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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

| |  |                                                                                                | 
| |  | ---------------------------------------------------------------------------------------------- | 
| |  | (Mark One)                                                                                     | 
| |  |                                                                                               
| |  | x ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF
  THE SECURITIES EXCHANGE ACT OF 1934     | 
| |  | For the fiscal year ended December 31, 2005                                                    | 
| |  |                                                                                                | 
| |  | OR                                                                                             | 
| |  |                                                                                                | 
| |  | o TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d)
  OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| |  | For
  the transition period from __________ to __________                                      | 

|                         |  |                                                                     |  |                                     
|------------------------ |  | ------------------------------------------------------------------- |  | ------------------------------------
|Commission
  File Number |  | Registrant, State of Incorporation,
  Address, and Telephone Number |  | I.R.S. Employer
  Identification No.
|                         |  |                                                                     |  |                                     
|333-83635                |  | PSE&G
  Transition Funding LLC                                      |  | 22-3672053                          

|                                        
|----------------------------------------
|(A
  Delaware limited liability company)
|80
  Park Plaza  T4D                   
|P.O.
  Box 1171                         
|Newark,
  New Jersey 07101-1171         
|973
  297-2227                          
|http://www.pseg.com                     

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

Securities 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. Yeso   
Nox

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. Yeso   
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. Yes x   No o

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. x

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.

Indicate
  by check mark whether the registrant is an accelerated filer (as defined in
  Rule 12b-2 of the Exchange Act). Yeso   
  Nox

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x

Documents incorporated by reference: None

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TABLE OF CONTENTS

|                             |  |                                                                                                                |  |      | 
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ---- | 
|                             |  |                                                                                                                |  | Page
|                             |  |                                                                                                                |  |     
|                             |  |                                                                                                                |  |      | 
|FORWARD-LOOKING
  STATEMENTS |  | ii                                                                                                             | 
|                             |  |                                                                                                                |  |      | 
|PART I                       |  |                                                                                                                |  |      | 
|Item 1.                      |  | Business                                                                                                       |  | 1    | 
|Item 1A.                     |  | Risk Factors                                                                                                   |  | 2    | 
|Item 1B.                     |  | Unresolved Staff Comments                                                                                      |  | 7    | 
|Item 2.                      |  | Properties                                                                                                     |  | 7    | 
|Item 3.                      |  | Legal Proceedings                                                                                              |  | 7    | 
|Item 4.                      |  | Submission of Matters to a Vote of Security
Holders                                                            |  | 7    | 
|                             |  |                                                                                                                |  |      | 
|PART II                      |  |                                                                                                                |  |      | 
|Item 5.                      |  | Market for Registrants Common Equity,
Related
  Stockholder Matters and Issuer Purchases of Equity Securities |  | 8    | 
|Item 6.                      |  | Selected Financial Data                                                                                        |  | 8    | 
|Item 7.                      |  | Managements Discussion and Analysis of
Financial
  Condition and Results of Operations                        |  | 8    | 
|Item 7A.                     |  | Qualitative and Quantitative Disclosures About
Market
  Risk                                                   |  | 10   | 
|Item 8.                      |  | Financial Statements and Supplementary
Data                                                                    |  | 10   | 
|                             |  | Report of Independent Registered Public Accounting
  Firm                                                      |  | 11   | 
|                             |  | Financial Statements                                                                                           |  | 12   | 
|                             |  | Notes to Financial Statements                                                                                  |  | 16   | 
|Item 9.                      |  | Changes in and Disagreements With Accountants on
  Accounting and Financial Disclosure                         |  | 20   | 
|Item 9A.                     |  | Controls and Procedures                                                                                        |  | 20   | 
|Item 9B.                     |  | Other Information                                                                                              |  | 20   | 
|                             |  |                                                                                                                |  |      | 
|PART III                     |  |                                                                                                                |  |      | 
|Item 10.                     |  | Directors and Executive Officers of the
Registrant                                                             |  | 20   | 
|Item 11.                     |  | Executive Compensation                                                                                         |  | 20   | 
|Item 12.                     |  | Security Ownership of Certain Beneficial Owners
and
  Management and Related Stockholder Matters               |  | 20   | 
|Item 13.                     |  | Certain Relationships and Related
Transactions                                                                 |  | 20   | 
|Item 14.                     |  | Principal Accountant Fees and
Services                                                                         |  | 20   | 
|                             |  |                                                                                                                |  |      | 
|PART IV                      |  |                                                                                                                |  |      | 
|Item 15.                     |  | Exhibits and Financial Statement
Schedules                                                                     |  | 21   | 
|                             |  | Signatures                                                                                                     |  | 23   | 
|                             |  | Exhibit Index                                                                                                  |  | 24   | 

i

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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 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 (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.

ii

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PART I

ITEM 1. BUSINESS

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

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

Following
the enactment of the New Jersey Electric Discount and Energy Competition Act
(Energy Competition Act), the New Jersey Board of Public Utilities (BPU) rendered
a Final Order (Final Order) in August 1999 relating to PSE&Gs rate
unbundling, stranded costs and restructuring proceedings providing, among other
things, for PSE&G to recover up to $2.94 billion (net of tax) of its
generation-related stranded costs including the securitization of $2.4 billion
(plus an estimated $125 million of associated transaction costs). The stranded
costs represent various generation-related investments and other obligations
that were anticipated to be unrecoverable through market-based rates in a
competitive electricity generation retail market.

