UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 31, 2007OR[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ____________________ to

|Commission  |  | Registrant, State of Incorporation,                                                                                                                               |  | I.R.S. Employer   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|File Number |  | Address, and Telephone Number                                                                                                                                     |  | Identification No.
|333-127545  |  | PSE&G Transition Funding II LLC(A Delaware limited liability company)80 Park Plaza  T4DP.O. Box 1171Newark, New Jersey 07101-1171973 297-2227http://www.pseg.com |  | 55-0628725        

Securities registered pursuant to Section 12 (b) of the Act: NONESecurities registered pursuant to Section 12 (g) of the Act: NONE

Indicate by check mark whether the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YescNox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yesc     Nox

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 registrants were required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. YesxNoc

Indicate
  by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
  S-K is not contained herein, and will not be contained, to the best of registrants
  knowledge, in definitive proxy or information statements incorporated by reference
  in Part III of this Form 10-K or any amendment to this Form 10-K. Yesx

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  filerc     Accelerated
    filerc     Non-accelerated
      filerx

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

Registrant
  is a wholly-owned subsidiary of Public Service Electric and Gas Company.
  Registrant meets the conditions set forth in General Instruction I (1)
  (a) and (b) of Form 10-K and is filing this Annual Report on Form 10-K
  with the reduced disclosure format authorized by General Instruction I.

Documents incorporated by reference: None





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|TABLE OF CONTENTS         
|--------------------------
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|                          
|FORWARD-LOOKING STATEMENTS
|                          
|PART I                    
|Item 1.                   
|Item 1A.                  
|Item 1B.                  
|Item 2.                   
|Item 3.                   
|Item 4.                   
|                          
|PART II                   
|Item 5.                   
|                          
|Item 6.                   
|Item 7.                   
|Item 7A.                  
|Item 8.                   
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|                          
|                          
|Item 9.                   
|Item 9A.                  
|Item 9B.                  
|                          
|PART III                  
|Item 10.                  
|Item 11.                  
|Item 12.                  
|                          
|Item 13.                  
|Item 14.                  
|                          
|PART IV                   
|Item 15.                  
|                          
|                          

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FORWARD-LOOKING STATEMENTS

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 a complete list that could effect forward-looking statements.

In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements discussed above, factors that could cause actual results to differ
materially from those cont
emplated 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 (PSE&G)
facilities and third party suppliers; and the payment patterns of PSE&Gs electric customers, including the rate of delinquencies and the accuracy of the collections curve.

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PART IITEM 1. BUSINESS

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.

We were formed under the laws of the State of Delaware on July 18, 2005 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.

The Electric Discount and Energy Competition Act, enacted in the State of New Jersey in February 1999 and amended in September 2002 (Energy Competition Act), authorizes electric public
utilities, such as PSE&G, to recover, among other costs, basic generation service (BGS) transition costs. BGS transition costs represent the amount by which a public utilitys cost of supplying BGS exceeds the net revenues received by the
public utility for providing such service during a four-year transition period ending July 31, 2003. BGS is a regulated electric generation service provided to any electric utility consumer that has not chosen an alternative power supplier. A public
utility may recover BGS transition costs through an irrevocable non-bypassable charge called a BGS transition bond charge (TBC) that is assessed on all retail electric consumers. The Energy Competition Act permits special purpose entities formed by
electric public utilities to issue debt securities secured by the right to receive revenues arising from the TBC.

On July 12, 2005, the New Jersey Board of Public Utilities (BPU) issued an order which authorized the issuance of Bonds by PSE&G with an initial total principal balance not to exceed the
lesser of PSE&Gs BGS transition costs at the time of issuance or $100 million, plus transaction costs not to exceed $2.7 million (Finance Order).

On September 23, 2005, we issued $102.7 million of Bonds in four classes with stated maturities ranging from two years to nine years, $86 million of which remains outstanding as of
December 31, 2007. The net proceeds of the issuance were remitted to PSE&G as consideration for the BTP. The Bonds are collateralized by the BTP created under the Energy Competition Act and the related Finance Order. BTP represents the
irrevocable right to recover, through a TBC billed by PSE&G to its retail electric customers within PSE&Gs service territory, an amount sufficient to pay:

- the interest, fees, expenses, costs, charges, credit enhancement and premiums, if any, and other amounts associated with the Bonds; and
- the principal amount of the Bonds.

The initial TBC rate (exclusive of sales and use tax) of $.0295 cents per Kilowatt-hour (kWh) became effective in September 2005, in accordance with the Finance Order. As the TBC is a
usage-based charge based on access to PSE&Gs transmission and distribution system, the customers will be assessed regardless of whether the customers purchase electricity from PSE&G or a third party supplier. Also, if on-site
generation facilities that are connected to PSE&Gs transmission and distribution system produce power that is delivered to off-site retail electric customers in PSE&Gs service territory, the Bond charge applies to the sale or
delivery of that power.

Payments are made to the bondholders on a semi-annual basis. Principal and interest on the Bonds and the excess issuance costs will be paid from the following sources:

- TBC collections remitted by the servicer (PSE&G) to the issuer (us);
- amounts from any third party credit enhancement;
- investment earnings on amounts held in accounts established under the indenture agreement;
- amounts payable to the issuer under any interest rate swap agreements;

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- amounts received as payment of any indemnity obligation by PSE&G under the sale agreement or the servicing agreement; and
- other amounts available in the trust accounts held by the trustee.

To the extent that TBC collections are deficient or in excess of the principal and interest on the Bonds, the TBC rate is adjusted in the following year.

We have no employees. Under the servicing agreement entered into by PSE&G and us, PSE&G, as servicer, is required to manage and administer our BTP and to collect the TBC on our behalf.
We pay an annual servicing fee to PSE&G equal to 0.05% of the initial balance of Bonds outstanding. The servicing fee is recovered through the TBC. 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. Interest earned on funds in the Capital Subaccount results in Net Income for us and will be periodically remitted to PSE&G in the
form of a dividend.

ITEM 1A. RISK FACTORS

The following Factors should be considered when reviewing the business of Transition Funding II. These factors could impact the business and cause results to differ materially from those
expressed in any statements made by, or on behalf of Transition Funding II.

Limited Sources of for Payment for the Bonds

The only source of funds for payments on the Bonds will be our assets. These assets are limited to:

- the BTP, including the right to collect the TBC and to adjust the TBC at least annually;
- the funds on deposit in the trust accounts held by the trustee; and
- contractual rights under various contracts.

