UNITED
  STATES
  SECURITIES AND EXCHANGE COMMISSIONWashington, 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 June 30, 2006OR[  ]
    TRANSITION
        REPORT PURSUANT TO SECTION 13 OR
      15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934
      
      For
        the transition period fromto  Commission
        
        File Number
    Registrant,
        State of Incorporation, 
        Address, and Telephone Number
    I.R.S.
        Employer
      Identification
        No.333-127545
    PSE&G Transition Funding II LLC
    Applied For(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. YesXNo ___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 any of the registrants 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.


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|                              |                                                                 |     
|----------------------------- | --------------------------------------------------------------- | ----
|                              | TABLE OF CONTENTS                                               |     
|                              |                                                                 |     
|                              |                                                                 |     
|                              |                                                                 | PAGE
|                              |                                                                 |     
|FORWARD-LOOKING STATEMENTS    | ii                                                             
|                              |                                                                
|PART I. FINANCIAL INFORMATION |                                                                
|                              |                                                                 |     
|Item
        1.               | Condensed
        Financial Statements                          | 1   
|                              | Notes to Condensed Financial Statements                         |     
|                              | Note 1. Organization and Basis of Presentation                  | 4   
|                              | Note 2. The Bonds                                               | 5   
|                              | 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                                 | 6   
|                              |                                                                 |     
|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                                                              
|                              |                                                                 |     
|                              |                                                                 |     









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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.



ii





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PART
  I. FINANCIAL INFORMATION

ITEM
  1. FINANCIAL STATEMENTS



PSE&G TRANSITION FUNDING II LLC

CONDENSED STATEMENT OF OPERATIONS

(Thousands of Dollars)

(Unaudited)





|                                                     | For
        the
      Quarter
        Ended
      June
        30, 2006 |         | For
        the
      Six
        Months Ended
      June
        30, 2006
|---------------------------------------------------- | ----------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------
|                                                     |                                                                         |         |                                                                           
|                                                     |                                                                         |         |                                                                           
|REVENUES                                             | $                                                                       | 3,028   |                                                                           
|                                                     |                                                                         |         |                                                                           
|EXPENSES                                             |                                                                         |         |                                                                           
|Amortization
        of Bondable Transition Property | 1,841                                                                   |         | 3,687                                                                     
|Servicing
        Fees                               | 120                                                                     |         | 165                                                                       
|Total Expenses                                       | 1,961                                                                   |         | 3,852                                                                     
|OPERATING
        INCOME                             | 1,067                                                                   |         | 2,182                                                                     
|Interest
        Income                              | 58                                                                      |         | 73                                                                        
|Interest
        Expense                             |                                                                         | (1,119) |                                                                           
|NET
        INCOME                                   | $                                                                       | 6       |                                                                           



See Notes to Condensed Financial Statements.





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PSE&G TRANSITION FUNDING II LLC

CONDENSED BALANCE SHEET

(Thousands of Dollars)

(Unaudited)



|                                      |  |          |         |             
|------------------------------------- |  | -------- | ------- | ------------
|                                      |  | June 30, |         | December 31,
|                                      |  | 2006     |         | 2005        
|ASSETS                                |  |          |         |             
|Current Assets:                       |  |          |         |             
|Cash                                  |  | $        | 17      |             
|Receivable from Member                |  | 2,512    |         | 2,405       
|Receivable from Affiliate             |  |         |         | 1,198       
|Restricted Cash                       |  | 443      |         |            
|Total Current Assets                  |  | 2,972    |         | 3,608       
|                                      |  |          |         |             
|Noncurrent Assets:                    |  |          |         |             
|Restricted Cash                       |  | 514      |         | 514         
|Bondable Transition Property          |  | 96,635   |         | 100,322     
|Total Noncurrent Assets               |  | 97,149   |         | 100,836     
|TOTAL ASSETS                          |  | $        | 100,121 |             
|                                      |  |          |         |             
|LIABILITIES                           |  |          |         |             
|Current Liabilities:                  |  |          |         |             
|Current Portion of Long-Term Debt     |  | $        | 8,699   |             
|Accrued Interest                      |  | 194      |         | 1,225       
|Total Current Liabilities             |  | 8,893    |         | 8,930       
|                                      |  |          |         |             
|Long-Term Debt                        |  | 90,697   |         | 94,995      
|                                      |  |          |         |             
|TOTAL LIABILITIES                     |  | 99,590   |         | 103,925     
|                                      |  |          |         |             
|MEMBERS EQUITY                       |  |          |         |             
|Contributed Capital                   |  | 514      |         | 514         
|Retained Earnings                     |  | 17       |         | 5           
|Total Members Equity                 |  | 531      |         | 519         
|TOTAL LIABILITIES AND MEMBERS EQUITY |  | $        | 100,121 |             



