================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

       (Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2002

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
         For the transition period from ______________ to ______________

Commission          Registrant, State of Incorporation,        I.R.S. Employer
File Number            Address, and Telephone Number          Identification No.

 000-49614                     PSEG POWER LLC                     22-3663480
                  (A Delaware Limited Liability Company)
                               80 Park Plaza
                               P.O. Box 570
                      Newark, New Jersey 07101-0570
                               973-430-7000
                            http://www.pseg.com

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                Yes  X   No
                                    ---     ---

Registrant  is a wholly owned  subsidiary  of Public  Service  Enterprise  Group
Incorporated.  Registrant meets the conditions set forth in General  Instruction
H(1) (a) and (b) of Form  10-Q and is filing  this  Form  10-Q with the  reduced
disclosure format authorized by General Instruction H.

================================================================================


                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I. FINANCIAL INFORMATION
- -----------------------------

Item 1.     Financial Statements ..........................................    1

Item 2.     Management's Discussion and Analysis of Financial
            Condition And Results of Operations ...........................   20

Item 3.     Qualitative and Quantitative Disclosures about Market Risk ....   29

Item 4.     Controls and Procedures .......................................   29

PART II. OTHER INFORMATION
- --------------------------

Item 1.     Legal Proceedings .............................................   30

Item 5.     Other Information .............................................   30

Item 6.     Exhibits and Reports on Form 8-K ..............................   32

Signature .................................................................   33


                                       i


                          PART I. FINANCIAL INFORMATION
                          -----------------------------

                          ITEM 1. FINANCIAL STATEMENTS

                                 PSEG POWER LLC

                        CONSOLIDATED STATEMENTS OF INCOME

                                   (Millions)

                                   (Unaudited)



                                                      For the Three Months Ended     For the Nine Months Ended
                                                             September 30,                 September 30,
                                                      --------------------------     -------------------------
                                                          2002         2001             2002          2001
                                                          ----         ----             ----          ----

                                                                                         
OPERATING REVENUES.............................         $1,092         $685            $2,341        $1,919

OPERATING EXPENSES
    Energy Costs...............................            644          312             1,068           691
    Operation and Maintenance..................            178          172               553           535
    Depreciation and Amortization..............             29           28                79            83
                                                         -----         ----            ------        ------
        Total Operating Expenses...............            851          512             1,700         1,309
                                                         -----         ----            ------        ------
OPERATING INCOME...............................            241          173               641           610
Other Income and Deductions....................             --           (1)               --            (4)
Interest Expense - Net.........................            (35)         (26)              (90)         (115)
                                                         -----         ----            ------        ------
INCOME BEFORE INCOME TAXES.....................            206          146               551           491
Income Taxes...................................            (85)         (59)             (226)         (199)
                                                         -----         ----            ------        ------
NET INCOME.....................................          $ 121         $ 87            $  325        $  292
                                                         =====         ====            ======        ======


See Notes to Consolidated Financial Statements


                                       1


                                 PSEG POWER LLC

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                   (Millions)

                                   (Unaudited)

                                                 September 30,    December 31,
                                                    2002             2001
                                                 -------------    ------------

CURRENT ASSETS
   Cash and Cash Equivalents...................     $    15         $     9
   Accounts Receivable:
     Affiliated Companies......................          --              17
     Trade.....................................         324             270
   Fuel........................................         468              76
   Materials and Supplies, Net of Valuation....
     Reserves - 2002 and 2001, $2..............         137             124

    Prepayments................................          16              13
   Energy Trading Contracts....................         717             387
   Other.......................................          25               2
                                                    -------         -------
     Total Current Assets......................       1,702             898
                                                    -------         -------

PROPERTY, PLANT AND EQUIPMENT
   Property, Plant and Equipment...............       4,982           4,238
      Less: Accumulated Depreciation
         and Amortization......................      (1,378)         (1,253)
                                                    -------         -------
Net Property, Plant and Equipment..............       3,604           2,985
                                                    -------         -------

NONCURRENT ASSETS
   Deferred Income Taxes.......................         541             579
   Nuclear Decommissioning Fund................         768             817
   Energy Trading Contracts....................          46              46
   Other.......................................         316             178
                                                    -------         -------
     Total Noncurrent Assets...................       1,671           1,620
                                                    -------         -------
TOTAL ASSETS...................................     $ 6,977         $ 5,503
                                                    =======         =======

See Notes to Consolidated Financial Statements


                                       2



                                 PSEG POWER LLC

                           CONSOLIDATED BALANCE SHEETS

                         LIABILITIES AND CAPITALIZATION

                                   (Millions)

                                   (Unaudited)



                                                                   September 30,       December 31,
                                                                        2002               2001
                                                                   -------------       ------------

                                                                                   
CURRENT LIABILITIES
      Accounts Payable:
          Affiliated Companies..................................      $    87             $   --
          Trade.................................................          354                333
     Energy Trading Contracts...................................          665                386
     Other .....................................................          285                111
                                                                       ------             ------
      Total Current Liabilities.................................        1,391                830
                                                                       ------             ------

NONCURRENT LIABILITIES
     Nuclear Decommissioning....................................          768                817
     Cost of Removal............................................          142                146
     Environmental..............................................           53                 53
     Energy Trading Contracts...................................           42                 54
     Other .....................................................           88                 58
                                                                       ------             ------
       Total Noncurrent Liabilities.............................        1,093              1,128
                                                                       ------             ------

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 3).............
CAPITALIZATION

Long-Term Debt

     Project Level, Non-Recourse Debt...........................          800                770
     Long-Term Debt.............................................        2,515              1,915
                                                                       ------             ------
     Total Long-Term Debt.......................................        3,315              2,685
                                                                       ------             ------

MEMBER'S EQUITY
     Contributed Capital........................................        1,350              1,350
     Basis Adjustment...........................................         (986)              (986)
     Retained Earnings..........................................          823                498
     Accumulated Other Comprehensive Loss.......................           (9)                (2)
                                                                       ------             ------
     Total Member's Equity......................................        1,178                860
                                                                       ------             ------
TOTAL LIABILITIES AND CAPITALIZATION............................       $6,977             $5,503
                                                                       ======             ======


See Notes to Consolidated Financial Statements


                                       3


                                 PSEG POWER LLC

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Millions)

                                   (Unaudited)



                                                                             For the Nine Months Ended September 30,
                                                                             ---------------------------------------
                                                                                      2002              2001
                                                                                      ----              ----

                                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income ..............................................................          $ 325            $   292
  Adjustments to reconcile net income to net cash flows from
   operating activities:
    Depreciation and Amortization .........................................             79                 83
    Amortization of Nuclear Fuel ..........................................             68                 76
    Provision for Deferred Income Taxes and Investment Tax Credit (ITC) ...             43                 52
    Non-Cash Benefit Plan Costs ...........................................             24                 16
    Unrealized (Gains) Losses .............................................            (50)                 4
    Net Changes in certain current assets and liabilities:
       Accounts Receivable ................................................            (37)                46
       Inventory Fuel, Materials and Supplies .............................           (405)               (14)
       Accrued Taxes ......................................................            (19)                 4
       Accrued Interest ...................................................             20                 87
       Accounts Payable ...................................................            108               (124)
       Other Current Assets and Liabilities ...............................            150                (30)
    Benefit Plan Funding ..................................................            (75)               (28)
    Other .................................................................            (81)               (28)
                                                                                     -----            -------
       Net Cash Provided By Operating Activities ..........................            150                436
                                                                                     -----            -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Property, Plant and Equipment ..............................           (792)            (1,246)
  Proceeds from Sale of Property, Plant and Equipment .....................            47                  --
  Contributions to Nuclear Decommissioning Trust Fund .....................            (25)               (22)
                                                                                     -----            -------
       Net Cash Used In Investing Activities ..............................           (770)            (1,268)
                                                                                     -----            -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of Long-Term Debt ..............................................            630              2,432
  Repayment of Note Payable-Affiliated Company ............................             --             (2,786)
  Contributed Capital .....................................................             --              1,200
  Deferred Issuance Costs .................................................             (4)               (28)
                                                                                     -----            -------
       Net Cash Provided By Financing Activities ..........................            626                818
                                                                                     -----            -------
Net Change In Cash And Cash Equivalents ...................................              6                (14)
Cash And Cash Equivalents At Beginning Of Period ..........................              9                 20
                                                                                     -----            -------
Cash And Cash Equivalents At End Of Period ................................          $  15            $     6
                                                                                     =====            =======
Income Taxes Paid .........................................................          $ 170            $   118
Interest Paid .............................................................          $ 111            $   119


See Notes to Consolidated Financial Statements


                                       4


================================================================================
                                 PSEG Power LLC
================================================================================
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Note 1. Organization and Basis of Presentation

Organization

Unless the context otherwise indicates, all references to "Power," "we," "us" or
"our" herein means PSEG Power LLC and its  consolidated  subsidiaries.  We are a
Delaware limited  liability  company with our principal  executive offices at 80
Park Plaza, Newark, New Jersey 07102. We are a wholly-owned subsidiary of Public
Service   Enterprise  Group   Incorporated   (PSEG).

We are an independent  wholesale  energy supply company that has three principal
direct  wholly-owned  subsidiaries:  PSEG Nuclear LLC (Nuclear),  which owns and
operates nuclear generating stations, PSEG Fossil LLC (Fossil),  which develops,
owns and operates domestic fossil generating  stations and PSEG Energy Resources
& Trade LLC  (ER&T).  We also  have a finance  company  subsidiary,  PSEG  Power
Capital Investment Co. (Power Capital), which provides certain financing for its
subsidiaries.

Basis of Presentation

The financial  statements  included  herein have been  prepared  pursuant to the
rules and regulations of the Securities and Exchange  Commission  (SEC) for Form
10-Q.  Certain  information and note disclosures  normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to such rules and regulations.  However,
in the opinion of management,  the  disclosures  herein are adequate to make the
information  presented not misleading.  These Consolidated  Financial Statements
and  Notes  to  Consolidated  Financial  Statements  (Notes)  should  be read in
conjunction  with the notes  contained in our Annual Report on Form 10-K and our
amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2002 and
our  Quarterly  Report on Form 10-Q for the quarter  ended June 30, 2002.  These
Notes update and supplement  matters discussed in our Annual Report on Form 10-K
and our amended  Quarterly Report on Form 10-Q/A for the quarter ended March 31,
2002 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

The unaudited  financial  information  furnished  reflects all adjustments which
are, in the opinion of management, necessary to fairly state the results for the
interim  periods  presented.  All such  adjustments  are of a  normal  recurring
nature. The year-end  consolidated  balance sheets were derived from the audited
consolidated  financial  statements  included in our 2001 Annual  Report on Form
10-K. Certain  reclassifications  of prior period data have been made to conform
with the current presentation.

Several  factors  impacting  Power in the quarter ended  September 30, 2002 also
impact the presentation of Power's financial statements presented herein. In the
third quarter,  Power adopted  Emerging Issues Task Force Issue No. 02-3,  which
requires that we report energy  trading  revenues and energy  trading costs on a
net basis.  See Note 2. Recent  Accounting  Pronouncements.  In  addition,  as a
result of these and other  changes  in our  business,  we also  reevaluated  our
segment  presentation  and have determined that Power operates in one integrated
business segment. See Note 6. Financial Information By Business Segment.

Under the Basic Generation Service (BGS) contract,  which terminated on July 31,
2002,  Power sold energy directly to PSE&G which in turn sold this energy to its
customers. These revenues were properly recognized on each company's stand-alone
financial  statements  and  were  eliminated  when  preparing  our  consolidated
financial statements.  For the new BGS contract period beginning August 1, 2002,
Power sells  energy to third party  suppliers  and other load  serving  entities
(LSEs) and PSE&G purchases the energy for its customers'  needs from third party
suppliers.


