UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q
(Mark One)
[ X ]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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.
--------------------------------------------------------------------------------

   000-32503           PSEG ENERGY HOLDINGS INC.              22-2983750
                       (A New Jersey Corporation)
                           80 Park Plaza-T22
                     Newark, New Jersey 07102-4194
                              973-456-3581
                          HTTP://WWW.PSEG.COM

    Indicate  by check  mark  whether  the  registrant  (1) has  filed all
    reports  required to be filed by Section 13 or 15(d) of the Securities
    Exchange  Act of 1934  during  the  preceding  12 months  (or for such
    shorter period that the registrant was required to file such reports),
    and (2) has been subject to such filing  requirements  for the past 90
    days. Yes [ ] No [X]

    Registrant is a wholly-owned  subsidiary of Public Service  Enterprise
    Group  Incorporated.  Registrant  meets  the  conditions  set forth in
    General  Instruction H (1) (a) and (b) of Form 10-Q and is filing this
    Quarterly  Report  on Form  10-Q with the  reduced  disclosure  format
    authorized by General Instruction H.


<PAGE>
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                            PSEG ENERGY HOLDINGS INC.
================================================================================


                                TABLE OF CONTENTS


                                                                            PAGE
PART I.  FINANCIAL INFORMATION

   Item 1. Financial Statements ...........................................   1

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations ............................  13

PART II.  OTHER INFORMATION

   Item 1. Legal Proceedings ..............................................  20

   Item 5. Other Information ..............................................  20

   Item 6. Exhibits and Reports on Form 8-K ...............................  20

   Signature ..............................................................  21



<PAGE>




================================================================================
                            PSEG ENERGY HOLDINGS INC.
================================================================================


                          PART I. FINANCIAL INFORMATION
                          -----------------------------

                          ITEM 1. FINANCIAL STATEMENTS





<PAGE>



                            PSEG ENERGY HOLDINGS INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                              (MILLIONS OF DOLLARS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED  SIX MONTHS ENDED
                                                                  JUNE 30,          JUNE 30,
                                                              --------------    --------------
                                                               2001     2000     2001     2000
                                                              -----    -----    -----    -----
OPERATING REVENUES
<S>                                                           <C>      <C>      <C>      <C>
   Income from Joint Ventures and Partnerships ............   $  28    $  31    $  61    $  61
   Energy Service Revenues ................................     105       80      203      150
   Energy Supply Revenues .................................      --       21       --       58
   Income from Capital and Operating Leases ...............      51       37       98       75
   Interest and Dividend Income ...........................       9        2       14        4
   Gain on Withdrawal from Partnership ....................      --       --       51       --
   Net Investment Gains (Losses) ..........................      (1)     (12)     (15)      18
   Other ..................................................       7        8       12       19
                                                              -----    -----    -----    -----
       Total Operating Revenues ...........................     199      167      424      385
                                                              -----    -----    -----    -----
OPERATING EXPENSES
   Cost of Energy Sales ...................................      --       25       --       58
   Restructuring Charge ...................................      --       --       --        7
   Operation and Maintenance ..............................     104       75      199      140
   Depreciation and Amortization ..........................       4        3        7        6
   Administrative and General .............................      37       29       65       60
                                                              -----    -----    -----    -----
       Total Operating Expenses ...........................     145      132      271      271
                                                              -----    -----    -----    -----
OPERATING INCOME ..........................................      54       35      153      114
OTHER INCOME ..............................................       1       --        3        2
INTEREST EXPENSE - NET ....................................     (37)     (36)     (75)     (72)
                                                              -----    -----    -----    -----
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM
   AND CUMULATIVE EFFECT OF A CHANGE IN
   ACCOUNTING PRINCIPLE ...................................      18       (1)      81       44
INCOME TAXES ..............................................      (1)       1      (11)     (13)
Minority Interests ........................................      --        1       --        1
                                                              -----    -----    -----    -----
INCOME BEFORE EXTRAORDINARY ITEM
   AND CUMULATIVE EFFECT OF A CHANGE IN
   ACCOUNTING PRINCIPLE ...................................      17        1       70       32
Extraordinary Loss on Early Retirement of Debt (net of tax)      --       --       (2)      --
Cumulative Effect of a Change in Accounting Principle (net of
tax)                                                             --       --        9       --
                                                              -----    -----    -----    -----
NET INCOME ...................................................   17        1       77       32
Preferred Stock Dividend Requirements.........................   (5)      (6)     (11)     (13)
                                                              -----    -----    -----    -----
EARNINGS (LOSS) AVAILABLE TO PUBLIC
   SERVICE ENTERPRISE GROUP INCORPORATED......................$  12    $  (5)   $  66    $  19
                                                              =====    =====    =====    =====
</TABLE>


See Notes to Consolidated Financial Statements.


<PAGE>




                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (MILLIONS OF DOLLARS)


<TABLE>
<CAPTION>
                                                                                   (UNAUDITED)
                                                                                     JUNE 30,    DECEMBER 31,
                                                                                       2001         2000
                                                                                   -----------   ------------
CURRENT ASSETS
<S>                                                                                  <C>          <C>
   Cash and Cash Equivalents ....................................................    $    24      $    22
   Accounts Receivable:
     Trade, net of allowance for doubtful accounts -- 2001, $10; 2000, $5                184          132
     Other ......................................................................          1            4
     Affiliated Companies .......................................................         53           64
   Notes Receivable .............................................................         41           23
   Assets Held for Sale .........................................................         13           48
   Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts ..         32           27
   Other Current Assets .........................................................         19            7
                                                                                     -------      -------
       Total Current Assets .....................................................        367          327
                                                                                     -------      -------

PROPERTY, PLANT AND EQUIPMENT
   Real Estate ..................................................................        109          103
   Property, Plant and Equipment ................................................        341           69
   Construction in Progress .....................................................        374          172
                                                                                     -------      -------
        Total ...................................................................        824          344
   Accumulated Depreciation and Amortization ....................................       (104)         (51)
                                                                                     -------      -------
       Net Property, Plant and Equipment ........................................        720          293
                                                                                     -------      -------

INVESTMENTS
   Capital Leases - Net .........................................................      2,717        2,253
   Corporate Joint Ventures .....................................................      1,555        1,584
   Partnerships Interests .......................................................        634          575
   Other Investments ............................................................         74           71
                                                                                     -------      -------
       Total Investments ........................................................      4,980        4,483
                                                                                     -------      -------

OTHER ASSETS ....................................................................        173           95
                                                                                     -------      -------

   TOTAL ASSETS .................................................................    $ 6,240      $ 5,198
                                                                                     =======      =======
</TABLE>
See Notes to Consolidated Financial Statements



<PAGE>




                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                   (UNAUDITED)
                                                                                     JUNE 30,   DECEMBER 31,
                                                                                       2001         2000
                                                                                   -----------  ------------
CURRENT LIABILITIES
<S>                                                                                 <C>             <C>
   Long-Term Debt Due Within One Year........................................       $  242          $  267
   Short-Term Borrowings Due to PSEG.........................................          230              --
   Accounts Payable:
     Trade...................................................................           84              54
     Taxes..................................................................            15               5
     Interest...............................................................            46              31
     Other...................................................................           48              32
     Affiliated Companies....................................................            2               5
   Borrowings Under Lines of Credit..........................................          137             392
   Notes Payable.............................................................            5              91
   Billing in Excess of Costs and Estimated Earnings on Uncompleted Contracts           25              18
                                                                                    -------         -------
       Total Current Liabilities.............................................          834             895
                                                                                    -------         -------

NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC.............................................        1,159           1,071
   Other Noncurrent Liabilities..............................................           63              28
                                                                                    -------         -------
       Total Noncurrent Liabilities..........................................        1,222           1,099
                                                                                    -------         -------

COMMITMENTS AND CONTINGENT LIABILITIES.......................................           --              --
                                                                                    -------         -------

MINORITY INTERESTS...........................................................           48              23
                                                                                    -------         -------

CAPITALIZATION
   LONG-TERM DEBT............................................................        2,079           1,432
                                                                                    -------         -------