See Notes to Condensed Financial Statements.





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PSE&G TRANSITION FUNDING II LLC

CONDENSED STATEMENT OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)



|                                                                                         |  | For
        the
      Six
        Months Ended
|---------------------------------------------------------------------------------------- |  | ----------------------------------------------
|                                                                                         |  | June
        30, 2006                         
|CASH
        FLOWS FROM OPERATING ACTIVITIES                                             |  |                                               
|Net
        income                                                                       |  | $                                             
|Adjustments
        to reconcile net income to net cash flows from operating activities: |  |                                               
|Amortization
        of Bondable Transition Property                                     |  | 3,687                                         
|Net
        Changes in Certain Current Assets and Liabilities:                           |  |                                               
|Receivable
        from Member                                                           |  | (107)                                         
|Receivable
        from Affiliate                                                        |  | 1,198                                         
|Accrued
        Interest                                                                 |  | (1,031)                                       
|Net
        Cash Provided By Operating Activities                                        |  | 3,759                                         
|                                                                                         |  |                                               
|CASH
        FLOWS FROM INVESTING ACTIVITIES                                             |  |                                               
|Restricted
        Cash                                                                  |  | (443)                                         
|Net
        Cash Used In Investing Activities                                            |  | (443)                                         
|                                                                                         |  |                                               
|CASH
        FLOWS FROM FINANCING ACTIVITIES                                             |  |                                               
|Repayment
        of Long-Term Debt                                                      |  | (3,304)                                       
|Net
        Cash Used In Financing Activities                                            |  | (3,304)                                       
|Net
        Change in Cash and Cash Equivalents                                          |  | 12                                            
|Cash
        and Cash Equivalents at Beginning of Period                                 |  | 5                                             
|Cash
        and Cash Equivalents at End of Period                                       |  | $                                             
|                                                                                         |  |                                               
|Interest
        Paid                                                                    |  | $                                             
|                                                                                         |  |                                               
|                                                                                         |  |                                               
|See
      Notes to Condensed Financial Statements.                                       |  |                                               









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NOTES
  TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)







Note
  1. Organization and Basis



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).



The Electric Discount and Energy Competition Act, enacted in the State of New Jersey in February 1999 and amended in September 2002 (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 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 transition bond charge  (TBC) that is assessed on all retail electric consumers. The 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.



We were organized for the sole purpose of purchasing and owning the BGS 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 TBC pursuant to a bondable stranded cost rate order (Finance Order), which was issued on July 12, 2005 by the New Jersey Board of Public Utilities (BPU) in accordance with the Competition Act. 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 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.



On December 20, 2004, PSEG entered into an agreement and plan of merger with Exelon Corporation (Exelon), which is headquartered in Chicago, Illinois, whereby PSEG will be merged with and into Exelon. We do not expect this transaction to have any effect on our operations. Upon merger, we will remain a special purpose subisidiary of PSE&G.



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 2005 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.





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NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)







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 2005 Annual Report on Form 10-K.



Note
  2. The Bonds



On September 23, 2005, we issued $102.7 million of Bonds in four classes with maturities ranging from two years to nine years. The net proceeds of the issuance were remitted to PSE&G as consideration for the BTP.