                                       5


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

Note 2. Recent Accounting Pronouncements

Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142)

On January 1, 2002, we adopted SFAS 142. Under SFAS 142,  goodwill is considered
a nonamortizable  asset and is subject to an annual review for impairment and an
interim review when  indications of impairment  arise.  In 2001, we had recorded
goodwill  of  approximately  $21 million as a result of our  acquisition  of the
Albany,  NY Steam  Station from Niagara  Mohawk Power  Corporation  in May 2000.
Prior to January 1, 2002,  this amount was  amortized  in  accordance  with then
current  accounting  guidance at  approximately  $0.5  million  per year.  As of
January 1, 2002, we no longer amortize  goodwill.  We completed our transitional
analysis of goodwill  impairment  as  required by SFAS 142 and  determined  that
there was no impairment to our recorded goodwill.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144)

On January 1, 2002, we adopted SFAS 144. Upon adoption, SFAS 144 did not have an
effect on our  financial  position  or  results of  operations.  Under SFAS 144,
long-lived  assets to be disposed of are  measured at the lower of the  carrying
amount  or fair  value  less cost to sell.  Also  under  SFAS 144,  discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. Also, as previously required by
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121), SFAS 144 requires that a long-lived  asset
must be tested  for  impairment  whenever  events or  changes  in  circumstances
indicate that its carrying amount may be impaired.

Emerging Issues Task Force (EITF) Issue No. 02-3, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities" (EITF 02-3)

In June 2002,  the EITF  addressed  certain  issues  related  to energy  trading
activities,  including gross versus net presentation in the income statement and
additional  disclosure  requirements  for energy  trading  activities.  The EITF
determined that gains and losses on energy trading contracts should be shown net
of trading costs in the income statement. This change is applicable to financial
statements  for  periods  ending  after July 15,  2002 and  requires  that prior
periods be restated for comparability.

In October 2002, the EITF reached a final consensus regarding the accounting for
contracts involved in energy trading and risk management activities.  Management
does not yet know the impact of adopting this  consensus on January 1, 2003.

Pursuant to EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus
Net as an Agent" (EITF 99-19),  we previously  recorded our trading revenues and
trading  related costs on a gross basis for physical  energy and capacity  sales
and purchases.  In accordance with EITF 02-3,  beginning in the third quarter of
2002, we started reporting energy trading revenues and energy trading costs on a
net  basis  and  have  reclassified  prior  periods  to  conform  with  this net
presentation.  As a result, both trading revenues and trading costs were reduced
by approximately  $748 million and $636 million for the quarters ended September
30, 2002 and 2001, respectively,  and $1.5 billion and $1.7 billion for the nine
month periods ended  September 30, 2002 and 2001,  respectively.  This change in
presentation  did not have an  effect on  trading  margins,  net  income or cash
flows.


                                       6


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143)

In July 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS 143.
Under SFAS 143, the fair value of a liability for an asset retirement obligation
(ARO) is required  to be recorded in the period in which it is incurred  with an
offsetting  amount recorded as an asset.  Upon  settlement of the liability,  an
entity either settles the obligation for its recorded amount or incurs a gain or
loss. SFAS 143 is effective for fiscal years beginning after June 15, 2002.

In August 2002,  PSE&G filed a petition  requesting  clarification  from the BPU
regarding  the  future  cost  responsibility  for  nuclear  decommissioning  and
whether,  as a matter of law and policy;  (a) PSE&G's customers will continue to
pay for such  costs  through  the  Societal  Benefits  Clause  (SBC) or (b) such
customer  responsibility  will terminate at the end of the four-year  transition
period on July 31, 2003. We cannot predict the outcome of this matter.

Upon adoption of the standard,  we will likely be required to adjust our Nuclear
Decommissioning  Liability  ($768 million,  pre-tax as of September 30, 2002) to
reflect the present value of our expected asset  retirement  obligation.  If the
BPU determines that PSE&G's customers  continue to pay for these costs, then the
difference  between  the  recorded  amount of the  liability  and the  liability
calculated  under the new ARO standard will be deferred on the balance sheet. If
the BPU determines  that such customer  responsibility  terminates at the end of
the transition  period,  then the difference  between the recorded amount of our
existing liability and the liability  calculated under the new ARO standard will
be  recorded  as a  one-time  benefit  as a  Cumulative  Effect  of a Change  in
Accounting Principle. In conjunction with the implementation of SFAS 143, we may
change our method of  accounting  for Cost of Removal  for our Fossil  Stations,
which  would  substantially  reduce the Cost of Removal  Liability  that we have
recorded for our Fossil  stations of $142  million,  pre-tax as of September 30,
2002.  We  currently  believe  that we will have no  material  legal  retirement
obligation under the new standard for our Fossil stations,  therefore the amount
of that  liability at the time we adopt SFAS 143 will  reverse into income.  The
impact of  adopting  SFAS 143 is still being  determined,  and is likely to be a
material benefit to our financial position and results of operations.

Although  the  impact  of this  standard  on  future  expenses  is  still  being
determined, our present analyses indicate that ongoing depreciation and interest
expense (to  accrete  from the ARO  liability,  which is recorded at its present
value, to the ultimate  liability)  will  approximate our current expense levels
over our five  year  planning  horizon.  However,  under  current  GAAP we could
experience significant volatility in earnings since the Nuclear  Decommissioning
Trust  Fund's  assets  would be required to be marked to market with  unrealized
gains and losses  recognized  in Other  Comprehensive  Income (OCI) and realized
gains and losses recognized through earnings. Previously, these gains and losses
were offset by changes in the Nuclear  Decommissioning  Liability with no effect
on earnings.  We are  currently  considering  various  methods to mitigate  this
volatility, including multiple financial products, although no assurances can be
given.

SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" (SFAS 145)

During the third quarter of 2002, we adopted SFAS 145. This  Statement  rescinds
SFAS No. 4, "Reporting Gains and Losses from  Extinguishments of Debt," (SFAS 4)
and an amendment of that Statement,  SFAS No. 64,  "Extinguishments of Debt Made
to Satisfy Sinking Fund Requirements"  (SFAS 64). SFAS 4 required that gains and
losses from  extinguishments  of debt that were included in the determination of
net income be aggregated, and if material,  classified as an extraordinary item.
Since the issuance of SFAS 4, the use of debt extinguishments has become part of
the risk  management  strategy of many  companies,  representing  a type of debt
extinguishment  that  does  not  meet  the  criteria  for  classification  as an
extraordinary item. Based on this trend, the FASB issued this rescission of SFAS
4 and SFAS 64. Accordingly,  under SFAS 145, we will record any gains and losses
from


                                       7


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

extinguishments of debt in Other Income or Other Deductions. We adopted SFAS 145
retroactive to January 1, 2002, with no impact to our financial position,
results of operations, or net cash flows.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146)

In June 2002,  the FASB issued  SFAS No.  146,  which  addresses  the  financial
accounting and reporting for costs associated with exit or disposal  activities.
SFAS 146 states that a liability for a cost  associated with an exit or disposal
activity  shall be  recognized  and measured  initially at its fair value in the
period when the  liability is incurred.  A liability  is  established  only when
present obligations to others are determined,  meaning that an entity has little
or no  discretion  to avoid the future costs to settle the  liability.  SFAS 146
does not apply to costs  associated  with the  retirement of  long-lived  assets
covered in SFAS 143. It applies to costs  associated  with an exit activity that
does not involve an entity newly  acquired in a business  combination  or with a
disposal  activity  covered  by SFAS  144.  We will  apply  SFAS 146 for exit or
disposal  activities  initiated  after December 31, 2002, in accordance with the
effective date of the standard.

Note 3. Commitments And Contingent Liabilities

Guaranteed Obligations

We  have  guaranteed  payment  of  obligations  incurred  under  energy  trading
contracts of our subsidiary, ER&T, with various counterparties up to established
dollar limits.  The established  dollar limits of those  guarantees on behalf of
counterparties  totaled  approximately  $1 billion at  September  30,  2002.  In
addition,  we have guaranteed payment of all amounts owed to PJM by ER&T without
a stated dollar limit. The outstanding amount of exposure under those guarantees
totaled $166 million as of September 30, 2002  representing  the amount  payable
under  these  contracts  and the net  amount by which open  contracts  are below
market.

As of  September  30,  2002,  we  issued  letters  of  credit  in the  amount of
approximately $73 million in support of various contractual obligations.

In  addition,  certain  International  Swap Dealer  Agreements  (ISDA) and other
supply  contracts  contain margin  requirements  that, as of September 30, 2002,
would require us to post collateral of approximately  $270 million if our credit
ratings are downgraded below investment grade.

Environmental

Hazardous Waste

The New  Jersey  Department  of  Environmental  Protection  (NJDEP)  regulations
concerning site investigation and remediation  require an ecological  evaluation
of  potential  injuries  to  natural  resources  in  connection  with a remedial
investigation  of  contaminated  sites.  The  NJDEP is  presently  working  with
industry  to  develop  procedures  for  implementing  these  regulations.  These
regulations may substantially increase the costs of remedial  investigations and
remediations,  where necessary,  particularly at sites situated on surface water
bodies. We and our predecessor companies own or owned and/or operate or operated
certain  facilities  situated  on  surface  water  bodies,  certain of which are
currently  the subject of remedial  activities.  The  financial  impact of these
regulations on these projects is not currently  estimable.  We do not anticipate
that the compliance with these  regulations  will have a material adverse effect
on our financial position, results of operations or net cash flows.


                                       8


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

Passaic River Site

The United States  Environmental  Protection  Agency (EPA) has determined that a
stretch of the Passaic  River in Newark,  New Jersey is a "facility"  within the
meaning of that term under the  Federal  Comprehensive  Environmental  Response,
Compensation  and  Liability  Act of 1980  (CERCLA) and that,  to date, at least
thirteen  entities,  including  us, may be  potentially  liable  for  performing
required  remedial actions to address potential  environmental  pollution at the
Passaic  River  "facility".  In  a  separate  matter,  we  and  certain  of  our
predecessors  operated  industrial  facilities at properties  within the Passaic
River "facility",  including the Essex Generating Station. We have contracted to
sell the site of the former  generating  station,  contingent  upon  approval by
state regulatory agencies,  to a third party that would release and indemnify us
for claims arising out of that site. We cannot predict what action,  if any, the
EPA or any third party may take against us with respect to these matters,  or in
such event,  what costs we may incur to address any such claims.  However,  such
costs may be material.

Prevention of Significant Deterioration (PSD)/New Source Review (NSR)

In  January  2002,  we  reached  an  agreement  with the state  and the  federal
government to resolve  allegations of  noncompliance  with federal and state NSR
regulations.  Under that  agreement,  we will  install  advanced  air  pollution
controls over 12 years that are expected to  significantly  reduce  emissions of
nitrogen oxides (NOx), sulfur dioxide (SO2) particulate matter, and mercury from
the Hudson and Mercer coal burning  units.  The estimated cost of the program is
$355  million  and such  costs,  when  incurred,  will be  capitalized  as plant
additions.

New Generation and Development

We  have  revised  our  schedules  for  completion  of  several  projects  under
development  to provide  better  sequencing  of our  construction  program  with
anticipated market demand.  This delay will allow us to conserve capital in 2003
and allow us to take advantage of the expected  recovery of the electric markets
and their need for capacity in 2005.