Following
the issuance of the Final Order, the BPU issued the Bondable Stranded Cost Rate
Order (Finance Order) approving PSE&Gs petition relating to the
securitization transaction which authorized, among other things, the imposition
of a non-bypassable transition bond charge (TBC) on PSE&Gs customers; the
sale of PSE&Gs property right in such charge to a bankruptcy-remote
financing entity; the issuance and sale of $2.525 billion of Bonds by such
entity as consideration for such property right, including an estimated $125
million of transaction costs; and the application by PSE&G of the Bond
proceeds to retire outstanding debt and/or equity.

On
January 31, 2001, we issued $2.525 billion of Bonds in eight classes with
stated maturities ranging from one year to fifteen years, of which $1.939
billion in six classes remain outstanding as of December 31, 2005. The net
proceeds of the issuance were utilized to acquire PSE&Gs property right in
the TBC. The Bonds are collateralized by the BTP created under the Energy
Competition Act and the related Finance Order. The 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, associated with the Bonds; and
| |  | the
  principal amount of the Bonds.                                                                                     

Approximately
$230 million of issuance costs were incurred in connection with the
securitization transaction, including costs of a hedging arrangement as
permitted by the Finance Order. The $105 million in costs in excess of the $125
million of estimated transaction costs included in the BTP were capitalized as
provided for in the Finance Order and are being recovered on a subordinated
basis by us through the TBC. The initial TBC rate became effective on February
7, 2001, in accordance with the Final Order.

1

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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 TBC applies to the
sale or delivery of that power.

Payments
are made to the bondholders on a quarterly 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; 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 will be 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. 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.

Source
of Funds for Payment on 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, we 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 That 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

2

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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.
Although a judicial determination of that kind will cause PSE&G to
indemnify you, the amount of any indemnification might not be sufficient for
you to recover all of your loss on the Bonds.

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 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.

The
State, Through Future Legislative Action Might Attempt to 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.

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. 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 (U.S.) 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 U.S. 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 U.S. 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.

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Moreover,
  under the takings clauses of the U.S. 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 Might 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 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 you. As a result, you could suffer a decline in value of your
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

4

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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.

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 U.S.
  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 the 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

5

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| |   |                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

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:

6

---



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | 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 Might 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.

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

Not
Applicable.

|                   | 
|------------------ | 
|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

None.

|                                                              | 
|------------------------------------------------------------- | 
|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.

7

---



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, we,
us or our herein mean PSE&G Transition Funding LLC, a Delaware limited
liability company located at 80 Park
Plaza, Newark, New Jersey 07102.

On
  December 20, 2004, PSEG entered into an agreement and plan of merger with Exelon
  Corporation (Exelon), a public utility holding company 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 subsidiary of PSE&G.

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 approximately $6 million or 2% for the
  year ended December 31, 2005 as compared to the year ended December 31, 2004
  due to a 3% growth in sales volume partially offset by the decline in the TBC
  rate from 2004. In January 2005, as a result of the annual true-up approved
  by the State of New Jersey Board of Public Utilities (BPU), the TBC rate decreased
  to 0.6723 cents per Kilowatt-hour (kWh) from 0.6862 cents per kWh in 2004.

As
a result of the annual true-up approved by the BPU in January 2006, the TBC
rate for 2006 decreased from 0.6723 cents per kWh to 0.6586 cents per kWh. Any
increases or decreases in the TBC rate are designed to maintain the Capital
Subaccount and the Overcollateralization account at appropriate levels and have
adequate funds to meet our scheduled repayments of the deferred issuance costs
to Public Service Electric & Gas Company (PSE&G), as servicer of the
bonds.

TBC
revenues increased approximately $1 million or less than 1% for the year ended
December 31, 2004 as compared to the year ended December 31, 2003 primarily due
to a 3% growth in sales volume offset by the decline in the TBC rate from 2003.
In January 2004, as a result of the annual true-up approved by the BPU, the TBC
rate decreased to 0.6862 cents per kWh from 0.7018 cents per kWh in 2003.

8

---



Operating
Expenses

Amortization of Bondable Transition Property (BTP)

Amortization
of BTP increased approximately $16 million or 12% for the year ended December
31, 2005 as compared to the year ended December 31, 2004 primarily due to the
changes in Operating Revenues and Interest Expense. As a regulated entity, we
amortize an amount equal to what we record as revenue for the portion of the
TBC relating to the BTP.

Amortization
of BTP increased approximately $10 million or 8% for the year ended December
31, 2004 as compared to the year ended December 31, 2003 primarily due to the
changes in Operating Revenues and Interest Expense.

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 $41
thousand or 3% for the year ended December 31, 2005 as compared to the year
ended December 31, 2004 due to decreases in administrative expenses billed to
us by the Servicer, PSE&G.

Servicing
and Administrative Fees decreased $9 thousand or 1% for the year ended December
31, 2004 as compared to the year ended December 31, 2003 due to decreases in
administrative expenses billed to us by the Servicer, PSE&G.