The Bonds are not insured or guaranteed by PSE&G in any capacity, or by PSEG, any of its affiliates, the trustee or any other entity. Furthermore, it is not anticipated that the Bonds will
have the benefit of any liquidity facility or of any third party credit enhancement, such as letters of credit or insurance, although the servicer may obtain insurance or a letter of credit in support of its obligation to remit TBC collections to
the trustee. Thus, you must rely for payment of the Bonds solely upon collections of the TBC and funds on deposit in the accounts held by the trustee.

Judicial, Legislative Or Regulatory Action May Adversely Affect Your Investment

PSE&G has agreed to take legal or administrative actions as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or supplement to the Energy
Competition Act, the BPU financing order or the rights of bondholders, and to resist proceedings of third parties, which, if successful, would result in a breach of PSE&G's representations concerning the BTP, the BPU financing order or the
Energy Competition Act. However, there is no assurance that any action PSE&G takes would be successful.

The Law Which Underpins The Bonds Might Be Invalidated By Judicial Action.The Energy Competition Act was adopted in February 1999 and amended in
September 2002. In January 2001, PSE&G became the first utility to issue bonds pursuant to the Energy Competition Act. The BTP is a creation of statute. If a court were to determine that the relevant provisions of the Energy Competition Act or
the BPU financing order are unlawful, invalid or unenforceable in whole or in part, it could adversely affect the validity of the Bonds or the BTP, or our ability to make payments on the Bonds. If this occurs, you may lose some or all of your
investment or may experience delays in recovering your investment.

Laws with financing provisions similar to the Energy Competition Act have been enacted in other states, including California, Connecticut, Florida, Illinois, Massachusetts, Michigan, Montana,
New Hampshire, Pennsylvania, Texas, West Virginia and Wisconsin. The validity of such legislation has been upheld in those states where court challenges have been made and the judicial process has been completed. A court might yet overturn a similar
statute in another state, which might

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give rise to a challenge to the Energy Competition Act or the BPU financing order. Therefore, legal activity in other states might indirectly affect the value of your investment.

The Energy Competition Act Might Be Overturned By the Federal Government Without Full Compensation.In the past,
bills have been introduced in Congress prohibiting the recovery of stranded costs, and Congress could negate the existence or reduce the value of the BTP. Even if this preemption of the Energy Competition Act or the BPU financing order by the
federal government were considered a "taking" under the U.S. Constitution for which the government had to pay just compensation to bondholders, there is no assurance that this compensation would be sufficient to pay principal of and interest on the
Bonds on a timely basis.

Future State Legislative Action May Invalidate the Bonds or Their Underlying Assets.Unlike the citizens of the
States of California, Massachusetts and some other states, the citizens of the State of New Jersey do not have the constitutional right to adopt, repeal or revise laws by initiative or referendum. Thus, the Energy Competition Act cannot be amended
or repealed by the electorate.

Under the Energy Competition Act, the State of New Jersey has pledged not to impair the BTP. Despite this pledge, the State legislature might attempt in the future to repeal or amend the Energy
Competition Act, or, as described below, the BPU may take certain actions that impair the BTP. Costly and time-consuming litigation might ensue from such actions, which might adversely affect the price and liquidity, or the weighted average lives,
of the Bonds. PSE&G is obligated to defend any such actions and PSE&Gs costs in defending such actions is required to be reimbursed by us. Any such payment by us is an operating expense under the trust indenture with respect to the
Bonds and, as such, is entitled to a priority distribution from the Collection Account held by the trustee for benefit of bondholders. Given the lack of judicial precedent, the outcome of any litigation cannot be predicted with certainty and,
accordingly, bondholders could incur a loss of their investment.

To our knowledge, no cases addressing these issues in the context of Bonds have been decided. There have been cases in which courts have applied the contract clause of the United States
Constitution and parallel state constitutional provisions to strike down legislation reducing or eliminating taxes, parkway tolls, public charges or other sources of revenues servicing bonds issued by public instrumentalities or private issuers, or
otherwise reducing or eliminating the security for bonds. Contracts of a state, such as the State Pledge, receive greater protection under federal law than private contracts. Based upon this case law, under the contract clause of the United States
Constitution, and under the contract clause of the New Jersey Constitution, the State of New Jersey, including the BPU, could not take any action of a legislative character, including the repeal or amendment of the Energy Competition Act, that would
substantially limit, alter or impair the BTP or other rights vested in the bondholders pursuant to the BPU financing order, or substantially limit, alter, impair or reduce the value or amount of the BTP, unless that action is (in the context of the
State Pledge as a contract of the State) a reasonable exercise of the State of New Jersey's sovereign powers and of a character reasonable and appropriate to the public purpose justifying that action. For example, notwithstanding the State Pledge,
it might be possible for the New Jersey legislature, without violating the contract clause of the United States Constitution or the contract clause of the New Jersey Constitution, to amend the Energy Competition Act in a manner which temporarily
limits the rights of the bondholders in order to serve a significant and legitimate public purpose, such as responding to a national or regional catastrophe affecting PSE&G's service area generally.

Moreover, under the takings clauses of the United States and New Jersey Constitutions, the State of New Jersey could not repeal or amend the Energy Competition Act, or take any other action in
contravention of the State Pledge, without paying just compensation to the bondholders, if doing so would constitute a permanent appropriation of a substantial property interest of the bondholders in the BTP and deprive the bondholders of their
reasonable expectations arising from their investments in the Bonds. There is no assurance, however, that, even if a court were to award just compensation, it would be sufficient for payment of the Bonds.

The BPU May Attempt to Take Action Which Reduces the Value of the Bonds.Pursuant to the Energy Competition Act,
the BPU financing order issued to PSE&G is irrevocable and the BPU may not directly or indirectly, by any subsequent action, rescind or amend the BPU financing order or reduce or impair the amount of bondable stranded costs authorized to be
recovered under the BPU financing order. Apart from the BPU financing order, the BPU retains the power to adopt, revise or rescind rules or regulations affecting PSE&G or a successor servicer. Any new or amended regulations or orders by the BPU
could affect the ability of the servicer to collect the TBC on a full and timely basis and might affect the rating of

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the Bonds, their price or the amortization of Bonds and their weighted average lives, and may not trigger any obligation of PSE&G to indemnify bondholders. As a result, bondholders could suffer a decline in value of
their investment.