PSEG Power New York Inc., an indirect,  wholly-owned  subsidiary,  is developing
the  Bethlehem  Energy  Center,  a 763 MW  combined-cycle  power plant that will
replace the 380 MW Albany,  NY Steam  Station.  Total costs for this project are
expected  to  be  approximately  $465  million  with  expenditures  to  date  of
approximately  $114  million.  Construction  began  in 2002  with  the  expected
completion date in 2005, at which time the existing station will be retired.

We are constructing a 1,218 MW combined cycle  generation  plant at Linden,  New
Jersey with costs estimated at  approximately  $694 million and  expenditures to
date of  approximately  $520  million.  Completion is expected in 2005, at which
time 451 MW of existing generating capacity will be retired.

We are constructing  through indirect,  wholly-owned  subsidiaries,  two natural
gas-fired combined cycle electric generation plants in Waterford,  Ohio (821 MW)
and Lawrenceburg, Indiana (1,096 MW) at an estimated total cost of $1.2 billion.
Total  expenditures  to date on these  projects  have  been  approximately  $1.1
billion.   The  required  estimated  equity  investment  in  these  projects  is
approximately $400 million,  with the remainder being financed with non-recourse
bank financing.  As of September 30, 2002,  approximately $247 million of equity
has been invested in these projects. In connection with these projects, ER&T has
entered into a five-year tolling agreement  pursuant to which it is obligated to
purchase the output of these facilities. The agreement may expire if the current
financing is repaid within five years.  Additional  equity  contributions may be
required by us to the project company if the purchase price of electricity under
this contract, which will be determined prior to commercial operations,  results
in revenues that are less than the required  payments under the bank  financing.
Based on  current  market  prices,  it is  anticipated  that  additional  equity
contributions will be required. The Waterford facility is currently scheduled to
achieve  commercial  operation  in  June  2003.  The  Lawrenceburg  facility  is
currently scheduled to achieve commercial operation in December 2003.


                                       9


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)


We have entered into an agreement  to purchase  Wisvest-Connecticut  LLC,  which
holds  two  electric  generating  stations  in  Connecticut,  at a cost  of $220
million.  The agreement also calls for purchase  price  adjustments of up to $20
million  for  various  expenditures  made prior to  closing,  as well as closing
adjustments for fuel and inventory.  The coal, oil, and gas-fired  plants have a
total  capacity  of 1,019 MW. The  transaction  is  subject  to various  Federal
approvals.  The transfer of the two stations triggered the Connecticut  Transfer
Act, which requires the commencement of any necessary remedial activities within
three years of the transfer of the  property.  While the cost to comply with the
Transfer  Act to clean up former  petroleum  coke  operations  at one of the two
stations  is still  unknown,  estimated  costs are  between  $10 million and $20
million.  No  assurances  can be given as to the ultimate  remediation  costs at
these  facilities,  however they could be  material.  We expect to close on this
acquisition  in the  fourth  quarter  of  2002,  subsequent  to  Federal  Energy
Regulatory  Commission  (FERC) approval and our performance based testing of the
units.

We also have contracts with outside  parties to purchase  upgraded  turbines for
the Salem  Nuclear  Generating  Station  Units 1 and 2 and to purchase  upgraded
turbines  and to purchase a power  uprate for Hope Creek  Generating  Station to
increase  its  generating  capacity.  The  contracts  are subject to  regulatory
approval  and are  currently  scheduled to be completed by 2004 for Salem Unit 1
and Hope  Creek and 2006 for Salem  Unit 2. Our  aggregate  estimated  costs for
these projects are $210 million.

We have  commitments to purchase gas turbines  and/or other services to meet our
current plans to develop additional  generating  capacity.  The aggregate amount
due under these commitments is approximately  $480 million,  approximately  $370
million of which is  included  in  estimated  costs for the  projects  discussed
above. The approximate $110 million remaining relates to obligations to purchase
hardware and services that have not been designated to any specific projects. If
we do not  contract to satisfy our  commitment  relating to the $110  million in
obligations by July 2003, we will be subject to penalties of up to $24 million.

Minimum Fuel Purchase Requirements

We use coal for our fossil fueled electric generation stations. We purchase coal
through  various  contracts and in the spot market.  The total minimum  purchase
requirements  included in these contracts  amount to  approximately  $72 million
through 2003.

We have several long-term purchase contracts with uranium suppliers, converters,
enrichers and fabricators to meet the currently  projected fuel requirements for
Salem and Hope Creek. Our remaining minimum purchase  requirement for 2002 under
these  contracts  is  approximately  $20  million.  On average,  we have various
multi-year requirements-based purchase commitments that total approximately $100
million per year to meet Salem and Hope Creek fuel needs.  We have been  advised
by Exelon  Corporation,  the co-owner  and  operator of the Peach Bottom  Atomic
Power Station (Peach Bottom) that it has similar  purchase  contracts to satisfy
the fuel requirements for Peach Bottom.

Nuclear Fuel Disposal

Under the Nuclear  Waste  Policy Act of 1982  (NWPA),  as  amended,  the Federal
government has entered into contracts with the operators of nuclear power plants
for


                                       10


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

transportation  and ultimate disposal of the spent nuclear fuel. To pay for this
service, the nuclear plant owners were required to contribute to a Nuclear Waste
Fund  at a rate  of one  mil per  kWh of  nuclear  generation,  subject  to such
escalation  as may be  required  to assure  full cost  recovery  by the  Federal
government.  These  costs  were being  recovered  through  the Basic  Generation
Service  (BGS)  contract  through July 2002.  Payments made to the United States
Department  of Energy (DOE) for disposal  costs are based on nuclear  generation
and are included in Energy Costs in the Consolidated Statements of Income.

Under the NWPA,  the DOE was  required to begin taking  possession  of the spent
nuclear  fuel by no later  than  1998.  The DOE has  announced  that it does not
expect a facility to be available  earlier than 2010. Exelon has advised us that
it had signed an agreement  with the DOE  applicable to Peach Bottom under which
Exelon would be reimbursed for costs incurred  resulting from the DOE's delay in
accepting spent nuclear fuel. The agreement  allows Exelon to reduce the charges
paid to the Nuclear Waste Fund to reflect costs  reasonably  incurred due to the
DOE's  delay.  Past and  future  expenditures  associated  with  Peach  Bottom's
recently  completed  on-site dry  storage  facility  would be eligible  for this
reduction  in DOE fees.  Under this  agreement,  our  portion of Peach  Bottom's
Nuclear Waste Fund fees have been reduced by  approximately  $18 million through
August 31, 2002, at which point the credits were fully  utilized and covered the
cost of Exelon's storage facility.

In 2000, a group of eight utilities filed a petition against the DOE in the U.S.
Court of Appeal,  for the Eleventh Circuit,  seeking to set aside the receipt of
credits by Exelon out of the Nuclear  Waste  Fund,  as  stipulated  in the Peach
Bottom  agreement.  On September  24, 2002,  the U.S.  Court of Appeal,  for the
Eleventh  Circuit,  issued an opinion upholding the challenge by the petitioners
regarding the settlement agreement's compensation provisions. Under the terms of
the  agreement,  DOE and Exelon  Generation  are  required  to meet and  discuss
alternative funding sources for the settlement  credits.  The agreement provides
that if such negotiations are unsuccessful, the agreement will be null and void.
Any payments  required by us resulting  from a  disallowance  of the  previously
reduced fees would be included in Energy Costs in the Consolidated Statements of
Income.

In February  2002,  President Bush announced that Yucca Mountain in Nevada would
be the permanent  disposal  facility for nuclear  wastes.  On April 8, 2002, the
Governor of Nevada submitted his veto to the siting  decision.  On July 9, 2002,
Congress  affirmed  the  President's  decision.  The DOE must still  license and
construct the facility.  No assurances can be given  regarding the final outcome
of this matter.

Note 4. Financial Instruments, Energy Trading and Risk Management

Our operations are exposed to market risks from changes in commodity  prices and
interest  rates  that could  affect our  results  of  operations  and  financial
conditions.  We manage our exposure to these  market  risks  through our regular
operating and financing  activities  and, when deemed  appropriate,  hedge these
risks through the use of derivative


                                       11


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

financial  instruments.  We use the term  hedge to mean a strategy  designed  to
manage  risks of  volatility  in prices or rate  movements  on  certain  assets,
liabilities or anticipated  transactions and by creating a relationship in which
gains or losses on derivative  instruments  are expected to  counterbalance  the
losses or gains on the assets,  liabilities or anticipated  transactions exposed
to such market risks.  We use derivative  instruments as risk  management  tools
consistent with our business plans and prudent business practices and for energy
trading purposes.

Energy Trading Contracts

We maintain a strategy of entering into trading  positions to optimize the value
of our portfolio of generation assets and supply  obligations.  We do not engage
in the practice of  simultaneous  trading for the purpose of increasing  trading
volume or  revenue.  We engage in physical  and  financial  transactions  in the
electricity wholesale markets and execute an overall risk management strategy to
mitigate the effects of adverse  movements in the fuel and electricity  markets.
We actively trade energy and  energy-related  products,  including  electricity,
natural gas, electric  capacity,  fixed transmission  rights,  coal and emission
allowances,   in  the  spot,   forward  and  futures   markets,   primarily   in
Pennsylvania-New  Jersey-Maryland Power Pool (PJM), and electricity in the Super
Region,  which  extends from Maine to the  Carolinas  and the Atlantic  Coast to
Indiana and natural gas in the producing region, the Henry Hub Basin, as well as
the Super Region. These contracts also involve financial  transactions including
swaps, options and futures.

These  contracts  are recorded  under  Emerging  Issues Task Force (EITF) 98-10,
"Accounting  for  Contracts  Involved  in  Energy  Trading  and Risk  Management
Activities"  (EITF 98-10) which requires these contracts to be  marked-to-market
with the resulting  realized and unrealized gains and losses included in current
earnings.  In prior  periods we  disclosed  gains and losses  related to certain
activities  within our trading  segment.  Commencing  with our change in segment
reporting  discussed in Note 6. Financial  Information by Business Segments,  we
have excluded certain  transactions,  such as firm transmission rights and Basic
Gas Supply Service (BGSS)  results,  from this table and solely report gains and
losses on transactions accounted for pursuant to EITF-98-10. There was no change
in our  margins,  net  income  or cash  flows  as a  result  of this  change  in
presentation.   Prior  periods  have  been   reclassified  to  conform  to  this
presentation.


                                       12


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

For the three months and nine months ended  September  30, 2002, we recorded net
margins of $9 million and $36 million, respectively, as shown below:



                                                     For the Three Months Ended        For the Nine Months Ended
                                                           September 30,                     September 30,
                                                     --------------------------        -------------------------
                                                         2002          2001               2002           2001
                                                         ----          ----               ----           ----
                                                             (Millions)                       (Millions)

                                                                                            
Realized Gains ..................................        $ 17          $ 38               $ 16          $ 109
Unrealized Gains ................................          (5)           (4)                27             10
                                                         ----          ----               ----          -----
  Gross Margin ..................................          12            34                 43            119
                                                         ----          ----               ----          -----
Broker Fees and Other Trading-Related Expense ...          (3)           (2)                (7)            (4)
                                                         ----          ----               ----          -----
  Net Margin ....................................        $  9          $ 32               $ 36          $ 115
                                                         ====          ====               ====          =====


As of September 30, 2002 and December 31, 2001,  substantially all of our energy
contracts  had  terms  of two  years  or less and  were  valued  through  market
exchanges and, where necessary,  broker quotes. The fair values of the financial
instruments  related to the energy  commodities  are summarized in the following
table:



                                                  September 30, 2002                    December 31, 2001
                                            ------------------------------        -----------------------------
                                            Notional    Notional     Fair         Notional   Notional      Fair
                                              (mWh)      (MMBTU)     Value         (mWh)      (MMBTU)      Value
                                            --------    --------     -----        --------   --------      -----
                                                       (Millions)                          (Millions)

                                                                                         
Listed Futures and Options.............        --            12       $ 2            --          14        $ (1)
Physical forwards......................        48            --         4            35          --          (3)
Options OTC............................        14           286         5             7         713         (19)
Swaps..................................         5         2,152         9             6         970          19
Emission Allowances....................        --            --        15            --          --           8
                                               --         -----       ---            --       -----        ----
     Totals............................        67         2,450       $35            48       1,697        $  4
                                               ==         =====       ===            ==       =====        ====


We routinely enter into  exchange-traded  futures and options  transactions  for
electricity and natural gas as part of our energy trading operations. Generally,
exchange-traded  futures contracts require deposit of margin cash, the amount of
which is subject  to change  based on market  movement  and in  accordance  with
exchange  rules.  The amount of the margin deposits as of September 30, 2002 was
approximately $9 million.

