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 September 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 [X] No [ ]

     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................................................   22

Item 6. Exhibits and Reports on Form 8-K.................................   22

Signature................................................................   23

<PAGE>

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

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS


<PAGE>
<TABLE>
<CAPTION>

                            PSEG ENERGY HOLDINGS INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                              (Millions of Dollars)
                                   (Unaudited)


                                                                     Three Months Ended             Nine Months Ended
                                                                       September 30,                  September 30,
                                                                 ---------------------------     -------------------------
                                                                     2001            2000           2001           2000
                                                                 ------------     ----------     ----------     ----------
<S>                                                               <C>              <C>            <C>            <C>
OPERATING REVENUES
   Energy Service Revenues.....................................   $   126          $    79        $   329        $   229
   Electric Generation and Distribution Revenues...............        70                -             70              -
   Income from Capital and Operating Leases....................        58               47            156            122
   Income from Joint Ventures and Partnerships.................        34               47             96            108
   Interest and Dividend Income................................        17                1             32              5
   Net Investment Gains (Losses)...............................        (8)              (9)           (23)             9
   Gain on Withdrawal from Partnership.........................         1                -             51              -
   Energy Supply Revenues......................................         -                9              -             66
   Other.......................................................        12               10             23             29
                                                                 ------------     ----------     ----------     ----------
       Total Operating Revenues................................       310              184            734            568
                                                                 ------------     ----------     ----------     ----------
OPERATING EXPENSES
   Operation and Maintenance...................................       130               71            329            210
   Administrative and General..................................        40               33            105             93
   Electric Energy Costs.......................................        34                -             34              -
   Depreciation and Amortization...............................        10                3             17             10
   Cost of Energy Sales........................................         -                9              -             67
   Restructuring Charge........................................         -                -              -              7
                                                                 ------------     ----------     ----------     ----------
       Total Operating Expenses................................       214              116            485            387
                                                                 ------------     ----------     ----------     ----------
OPERATING INCOME...............................................        96               68            249            181
OTHER INCOME...................................................        (1)               1              1              3
INTEREST EXPENSE - NET.........................................       (54)             (31)          (129)          (102)
                                                                 ------------     ----------     ----------     ----------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
   ITEM AND CUMULATIVE EFFECT OF A CHANGE
   IN ACCOUNTING PRINCIPLE.....................................        41               38            121             82
INCOME TAXES...................................................       (11)             (11)           (22)           (23)
Minority Interests.............................................        (1)               -              -              1
                                                                 ------------     ----------     ----------     ----------
INCOME BEFORE EXTRAORDINARY ITEM
    AND CUMULATIVE EFFECT OF A
    CHANGE IN ACCOUNTING PRINCIPLE.............................        29               27             99             60
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.....................................................        29               27            106             60
Preferred Stock Dividend Requirements..........................        (6)              (6)           (17)           (19)
                                                                 ------------     ----------     ----------     ----------
EARNINGS AVAILABLE TO PUBLIC
   SERVICE ENTERPRISE GROUP INCORPORATED.......................   $    23          $    21        $    89        $    41
                                                                 ============     ==========     ==========     ==========

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)


                                                                                      (Unaudited)
                                                                                     September 30,       December 31,
                                                                                         2001                2000
                                                                                    ----------------    ----------------
<S>                                                                                   <C>                 <C>
CURRENT ASSETS
   Cash and Cash Equivalents...................................................       $       40          $      22
   Accounts Receivable:
     Trade, net of allowance for doubtful accounts - 2001, $11; 2000, $5.......              229                132
     Other.....................................................................               23                  4
     Affiliated Companies......................................................              106                 64
   Notes Receivable............................................................               39                 23
   Assets Held for Sale........................................................              412                 48
   Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts.               30                 27
   Other Current Assets........................................................               21                  7
                                                                                    ----------------    ----------------
       Total Current Assets....................................................              900                327
                                                                                    ----------------    ----------------

PROPERTY, PLANT AND EQUIPMENT
   Real Estate.................................................................              130                103
   Property, Plant and Equipment...............................................              818                 69
   Construction in Progress....................................................              288                172
                                                                                    ----------------    ----------------
        Total..................................................................            1,236                344
   Accumulated Depreciation and Amortization...................................             (189)               (51)
                                                                                    ----------------    ----------------
       Net Property, Plant and Equipment.......................................            1,047                293
                                                                                    ----------------    ----------------

INVESTMENTS
   Capital Leases - Net........................................................            2,811              2,253
   Corporate Joint Ventures....................................................            1,214              1,584
   Partnership Interests.......................................................              626                575
   Other Investments...........................................................               69                 71
                                                                                    ----------------    ----------------
       Total Investments.......................................................            4,720              4,483
                                                                                    ----------------    ----------------