   STOCKHOLDER'S EQUITY
     Common Stock, Issued: 100 Shares........................................           --              --
     Preferred Stock.........................................................          509             509
     Additional Paid-in Capital..............................................        1,390           1,090
     Retained Earnings.......................................................          415             353
     Accumulated Other Comprehensive Loss....................................         (257)           (203)
                                                                                    -------         -------
       Total Stockholder's Equity............................................        2,057           1,749
                                                                                    -------         -------

TOTAL LIABILITIES AND CAPITALIZATION.........................................       $6,240          $5,198
                                                                                    =======         =======
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>



                            PSEG ENERGY HOLDINGS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (MILLIONS OF DOLLARS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                       SIX MONTHS ENDED
                                                                                           JUNE 30,
                                                                                    -----------------------
                                                                                     2001             2000
                                                                                    -------          -------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                 <C>              <C>
   Net Income.............................................................          $   77           $   32
   Adjustments to Reconcile Net Income to Net Cash Flows from
      Operating Activities:
     Depreciation and Amortization........................................               5               12
     Deferred Income Taxes (Other than Leases)............................              (6)              (1)
     Leveraged Lease Income, Adjusted for Rents Received..................              35               --
     Investment Distributions.............................................              41               32
     Undistributed Earnings from Affiliates...............................             (46)              (3)
     Net Gains on Investments.............................................             (36)             (18)
     Proceeds from Withdrawal from Partnership............................              50               --
     Cumulative Effect of a Change in Accounting Principle................              (9)              --
     Non-Cash Portion of Restructuring Charge.............................              --                5
     Net Changes in Certain Current Assets and Liabilities:
       Accounts Receivable...............................................              (47)             (87)
       Taxes Payable......................................................               9                1
       Accounts Payable...................................................              34               66
       Interest Payable...................................................              15               10
       Other Current Assets and Liabilities...............................              13              (30)
     Other................................................................               3                6
                                                                                    -------          -------
     Net Cash Provided by Operating Activities............................             138               25
                                                                                    -------          -------

CASH FLOWS FROM INVESTING ACTIVITIES
   (Investments in) Return of Capital from Partnerships and Joint Ventures             (79)              10
   Investments in Capital Leases..........................................            (392)             (77)
   Additions to Property, Plant and Equipment.............................             (62)              (5)
   Acquisitions, Net of Cash Provided.....................................            (112)             (13)
   Proceeds from Sales of Capital Leases..................................              --                9
   Other..................................................................             (87)               1
                                                                                    -------          -------
     Net Cash Used in Investing Activities................................            (732)             (75)
                                                                                    -------          -------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from Additional Paid-in Capital...............................             300               --
   Net Decrease in Short-Term Debt........................................            (381)            (109)
   Net Increase (Decrease) in Short-Term Intercompany Borrowings..........             230               (2)
   Proceeds from Long-Term Debt...........................................             622              298
   Repayment of Long-Term Debt...........................................             (160)            (154)
   Cash Dividends Paid...................................................              (15)             (17)
   Other.................................................................               --                7
                                                                                    -------          -------
     Net Cash Provided by Financing Activities............................             596               23
                                                                                    -------          -------
Net Change in Cash and Cash Equivalents...................................               2              (27)
Cash and Cash Equivalents at Beginning of Period..........................              22               43
                                                                                    -------          -------
Cash and Cash Equivalents at End of Period................................          $   24           $   16
                                                                                    =======          =======

Supplemental Disclosure of Cash Flow Information:
     Cash Payments During the Period for:
       Income Tax.........................................................          $  (32)          $  (52)
       Interest...........................................................          $   24           $   39
Non-Cash Financing Activities:
       Debt Assumed from Companies Acquired..............................           $  176           $    9
</TABLE>

See Notes to Consolidated Financial Statements.

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                            PSEG ENERGY HOLDINGS INC.
================================================================================

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

     PSEG Energy Holdings Inc. (Energy Holdings), incorporated under the laws of
the State of New Jersey with its principal  executive offices located at 80 Park
Plaza,  Newark, New Jersey 07102 is a direct  wholly-owned  subsidiary of Public
Service  Enterprise  Group  Incorporated  (PSEG).   Energy  Holdings  has  three
principal direct  wholly-owned  subsidiaries;  PSEG Global Inc.  (Global),  PSEG
Resources  Inc.   (Resources)  and  PSEG  Energy   Technologies   Inc.   (Energy
Technologies).

     In the first quarter of 2001,  Global increased its interest in an electric
generation  facility  in India from 49% to 74%.  In the second  quarter of 2001,
Global increased its interest in an electric  distribution facility in Argentina
from 41% to 90%.  The  accounts  of  Global  include  the  assets,  liabilities,
revenues and expenses of majority-owned subsidiaries over which Global exercises
control and for which control is other than temporary.

     The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange  Commission (SEC).  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted  pursuant to such rules and  regulations.  However,  in the
opinion of  management,  the  disclosures  are adequate to make the  information
presented not misleading.  These Consolidated Financial Statements  (Statements)
and  Notes  to  Consolidated  Financial  Statements  (Notes)  should  be read in
conjunction  with Energy  Holdings' Notes contained in its 2000 Annual Report on
Form 10-K and  Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,
2001.  These Notes update and  supplement  matters  discussed in the 2000 Annual
Report on Form 10-K and the Quarterly  Report on Form 10-Q for the quarter ended
March 31, 2001.

     The unaudited  financial  information  furnished  reflects all  adjustments
which are, in the opinion of  management,  necessary to fairly state the results
for the interim periods presented. The year-end consolidated balance sheets were
derived from the audited consolidated  financial statements included in the 2000
Annual Report on Form 10-K. Certain  reclassifications of prior period data have
been made to conform with the current presentation.

NOTE 2.  RECENT ACCOUNTING PRONOUNCEMENTS

     On  January  1,  2001,  Energy  Holdings  adopted  Statement  of  Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Instruments and
Hedging  Activities",  as amended,  and recorded a cumulative effect to earnings
and other comprehensive income of $9 million and $(15) million, respectively. As
of June 30,  2001,  the fair  value of Energy  Holdings'  derivative  assets and
liabilities were $30 million and $33 million,  respectively.  The fair values of
such derivative assets and liabilities were recorded on the consolidated balance
sheet in Other Assets and Other Noncurrent Liabilities, respectively. As of June
30, 2001,  Energy Holdings recorded a net decrease of $8 million in Partnerships
Interests to recognize its pro-rata share of net derivative liabilities recorded
by partnerships accounted for under the equity method.

     The Financial Accounting Standards Board (FASB) Derivative  Implementation
Group  (DIG)  issued  guidance,   effective  July  1,  2001,  regarding  certain
derivative contracts and eligibility of those contracts for the normal purchases
and normal  sales  exception.  Energy  Holdings  is  currently  evaluating  this
guidance in light of its potential  impacts and cannot predict the impact on its
financial  position of results of  operations,  however,  such  impact  could be
material.

     In July 2001 the FASB issued  SFAS No. 141  "Business  Combinations"  (SFAS
141), and SFAS No. 142,  "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires business combinations initiated after June 30, 2001 to be accounted
for using the  purchase  method of  accounting,  and  broadens  the criteria for
recording  intangible  assets  separate  from  goodwill.  Recorded  goodwill and
intangibles  will be  evaluated  against  this new  criteria  and may  result in
certain  intangibles  being subsumed into goodwill,  or  alternatively,  amounts

<PAGE>
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                            PSEG ENERGY HOLDINGS INC.
================================================================================

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED


initially  recorded  as  goodwill  may  be separately  identified and recognized
apart from goodwill. SFAS 142 requires the use of a nonamortization  approach to
account for purchased goodwill and certain intangibles.  Under a nonamortization
approach, goodwill and certain intangibles will not be amortized into results of
operations,  but instead would be reviewed for  impairment  and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is deemed to be impaired.  The provisions of
each statement  which apply to goodwill and intangible  assets acquired prior to
June 30,  2001 will be adopted  by Energy  Holdings  on January 1, 2002.  Energy
Holdings  expects the  adoption  of these  accounting  standards  will result in
certain of its intangibles being subsumed into goodwill and will have the impact
of reducing its amortization of goodwill and intangibles  commencing  January 1,
2002;  however,  impairment  reviews may result in future periodic  write-downs.
Acquisitions  made subsequent to June 30, 2001 will treat goodwill  consistently
with the standards prescribed by the transition rules.