Derivative Instruments and Hedging Activities

Commodity Contracts

The  availability  and price of energy  commodities  are subject to fluctuations
from  factors  such as weather,  environmental  policies,  changes in supply and
demand,  state and federal regulatory policies and other events. To reduce price
risk  caused  by  market  fluctuations,  we  enter  into  derivative  contracts,
including forwards, futures, swaps and options with approved counterparties,  to
hedge our  anticipated  demand.  These  contracts,  in  conjunction  with  owned
electric generation capacity,  are designed to cover estimated electric customer
commitments.

In February 2002, New Jersey  conducted an auction to identify energy  suppliers
for the BGS of the State's  regulated  distribution  utilities  for the one-year
period  beginning  on August 1, 2002.  We did not  participate  directly  in the
auction but agreed to supply power to several of the


                                       13


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

direct bidders.  Subsequently, a portion of the contracts with those bidders was
reassigned  to us.  Therefore,  for a limited  portion of the New Jersey  retail
load, we will be a direct supplier to one non-affiliated utility.

In order to hedge a portion of our forecasted  energy  purchases to meet our BGS
requirements,  we entered into forward purchase contracts,  futures, options and
swaps. We have also forecasted the energy delivery from our generating  stations
based on the forward  price curve  movement of energy and, as a result,  entered
into swaps,  options and futures  transactions to hedge the price of gas to meet
our gas purchases requirements for generation.  These transactions qualified for
hedge  accounting  treatment  under  SFAS No.  133  "Accounting  for  Derivative
Instruments  and Hedging  Activities"  (SFAS 133). As of September 30, 2002, the
fair value of these  hedges were $17 million  with  offsetting  charges to Other
Comprehensive Income (OCI) of $10 million (after-tax).  These hedges will mature
through 2003.

Also, prior to May 2002, PSE&G had entered into gas forwards,  futures,  options
and  swaps to hedge its  forecasted  requirements  for  natural  gas,  which was
required under an agreement with the BPU in 2001. Effective with the transfer of
PSE&G's  gas  contracts  to us on May  1,  2002,  we  also  acquired  all of the
derivatives  entered into by PSE&G. We account for these derivative  instruments
pertaining  to  residential  customers  in a manner  similar to PSE&G.  Gains or
losses from these  derivatives are deferred and will be recovered from customers
as part of the monthly billing to PSE&G.  Derivatives relating to commercial and
industrial  customers  will be accounted for in  accordance  with SFAS 133 where
appropriate. Gains or losses on these derivatives are deferred and reported as a
component of OCI. There was no ineffectiveness associated with these hedges. The
accumulated  OCI will be  reclassified  to  earnings  in the period in which the
hedged  transaction  affects  earnings.   As  of  September  30,  2002,  we  had
approximately  328 MMBTU of gas  forwards,  futures,  options and swaps to hedge
forecasted  requirements  with a fair value of approximately  $7 million.  As of
December 31, 2001, PSE&G had approximately  330 MMBTU of gas forwards,  futures,
options  and  swaps  to  hedge  forecasted  requirements  with a fair  value  of
approximately   $(137)   million.   The  maximum  term  of  these  contracts  is
approximately one year.

We also enter into certain  other  contracts  which are  derivatives  but do not
qualify for hedge  accounting  under SFAS 133, nor are they classified as energy
trading contracts under EITF 98-10. Most of these contracts are option contracts
on gas purchases  for  generation  requirements,  which do not qualify for hedge
accounting  and therefore  the changes in fair market value of these  derivative
contracts  are  recorded in the income  statement  at the end of each  reporting
period.

For the three and nine months  ended  September  30,  2002,  we  recorded  gains
(losses)  on certain  derivative  contracts  of $(6)  million  and $24  million,
respectively, as shown below:

                                    Three Months Ended     Nine Months Ended
                                      September 30,           September 30,
                                    ------------------     -----------------
                                    2002          2001     2002         2001
                                    ----          ----     ----         ----
                                        (Millions)           (Millions)
Realized (Losses) Gains......       $(7)          $17      $ 1          $17
Unrealized (Losses) Gains....         1            (6)      23          (14)
                                    ---           ---      ---           --
  Gross Margin...............       $(6)          $11      $24           $3
                                    ===           ===      ===           ==


                                       14


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

As of September 30, 2002 and December 31, 2001,  substantially all of our energy
contracts  had  terms  of two  years  or less and  were  valued  through  market
exchanges and, where necessary,  broker quotes. The fair values of the financial
instruments  related to the energy  commodities  are summarized in the following
table:



                                                 September 30, 2002                  December 31, 2001
                                           ------------------------------      ------------------------------
                                           Notional    Notional     Fair       Notional    Notional     Fair
                                            (mWh)      (MMBTU)      Value        (mWh)     (MMBTU)      Value
                                           --------    --------     -----      --------    --------     -----
                                                      (Millions)                           (Millions)
                                                                                         
Listed Futures and Options............        --          32         $ 2          --          --         --
Options OTC.........................          --          63          --           1         148        $(6)
Swaps.................................        --          41         $14          --          11          1
                                              --         ---         ---          --         ---        ---
Totals................................        --         136         $16           1         159        $(5)
                                              ==         ===         ===          ==         ===        ===


Fair Value of Financial Instruments

The estimated fair values were determined using the market  quotations or values
of instruments  with similar terms,  credit  ratings,  remaining  maturities and
redemptions at September 30, 2002 and December 31, 2001, respectively.

                                      September 30, 2002       December 31, 2001
                                      ------------------      ------------------
                                      Carrying     Fair       Carrying     Fair
                                       Amount      Value       Amount      Value
                                      --------     -----      --------     -----
                                                      (Millions)
Long-Term Debt:
   Power Senior Notes............      $2,400     $2,461       $1,800     $1,942
      Pollution Control..........         124        126          124        124
      Non-Recourse Debt..........         800        800          770        770
                                       ------     ------       ------     ------
Principal Amount Outstanding.....       3,324      3,387        2,694      2,836
                                       ------     ------       ------     ------
Net Unamortized Discount.........          (9)        --           (9)        --
                                       ------     ------       ------     ------
Total Long Term Debt                   $3,315     $3,387       $2,685     $2,836
                                       ======     ======       ======     ======

As of  October  31,  2002,  the fair value of the  long-term  debt for Power had
declined to estimated fair value of approximately $3.1 billion.


                                       15


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

Note 5. Income Taxes

A tax expense has been  recorded for the results of  continuing  operations.  An
analysis of that provision is as follows:



                                                            Three Months Ended       Nine Months Ended
                                                               September 30,           September 30,
                                                            ------------------       -----------------
                                                            2002         2001        2002        2001
                                                            ------------------       -----------------
                                                                 (Millions)              (Millions)
                                                                                     
Pre-Tax Income.......................................       $206        $146         $551        $491

Tax Computed at the Federal Statutory Rate at 35%....         72          51          193         172
Increases (decreases) from Federal statutory rate
attributable to:
   State Income Taxes after Federal Benefit..........         12          10           32          29
   Other.............................................          1          (2)           1          (2)
                                                            ----        ----         ----        ----
Total Income Tax Expense.............................       $ 85        $ 59         $226        $199
                                                            ----        ----         ----        ----
      Effective Income Tax Rate                             41.3%       40.4%        41.0%       40.5%


Note 6. Financial Information By Business Segment

Our  business  has evolved  during  2002.  With the  transfer of the BGSS (i.e.,
natural gas supply requirements contract) contract to us and the commencement of
the new BGS Contracts with wholesale electric suppliers, our business has become
a fully  integrated  wholesale  energy  supply  business.  As a  result  of that
evolution  of our  business,  trading  activities  changed  from  a  stand-alone
operation to a function  that has become  fully  integrated  with the  wholesale
energy  supply  business,  and  primarily  serves to optimize  the value of that
business.   Therefore,  upon  review  and  in  accordance  with  SFAS  No.  131,
"Disclosures  About  Segments of an Enterprise  and Related  Information"  (SFAS
131), we have  determined  that our generation and trading  components no longer
meet the  definition  of separate  operating  segments for  financial  reporting
purposes  and,  effective  with this  filing,  we have  reported  our  financial
position and results of operations  as one segment.  All prior periods have been
reclassified to conform to the current presentation.

Note 7. Comprehensive Income

For the three months ended September 30, 2002 and 2001, our comprehensive income
was $121  million and $106  million,  respectively.  For the nine  months  ended
September 30, 2002 and 2001, our comprehensive  income was $318 million and $288
million, respectively.

Note 8. Related Party Transactions

PSEG and PSE&G

In August 2000, PSE&G transferred its electric generating assets and liabilities
to us in exchange for a $2.8 billion promissory note. Interest on the promissory
note was payable at an annual rate of 14.23%, which represented PSE&G's weighted
average  cost of  capital.  For the period  from  January 1, 2001 to January 31,
2001, we recorded


                                       16


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

interest expense of  approximately  $34 million relating to the promissory note.
We repaid the promissory note on January 31, 2001, with funds provided from PSEG
in the form of equity  and  loans,  including  loans of $1.6  billion at various
rates for which we recorded  interest expense of  approximately  $40 million for
the period from February 2001 to April 2001, when the loans were repaid.

Effective  with the  asset  transfer,  we charge  PSE&G for a market  transition
charge  (MTC) for the energy  provided to meet PSE&G's BGS  requirements.  These
rates  were  established  by the BPU.  For the  quarter  and nine  months  ended
September  30,  2002,  we charged  PSE&G  approximately  $216  million  and $1.2
billion,  respectively,  for MTC and BGS.  For the three and nine  months  ended
September  30,  2001,  we charged  PSE&G  approximately  $568  million  and $1.5
billion,  respectively, for MTC and BGS. As of December 31, 2001, our receivable
from PSE&G relating to these billings was approximately $159 million.

For the three and nine months ended September 30, 2002, we purchased energy from
PSE&G at the  market  price  of  approximately  $48  million  and $110  million,
respectively,  which PSE&G purchased under various non-utility  generation (NUG)
contracts.  For the  quarter  and nine  months  ended  September  30,  2001,  we
purchased energy from PSE&G at the market price of approximately $55 million and
$135 million,  respectively,  which PSE&G  purchased  under various  non-utility
generation (NUG) contracts.  With commencement of the new BGS contract on August
1, 2002, PSE&G can sell the energy under the NUG contracts to other  third-party
suppliers.  As of September 30, 2002 and December 31, 2001, our payable to PSE&G
relating  to these  purchases  was  approximately  $13  million  and $7 million,
respectively.  Prospectively,  these related party NUG sales will cease to exist
given  that  PSE&G  will  conduct  these  transactions  directly  within  a  PJM
administered  market.  Therefore,  with  commencement  of the new BGS  period on
August 1, 2002, we charge PSE&G only for the MTC subsequent to July 31, 2002. As
of September 30, 2002,  our  receivable  from PSE&G relating to the MTC billings
was approximately $1 million.

