|                      | UNITED
           STATES
     SECURITIES
           AND EXCHANGE COMMISSION
     Washington,
           DC 20549
     FORM
    10Q                                                              |                                  
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------
|                      |                                                                                                                                                                                                  |                                  
|(Mark
    One)        |                                                                                                                                                                                                  |                                  
|x                     | QUARTERLY
           REPORT PURSUANT TO SECTION 13
        OR 
        15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 
     For the quarterly period ended June 30, 2008OR                    |                                  
|o                     | TRANSITION
         REPORT PURSUANT TO SECTION 13 OR 
        15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934For the transition period from __________
        to __________                |                                  
|                      |                                                                                                                                                                                                  |                                  
|                      |                                                                                                                                                                                                  |                                  
|CommissionFile Number | Registrant, State
         of Incorporation,Address, and Telephone Number                                                                                                                        | I.R.S. EmployerIdentification No.
|                      |                                                                                                                                                                                                  |                                  
|333-127545            | PSE&G Transition
         Funding II LLC
     (A Delaware limited liability company)80 Park Plaza  T4D
       P.O. Box 1171
       Newark, New Jersey 07101-1171973 297-2227http://www.pseg.com | 55-0628725                       





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.

YesxNoo

Indicate
    by check mark whether the registrant is a large accelerated filer, an accelerated
    filer, a non-accelerated filer or a smaller reporting company. See definitions
    of large accelerated filer, accelerated filer and smaller
    reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated fileroAccelerated fileroNon-accelerated filerxSmaller reporting companyo

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

YesoNox

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 CONTENTSPAGEFORWARD-LOOKING STATEMENTS
        
        iiPART I. FINANCIAL INFORMATIONItem 1.
        
        Condensed Financial Statements
        
        1Notes to Condensed Financial StatementsNote 1. Organization and Basis of Presentation
        
        4Note 2. The Bonds
        
        5Note 3. Significant Agreements and Related Party Transactions
        
        5Item 2.
        
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        
        6Results of Operations
        
        6Liquidity and Capital Resources
        
        7Item 3.
        
        Qualitative and Quantitative Disclosures About Market Risk
        
        7Item 4.
        
        Controls and Procedures
        
        7PART II. OTHER INFORMATIONItem 1.
        
        Legal Proceedings
        
        8Item 6.
        
        Exhibits
        
        8Signature
        
        
        
        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.





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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PSE&G TRANSITION FUNDING II LLC

CONDENSED STATEMENTS OF OPERATIONS

(Thousands of Dollars)

(Unaudited)



For the Quarters EndedJune 30,
        
        For the Six Months EndedJune 30,2008
        
        2007
        
        2008
        
        2007OPERATING REVENUES
        
        $
        3,151
        
        $
        3,231
        
        $
        6,364
        
        $
        6,438OPERATING EXPENSESAmortization of Bondable Transition Property
        
        
        2,153
        
        
        2,176
        
        
        4,420
        
        
        4,345Servicing and Administrative Fees
        
        
        83
        
        
        82
        
        
        96
        
        
        95Total Operating Expenses
        
        
        2,236
        
        
        2,258
        
        
        4,516
        
        
        4,440OPERATING INCOME
        
        
        915
        
        
        973
        
        
        1,848
        
        
        1,998Interest Income
        
        
        25
        
        
        72
        
        
        43
        
        
        97Interest Expense
        
        
        (937
        )
        
        (1,038
        )
        
        (1,883
        )
        
        (2,081
        )NET INCOME
        
        $
        3
        
        $
        7
        
        $
        8
        
        $
        14






See Notes to Condensed Financial Statements



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PSE&G TRANSITION FUNDING II LLC

CONDENSED BALANCE SHEETS

(Thousands of Dollars)

(Unaudited)