OTHER ASSETS
   Goodwill....................................................................              266                 56
   Other Assets................................................................              109                 39
                                                                                    ----------------    ----------------
       Total Other Assets......................................................              375                 95
                                                                                    ----------------    ----------------

TOTAL ASSETS...................................................................       $    7,042          $   5,198
                                                                                    ================    ================

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)

                                                                                      (Unaudited)
                                                                                     September 30,         December 31,
                                                                                          2001                 2000
                                                                                    -----------------    -----------------
<S>                                                                                    <C>                  <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year........................................          $     362            $     267
   Short-Term Borrowings Due to Public Service Enterprise Group Incorporated.                 65                    -
   Accounts Payable:
     Trade...................................................................                 98                   54
     Taxes...................................................................                 14                    5
     Interest................................................................                 63                   31
     Other...................................................................                 56                   32
     Affiliated Companies....................................................                  5                    5
   Borrowings Under Lines of Credit..........................................                200                  392
   Notes Payable.............................................................                 27                   91
   Billing in Excess of Costs and Estimated Earnings on Uncompleted Contracts                 21                   18
                                                                                    -----------------    -----------------
       Total Current Liabilities.............................................                911                  895
                                                                                    -----------------    -----------------
NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC.............................................              1,220                1,071
   Other Noncurrent Liabilities..............................................                 96                   28
                                                                                    -----------------    -----------------
       Total Noncurrent Liabilities..........................................              1,316                1,099
                                                                                    -----------------    -----------------

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

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

MINORITY INTERESTS...........................................................                112                   23
                                                                                    -----------------    -----------------

CAPITALIZATION
   LONG-TERM DEBT............................................................              2,577                1,432
                                                                                    -----------------    -----------------
   STOCKHOLDER'S EQUITY
     Common Stock, Issued: 100 Shares........................................                  -                    -
     Preferred Stock.........................................................                509                  509
     Additional Paid-in Capital..............................................              1,490                1,090
     Retained Earnings.......................................................                438                  353
     Accumulated Other Comprehensive Loss....................................               (311)                (203)
                                                                                    -----------------    -----------------
       Total Stockholder's Equity............................................              2,126                1,749
                                                                                    -----------------    -----------------
TOTAL LIABILITIES AND CAPITALIZATION.........................................          $   7,042            $   5,198
                                                                                    =================    =================

See Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)

                                                                                              Nine Months Ended
                                                                                                September 30,
                                                                                        ------------------------------
                                                                                            2001             2000
                                                                                        -------------    -------------
<S>                                                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Income.........................................................................    $   106          $    60
   Adjustments to reconcile net income to net cash flows from operating activities:
     Depreciation and Amortization....................................................         14               18
     Deferred Income Taxes (Other than Leases)........................................        (16)               3
     Leveraged Lease Income, Adjusted for Rents Received..............................         56               23
     Investment Distributions.........................................................         72               40
     Undistributed Earnings from Affiliates...........................................        (60)             (30)
     Net Gains on Investments.........................................................        (28)              (9)
     Proceeds from Withdrawal from Partnership........................................         50                -
     Non-Cash Portion of Restructuring Charge.........................................          -                5
     Net Changes in Certain Current Assets and Liabilities:
       Accounts Receivable...........................................................        (127)             (72)
       Taxes Payable..................................................................          8                -
       Accounts Payable...............................................................         55              113
       Interest Payable...............................................................         24               12
       Other Current Assets and Liabilities...........................................          2              (28)
     Other............................................................................          5                7
                                                                                        -------------    -------------
     Net Cash Provided by Operating Activities........................................        161              142
                                                                                        -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Investments in Partnerships and Joint Ventures....................................        (125)            (147)
   Investments in Capital Leases......................................................       (442)            (459)
   Acquisitions, Net of Cash Provided.................................................       (532)             (15)
   Proceeds from Sales of Capital Leases..............................................          1                9
   Additions to Property, Plant and Equipment.........................................       (120)              (6)
   Additions to Deferred Project Costs................................................        (23)              (2)
   Return of Capital from Partnerships................................................          2               72
   Other..............................................................................        (72)             (14)
                                                                                        -------------    -------------
     Net Cash Used in Investing Activities............................................     (1,311)            (562)
                                                                                        -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from Additional Paid-in Capital...........................................        400              300
   Net (Decrease) Increase in Short-Term Debt.........................................       (227)              11
   Net Increase (Decrease) in Short-Term Intercompany Borrowings......................         65               (2)
   Cash Dividends Paid...............................................................         (20)             (27)
   Repayment of Long-Term Debt........................................................       (252)            (154)
   Proceeds from Long-Term Debt.......................................................      1,195              299
   Other.............................................................................           8                6
                                                                                        -------------    -------------
     Net Cash Provided by Financing Activities........................................      1,169              433
                                                                                        -------------    -------------
Effect of Exchange Rates on Cash......................................................         (1)               -
                                                                                        -------------    -------------
Net Change in Cash and Cash Equivalents...............................................         18               13
Cash and Cash Equivalents at Beginning of Period......................................         22               43
                                                                                        -------------    -------------
Cash and Cash Equivalents at End of Period............................................    $    40          $    56
                                                                                        =============    =============

