years Ended December 31,
	Related Party Transactions		2018				2017				2016
			Millions
	Billings to Affiliates:
	Net Billings to PSE&G primarily through BGS and BGSS (A)		$	1,514			$	1,580			1,587
	Billings from Affiliates:
	Administrative Billings from Services (B)		$	145			$	168			$	179

			Years Ended December 31,
	Related Party Transactions		2018				2017
			Millions
	Receivable from PSE&G (A)		$	245			$	221
	Receivables from PSEG (C)		29				—
	Accounts Receivable—Affiliated Companies		$	274			$	221
	Payable to Services (B)		$	16			$	28
	Payable to PSEG (C)		—				29
	Accounts Payable—Affiliated Companies		$	16			$	57
	Short-Term Loan due to Affiliate (E)		$	193			$	281
	Working Capital Advances to Services (D)		$	17			$	17
	Long-Term Accrued Taxes Payable		$	76			$	52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(A)

PSE&G has entered into a requirements contract with Power under which Power provides the gas supply services needed to meet PSE&G’s BGSS and other contractual requirements. Power has also entered into contracts to supply energy, capacity and ancillary services to PSE&G through the BGS auction process. The rates in the BGS and BGSS contracts are prescribed by the BPU. In addition, Power and PSE&G provide certain technical services for each other generally at cost in compliance with FERC and BPU affiliate rules.

(B)	Services provides and bills administrative services to PSE&G and Power at cost. In addition, PSE&G and Power have other payables to Services, including amounts related to certain common costs, such as pension and OPEB costs, which Services pays on behalf of each of the operating companies.

(C)

PSEG files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PSEG and each of its affiliated companies. The general operation of these agreements is that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PSEG. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PSEG to the extent that PSEG is able to utilize those benefits.

(D)	PSE&G and Power have advanced working capital to Services. The amounts are included in Other Noncurrent Assets on PSE&G’s and Power’s Consolidated Balance Sheets.

(E)	Power’s short-term loans with PSEG are for working capital and other short-term needs. Interest Income and Interest Expense relating to these short-term funding activities were immaterial.

Note 26. Selected Quarterly Data (Unaudited)

The information shown in the following tables, in the opinion of PSEG, PSE&G and Power includes all adjustments, consisting only of normal recurring accruals, necessary to fairly present such amounts.

			Quarter Ended
			March 31, (A)								June 30, (A)								September 30,								December 31, (A)
			2018				2017				2018				2017				2018				2017				2018				2017
	PSEG Consolidated:		Millions, except per share data
	Operating Revenues		$	2,818			$	2,591			$	2,016			$	2,142			$	2,394			$	2,254			$	2,468			$	2,107
	Operating Income		$	832			$	178			$	411			$	195			$	554			$	693			$	501			$	363
	Net Income		$	558			$	114			$	269			$	109			$	412			$	395			$	199			$	956
	Earnings Per Share:
	Basic:
	Net Income		$	1.11			$	0.23			$	0.53			$	0.22			$	0.82			$	0.78			$	0.39			$	1.89
	Diluted:
	Net Income		$	1.10			$	0.22			$	0.53			$	0.22			$	0.81			$	0.78			$	0.39			$	1.88
	Weighted Average Common Shares Outstanding:
	Basic		504				505				504				505				504				505				504				505
	Diluted		507				508				507				507				507				507				508				508

			Quarter Ended
			March 31,								June 30,								September 30,								December 31,
			2018				2017				2018				2017				2018				2017				2018				2017
	PSE&G:		Millions
	Operating Revenues		$	1,845			$	1,826			$	1,386			$	1,393			$	1,595			$	1,530			$	1,645			$	1,575
	Operating Income		$	482			$	523			$	358			$	380			$	421			$	461			$	345			$	396
	Net Income		$	319			$	299			$	231			$	208			$	278			$	246			$	239			$	220