PSE&G, as servicer, is required to file with the BPU, on behalf of us, periodic adjustments of the TBC, intended to provide for timely payment of the Bonds, including scheduled payments of
principal. The BPU may challenge PSE&G's calculation of a proposed adjustment, which may cause delay, or refuse to permit an adjustment to take effect, on the ground that the adjustment contains a manifest error; that is, an arithmetic error
evident on the face of the filing. Any such delay in the implementation of the adjustment could cause a delay in the payments on the Bonds. PSE&G has agreed to take legal or administrative actions, including instituting and prosecuting legal
actions, as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or supplement to the Energy Competition Act, or the BPU financing order, or the letter to be delivered by PSE&G to the BPU within five
business days following issuance of each series of Bonds specifying the terms of that series (referred to as an issuance advice letter), or the rights of bondholders. PSE&G has also agreed to resist proceedings of third parties, which, if
successful, would result in a breach of its representations concerning the BTP, the BPU financing order or the Energy Competition Act. However, there is no assurance that any action PSE&G takes would be successful.

Servicing Risks

Inaccurate Consumption Forecasting or Unanticipated Delinquencies or Charge-Offs Might Reduce Scheduled Payments on the Bonds.The TBC is assessed and
collected by the servicer and adjusted at least annually, as provided in the Energy Competition Act, the BPU financing order and the servicing agreement.

A shortfall of payments arising from the TBC might result if the servicer inaccurately forecasts electricity consumption or underestimates consumer delinquencies or charge-offs when setting the
TBC, and delayed payments on the Bonds could follow.

Inaccurate forecasting of electricity consumption by the servicer might result from, among other things: unanticipated weather or economic conditions; natural disasters; technological changes;
changes in the market structure of the electric industry; increased conservation efforts; or consumers switching to self-generated power without being required to pay TBCs.

Inaccurate forecasting of delinquencies or charge-offs by the servicer might result from, among other things: sudden and unexpected deterioration of the economy or the occurrence of a natural
disaster; sudden and unexpected regulatory changes that make it more difficult for the servicer to disconnect nonpaying consumers, or that require the servicer to apply more lenient credit standards in accepting consumers; sudden and unexpected
limitations on termination of service during the heating season; or the introduction into the energy markets of less creditworthy third party energy suppliers. In the future, consumers might pay the TBC to third parties who supply them with electric
power. These third parties are obligated to forward the charge to PSE&G, as servicer, and to pay PSE&G the TBC even if they fail to collect the charge from retail electric consumers. A default by a third party that collects from a large
number of retail consumers might have a greater impact than a default by a single retail consumer. PSE&G will have limited rights to collect the TBC directly from consumers who receive their electricity bills from a third party, but will not pay
any shortfalls resulting from the failure of any third party supplier to forward collections to PSE&G, as servicer. The servicer might not be able to mitigate credit risks relating to third party suppliers to the same extent to which it
mitigates the risks relating to its consumers.

Billing and Collection Practices Might Reduce the Collections Available for Payments on the Bonds.The methodology of determining the amount of the TBC
to each consumer is specified in the BPU financing order. Although PSE&G may not change this methodology, PSE&G, as servicer, may set, and may change, its own billing and collection arrangements with each consumer. For example, to recover
part of an outstanding electricity bill, PSE&G may agree to extend a consumer's payment schedule or to write off the remaining portion of the bill. Similarly, the BPU may require changes to these practices. Under the methodology specified in the
BPU financing order, this might result in an extension of the consumer's payment of TBCs. Thus, any changes in billing and collection practices or regulations might make it more difficult for the servicer to collect the TBC, and might adversely
affect the value of the Bonds and their weighted average lives.

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The Risks Associated With Potential Bankruptcy Proceedings

Risks that might arise in the bankruptcy of PSE&G are described below and could cause delayed payments or a loss, or decline in value, of your investment.

If the Servicer Defaults or Becomes Bankrupt, It Might Be Difficult to Find a Successor Servicer and Payments on the Bonds Might Be Suspended.PSE&G,
as servicer, will be responsible for billing and collecting the TBC and for filing with the BPU to adjust this charge. If PSE&G ceased servicing the BTP, it might be difficult to find a successor servicer. Upon a servicer default based upon the
commencement of a case by or against the servicer under the United States Bankruptcy Code, referred to as the Bankruptcy Code, or similar laws, the trustee and the issuer might be prevented from effecting a transfer of servicing. Upon a servicer
default because of a failure to make required remittances, the issuer or the trustee would have the right to apply to the BPU for sequestration of TBCs. However, the Bankruptcy Code might prevent the BPU from issuing or enforcing this order. In
either case of a servicer default, payments on the Bonds might be suspended.

Commingling Might Obstruct Access to a Portion of Our Funds In Case of Bankruptcy of PSE&G.PSE&G will
not segregate the TBCs from the other funds it collects from its consumers. The TBCs will be segregated only after PSE&G pays them to the trustee. PSE&G will be permitted to remit collections on a monthly basis only if it has the requisite
credit ratings from the rating agencies or provides credit enhancement satisfactory to the rating agencies or otherwise obtains rating agency approval regarding how frequently it remits collections. Otherwise, PSE&G will be required to remit
collections within two business days of the estimated collection date. Despite these requirements, PSE&G might fail to pay the full amount of the TBCs to the trustee on a timely basis.

The Energy Competition Act provides that our rights to the BTP are not affected by the commingling of these funds with PSE&G's other funds. In a bankruptcy of PSE&G, however, a
bankruptcy court might rule that federal bankruptcy law does not recognize our right to TBCs that are commingled with other funds of PSE&G as of the date of bankruptcy. If so, the collections held by PSE&G as of the date of bankruptcy would
not be available to pay amounts owing on the Bonds. In this case, we would have a general unsecured claim against PSE&G for those amounts.

Bankruptcy of PSE&G Might Impair the Operation of the Energy Competition Act.The Energy Competition Act and
the BPU financing order provide that as a matter of New Jersey state law:

- BTP constitutes presently existing property of PSE&G for all purposes;
- PSE&G may sell, assign and otherwise transfer that property and PSE&G or we may pledge or grant a security interest in the property as collateral for Bonds;
and
- a transfer of the BTP from PSE&G to us is a sale or other absolute transfer of the BTP, not a pledge of the BTP to secure a financing by PSE&G, and this
characterization will not be affected by treatment of the transfer as a financing for tax or financial reporting purposes.

