================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, 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, 2001

                                       OR

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


Commission         Registrant, State of Incorporation,         I.R.S. Employer
File Number          Address, and Telephone Number            Identification No.
-----------   -------------------------------------------     ------------------
333-83635              PSE&G Transition Funding LLC                22-3672053
                  (A Delaware limited liability company)
                           80 Park Plaza - T4D
                              P.O. Box 1171
                      Newark, New Jersey 07102-1171
                              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

               Documents incorporated by reference: Not Applicable


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 [ ]

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  the  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.

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<PAGE>
                          PSE&G TRANSITION FUNDING LLC
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I
Item 1.   Business.........................................................   1
Item 2.   Properties.......................................................   2
Item 3.   Legal Proceedings................................................   2
Item 4.   Submission of Matters to a Vote of Security Holders..............   2

PART II
Item 5.   Market for Registrant's Common Equity and Related Stockholder
            Matters........................................................   3
Item 6.   Selected Financial Data..........................................   3
Item 7.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations..........................................   3
          Forward Looking Statements.......................................   4
Item 7A.  Qualitative and Quantitative Disclosures About Market Risk.......   4
Item 8.   Financial Statements.............................................   4
          Notes to Financial Statements....................................   9
          Independent Auditors' Reports....................................  13
Item 9.   Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure...........................................  14

PART III
Item 10.  Directors and Executive Officers of the Registrants..............  14
Item 11.  Executive Compensation...........................................  14
Item 12.  Security Ownership of Certain Beneficial Owners and Management...  14
Item 13.  Certain Relationships and Related Transactions...................  14

PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..  14
          Signatures.......................................................  15

<PAGE>
                                     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 solely to purchase Public Service Electric and Gas Company's
(PSE&G)  bondable  transition  property  (BTP) as provided  for in the  bondable
stranded  cost  rate  order  (Finance   Order),   discussed   below.  We  are  a
bankruptcy-remote financing entity and are a direct wholly-owned special purpose
subsidiary of PSE&G, an operating public utility company engaged  principally in
the  transmission,  distribution  and sale of electric energy and gas service in
New  Jersey.  PSE&G is a  direct,  wholly-owned  subsidiary  of  Public  Service
Enterprise Group Incorporated (PSEG).

     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 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 transition bonds (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  transition  bond  proceeds  to  retire
outstanding debt and/or equity.

     On January 31, 2001, we issued $2.525 billion of transition  bonds in eight
classes with maturities ranging from 1 year to 15 years. The net proceeds of the
issuance  were  utilized  to  acquire  PSE&G's  property  right in the TBC.  The
transition  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:

     o    the interest,  fees, expenses,  costs, charges, credit enhancement and
          premiums, if any, associated with the transition bonds, and

     o    the principal amount of the transition 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, as provided for in
the Finance  Order,  were  capitalized  and will be recovered on a  subordinated
basis by PSE&G  through the TBC.  The TBC rate became  effective  on February 7,
2001, in accordance with the Final Order.

     As the TBC is a usage-based charge based on access to PSE&G's  transmission
and distribution  system,  the customers will be assessed  regardless of whether
the customers purchase  electricity from PSE&G or a third party supplier.  Also,
if on-site generation  facilities that are connected to PSE&G's transmission and
distribution system produce power that is delivered to off-site retail customers
in New Jersey,  the  transition  bond charge  applies to the sale or delivery of
that power.
<PAGE>
     Payments are made to the  bondholders on a quarterly  basis.  Principal and
interest on the transition bonds and the excess issuance costs will be paid from
the following sources:

     o    TBC collections remitted by the servicer (PSE&G) to the issuer (us)

     o    amounts from any third party credit enhancement

     o    investment earnings on amounts held in accounts  established under the
          indenture agreement

     o    amounts payable to the issuer under any interest rate swap agreements

     o    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 transition 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  concurrently  with the issuance of the first Series of Bonds,  PSE&G, as
servicer,  is required to collect the TBC on behalf of us. We will 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. Interest earned on
funds  in the  Capital  Subaccount  results  in Net  Income  for us and  will be
periodically dividended to PSE&G.

ITEM 2.  PROPERTIES

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

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.


<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     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

     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  attached
hereto.