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Quarter Ended
			March 31, (A)								June 30, (A)								September 30,								December 31, (A)
			2018				2017				2018				2017				2018				2017				2018				2017
	Power:		Millions
	Operating Revenues		$	1,403			$	1,269			$	767			$	918			$	868			$	846			$	1,108			$	827
	Operating Income (Loss)		$	329			$	(305	)		$	42			$	(189	)		$	112			$	211			$	113			$	(84	)
	Net Income (Loss)		$	234			$	(170	)		$	41			$	(97	)		$	125			$	136			$	(35	)		$	610

(A)

The increases in Operating Income at PSEG consolidated and Power in the first and second quarters of 2018 as compared to the same quarters in 2017 were primarily due to higher costs in 2017 related to closing the coal/gas Hudson and Mercer units, which were fully depreciated as of June 1, 2017. The increases in Operating Income at PSEG consolidated and Power in the fourth quarter 2018 as compared to the same quarter in 2017 were primarily due to lower MTM losses and a gain on the sale of the Hudson and Mercer units.

The decreases in Net Income at PSEG consolidated and Power in the fourth quarter 2018 as compared to the same quarter in 2017 also reflected the impact of the one-time benefit recorded in December 2017 as a result of the remeasurement of deferred tax balances and the inclusion in 2018 of net unrealized losses on equity investments in the NDT Fund in accordance with new accounting guidance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 27. Guarantees of Debt

Power’s Senior Notes are fully and unconditionally and jointly and severally guaranteed by its subsidiaries, PSEG Fossil LLC, PSEG Nuclear LLC and PSEG Energy Resources & Trade LLC. The following tables present condensed financial information for the guarantor subsidiaries, as well as Power’s non-guarantor subsidiaries, as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016.

