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Rating Action:

MOODY'S DOWNGRADES PSEG ENERGY HOLDINGS (TO Ba3 SR. UNSEC.); CONFIRMS LONG-TERM RATINGS OF PUBLIC SERVICE ENTERPRISE GROUP (Baa2 SR. UNSEC.); CONFIRMS PSEG POWER (Baa1 SR. UNS.); PUBLIC SERVICE ENTERPRISE'S PRIME-2 RATING REMAINS ON REVIEW FOR DOWNGRADE

12 Sep 2003
MOODY'S DOWNGRADES PSEG ENERGY HOLDINGS (TO Ba3 SR. UNSEC.); CONFIRMS LONG-TERM RATINGS OF PUBLIC SERVICE ENTERPRISE GROUP (Baa2 SR. UNSEC.); CONFIRMS PSEG POWER (Baa1 SR. UNS.); PUBLIC SERVICE ENTERPRISE'S PRIME-2 RATING REMAINS ON REVIEW FOR DOWNGRADE

Approximately $5 Billion of Debt Securities Affected

New York, September 12, 2003 -- Moody's confirmed the long term ratings of Public Service Enterprise Group Inc. (Baa2 senior unsecured), with a negative outlook, and all ratings of PSEG Power LLC (Baa1 senior unsecured), with a stable outlook. Moody's downgraded the ratings of PSEG Energy Holdings LLC (to Ba3 senior unsecured, from Baa3), with a negative outlook. This action concludes the review for possible downgrade of PSEG Power LLC and PSEG Energy Holdings that was initiated on June 16, 2003. The Prime-2 commercial paper rating of Public Service Enterprise Group remains under review for possible downgrade. The ratings of Public Service Electric and Gas Company (senior secured A3) were not under review and remain unchanged, with a stable outlook.

Ratings confirmed include the following:

Public Service Enterprise Group Inc.'s (Enterprise) senior unsecured debt at Baa2; shelf registration for senior unsecured debt at (P)Baa2; preferred securities at (P)Baa3; and subordinated debt at (P)Baa3.

Enterprise Capital Trust I, II and III's preferred securities/junior subordinated debt at Baa3.

PSEG Funding Trust I, III, and IV's shelf registration of preferred securities at (P)Baa3; and PSEG Funding Trust II's preferred securities at Baa3.

PSEG Power LLC's (Power) senior unsecured debt at Baa1 and its senior unsecured pollution control revenue bonds at Baa1.

Ratings downgraded:

All ratings of PSEG Energy Holdings LLC (Holdings), including its senior unsecured debt to Ba3 from Baa3.

Rating remaining under review for possible downgrade:

Public Service Enterprise Group's Prime-2 short-term rating for commercial paper.

The rating actions reflect:

1. The downgrade of PSEG Energy Holdings's reflects Moody's concerns about the risk profile and continued weak performance of the company's investments, and clear indications from Enterprise that it does not intend to continue its past level of financial support to Holdings. This included substantial infusions of equity in the past two years. Holdings' significant foreign investments and U. S. merchant power plants have continued to produce poor financial results. The rating action also reflects the company's sizeable lease portfolio that includes substantial exposure to several non-investment grade energy merchant lessees, and considers that a significant portion of Holdings assets are encumbered.

2. The rating confirmation and the negative outlook for Public Service Enterprise Group's long-term debt reflect Enterprise's reliance upon dividends from Public Service Electric and Gas, PSEG Power, and PSEG Energy Holdings. Moody's expects that future dividend contributions from PSEG Energy Holdings will be very modest due to its weak financial performance. Moreover, a greater percentage of the parent's consolidated earnings and cash flow is currently derived from its non-regulated business operations. The earnings and cash flow from the non-regulated operations are subject to greater volatility. As a result, Public Service Enterprise is likely to receive dividends primarily from Public Service Electric and Gas and PSEG Power, the two stronger subsidiaries. The parent company has stated its commitment to not provide any further equity support to PSEG Energy Holdings on a prospective basis. In addition, Public Service Enterprise has committed to continue improving its financial measurements through reducing capital expenditures, productivity efficiencies, controlling costs, and issuance of additional equity in an effort to further improve its balance sheet. The negative outlook reflects the potential that the rating could fall if the company does not fully realize the significant improvements in its credit metrics that are expected over the next 1-2 years.

The continued rating review of the Prime-2 short-term rating for Public Service Enterprise Group's commercial paper program reflects the cross default, contained in its bank credit facilities, with default on obligations of PSEG Energy Holdings. This feature potentially diminishes the reliability of these credit facilities as a source of alternate liquidity to support commercial paper issuance, and is of increased significance with the lower credit rating of Holdings. Moody's anticipates concluding the review for downgrade of the commercial paper rating when the elimination of this cross default provision has been clarified with certainty, which is anticipated to occur next month.

3. The confirmation of the ratings of PSEG Power reflects the relatively favorable outlook for coal fired generation and nuclear generation with natural gas prices expected to remain above historic averages for some time. Power's capital spending is expected to decline, improving its free cash flow. Following the recent completion of the Waterford plant in Ohio and the scheduled commercial operation of the Lawrenceburg plant in Indiana in the near term, PSEG Power will have moderately increased exposure to the merchant power market due to the uncontracted nature of these two facilities. PSEG Power's exposure to current wholesale market conditions is mitigated as a result of significant fixed-price power sales contracts. These power sales contracts provide a stable underpinning to earnings and cash flow. As some of the shorter term contracts expire in mid-2004, PSEG Power will bid for them again under the prevailing wholesale market price in 2004. PSEG Power has been successfully providing supply either directly or indirectly through third parties in meeting at least 75% of New Jersey's Basic Generation Service (BGS) load under multi-year contracts. The wholesale power prices under the February 2003 Basic Generation Service contracts are higher than the 2002 BGS auction. In addition to the BGS contracts, PSEG Power recently entered into additional wholesale power contracts with various utilities and municipalities in the Pennsylvania-New Jersey-Maryland region under multi-year terms, increasing the stability of its cash flow.

Public Service Enterprise Group Inc., a diversified holding company, is headquartered in Newark, New Jersey. It has three principal subsidiaries. Public Service Electric and Gas Company is a regulated transmission and distribution utility in New Jersey. PSEG Power LLC is a non-regulated generation company with over 1l,000 megawatts of domestic generating assets, which were primarily transferred from the regulated T&D utility affiliate in 2000. PSEG Energy Holdings LLC has non-regulated investments in leveraged leases, domestic and international power projects, and regulated distribution utilities abroad.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Mo Ying W. Seto
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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