Ladies and gentlemen, thank you for standing by. Welcome to the Public Service Enterprise Group Third Quarter 2011 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, November 1, 2011, and will be available for telephone replay beginning at 1:00 p.m., November 1, 2011, to November 7, 2011. It will also be available as an audio webcast on PSEG's corporate website at www.pseg.com. I would now like to turn the conference over the Kathleen Lally, Vice President of Investor Relations. Please go ahead.

Thank you, Ashley. Thank you, and good morning to everyone who is participating in our earnings call this morning. As you know, we released third quarter 2011 earnings statements earlier today. And as mentioned, the release and attachments are posted on our website at www.pseg.com under the Investors section. We also posted a series of slides that detail the operating results by company for the quarter. Our 10-Q for the period ended September 30, 2011, is expected to be filed shortly. I don't intend to read the full disclaimer statement or the comments we have on the difference between operating earnings and GAAP results. But as you know, the earnings release and the other matters that we will discuss in today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. And although we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our estimate changes unless we are required to do so. Our release also contains adjusted non-GAAP operating earnings. Please refer to today's 8-K, which contains our earnings release and attachments or other filings for a discussion of factors that may cause results to differ from management's projections, forecasts and expectations, and for a reconciliation of operating earnings to GAAP results. I would now like to turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. We ask that you limit yourself to one question and one follow-up. Thanks.

Thank you, Kathleen. And thank you, everyone for joining us today. Earlier this morning, we reported operating earnings for the third quarter 2011 of $0.83 per share compared with operating earnings of $1.03 per share earned in 2010's third quarter. We achieved solid operating earnings for the third quarter in spite of daunting challenges. Our biggest challenge remains the low price of electricity. The effects of our earnings are realized primarily through reductions in BGS and RPM prices effective on June 1 of this year. During the quarter, however, we were also faced with the need to respond to the biggest storm to hit our service territory in our 108-year history. We experienced a historic number of customer outages and level of system damage in the wake of Hurricane Irene. As usual, our employees met the challenge. Thousands of employees from around the entire enterprise banded together with a common purpose: to help our customers when they needed us most. Utility counted on and received the assistance of everyone in PSEG who could lend a much-needed hand. The employees of PSEG Power also met the challenge. Their efforts to maintain the material condition of our generating units assured their availability during that critical time. Our 3 New Jersey nuclear units remained online during the hurricane and that strong storm performance was typical of the quarter as a whole. The Hope Creek nuclear station operated at a 97 capacity -- 97% capacity factor during the quarter, resulting in our nuclear fleet operating at a better-than-expected capacity factor of 93% year-to-date. Our fossil fleet met the demands of the system during this summer's historically high temperatures. Our combined cycle fleet continues to reduce its forced outage rate with all units operating during the July heat wave. Our workforce was called upon again…

Thank you, Ralph, and good morning. I'll now review our quarterly operating results, as well as the outlook for our full-year operating results by subsidiary company. As Ralph said, PSEG reported operating earnings for the third quarter of 2011 of $0.83 per share versus operating earnings of $1.3 per share in last year's third quarter. Slides 4 and 5 provided reconciliation of operating income to income from continuing operations and net income for the quarter and year-to-date. We've provided you with a waterfall chart on Slide 12 that takes you through the net changes in quarter-over-quarter operating earnings by major business and a similar chart on Slide 13 provides you with changes in operating earnings by each business on a year-to-date basis. So let's review each company in a little more detail starting with Power. As shown on Slide 15, PSEG Power reported operating earnings for the third quarter of $0.51 per share compared with $0.67 per share a year ago. Power's third quarter earnings were affected primarily by a quarter-over-quarter decline in realized energy and capacity prices. Recall that capacity prices declined to $110 per megawatt day on June 1, 2011, from $174 dollars per megawatt day in the prior 12-month period. This decline reduced Power's earnings in the quarter by $0.07 per share. A decline in energy prices under the Basic Generation Service, or BGS contract, to $94.30 per megawatt hour, also effective on June 1 from the prior contract price of $111.50 per megawatt hour, as well as the impact of other re-contracting efforts together reduced earnings in the quarter by $0.07 per share. Quarter-over-quarter output declined 7%, given the decline in weather-related demand versus last year. The decline in volume lowered Power's earnings comparison by $0.02 per share. Although weather conditions experienced in the third quarter…

[Operator Instructions] And your first question comes from the line of Dan Eggers would Credit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: Ralph, I know you talked it a little bit earlier in the call, but clearly New Jersey seems to have a pretty high focus on getting new generation built in the state, kind of independent of what happens with the LCAPP process. Can you just talk a little more about what kind of position in alternatives that the state might pursue to try and get generation built or things that you guys think you could do in conjunction with PJM to try and get generation built while keeping the constructive, competitive framework for RPM in place?