Interest
Income

Interest
Income increased approximately $972 thousand or 162% for the year ended
December 31, 2005 as compared to the year ended December 31, 2004 primarily due
to higher interest rates and higher average cash balances in 2005.

Interest
Income increased approximately $184 thousand or 44% for the year ended December
31, 2004 as compared to the year ended December 31, 2003 primarily due to
higher interest rates and higher average cash balances in 2004.

Interest
Expense

Interest
expense decreased approximately $9 million or 6% for the year ended December
31, 2005 as compared to the year ended December 31, 2004 due to a reduction in
the total amount of debt outstanding.

Interest
expense decreased approximately $9 million or 5% for the year ended December
31, 2004 as compared to the year ended December 31, 2003 due to a reduction in
the total amount of debt outstanding.

9

---



LIQUIDITY AND CAPITAL RESOURCES

The
principal amount of the Bonds, interest, fees and funding of the
overcollateralization subaccount are being recovered through the TBC payable by
retail customers of electricity within PSE&Gs service territory who
receive electric delivery service from PSE&G. As part of PSE&Gs
responsibility as servicer under the Servicing Agreement, PSE&G remits the
TBC collections to the debt/security trustee (Trustee) to make scheduled
payments on the Bonds.

During
2005, all required payments of bond principal, interest and all related
expenses were made by the Trustee on March 15, 2005, June 15, 2005, September
15, 2005 and December 15, 2005 totaling approximately $72 million, $69 million,
$75 million and $77 million, respectively, including funding of the Capital
Subaccount and the Overcollateralization account to required levels. During
2004, payments of bond principal, interest and all related expenses were made
by the Trustee on March 15, 2004, June 15, 2004, September 15, 2004
and December 15, 2004 totaling approximately $69 million, $69 million, $75
million and $77 million, respectively. These payments were primarily funded
from our TBC collections and interest earned on those funds. Also in 2005 and
2004, cash dividends of $162 thousand and $434 thousand, respectively, were
paid to PSE&G.

ACCOUNTING ISSUES

Critical Accounting Policies

Unbilled Revenues

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.

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

The
market risk inherent in our Bonds is the potential loss arising from adverse
changes in interest rates. We have entered into an interest rate swap on our
sole class (Class A-4) of floating rate Bonds (see Note 2. The Bonds). The
interest rate swap effectively converts the existing floating rate debt into
fixed rate borrowings at 6.2875%. Any gain or loss on this financial instrument
will be recovered from or refunded to PSE&Gs customers.

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

10

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Sole Member and Board of Managers of PSE&G Transition Funding LLCNewark, New Jersey

We have audited the accompanying balance sheets of PSE&G Transition Funding LLC as
of December 31, 2005 and 2004, and the related statements of income, members
equity, and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these 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 PSE&G Transition
Funding LLC as of December
31, 2005 and 2004, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2005, in conformity
with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche
LLP
Parsippany, New Jersey

March 20, 2006

11

---



PSE&G TRANSITION FUNDING LLCSTATEMENTS OF INCOME
(THOUSANDS)

|                                               |  |                                    |          |      |   |          |   |   |          |  
|---------------------------------------------- |  | ---------------------------------- | -------- | ---- | - | -------- | - | - | -------- | -
|                                               |  | For the Years Ended
  December 31,
|                                               |  |                                   
|                                               |  | 2005                               |          | 2004 |   | 2003     |  
|                                               |  |                                   
|                                              
|OPERATING REVENUES                             |  | $                                  | 298,111  |      | $ | 292,261  |   | $ | 291,182  |  
|                                               |  |                                    |          |      |   |          |   |   |          |  
|OPERATING EXPENSES                             |  |                                    |          |      |   |          |   |   |          |  
|Amortization of Bondable Transition
  Property |  |                                    | 150,102  |      |   | 134,328  |   |   | 124,381  |  
|Servicing and Administrative Fees              |  |                                    | 1,456    |      |   | 1,497    |   |   | 1,506    |  
|                                               |  |                                    |          |      |   |          |   |   |          |  
|Total Operating Expenses                       |  |                                    | 151,558  |      |   | 135,825  |   |   | 125,887  |  
|                                               |  |                                    |          |      |   |          |   |   |          |  
|OPERATING INCOME                               |  |                                    | 146,553  |      |   | 156,436  |   |   | 165,295  |  
|Interest Income                                |  |                                    | 1,572    |      |   | 600      |   |   | 416      |  
|Interest Expense                               |  |                                    | (147,727 | )    |   | (156,874 | ) |   | (165,582 | )
|                                               |  |                                    |          |      |   |          |   |   |          |  
|NET INCOME                                     |  | $                                  | 398      |      | $ | 162      |   | $ | 129      |  
|                                               |  |                                    |          |      |   |          |   |   |          |  
|                                               |  |                                    |          |      |   |          |   |   |          |  

See Notes to Financial Statements.

