UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10–Q

	(Mark One)
	[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2007

		OR

	[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________ to __________

Commission	Registrant, State of Incorporation,	I.R.S. Employer
File Number	Address, and Telephone Number	Identification No.
333-83635	PSE&G Transition Funding LLC	22-3672053
	(A Delaware limited liability company)
	80 Park Plaza – T4D
	P.O. Box 1171
	Newark, New Jersey 07101-1171
	973 297-2227
	http://www.pseg.com

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.) (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes No X

Registrant is a wholly owned subsidiary of Public Service Electric and Gas Company.

Registrant meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format authorized by General Instruction H.

TABLE OF CONTENTS

		PAGE
FORWARD-LOOKING STATEMENTS		ii

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements	1
	Notes to Condensed Financial Statements	4
	Note 1. Organization and Basis of Presentation	4
	Note 2. The Bonds	4
	Note 3. Significant Agreements and Related Party Transactions	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
	Results of Operations	6
	Liquidity and Capital Resources	7

Item 3.	Qualitative and Quantitative Disclosures About Market Risk	7

Item 4.	Controls and Procedures	7

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	8

Item 6.	Exhibits	8

Signature		9

FORWARD-LOOKING STATEMENTS

Except for the historical information contained herein, certain of the matters discussed in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used herein, the words “anticipate”, “intend”, “estimate”, “believe”, “expect”, “plan”, “potential”, variations of such words and similar expressions are intended to identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following review of factors should not be construed as exhaustive.

In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: state and federal legal or regulatory developments; national or regional economic conditions; market demand and prices for energy; customer conservation; distributed generation technology; weather variations affecting customer energy usage; the effect of continued electric industry restructuring; operating performance of Public Service Electric and Gas Company’s facilities and third party suppliers; and the payment patterns of customers including the rate of delinquencies.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PSE&G TRANSITION FUNDING LLC
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)

	For the Quarters Ended
	March 31,
	2007		2006
OPERATING REVENUES	$	66,641	$	67,195
OPERATING EXPENSES
Amortization of Bondable Transition Property		34,133		31,904
Servicing and Administrative Fees		422		408
Total Operating Expenses		34,555		32,312
OPERATING INCOME		32,086		34,883
Interest Income		712		616
Interest Expense		(32,619)		(35,359)
NET INCOME	$	179	$	140

See Notes to Condensed Financial Statements.

PSE&G TRANSITION FUNDING LLC
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)

	March 31,		December 31,
	2007		2006
ASSETS
Current Assets:
Cash	$	1,494	$	1,315
Receivable from Member		53,996		54,974
Restricted Cash		8,487		11,347
Total Current Assets		63.977		67,636

Noncurrent Assets:
Restricted Cash		17,874		17,661
Bondable Transition Property		1,727,517		1,761,650
Deferred Issuance Costs		40,730		42,852
Regulatory Assets – Interest Rate Swap		3,887		4,241
Total Noncurrent Assets		1,790,008		1,826,404
TOTAL ASSETS	$	1,853,985	$	1,894,040

LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt	$	163,136	$	161,394
Current Portion of Derivative Liability		2,192		2,332
Current Portion of Payable to Member		7,158		7,017
Accounts Payable		30		—
Accrued Interest		5,008		5,185
Total Current Liabilities		177,524		175,928

Long-Term Liabilities:
Long-Term Debt		1,582,579		1,622,580
Derivative Liability		1,695		1,909
Payable to Member		72,819		74,647
Regulatory Liability – Overcollateralization		5,249		5,036
Total Long-Term Liabilities		1,662,342		1,704,172
TOTAL LIABILITIES		1,839,866		1,880,100

MEMBER’S EQUITY
Contributed Capital		12,625		12,625
Retained Earnings		1,494		1,315
Total Member’s Equity		14,119		13,940
TOTAL LIABILITIES AND MEMBER’S EQUITY	$	1,853,985	$	1,894,040

See Notes to Condensed Financial Statements.