Supplemental Disclosure of Cash Flow Information:
   Cash Payments (Receipts) During the Period for:
     Income Tax.......................................................................    $   (50)         $  (112)
     Interest.........................................................................    $    93          $    44
Non-Cash Investing and Financing Activities:
     Fair Value of Property, Plant and Equipment Acquired.............................    $   628          $     1
     Debt Assumed from Companies Acquired.............................................    $   221          $     9

See Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>
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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 Tanir Bavi
Power Company Private Ltd, (Tanir Bavi) an electric generation facility in India
from 49% to 74%. In the second quarter of 2001, Global increased its interest in
Empresa  Distribuidora de Electricidad de Entre Rios S.A,  (EDEERSA) an electric
distribution  facility in  Argentina  from 41% to 90%.  In the third  quarter of
2001,  Global purchased a 94% interest in Sociedad Austral de Electricidad  S.A,
(SAESA) an electric  distribution and transmission company in Chile. The assets,
liabilities,  revenues and expenses of majority-owned  subsidiaries,  over which
Global  exercises  control and for which  control is other than  temporary,  are
consolidated.

     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) update and supplement
matters  discussed in Energy  Holdings  2000 Annual  Report on Form 10-K and the
Quarterly  Reports on Form 10-Q for the  quarters  ended March 31, 2001 and June
30, 2001 and should be read in conjuction with those Notes.

     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 to the current presentation.

Note 2.  Purchase Business Combinations/Asset Acquisitions

     Energy  Holdings has  accounted for the  following  transactions  using the
purchase  method  of  accounting.   Accordingly,  the  purchase  price  of  each
transaction has been allocated based upon the estimated fair value of the assets
and the  liabilities  acquired  as of the  acquisition  date,  with  any  excess
reflected  as Goodwill.  The  preliminary  purchase  price  allocations  for the
acquisitions are subject to adjustment when finalized.

     In September  2000,  Global acquired a 49% interest in Tanir Bavi, a 220 MW
barge mounted,  combined-cycle  generating facility located in India. In January
2001, Global paid $2 million (net of cash acquired) to acquire an additional 25%
interest in the  project  bringing  its total  ownership  interest  to 74%.  The
purchase price was allocated to Property,  Plant and  Equipment,  Long-Term Debt
and did not impact the recorded amount of Goodwill.

     In June 2001,  Global  exercised its option to acquire an additional 49% of
EDEERSA,  bringing  its  total  ownership  of  EDEERSA  to 90%.  The  additional
ownership was purchased  for $110 million.  The purchase  price was allocated to
Property,  Plant and  Equipment,  Long-Term Debt and did not impact the recorded
amount of Goodwill.

<PAGE>
     In August 2001, Global purchased a 94% equity stake in SAESA and all of its
subsidiaries from Compania de Petroleos de Chile S.A.  (COPEC).  The SAESA group
of  companies  consists  of four  distribution  companies  and one  transmission
company  that  provide   electric   service  in  the  southern  part  of  Chile.
Additionally, Global purchased from COPEC approximately 14% of Empresa Electrica
de la Frontera S.A. (Frontel) not owned by SAESA. SAESA also owns a 50% interest
in the Argentine distribution company Empresa Electrica del Rio Negro S.A. As of
September  30,  2001 Global has spent $419  million  (net of cash  acquired)  to
acquire a 94%  interest in SAESA and a 14%  interest in  Frontel.  The  purchase
price was allocated to Property,  Plant and  Equipment,  Long-Term Debt and $213
million to Goodwill.  In October  2001,  Global  completed a tender offer for an
additional 6% of publicly trades SAESA shares, for approximately $25 million.

Note 3.  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  (loss)  of  $9  million  and  $(15)  million,
respectively.  As of  September  30,  2001,  the fair value of Energy  Holdings'
derivative   assets  and   liabilities   were  $27  million  and  $56   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 September 30, 2001, Energy Holdings recorded a
net decrease of $23 million in  Partnership  Interests to recognize its pro-rata
share of net derivative liabilities recorded by partnerships accounted for under
the equity method of accounting.