12

---



PSE&G TRANSITION FUNDING LLC
BALANCE SHEETS
(THOUSANDS)

|                                               |  |                     |           |                     |   |           | 
|---------------------------------------------- |  | ------------------- | --------- | ------------------- | - | --------- | 
|                                               |  | December 31,
  2005 |           | December 31,
  2004 |  
|                                               |  |                     |           |                     |  
|ASSETS                                         |  |                     |           |                     |   |           | 
|Current Assets:                                |  |                     |           |                     |   |           | 
|Cash                                           |  | $                   | 671       |                     | $ | 435       | 
|Receivable from Member                         |  |                     | 58,924    |                     |   | 58,974    | 
|Restricted Cash                                |  |                     | 14,061    |                     |   | 5,697     | 
|                                               |  |                     |           |                     |   |           | 
|Total Current Assets                           |  |                     | 73,656    |                     |   | 65,106    | 
|                                               |  |                     |           |                     |   |           | 
|                                               |  |                     |           |                     |   |           | 
|Noncurrent Assets:                             |  |                     |           |                     |   |           | 
|Restricted Cash                                |  |                     | 16,810    |                     |   | 15,959    | 
|Bondable Transition Property                   |  |                     | 1,908,898 |                     |   | 2,059,000 | 
|Deferred Issuance Costs                        |  |                     | 51,792    |                     |   | 61,384    | 
|Regulatory Assets  Interest Rate
Swap         |  |                     | 11,462    |                     |   | 34,000    | 
|                                               |  |                     |           |                     |   |           | 
|Total Noncurrent Assets                        |  |                     | 1,988,962 |                     |   | 2,170,343 | 
|                                               |  |                     |           |                     |   |           | 
|TOTAL ASSETS                                   |  | $                   | 2,062,618 |                     | $ | 2,235,449 | 
|                                               |  |                     |           |                     |   |           | 
|                                               |  |                     |           |                     |   |           | 
|LIABILITIES                                    |  |                     |           |                     |   |           | 
|Current Liabilities:                           |  |                     |           |                     |   |           | 
|Current Portion of Long-Term Debt              |  | $                   | 154,773   |                     | $ | 146,113   | 
|Current Portion of Derivative Liability        |  |                     | 5,540     |                     |   | 14,943    | 
|Current Portion of Payable to Member           |  |                     | 6,586     |                     |   | 6,183     | 
|Payable to Affiliate                           |  |                     | 1,198     |                     |   |          | 
|Accrued Interest                               |  |                     | 5,585     |                     |   | 5,971     | 
|                                               |  |                     |           |                     |   |           | 
|Total Current Liabilities                      |  |                     | 173,682   |                     |   | 173,210   | 
|                                               |  |                     |           |                     |   |           | 
|                                               |  |                     |           |                     |   |           | 
|Long-Term Liabilities:                         |  |                     |           |                     |   |           | 
|Long-Term Debt                                 |  |                     | 1,783,974 |                     |   | 1,938,747 | 
|Derivative Liability                           |  |                     | 5,922     |                     |   | 19,057    | 
|Payable to Member                              |  |                     | 81,559    |                     |   | 88,041    | 
|Regulatory Liability 
  Overcollateralization |  |                     | 4,185     |                     |   | 3,334     | 
|                                               |  |                     |           |                     |   |           | 
|Total Long-Term Liabilities                    |  |                     | 1,875,640 |                     |   | 2,049,179 | 
|                                               |  |                     |           |                     |   |           | 
|TOTAL
  LIABILITIES                            |  |                     | 2,049,322 |                     |   | 2,222,389 | 
|                                               |  |                     |           |                     |   |           | 
|                                               |  |                     |           |                     |   |           | 
|MEMBERS
  EQUITY                              |  |                     |           |                     |   |           | 
|Contributed Capital                            |  |                     | 12,625    |                     |   | 12,625    | 
|Retained Earnings                              |  |                     | 671       |                     |   | 435       | 
|                                               |  |                     |           |                     |   |           | 
|Total Members Equity                          |  |                     | 13,296    |                     |   | 13,060    | 
|                                               |  |                     |           |                     |   |           | 
|TOTAL
  LIABILITIES AND MEMBERS EQUITY        |  | $                   | 2,062,618 |                     | $ | 2,235,449 | 
|                                               |  |                     |           |                     |   |           | 

See Notes to Financial Statements.

13

---



PSE&G TRANSITION FUNDING LLC
STATEMENTS OF CASH FLOWS
(THOUSANDS)