     Also in July 2001,  the FASB  issued SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations"  (SFAS  143).  Under  SFAS  143,  the  fair  value of a
liability for an asset retirement obligation should be recorded in the period in
which it is incurred. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 is effective  for fiscal years  beginning  after June 15, 2002.  Energy
Holdings is currently  evaluating this guidance and cannot predict the impact on
its financial position or results of operations,  however,  such impact could be
material.

NOTE 3.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

EQUITY SECURITIES

     Resources has  investments in equity  securities and limited  partnerships.
Resources carries its investments in equity securities at their approximate fair
value  as of the  reporting  date.  Consequently,  the  carrying  value of these
investments  is  affected  by  changes  in the  fair  value  of  the  underlying
securities.  Fair value is  determined  by  adjusting  the  market  value of the
securities for liquidity and market volatility factors,  where appropriate.  The
aggregate fair values of such  investments  which had available market prices at
June  30,  2001  and  December  31,  2000  were $65  million  and $115  million,
respectively.  The decrease in fair value was  primarily  due to the sale of its
interest in an equity security which had a book value of $30 million on December
31, 2000 and a decline in the  valuation of publicly  traded  equity  securities
within its leveraged  buyout funds. The potential change in fair value resulting
from a  hypothetical  10% change in quoted  market  prices of these  investments
amounted to $5 million and $9 million at June 30, 2001 and  December  31,  2000,
respectively.

     In  August  2001,  Resources  received  $30  million  from  the sale of its
interest in an equity security within its leveraged buyout fund which had a book
value of $31 million.

FOREIGN CURRENCIES

     As of June 30,  2001,  Global and  Resources  had  international  assets of
approximately $2.349 billion and $1.328 billion, respectively.

     Resources'  international  investments  are primarily  leveraged  leases of
assets  located in the  Netherlands,  Australia,  the United  Kingdom,  Austria,
Germany,  China and New Zealand with  associated  revenues  denominated  in U.S.
dollars ($US) and therefore, not subject to foreign currency risk.

     Global's international investments are primarily in companies that generate
or distribute  electricity in Argentina,  Brazil,  Chile,  China,  India, Italy,
Oman,  Peru,  Poland,  Tunisia and  Venezuela.  Investing  in foreign  countries
involves certain  additional  risks.  Economic  conditions that result in higher
comparative  rates of  inflation  in foreign  countries  are likely to result in
declining values in such countries' currencies.  As currencies fluctuate against
the $US, there is a corresponding  change in Global's  investment value in terms
of the  $US.  Such  change  is  reflected  as an  increase  or  decrease  in the
investment  value  and Other  Comprehensive  Income,  a  separate  component  of
Stockholder's  Equity.  As of June 30, 2001, net foreign  currency  devaluations
have reduced the reported amount of Energy Holdings' total Stockholder's  Equity
by $241 million (after-tax), $168 million (after-tax) of which was caused by the
devaluation of the Brazilian Real.

INTEREST RATES

     Energy Holdings is subject to the risk of fluctuating interest rates in the
normal  course of business.  Its policy is to manage  interest rate risk through
the use of fixed rate debt,  floating rate debt and interest  rate swaps.  As of
June 30, 2001, a hypothetical  10% change in market  interest rates would result
in a $4  million  change in annual  interest  costs  related to  short-term  and
floating rate debt at Energy Holdings.

     In March 2001, $160 million of non-recourse  bank debt originally  incurred
to fund a portion of the  purchase  price of  Global's  interest  in  Chilquinta
Energia,  S.A. was  refinanced.  The private  placement  offering by  Chilquinta
Energia Finance Co. LLC, a Global  affiliate,  of senior notes was structured in
two tranches: $60 million due 2008 at an interest rate of 6.47% and $100 million
due 2011 at an  interest  rate of 6.62%.  An  extraordinary  loss of $2  million
(after-tax)  was recorded in connection with the refinancing of the $160 million
non-recourse bank debt.


CALIFORNIA POWER MARKET - CREDIT RISK

     The  deregulation of the California  power market has produced  significant
unanticipated   results  in  the  past  year.  The  California   Public  Utility
Commission,  (CPUC) as part of deregulation,  froze the rates that utilities can
charge their retail and business  customers in  California  and  prohibited  the
utilities from buying power on a forward  basis,  while  wholesale  power prices
were not subjected to limits.  In the past year,  an increase in demand  coupled
with a reduced  supply of power has caused a severe  imbalance  in that  market.
Such imbalance has led to unprecedented wholesale prices.

     As a result of this  situation,  two major  California  utilities  that are
subject  to the retail  price  cap,  including  Pacific  Gas & Electric  Company
(PG&E),  have  significantly  underrecovered  from customers the costs they have
paid for power. As a consequence, these utilities have defaulted under a variety
of contractual  obligations,  including payment  obligations by PG&E to three of
Global's joint ventures, GWF Power Systems LP, Hanford and Tracy.

     Global has partnership  interests in seven  qualifying  facilities (QFs) in
California  having a  combined  output  of 153 MW (71 MW net).  Power  from such
facilities is sold under  long-term  energy and capacity  contracts to PG&E. The
contracts  provide  for a fixed  energy  payment  for the  first 10 years  and a
capacity  payment over the entire contract terms expiring between 2011 and 2021.
After the initial 10-year period, energy prices were to change to reflect PG&E's
short run avoided cost calculated using a formula based methodology  approved by
the CPUC. As part of the deregulation,  the seller could elect to receive energy
payments at the California Power Exchange's (PX) day-ahead zonal market clearing
price. As of July 1, 2000, partnership management made such an election for four
of the seven  facilities,  representing  approximately  84 MW (37 MW net)  until
January 19,  2001 when the CPUC  deemed  that the PX had ceased  operating a day
ahead market. The remaining three units were never subject to PX pricing.  Since
that time, the CPUC has ordered that the price to be paid for energy  deliveries
by QFs electing the PX price shall be based on a cost-based  transition formula.
The CPUC has  conducted  proceedings  to determine  whether the PX price was the
appropriate  price for the energy  component  upon which to base payments to QFs
that had elected the PX based pricing option. It is possible that the CPUC could
order a payment  adjustment based on a different energy price  determination.  A
preliminary  decision  by the CPUC did not find any  adjustment  to the PX price
appropriate.  Energy  Holdings  believes  that the PX price was the  appropriate
price for energy  payments but there can be no  assurance  that this will be the
outcome of the CPUC proceedings.

     GWF,   Hanford  and  Tracy  have  continued  to  honor  their   contractual
obligations  to PG&E under  existing QF contracts.  On March 27, 2001,  the CPUC
approved a plan to assure that the state's QFs are paid for future deliveries of
energy  within 15 days of the  receipt of an  invoice.  The CPUC's  plan,  while
immediately effective,  did not address amounts due such facilities for past due
receivables  related to energy delivered since November 2000. In addition to the
payment issue, the CPUC also approved a 40% increase in electric retail rates, a
portion  of  which  was   intended  to  help  the  state's   utilities   recover
significantly higher wholesale energy costs.  However, PG&E did not consider the
portion  of the rate  increase  available  to  recover  its  energy  costs to be
sufficient and  accordingly,  filed for  reorganization  under Chapter 11 of the
U.S. Bankruptcy Code on April 6, 2001. On April 11, 2001, management at Global's
project  affiliates  received a letter from PG&E  addressed to QF owners stating
that they intended to pay the QFs for power delivered  commencing  April 6, 2001
(post-petition  payable).  PG&E has  subsequently  paid, on a timely basis,  the
appropriate post-petition payable amounts due to Global's project affiliates for
all energy deliveries subsequent to filing of its bankruptcy petition.

     In July  2001,  the US  Bankruptcy  Court  for  the  Northern  District  of
California approved an agreement authorizing PG&E to assume GWF's, Hanford's and
Tracy's  modified QF contracts.  Under the terms of the agreement,  GWF, Hanford
and Tracy  continue  to  receive  their  contractual  capacity  payments  plus a
five-year  fixed  energy  price  component  of  approximately   5.37  cents  per
kilowatt-hour  for five  years,  with  the  energy  price  reverting  to  PG&E's
short-run  avoided cost at the end of the five-year  period.  This  agreement is
consistent with the recent CPUC Decision No.  01-06-015.  In addition,  all past
due  receivables  under the QF  contracts  are now  elevated  to  administrative
priority  status.  Administrative  claims receive priority over payments made to
the general unsecured creditors.