Sure, Dan. So, I know there's been a lot of attention paid to this issue and it's really -- you've accurately summarized the way in which it's portrayed. I do have a slightly different view of it, however. I believe, what the state is trying to do, and what the governor particularly, is trying to do is make New Jersey as competitive as it can possibly be. So new generation is really a means by which New Jersey's Power prices will be more competitive with the region. And in the conversations we have been having with policymakers is that there are certain things New Jersey cannot compensate for. We cannot compensate for our population density. We cannot compensate for our lack of indigenous fuel. We cannot compensate for our environmental regulations, which are more progressive or aggressive, depending upon your perspective and others. Having said that, if we can work together to make markets even more efficient by reducing the risk for investors and therefore, on a risk-adjusted basis, make investments flow more readily so that power plants get built when needed, and you see less of the differentiation other than the factors I mentioned a moment ago, then I think everybody wins. And that's the kind of conversation we're having with folks right now. So, that's leading to specific discussions around how interconnections are planned. What is the timeframe of which RPM prices future capacity. What are the constraints that should or should not be placed on access to new shale gas deposits in the region. So I think, as long as we stay focused on meaningful improvements in competitive markets and steer away from counterproductive subsidies of government that interfere with markets, there's a wealth of opportunities to find common ground.

Your next question is from the line of Kit Konolige with Ticonderoga.

A question on another area where there's been litigation, the Power markets. Can you update us on your sense of the outlook for any decisions by the courts or EPA on CSAPR on our HAPs/MACT for that matter?

It's, Ralph again. We are talking here about the implementation of the Clean Air Act amendments of 1990. They have been promulgated by EPA. They've been contested in the courts candidly, all too often by colleagues in our industry. Although they have been contested by others as well. They've been up and down the judiciary system. I believe they've been at the Supreme Court at least once. I don't -- I think that's accurate. And now EPA is narrowing the oscillations in terms of re-promulgation of rules. And we're confident that they will stick. And I think others are confident they will stick. At last count, I believe EEI had 48 gigawatts of coal retirements that have been announced, which is a clear indication that people expect the CSAPR rules and the HAPs/MACT rules to be final in some close form that approximates the proposals. As you know, the CSAPR rules are final. There were some technical changes made, some recently. Yes, there are a couple of states who believe they were surprised, I can't speak for them, who have filed lawsuits. In general, however, we have been quite supportive. We've actually supported these rules for quite some time and have been outspoken in the fact that we have coal units, we've made the investments and we are ready to compete, and others should be ready to do the same.

And if I can follow with -- in that general area. I think Caroline mentioned that if I wrote it down correctly that markets are responding well to higher environmental requirements, or the prospect, or the likelihood. Can you guys give us any color on your view of forward power markets with regard to environmental, whatever the impacts are. Just some sense of the next few years, what you've been seeing?

So, as I mentioned, we did see the markets respond. In fact, if you recall when the CSAPR rules came out, you saw market prices move up about $2. And then you are seeing some of that. At least our sense is you see that when you look out across the forward curve. Of course, we don't forecast beyond the forward curve. I wouldn't say that we have a crystal ball on that. We think that about, perhaps maybe, 2/3 or so of the price move might be factored into what we see in the forward curve. At the end of the day people like to see rules go final, right? So prospects are good, final rules are better. And of course, we look forward to the HAPs/MACT rules as Ralph mentioned, being issued in December. So, we think we see some of that in the forward curve. We think we see it sustained. But of course, we need to see those final rules issued for HAPs/MACT and we hope, December.

Your next question is from the line of Travis Miller with Morningstar.

I wanted to ask on customer migration. I think in the past, and correct me if I'm wrong, you guys have talked about $0.01 per share for every 1% of customer migration? Given what you saw in the quarter, is there an update to that or can we still generally think about that going forward?