These three provisions are important to maintaining payments on the Bonds in accordance with their terms during any bankruptcy of PSE&G. In addition, the transaction has been structured
with the objective of keeping us separate from PSE&G in the event of a bankruptcy of PSE&G.

PSE&G and we will treat the transaction as a sale under applicable law, although for financial reporting and federal and state tax purposes the Bonds will be treated as a financing. In the
event of a bankruptcy of PSE&G, a party in interest in the bankruptcy might assert that the sale of the BTP to the issuer was a financing transaction and not a "sale or other absolute transfer" and that the treatment of the transaction for
financial reporting and tax purposes as a financing and not a sale lends weight to that position.

A bankruptcy court generally follows state property law on issues such as the three provisions described above, unless it determines that the state law is contrary to a paramount federal
bankruptcy policy or interest. If a bankruptcy court in a PSE&G bankruptcy refused to enforce one or more of the state property law provisions described above, the effect of this decision on you as a bondholder would be similar to the treatment
you would receive in a PSE&G bankruptcy if the Bonds had been issued directly by PSE&G. A decision by the bankruptcy court that, despite the separateness of PSE&G and the issuer, the two companies should be consolidated, would have a
similar effect on you as a bondholder.

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Other Risks Associated With An Investment In The Bonds

Absence of Secondary Market for Bonds Might Limit Your Ability to Resell Bonds.The underwriters for the Bonds might assist in resales of the Bonds but
they are not required to do so. A secondary market for the Bonds may not develop or continue or be sufficiently liquid to allow you to resell your bonds.

We or Another Entity May Issue Additional Series of Bonds Whose Holders Have Conflicting Interests.We may issue other series of Bonds without your prior
review or approval. These series may include terms unique to that particular series. A new series of Bonds may not be issued if it would result in the credit ratings on any outstanding series of Bonds being reduced or withdrawn. Moreover, PSE&G
may sell BTP to one or more entities other than us to secure a new series of Bonds. In that case, PSE&G will need to obtain a separate financing order, which will specify an additional amount of bondable transition charges to be collected from
consumers for the additional series of Bonds. Any additional series of Bonds issued by us or another entity will have an equal right to share in TBC collections with your Bonds. Sharing collections could cause delays in payments on your Bonds.

In addition, some matters may require the vote of the holders of all series and classes of Bonds. Your interests in these votes may conflict with the interests of the bondholders of another
series or of another class. Thus, these votes could result in an outcome unfavorable to you.

The Ratings Do Not Assess the Expected Rate of Payment of Principal on the Bonds.The Bonds will be rated by one or more established rating agencies. The
ratings merely analyze the probability that we will repay the total principal balance of each class of the Bonds at its final maturity and will make timely interest payments. The ratings do not otherwise assess the speed at which we will repay the
principal of the Bonds. Thus, we may repay the principal of your Bonds later than you expect, which may materially reduce the value of your investment. A rating is not a recommendation to buy, sell or hold Bonds. The rating may change at any time. A
rating agency may revise or withdraw its rating based solely upon its own judgment.

PSE&G's Obligation to Indemnify Us for a Breach of a Representation or Warranty Might Not Be Sufficient to Protect Your Investment. If PSE&G
breaches a representation or warranty in the sale agreement, it is obligated to indemnify us and the trustee for any liabilities, obligations, claims, actions, suits or payments resulting from that breach, as well as any reasonable costs and
expenses incurred. In addition, PSE&G is obligated to indemnify us and the trustee, for itself and on behalf of the bondholders, for:

- required payments of principal and interest on the Bonds in accordance with their terms and
- required deposits of amounts with us,

in each case, required to have been made, which are not made when so required as a result of a breach of a representation or warranty.

However, the amount of any indemnification paid by the seller might not be sufficient for you to recover all of your loss on the Bonds. PSE&G will not be obligated to indemnify any party
for any changes of law. In addition, PSE&G will not be obligated to repurchase the collateral in the event of a breach of any of its representations and warranties, and neither the trustee nor the bondholders will have the right to accelerate
payments on the Bonds as a result of a breach of any of PSE&G's representations and warranties, absent an event of default under the indenture. If PSE&G becomes obligated to indemnify bondholders, the ratings on the Bonds will likely be
downgraded as a result of the circumstances causing the breach and the fact that the bondholders will be unsecured creditors of PSE&G with respect to any of those indemnification amounts.

PSE&G's Ratings May Affect the Market Value of the Bonds.A downgrading of the credit ratings on the debt of PSE&G might have an adverse effect,
at least temporarily, on the market value of your Bonds.

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|ITEM 1B. |  | UNRESOLVED
    STAFF COMMENTS
|-------- |  | -----------------------------

|ITEM 2. |  | PROPERTIES
|------- |  | ----------

We do not own any real property. Our primary asset is the BTP as described in Item 1. Business above.

|ITEM 3. |  | LEGAL PROCEEDINGS
|------- |  | -----------------

On
    April 23, 2007, PSE&G and our affiliate, PSE&G Transition Funding
    LLC (Transition Funding) 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
    Transition Fundings TBC, 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. On July 9, 2007, the same
    plaintiff filed an  amended Complaint to also seek injunctive relief from
    continued collection of related taxes as well as recovery of such taxes previously
    collected and also filed a petition with the BPU requesting review and adjustment
    to PSE&Gs recovery
of the same charges. PSE&G and Transition Funding filed a motion to dismiss
the amended Complaint (or in the alternative for summary judgment) on July 30,
2007 and PSE&G filed on September 30, 2007 a motion with the BPU to dismiss
the  petition. On October 10, 2007, PSE&Gs and Transition Fundings
motion to dismiss was granted. The plaintiff has appealed this dismissal. PSE&Gs
motion to dismiss the BPU petition is pending. BPU Docket No. ER07070516. For
additional information, see Item 1A. Risk Factors.

|ITEM 4. |  | SUBMISSION OF MATTERS
    TO A VOTE OF SECURITY HOLDERS
|------- |  | -------------------------------------------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

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PART II

|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY,          
|------- |  | ------------------------------------------------
|        |  | RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
|        |  | OF EQUITY SECURITIES                            

All of our outstanding equity interests are owned by PSE&G.

|ITEM 6. |  | SELECTED FINANCIAL
    DATA
|------- |  | ---------------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

|ITEM 7. |  | 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.