Effective  May 1,  2002,  PSE&G  transferred  its gas supply  contracts  and gas
inventory  to  us  for  approximately   $183  million  and  we  entered  into  a
requirements  contract  with PSE&G under which we will provide the delivered gas
supply services needed to meet its Basic Gas Supply Service (BGSS) requirements.
The contract term ends March 31, 2004 with a three-year  renewal option. For the
three and nine months ended  September 30, 2002, we charged PSE&G  approximately
$111 million and $208 million under terms of the  contract.  As of September 30,
2002, our receivable  from PSE&G relating to these costs was  approximately  $38
million. As part of the agreement,  PSE&G is providing us the use of its peaking
shaving facilities at cost.

We have  transactions  with PSEG for various  activities,  including  short-term
funding for day-to-day operations,  depending on liquidity.  As of September 30,
2002, there was a net payable of approximately $104 million from PSEG related to
these  transactions.  As of  December  31,  2001,  there  was a net  payable  of
approximately $142 million to PSEG related to these transactions.

PSEG Global Inc. (Global)

During 2002,  we sold turbines  purchased  from an outside  vendor to Global,  a
wholly owned  subsidiary  PSEG Energy Holdings LLC (Energy  Holdings),  at their
carrying amounts totaling approximately $47 million.

PSEG Services Corporation

PSEG Services Corporation provides administrative services to us and bills us on
a monthly basis.  Our costs related to such services  amounted to  approximately
$93 million and $94 million for the nine months ended  September  30, 2002,  and
2001, respectively. Our costs related to such services amounted to approximately
$27 million and $35


                                       17


================================================================================
                                 PSEG Power LLC
================================================================================
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
                                   (UNAUDITED)

million for the three months ended  September 30, 2002, and 2001,  respectively.
As of September  30, 2002 and December  31, 2001,  our payable  related to these
costs was approximately $9 million and $13 million, respectively.

Note 9. Guarantees of Debt

In April 2001,  we issued $500  million of 6.875%  Senior  Notes due 2006,  $800
million of 7.75% Senior  Notes due 2011 and $500 million of 8.625%  Senior Notes
due 2031.  Additionally,  in June 2002,  we issued $600  million of 6.95% Senior
Notes due 2012. Each series of the Senior Notes is fully and unconditionally and
jointly and  severally  guaranteed  by Fossil,  Nuclear and ER&T.  The following
table presents condensed financial information for the guarantor subsidiaries as
well as our non-guarantor subsidiaries as of September 30, 2002 and 2001 and for
the quarters then ended.





                                                                Guarantor          Other         Consolidating
                                                     Power     Subsidiaries     Subsidiaries      Adjustments      Total
                                                     -----     ------------     ------------     -------------     -----
                                                                                 (Millions)
For the three months ended September 30, 2002:
- ----------------------------------------------
                                                                                                   
Revenues....................................         $  1         $1,083            $  8             $  --        $1,092
Operating Expenses..........................           15            827               8                 1           851
                                                     ----         ------            ----             -----          ----
Operating Income (Loss).....................          (14)           256              --                (1)          241
Other Income................................          159              6              --              (165)
Interest Income (Expense)...................          (50)           (15)             31                (1)          (35)
Income Taxes................................           26           (100)            (11)               --          (85)
                                                     ----         ------            ----             -----        ------
Net Income..................................         $121         $  147            $ 20             $(167)       $  121
                                                     ====         ======            ====             =====        ======

                                                                Guarantor          Other         Consolidating
                                                     Power     Subsidiaries     Subsidiaries      Adjustments      Total
                                                     -----     ------------     ------------     -------------     ------
                                                                                 (Millions)
For the three months ended September 30, 2001:
- ----------------------------------------------
Revenues....................................         $ 21         $  658            $  6             $  --         $  685
Operating Expenses..........................           15            488               9                              512
                                                     ----         ------            ----             -----           ----
Operating Income (Loss).....................            6            170              (3)               --           173
Other Income (Expense)......................          105             34              --              (140)            (1)
Interest Income (Expense)...................          (40)           (22)             36                --           (26)
Income Taxes................................           16            (68)             (7)               --           (59)
                                                     ----         ------            ----             -----         ------
Net Income..................................         $ 87         $  114            $ 26             $(140)        $   87
                                                     ====         ======            ====             =====         ======



                                       18


================================================================================
                                 PSEG Power LLC
================================================================================
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              (UNAUDITED) Concluded



                                                                         Guarantor         Other        Consolidating
                                                             Power      Subsidiaries    Subsidiaries     Adjustments      Total
                                                             -----      ------------    ------------    -------------     -----
                                                                                          (Millions)
                                                                                                          
For the nine months ended September 30, 2002:
- ---------------------------------------------
Revenues...............................................     $    2         $2,325          $   14          $    --       $ 2,341
Operating Expenses.....................................         51          1,631              18               --         1,700
                                                            ------         ------          ------          -------       -------
Operating Income (Loss)................................        (49)           694              (4)              --           641
Other Income...........................................        433             19              --             (452)            --
Interest Income (Expense)..............................       (132)           (45)             87               --           (90)
Income Taxes...........................................         73           (269)            (30)              --          (226)
                                                            ------         ------          ------          -------       -------
Net Income.............................................     $  325         $  399          $   53          $  (452)      $   325
                                                            ======         ======          ======          =======       =======

Net Cash Provided By (Used In) Operating Activities....     $ (371)        $  706          $   66          $  (251)         $150
Net Cash Provided By (Used In) Investing Activities....         (2)          (489)           (280)               1          (770)
Net Cash Provided By (Used In) Financing Activities....        685             15             215             (289)          626

For the nine months ended September 30, 2001:
- ---------------------------------------------
Revenues...............................................     $   21         $1,877          $   21          $    --       $ 1,919
Operating Expenses.....................................         63          1,212              34               --         1,309
                                                            ------         ------          ------          -------       -------
Operating Income (Loss)................................        (42)           665             (13)              --           610
Other Income (Loss)....................................        425             29                             (458)           (4)
Interest Income (Expense)..............................       (152)           (52)             89               --          (115)
Income Taxes...........................................         61           (245)            (15)              --          (199)
                                                            ------         ------          ------          -------       -------
Net Income.............................................     $  292         $  397          $   61          $  (458)      $   292
                                                            ======         ======          ======          =======       =======

Net Cash Provided By Operating Activities..............     $  173         $  357          $   98          $  (192)      $   436
Net Cash (Used In) Investing Activities................         (2)          (419)           (825)             (22)       (1,268)
Net Cash Provided By Financing Activities..............        205            119             741             (247)          818

As of September 30, 2002:
- -------------------------
Current Assets.........................................     $  712         $  960          $   30          $    --       $ 1,702
Property, Plant and Equipment, net.....................         46          2,320           1,238               --         3,604
Noncurrent Assets......................................      3,244          1,038           1,330           (3,941)        1,671
                                                            ------         ------          ------          -------       -------
Total Assets...........................................     $4,002         $4,318          $2,598          $(3,941)      $ 6,977
                                                            ======         ======          ======          =======       =======

Current Liabilities....................................     $  156         $  975          $  260          $    --       $ 1,391
Noncurrent Liabilities.................................         47          1,033              13               --         1,093
Note Payable Affiliated Company........... ............        106          1,150                           (1,256)
Long-Term Debt.........................................      2,515                            800                          3,315
Member's Equity........................................      1,178          1,160           1,525           (2,685)        1,178
                                                            ------         ------          ------          -------       -------
Total Liabilities and Member's Equity..................     $4,002         $4,318          $2,598          $(3,941)      $ 6,977
                                                            ======         ======          ======          =======       =======

As of December 31, 2001:
- ------------------------
Current Assets.........................................     $    9         $  851          $   64          $   (26)         $898
Property, Plant and Equipment, net.....................         40          1,987             958               --         2,985
Noncurrent Assets......................................      2,834            829           1,230           (3,273)        1,620
                                                            ------         ------          ------          -------       -------
Total Assets...........................................     $2,883         $3,667          $2,252          $(3,299)      $ 5,503
                                                            ======         ======          ======          =======       =======

Current Liabilities....................................     $   57         $  678          $  215          $  (120)      $   830
Noncurrent Liabilities.................................         30          1,082              16               --         1,128
Note Payable Affiliated Company........................         21          1,150                           (1,171)
Long-Term Debt.........................................      1,915                            770                          2,685
Member's Equity........................................        860            757           1,251           (2,008)          860
                                                            ------         ------          ------          -------       -------
Total Liabilities and Member's Equity..................     $2,883         $3,667          $2,252          $(3,299)      $ 5,503
                                                            ======         ======          ======          =======       =======


There are no restrictions  on the ability of our  subsidiaries to transfer funds
in the form of dividends, loans or advances to us for the periods noted above.


                                       19


================================================================================
                                 PSEG Power LLC
================================================================================

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following are the significant changes in or additions to information reported in
our 2001 Annual Report on Form 10-K and Amended  Quarterly Report on Form 10-Q/A
for the quarter ended March 31, 2002 and  Quarterly  Report on Form 10-Q for the
quarter ended June 30, 2002, affecting our consolidated  financial condition and
the results of operations.  This discussion refers to our Consolidated Financial
Statements  (Statements) and related Notes to Consolidated  Financial Statements
(Notes) and should be read in conjunction with such Statements and Notes.

Overview

For the quarter  ended  September  30,  2002,  net income was $121  million,  an
increase of $34 million or 39% from the comparable  period in 2001. For the nine
months ended  September 30, 2002,  net income  increased $33 million or 11% from
the comparable  period in 2001. The increase in net income was due to additional
revenue earned due to our successful  participation  as an indirect  supplier of
energy to the state's  utilities,  including  Public  Service  Electric  and Gas
Company (PSE&G),  involved in New Jersey's recent basic generation service (BGS)
auction.  The BGS auction had a meaningful effect on our earnings,  particularly
since  August  1st,  when the new BGS  contracts  went into  effect.  We secured
contracts to sell our  generation  to suppliers  that won the right to serve New
Jersey's  Utilities,  including PSE&G, for a one year period beginning August 1,
2002.  Also on May 1,  2002,  we  acquired  the  gas  supply  contracts  and gas
inventory  from  PSE&G for $183  million.  At that time we also  entered  into a
requirements  contract  with PSE&G under which we will provide the delivered gas
supply  services  to PSE&G,  which are  needed to meet  their  Basic Gas  Supply
Service (BGSS).  The contract term ends March 31, 2004 with a three-year renewal
option, at PSE&G's option.

Our cash  position  increased $6 million from December 31, 2001 to September 30,
2002 due primarily to $150 million of operating  cash  inflows,  $626 million of
financing  inflows,  offset  by $770  million  of cash  outflows  for  investing
activities. Our operating cash outflows were primarily due to the acquisition of
the gas portfolio from PSE&G. Our investing cash outflows  related  primarily to
construction  expenditures.  Our financing cash inflows are related primarily to
the issuance of long-term debt in June 2002.

Future Outlook

For 2002, we are expecting to earn $460 million to $500 million.  Our successful
participation  as an  indirect  supplier  of energy to New  Jersey's  utilities,
including PSE&G, in New Jersey's recent basic  generation  service (BGS) auction
is expected to have a meaningful effect on our earnings for the remainder of the
year.