Thanks for your question. I'm glad you asked it because I think one of the things that we've been talking a lot about is the fact that when you think about migration and its impact on our earnings, you have to think about 2 parts. Not just the amount of migration or how many customers have moved, but in fact, what that cost you. What is the difference in what they pay if they're in BGS versus if they are not on BGS. So in prior years, that difference, which we call the headroom, has been a relatively larger number. It's that much larger than it is today, and that was the result of the fact that BGS prices were still coming off higher levels and there was also still a summer premium, which now is actually only one of the remaining years of BGS prices, as well as lower prices in the market. So, that differential was bigger. And when you have a bigger differential, then as you lose the customer or you lose a customer or a group of customers, that cost you dollars for each customer that leaves. The reason that I said that the migration amounts that we have this year, quarter-over-quarter in fact, don't result in any EPS quarter-over-quarter comparisons, is that while you still have some incremental customers moving, and we saw that move from about 26% to about 33%, the headroom is so much lower than it was. It's lower than last year and in fact, it's only about 1/4 of the level it was when we first saw migration really take hold in the summer of 2009. So what happens is, when you have an incremental amount of customers moving but in fact, every customer, including those who have already left you cost you less and you run out the math, sort of a price x quantity if you will, we end up now in the circumstance with a slowing level of migration on top of a lower headroom amount for everyone who's migrated, leading to 0 impact quarter-over-quarter. You might think of this in a sense in the extreme. If you had a 0 headroom, if the prices effectively converged, we would be indifferent as to where the customers were because the impact for us would be the same in terms of dollars. So we watched the headroom come down. It means, every customer, if you will, is worth less on a differential basis, and that's why I wouldn't use the estimates we had given in past years because they are related to past levels of headroom.

Thanks a lot. And one quick follow-up then. If you guys project customer migration either shrinking or getting larger, would that affect your bidding strategy into the BGS?

No, it wouldn't. Because we don't bid into BGS thinking about that. We bid into BGS based on the parameters, of course, that we're given in terms of the composition of the customers, as well as our expectations for forward prices, capacity and the other risk premium that we don't get into on the call for competitive reasons.

Your next question is from Paul Fremont with Jefferies. Paul B. Fremont - Jefferies & Company, Inc., Research Division: It looks as if there's some margin improvement that's taking place particularly in New England and New York. What -- can you give an indication given the fact that gas prices were low both quarters, as to what's driving that particularly in New England?

So, sure, Paul. Keep in mind for -- particularly for New England, if you look at the margin there, as I mentioned, we did the coal sales this quarter and those coal sales fall into the results that we have for New England. So that's really the biggest driver of the difference that you see. Not much going on in New York, but New England is going to be driven by coal. And as I mentioned, we had coal sales this quarter. We also had a little bit in the earlier quarters. So as I said, $0.06 for the year to date, $0.03 quarter-over-quarter. Paul B. Fremont - Jefferies & Company, Inc., Research Division: And can you give us major milestones in the LCAPP court case?

There is no schedule that's been published on that, Paul, so the 2 beneficial outcomes we've seen are the denial of the motion to dismiss of the BPU -- on the part of the Federal court, of the BPU motion to dismiss. And then the denial of the rate payer advocate's motion to dismiss on the EDC case. But there is no scheduled time for the court to act. We are in discovery, however, right now. Paul B. Fremont - Jefferies & Company, Inc., Research Division: And then the next thing to look for is scheduling the trial date?

Yes. I mean, there's lots of things to look to, right? I mean there's -- from the court point of view, that's accurate. But I think that you'll want to look at PJM's filing of how it's going to respond to the Mopar implementation at the end of November, you'll want to look to the early part of next year where PJM publishes the parameters for the RPM auctions. There are various motions that we will be filing in the litigation that you would look to in the coming weeks and months. So there's a continuous stream of activity. I don't think there is any one date that one wants to latch on. Paul B. Fremont - Jefferies & Company, Inc., Research Division: And sort of the last question there. Perhaps the, I guess, they filed to reverse the interconnect charges with the FERC. Do they need to win on that in order to bid in the upcoming auctions?

That's -- I believe your referring to Hess' filing at FERC and I am in no position to comment on what they need or don't need. PJM sets the planning parameters, we operate the assets and we'll operate those assets in the best interest of the customer base, and the reliability that PJM is accustomed to delivering.

Your next question is from Jonathan Arnold with Deutsche Bank.

Just on the coal sales and then -- could you break down, Caroline, at all, this $0.03 item. Was it primarily the sales or more weighted to the absence of cancel freight costs and is there any ongoing expectation around those canceled freight expenses as you move forward into the coming quarters?