     As of December 31, 2000,  GWF,  Hanford and Tracy had combined  receivables
due from PG&E, for all plants  amounting to approximately  $40 million.  Of this
amount,  approximately $8 million had been reserved as an allowance for doubtful
accounts  resulting in a net receivable  balance of  approximately  $32 million.
Global's pro-rata share of this net receivable was approximately $15 million.

     As of June 30,  2001  GWF,  Hanford  and Tracy  had  combined  pre-petition
receivables  due from  PG&E,  for all  plants  amounting  to  approximately  $62
million.  Of this  amount,  approximately  $25 million  had been  reserved as an
allowance  for  doubtful  accounts  resulting  in a net  receivable  balance  of
approximately $37 million.  Global's pro-rata share of this gross receivable and
net  receivable  was  approximately  $30 million and $18 million,  respectively.
Management of Energy Holdings  cannot predict the timing or ultimate  outcome of
future  resolutions,  including potential payment adjustments based on different
energy price determinations, which have been consistently asserted by PG&E.

NOTE 4.  INCOME TAXES

     Energy  Holdings'  effective  tax rate was 18% and 29% for six months ended
June 30,  2001 and  2000,  respectively.  Energy  Holdings'  effective  tax rate
differs from the statutory federal income tax rate of 35.0% primarily due to the
imposition  of state  taxes  and the  accruals  at the  rate of 10% of  Global's
foreign income due to the incremental  cost associated with the  repatriation of
foreign  earnings.  For the six months  ended  June 30,  2001,  Energy  Holdings
realized income from foreign projects that were not consolidated and accordingly
there is no foreign income tax reflected in income tax expense  related to these
non-consolidated projects.

     The Internal  Revenue  Service has concluded the audit of Energy  Holdings'
1994-1996  Federal Income Tax Returns.  It is anticipated that the result of the
Revenue  Agent's  Report  will not have a  material  impact on Energy  Holdings'
financial position, statement of operations or net cash flows.
<PAGE>
NOTE 5.  FINANCIAL INFORMATION BY BUSINESS SEGMENTS

     Information  related  to the  segments  of  Energy  Holdings'  business  is
detailed below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------

                                                                       ENERGY                  CONSOLIDATED
                                             GLOBAL     RESOURCES   TECHNOLOGIES   OTHER (A)       TOTAL
                                            ---------   ---------   ------------   ---------   ------------
                                                                  (MILLIONS OF DOLLARS)
  <S>                                       <C>         <C>           <C>           <C>          <C>
  FOR THE QUARTER ENDED
  JUNE 30, 2001:

  Total Operating Revenues.............      $   37      $    51       $  111        $   --       $  199
  Segment Earnings (Loss) Available to
  PSEG.................................      $    4      $    14       $   (9)       $    3       $   12

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

  FOR THE QUARTER ENDED
  JUNE 30, 2000:
  Total Operating Revenues.............      $   33      $    26       $  108        $   --       $  167
  Segment Earnings (Loss) Available to
  PSEG.................................      $   --      $     2       $   (6)       $   (1)      $   (5)

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

  FOR THE SIX MONTHS ENDED
  JUNE 30, 2001:
  Total Operating Revenues.............      $  126      $    84       $  213        $    1       $  424
  Extraordinary Loss on
    Early Retirement of Debt...........      $   (2)     $    --       $   --        $   --       $   (2)
  Cumulative Effect of a Change in
    Accounting Principle...............      $    9      $    --       $   --        $   --       $    9
  Segment Earnings (Loss) Available to
  PSEG.................................      $   59      $    17       $  (12)       $    2       $   66

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

  FOR THE SIX MONTHS ENDED
  JUNE 30, 2000:
  Total Operating Revenues.............      $   71      $    92       $  221        $    1       $  385
  Segment Earnings (Loss) Available to
  PSEG.................................      $    4      $    29       $  (12)       $   (2)      $   19

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

  AS OF JUNE 30, 2001:
  Total Assets.........................      $2,850      $ 3,002       $  326        $   62       $6,240

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

  AS OF DECEMBER 31, 2000:
  Total Assets.........................      $2,271      $ 2,564        $ 312        $   51       $5,198

-----------------------------------------------------------------------------------------------------------
</TABLE>

(A)  Other  activities  include amounts  applicable to Energy  Holdings  (parent
     corporation),   Enterprise  Group  Development  Corporation,  PSEG  Capital
     Corporation and intercompany eliminations.



<PAGE>



       Geographic information for Energy Holdings is disclosed below.
<TABLE>
<CAPTION>
                                                REVENUES (1)                             IDENTIFIABLE ASSETS (2)
                            ---------------------------------------------------       --------------------------------
                                 QUARTER ENDED              SIX MONTHS ENDED
                                   JUNE 30,                     JUNE 30,                JUNE 30,      DECEMBER 31,
                            -----------------------      ----------------------       ---------       ------------
                              2001           2000          2001          2000            2001             2000
                            --------       --------      --------      --------       ---------        ---------
                                                             (MILLIONS OF DOLLARS)
<S>                          <C>            <C>           <C>           <C>            <C>              <C>
United States............    $  150         $  122        $  324        $  292         $ 2,563          $ 2,208
Foreign Countries........        49             45           100            93           3,677            2,990
                            --------       --------      --------      --------       ---------        ---------
     Total...............    $  199         $  167        $  424        $  385         $ 6,240          $ 5,198
                            --------       --------      --------      --------       ---------        ---------

Identifiable investments in foreign countries include:
   Netherlands.................................................................        $   846          $   815
   Argentina ..................................................................            722              470
   Chile and Peru (3)..........................................................            538              520
   Brazil (4)..................................................................            277              295
   India (5) ..................................................................            256               51
   Tunisia (6) ................................................................            189              155
   Other.......................................................................            849              684
                                                                                      ---------        ---------
Total..........................................................................        $ 3,677          $ 2,990
                                                                                      =========        =========
<FN>
(1)  Revenues  are  attributed  to  countries  based  on  the  locations  of the
     investments.  Global's  revenue  includes  its share of the net income from
     joint ventures recorded under the equity method of accounting.

(2)  Total assets are net of foreign currency  translation  adjustment of $(268)
     million  (pre-tax) as of June 30, 2001 and $(225)  million  (pre-tax) as of
     December 31, 2000.

(3)  Amount is net of foreign currency  translation  adjustment of $(66) million
     (pre-tax)  as of June 30, 2001 and $(44)  million  (pre-tax) as of December
     31, 2000.

(4)  Amount is net of foreign currency translation  adjustment of $(186) million
     (pre-tax) as of June 30, 2001 and $(167)  million  (pre-tax) as of December
     31, 2000.

(5)  Amount is net of foreign  currency  translation  adjustment of $(2) million
     (pre-tax) as of June 30, 2001 and $(2) million (pre-tax) as of December 31,
     2000.

(6)  Amount is net of foreign  currency  translation  adjustment of $(2) million
     (pre-tax) as of June 30, 2001 and $(1) million (pre-tax) as of December 31,
     2000.
</FN>
</TABLE>


NOTE 6.  COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                                             QUARTER ENDED           SIX MONTHS ENDED
                                                                               JUNE 30,                 JUNE 30,
                                                                        ----------------------     --------------------
                                                                          2001          2000         2001        2000
                                                                        ----------    --------     --------    --------
                                                                                    (MILLIONS OF DOLLARS)

<S>                                                                       <C>           <C>          <C>         <C>
Net Income...........................................................     $ 17          $  1         $ 77        $ 32
Foreign currency translation adjustments (A).........................      (36)           (8)         (38)         21
Cumulative  effect of a change in accounting  principle  (net of tax of
$14 and minority interest of $12)....................................       --            --          (15)         --
Current period declines in fair value of derivative instruments-net..       --            --           (1)         --
                                                                        ----------    --------     --------    -------
Comprehensive income.................................................     $(19)         $(7)         $ 23        $ 53
                                                                        ==========    ========     ========    ========
<FN>
(A)  Net of tax of $4 million  and $1 million  for the  quarters  ended June 30,
     2001 and 2000,  respectively,  and $4 million and $(2)  million for the six
     months ended June 30, 2001 and 2000, respectively.