     On January 31, 2001, we issued $2.525 billion of transition  bonds in eight
classes with maturities ranging from 1 year to 15 years. The net proceeds of the
issuance were utilized to acquire PSE&G's property right in the TBC (see Item 1.
Business).  We use  collections  of the  TBC to  make  scheduled  principal  and
interest   payments  on  the  transition  bonds  and  to  cover  any  additional
administrative costs.

Results of Operations

     From  February 7, 2001  through  December  31,  2001,  we recorded  revenue
generated  from TBC of  approximately  $246  million,  amortization  expense  of
approximately  $91  million,  servicing  fees of  approximately  $1 million  and
interest  expense of  approximately  $154  million.  Interest  expense  includes
approximately  $147 million of interest on the Bonds, $1 million of amortization
of deferred  issuance costs and $6 million of interest  related to an obligation
to PSE&G.  (See Note 1.  Organization,  Basis of  Presentation  and  Significant
Accounting Policies, for a description of each item).

Liquidity and Capital Resources

     The  principal  amount of the  Bonds,  interest,  fees and  funding  of the
overcollateralization  subaccount are being recovered through the TBC payable by
retail  customers of electricity  within PSE&G's  service  territory who receive
electric  delivery  service  from PSE&G.  As part of PSE&G's  responsibility  as
servicer under the Servicing Agreement,  PSE&G remits the TBC collections to the
Trustee to make  scheduled  payments on the Bonds.  During 2001 payments of bond
principal,  interest  and all  related  expenses  were  made by the  Trustee  on
September 17, 2001 and December 17, 2001 totalling approximately $201 million.

     The payments  were  primarily  funded from our TBC  collections,  partially
supplemented by  approximately  $0.7 million,  net of  replenishments,  from the
capital subaccount.  In addition,  scheduled payments to PSE&G for debt issuance
costs  were  deferred  as  TBC  collections  were   insufficient  to  meet  this
intercompany  payment and these costs are  subordinate to the Bonds. In December
2001,  we  filed  for an  increase  to the TBC rate as part of our  annual  rate
true-up, effective in January 2002, which was approved by the BPU. The increased
TBC  rate  is   designed  to   replenish   the   Capital   Subaccount   and  the
Overcollateralization  account  and enable us to meet our  scheduled  payment to
PSE&G.
<PAGE>
Critical Accounting Policies

     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.

                           FORWARD LOOKING STATEMENTS

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

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

ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     The market risk  inherent in our  transition  bonds is the  potential  loss
arising from adverse changes in interest rates. We have entered into an interest
rate swap on our sole class of floating rate (Class A-4)  transition  bonds (see
Note 2. The Bonds).  The interest  rate swap  effectively  converts the existing
floating rate debt into fixed rate borrowings at 6.2875%.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>

                          PSE&G TRANSITION FUNDING LLC
                               STATEMENT OF INCOME
                             (THOUSANDS OF DOLLARS)

                                                          For the Year Ended
                                                           December 31, 2001
                                                         ---------------------
OPERATING REVENUES                                        $        246,496

OPERATING EXPENSES
   Amortization of Bondable Transition Property                     91,295
   Servicing and Administrative Fees                                 1,290
                                                         ---------------------
       Total Operating Expenses                                     92,585
                                                         ---------------------
OPERATING INCOME                                                   153,911
Interest Expense-Net                                              (153,548)
                                                         ---------------------
NET INCOME                                                $            363
                                                         =====================

See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                          PSE&G TRANSITION FUNDING LLC
                                 BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)


                                                           December 31,             December 31,
                                                               2001                     2000
                                                       ---------------------     -------------------
<S>                                                    <C>                       <C>
ASSETS
   Current Assets:
       Cash                                            $                363      $                1
       Restricted Cash                                               11,935                      --
     Receivable from Member                                          52,286                      --
                                                       ---------------------     -------------------
       Total Current Assets                                          64,584                       1
                                                       ---------------------     -------------------

   Noncurrent Assets:
      Bondable Transition Property                                2,433,705                      --
      Deferred Issuance Costs                                       103,245                  36,619
     Regulatory Assets                                               19,858                      --
                                                       ---------------------     -------------------
       Total Noncurrent Assets                                    2,556,808                  36,619
                                                       ---------------------     -------------------
TOTAL ASSETS                                           $          2,621,392      $           36,620
                                                       =====================     ===================