     The Financial Accounting  Standards Board (FASB) Derivative  Implementation
Group (DIG) issued  guidance,  effective  January 1, 2002,  regarding the normal
purchases  and normal sales  exception  for  option-type  contracts  and forward
contracts in  electricity.  In addition,  the FASB DIG issued amended  guidance,
effective  April 1, 2002,  regarding  the  normal  purchases  and  normal  sales
exception to contracts  that combine a forward  contract and a purchased  option
contract.  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
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  will 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,   annual  impairment  reviews  may  result  in  future  periodic
write-downs. Acquisitions made subsequent to June 30, 2001 will be accounted for
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.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets." SFAS No. 144 modifies the rules
for  accounting  for the  impairment or disposal of long-lived  assets.  The new
rules become  effective for fiscal years beginning after December 15, 2001, with
earlier  application  encouraged.  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 4.  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
September  30, 2001 and  December  31,  2000 were $27 million and $115  million,
respectively.  The decrease in the recorded  amount of investments was primarily
due to the sales of its interests in equity securities which had a fair value of
$66 million on  December  31,  2000 and a decline in the  valuation  of publicly
traded equity  securities  held within its limited  partnerships.  The potential
change in fair value  resulting from a hypothetical  10% change in quoted market
prices of these  investments  amounted to $2 million and $9 million at September
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 September 30, 2001,  Global and Resources had assets  located or held
in international  locations of approximately  $3.014 billion and $1.406 billion,
respectively.

     Resources'  international  investments  are primarily  leveraged  leases of
assets located in Australia,  Austria, Belgium, China, Germany, the Netherlands,
the United Kingdom, 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,  Taiwan,  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 (Loss), a separate component of
Stockholder's   Equity.   As  of  September  30,  2001,  net  foreign   currency
devaluations  have  reduced  the  reported  amount  of  Energy  Holdings'  total
Stockholder's  Equity  by  $278  million  (after-tax),  of  which  $190  million
(after-tax) 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, interest rate swaps and interest
rate lock  agreements.  As of September 30, 2001, a  hypothetical  10% change in
market  interest  rates would result in a $3 million  change in annual  interest
costs related to short-term and floating rate debt at Energy Holdings.
<PAGE>

     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

     Recent  events in the  California  energy  markets  affected  Pacific Gas &
Electric Company (PG&E), one of the state's largest  utilities,  and starting on
February  1, 2001  resulted  in PG&E's  failure  to pay the full  amount due for
energy  delivered by three of Global's  project  affiliates:  GWF Power Systems,
L.P. (GWF),  Hanford L.P. (Hanford) and Thermal Energy Development  Partnership,
L.P.  (Tracy),  in late 2000 and early 2001. On March 27, 2001,  the  California
Public Utilities  Commission (CPUC) approved a substantial  increase in electric
retail rates and directed the state's  electric  utilities,  including  PG&E, to
make payment to suppliers for current energy deliveries.  On April 6, 2001, PG&E
filed for protection under Chapter 11 of the U.S. Bankruptcy Code asserting that
such  rate  increase  was  insufficient  to meet its  obligations  under  energy
purchase agreements. Amounts due to Global's project affiliates from PG&E at the
time  of its  bankruptcy  filing  (pre-petition  payables)  remain  outstanding.
However,  PG&E has subsequently paid, on a timely basis, the appropriate amounts
due to Global's project affiliates for power deliveries commencing April 6, 2001
(post-petition  payables) in compliance  with the CPUC order.  On June 13, 2001,
the CPUC issued an order  declaring as reasonable and prudent any amendment to a
power purchase agreement with eligible qualifying  facilities that conformed the
energy price to a certain  fixed-price  for a five-year term. In July 2001, GWF,
Hanford and Tracy entered into an agreement with PG&E (Agreement) and amendments
to their power  purchase  agreements  with PG&E that contained the CPUC approved
pricing for a term of five years  commencing  July 16, 2001.  In addition,  PG&E
agreed to assume  GWF's,  Hanford's and Tracy's power  purchase  agreements  and
elevate the outstanding pre-petition payables to administrative priority status.
The Agreement provides that the pre-petition  payables and interest thereon will
be  paid  pursuant  to  PG&E's  plan of  reorganization.  The  Bankruptcy  Court
subsequently  approved  the  Agreement,  the  amendments  to the power  purchase
agreements and the assumption of the contracts.

     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.