PSE&G TRANSITION FUNDING LLC
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)

	For the Quarters Ended
	March 31,
	2007		2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	179	$	140
Adjustments to Reconcile Net Income to Net Cash
Flows from Operating Activities:
Amortization of Bondable Transition Property		34,133		31,904
Amortization of Deferred Issuance Costs		2,122		2,295
Net Changes in Certain Current Assets and Liabilities:
Receivable from Member		978		3,815
Restricted Cash		2,860		1,128
Payable to Affiliate		—		(1,198)
Accounts Payable		30		20
Accrued Interest		(177)		(94)
Net Increase in Overcollateralization		213		212
Net Cash Provided By Operating Activities		40,338		38,222

CASH FLOWS FROM INVESTING ACTIVITIES
Restricted Cash		(213)		(212)
Net Cash Provided By Investing Activities		(213)		(212)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt		(38,259)		(36,291)
Repayment of Payable to Member		(1,687)		(1,579)
Net Cash Used In Financing Activities		(39,946)		(37,870)
Increase in Cash and Cash Equivalents		179		140
Cash and Cash Equivalents at Beginning of Period		1,315		671
Cash and Cash Equivalents at End of Period	$	1,494	$	811

Interest Paid	$	30,674	$	33,158

See Notes to Condensed Financial Statements.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Organization and Basis of Presentation

Organization

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.

We were formed under the laws of the State of Delaware on July 21, 1999 and operate pursuant to a limited liability company agreement with Public Service Electric and Gas Company (PSE&G) as our sole member. PSE&G is an operating electric and gas utility and is a wholly-owned subsidiary of Public Service Enterprise Group Incorporated (PSEG). We were organized for the sole purpose of purchasing and owning bondable transition property (BTP) of PSE&G, issuing transition bonds (Bonds), pledging our interest in BTP and other collateral to a debt/security trustee (Trustee) to collateralize the Bonds, and performing activities that are necessary, suitable or convenient to accomplish these purposes.

BTP represents the irrevocable right of PSE&G, or its successor or assignee, to collect a non-bypassable transition bond charge (TBC) from retail electric customers pursuant to a Final Order in PSE&G’s rate unbundling and restructuring proceedings (Final Order) and a bondable stranded cost rate order (Finance Order), which were issued on August 24, 1999 and September 17, 1999, respectively, by the State of New Jersey Board of Public Utilities (BPU) in accordance with the New Jersey Electric Discount and Energy Competition Act enacted in February 1999. These orders are a matter of public record and are available from the BPU. The Finance Order authorizes the TBC to be sufficient to recover $2.525 billion aggregate principal amount of Bonds, plus an amount sufficient to provide for any credit enhancement, to fund any reserves and to pay interest, redemption premiums, if any, servicing fees and other expenses relating to the Bonds.

Our organizational documents require us to operate in a manner so that we should not be consolidated in the bankruptcy estate of PSE&G in the event PSE&G becomes subject to a bankruptcy proceeding.

Basis of Presentation

The condensed financial statements included herein have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures are adequate to make the information presented not misleading. These condensed financial statements and notes to condensed financial statements (Notes) should be read in conjunction with and update and supplement matters discussed in our 2006 Annual Report on Form 10-K.

The unaudited financial information furnished herein reflects all adjustments, which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end condensed balance sheet was derived from the audited financial statements included in our 2006 Annual Report on Form 10-K.

Note 2. The Bonds

On January 31, 2001, we issued $2.525 billion of Bonds in eight classes with maturities ranging from one year to fifteen years. The net proceeds of the issuance were remitted to PSE&G as consideration for the property right in the TBC.

Under applicable law, the Bonds are not an obligation of PSE&G or secured by the assets of PSE&G, but rather the Bonds are only recourse to us and are collateralized on a pro rata basis by the BTP and our equity and assets. TBC collections are deposited at least monthly by PSE&G with the Trustee and are used to pay our expenses, to pay our debt service on the Bonds and to fund any credit enhancement for the Bonds. We have also pledged the capital contributed by PSE&G to secure the debt service requirements of the Bonds. The debt service requirements

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

include an overcollateralization subaccount, a capital subaccount and a reserve subaccount which are available to bond holders. Any amounts collateralizing the Bonds will be returned to PSE&G upon payment of the Bonds.