LIABILITIES
   Current Liabilities:
     Current Portion of Long-Term Debt                 $            120,455      $               --
     Current Portion of Payable to Member                             4,757                  36,619
     Overcollateralization                                              780                      --
     Accrued Interest                                                12,856                      --
                                                       ---------------------     -------------------
       Total Current Liabilities                                    138,848                  36,619
                                                       ---------------------     -------------------

   Long-Term Liabilities:
     Long-Term Debt                                               2,351,156                      --
     Derivative Liability                                            18,492                      --
     Payable to Member                                               99,908                      --
                                                       ---------------------     -------------------
       Total Long-Term Liabilities                                2,469,556                      --
                                                       ---------------------     -------------------
TOTAL LIABILITIES                                                 2,608,404                  36,619
                                                       ---------------------     -------------------

MEMBER'S EQUITY
     Contributed Capital                                             12,625                       1
       Retained Earnings                                                363                      --
                                                       ---------------------     -------------------
       Total Member's Equity                                         12,988                       1
                                                       ---------------------     -------------------
TOTAL LIABILITIES AND MEMBER'S EQUITY                  $          2,621,392      $           36,620
                                                       =====================     ===================
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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



                                                                                         For the Year Ended
                                                                                            December 31,
                                                                                  2001                        2000
                                                                          ----------------------     -----------------------
<S>                                                                      <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                             $                363       $                  --
   Adjustments to reconcile net income to net cash flows from
operating activities:
   Amortization of Bondable Transition Property                                         91,295                          --
   Amortization of Deferred Issuance Costs                                               1,314                          --
   Net Changes in Certain Current Assets and Liabilities:
     Restricted Cash                                                                   (11,935)                         --
     Receivable from Member                                                            (52,286)                         --
       Payable to Member                                                                68,046                      36,619
     Overcollateralization                                                                 780                          --
     Accrued Interest                                                                   12,856                          --
   Other                                                                                (1,366)                         --
                                                                          ----------------------     -----------------------
     Net Cash Provided By Operating Activities                                         109,067                      36,619
                                                                          ----------------------     -----------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of Bondable Transition Property                                         (2,525,000)                         --
                                                                          ----------------------     -----------------------
     Net Cash Used in Investing Activities                                          (2,525,000)                         --
                                                                          ----------------------     -----------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Issuance of Long-Term Debt                                                        2,525,000                          --
   Repayment of Long-Term Debt                                                         (53,389)                         --
   Deferred Issuance Costs                                                             (67,940)                    (36,619)
   Contributed Capital                                                                  12,624                           1
                                                                          ----------------------     -----------------------
     Net Cash Provided By (Used In) Financing Activities                             2,416,295                     (36,618)
                                                                          ----------------------     -----------------------
Net Change in Cash and Cash Equivalents                                                    362                           1
Cash and Cash Equivalents at Beginning of Period                                             1                          --
                                                                          ----------------------     -----------------------
Cash and Cash Equivalents at End of Period                                $                363       $                   1
                                                                          ======================     =======================
Interest Paid                                                             $            140,658       $                  --

See Notes to Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                          PSE&G TRANSITION FUNDING LLC
                          STATEMENT OF MEMBER'S EQUITY
                             (THOUSANDS OF DOLLARS)


                                             Contributed Capital      Retained Earnings        Total
                                             -------------------      -----------------   ---------------
<S>                                          <C>                      <C>                 <C>
Balance as of January 1, 2000                $                --      $              --   $            --
     Net Income                                               --                     --                --
     Contributed Capital                                       1                     --                 1
                                             --------------------     -----------------   ---------------
Balance as of December 31, 2000                                1                     --                 1
                                             --------------------     -----------------   ---------------
     Net Income                                               --                    363               363
     Contributed Capital                                  12,624                     --            12,624
                                             --------------------     -----------------   ---------------
Balance as of December 31, 2001              $            12,625      $             363   $        12,988
                                             ====================     =================   ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
                          PSE&G TRANSITION FUNDING LLC
                          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,
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 of PSE&G (BTP),  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
customers  pursuant to a bondable stranded cost rate order (Finance Order),  and
rate unbundling and restructuring  proceedings (Final Order),  which were issued
on September 17, 1999 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. The Finance Order  authorizes the TBC to be sufficient
to recover $2.525 billion  aggregate  principal amount of Bonds,  plus an amount
sufficient  to provide for any credit  enhancement,  to fund any reserves and to
pay interest,  redemption  premiums,  if any,  servicing fees and other expenses
relating to the Bonds.

