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

Unless the context otherwise indicates, all references to "Transition Funding," "we," "us" or "our" herein mean PSE&G Transition Funding LLC, a Delaware limited liability company located at 80 Park Plaza, Newark, New Jersey 07102.

Following are the significant changes in or additions to information reported in our 2007 Annual Report on Form 10-K affecting the financial condition and the results of our operations. This discussion refers to our condensed financial statements (Statements) and related notes to condensed financial statements (Notes) and should be read in conjunction with such Statements and Notes. The following analysis of the financial condition and our results of operations is in an abbreviated format pursuant to General Instruction H of Form 10-Q.

RESULTS OF OPERATIONS

Operating Revenues

Transition Bond Charge (TBC) revenues decreased $6 thousand for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007. The decrease reflects a decline in the TBC rate from 2007, partially offset by a 0.6% increase in Public Service Electric and Gas Company's (PSE&G) sales volumes. As a result of the annual true-up approved by the BPU in January 2008, the TBC rate for 2008 decreased from 0.6405 cents per kWh to 0.6337 cents per kWh.

Operating Expenses

Amortization of Bondable Transition Property (BTP)

Amortization of BTP increased approximately $3 million or 7% for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, primarily due to decreases in Interest Expense due to the reduction in the total debt outstanding. As a regulated entity, we defer any over or under collection of expense to match against future revenues.

Servicing and Administrative Fees

PSE&G withholds from the TBC collections an annual servicing fee equal to 0.05% of the initial balance of the Bonds issued and charges an additional fee for various administrative costs. Servicing and Administrative Fees decreased $4 thousand or 1% for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, due to decreases in administrative expenses billed to us by PSE&G.

Interest Income

Interest Income decreased $262 thousand or 37% for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, primarily due to lower interest rates in 2008. The average return on investments decreased to approximately 3.9% for the quarter ended March 31, 2008 compared to approximately 5.4% for the same period in 2007.

Interest Expense

Interest expense decreased approximately $3 million or 8% for the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, due to a reduction in the total amount of debt outstanding.

---

LIQUIDITY AND CAPITAL RESOURCES

The principal amount of the Bonds, interest, fees and funding of the Overcollateralization Subaccount are being recovered through the TBC payable by retail customers of electricity within PSE&G's service territory who receive electric delivery service from PSE&G. As part of PSE&G's responsibility as servicer under the Servicing Agreement, PSE&G remits the TBC collections to the debt/security trustee (Trustee) to make scheduled payments on the Bonds.

Payments of principal, interest and all related expenses with respect to the Bonds were made by the Trustee on March 17, 2008, totaling $70 million, including funding of the Capital Subaccount and the Overcollateralization Subaccount to required levels.