The following analysis of our financial condition and results of operations is in an abbreviated format pursuant to General Instruction I of Form 10-K. Such analysis should be read in
conjunction with the financial statements contained in Item 8. Financial Statements and Supplementary Data.

RESULTS OF OPERATIONS

Operating Revenues

Transition Bond Charge (TBC) revenues increased $839 thousand or 7% for the year ended December 31, 2007 as compared to the year ended December 32, 2006, primarily due to an increase in the
TBC rate from 2006 and a 2% increase in sales volume. 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) increased from 0.0293 cents per
Kilowatt-hour (kWh) to 0.0304 cents per kWh.

TBC revenues increased for the year ended December 31, 2006 when compared to the period ended December 31, 2005 due to a full year of activity being recorded in 2006. In addition, as a
regulated entity, our amortization expense fluctuates with changes in revenue and interest expense. We defer any over or under collection of expense to match against future revenues. In January 2006, 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 0.0293 cents per Kilowatt-hour (kWh) as compared to 0.0295 cents per kWh charged in 2005.

Operating Expenses

Amortization of Bondable Transition Property (BTP)

Amortization of BTP increased $1,248 thousand or 15% for the year ended December 31, 2007, primarily due to increased revenues and decreased Interest Expense. As a regulated entity, our
amortization expense fluctuates with changes in revenue and interest expense.As a regulated entity, we defer any over or under collection of expense to match against future
revenues.

BTP amortization increased for the year ended December 31, 2006 when compared to the year period ended December 31, 2005, primarily due to a full year of activity being recorded in
2006.

8

---



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 by $42 thousand or 18% for the year ended December 31, 2007, due to changes in administrative expenses billed to us by the Servicer, PSE&G.

Servicing and Administrative Fees increased for the year ended December 31, 2006 when compared to the period ended December 31, 2005, primarily due to a full year of activity being recorded in
2006.

Interest Income

Interest Income increased $23 thousand or 14% for the year ended December 31, 2007 when compared to the year ended December 31, 2006 due to higher average invested interested balances in
2007.

Interest Income increased $165 thousand for the year ended December 31, 2006 when compared to the period ended December 31, 2005, primarily due to a full year of activity being recorded in
2006.

Interest Expense

Interest expense decreased $346 thousand or 8% for the year ended December 31, 2007 when compared to the year ended December 31, 2006 due primarily to a reduction in the total amount of
debt outstanding.

Interest expense increased for the year ended December 31, 2006 when compared to the period ended December 31, 2005 due to a full year of activity being recorded in 2006.

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 will
remit the TBC collections to the Trustee to make scheduled payments on the Bonds.

During 2007 all required payments of principal, interest and all related expenses with respect to the Bonds were made by the Trustee on June 15, 2007 and December 17, 2007, totaling $6.5
million and $7.2 million, respectively.

During 2006 all required payments of principal, interest and all related expenses with respect to the Bonds were made by the Trustee on June 15, 2006 and December 15, 2006, totaling
approximately $6.8 million and $6.7 million, respectively.

CAPITAL REQUIREMENTS

Disclosures about Long-Term
      Maturities, Contractual and Commercial Obligations and Certain Investments

The following table reflects Transition
    Funding IIs contractual cash obligations and other commercial commitments
    in the respective periods in which they are due. In addition, the table summarizes
anticipated recourse and non-recourse debt maturities for the years shown.

|                                             |  | Total      |     | Less               |   |       |  |       |    |                     |   |   
|-------------------------------------------- |  | ---------- | --- | ------------------ | - | ----- |  | ----- | -- | ------------------- | - | --
|Contractual Cash                             |  | Amount     |     | Than               |   | 23   |  | 45   |    | Over               
|Obligations                                  |  | Committed  |     | 1
            year |   | years |  | years |    | 5
            years
|                                             |  | (Millions)
|                                            
|Long-Term
        Recourse Debt Maturities   |  |            | 86  |                    |   | 10    |  |       | 21 |                     |   | 22
|Interest
        on Recourse Debt            |  |            | 16  |                    |   | 4     |  |       | 6  |                     |   | 4 
|Total Contractual Cash
          Obligations |  | $          | 102 |                    | $ | 14    |  | $     | 27 |                     | $ | 26



9

---



ACCOUNTING ISSUESCritical Accounting PoliciesUnbilled Revenues

The
TBC is usage-based charge based on access to PSE&Gs electrical transmission
and distribution system and is recorded based on customer electric usage. Electric
and gas revenues are  recorded based on services rendered to customers during
each accounting period. PSE&G records unbilled revenues for the estimated
amount customers will be billed for services rendered from the time meters were
last read to the end of the  respective accounting period. Unbilled usage is
calculated in two steps. The initial step is to apply a base usage per day to
the number of unbilled days in the period. The second step estimates seasonal
loads based upon the time of year and the  variance of actual degree-days and
temperature-humidity-index hours of the unbilled period from expected norms.
The resulting usage is priced at current rate levels and recorded
as revenue. Each month the prior months unbilled amounts are reversed and
the current months
amounts are accrued. Using benchmarks other than those used in this calculation
could have a material effect on the amounts accrued in a reporting period. The
resulting revenue and expense reflect the service rendered in the calendar month.

SFAS 71

The application of GAAP by us as a regulated entity differs in certain respects from applications by non-regulated businesses. We prepare our financial statements in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71 Accounting for the Effects of Certain Types of Regulation (SFAS 71). In general, SFAS 71 recognizes that accounting for rate regulated enterprises should reflect the
economic effects of regulation. As a result, a rate regulated entity is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making
process, there will be a corresponding increase or decrease in future rates. Accordingly, we have deferred certain costs, which will be amortized over various future periods.

|ITEM 7A. |  | QUALITATIVE AND
    QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- |  | --------------------------------------------------------------

We are not subject to the risk of fluctuating interest rates as all four classes of Bonds were issued with fixed interest rates.

|ITEM 8. |  | FINANCIAL STATEMENTS
    AND SUPPLEMENTARY DATA
|------- |  | -----------------------------------------------

10

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Sole Member and Board of Managers ofPSE&G Transition Funding II LLC:

We have audited the accompanying balance sheets of PSE&G Transition Funding II LLC (the Company) as of December 31, 2007 and 2006, and the related statements of operations, members equity and cash
flows for the years ended December 31, 2007 and 2006 and the period from July 18, 2005 (date of formation) to December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of
the years in the period ended December 31, 2007 and 2006 and the period from July 18, 2005 (date of formation) to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey

March 14, 2008

11

---



|PSE&G TRANSITION FUNDING II LLC             
|--------------------------------------------
|STATEMENTS OF OPERATIONS                    
|(THOUSANDS)                                 
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|OPERATING REVENUES                          
|                                            
|OPERATING EXPENSES                          
|Amortization of Bondable Transition Property
|Servicing and Administrative Fees           
|Total Operating Expenses                    
|OPERATING INCOME                            
|Interest Income                             
|Interest Expense                            
|NET INCOME                                  



See Notes to Financial Statements.