June 30,2008
        
        December 31,2007ASSETSCurrent Assets:Cash and Cash Equivalents
        
        $
        67
        
        $
        59Receivable from Member
        
        
        2,704
        
        
        2,706Restricted Funds
        
        
        136
        
        
        348Total Current Assets
        
        
        2,907
        
        
        3,113Noncurrent Assets:Restricted Funds
        
        
        514
        
        
        514Bondable Transition Property
        
        
        78,297
        
        
        82,717Total Noncurrent Assets
        
        
        78,811
        
        
        83,231TOTAL ASSETS
        
        $
        81,718
        
        $
        86,344LIABILITIESCurrent Liabilities:Current Portion of Long-Term Debt
        
        $
        9,980
        
        $
        9,801Current Portion of Payable to Member
        
        
        4
        
        
        4Accrued Interest
        
        
        160
        
        
        168Total Current Liabilities
        
        
        10,144
        
        
        9,973Long-Term Debt
        
        
        70,993
        
        
        75,798TOTAL LIABILITIES
        
        
        81,137
        
        
        85,771MEMBERS EQUITYContributed Capital
        
        
        514
        
        
        514Retained Earnings
        
        
        67
        
        
        59Total Members Equity
        
        
        581
        
        
        573TOTAL LIABILITIES AND MEMBERS EQUITY
        
        $
        81,718
        
        $
        86,344






See Notes to Condensed Financial Statements



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PSE&G TRANSITION FUNDING II LLC

CONDENSED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)



For the Six Months EndedJune 30,2008
        
        2007CASH FLOWS FROM OPERATING ACTIVITIESNet Income
        
        $
        8
        
        $
        14Adjustments to Reconcile Net Income to Net CashFlows from Operating Activities:Amortization of Bondable Transition Property
        
        
        4,420
        
        
        4,345Net Changes in Certain Current Assets and Liabilities:Receivable from Member
        
        
        2
        
        
        (211
        )Restricted Funds
        
        
        212
        
        
        172Accrued Interest
        
        
        (8
        )
        
        (8
        )Net Cash Provided By Operating Activities
        
        
        4,634
        
        
        4,312CASH FLOWS FROM INVESTING ACTIVITIES
        
        
        
        
        
        CASH FLOWS FROM FINANCING ACTIVITIESRepayment of Long-Term Debt
        
        
        (4,626
        )
        
        (4,298
        )Net Cash Provided by Financing Activities
        
        
        (4,626
        )
        
        (4,298
        )Increase in Cash and Cash Equivalents
        
        
        8
        
        
        14Cash and Cash Equivalents at Beginning of Period
        
        
        59
        
        
        31Cash and Cash Equivalents at End of Period
        
        $
        67
        
        $
        45Interest Paid
        
        $
        1,892
        
        $
        2,088






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). 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.

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.

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.

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 2007 Annual Report on Form 10-K.

The unaudited financial information furnished herein reflects all adjustments, which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end condensed balance sheet was derived from the audited financial statements included in our 2007 Annual Report on Form 10-K.





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NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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, 2008 are as follows:



InitialPrincipalBalance
        
        InterestRate
        
        PaymentsMade OnBonds ThroughJune 30, 2008
        
        CurrentPortionOutstanding
        
        NoncurrentPortionOutstanding
        
        Final/ExpectedPayment Date
        
        FinalMaturityDateClass A-1
        
        $
        25,200,000
        
        4.18
        %
        $
        21,726,896
        
        $
        3,473,104
        
        $
        
        
        12/15/08
        
        12/15/10Class A-2
        
        
        35,000,000
        
        4.34
        %
        
        
        
        
        6,506,961
        
        
        28,493,039
        
        6/15/12
        
        6/16/14Class A-3
        
        
        20,000,000
        
        4.49
        %
        
        
        
        
        
        
        
        20,000,000
        
        12/16/13
        
        12/15/15Class A-4
        
        
        22,500,000
        
        4.57
        %
        
        
        
        
        
        
        
        22,500,000
        
        6/15/15
        
        6/15/17Total
        
        $
        102,700,000
        
        
        
        $
        21,726,896
        
        $
        9,980,065
        
        $
        70,993,039


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 quarters ended June 30, 2008 and 2007 were approximately $83 thousand and $82 thousand respectively. Servicing and administrative fees for the six months ended June 30, 2008 and 2007 were approximately $96
thousand and $95 thousand respectively.