|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | -------- | ---- | - | -------- | - | - | -------- | -
|                                                                                   |  | For the Years Ended December 31, |         
|                                                                                   |  |                                  |         
|                                                                                   |  | 2005                             |          | 2004 |   | 2003     |  
|                                                                                   |  |                                  |          |      |   |          |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                               |  |                                  |          |      |   |          |   |   |          |  
|Net Income                                                                         |  | $                                | 398      |      | $ | 162      |   | $ | 129      |  
|Adjustments to Reconcile Net Income to Net
  Cash Flows from Operating Activities: |  |                                  |          |      |   |          |   |   |          |  
|Amortization of Bondable Transition
  Property                                     |  |                                  | 150,102  |      |   | 134,328  |   |   | 124,381  |  
|Amortization of Deferred Issuance Costs                                            |  |                                  | 9,592    |      |   | 10,184   |   |   | 10,735   |  
|Net Changes in Certain Current Assets and
  Liabilities:                           |  |                                  |          |      |   |          |   |   |          |  
|Receivable from Member                                                             |  |                                  | 50       |      |   | (1,053   | ) |   | (114     | )
|Payable to Affiliate                                                               |  |                                  | 1,198    |      |   |         |   |   |         |  
|Accrued Interest                                                                   |  |                                  | (386     | )    |   | 32       |   |   | (637     | )
|Net Increase in Overcollateralization                                              |  |                                  | 851      |      |   | 852      |   |   | 850      |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Net Cash Provided By Operating Activities                                          |  |                                  | 161,805  |      |   | 144,505  |   |   | 135,344  |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                               |  |                                  |          |      |   |          |   |   |          |  
|Restricted Cash                                                                    |  |                                  | (9,215   | )    |   | (3,692   | ) |   | (4,337   | )
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Net Cash Used in Investing Activities                                              |  |                                  | (9,215   | )    |   | (3,692   | ) |   | (4,337   | )
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                               |  |                                  |          |      |   |          |   |   |          |  
|Repayment of Long-Term Debt                                                        |  |                                  | (146,113 | )    |   | (137,361 | ) |   | (128,935 | )
|Repayment of Payable to Member                                                     |  |                                  | (6,079   | )    |   | (3,290   | ) |   | (1,943   | )
|Cash Dividends Paid                                                                |  |                                  | (162     | )    |   | (434     | ) |   |         |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Net Cash Used In Financing Activities                                              |  |                                  | (152,354 | )    |   | (141,085 | ) |   | (130,878 | )
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Increase (Decrease) in Cash and Cash
  Equivalents                                 |  |                                  | 236      |      |   | (272     | ) |   | 129      |  
|Cash and Cash Equivalents at Beginning of
  Period                                 |  |                                  | 435      |      |   | 707      |   |   | 578      |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Cash and Cash Equivalents at End of Period                                         |  | $                                | 671      |      | $ | 435      |   | $ | 707      |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|                                                                                   |  |                                  |          |      |   |          |   |   |          |  
|Interest Paid                                                                      |  | $                                | 138,521  |      | $ | 146,658  |   | $ | 155,484  |  

See Notes to Financial
Statements.

14

---



PSE&G TRANSITION FUNDING LLC
STATEMENTS OF MEMBERS EQUITY
(THOUSANDS)

|                                |  |                     |        |                   |   |       |   |   |        |  
|------------------------------- |  | ------------------- | ------ | ----------------- | - | ----- | - | - | ------ | -
|                                |  | Contributed Capital |        | Retained Earnings |   | Total |  
|                                |  |                     |        |                   |   |       |  
|Balance as of January 1, 2003   |  | $                   | 12,625 |                   | $ | 578   |   | $ | 13,203 |  
|Net Income                      |  |                     |       |                   |   | 129   |   |   | 129    |  
|                                |  |                     |        |                   |   |       |   |   |        |  
|Balance as of December 31, 2003 |  |                     | 12,625 |                   |   | 707   |   |   | 13,332 |  
|Net Income                      |  |                     |       |                   |   | 162   |   |   | 162    |  
|Dividends Paid                  |  |                     |       |                   |   | (434  | ) |   | (434   | )
|                                |  |                     |        |                   |   |       |   |   |        |  
|Balance as of December 31, 2004 |  |                     | 12,625 |                   |   | 435   |   |   | 13,060 |  
|Net Income                      |  |                     |       |                   |   | 398   |   |   | 398    |  
|Dividends Paid                  |  |                     |       |                   |   | (162  | ) |   | (162   | )
|                                |  |                     |        |                   |   |       |   |   |        |  
|Balance as of December 31, 2005 |  | $                   | 12,625 |                   | $ | 671   |   | $ | 13,296 |  
|                                |  |                     |        |                   |   |       |   |   |        |  

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, we,
us or our herein mean PSE&G Transition Funding LLC, a Delaware limited
liability company located at 80 Park Plaza, Newark, New Jersey 07102.

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

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

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

On
  December 20, 2004, PSEG entered into an agreement and plan of merger with Exelon
  Corporation (Exelon), a public utility holding company 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 subsidiary of PSE&G.

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.

Significant Accounting Policies

Accounting
for the Effects of  Regulation

The
application of generally accepted accounting principles 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.

16

---



NOTES TO FINANCIAL STATEMENTS

Cash

Cash
consists primarily of highly liquid marketable securities and money market
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 and the
Overcollateralization Account, discussed below 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.

Deferred Issuance
Costs

The
securitization transaction issuance costs in excess of the $125 million
provided for in the Finance Order were funded by PSE&G and are recovered on
a subordinated basis through the TBC. These costs were capitalized and are
being amortized to interest expense over the life of the Bonds utilizing the
effective interest method.

Regulatory
Assets  Interest Rate Swap

For
a description of the regulatory asset and the corresponding derivative
liability related to the interest rate swap on our sole class of floating rate
debt, see Note 2. The Bonds.

Regulatory
Liabilities - Overcollateralization

The
overcollateralization account is funded ratably from collections of TBC over
the term of each series of Bonds. The account is held by the trustee as a
credit enhancement to fund payments in the event of a collection shortfall.

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.

17

---



NOTES TO FINANCIAL STATEMENTS

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 is periodically dividended to PSE&G.

Interest
Expense

Interest
Expense consists primarily of interest on the Bonds. Also included in Interest
Expense is the amortization of the deferred issuance costs and related interest
on the payable to PSE&G.