</FN>
</TABLE>

NOTE 7.  COMMITMENTS AND CONTINGENCIES

      Energy Holdings, Global and/or PSEG have guaranteed certain obligations of
Global's affiliates,  including the successful completion,  performance or other
obligations  related  to  certain  of the  projects  in an  aggregate  amount of
approximately  $286 million as of June 30, 2001. A  substantial  portion of such
guarantees  is  eliminated  upon  successful   completion,   performance  and/or
refinancing of construction debt with non-recourse  project debt. A subscription
agreement for PSEG to purchase Global's capital stock secures $3 million of such
obligations.

     In March 2001,  Global reached  agreement to purchase a 94% equity stake in
Sociedad Austral de Electricidad  S.A. (SAESA) and all of its subsidiaries  from
Compania  de  Petroleos  de Chile S.A.  (COPEC).  Additionally,  Global  reached
agreement to purchase from COPEC  approximately  14% of Empresa  Electrica de la
Frontera S.A.  (Frontel) not owned by SAESA.  Global's  purchase  price for this
acquisition will total  approximately  $460 million and is scheduled to close in
the third quarter of 2001.

     In March 2001, Global,  through its affiliate Dhofar Power Company S.A.O.C.
(DPCO), signed a 20-year concession with the government of Oman to privatize the
electric  system of Salalah.  Total  project cost is estimated at $277  million.
Global's  equity  investment,   including  contingencies,   is  expected  to  be
approximately $82 million.

     In May 2001,  GWF Energy LLC (GWF Energy),  a 50/50 joint  venture  between
Global and Harbinger GWF LLC,  entered into a 10-year power  purchase  agreement
(PPA) with the  California  Department  of Water  Resources to provide 340 MW of
electric  capacity to  California  from three new peaker  plants that GWF Energy
expects to build and operate in California.  Global's equity investment in these
plants, including contingencies, is not expected to exceed $100 million.

     In July  2001,  Global won the bid to  purchase  up to a 100%  interest  in
Empresa  de  Electricidad  de  los  Andes  S.A.  (Electroandes)  with  a bid  of
approximately $227 million. The closing for this acquisition is scheduled in the
fourth quarter of 2001.

      Energy Holdings, its subsidiaries and equity method investees are involved
in  various  legal  actions  arising in the normal  course of  business.  Energy
Holdings  does  not  expect  there  will be a  material  adverse  effect  on its
financial statements as a result of these proceedings,  though no assurances can
be given.

NOTE 8. RELATED-PARTY TRANSACTIONS

     PSEG  Services  Corporation  (Services)  provides and bills  administrative
services to Energy  Holdings and its  subsidiaries  on a monthly  basis.  Energy
Holdings'  and its  subsidiaries'  costs  related to such  services  amounted to
approximately  $8 million and $17  million for the quarter and six months  ended
June 30, 2001,  respectively.  As of June 30,  2001,  Energy  Holdings'  and its
subsidiaries'  intercompany  payable related to these costs was approximately $3
million.
<PAGE>
================================================================================
                            PSEG ENERGY HOLDINGS INC.
================================================================================

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Following  are the  significant  changes  in or  additions  to  information
reported in the Energy  Holdings'  2000 Annual Report on Form 10-K and Quarterly
Report  on Form  10-Q  for the  quarter  ended  March  31,  2001  affecting  the
consolidated  financial  condition  and the  results  of  operations  of  Energy
Holdings and its  subsidiaries.  This  discussion  refers to the  Statements and
related  Notes of Energy  Holdings and should be read in  conjunction  with such
Statements and Notes.

RESULTS OF OPERATIONS

ENERGY HOLDINGS -- REVENUES

         Revenues  increased  $32  million or 19% and $39 million or 10% for the
quarter and six months ended June 30, 2001 from the comparable  periods in 2000,
respectively.

     Revenues  for the quarter  ended June 30, 2001 were  favorably  impacted by
increased  revenues of $25 million at  Resources of which $14 million was due to
higher  leveraged  lease  income from  continued  investment  in such  financing
transactions. In addition, Resources recorded no change in the carrying value of
publicly traded equity  securities in its leveraged buyout funds for the quarter
ended June 30, 2001 as compared  to a reduction  of $13 million  recorded in the
comparable period in 2000.  Global's revenues increased $4 million primarily due
to an  increase of $9 million in Interest  Income  associated  with its loans to
Texas Independent  Energy (TIE) and a note receivable taken as consideration for
the  withdrawal  from its interest in the Eagle Point  Cogeneration  Partnership
(Eagle  Point).  The  increase  in Interest  Income of $9 million was  partially
offset by reduced Income from Joint Ventures and  Partnerships  primarily due to
the withdrawal from Eagle Point in January 2001.

     Revenues for the six months ended June 30, 2001 were favorably  impacted by
increased  revenues of $55 million at Global of which $5l million was related to
the gain on the  withdrawal  from Eagle  Point.  The increase of $55 million was
partially  offset by lower  revenues of $8 million  realized by Resources and $8
million realized by Energy  Technologies.  The reduction in revenue at Resources
was  primarily  due to a net decrease in the carrying  value of publicly  traded
equity  securities in its leveraged  buyout funds.  The reduction of revenues at
Energy  Technologies  was  primarily  due to the exit from the  electric and gas
commodity business, partially offset by increased revenues from the expansion of
its mechanical contracting businesses.

ENERGY HOLDINGS -- OPERATING EXPENSES

     Operating  expenses increased $13 million or 10% for the quarter ended June
30,  2001 and  remained  flat for the six months  ended  June 30,  2001 from the
comparable periods in 2000. The increase for the quarter ended June 30, 2001 was
primarily due to higher operating  expenses  experienced at Energy  Technologies
from cost  overruns  of  mechanical  contracts  predominately  in one  operating
location.  Energy  Technologies also experienced an increase in outside services
due to the  integration of its  mechanical  contracting  business.  In addition,
Global's operating expenses increased for the quarter ended June 30, 2001 due to
increased outside services as Global continues to grow its business.

     Operating  expenses  for the six months  ended June 30, 2001  increased  at
Global  from the  comparable  period in 2000,  primarily  related  to  increased
outside  services as Global  continues to grow its  business.  This increase was
largely offset by decreased operating expenses at Energy Technologies.  Although
recurring operating expenses at Energy Technologies  increased slightly (for the
reasons noted above),  operating expenses for the six months ended June 30, 2000
included  a  non-recurring,   restructuring  charge  of  $7  million  at  Energy
Technologies,  related to the  write-off  of  computer  hardware  and  software,
employee  severance  costs  and  deferred  transportation  costs.  There  was no
restructuring  charge  recorded by Energy  Technologies  in the six months ended
June 30, 2001.
<PAGE>
ENERGY HOLDINGS-INTEREST EXPENSE - NET AND PREFERRED STOCK DIVIDEND REQUIREMENTS

     Interest Expense - Net and Preferred Stock Dividend  Requirements  remained
flat for the quarter  ended June 30, 2001 and increased $1 million or 1% for the
six months ended June 30, 2001 from the comparable periods in 2000.

     At June 30, 2001 and  December  31,  2000,  Energy  Holdings had total debt
outstanding of $2.693 billion and $2.182  billion,  respectively,  of which $612
million and $354 million,  respectively, is non-recourse to Energy Holdings. The
increase of $511 million in  outstanding  debt for the six months ended June 30,
2001 was primarily related to intercompany borrowings from PSEG and drawdowns of
Energy Holdings'  revolving credit  facilities used to fund the continued growth
of Global and Resources. In addition, the non-recourse debt increased due to the
consolidation  of the  investment in Tanir Bavi Power Company Ltd.  (Tanir Bavi)
and Empresa  Distribuidora de Electricidad de Entre Rios S.A.  (EDEERSA) and the
continued  drawdown of the loan facility and working capital facility  agreement
by Elecktocieplownia Chorzow ELCHO Sp. z.o.o. (ELCHO) and Carthage Power Company
(Carthage).   Interest  expense  incurred  by  projects  under  construction  is
capitalized.