Right. Sure, Jonathan. So, it's primarily the sales relative to the cancellation. We had cancellation costs last year in the third quarter because we still actually have those charges. We actually restructured the agreement midyear this year so we no longer have those costs. So really, what you're seeing, most of what you've got here is the sales, about 3/4 of it or so is the sales relative to the cancellation charges. In terms of going forward as I've mentioned, we have adequate supplies of coal. And since we have the restructured agreement that no longer has the cancellation charges if we don't want to take shipments, we are in a better position. That being said, because we have made the sales that we've made to date, we really shouldn't think about that as really being anything material as we come into 2012 in terms of future sales.

Okay. And was what you did earlier in the year, I guess, there was another $0.03 similar in makeup?

Right. In the first 2 quarters, kind of spread-out between the 2 quarters. We highlighted that this year -- this quarter because it was just $0.03 just for this quarter.

Okay. If I may, on one other the topic, you have reasonably high cash balance currently versus, I guess, part of that may be seasonal. Is this some CapEx timing and then just -- how should we think about what the plan is for deployment?

Right. So in terms of capital, as you know, and as Ralph mentioned in his remarks, we do have $2.3 billion in capital expenditures for the year. To date, we've spent about $1.5 billion in capital, so we still have a good chunk to go. It typically gets a little bit more weighted to the final quarter of the year as we typically ramp-up. In terms of really beyond that, I think, keep in mind we're just continuing to look for new opportunities. And then next year we have some debt coming due. We have some maturities happening both at Power and the utility, so we have some flexibility there. What we really did in addition to the sale of Texas, of course, which you know is new for this quarter, we really took advantage of market rates and I think we've got good levels for the debt, and that just gives us lots of flexibility, and then we can reconfigure our financing plan going forward, knowing about our upcoming maturities.

Your next question is from Jack D'Angelo with Catapult Capital.

Can you just comment a little further on the weather-normalized sales, trends you're seeing at PSE&G? Kind of your thoughts on the local economy and maybe when you see the sales trend turning the corner back towards a growth trajectory?

Sure. Yes, it's been challenging this year. I think, earlier in this year, we thought we were seeing the bottom and perhaps same things turn up, but things have continued to be a challenge for the state. As it is obviously for the country. So the numbers that I mentioned in my remarks were the -- are estimates of weather-normalized and of course, that is more art than science. But we do see downtrends on a weather-normalized basis. We do think people are conserving more, maybe not turning on the air conditioner, quite as quickly in the heat of the summer. We'll see what happens when we get into the heating season. In terms of employment data, we do see a little bit of good news in looking at data, August versus August from 2011 versus 2010, seem to see some upturn in net employment in the state. But again, I'm talking 10,000, 15,000 in total. What appears to be some private sector benefit offset by some decreases at the government level. But if you look at things like housing starts or jobless claims, they seem to be bouncing around that level. It's not inconsistent with what we saw last year. So things don't appear to be getting worse. From the economic perspective, they don't appear to be turning around. We do think we're seeing that manifest in what customers are doing in trying to conserve, before they turn on the air conditioner or use a little bit more power. So it's not getting worse, but unfortunately, you can't really say that we see it getting a lot better at this point.

Okay. So when we think about '12, probably pretty flat to where -- to what you guys are seeing at '11?

Yes. It's hard to forecast all the way out, but I wouldn't forecast a lot of growth at this point, given where we are.

Your next question is from the line of Michael Lapides with Goldman Sachs.

Really quick, just on the pension commentary. When you -- how should we get our arms around what this means for O&M as how much pension expenses is a percent of your total O&M, and you guys have been one of the better companies in terms of managing total O&M across the board. What kind of -- how should we think about like the sensitivities of pension costs relative to total O&M contributions going forward?

Sure. So you may recall, Michael, when we we're talking about pension expense a couple of years ago, we talked about it moving up after 2008 to levels in 2009 of about $160 million for total pension expense. It's come down significantly since 2009 into '10 and '11 so you are looking at numbers that are around the levels slightly less than say, $100 million or so. The real question for us is, at levels like less than $100 million in total for the company, how do we think about the year-on-year? So if you think back to our investor materials, we had the bar charts where we show total O&M and then we show pension as a piece of total O&M. In those bar charts, we were expecting to see a small decrease in pension expense on a year-on-year basis, when we looked at it. But given where we are now and given how things have changed, I think it's hard to think about being certain of a small decrease. Because when we think of where both interest rates are -- lower interest rates increase pension expense as you know, as well as lower returns, which increase pension expense -- that puts the challenge there. So total O&M for us, you may recall, when you looked at our numbers, we were looking at total O&M for this year of about $2.1 billion and we were talking about kind of flat over the '10 to '13 period. The pension expense is a little less than $100 million out of that. Got to think of it next year as maybe being a little higher than that. So on a base of about $2.1 billion, you are looking at a number that's a little less than $100 million or somewhere around there for next year. Can't give you a better estimate because we can't set it until we get to the end of the year.