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
January 31, 2001, we issued $2.525 billion of Bonds in eight classes with
stated maturities ranging from one year to fifteen years, of which $1.939
billion in six classes remain outstanding as of December 31, 2005. The fair
value of the bonds was $2.086 billion as of December 31, 2005. 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 an overcollateralization subaccount, a
capital subaccount and a reserve subaccount which are available to bond
holders. Any amounts collateralizing the Bonds will be returned to PSE&G
upon payment of the Bonds.

The significant
terms of the Bonds issued by Transition Funding as of December 31, 2005 are as
follows:

|          |  |                         |               |              |                 |                                                      |  |                           |             |                              |  |                              |   |                   |  |  |   |               |  |          |  |          | 
|--------- |  | ----------------------- | ------------- | ------------ | --------------- | ---------------------------------------------------- |  | ------------------------- | ----------- | ---------------------------- |  | ---------------------------- | - | ----------------- |  |  | - | ------------- |  | -------- |  | -------- | 
|          |  | InitialPrincipalBalance |               | InterestRate |                 | PaymentsMade OnBonds
  ThroughDecember
  31, 
  2005 |  | CurrentPortionOutstanding |             | NoncurrentPortionOutstanding |  | Final/ExpectedPayment
  Date |   | FinalMaturityDate | 
|          |  |                         |               |              |                 |                                                      |  |                           |             |                              |  |                              |   |                   | 
|Class A-1 |  | $                       | 105,249,914   |              | 5.46%           |                                                      |  | $                         | 105,249,914 |                              |  |                              |   |                  |  |  |   |              |  | 6/17/02  |  |         | 
|Class A-2 |  |                         | 368,980,380   |              | 5.74%           |                                                      |  |                           | 368,980,380 |                              |  |                              |   |                  |  |  |   |              |  | 3/15/05  |  | 3/15/07  | 
|Class A-3 |  |                         | 182,621,909   |              | 5.98%           |                                                      |  |                           | 112,022,698 |                              |  |                              | $ | 70,599,211        |  |  |   |              |  | 6/15/06  |  | 6/15/08  | 
|Class A-4 |  |                         | 496,606,425   |              | LIBOR
  + 0.30% |                                                      |  |                           |            |                              |  |                              |   | 84,174,239        |  |  | $ | 412,432,186   |  | 6/15/09  |  | 6/15/11  | 
|Class A-5 |  |                         | 328,032,965   |              | 6.45%           |                                                      |  |                           |            |                              |  |                              |   |                  |  |  |   | 328,032,965   |  | 3/15/11  |  | 3/15/13  | 
|Class A-6 |  |                         | 453,559,632   |              | 6.61%           |                                                      |  |                           |            |                              |  |                              |   |                  |  |  |   | 453,559,632   |  | 6/15/13  |  | 6/15/15  | 
|Class A-7 |  |                         | 219,688,870   |              | 6.75%           |                                                      |  |                           |            |                              |  |                              |   |                  |  |  |   | 219,688,870   |  | 6/15/14  |  | 6/15/16  | 
|Class A-8 |  |                         | 370,259,905   |              | 6.89%           |                                                      |  |                           |            |                              |  |                              |   |                  |  |  |   | 370,259,905   |  | 12/15/15 |  | 12/15/17 | 
|          |  |                         |               |              |                 |                                                      |  |                           |             |                              |  |                              |   |                   |  |  |   |               |  |          |  |          | 
|Total     |  | $                       | 2,525,000,000 |              |                 |                                                      |  | $                         | 586,252,992 |                              |  |                              | $ | 154,773,450       |  |  | $ | 1,783,973,558 |  |          |  |          | 

18

---



NOTES TO FINANCIAL STATEMENTS

During
  the years ended December 31, 2005 and 2004, we made principal payments on the
  bonds of $146 million and $137 million, respectively.

We expect to make principal payments of approximately $155 million, $161 million, $169 million, $178 million and $186 million for the years ended December 31, 2006, 2007, 2008, 2009 and 2010, respectively.

We
have entered into an interest rate swap on our sole class of floating rate
Bonds (Class A-4). The interest rate swap effectively converts the existing
floating rate debt into fixed rate borrowings at 6.2875%. The notional amount
of the interest rate swap is $497 million and is indexed to the three-month
LIBOR rate. The fair value of the interest rate swap was approximately $(11)
million as of December 31, 2005 and $(34) million as of December 31, 2004 and
was recorded as a derivative liability, with an offsetting amount recorded as a
regulatory asset on the Balance Sheet. The fair value of this swap will vary
over time as a result of changes in market conditions. This amount is deferred
and is expected to be recovered from PSE&G customers.

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

Note 3.  Significant Agreements and Related Party
Transactions

Under
the servicing agreement entered into by PSE&G and us, concurrently with the
issuance of the first Series of Bonds, PSE&G, as servicer, is required to
manage and administer our BTP and to collect the TBC on our behalf.Under
the Finance Order, PSE&G withholds from the TBC collections an annual
servicing fee equal to 0.05% of the initial balance of Bonds issued. In
addition we pay miscellaneous operating expenses to PSE&G up to $100
thousand per quarter, administration fees up to $31 thousand per quarter and
trustee fees up to $4 thousand per quarter. Servicing and administrative fees paid to
PSE&G for each of the years ended December 31, 2005, 2004 and 2003 were
approximately $1.5 million.