ENERGY HOLDINGS -- EARNINGS BEFORE INTEREST AND TAXES (EBIT) CONTRIBUTION

     The results of operations for each of Energy  Holdings'  business  segments
are explained  below with reference to the EBIT  contribution.  Energy  Holdings
borrows on the basis of a combined  credit  profile to finance the activities of
its  subsidiaries.  As such, the capital  structure of each of the businesses is
managed by Energy Holdings. Debt at each subsidiary is evidenced by demand notes
with Energy Holdings and PSEG Capital.
<TABLE>
<CAPTION>

                                   EARNINGS BEFORE INTEREST AND TAXES CONTRIBUTION
                                   -----------------------------------------------
                                        QUARTER ENDED          SIX MONTHS ENDED
                                           JUNE 30,                JUNE 30,
                                      ------------------      ------------------
                                       2001       2000         2001        2000
                                      ------      ------      ------      ------
                                                (MILLIONS OF DOLLARS)
<S>                                   <C>         <C>         <C>         <C>
EBIT:
     Global ....................      $  22       $  23       $ 100       $  49
     Resources .................         48          22          77          85
     Energy Technologies .......        (12)         (8)        (17)        (16)
     Other .....................         (3)         (2)         (4)         (2)
                                      -----       -----       -----       -----
TOTAL EBIT .....................      $  55       $  35       $ 156       $ 116
                                      =====       =====       =====       =====
</TABLE>

         GLOBAL

     Global  develops,  acquires,  owns and  operates  electric  generation  and
distribution  facilities  and  engages  in power  production  and  distribution,
including  wholesale and retail sales of electricity,  in selected  domestic and
international markets. Global has ownership interests in 29 operating generation
projects totaling 4,374 MW (1,639 MW net of other partners'  interests)  located
in the United States, Argentina,  China, India, Poland and Venezuela. Global has
ownership  interests  in 17  projects  totaling  3,824  MW  (1,884  MW  net)  in
construction  or advanced  development  that are  located in the United  States,
Argentina, China, India, Italy, Oman, Poland, Tunisia and Venezuela.

     Until  the  fourth  quarter  of 2000,  Global's  investments  consisted  of
minority  ownership  positions in projects and joint  ventures.  Other than fees
collected for providing operations and maintenance  services,  Global's revenues
represented  its  pro-rata  ownership  share of net income  generated by project
affiliates  which is  accounted  for by the  equity  method of  accounting.  The
expenses in the table below are those  required to develop  projects and general
and administrative  expenses required to operate the business as a whole. In the
fourth quarter of 2000, Global increased its interest in an electric  generation
facility  under  construction  in Tunisia from 35% to 60% and completed  project
financing for a 90% economic interest in a power plant in Poland.

     In the first quarter of 2001,  Global increased its interest in an electric
generation  facility  in India from 49% to 74%.  In the second  quarter of 2001,
Global increased its interest in an electric  distribution facility in Argentina
from 41% to 90%.  The  accounts  of  Global  include  the  assets,  liabilities,
revenues and expenses of majority-owned subsidiaries over which Global exercises
control and for which control is other than temporary.

SUMMARY RESULTS - GLOBAL
<TABLE>
<CAPTION>

                                        QUARTER ENDED          SIX MONTHS ENDED
                                           JUNE 30,                JUNE 30,
                                     ------------------       ------------------
                                      2001        2000         2001       2000
                                     -------     ------      -------     -------
                                                (MILLIONS OF DOLLARS)
<S>                                   <C>         <C>         <C>         <C>
EBIT:
Revenues.......................       $  37       $  33       $ 126       $  71
Expenses.......................          14          11          27          23
                                     -------     -------     -------     -------
Operating Income...............          23          22          99          48
Other Income...................          (1)          1           1           1
                                     -------     -------     -------     -------
EBIT...........................       $  22       $  23       $ 100       $  49
                                     =======     =======     =======     =======
</TABLE>

     Global's  EBIT  contribution  decreased $1 million or 4% and  increased $51
million  or 104% for the  quarter  and six months  ended June 30,  2001 from the
comparable periods in 2000, respectively.

     The Global EBIT  contribution  decrease for the quarter ended June 30, 2001
was primarily due to a $1 million litigation settlement associated with the 1998
sale of its interest in two cogeneration facilities. Global's revenues increased
by $4 million and were largely  offset by an increase of $3 million in operating
expenses  incurred as Global continues to grow its business.  The increase of $4
million in Global's  revenues was  primarily due to an increase of $9 million in
Interest Income  recorded on the loans to TIE and the note  receivable  taken as
consideration for the withdrawal from its interest in Eagle Point. Revenues also
benefited  from the  acquisition  of  EDEERSA  in  December  2000  and  improved
performances  of most of the  facilities  in the Latin America  region,  and the
commencement  of  operations  of Tanir  Bavi and PPN  Power  Generating  Company
Limited (PPN) in the second  quarter of 2001.  These  increases  were  partially
offset by lower  revenues  attributable  to the  withdrawal  from Eagle Point in
January 2001, the adverse effect of exchange rate changes in the Brazilian Real,
reduced  management and  consulting  revenues in North America and Latin America
and start-up costs at ELCHO.

     The Global EBIT  contribution  increase  for the six months  ended June 30,
2001 resulted from increased  revenues of $55 million,  of which $51 million was
related to the gain on  withdrawal  from Eagle Point and $14 million  related to
increased  Interest  Income recorded on the loans to TIE and the note receivable
taken as  consideration  for the  withdrawal  from Eagle  Point.  Revenues  also
benefited  from the  acquisition  of  EDEERSA  in  December  2000  and  improved
performances  of  most  of the  facilities  in the  Latin  America  region,  the
commencement  of operations of Tanir Bavi and PPN in the second  quarter of 2001
and favorable  energy pricing in the California  power market.  These  increases
were partially  offset by lower  revenues  attributable  to the withdrawal  from
Eagle Point in January 2001,  the adverse effect of exchange rate changes in the
Brazilian  Real,  reduced  management and consulting  revenues in North America,
Latin America and Asia Pacific and start-up costs at ELCHO.

         RESOURCES

     Resources  earns its  leveraged  lease  revenues  (recorded  as Income from
Capital and Operating  Leases)  primarily from rental  payments and tax benefits
associated with such transactions.  As a passive investor in limited partnership
project financing  transactions,  Resources recognizes revenue from its pro-rata
share of the income  generated by these  investments.  As an owner of beneficial
interests in two leveraged  buyout funds,  Resources  recognizes  revenue as the
share prices of public  companies in the leveraged  buyout funds  fluctuate.  In
addition,  revenue is  recognized as companies in the fund  distribute  dividend
income  through  the  fund  to the  investors  and as the  fund  liquidates  its
holdings.


<PAGE>




SUMMARY RESULTS - RESOURCES
<TABLE>
<CAPTION>

                                        QUARTER ENDED         SIX MONTHS ENDED
                                           JUNE 30,                JUNE 30,
                                     -------------------     -------------------
                                       2001        2000        2001        2000
                                     -------     -------     -------     -------
                                                 (MILLIONS OF DOLLARS)
<S>                                   <C>         <C>         <C>         <C>
Revenues...........................   $  51       $  26       $  84       $  92
Expenses...........................       3           4           7           7
                                     -------     -------     -------     -------
Operating Income and EBIT..........   $  48       $  22       $  77       $  85
                                     =======     =======     =======     =======

</TABLE>

     Resources' EBIT contribution increased $26 million or 118% and decreased $8
million  or 9% for the  quarter  and six  months  ended  June 30,  2001 from the
comparable periods in 2000, respectively.

     The Resources'  EBIT  contribution  increase for the quarter ended June 30,
2001 was primarily due to improved revenues of $14 million from higher leveraged
lease  income  from   continued   investment  by  Resources  in  such  financing
transactions. In addition, Resources recorded no change in the carrying value of
publicly  traded  securities  within its leveraged  buyout funds for the quarter
ended June 30, 2001 as compared  to a reduction  of $13 million  recorded in the
comparable period in 2000.

     The Resources' EBIT contribution decrease for the six months ended June 30,
2001 was primarily due to lower Net Investment Gains (Losses) of $33 million, of
which $28 million resulted from a net decrease in the carrying value of publicly
traded equity  securities  within certain  leveraged buyout funds. This decrease
was partially offset by an increase of $23 million due to higher leveraged lease
income from continued investment by Resources in such financing transactions.