As of June 30, 2008 and December 31, 2007, we had a receivable from our sole member, PSE&G, of approximately $2.7 million, relating to TBC billings.





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

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

RESULTS OF OPERATIONS

Operating Revenues

TBC revenues decreased approximately $80 thousand or 2% and $74 thousand or 1% for the quarter and six months ended June 30, 2008, respectively, as compared to the same periods in 2007, due to 2% and 1% decreases in sales volumes for the quarter and six months.

Operating Expenses

Amortization of Bondable Transition Property (BTP)

As
    a regulated entity, our amortization expense fluctuates with changes in revenue
    and interest expense. Amortization of BTP decreased approximately $23 thousand
    or 1% and increased $75 thousand or 2% for the quarter and six months ended
June 30, 2008, respectively, as compared to the same periods in 2007.

Interest Income

Interest
    Income decreased approximately $47 thousand or 65% and $54 thousand or 56%
    for the quarter and six months ended June 30, 2008, respectively, as compared
    to the same periods in 2007, primarily due to lower average balances and
lower interest rates in 2008.





6



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Interest Expense

Interest expense decreased approximately $101 thousand or 10% and $198 thousand or 10% for the quarter and six months ended June 30, 2008, respectively, as compared to the same period in 2007, due primarily to a reduction in the total amount of debt outstanding.

LIQUIDITY AND CAPITAL RESOURCES

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

Payments of principal, interest and all related expenses with respect to the Bonds were made by the Trustee on June 16, 2008, totaling $6.6 million.

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 as defined
    under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange
    Act of 1934, as amended (the Exchange Act) to provide reasonable assurance
    that information required to be disclosed in the report that is filed or
    submitted under the Securities Exchange Act of 1934 is recorded, processed,
    summarized and reported and is accumulated and communicated to the Chief
    Executive Officer and Chief Financial Officer, as appropriate, by others
    within the company to allow timely decisions regarding required disclosure.
    We have established a disclosure committee which includes 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 have evaluated the effectiveness of the disclosure
    controls and procedures and, based on this evaluation, have concluded that our
    disclosure controls and procedures were effective
    at a reasonable assurance level as of the end of the period covered by the
report.

Internal Controls

We
    continually review our disclosure controls and procedures and
    make changes, as necessary, to ensure the quality of our financial reporting.
    There have been no changes in internal control over financial reporting that
    occurred during the second quarter of 2008 that have materially affected,
    or are reasonably likely to materially affect, our internal control over
financial reporting.





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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Electric Discount and Energy Competition Act (Competition Act)

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 the TBC of Transition Funding, as well as recovery of TBC amounts previously collected. Notice of the filing of the Complaint was also provided to New Jerseys Attorney General. Under New Jersey law, the Competition Act, enacted in 1999, is presumed constitutional. 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. On July 30, 2007, PSE&G filed a motion to
dismiss the amended Complaint, or, in the alternative, for summary judgment. On October 10, 2007, PSE&Gs and Transition Fundings motion to dismiss the Amended Complaint was granted. On November 21, 2007, the plaintiff filed a notice of appeal with the Appellate Division of the New Jersey Superior Court. Briefing of the appeal has been completed.

On July 9, 2007, the same plaintiff also filed a petition with the BPU requesting review and adjustment to PSE&Gs recovery of the same charges. On September 30, 2007, PSE&G filed a motion with the BPU to dismiss the petition. PSE&Gs motion to dismiss the BPU petition is pending.

ITEM 6. EXHIBITS

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



Exhibit Number
        
        Document31.1
        
        Certification by Thomas M. OFlynn, Chief Executive Officer of PSE&G Transition Funding II LLC Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 193431.2
        
        Certification by Morton A. Plawner, Chief Financial Officer of PSE&G Transition Funding II LLC Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 193432.1
        
        Certification by Thomas M. OFlynn, Chief Executive Officer of PSE&G Transition Funding II LLC Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code32.2
        
        Certification by Morton A. Plawner, 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:
        /s/ Derek M. DiRisioDerek M. DiRisioController(Principal Accounting Officer)Date: August 13, 2008






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