Public Service Electric & Gas Secured MTNs Rated 'A' by Fitch

Business Wire, August 17, 2004

NEW YORK -- Fitch Ratings has assigned an 'A' rating to Public Service Electric and Gas Company's (PSE&G) $250 million issue of secured medium term notes series D maturing August 15, 2014. Proceeds will be used for the repayment of $250 million of first and refunding mortgage bonds that have been called for redemption. The Rating Outlook is Negative.

The ratings reflect the relatively low business risk and the predictable revenue stream of PSE&G's regulated electric and gas distribution operations, the absence of commodity price exposure and the financial improvements from a $159 million increase in electric rates implemented in August 2003. In the 12-month period ended June 30, 2004, the higher tariffs were in effect for nearly a full year and energy sales were strong during the first half of 2004. Consequently, adjusted financial measures (excluding securitization debt) have improved considerably and for the 12-month period ended June 30, 2004 are consistent with the current ratings. However, the Negative Rating Outlook results from rating linkage to the company's corporate parent, Public Service Enterprise Group Inc. ('BBB ' indicative senior unsecured, Rating Watch Negative). If ratings of the parent ratings are reduced, PSE&G's ratings may be affected.

The Rating Watch Negative status for parent company Public Service Enterprise Group (PSEG) is the result of the company's recent announcement that operating earnings at its unregulated wholesale electric generating subsidiary PSEG Power will be meaningfully lower than previously expected in 2004 and 2005 due to an increase in replacement power and operating and maintenance costs related to unplanned generating outages at both coal and nuclear units that have since returned to service. The lower earnings will pressure credit quality measures at both PSEG and PSEG Power. Fitch Ratings expects to resolve the Rating Watch Negative status within the next several weeks.