         ENERGY TECHNOLOGIES

     Energy  Technologies  earns  its  revenues  from  providing  energy-related
engineering, consulting and mechanical contracting services to and constructing,
operating and  maintaining  heating,  ventilating  and air  conditioning  (HVAC)
systems for industrial and commercial  customers in the  Northeastern and Middle
Atlantic United States.

SUMMARY RESULTS - ENERGY TECHNOLOGIES
<TABLE>
<CAPTION>

                                        QUARTER ENDED          SIX MONTHS ENDED
                                           JUNE 30,                JUNE 30,
                                     -------------------     -------------------
                                       2001       2000         2001        2000
                                     -------     -------     -------     -------
                                                 (MILLIONS OF DOLLARS)
<S>                                   <C>         <C>         <C>         <C>
Revenues ..........................   $ 111       $ 108       $ 213       $ 221
Expenses ..........................     125         116         232         237
                                     -------     ------      ------      -------
Operating Income ..................     (14)         (8)        (19)        (16)
Other Income ......................       2          --           2          --
                                     -------     -------     -------     -------
EBIT ..............................   $ (12)      $  (8)      $ (17)      $ (16)
                                     =======     =======     =======     =======
</TABLE>
     Energy  Technologies' EBIT contribution  decreased $4 million or 50% and $1
million  or 6% for the  quarter  and six  months  ended  June 30,  2001 from the
comparable  periods  in  2000,   respectively.   The  Energy  Technologies  EBIT
contribution  decrease for the quarter  ended June 30, 2001  resulted  primarily
from cost  overruns  of  mechanical  contracts  predominately  in one  operating
location.  Energy  Technologies also experienced an increase in outside services
due to the integration of its mechanical contracting business.

LIQUIDITY AND CAPITAL RESOURCES

     It is  intended  that  Global and  Resources  will  continue to provide the
earnings  and cash  flow  for  Energy  Holdings'  long-term  growth.  Resources'
investments are designed to produce immediate cash flow and earnings that enable
Global and Energy  Technologies to focus on longer investment  horizons.  During
the next five years,  Energy  Holdings will need material  amounts of capital to
fund its planned growth.  In addition to cash generated from operations,  Energy
Holdings' growth will be funded through external financings and equity infusions
from PSEG.

     Over the next  several  years,  Energy  Holdings,  certain  of its  project
affiliates and PSEG Capital will be required to refinance  maturing debt,  incur
additional debt and provide equity to fund investment activity. Any inability to
obtain required  additional  external  capital or to extend or replace  maturing
debt and/or existing  agreements at current levels and reasonable interest rates
may affect Energy Holdings' financial  condition,  results of operations and net
cash flows.

     REGULATORY RESTRICTIONS

      Capital  resources  and  investment  requirements  may be  affected by the
outcome of the  proceedings  being  conducted  by the New Jersey Board of Public
Utilities  (BPU) pursuant to its Energy Master Plan and the New Jersey  Electric
Discount  and  Energy   Competition  Act  (Energy   Competition   Act)  and  the
requirements  of the 1992 Focused  Audit  conducted by the BPU, of the impact of
PSEG's  non-utility  businesses,  including Energy  Holdings,  on Public Service
Electric and Gas Company (PSE&G), an Energy Holdings' affiliate.  As a result of
the Focused Audit, the BPU approved a plan which,  among other things,  provides
that:

(1)  PSEG will not permit Energy  Holdings'  investments to exceed 20% of PSEG's
     consolidated assets without prior notice to the BPU;

(2)  The PSE&G Board of Directors will provide an annual  certification that the
     business and financing plans of Energy  Holdings will not adversely  affect
     PSE&G;

(3)  PSEG will (a) limit debt  supported  by the minimum  net worth  maintenance
     agreement  between  PSEG and PSEG  Capital to $650  million  and (b) make a
     good-faith  effort to eliminate  such support over a six to ten year period
     from May 1993; and

(4)  Energy  Holdings  will pay PSE&G an  affiliation  fee of up to $2 million a
     year.

     In its Order  requiring  PSE&G to transfer  its  generation  assets to PSEG
Power LLC, a wholly-owned  subsidiary of PSEG (Final Order), the BPU noted that,
due to significant changes in the industry and, in particular,  PSEG's corporate
structure as a result of the Order,  modifications to or relief from the Focused
Audit order might be  warranted.  PSE&G has notified the BPU of its intention to
make a filing to modify the terms of the Focused Audit. Energy Holdings believes
that the Focused Audit  restrictions  have  effectively  been  superceded by the
Final  Order.  Energy  Holdings  therefore  expects  modifications  to be  made,
although no assurances can be given, and that the 20%  notification  requirement
and the present  requirement to eliminate  credit supported debt to PSEG Capital
will not adversely affect its financial condition, results of operations and net
cash flows.  Regulatory  oversight by the BPU to assure that there is no harm to
utility ratepayers from Energy Holdings' share of PSEG's non-utility investments
is expected to  continue.  Energy  Holdings'  assets were  approximately  26% of
PSEG's  consolidated  assets at June 30, 2001.  Energy Holdings believes that if
still required,  it is capable of eliminating  PSEG support of PSEG Capital debt
within the time period set forth in the Focused Audit.

      In addition,  if PSEG were no longer to be exempt under the Public Utility
Holding Company Act of 1935 (PUHCA),  PSEG and its subsidiaries would be subject
to  additional  regulation  by the SEC with respect to financing  and  investing
activities,  including the amount and type of  non-utility  investments.  Energy
Holdings  believes  that this  would not have a material  adverse  effect on its
financial condition, results of operations and net cash flows.

CAPITAL REQUIREMENTS

     Energy  Holdings  plans to  continue  the growth of Global  and  Resources.
Energy Holdings will assess the growth  prospects and  opportunities  for Energy
Technologies'  business  before  committing  substantial  amounts of  additional
capital.  For the six months ended June 30, 2001, Energy Holdings'  subsidiaries
made net investments totaling  approximately $732 million. These net investments
included  leveraged  lease  investments  of $392  million by  Resources  and net
investments  of  $337  million  by  Global,  primarily  related  to  incremental
investments in certain existing  generation and distribution  projects including
those in operation and currently under  construction  and loans to TIE.  Factors
affecting actual  expenditures and investments  include  availability of capital
and suitable  investment  opportunities,  market  volatility  and local economic
trends.

     In the second  quarter of 2001,  PSEG  invested  $300 million of additional
equity in Energy  Holdings,  the proceeds of which were used to fund  additional
investments at Global and Resources.

     In June 2001,  Global  exercised its option to acquire an additional 49% of
EDEERSA,  bringing its total ownership of EDEERSA to 90%. The acquisition of the
additional ownership was purchased for approximately $110 million.

     During the six months ended June 30, 2001,  Resources invested $392 million
in three leveraged lease financing transactions of three electric power stations
in the  United  States  and an  electric  distribution  network  operated  by an
electric power, district heating and transportation utility in Austria.

     As of June 30, 2001,  Global's  investments in the TIE partnership  include
$162  million of loans that earn  interest at an annual rate of 12%. Of the $162
million currently outstanding,  $83 million is scheduled to be repaid in full in
February 2002 and $79 million will be paid over the next 12 years.

     For a discussion of Global's pending  investments,  see Note 7. Commitments
and Contingent Liabilities of Notes.

EXTERNAL FINANCINGS

     On June 30, 2001,  Energy Holdings had two separate senior revolving credit
facilities with a syndicate of banks; a $495 million five-year  revolving credit
and  letter of credit  facility  and a $200  million  364-day  revolving  credit
facility.  The five-year  facility also permits up to $250 million of letters of
credit to be issued.  The 364-day facility and the five-year  facility mature in
May 2002 and May 2004, respectively.  At June 30, 2001, Energy Holdings had $137
million outstanding under its revolving credit facilities.

     In June 2001,  Moody's  Investors  Service,  Inc. upgraded Energy Holdings'
unsecured  debt ratings to Baa3 from Ba1. The rating  outlook is stable.  Energy
Holdings now has investment grade ratings from all major rating agencies.