Looking ahead, the volatile marketplace is creating extraordinary challenges for
the energy industry,  including us, to improve on 2002 results in 2003.  Several
of the  assumptions  in our 2003 planning  process have changed in this evolving
economic environment.  Specifically,  two factors, increased pension expense due
to the  erosion  of the  value of the  investments  in our  pension  plans,  and
emerging capital structure considerations, will pressure our earnings growth. If
market conditions do not alleviate these pressures, we will be challenged to set
2003 earnings targets at levels beyond those for 2002. Other  assumptions in our
2003 business plan are that we will continue to benefit from our  performance as
a wholesale BGS provider with the new one year BGS contract that began August 1,
2002 and a reasonable  outcome to next year's  auction for  contracts  beginning
August 1, 2003.


                                       20


================================================================================
                                 PSEG Power LLC
================================================================================

Factors Affecting Future Outlook

Due to the inherent price  volatility of the  commodities  in our business,  and
many other factors,  it is much more difficult to accurately forecast our future
earnings.  Some  of the  key  sensitivities  and  risks  of our  businesses  are
discussed below.

Our success as a BGS provider  will depend,  in part, on our ability to meet our
obligations  under our full  requirements  contracts with the BGS suppliers in a
profitable manner. We expect to accomplish this by producing energy from our own
generation  and/or  energy  purchases in the market.  We also enter into trading
positions related to our generation assets and supply obligations. To the extent
we do not hedge our  obligations,  whether long or short,  we will be subject to
the risk of price  fluctuations  that could affect our future  results,  such as
increases in the price of energy purchased to meet supply obligations,  the cost
of fuel to generate electricity,  the cost of congestion credits that we need to
transmit electricity and other factors. In addition,  we are subject to the risk
of subpar operating  performance of our fossil and nuclear  generating units. To
the extent there are unexpected outages at our generating facilities, changes in
environmental  or  nuclear   regulations  or  other  factors  which  impact  the
production by such units or the ability to generate and transmit  electricity in
a cost-effective manner, it may cost us more to produce electricity or we may be
required  to purchase  higher  cost energy to replace the energy we  anticipated
producing.  These risks can be  exacerbated  by, among other things,  changes in
demand in electricity  usage,  such as those due to extreme weather and economic
conditions.

Our future revenue stream is also uncertain. Due to the timing of the New Jersey
BGS  auction  process,  the  majority  of our  revenues  for  August 1, 2003 and
thereafter cannot be accurately predicted.  Also, certain new projects,  such as
our investments in the  Lawrenceburg  and Waterford  projects in the Midwest and
the plants we are acquiring from Wisvest in Connecticut,  and our development of
the Bethlehem  Energy Center in New York are also subject to the risk of changes
in future energy  prices as we have not entered into forward sale  contracts for
the majority of their expected generation capacity.  Also, since the majority of
our generation  facilities are concentrated in the Northeast region,  changes in
future energy supply and demand and  energy-related  prices in this region could
materially  affect our results.  Also,  changes in the rules and  regulation  of
these  markets by Federal  Energy  Regulatory  Commission  (FERC),  particularly
changes in the ability to maintain  market  based  rates,  could have an adverse
impact on our  results.  As a result of these  variables  and  risks,  we cannot
predict the impact of these potential  future changes on our forecasted  results
of operations,  financial position, or net cash flows, however such impact could
be material.

We will  continue  our energy  trading  activities  to optimize the value of our
portfolio of  generating  assets and supply  obligations.  This will depend,  in
part,  on our, as well as our  counterparties',  ability to maintain  sufficient
creditworthiness and to display a


                                       21


================================================================================
                                 PSEG Power LLC
================================================================================

willingness to participate in energy trading activities at anticipated  volumes.
Potential changes in the mechanisms of conducting trading activity,  such as the
continued  availability  of  energy  trading  exchanges,   could  positively  or
negatively  affect trading volumes and liquidity in these energy trading markets
compared to the assumptions of these factors  embedded in our business plans. As
a result of these  variables,  we cannot  predict the impact of these  potential
future changes on our forecasted results of operations,  financial position,  or
net cash flows, however such impact could be material.

In  addition,  we have  exposure  to the equity  and debt  markets  through  our
substantial use of short-term financing, lower pension fund balances, the effect
of lower  assumed  rate of  investment  returns on our  pension  expense and the
effect of a lower discount rate on our pension plan liabilities and costs. Also,
increases  in the cost of  capital,  which  could  result from market and lender
concerns  regarding us, our industry and economic  conditions and other factors,
could make it more difficult for us to enter into profitable investments. Recent
market  trends  could also  affect our  ability to access  capital,  potentially
impacting  both our business plans and  opportunities  as well as our liquidity.
Also,  changes in our  credit  ratings by rating  agencies  could  significantly
impact  our  access  to  capital,  cost of  capital,  ability  to meet  earnings
expectations  and future business plans. We are also subject to credit risk. See
Item 3. Qualitative and Quantitative  Disclosures  about Market Risk for further
discussion.

RESULTS OF OPERATIONS

Operating Revenues

For the quarter ended September 30, 2002,  Operating  Revenues increased by $407
million or 59%.  Included in this  increase  were $172  million of gas  revenues
relating to our BGSS  contract  resulting  from the Gas Contract  transfer  from
PSE&G in May 2002. Also contributing to the increase was a $268 million increase
in electric  revenues,  primarily due to the new BGS contracts  with third party
wholesale  electric  suppliers  which  went  into  effect  August  1,  2002  and
comparably warmer weather which were partially offset by lower market transition
charge (MTC) revenues  primarily due to a 4.9% rate reduction in August 2002 and
a 2% rate  reduction  in August  2001.  These  rate  reductions  reduce  the MTC
revenues  that PSE&G remits to us as part of its BGS contract.  Also  offsetting
the increases were lower net trading revenues of  approximately  $23 million due
to lower trading  volumes and prices during the three months ended September 30,
2002 as compared to the same period in 2001. See Note 4. Financial  Instruments,
Energy Trading and Risk Management for further discussion  information  relating
to our trading activities.

For the nine months ended September 30, 2002,  Operating  Revenues  increased by
$422 million or 22%. Included in this increase were $273 million of gas revenues
relating to our BGSS  contract  resulting  from the Gas Contract  transfer  from
PSE&G in May 2002. Also contributing to the increase was a $228 million increase
in electric  revenues,  primarily due to the new BGS contracts  with third party
wholesale  electric  suppliers  which  went  into  effect  August  1,  2002  and
comparably  warmer  weather  which were  partially  offset by lower MTC revenues
primarily  due to a  4.9%  rate  reduction  in  August  2002  and a two 2%  rate
reductions in August 2001 in February 2001.  Also  offsetting the increases were
lower net trading  revenues of  approximately  $79 million due to lower  trading
volumes and prices  during the nine months ended  September 30, 2002 as compared
to the same period in 2001.


                                       22


================================================================================
                                 PSEG Power LLC
================================================================================

Operating Expenses

Energy Costs

For the quarter ended September 30, 2002, Energy Costs increased $332 million or
106%. The increases were primarily due to increased energy purchases for the BGS
and third party wholesale  electric  supplier  contracts of  approximately  $122
million due to higher  volume and $197  million of  increased  gas  purchases to
satisfy our BGSS contract and our fuel needs for generation.  Also  contributing
to the increase were approximately $43 million of increased network transmission
expenses  in  the  Pennsylvania-New  Jersey-Maryland  Power  Pool  (PJM).  These
increases  were  offset by $22  million of gains on fuel  hedges,  $5 million of
reduced congestion charges due to more efficient unit scheduling by PJM and a $3
million decrease in nuclear fuel usage.

For the nine months ended  September  30,  2002,  Energy  Costs  increased  $377
million or 55%. The increases were primarily due to increased  energy  purchases
for  the  BGS  and  third  party  wholesale   electric   supplier   contacts  of
approximately  $144 million due to higher  volumes and $276 million of increased
gas  purchases to satisfy our BGSS  contract and our fuel needs for  generation.
Also  contributing to the increase was higher network  transmission  expenses of
$35 million for PJM and $11 million of increased  coal  purchases.  These higher
expenses were partially  offset by a $13 million  decrease in nuclear fuel usage
and a $36 million decrease in oil consumption. Further expense reductions can be
attributed to $14 million of decreases in fuel hedges,  $13 million  decrease in
Non-Utility  Generation  (NUG)  purchases  and $13  million in lower  congestion
charges due to less constraint in the system.

Operation and Maintenance

Operation  and  Maintenance  expense  increased $6 million or 3% for the quarter
ended  September  30, 2002,  and increased $18 million or 8% for the nine months
ended September 30, 2002 from the comparable periods in 2001, respectively. This
was due  primarily  as a result of various  scheduled  outages  at our  electric
generating stations.

Depreciation and Amortization

Depreciation and Amortization expense increased $1 million or 4% for the quarter
ended  September  30, 2002,  and  decreased $4 million or 5% for the nine months
ended September 30, 2002, from the comparable  periods in 2001. The increase for
the quarter was  primarily due to the Bergen  Generating  Station (Unit 2) being
placed  into  service  in the  second  quarter  of 2002.  The  decrease  for the
nine-month period was primarily due to increased asset lives and the elimination
of recorded goodwill related to the acquisition of our Albany Steam Station.

Interest Expense

Interest Expense increased $9 million or 35% for the quarter ended September 30,
2002 from the comparable  period in 2001, due to the issuance of $600 million of
6.95% Senior  Notes in June 2002,  and the issuance of $123 million in pollution
control  notes in 2001.  These  increases  were  partially  offset  by  interest
capitalization  on various  projects under  construction  of  approximately  $26
million.

Interest  Expense  decreased  $25  million  or 22% for  the  nine  months  ended
September  30, 2002 from the  comparable  periods in 2001.  The decrease for the
nine  month  period is  primarily  due to our  refinancing  of our  higher  rate
affiliate  loans with PSE&G and PSEG,  which were replaced with equity and lower
rate external debt.


                                       23


================================================================================
                                 PSEG Power LLC
================================================================================

LIQUIDITY AND CAPITAL RESOURCES

Financing Methodology

Our capital  requirements  are met  through  liquidity  provided  by  internally
generated  cash flow and external  financings.  We from time to time make equity
contributions  to our direct and  indirect  subsidiaries  to provide for part of
their   capital  and  cash   requirements,   generally   relating  to  long-term
investments.  As of September  30, 2002 we had  guaranteed  equity  contribution
commitments  of  $153  million.  In  addition,   we  had  other  guarantees  and
commitments  of $73 million.  At times,  we utilize  affiliate  company loans to
efficiently manage our short-term cash needs.

External  funding to meet the  majority  of our  requirements  is  comprised  of
corporate finance transactions. The debt incurred is our direct obligation. Some
of the proceeds of these debt  transactions are used to make equity  investments
in our subsidiaries.

As discussed below external  financing may consist of public and private capital
market debt and/or project  financings.  The  availability  and cost of external
capital could be affected by our  performance  as well as by the  performance of
our subsidiaries and affiliates.  This could include the degree of structural or
regulatory  separation  between us and our subsidiaries and the potential impact
of affiliate ratings on consolidated and unconsolidated credit quality.

Two of our projects  currently under  construction have non-recourse  financing.
Non-recourse  transactions  generally  impose  no  material  obligation  on  the
parent-level  investor  to repay  any debt  incurred  by the  project  borrower.
However,  in some cases,  certain  obligations  relating to the investment being
financed,  including additional equity commitments, are guaranteed by us for our
subsidiaries.  The  consequences of permitting a  project-level  default include
loss of any invested equity by the us.

Over the next several years, we will be required to refinance  maturing debt and
expect to incur additional debt to fund investment activity.  Also, from time to
time, we may  repurchase  debt using funds from  operations,  debt issuances and
other sources of funding.  Any inability to obtain required  additional external
capital or to extend or replace  maturing  debt and/or  existing  agreements  at
current levels and reasonable  interest rates may adversely affect our financial
condition, results of operations and net cash flows.