			Power				Guarantor Subsidiaries				Other Subsidiaries				Consolidating Adjustments				Total
			Millions
	Year Ended December 31, 2018
	Operating Revenues		$	—			$	4,078			$	224			$	(156	)		$	4,146
	Operating Expenses		14				3,460				232				(156		)		3,550
	Operating Income (Loss)		(14		)		618				(8		)		—				596
	Equity Earnings (Losses) of Subsidiaries		406				(28		)		15				(378		)		15
	Net Gains (Losses) on Trust Investments		(1		)		(139		)		—				—				(140		)
	Other Income (Deductions)		135				166				—				(280		)		21
	Non-Operating Pension and OPEB Credits (Costs)		—				13				2				—				15
	Interest Expense		(230		)		(96		)		(30		)		280				(76		)
	Income Tax Benefit (Expense)		69				(143		)		8				—				(66		)
	Net Income (Loss)		$	365			$	391			$	(13	)		$	(378	)		$	365
	Comprehensive Income (Loss)		$	393			$	379			$	(13	)		$	(366	)		$	393
	As of December 31, 2018
	Current Assets		$	4,317			$	1,479			$	304			$	(4,593	)		$	1,507
	Property, Plant and Equipment, net		49				4,971				3,822				—				8,842
	Investment in Subsidiaries		5,062				1,107				—				(6,169		)		—
	Noncurrent Assets		273				2,109				101				(238		)		2,245
	Total Assets		$	9,701			$	9,666			$	4,227			$	(11,000	)		$	12,594
	Current Liabilities		$	437			$	2,971			$	2,027			$	(4,593	)		$	842
	Noncurrent Liabilities		513				1,996				730				(238		)		3,001
	Long-Term Debt		2,791				—				—				—				2,791
	Member’s Equity		5,960				4,699				1,470				(6,169		)		5,960
	Total Liabilities and Member’s Equity		$	9,701			$	9,666			$	4,227			$	(11,000	)		$	12,594
	Year Ended December 31, 2018
	Net Cash Provided By (Used In) Operating Activities		$	(74	)		$	1,007			$	42			$	109			$	1,084
	Net Cash Provided By (Used In) Investing Activities		$	(402	)		$	(1,034	)		$	(406	)		$	791			$	(1,051	)
	Net Cash Provided By (Used In) Financing Activities		$	476			$	27			$	354			$	(900	)		$	(43	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Power				Guarantor Subsidiaries				Other Subsidiaries				Consolidating Adjustments				Total
			Millions
	Year Ended December 31, 2017
	Operating Revenues		$	—			$	3,821			$	174			$	(135	)		$	3,860
	Operating Expenses		8				4,159				195				(135		)		4,227
	Operating Income (Loss)		(8		)		(338		)		(21		)		—				(367		)
	Equity Earnings (Losses) of Subsidiaries		567				60				14				(627		)		14
	Net Gains (Losses) on Trust Investments		3				122				—				—				125
	Other Income (Deductions)		71				91				2				(144		)		20
	Non-Operating Pension and OPEB Credits (Costs)		—				8				—				—				8
	Interest Expense		(128		)		(49		)		(17		)		144				(50		)
	Income Tax Benefit (Expense)		(26		)		588				167				—				729
	Net Income (Loss)		$	479			$	482			$	145			$	(627	)		$	479
	Comprehensive Income (Loss)		$	518			$	529			$	145			$	(674	)		$	518
	As of December 31, 2017
	Current Assets		$	4,327			$	1,500			$	200			$	(4,686	)		$	1,341
	Property, Plant and Equipment, net		54				5,778				2,764				—				8,596
	Investment in Subsidiaries		4,844				404				—				(5,248		)		—
	Noncurrent Assets		100				2,349				110				(78		)		2,481
	Total Assets		$	9,325			$	10,031			$	3,074			$	(10,012	)		$	12,418
	Current Liabilities		$	689			$	3,586			$	1,846			$	(4,686	)		$	1,435
	Noncurrent Liabilities		533				1,966				459				(78		)		2,880
	Long-Term Debt		2,136				—				—				—				2,136
	Member’s Equity		5,967				4,479				769				(5,248		)		5,967
	Total Liabilities and Member’s Equity		$	9,325			$	10,031			$	3,074			$	(10,012	)		$	12,418
	Year Ended December 31, 2017
	Net Cash Provided By (Used In) Operating Activities		$	(42	)		$	1,185			$	238			$	(55	)		$	1,326
	Net Cash Provided By (Used In) Investing Activities		$	506			$	(448	)		$	(525	)		$	(765	)		$	(1,232	)
	Net Cash Provided By (Used In) Financing Activities		$	(464	)		$	(736	)		$	307			$	820			$	(73	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Power				Guarantor Subsidiaries				Other Subsidiaries				Consolidating Adjustments				Total
			Millions
	Year Ended December 31, 2016
	Operating Revenues		$	—			$	3,809			$	173			$	(121	)		$	3,861
	Operating Expenses		8				3,796				161				(121		)		3,844
	Operating Income (Loss)		(8		)		13				12				—				17
	Equity Earnings (Losses) of Subsidiaries		36				(3		)		11				(33		)		11
	Net Gains (Losses) on Trust Investments		1				(7		)		—				—				(6		)
	Other Income (Deductions)		52				60				—				(89		)		23
	Non-Operating Pension and OPEB Credits (Costs)		—				(4		)		—				—				(4		)
	Interest Expense		(115		)		(40		)		(18		)		89				(84		)
	Income Tax Benefit (Expense)		52				(11		)		20				—				61
	Net Income (Loss)		$	18			$	8			$	25			$	(33	)		$	18
	Comprehensive Income (Loss)		$	47			$	50			$	25			$	(75	)		$	47
	Year Ended December 31, 2016
	Net Cash Provided By (Used In) Operating Activities		$	97			$	1,442			$	323			$	(607	)		$	1,255
	Net Cash Provided By (Used In) Investing Activities		$	60			$	(707	)		$	(789	)		$	289			$	(1,147	)
	Net Cash Provided By (Used In) Financing Activities		$	(157	)		$	(736	)		$	466			$	318			$	(109	)