12

---



|PSE&G TRANSITION FUNDING II LLC      
|-------------------------------------
|BALANCE SHEETS                       
|(THOUSANDS)                          
|                                     
|                                     
|                                     
|ASSETS                               
|Current Assets:                      
|Cash                                 
|Receivable from Member               
|Restricted Cash                      
|Total
 Current Assets                
|                                     
|Noncurrent
 Assets:                  
|Restricted Cash                      
|Bondable Transition Property         
|Total Noncurrent Assets              
|TOTAL
 ASSETS                        
|                                     
|LIABILITIES                          
|Current Liabilities:                 
|Current Portion of Long-Term Debt    
|Payable to Member                    
|Accrued Interest                     
|Total Current Liabilities            
|                                     
|Long-Term Debt                       
|                                     
|TOTAL LIABILITIES                    
|                                     
|MEMBERS EQUITY                      
|Contributed Capital                  
|Retained Earnings                    
|Total Members Equity                
|TOTAL LIABILITIES AND MEMBERS EQUITY



See Notes to Financial Statements.

13

---



|PSE&G TRANSITION FUNDING II LLC                       
|------------------------------------------------------
|STATEMENTS OF CASH FLOWS                              
|(THOUSANDS)                                           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|CASH FLOWS FROM OPERATING ACTIVITIES                  
|Net Income                                            
|Adjustments to Reconcile Net Income to Net Cash       
|Flows from Operating Activities:                      
|Amortization of Bondable Transition Property          
|Net Changes in Certain Current Assets and Liabilities:
|Receivable from Member                                
|Receivable from Affiliate                             
|Restricted Cash                                       
|Accounts Payable                                      
|Accrued Interest                                      
|Net Cash Provided by Operating Activities             
|                                                      
|CASH FLOWS FROM INVESTING ACTIVITIES                  
|Restricted Cash                                       
|Purchase of Bondable Transition Property              
|Net Cash Used in Investing Activities                 
|                                                      
|CASH FLOWS FROM FINANCING ACTIVITIES                  
|Proceeds from the Issuance of Long-Term Debt          
|Repayment of Long-Term Debt                           
|Contributed Capital                                   
|Net Cash Used in Financing Activities                 
|Increase (Decrease) in Cash and Cash Equivalents      
|Cash and Cash Equivalents at Beginning of Period      
|Cash and Cash Equivalents at End of Period            
|                                                      
|Interest Paid                                         



See Notes to Financial Statements.

14

---



|PSE&G TRANSITION FUNDING II LLC
|-------------------------------
|STATEMENTS OF MEMBERS EQUITY  
|(THOUSANDS)                    
|                               
|                               
|                               
|                               
|Balance as of July 18, 2005    
|Net Income                     
|Balance as of December 31, 2006
|Net Income                     
|Balance as of December 31, 2007



See Notes to Financial Statements.

15

---



NOTES TO FINANCIAL STATEMENTS

Note 1. Organization, Basis of Presentation and Significant Accounting Policies

Organization

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.

We were formed under the laws of the State of Delaware on July 18, 2005 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 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.

The Electric Discount and Energy Competition Act, enacted in the State of New Jersey in February 1999 and amended in September 2002 (Energy Competition Act), authorizes electric public
utilities, such as PSE&G, to recover, among other costs, basic generation service (BGS) transition costs. BGS transition costs represent the amount by which a public utilitys cost of supplying BGS exceeds the net revenues received by the
public utility for providing such service during the four-year transition period ended July 31, 2003. BGS is a regulated electric generation service provided to any electric utility consumer that has not chosen an alternative power supplier. A
public utility may recover BGS transition costs through an irrevocable non-bypassable charge called a BGS TBC that is assessed on all retail electric consumers. The Energy Competition Act permits special purpose entities formed by electric public
utilities to issue debt securities secured by the right to receive revenues arising from the TBC.

BTP represents the irrevocable right of PSE&G, or its successor or assignee, to collect a non-bypassable TBC from retail electric customers pursuant to a bondable stranded cost rate order
(Finance Order), which was issued on July 12, 2005 by the State of New Jersey Board of Public Utilities (BPU) in accordance with the Energy Competition Act. These orders are a matter of public record and are available from the BPU. The Finance Order
authorized the TBC to be sufficient to recover the $102.7 million 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 financial statements included herein have been prepared pursuant to Generally Accepted Accounting Principles in the United States of America (GAAP) and the rules and regulations of the
SEC.

16

---



NOTES TO FINANCIAL STATEMENTS

Significant Accounting Policies
          Accounting for the Effects of Regulation

The application of GAAP by us as a regulated entity differs in certain respects from applications by non-regulated businesses. We prepare our financial statements in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71 Accounting for the Effects of Certain Types of Regulation (SFAS 71). In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the
economic effects of regulation. As a result, a rate regulated entity is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making
process, there will be a corresponding increase or decrease in future rates. Accordingly, we have deferred certain costs, which will be amortized over various future periods.

Cash

Cash consists primarily of short-term securities such as commercial paper, repurchase agreements and money market mutual funds.

Restricted Cash

Revenues collected through the TBC by PSE&G from its retail electric customers are remitted to the Trustee and must be used to pay the principal, interest and other expenses associated with
the Bonds and are classified as Restricted Cash in Current Assets on the Balance Sheet. In addition, as required by the Finance Order, we deposited an amount equal to 0.5% of the initial principal amount of the bonds, which was contributed by
PSE&G, into the Capital Subaccount with the Trustee to be drawn in the event collections and other reserve funds are insufficient to make scheduled payments. The funds deposited into the Capital Subaccount are classified as Restricted Cash in
Noncurrent Assets on the Balance Sheet.

BTP

Our regulatory asset for BTP was recorded at the acquired cost and is being amortized over the life of the Bonds, based on TBC revenues, interest expenses and other fees. The BTP is solely our
property.