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 significant terms of the Bonds issued by us, and the amounts outstanding, as of June 30, 2006 are as follows:



|          | Initial
Principal
Balance | Interest
Rate | Payments
        
        Made on Bonds 
        Through June 
        30, 2006 | Current
Portion
Outstanding | Noncurrent
Portion
Outstanding | Final/
Expected
      Payment
        
        Date | Final
Maturity
Date
|--------- | ------------------------- | ------------- | ------------------------------------------------------------------------------- | --------------------------- | ------------------------------ | --------------------------------------------------- | -------------------
|Class A-1 | $25,200,000               | 4.18%         | $3,304,312                                                                      | $8,698,667                  | $13,197,021                    | 12/15/08                                            | 12/15/10           
|Class A-2 | 35,000,000                | 4.34%         |                                                                                |                            | 35,000,000                     | 6/15/12                                             | 6/16/14            
|Class A-3 | 20,000,000                | 4.49%         |                                                                                |                            | 20,000,000                     | 12/16/13                                            | 12/15/15           
|Class A-4 | 22,500,000                | 4.57%         |                                                                                |                            | 22,500,000                     | 6/15/15                                             | 6/15/17            
|Total     | $102,700,000              |               | $3,304,312                                                                      | $8,698,667                  | $90,697,021                    |                                                     |                    



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 quarter and six months ended June 30, 2006 were approximately $120 thousand and $165 thousand, respectively.



As
  of June 30, 2006 and December 31, 2005, we had a receivable from our sole member,
  PSE&G, of approximately $2,512 thousand and $2,405 thousand, respectively,
  relating to TBC billings. As of December 31, 2005 we had a receivable of approximately
  $1,198 thousand for funds deposited with our affiliate, PSE&G Transition
  Funding LLC which was paid during the first quarter of 2006.











5






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ITEM
  2. MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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



Following are the significant changes in or additions to information reported in our 2005 Annual Report on Form 10K and March 31, 2006 Form 10-Q 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 December 20, 2004, PSEG entered into an agreement and plan of merger with Exelon Corporation (Exelon), which is headquartered in Chicago, Illinois, whereby PSEG will be merged with and into Exelon. We do not expect this transaction to have any effect on our operations. Upon merger, we will remain a special purpose subisidiary of PSE&G.



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



RESULTS
  OF OPERATIONS



For the quarter ended June 30, 2006 we recorded revenue generated from TBC of approximately $3,028 thousand,amortization expense of approximately $1,841 thousand, Servicing and Administrative Fees of approximately $120 thousand, Interest Expense of approximately $1,119 thousand and Interest Income of approximately $58 thousand. For the six months ended June 30, 2006 we recorded revenue generated from TBC of approximately $6,034 thousand,amortization expense of approximately $3,687 thousand, Servicing and Administrative Fees of approximately $165 thousand, Interest Expense of approximately $2,243 thousand and Interest Income of approximately $73 thousand. 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.



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.



Payment of bond principal, interest and all related expenses were made by the Trustee on June 15, 2006 totaling approximately $7 million.







6






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ITEM
  3. QUALITATIVE AND QUANTITATIVE

DISCLOSURES ABOUT MARKET RISK



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

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 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 these disclosure controls and procedures. The Chief Financial Officer and Chief Executive Officer has evaluated the effectiveness of the disclosure controls and procedures as of June 30, 2006 and, based on this evaluation, has concluded that the disclosure controls and procedures were effective in providing reasonable assurance during the period covered in this quarterly report.



Internal Controls



During
  the second quarter of 2006, we continued to make enhancements to internal controls.
  There have been no changes in our internal controls over financial
  reporting during the quarter ended June 30, 2006, that have materially affected
  or are reasonably likely to materially affect our internal controls over financial
  reporting.





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PART
  II. OTHER INFORMATION



ITEM
  1. LEGAL PROCEEDINGS



None.



ITEM
  6. EXHIBITS



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

|Exhibit Number | Document                                                                                                                                                                                             
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31             | Certification by Robert E. Busch, Chief Executive Officer and Chief Financial Officer of PSE&G Transition Funding II LLC Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934  
|32             | Certification by Robert E. Busch, Chief Executive Officer and Chief Financial Officer of PSE&G Transition Funding II LLC Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code







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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 II LLC
|---------------------------------------
|(Registrant)                           
|                                       
|By:                                    
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|Date:
        August 11, 2006          











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