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

Basis of Presentation

     The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.

Significant Accounting Policies

     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.
<PAGE>
     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. Also, as required by the
Finance  Order,  we deposited  an amount equal to 0.5% of the initial  principal
amount of the Series

     2000-1 Bonds into the Capital Subaccount with the Trustee.  This amount was
contributed  by PSE&G to us. This account is the last account drawn in the event
funds are insufficient to make scheduled allocations.  If the Capital Subaccount
is used,  it will be  replenished  from TBC  remittances  to its original  level
through the periodic  reconciliation process.  Accordingly,  the TBC collections
remitted to the Trustee,  including  interest earned related to these funds, and
the funds  deposited  into the Capital  Subaccount are classified as "Restricted
Cash" on the  Balance  Sheet.  During  the year,  approximately  a total of $0.3
million,  net of  replenishments,  of the $12.6 million deposited in the Capital
Subaccount were used to fund scheduled debt payments.

     Bondable Transition Property

     The 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

     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. In addition,  Regulatory  Assets include amounts to
be recovered to replenish the Capital  Subaccount and the  Overcollateralization
funds which are used for  supplementing  debt payments when there is a shortfall
in TBC collections.

     Overcollateralization

     The overcollateralization account is funded ratably from collections of TBC
over the term of each  series of  transition  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 and include  estimates for
usage not yet billed.

     Amortization Expense

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

     Interest Expense

     Interest Expense consists  primarily of accrued interest on the Bonds. Also
included in Interest Expense is the amortization of the deferred  issuance costs
and  related  interest  on the  obligation  to  PSE&G.  Interest  earned  on TBC
collections  deposited  with the  Trustee is netted  against  Interest  Expense.
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 will result in Net Income for us and will be periodically  dividended
to PSE&G.
<PAGE>
     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.

     Accounting Matters

     Statement  of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities" (SFAS 133) is effective for all
fiscal years beginning  after June 15, 2000.  SFAS 133, as amended,  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts,  and for hedging activities.
Under SFAS 133, certain contracts that were not formerly considered  derivatives
may now meet the  definition  of a  derivative.  We adopted  SFAS 133  effective
January  1,  2001  and  there  was  no  transition  adjustment  to  record.  For
information relating to our interest rate swap agreement, see Note 2. The Bonds.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  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 maturities  ranging from one year to fifteen years. The net proceeds of the
issuance were remitted to PSE&G as  consideration  for the property right in the
TBC.

     The  significant  terms of the Bonds  issued by  Transition  Funding  as of
December 31, 2001 are as follows:

<TABLE>
<CAPTION>
            ============== ========= =============  =========== ============= ============== ============  =========
               Initial                Proceeds to    Payments      Current       Noncurrent   Expected      Final
              Principal     Interest  Transition      Made On      Portion        Portion       Final      Maturity
               Balance       Rate     Funding LLC      Bonds     Outstanding    Outstanding  Payment Date    Date
    ======= ============== ========= =============  =========== ============= ============== ============  =========
<S>          <C>            <C>      <C>            <C>           <C>         <C>              <C>          <C>
    Class     $105,249,914   5.46%     $104,881,454 $53,388,644   $51,861,270             __   6/15/02      6/15/04
    A-1
    Class     $368,980,380   5.74%     $367,464,694          __   $68,593,784   $300,386,596   3/15/05      3/15/07
    A-2
    Class     $182,621,909   5.98%     $181,746,628          __            __   $182,621,909   6/15/06      6/15/08
    A-3
    Class     $496,606,425   LIBOR +   $494,123,393          __            __   $496,606,425   6/15/09      6/15/11
    A-4                      0.30%
    Class     $328,032,965   6.45%     $326,306,606          __            __   $328,032,965   3/15/11      3/15/13
    A-5
    Class     $453,559,632   6.61%     $450,969,960          __            __   $453,559,632   6/15/13      6/15/15
    A-6
    Class     $219,688,870   6.75%     $218,219,850          __            __   $219,688,870   6/15/14      6/15/16
    A-7
    Class     $370,259,905   6.89%     $367,732,325          __            __   $370,259,905  12/15/15     12/15/17
    A-8
    Total   $2,525,000,000           $2,511,444,910 $53,388,644  $120,455,054 $2,351,156,302
    ======= ============== ========= ============== ===========  ============ ============== ============  =========
</TABLE>

     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  $(18) million
as of December  31, 2001 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 and is expected to be recovered through the TBC.