Revenues

Revenues are recorded on a calendar month basis, based on services rendered by PSE&G to its customers during each accounting period at the current rate (including the TBC) and also include
estimates for usage not yet billed. PSE&G records unbilled revenues for the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period. The unbilled revenue
is estimated each month based on weather factors, line losses, estimated customer usage by class, and applicable customer rates based on regression analyses reflecting significant historical trends and experience.

Amortization Expense

Amortization expense is recorded on the BTP using the effective interest method. Amortization expense is also adjusted based on the TBC revenue recorded and the deferred issuance costs.

Interest Income

Interest Income consists of interest earned on TBC collections deposited with the Trustee and interest earned on funds in the Capital Subaccount. Interest earned on deposited TBC funds reduce
the BTP and will affect the calculation of future TBC rates. Interest earned on funds in the Capital Subaccount results in Net Income for us and will be periodically dividended to PSE&G.

17

---



NOTES TO FINANCIAL STATEMENTS

Interest Expense

Interest Expense consists solely of interest on the Bonds.

Income Taxes

We are a single-member limited liability company. Accordingly, all Federal and State income tax effects of our activities accrue to PSE&G.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amount of revenues,
expenses, assets and liabilities, as well as the disclosure of contingencies. Actual results could differ from these estimates.

Note 2. The Bonds

On September 23, 2005, we issued $102.7 million of Bonds in four classes with stated maturities ranging from two years to nine years, $86 million of which remains outstanding as of
December 31, 2007. The fair value of the bonds was $87 million as of December 31, 2007. 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 include 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 status of the Bonds as of December 31, 2007 is as follows:

|          |           |             |          |      |                   |         | Payments    |            |             |            |              |        |          |            |  |          | 
|--------- | --------- | ----------- | -------- | ---- | ----------------- | ------- | ----------- | ---------- | ----------- | ---------- | ------------ | ------ | -------- | ---------- |  | -------- | 
|          | Initial   |             |          |      |                   | Made On |             | Current    |             | Noncurrent |              | Final/ |          | Final     
|          | Principal |             | Interest |      | Bonds Through     |         | Portion     |            | Portion     |            | Expected     |        | Maturity
|          | Balance   |             | Rate     |      | December 31, 2007 |         | Outstanding |            | Outstanding |            | Payment Date |        | Date    
|         
|Class A-1 | $         | 25,200,000  |          | 4.18 | %                 |         | $           | 17,100,310 |             | $          | 8,099,690    |        | $        |           |  | 12/15/08 | 
|Class A-2 |           | 35,000,000  |          | 4.34 | %                 |         |             |           |             |            | 1,701,496    |        |          | 33,298,504 |  | 6/15/12  | 
|Class A-3 |           | 20,000,000  |          | 4.49 | %                 |         |             |           |             |            |             |        |          | 20,000,000 |  | 12/16/13 | 
|Class A-4 |           | 22,500,000  |          | 4.57 | %                 |         |             |           |             |            |             |        |          | 22,500,000 |  | 6/15/15  | 
|Total     | $         | 102,700,000 |          |      |                   |         | $           | 17,100,310 |             | $          | 9,801,186    |        | $        | 75,798,504 |  |          | 
|         

We expect to make principal payments of $10 million, $10 million, $11 million, $11 million and $11
million for the years ended December 31, 2008, 2009, 2010, 2011 and 2012, respectively.

18

---



NOTES TO FINANCIAL STATEMENTS


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 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 for the year ended December 31, 2007, the year ended December 31, 2006 and
the period ended December 31, 2005 were $191 thousand, $233 thousand and $50 thousand, respectively.

As of December 31, 2007 and December 31, 2006, we had a receivable from our sole member, PSE&G, of approximately $2.7 million and $2.5 million, respectively, related to TBC
billings.

Note 4. Selected Quarterly Data (Unaudited)

The information shown below, in the opinion of Transition Funding II includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such
amounts.

|                   |  | Quarter Ended
|------------------ |  | -------------
|                   |  | March 31,    
|                   |  | 2007         
|                   |  | (Thousands)  
|Operating Revenues |  | $            
|Operating Income   |  | $            
|Net Income         |  | $            

Note 5. Commitments and Contingent Liabilities

Regulatory Proceedings

Competition Act

On
April 23, 2007, PSE&G and our affiliate PSE&G Transition Funding LLC
(Transition Funding I) were served with a copy of a purported class action complaint
(Complaint), to which we are  not a party, 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 I, 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. On July 9, 2007,
the same plaintiff filed an amended complaint to also seek injunctive relief
from continued collection of related taxes as well as recovery of such taxes
previously collected and also filed a petition with the BPU  requesting review
and adjustment to PSE&Gs recovery of the same charges. PSE&G and
Transition Funding I filed a motion to dismiss the amended Complaint (or in the
alternative for summary judgment) on July 30, 2007, and PSE&G filed
on September 30, 2007 a motion with the BPU to dismiss the petition. On October
10, 2007, Transition Funding I and PSE&Gs
motion to dismiss was granted. The plaintiff has appealed this dismissal. PSE&Gs
motion to dismiss the BPU petition is pending.

19

---





|ITEM 9. | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ----------------------------------------------------------------------------------------

NONE.

|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures to ensure that information required to be disclosed is recorded, processed, summarized and reported and is accumulated and
communicated to the Chief Executive Officer and 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 Chief Executive Officer. The committee monitors and evaluates the effectiveness of the disclosure controls and procedures. The Chief Financial Officer and Chief Executive Officer have evaluated the effectiveness of the disclosure
controls and procedures as of December 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 annual report.

Internal Controls

We have conducted an assessment of our internal controls over financial reporting as of December 31, 2007, as required by Section 404 of the Sarbanes-Oxley Act, using the framework promulgated
by the Committee of Sponsoring Organizations of the Treadway Commission commonly referred to as COSO. Managements report on internal controls over financial reporting is included on page 21. Management has concluded that internal
control over financial reporting is effective as of December 31, 2007.

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

|ITEM
          9B. | OTHER INFORMATION
|------------------ | -----------------

NONE.

20

---



MANAGEMENT REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING

Management of PSE&G Transition Funding II LLC (Transition Funding II) is responsible for establishing and maintaining effective internal control over financial reporting and for the
assessment of the effectiveness of internal control over financial reporting. As defined by the SEC in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or
under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and implemented by the companys management and other personnel, with oversight by the Audit Committee
of the Board of Directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United
States of America (generally accepted accounting principles).