As
of December 31, 2005 and December 31, 2004, we had a receivable from our
member, PSE&G, of approximately $59 million relating to TBC billings. As of
December 31, 2005 and December 31, 2004 our payable to our member was approximately
$88 million and $94 million, respectively, which primarily relates to the costs
in excess of the $125 million of transaction costs provided for in the Finance
Order that were paid by PSE&G and billed to us. Interest Expense relating
to this payable to PSE&G for the years ended December 31, 2005, 2004 and 2003 were approximately
$6 million, $6 million and $7 million, respectively.  As of December 31, 2005, we had a payable of approximately
$1.2
million for funds deposited with us on behalf of our affiliate, PSE&G
Transition Funding II LLC.

In
additions to the payments above, interest earned on funds in the Capital
Subaccount is periodically dividended to PSE&G. During 2005 and 2004, we
paid dividends of approximately $162 thousand and $434 thousand, respectively,
to PSE&G.

Note 4.  Selected Quarterly Data (Unaudited)

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

|                     |  |                 |        |          |   |                 |  |                |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |        | 
|-------------------- |  | --------------- | ------ | -------- | - | --------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------ | 
|                     |  | Quarter
  Ended |       
|                     |  |                 |       
|                     |  | March 31,       |        | June 30, |   | September
  30, |  | December
  31, |       
|                     |  |                 |        |          |   |                 |  |                |       
|                     |  | 2005            |        | 2004     |   | 2005            |  | 2004           |        | 2005 |   | 2004   |  | 2005 |        | 2004 |  
|                     |  |                 |        |          |   |                 |  |                |        |      |   |        |  |      |        |      |  
|                     |  | (Thousands)     |       
|Operating
  Revenues |  | $               | 69,470 |          | $ | 70,194          |  | $              | 68,082 |      | $ | 70,810 |  | $    | 92,838 |      | $ | 82,264 |  | $ | 67,721 |  | $ | 68,993 | 
|Operating
  Income   |  |                 | 37,586 |          |   | 39,920          |  |                | 36,984 |      |   | 39,422 |  |      | 36,392 |      |   | 38,873 |  |   | 35,591 |  |   | 38,221 | 
|Net Income           |  |                 | 75     |          |   | 35              |  |                | 90     |      |   | 26     |  |      | 106    |      |   | 43     |  |   | 127    |  |   | 58     | 

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 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 December 31, 2005 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 annual report.

Internal Controls

During the fourth quarter of 2005, we continued to make enhancements to
internal controls to enable us to maintain the effectiveness of our internal
control over financial reporting as of December 31, 2005. There were no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation. It should be noted that the design of any system of controls is
based, in part, on certain assumptions about the likelihood of future events,
and provides reasonable assurance that the internal control system will succeed
in achieving its stated objectives.

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

NONE.

PART III

|                                                              | 
|------------------------------------------------------------- | 
|ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
  THE REGISTRANT

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

|                                | 
|------------------------------- | 
|ITEM 11. EXECUTIVE COMPENSATION

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

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

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

Not Applicable.

20

---



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 years ended December 31, 2005, 2004 and 2003 on page 12.           
|    |                                                                                                   
|    | Balance Sheets as of
  December 31, 2005 and 2004 on page 13.                                     
|    |                                                                                                   
|    | Statements of Cash Flows
  for the years ended December 31, 2005, 2004 and 2003 on page 14.       
|    |                                                                                                   
|    | Statements of Members
  Equity for the years ended December 31, 2005, 2004 and 2003 on page
  15.
|    |                                                                                                   
|    | Notes to Financial
  Statements on pages 16 through 19.                                           