The significant terms of the Bonds issued by Transition Funding, and the amounts outstanding, as of March 31, 2007 are as follows:

					Payments						Final/
	Initial				Made On		Current		Noncurrent		Expected	Final
	Principal		Interest		Bonds Through		Portion		Portion		Payment	Maturity
Class	Balance		Rate		March 31, 2007		Outstanding		Outstanding		Date	Date
A-1	$	105,249,914	5.46	%	$	105,249,914	$	—	$	—	6/17/02	—
A-2		368,980,380	5.74	%		368,980,380		—		—	3/15/05	3/15/07
A-3		182,621,909	5.98	%		182,621,909		—		—	6/15/06	6/15/08
A-4		496,606,425	LIBOR + 0.30%			122,432,749		163,136,226		211,037,450	6/15/09	6/15/11
A-5		328,032,965	6.45	%		—		—		328,032,965	3/15/11	3/15/13
A-6		453,559,632	6.61	%		—		—		453,559,632	6/15/13	6/15/15
A-7		219,688,870	6.75	%		—		—		219,688,870	6/15/14	6/15/16
A-8		370,259,905	6.89	%		—		—		370,259,905	12/15/15	12/15/17
Total	$	2,525,000,000			$	779,284,952	$	163,136,226	$	1,582,578,822

We have entered into an interest rate swap on our sole class of floating rate Bonds (Class A-4). The interest rate swap effectively converts the existing floating rate debt into fixed rate borrowings at 6.2875% . The interest rate swap is indexed to the three-month LIBOR rate. The fair value of the interest rate swap was approximately $(4) million as of both March 31, 2007 and December 31, 2006 and was recorded as a derivative liability, with an offsetting amount recorded as a regulatory asset on the condensed balance sheet. The fair value of this swap will vary over time as a result of changes in market conditions. This amount is deferred and is expected to be recovered from PSE&G customers.

We incurred approximately $230 million in issuance costs in connection with the securitization transaction, including $201 million of costs of a hedging arrangement as permitted by the Finance Order. Of this amount, $125 million was included with the BTP, with the balance in deferred issuance costs. Costs in excess of the $125 million of transaction costs provided for in the Finance Order were paid by PSE&G and are being recovered on a subordinated basis by us through the TBC and remitted to PSE&G with interest at a rate of 6.48% .

Note 3. Significant Agreements and Related Party Transactions

Under the servicing agreement entered into by PSE&G and us, concurrently with the issuance of the first Series of Bonds, PSE&G, as servicer, is required to manage and administer our BTP and to collect the TBC on our behalf. Under the Finance Order, PSE&G withholds from the TBC collections an annual servicing fee equal to 0.05% of the initial balance of Bonds issued. In addition we pay miscellaneous operating expenses to PSE&G up to $100 thousand per quarter, administration fees up to $31 thousand per quarter and trustee fees up to $4 thousand per quarter. Servicing and administrative fees paid to PSE&G for each of the quarters ended March 31, 2007 and 2006 were approximately $422 thousand and $408 thousand, respectively.

As of March 31, 2007 and December 31, 2006, we had a receivable from our sole member, PSE&G, of approximately $54 million and $55 million, respectively, relating to TBC billings. As of March 31, 2007 and December 31, 2006 our payable to PSE&G was approximately $80 million and $82 million, respectively, which primarily relates to the costs in excess of the $125 million of transaction costs provided for in the Finance Order that were paid by PSE&G and billed to us. Interest Expense relating to this payable to PSE&G for each of the quarters ended March 31, 2007 and 2006 was approximately $1 million.