     In July 2001 Energy Holdings received the proceeds from a private placement
of $550 million of 8.50% Senior Notes due 2011.  The net proceeds  were used for
the  repayment  of  short-term  debt  outstanding  from  intercompany  loans and
borrowings under Energy Holdings'  revolving  credit  facilities.  The remaining
proceeds were used for general corporate purposes. Energy Holdings plans to file
a registration  statement with the SEC relating to an exchange offer for, or the
resale of, these Senior Notes later in 2001.

FOREIGN OPERATIONS

     As of June 30, 2001, Global and Resources had approximately  $2.349 billion
and $1.328 billion,  respectively, of international assets. As of June 30, 2001,
foreign assets represented 59% of Energy Holdings'  consolidated  assets and the
revenues  related  to  those  foreign  assets  contributed  24% to  consolidated
revenues for the six months ended June 30, 2001.

     As of  June  30,  2001,  approximately  $1.589  billion  or 25%  of  Energy
Holdings'  assets  are  invested  in  Latin  America,  specifically  in  Brazil,
Argentina,  Chile, Peru and Venezuela. The Argentine economy has been in a state
of recession for approximately three years. Continued deficit spending in the 23
Argentine  provinces  coupled with low growth and high  unemployment have caused
much  speculation  in the ability of the country to service and  refinance  $130
billion  of debt  over the next  several  years.  The  Argentine  situation  has
contributed to downward  pressure on the Brazilian and Chilean  currencies.  The
Brazilian Real has devalued  approximately 18% since year-end 2000 from 1.951 to
$1US to 2.311 to $1US as of June 30,  2001  and the  Chilean  Peso has  devalued
approximately  10% since year-end 2000 from 573.9 to $1US to 631.9 to $1US as of
June 30, 2001. The Argentine  currency  remains pegged at 1 peso to 1 $US though
there has been much  speculation as to whether or not the peg will hold.  Recent
actions by the current  Argentine  administration  provide for a more  favorable
exchange rate for exporters,  which has continued to fuel the  speculation  that
the currency peg may not hold.  In addition,  the Argentine  administration  cut
spending to balance its budget by year-end 2001 to improve  financial  stability
in the region.

     In  Argentina,   the   electricity  law  provides  for  a  pass-through  of
devaluation to the end user customer. Customers' bills are first computed in the
$US and  converted  into the peso for billing.  This implies that a  devaluation
will not impact  the level of $US  revenues  an  electric  distribution  company
receives.  Energy Holdings' faces exposure as a result of secondary impacts of a
devaluation on the overall economy, which could follow many different scenarios.
In  addition,   Energy  Holdings'  share  of  $US  operating   company  debt  is
approximately  $256 million.  This is of concern  because such debt becomes more
costly  to  service  with  a  devaluation,  and  the  immediate  impact  of  the
devaluation  must be recorded  through the income  statement  as the $US debt is
revalued  into the local  currency.  Additionally,  upon  devaluation,  Global's
operating companies in the region may be exposed to increased collection risk.

     The  Brazilian  distribution  company in which  Global has a 32%  interest,
entered into a $190 million $US denominated loan, of which Global's share is $62
million.  The functional  currency of the distribution  company is the Brazilian
Real. Therefore, its debt is subject to exchange rate risk as the Brazilian Real
fluctuates with the $US. Changes in the exchange rate cause the loan amount,  as
reported in the functional  currency,  to be marked upward or downward,  with an
offset to the income statement.

     In  Chile,  the  operating   performance  of  Energy  Holdings'  assets  is
offsetting the impact of the weakening currency in relation to the $US.

     Energy  Holdings  cannot  predict  if and when  currencies  will  fluctuate
against the $US or changes in economic  situations in the operating companies in
which it invests.  However,  the impact of these  changes  could cause  material
adverse effects to Energy Holdings' financial  condition,  results of operations
or net cash flows. For further discussion of Global's foreign currency risk, see
Note 3. Financial Instruments and Risk Management of the Notes.

ACCOUNTING MATTERS

     For a discussion of SFAS 133 and related DIG issues, and SFAS 141, SFAS 142
and SFAS 143, see Note 2. Recent Accounting Pronouncements of the Notes.

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.  These
statements are based on management's  beliefs as well as assumptions made by and
information  currently  available to management.  When used in this report,  the
words "will", "anticipate",  "intend", "estimate",  "believe", "expect", "plan",
"hypothetical", "potential" and variations of such words and similar expressions
are intended to identify forward-looking statements.  Energy Holdings undertakes
no  obligation  to  publicly  update or revise any  forward-looking  statements,
whether as a result of new information, future events or otherwise.

     In addition to any assumptions  and other factors  referred to specifically
in connection with 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,  some of which relate to Energy
Holdings indirectly as a result of their potential impact upon PSEG or PSE&G:

o    deregulation  and the  unbundling  of energy  supplies and services and the
     establishment  of  a  competitive   energy  marketplace  for  products  and
     services;

o    managing   rapidly  changing   wholesale   energy  trading   operations  in
     conjunction   with   electricity  and  gas  production,   transmission  and
     distribution systems;

o    managing  foreign  investments  and electric  generation  and  distribution
     operations  in  locations  outside  of  the  traditional   utility  service
     territory;

o    political and foreign currency risks;

o    sales retention and growth potential in a mature PSE&G service territory;

o    ability to  complete  development  or  acquisition  of  current  and future
     investments;

o    partner and counterparty  risk;

o    exposure to market  price  fluctuations  and  volatility  of fuel and power
     supply, power output and marketable securities, among others;

o    ability to obtain adequate and timely rate relief, cost recovery, and other
     necessary  regulatory  approvals;

o    federal, state and foreign regulatory actions;

o    regulatory  oversight  with  respect to utility and  non-utility  affiliate
     relations and  activities;

o    operating   restrictions,   increased   costs   and   construction   delays
     attributable to environmental regulations;

o    nuclear  decommissioning  and the  availability of reprocessing and storage
     facilities for spent nuclear fuel;

o    licensing  and  regulatory   approvals  necessary  for  nuclear  and  other
     operating stations;

o    the ability to economically and safely operate nuclear  facilities in which
     PSEG has an interest in accordance with regulatory requirements;

o    environmental concerns; and

o    market  risk and debt and  equity  market  concerns  associated  with these
     issues.

                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

     There are no  updates  to  information  reported  under Item 3 of Part I of
Energy Holdings' 2000 Annual Report on Form 10-K.

                            ITEM 5. OTHER INFORMATION

     Certain  information  reported under Energy Holdings' 2000 Annual Report on
Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
is updated below.

     CONSTRUCTION AND DEVELOPMENT

     FORM 10-K,  PAGES 4 AND 9. In June 2001,  Tanir  Bavi  began  simple  cycle
operation of 170 MW of its planned 220 MW combined-cycle plant located in India.
In the third  quarter  of 2001,  the plant is  expected  to begin  operating  in
combined-cycle. Global owns a 74% interest in Tanir Bavi.

     FORM 10-K, PAGES 4, 6 AND 7. In June 2001, the Fushi Hydropower Plant began
commercial  operation of all units of the  Hydropower  Plant  located  along the
Rongjiang  River in China.  Global  owns an indirect  35%  interest in the Fushi
Hydropower plant.

     FORM  10-K,  PAGES  4 AND 7.  In July  2001,  the  first  500 MW  phase  of
Odessa-Ector  Power  Partner,  L.P.  (OEP)  1,000  MW  gas-fired  combined-cycle
electric generation facility in Odessa,  Texas commenced  commercial  operation.
The plant is expected to reach full commercial operation in the third quarter of
2001.  OEP is  wholly-owned  by TIE, a 50/50  joint  venture of Global and Panda
Energy International, Inc.

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

     EXHIBIT NUMBER          DOCUMENT
     12                      Computation of Ratios of Earnings to Fixed Charges

(B)  Reports on Form 8-K:

NONE

<PAGE>
================================================================================
                            PSEG ENERGY HOLDINGS INC.
================================================================================

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                            PSEG ENERGY HOLDINGS INC.
                                  (Registrant)


                                By: DEREK DIRISIO
                           ---------------------------
                                  Derek DiRisio
                          Vice President and Controller
                         (Principal Accounting Officer)




Date: August 8, 2001