<PAGE>

     We have incurred approximately $230 million in issuance costs in connection
with  the  securitization  transaction,  including  $201  million  of costs of a
hedging  arrangement as permitted by the Finance  Order.  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%.  The TBC  rate  became
effective on February 7, 2001, in accordance with the Final Order.

     Under  applicable  law, the Bonds are not an obligation of PSE&G or secured
by  the  assets  of  PSE&G,  rather  the  Bonds  are  recourse  to  us  and  are
collateralized  on a pro rata basis by the BTP and our equity  and  assets.  The
source of repayment  will be the TBC.  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.

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. The fee was approximately
$1.2 million from the bond issuance through  December 31, 2001.  Interest earned
on funds in the  Capital  Subaccount  results  in Net  Income for us and will be
periodically dividended to PSE&G.

     As of December 31, 2001,  we had a receivable  from our member,  PSE&G,  of
approximately  $52 million  relating to TBC billings.  Also at December 31, 2001
our payable to our member was  approximately  $104 million  which 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.  Scheduled  payments to PSE&G for excess
issuance costs which were deferred as TBC collections were  insufficient to meet
this intercompany payment and these costs are subordinate to the Bonds.
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Managers of PSE&G Transition Funding LLC:

     We have audited the accompanying balance sheets of PSE&G Transition Funding
LLC (the  "Company")  as of  December  31,  2001 and  December  31, 2000 and the
related  statement  of  income  for the year  ended  December  31,  2001 and the
statements  of  member's  equity and cash flows for each of the two years in the
period  ended   December  31,  2001.   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  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  such financial  statements present fairly, in all material
respects,  the  financial  position of the  Company as of December  31, 2001 and
December 31, 2000, the results of its operations for the year ended December 31,
2001 and its cash flows for each of the two years in the period  ended  December
31, 2001, in conformity with  accounting  principles  generally  accepted in the
United States of America.


DELOITTE & TOUCHE LLP
February 15, 2002

<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         NONE.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

     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

     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.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (A) The following documents are filed as part of this report:

         PSE&G Transition  Funding  LLC  Statement  of Income  for the year
         ended December 31, 2001 on page 5.

         PSE&G Transition Funding LLC Balance Sheets as of December 31, 2001
         and 2000 on page 6.

         PSE&G Transition  Funding LLC Statements of Cash Flows for the years
         ended December 31, 2001 and 2000 on page 7.

         PSE&G Transition Funding LLC Statements of Member's Equity for the
         years ended December 31, 2001 and 2000 on page 8.

         PSE&G Transition Funding LLC Notes to Financial Statements on pages 9
         through 12.

(B)      The following reports on Form 8-K were filed during the period covered
         by this report under the terms indicated:

                Date of Report                       Items Reported
                ----------------                     --------------
                January 25, 2001                     Items 5 and 7
                February 7, 2001                     Items 5 and 7

<PAGE>
                                   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:           ROBERT E. BUSCH
                   ------------------------------------------
                                 Robert E. Busch
                        President, Chief Executive Officer
                           and Chief Financial Officer

Date: March 6, 2002

     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
---------               -----                                 ----

ROBERT E. BUSCH         President, Chief Executive Officer,   March 6, 2002
--------------------    Chief Financial Officer and Manager
Robert E. Busch         (Principal Executive Officer and
                         Principal Financial Officer)

MORTON A. PLAWNER       Vice President, Treasurer             March 6, 2002
--------------------    and Manager
Morton A. Plawner


PATRICIA A. RADO        Controller                            March 6, 2002
--------------------    (Principal Accounting Officer)
Patricia A. Rado


R. EDWIN SELOVER        Manager                               March 6, 2002
--------------------
R. Edwin Selover


BENJAMIN B. ABEDINE     Manager                               March 6, 2002
--------------------
Benjamin B. Abedine


DEAN A. CHRISTIANSEN    Manager                               March 6, 2002
--------------------
Dean A. Christiansen