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

Following are the significant changes in or additions to information reported in our 2006 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 January 31, 2001, we issued $2.525 billion of transition bonds in eight classes with maturities ranging from one year to fifteen 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 decreased approximately $554 thousand or 1% for the quarter ended March 31, 2007 as compared to the same periods in 2006, primarily due to a decline in the TBC rate from 2006 and partially offset by increases in Kilowatt-hour (kWh) sales. In January 2007, as a result of the annual true-up approved by the State of New Jersey Board of Public Utilities (BPU), the TBC (exclusive of sales and use tax) decreased to 0.6405 cents per kWh as compared to 0.6586 cents per kWh charged in 2006. Any increases or decreases in the TBC rate is designed to maintain the capital subaccount and the overcollateralization subaccount at appropriate levels and have adequate funds to meet our scheduled repayments of the deferred issuance costs to PSE&G, as servicer of the Bonds.

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 $2 million or 7% for the quarter ended March 31, 2007 as compared to the same period in 2006, due to decreases in revenues and decreases in interest expense. 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 increased approximately $14 thousand or 3% for the quarter ended March 31, 2007 as compared to the same period in 2006, due to increases in administrative expenses billed to us by the Servicer, PSE&G.

Interest Income

Interest Income increased approximately $96 thousand for the quarter ended March 31, 2007 as compared to the same period in 2006 primarily due to higher interest rates in 2007. The average return on investments increased to approximately 5.4% for the three months ended March 31, 2007 compared to approximately 4.5% for the three months ended March 31, 2006.

Interest Expense

Interest expense decreased approximately $3 million or 8% for the quarter ended March 31, 2007 as compared to the same period in 2006 due primarily 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 Trustee to make scheduled payments on the Bonds.

Payments of bond principal, interest, intercompany payables and all related expenses were made by the Trustee on March 15, 2007 totaling approximately $71 million, including funding of the capital subaccount and the overcollateralization subaccount to required levels.

ITEM 3. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK

There were no material changes from the disclosures in the Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures which are designed to provide reasonable assurance that material information is made known to the Chief Executive Officer and the Chief Financial Officer by others within the entity. We have established a disclosure committee which is made up of several key management employees and which reports directly to the Chief Financial Officer and the Chief Executive Officer. The committee monitors and evaluates the effectiveness of the disclosure controls and procedures. The Chief Financial Officer and the Chief Executive Officer have evaluated the effectiveness of the disclosure controls and procedures as of March 31, 2007 and, based on this evaluation, have concluded that the disclosure controls and procedures were effective in providing reasonable assurance during the period covered in this quarterly report.

Internal Controls

There have been no changes in internal control over financial reporting that occurred during the first quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Electric Discount and Energy Competition Act (Competition Act)

On April 23, 2007, we and PSE&G were served with a copy of a purported class action complaint (Complaint) challenging the constitutional validity of certain provisions of New Jersey’s Competition Act, seeking injunctive relief against continued collection from PSE&G’s electric customers of the transition bond charge (TBC) of Transition Funding, as well as recovery of TBC amounts previously collected. Notice of the filing of the Complaint was also provided to New Jersey’s Attorney General. Under New Jersey law, the Competition Act, enacted in 1999, is presumed constitutional. Preliminary review indicates the claim is without merit. We and PSE&G will vigorously defend the matter.

ITEM 6. EXHIBITS

A listing of exhibits being filed with this document is as follows:

Exhibit Number		Document
31.1		Certification by Thomas M. O’Flynn, Chief Executive Officer of PSE&G Transition
		Funding LLC Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934

31.2		Certification by Morton A. Plawner, Chief Financial Officer of PSE&G Transition Funding
		LLC Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934

32.1		Certification by Thomas M. O’Flynn, Chief Executive Officer of PSE&G Transition
		Funding LLC Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

32.2		Certification by Morton A. Plawner, Chief Financial Officer of PSE&G Transition Funding
		LLC Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PSE&G TRANSITION FUNDING LLC (Registrant)
	By:	/s/ Derek M. DiRisio
		Derek M. DiRisio Controller (Principal Accounting Officer)

Date: May 11, 2007

PSE&G TRANSITION FUNDING LLC 10-Q