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

Unless the context otherwise indicates, all references to "Transition Funding II," "we," "us" or "our" herein mean PSE&G Transition Funding II 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.

On September 23, 2005, we issued $102.7 million of transition bonds in four classes with maturities ranging from two years to nine years. The net proceeds of the issuance were utilized to acquire Public Service Electric and Gas Company's (PSE&G) property right in the BGS transition bond charge (TBC). We use collections of the TBC to make scheduled principal and interest payments on the transition bonds and to cover any additional administrative costs.

RESULTS OF OPERATIONS

Operating Revenues

TBC revenues increased approximately $6 thousand for the quarter ended March 31, 2008, as compared to the same period in 2007, primarily due to a 1% increase in sales volumes.

Operating Expenses

Amortization of Bondable Transition Property (BTP)

As a regulated entity, our amortization expense fluctuates with changes in revenue and interest expense. Amortization of BTP increased approximately $98 thousand or 5% for the quarter ended March 31, 2008, as compared to the same period in 2007, due to increased revenues and decreased interest expense.

Interest Income

Interest Income decreased approximately $7 thousand or 28% for the quarter ended March 31, 2008, as compared to the same period in 2007 primarily due to a reduction in interest rates. The average return on investments decreased to approximately 3.3% for the quarter ended March 31, 2008 compared to approximately 5.4% for the quarter ended March 31, 2007.

---

Interest Expense

Interest expense decreased approximately $97 thousand or 9% for the quarter ended March 31, 2008, as compared to the same period in 2007, due primarily to a reduction in the total amount of debt outstanding.

LIQUIDITY AND CAPITAL RESOURCES

The principal amount of the Bonds, interest and fees are being recovered through the TBC. As part of PSE&G's responsibility as Servicer under the Servicing Agreement, PSE&G remits the TBC collections to the Trustee to make scheduled payments on the Bonds.