21

---



|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 |     |               
|               |     |               
|ThisFiling     |     | PreviousFiling |  |                                                                                                                                                                                                                                                         
|               |     |                |  |                                                                                                                                                                                                                                                         
|1.1            | (b) | 1.1            |  | Underwriting Agreement dated as of January 25, 2001
  among Public Service Electric and Gas Company, PSE&G Transition Funding
  LLC and Lehman Brothers, Inc., on behalf of itself and as the representative
  of the several underwriters named therein
|               |     |                |  |                                                                                                                                                                                                                                                         
|3.1            | (a) | 4.1            |  | Limited Liability Company Agreement of PSE&G
  Transition Funding LLC                                                                                                                                                                                   
|               |     |                |  |                                                                                                                                                                                                                                                         
|3.1.1          | (b) | 4.1.1          |  | Form of Amended and Restated Limited Liability
  Company Agreement of PSE&G Transition Funding LLC dated as of January 31,
  2001                                                                                                                       
|               |     |                |  |                                                                                                                                                                                                                                                         
|3.2            | (a) | 4.2            |  | Certificate of Formation of PSE&G Transition
  Funding LLC                                                                                                                                                                                              
|               |     |                |  |                                                                                                                                                                                                                                                         
|3.2.1          | (b) | 4.2.1          |  | Form of Amended and Restated Certificate of
  Formation of PSE&G Transition Funding LLC dated as of January 25, 2001,
  which was filed with the Delaware Secretary of States Office on January 26,
  2001                                             
|               |     |                |  |                                                                                                                                                                                                                                                         
|4.1            | (a) | 4.3            |  | Form of Indenture                                                                                                                                                                                                                                       
|               |     |                |  |                                                                                                                                                                                                                                                         
|4.1.1          | (b) | 4.3.1          |  | Indenture dated as of January 31, 2001 between
  PSE&G Transition Funding LLC and The Bank of New York                                                                                                                                                  
|               |     |                |  |                                                                                                                                                                                                                                                         
|4.1.2          | (b) | 4.3.2          |  | Series Supplement dated as of January 31, 2001
  between PSE&G Transition Funding LLC and The Bank of New York                                                                                                                                          
|               |     |                |  |                                                                                                                                                                                                                                                         
|4.2            | (a) | 4.4            |  | Form of Transition Bonds                                                                                                                                                                                                                                
|               |     |                |  |                                                                                                                                                                                                                                                         
|10.1           | (b) | 10.1           |  | Bondable Transition Property Sale Agreement dated as
  of January 31, 2001 between Public Service Electric and Gas Company and
  PSE&G Transition Funding LLC                                                                                           
|               |     |                |  |                                                                                                                                                                                                                                                         
|10.2           | (b) | 10.2           |  | Servicing Agreement dated as of January 31, 2001
  between PSE&G Transition Funding LLC and Public Service Electric and Gas
  Company                                                                                                                   
|               |     |                |  |                                                                                                                                                                                                                                                         
|10.3           | (a) | 10.3           |  | Petition of PSE&G to the State of New Jersey
  Board of Public Utilities, dated June 8, 1999                                                                                                                                                            
|               |     |                |  |                                                                                                                                                                                                                                                         
|10.4           | (a) | 10.4           |  | Financing Order of the BPU issued September 17, 1999                                                                                                                                                                                                    
|               |     |                |  |                                                                                                                                                                                                                                                         
|25.1           | (a) | 25.1           |  | Statement of Eligibility under the Trust Indenture
  Act of 1939, as amended, of The Bank of New York, as Trustee under the
  Indenture                                                                                                                 
|               |     |                |  |                                                                                                                                                                                                                                                         
|31             |     |                |  | Certification by Robert E. Busch, Chief Executive
  Officer and Chief Financial Officer of PSE&G Transition Funding LLC
  Pursuant to Rules 13a  14 and 15d  14 of the Securities Exchange Act of
  1934                                              
|               |     |                |  |                                                                                                                                                                                                                                                         
|32             |     |                |  | Certification by Robert E. Busch, Chief Executive
  Officer and Chief Financial Officer of PSE&G Transition Funding LLC
  Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code                                                  
|               |     |                |  |                                                                                                                                                                                                                                                         
|99.1           | (a) | 99.1           |  | Final BPU restructuring order issued August 24, 1999                                                                                                                                                                                                    
|               |     |                |  |                                                                                                                                                                                                                                                         
|99.2           | (a) | 99.2           |  | Internal Revenue Service Private Letter Ruling
  pertaining to Transition Bonds                                                                                                                                                                         

|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Filed by Transition Funding with Registration
  Statement No. 333-83635 under the Securities Act of 1933, effective January
  23, 2001, relating to the issuance of $2,525,000,000 Transition Bonds.
|(b) | Filed by Transition Funding with Form 8-K under the
  Securities Exchange Act of 1934, on February 7, 2001.                                                                                         

22

---



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 LLC
| |                               
| | By                             | /s/
  ROBERT E. BUSCH               
| |                                |                                     
| |                                | Robert
  E. Busch                   
| |                                | President,
  Chief Executive Officer
| |                                | and
  Chief Financial Officer       

Date: March 20, 2006

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/ | ROBERT
  E. BUSCH     |  | President, Chief Executive Officer,
  Chief Financial Officer and Manager
  (Principal Executive Officer and 
  Principal Financial Officer) | March 20, 2006
|    |                       | 
|    | Robert E. Busch       | 
|    |                       | 
|    |                       |  |                                                                                                                                              |               
|/s/ | MORTON
  A. PLAWNER   |  | Vice President, Treasurer and Manager                                                                                                        | March 20, 2006
|    |                       | 
|    | Morton A. Plawner     | 
|    |                       | 
|    |                       |  |                                                                                                                                              |               
|/s/ | PATRICIA
  A. RADO    |  | Controller
  (Principal Accounting Officer)                                                                                                  | March 20, 2006
|    |                       | 
|    | Patricia A. Rado      | 
|    |                       | 
|    |                       |  |                                                                                                                                              |               
|/s/ | R.
  EDWIN SELOVER    |  | Manager                                                                                                                                      | March 20, 2006
|    |                       | 
|    | R. Edwin Selover      | 
|    |                       | 
|    |                       |  |                                                                                                                                              |               
|/s/ | BENJAMIN
  B. ABEDINE |  | Manager                                                                                                                                      | March 20, 2006
|    |                       | 
|    | Benjamin B. Abedine   | 
|    |                       | 
|    |                       |  |                                                                                                                                              |               
|/s/ | ORLANDO
  FIGUEROA    |  | Manager                                                                                                                                      | March 20, 2006
|    |                       | 
|    | Orlando Figueroa      | 
|    |                       | 

23

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EXHIBIT
INDEX

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 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 LLC
  Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

24

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