Debt Covenants,  Cross Default Provisions,  Material Adverse Clause Changes, and
Ratings Triggers

The PSEG  credit  agreements  contain  cross-default  provisions  under  which a
default by it or its major  subsidiaries  in an aggregate  amount of $50 million
would result in a default and the  potential  acceleration  of payment under the
agreements.


                                       24


================================================================================
                                 PSEG Power LLC
================================================================================

The Power  Senior  Debt  Indenture  contains a default  provision  under which a
default by it or its subsidiaries (Nuclear, Fossil, ER&T) in an aggregate amount
of  $50  million  would  result  in  an  event  of  default  and  the  potential
acceleration of payment under the indenture.  There are no cross-defaults within
Power's indenture from PSEG, Energy Holdings or PSE&G.

A failure to make  principal  and or  interest  payments,  when due,  would be a
default under our indenture.  Any inability to satisfy required covenants and/or
borrowing  conditions  would have a similar impact.  If a default were to occur,
the respective  lenders and debt holders,  after giving effect to any applicable
grace and/or cure periods,  could determine that debt payment obligations may be
accelerated.  In the event of any likely default or failure to satisfy covenants
or conditions,  we, or the relevant subsidiary,  would seek to renegotiate terms
of the  agreements  with the lenders.  No assurances  can be given as to whether
these efforts would be successful. A declaration of cross-default could severely
limit  PSEG's and our  liquidity  and  restrict our ability to meet debt and, in
extreme cases, operational cash requirements which could have a material adverse
effect on our financial condition, results of operations and net cash flows.

The credit agreements generally contain provisions under which the lenders could
refuse  to  advance  loans in the  event of a  material  adverse  change  in the
borrower's business or financial condition. In that event, loan funds may not be
advanced.

As  explained in detail  below,  some of these  credit  agreements  also contain
maximum debt to equity  ratios,  minimum  cash flow tests and other  restrictive
covenants and conditions to borrowings.  Compliance  with  applicable  financial
covenants  will  depend  upon our  future  financial  position  and the level of
earnings and cash flow, as to which no assurances can be given.

The debt  indentures do not contain any "ratings  triggers"  that would cause an
acceleration of the required  interest and principal  payments in the event of a
ratings  downgrade.  However,  in  the  event  of a  downgrade,  we  and/or  our
subsidiaries  may be subject to increased  interest  costs on certain bank debt.
Also, in connection  with our energy  trading  activities,  we must meet certain
credit  quality  standards  as are  required by  counterparties.  If we lose our
investment  grade  credit  rating,  ER&T would have to  provide  credit  support
(letters of credit or cash),  which would  significantly  impact the cost of the
energy trading  activities.  These same contracts provide reciprocal benefits to
us. Providing this credit support would increase our costs of doing business and
limit  our  ability  to  successfully  conduct  energy  trading  activities.  In
addition,  our  counterparties  may require us to meet margin or other  security
requirements that may include cash payments.  We may also have to provide credit
support for certain equity commitments if we lose our investment grade rating.

Credit Ratings

Our current  ratings of  securities  are shown below and reflect the  respective
views of the rating  agencies,  from whom an explanation of the  significance of
their  ratings may be obtained.  There is no assurance  that these  ratings will
continue  for any  given  period of time or that  they  will not be  revised  or
withdrawn  entirely by the rating agencies,  if, in their respective  judgments,
circumstances  so warrant.  Any downward  revision or  withdrawal  may adversely
effect the market  price of our  securities  and serve to  increase  our cost of
capital, and access to capital.

                             Moody's(1)     Standard & Poor's(2)     Fitch(3)
                             ----------     --------------------     --------
      Power:
         Senior Notes          Baa1                 BBB                 BBB+



                                       25


================================================================================
                                 PSEG Power LLC
================================================================================

(1)   On October 11, 2002 Moody's  reaffirmed  these credit  ratings but changed
      the outlook from stable to negative.

(2)   Affirmed in the second quarter of 2002 and noted an outlook of Stable.

(3)   Affirmed in the second quarter of 2002 and noted an outlook of Stable.


                                       26


================================================================================
                                 PSEG Power LLC
================================================================================

Short-Term Liquidity

We rely on PSEG for our short-term financing needs and have a $50 million Letter
of Credit  facility  expiring in August 2005.  As of September  30, 2002, we had
approximately $125 million of short-term borrowings from PSEG.

PSEG has revolving  credit  facilities  to provide  liquidity for its $1 billion
commercial paper program and for various funding  purposes.  The following table
summarizes the various  revolving credit  facilities of PSEG as of September 30,
2002.

                                       Expiration         Total        Primary
Company                                   Date           Facility      Purpose
- -------                                ----------        --------      -------
                                                       (Millions)
PSEG:
- -----
364-day Credit Facility                March 2003          $620       CP Support
364-day Bilateral Facility             March 2003           100       CP Support
5-year Credit Facility                 March 2005           280       CP Support
5-year Credit Facility                December 2002         150        Funding
Uncommitted Bilateral Agreement            N/A                *        Funding

* Availability varies based on market conditions.

As of September 30, 2002, PSEG has $673 million of commercial paper  outstanding
and $329 million  outstanding under its uncommitted credit facility.

Financial  covenants  contained in PSEG's credit facilities include the ratio of
debt (excluding  non-recourse  project  financings and  securitization  debt and
including  commercial  paper and loans,  certain  letters of credit and  similar
instruments)  to total  capitalization.  At the end of any  quarterly  financial
period such ratio shall not be more than 0.70 to 1. As of  September  30,  2002,
the ratio of debt to  capitalization  was  0.650 to 1. As part of its  financial
planning forecast,  PSEG performs stress tests on its financial  covenants which
include a consideration of the impacts of potential asset  impairments,  foreign
currency  fluctuations,  adjustments  relating to pension plans and other items.
Current  forecasts do not indicate  that PSEG will exceed the required  ratio of
debt to total  capitalization,  however,  no assurances  can be given and, if an
event of  default  were to occur,  it could  materially  impact  our  results of
operations, cash flow and financial position.

External Financings

In June  2002,  we issued  $600  million  of 6.95%  Senior  Notes due 2012.  The
proceeds of which were used to repay  short-term  funding  from PSEG,  including
amounts related to the Gas Contract Transfer in May 2002.

CAPITAL REQUIREMENTS

Our capital  needs will be dictated by our  strategy to continue to develop as a
profitable,  growth-oriented  supplier in the wholesale  power  market.  We have
revised our schedules for completion of several  projects  under  development to
provide better  sequencing of our construction  program with anticipated  market
demand.  This delay will  allow us to  conserve  capital in 2003 and allow us to
take advantage of the expected  recovery of the electric  markets and their need
for capacity in 2005. Our subsidiaries  have substantial  commitments as part of
their growth strategies and ongoing construction  programs.  Power will continue
to evaluate its  development  and  construction  requirements in relation to the
energy and financial markets.


                                       27


================================================================================
                                 PSEG Power LLC
================================================================================

                                          2002     2003    2004    2005    2006
                                          ----     ----    ----    ----    ----
                                                        (Millions)
Construction/investment expenditures     $1,100    $500    $675    $250     $80

For the nine  months  ended  September  30,  2002  and  2001,  we had net  plant
additions of $792 million and $1.2 billion,  respectively. The majority of these
additions  were related to developing the  Lawrenceburg,  Indiana and Waterford,
Ohio sites,  the purchase of Wisvest LLC, and adding  capacity to the Bergen and
Linden  stations  in New Jersey.  For  additional  information  related to these
projects, see Note 3. Commitments and Contingent Liabilities.

ACCOUNTING MATTERS

For a discussion  of SFAS 142,  SFAS 143,  SFAS 144, SFAS 145, SFAS 146 and EITF
02-03, see Note 2. Accounting Matters.

SFAS No.  87 - "Employers' Accounting for Pensions" (SFAS 87)

SFAS 87 requires a pension  plan  sponsor to  recognize  an  additional  minimum
pension  liability to the extent that its accumulated  benefit  obligation under
any of its pension  plans exceeds the fair market value of its plan assets as of
its  annual   measurement  date.  This  additional   minimum  pension  liability
represents  the  amount by which its  unfunded  accumulated  benefit  obligation
exceeds the fair market value of the plan's assets,  and is partially  offset by
an intangible asset no larger than the  unrecognized  net transition  obligation
and prior  service  cost,  with no  impact to  earnings.  At this  time,  we are
monitoring the fair market value of our investments and our accumulated  benefit
obligation and are evaluating the potential  impact to us and options  available
to us with  respect to this issue.  Since our  measurement  date is December 31,
2002 we are unable to predict what the impact could be, however the impact could
be material to our financial position and, more specifically,  could result in a
decrease in equity.

FORWARD-LOOKING STATEMENTS

Except for the historical  information contained herein,  certain of the matters
discussed in this report and Form 10-K constitute  "forward-looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking  statements are subject to risks and uncertainties,  which could
cause  actual  results  to  differ  materially  from  those  anticipated.   Such
statements are based on management's  beliefs as well as assumptions made by and
information  currently  available to  management.  When used  herein,  the words
"will",  "anticipate",   "intend",  "estimate",   "believe",  "expect",  "plan",
"hypothetical",  "potential",  variations of such words and similar  expressions
are intended to identify forward-looking  statements. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information,  future events or otherwise. The following review of factors
should not be construed as exhaustive or as any admission regarding the adequacy
of our  disclosures  prior  to the  effective  date  of the  Private  Securities
Litigation  Reform Act of 1995. In addition to any assumptions and other factors
referred to  specifically in connection  with such  forward-looking  statements,
factors  that  could  cause  actual  results  to differ  materially  from  those
contemplated  in any  forward-looking  statements  include,  among  others,  the
following:

o     Credit, Commodity, and Financial Market Risks May Have an Adverse Impact
o     Energy Obligations, Available Supply and Trading Risks May Have an Adverse
      Impact
o     The Electric Utility Industry is Undergoing Substantial Change
o     Generation Operating Performance May Fall Below Projected Levels
o     We  Are  Subject  to  Substantial   Competition   From  Well   Capitalized
      Participants in the Worldwide Energy Markets
o     Our Ability to Service Our Debt Could Be Limited
o     Power Transmission Facilities May Impact Our Ability to Deliver Our Output
      to Customers
o     Regulatory Issues Significantly Impact Our Operations
o     Environmental Regulation May Limit Our Operations
o     We Are Subject to More Stringent Environmental Regulation than Many of Our
      Competitors
o     Insurance Coverage May Not Be Sufficient
o     Acquisition, Construction and Development Activities May Not Be Successful
o     Changes  in  Technology  May  Make  Our  Power   Generation   Assets  Less
      Competitive
o     We Are Subject to Control By PSEG
o     Recession, Acts of War, Terrorism Could Have an Adverse Impact


                                       28


================================================================================
                                 PSEG Power LLC
================================================================================

Consequently,  all of the  forward-looking  statements  made in this  report are
qualified  by these  cautionary  statements  and we cannot  assure  you that the
results or developments anticipated by us will be realized, or even if realized,
will  have  the  expected  consequences  to or  effects  on us or  our  business
prospects,  financial  condition or results of operations.  You should not place
undue  reliance on these  forward-looking  statements  in making any  investment
decision.  We  expressly  disclaim  any  obligation  or  undertaking  to release
publicly any updates or revisions to these forward-looking statements to reflect
events or circumstances that occur or arise or are anticipated to occur or arise
after  the  date  hereof.  In  making  any  investment  decision  regarding  our
securities,  we are not  making,  and you should not infer,  any  representation
about  the  likely   existence  of  any  particular   future  set  of  facts  or
circumstances.  The  forward-looking  statements  contained  in this  report are
intended  to  qualify  for the safe  harbor  provisions  of  Section  27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended.