Do you believe you have other opportunities to offset pension expense and O&M elsewhere within the broader O&M budget?

Well, obviously, as you know, and we've talked about before, we do our O&M budgeting on a bottoms-up basis, really looking at every site, every part of the organization. But when you think about the kind of swings that pension expense can provide when you have. For example, the market's being up almost 8% or 9% when we were in the May time frame to the S&P being down about 4% by the end of September, and now with positive territory by the end of October, those kind of things can consist -- and combined with very sharp moves in rates make it pretty hard to overcome what could be pension expense volatility by the end of the year. Not that we haven't -- not that we aren't continuing to try, but that's why we want to flag it for you now, because it might be something that becomes a higher number in 2012 versus our expectations of O&M and net higher than we would've otherwise be able to offset.

Your next question is from Dan Eggers with Credit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: I just have one more question around kind of resource supply. One of the issues in the environmental rules is that you have those peakers that are supposed to be retired at the end of '15. Are you guys making any progress in these conversations moving forward as far as maybe, extending the useful life of those just to help keep the cost in New Jersey customers down a bit over the next few years?

So Dan, we still have an application in front of the DEP. Candidly, time is getting short for the DEP to respond to that and us to be able to have confidence to keep them in the next RPM auction. The trade-off there is just what you said. Clearly keeping those peakers in would have the -- a maximum benefit for customers in terms of keeping capacity prices down. However, they are not the finest units in the point of view of ground-level ozone and OX emissions and therein lies the trade-off that the state is grappling with. I'd say that we won't know the final outcome of that until early or at the latest, middle of the first quarter of next year. The application is still alive but we don't have a clear answer yet.

Your next question is from Ashar Com [ph] with Bizium [ph].

Ralph, just playing over the Central District Court case. Is it fair to assume that, once that the case should be decided by just before the next auction?

No, Ashar. I don't think we should make any assumptions about the schedule on the case. And the judge has the information and he's proceeding as he deems appropriate, and we are not putting ourselves in a position to predict time tables.

Okay, but let me ask it another way. If the participants take part in the next auction, and the case hasn't been decided, we would have claims against them if we win the case and they have taken part in the auction? Is that fair to say?

I'd think that speaking for myself, not speaking for others, I would not want to enter into an expectation that my contract is going to be allowed to continue for the 15 years until that case is decided. But that's speaking for myself and we actually approached the LCAPP process with that as a consideration. But others may have a completely different point of view as to whether or not those contracts will continue to be honest.

And do you have anything, information whether we're going to have any more hearings or anything on this going forward 'til the end of the year?

No. As far as I know, the BPU held a hearing a few weeks ago, and there is discussion of likely staff recommendation and how to proceed sometime in the mid-December time frame, and that's all that I believe has been stated publicly or at least that's all I'm aware of has stated publicly.

Your next question is from Gregg Orrill with Barclays Capital.

The recommendations in the Mopar case PJM is going to make. Would those be effective for the next auction you think? Or is there really no way to know that at this point?

You never want to say something with 100% certainty, Greg. But I'm fairly confident that anything PJM does in the November timeframe or soon thereafter, would be with the intention of having it effective -- in the next RPM of May. Yes, I'd put a high degree of confidence on that.

And then in terms of New Jersey legislation. Do you see anything getting done this year that would affect you?

No, I do not. I do not, not legislatively.

Mr. Izzo, Ms. Dorsa, there are no further questions at this time, please continue with your presentation or closing remarks.

Thank you, Ashley. So, for those who have joined us, I extend once again, my thanks, for being with us, and I sincerely hope you're as pleased as we are with our operating earnings through the third quarter, and our expectations for where we believe the year will end. Similarly, I hope you're as gratified as we are that our environmental strategy appears poised to deliver anticipated benefits. And we have to be sure while the first 9 months have been strong and the long term strategy appears to be paying dividends, there are some challenges that remain and chief among them are ensuring the continued functioning of competitive wholesale markets free of government's discriminatory subsidies. But as I mentioned a moment ago, I believe these challenges are manageable with ongoing dialogue and I can assure you, if you're not aware of that already, we are quite actively engaged in that ongoing dialogue. So we look forward to seeing you next week at EEI, and thank you for being with us today. Take care.

Ladies and gentlemen, that does conclude your conference call for today. You may disconnect, and thank you for participating.

Thank you.