Transition Funding IIs internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of Transition Funding IIs assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of Transition Funding II are being made only in accordance with authorizations of Transition Funding IIs management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Transition Funding IIs assets that could have a material effect on the financial statements.

In connection with the preparation of Transition Funding IIs annual financial statements, management of Transition Funding II has undertaken an assessment, which includes the design and
operational effectiveness of Transition Funding IIs internal control over financial reporting using the framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as COSO.
The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the assessment performed, management has concluded that Transition Funding IIs internal control over financial reporting is effective and provides reasonable assurance regarding
the reliability of Transition Funding IIs financial reporting and the preparation of its financial statements as of December 31, 2007 in accordance with generally accepted accounting principles. Further, management has not identified any
material weaknesses in internal control over financial reporting as of December 31, 2007.

|/s/ THOMASM. OFLYNN   
|-----------------------
|Chief Executive Officer
|                       
|/s/ MORTONA. PLAWNER   
|Chief Financial Officer
|                       
|March 14, 2008         

21

---



PART III



|ITEM
          10. |  | DIRECTORS, EXECUTIVE OFFICERS
    AND CORPORATE GOVERNANCE
|------------------ |  | ----------------------------------------------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

|ITEM 11. |  | EXECUTIVECOMPENSATION
|-------- |  | ---------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

|ITEM
          12. |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|------------------ |  | --------------------------------------------------------------------------------------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

|ITEM
          13. |  | CERTAIN RELATIONSHIPS
    AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|------------------ |  | -----------------------------------------------------------------------------

Omitted pursuant to conditions set forth in General Instruction I of Form 10-K.

|ITEM
          14. |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES
|------------------ |  | ------------------------------------------

Not Applicable.

22

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PART IV

|ITEM
          15. |  | EXHIBITS AND FINANCIAL
    STATEMENT SCHEDULES
|------------------ |  | ----------------------------------------------

|(A) | The following documents are filed as part of this report:                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------
|   
|    | Statements of Income for the year
    ended December 31, 2007 and the year ended December 31, 2006 on page 12.             
|   
|    | Balance Sheets as of December 31,
    2007 and 2006 on page 13.                                                            
|   
|    | Statements of Cash Flows for the
    year ended December 31, 2007 and the year ended December 31, 2006 on page
    14.     
|   
|    | Statements of Members Equity
    for the year ended December 31, 2006 and the year ended December 31, 2006
    on page 15.
|   
|    | Notes to Financial Statements on
    pages 16 through 19.                                                                  

23

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|(B) | A listing of exhibits being filed with this document is as follows. Certain Exhibits previously filed with the Commission and the appropriate securities exchanges are indicated as set forth below. Such
Exhibits are not being refiled, but are included because inclusion is desirable for convenient reference.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

|Exhibit Number |  |    
|-------------- |  | ---
|This           |  |    
|Filing         |  |    
|4.1            |  | (a)
|               |  |    
|4.1.1          |  | (b)
|               |  |    
|               |  |    
|4.2            |  | (a)
|               |  |    
|4.3            |  | (a)
|               |  |    
|               |  |    
|4.3.1          |  | (b)
|               |  |    
|               |  |    
|4.3.2          |  | (b)
|               |  |    
|               |  |    
|4.4            |  | (a)
|               |  |    
|4.5            |  | (a)
|               |  |    
|10.1           |  | (b)
|               |  |    
|               |  |    
|               |  |    
|10.2           |  | (b)
|               |  |    
|               |  |    
|10.3           |  | (a)
|               |  |    
|31             |  | a  
|               |  |    
|               |  |    
|31             |  | b  
|               |  |    
|               |  |    
|32             |  | a  
|               |  |    
|               |  |    
|32             |  | b  
|               |  |    

| | (a) | Filed by Transition Funding II with Registration Statement No. 333-127545 under the Securities Act of 1933, effective August 15, 2005, relating to the issuance of $102,700,000 Transition Bonds.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | Filed by Transition Funding II with Form 8-K under the Securities Exchange Act of 1934, on October 7, 2005.                                                                                      
|

24

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 II LLCBy
    /s/
        THOMASM.
      OFLYNNThomas M. OFlynnPresident and
      Chief Executive Officer


Date: March 14, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|    | Signature           |  | Title                                 |  | Date          
|--- | ------------------- |  | ------------------------------------- |  | --------------
|   
|   
|/s/ | THOMASM. OFLYNN    |  | President and Chief Executive Officer |  | March 14, 2008
|    | Thomas M. OFlynn   |  | (Principal Executive Officer)         |  |               
|   
|   
|/s/ | MORTONA. PLAWNER    |  | Vice President, Chief Financial       |  | March 14, 2008
|    | Morton A. Plawner   |  | Officer, Treasurer and Manager        |  |               
|    |                     |  | (Principal Financial Officer)         |  |               
|   
|/s/ | DEREKM. DIRISIO     |  | Controller                            |  | March 14, 2008
|    | Derek M. DiRisio    |  | (Principal Accounting Officer)        |  |               
|   
|   
|/s/ | R. EDWINSELOVER     |  | Manager                               |  | March 14, 2008
|    | R. Edwin Selover    |  |                                       |  |               
|   
|   
|/s/ | BENJAMINB. ABEDINE  |  | Manager                               |  | March 14, 2008
|    | Benjamin B. Abedine |  |                                       |  |               

25

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EXHIBIT INDEX

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

Exhibit Number
	
	Document31a
	
	Certification by Thomas M. OFlynn, Chief Executive Officer of PSE>ransition Funding II LLC Pursuant to Rules 13a-14 and 15d-14 of theSecurities Exchange Act of 193431b
	
	Certification by Morton A. Plawner, Chief Financial Officer of PSE>ransition Funding II LLC Pursuant to Rules 13a-14 and 15d-14 of theSecurities Exchange Act of 193432a
	
	Certification by Thomas M. OFlynn, Chief Executive Officer of PSE>ransition Funding II LLC Pursuant to Section 1350 of Chapter 63 of Title 18of the United States Code32b
	
	Certification by Morton A. Plawner, Chief Financial Officer of PSE>ransition Funding II LLC Pursuant to Section 1350 of Chapter 63 of Title 18of the United States Code


26

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