                      ITEM 3. QUALITATIVE AND QUANTITATIVE
                          DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our risk sensitive  instruments and positions is the
potential  loss arising from  adverse  changes in commodity  prices and interest
rates.  Our policy is to use  derivatives  to manage  risk  consistent  with our
business  plans  and  prudent  practices.  We have a Risk  Management  Committee
comprised of executive  officers,  which utilizes an independent  risk oversight
function  to  ensure  compliance  with  corporate   policies  and  prudent  risk
management practices.

Except as noted below, there were no other material changes from the disclosures
in our Form 10-K filed with the Securities and Exchange  Commission for the year
ended December 31, 2001.

Credit Risk

Counterparties  expose us to credit  losses in the event of  non-performance  or
non-payment.  We have a  credit  management  process  which  is used to  assess,
monitor and mitigate counterparty  exposure for us and our subsidiaries.  In the
event of non-performance or non-payment by a major counterparty,  there may be a
material  adverse  impact  on our and  our  subsidiaries'  financial  condition,
results of  operations  or net cash flows.  As of September 30, 2002 over 97% of
the credit  exposure  (mark to market plus net  receivables  and  payables)  for
Power's  trading  business  was  with  investment  grade  counterparties.  As of
September 30, 2002, Power's trading business had over 145 active counterparties.

As a result of the New Jersey BGS auction,  we have contracted to provide energy
to the direct  suppliers  of New Jersey  electric  utilities,  including  PSE&G,
commencing August 1, 2002.  Subsequently,  a portion of the contracts with those
bidders was reassigned to us. Therefore, for a limited portion of the New Jersey
retail load, we will be a direct supplier to one utility,  although this utility
is not PSE&G. These bilateral contracts are subject to credit risk. This risk is
substantially higher than the risk that was associated with potential nonpayment
by PSE&G under the BGS contract which expired on July 31, 2002, since PSE&G is a
rate-regulated entity. This credit risk relates to the ability of counterparties
to meet  their  payment  obligations  for the  power  delivered  under  each BGS
contract. We sell electricity to approximately nine supplier-counterparties that
serve  the  load of the  utilities,  and one  utility  directly.  Four of  these
supplier-counterparties  pay  us  directly,  and  one of the  four  prepays  its
purchases.  The revenue from the remaining five  counterparties is paid directly
from the utilities that those suppliers serve, and the related margin due to the
counterparties  is  recorded  as a  liability  and  will be  remitted  to  those
counterparties  separately.  Any failure to collect these payments under the new
BGS contracts  could have a material  impact on our results of operations,  cash
flows and financial position.

                         ITEM 4. CONTROLS AND PROCEDURES

We have  established and maintain  disclosure  controls and procedures which are
designed to provide reasonable  assurance that material  information relating to
the Company,  including our  consolidated  subsidiaries,  is made known to us by
others  within  those  entities,  particularly  during  the period in which this
quarterly report is being prepared.  We have established a Disclosure  Committee
which is made up of several key management employees and reports directly to the
Chief  Financial  Officer and Chief Executive  Officer,  to monitor and evaluate
these disclosure controls and procedures.  The Chief Financial Officer and Chief
Executive  Officer have evaluated the  effectiveness of our disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the  "Evaluation  Date").  Based on this  evaluation,  we have
concluded  that  our  disclosure  controls  and  procedures  were  effective  in
providing  reasonable  assurance  during  the period  covered in this  quarterly
report.  There were no  significant  changes in  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation.


                                       29


================================================================================
                                 PSEG Power LLC
================================================================================

                           PART II. OTHER INFORMATION
                           --------------------------

                            ITEM 1. LEGAL PROCEEDINGS

Certain information  reported under Item 3 of Part I of PSEG Power LLC's (Power)
2001 Annual  Report on Form 10-K and Power's  Amended  Quarterly  Report on Form
10-Q/A for the quarter  ended March 31,  2002 and our  Quarterly  Report on Form
10-Q for the quarter ended June 30, 2002 are updated below.  See  information on
the following proceedings at the pages indicated:

      (1)   Form 10-K,  Page 17 and June 30,  2002 Form 10-Q,  Page 10. See Page
            10. DOE Overcharges, Docket No. 01-592C.

      (2)   Form 10-K, Pages 16 and 17 and June 30, 2002 Form 10-Q, Page 10. See
            Page 10. DOE not taking possession of spent nuclear fuel, Docket No.
            01-551C.

      (3)   Form 10-K,  Pages 16 and 51 and June 30, 2002 Form 10-Q, Page 9. See
            Page  8.  Investigation  and  additional  investigation  by the  EPA
            regarding the Passaic River site. Docket No. EX93060255.

      (4)   Form 10-K, page 17, March 31, 2002 Form 10-Q/A, page 25 and June 30,
            2002 Form 10-Q,  page 10. See Page 11.  Petition  against DOE in the
            Eleventh  Circuit  U.S.  Court of  Appeals  seeking to set aside the
            receipt of credits out of the Nuclear Waste Fund.

                            ITEM 5. OTHER INFORMATION

Certain  information  reported  under our 2001 Annual Report on Form 10-K to the
SEC and our Amended  Quarterly Report on Form 10-Q/A for the quarter ended March
31, 2002 and our  Quarterly  Report on Form 10-Q for the quarter  ended June 30,
2002 are updated below.  References are to the related pages on the Form 10-K or
Form 10-Q/A or Form 10-Q as printed and distributed.

FERC Order related to PJM Restructuring

New Matter: On July 12, 2002, the United States Court of Appeals,  D.C. Circuit,
issued an opinion in favor of PSE&G and the other utility petitioners, reversing
an order of the FERC relating to the  restructuring  of PJM into an  Independent
System Operator. The Court agreed with PSE&G's position an ruled that FERC lacks
authority to require the utility owners to give up their statutory  rights under
Section  205 of the  Federal  Power  Act.  Hence,  FERC was  wrong to  require a
modification to the PJM ISO Agreement  eliminating  their rights to file changes
to rate design.  The court further noted that FERC lacks authority under Section
203 of the Federal Power Act to require the utility owners to obtain approval of
their withdrawal from the PJM ISO. Hence, FERC had no right under Section 203 to
eliminate the withdrawal rights to which the utilities had agreed.  Further,  in
ruling on a specific  argument raised by PSE&G, the Court held that FERC had not
justified its decision to  generically  abrogate  wholesale  power  requirements
contracts;  FERC was required to make a  particularized  finding with respect to
the public  interest,  which was not done here.  This  matter is now  pending on
remand before the FERC.


                                       30


================================================================================
                                 PSEG Power LLC
================================================================================

Nuclear Regulatory Commission (NRC)

Form 10-K, page 11. A pressurized  water reactor nuclear unit (PWR) not owned by
us was recently  identified with a degradation of the reactor vessel head, which
forms part of the pressure  boundary for the reactor coolant  system.  In August
2002,  the NRC issued a bulletin  2002-02,  requiring  that all operators of PWR
units  submit   information   concerning:   (i)  a  summary  discussion  of  the
supplemental  inspections  to be  implemented,  and (ii) if no changes are to be
implemented,  justification  for reliance on visual  examinations as the primary
method  to  detect  degradation.   In  September,   we  provided  the  requested
information for the Salem Facility. The response stated that a bare metal visual
examination  will be  performed  on the Salem  reactor  vessel heads during each
unit's next refueling  outage,  in compliance with the bulletin.  If repairs are
determined  to be  necessary,  it is estimated  that the repair would extend the
outage by approximately  four weeks. The bare metal visual  inspection for Salem
Unit 1 was recently  completed during the October 2002 refueling outage,  and no
degradation  of the reactor head was  observed.  Our Hope Creek nuclear unit and
our  interests  in the Peach  Bottom  units 2 and 3 are  unaffected  as they are
Boiling Water Reactor  nuclear  units.  We cannot predict what other actions the
NRC may take on this issue.


                                       31


                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)   A listing of exhibits being filed with this document is as follows:

      Exhibit Number    Document
      --------------    --------
      12                Computation of Ratios of Earnings to Fixed Charges

      99                Certification  by  E.  James  Ferland,  Chief  Executive
                        Officer of PSEG Power LLC  Pursuant  to Section  1350 of
                        Chapter 63 of Title 18 of the United States Code

      99.1              Certification  by Thomas  M.  O'Flynn,  Chief  Financial
                        Officer of PSEG Power LLC  Pursuant  to Section  1350 of
                        Chapter 63 of Title 18 of the United States Code

(B)   Reports on Form 8-K :

            Date          Form            Items
            ----          ----            -----
      October 11, 2002    8-K             5 & 7
      July 29, 2002       8-K/A           5 & 7
      July 18, 2002       8-K             5 & 7


                                       32


================================================================================
                                 PSEG Power LLC
================================================================================

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                 PSEG POWER LLC
                                 --------------
                                  (Registrant)

                     By:    /s/ Patricia A. Rado
                         -------------------------------
                                Patricia A. Rado
                          Vice President and Controller
                         (Principal Accounting Officer)

Date: November 1, 2002


                                       33


================================================================================
                                 PSEG Power LLC
================================================================================

                Certification Pursuant to Rules 13a-14 and 15d-14
                       of the 1934 Securities Exchange Act

      I certify that:

1.    I have reviewed this  quarterly  report on Form 10-Q of the PSEG Power LLC
      (the registrant);

2.    Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows of the  registrant  as of, and for,  the periods  presented  in this
      quarterly report;

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed  such  disclosure  controls and  procedures  to ensure that
            material  information  relating  to the  registrant,  including  its
            consolidated  subsidiaries,  is made  known to us by  others  within
            those  entities,  particularly  during  the  period  in  which  this
            quarterly report is being prepared;

      b)    evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c)    presented  in  this  quarterly  report  our  conclusions  about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of the PSEG's board of directors:

      a)    all significant  deficiencies in the design or operation of internal
            controls which could adversely  affect the  registrant's  ability to
            record,  process,  summarize  and  report  financial  data  and have
            identified any material weaknesses in internal controls; and

      b)    any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls; and

6.    The  registrant's  other  certifying  officer and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

            Date: November 1, 2002                 /s/ E. James Ferland
                  ----------------                 --------------------
                                                   E. James Ferland
                                                   Chief Executive Officer


                                       34


================================================================================
                                 PSEG Power LLC
================================================================================

                Certification Pursuant to Rules 13a-14 and 15d-14
                       of the 1934 Securities Exchange Act

      I certify that:

1.    I have reviewed this  quarterly  report on Form 10-Q of the PSEG Power LLC
      (the registrant);

2.    Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows of the  registrant  as of, and for,  the periods  presented  in this
      quarterly report;

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed  such  disclosure  controls and  procedures  to ensure that
            material  information  relating  to the  registrant,  including  its
            consolidated  subsidiaries,  is made  known to us by  others  within
            those  entities,  particularly  during  the  period  in  which  this
            quarterly report is being prepared;

      b)    evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and

      c)    presented  in  this  quarterly  report  our  conclusions  about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of PSEG's board of directors:

      a)    all significant  deficiencies in the design or operation of internal
            controls which could adversely  affect the  registrant's  ability to
            record,  process,  summarize  and  report  financial  data  and have
            identified any material weaknesses in internal controls; and

      b)    any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls; and

6.    The  registrant's  other  certifying  officer and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

            Date: November 1, 2002                 /s/ Thomas M. O'Flynn
                  ----------------                 -----------------------
                                                   Thomas M. O'Flynn
                                                   Chief Financial Officer


                                       35