     As of  September  30,  2001,  GWF,  Hanford  and Tracy  still had  combined
pre-petition receivables due from PG&E for all plants amounting to approximately
$62 million.  Global's pro-rata share of this receivable was $30 million. During
the third  quarter of 2001,  GWF,  Hanford  and Tracy  reversed  the $25 million
allowance for doubtful acccounts which increased operating income by $14 million
(of which Global's share was $7 million) with the remaining amount recorded as a
reserve for certain unresolved  matters.  As of September 30, 2001, GWF, Hanford
and Tracy  maintained  a reserve of $11 million (of which  Global's  share is $5
million) to reflect the amount of potential  counterclaims  alleged by PG&E. The
amounts received and the timeliness of payment are subject to legal, regulatory,
and  legislative  developments  and Energy  Holdings  cannot  predict  the final
resolution.

Note 5.  Income Taxes

     Energy  Holdings'  effective tax rate was 20% and 29% for nine months ended
September 30, 2001 and 2000,  respectively.  Energy Holdings' effective tax rate
differs from the statutory  federal  income tax rate of 35% primarily due to the
imposition  of state  taxes and the fact that  Global  accounts  for most of its
foreign investments using the equity method of accounting. Under such accounting
method,  Global reflects in revenues its pro rata share of the  investment's net
income.  Under this accounting  method, the foreign income taxes are embedded in
revenues thereby distorting the effective tax rate downward. For the nine months
ended September 30, 2001,  Energy Holdings realized income from foreign projects
that were  consolidated  and  foreign  income  tax  reflected  to  include  such
consolidated projects was $2 million.

<PAGE>
     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.

Note 6.  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  September 30,
   2001:
   Total Operating Revenues.............     $   125      $    50       $   135       $     -      $   310
   Segment Earnings (Loss) Available to
   PSEG.................................     $    18      $     9       $    (3)      $    (1)     $    23
 --------------------------------------------------------------------------------------------------------------

   For the Quarter  Ended  September 30,
   2000:
   Total Operating Revenues.............     $    48      $    40       $    96       $     -      $   184
   Segment Earnings (Loss) Available to
   PSEG.................................     $    16      $     7       $     -       $    (2)     $    21
 --------------------------------------------------------------------------------------------------------------

   For the Nine Months Ended
   September 30, 2001:
   Total Operating Revenues.............     $   251      $   134       $   348       $     1      $   734
   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.................................     $    77      $    27       $   (15)      $     -      $    89
 --------------------------------------------------------------------------------------------------------------

   For the Nine Months Ended
   September 30, 2000:
   Total Operating Revenues.............     $   119      $   131       $   317       $     1      $   568
   Segment Earnings (Loss) Available to
   PSEG.................................     $    21      $    36       $   (12)      $    (4)     $    41
 --------------------------------------------------------------------------------------------------------------

   As of September 30, 2001:
   Total Assets.........................     $ 3,541      $ 3,109       $   326       $    66      $ 7,042
 --------------------------------------------------------------------------------------------------------------

   As of December 31, 2000:
   Total Assets.........................     $ 2,271      $ 2,564       $   312       $    51      $ 5,198
 --------------------------------------------------------------------------------------------------------------

(A)  Other includes amounts applicable to Energy Holdings (parent  corporation),
     Enterprise  Group  Development  Corporation,  PSEG Capital  Corporation and
     intercompany eliminations.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
     Geographic information for Energy Holdings is disclosed below.


                                              Revenues (1)                              Identifiable Assets (2)
                            --------------------------------------------------     -----------------------------------
                               Quarter Ended            Nine Months Ended
                               September 30,              September 30,             September 30,       December 31,
                            ----------------------    ------------------------     -----------------  ----------------
                               2001         2000         2001          2000              2001                2000
                            ----------    --------    -----------    ---------     -----------------  ----------------
                                                              (Millions of Dollars)
<S>                          <C>           <C>          <C>            <C>            <C>                   <C>
United States.........       $  187        $ 137        $  511         $ 428          $    2,622            $  2,208
Foreign Countries.....          123           47           223           140               4,420               2,990
                            ----------    --------     ----------    ---------     ----------------    ---------------
     Total............       $  310        $ 184        $  734         $ 568          $    7,042            $  5,198
                            ----------    --------     ----------    ---------     ----------------    ---------------
</TABLE>

<TABLE>
<CAPTION>
<S>                                                                                    <C>                 <C>
Identifiable investments in foreign countries include:
   Chile and Peru (3)..........................................................        $  1,163            $    520
   Netherlands.................................................................             890                 815
   Argentina ..................................................................             743                 470
   Brazil (4)..................................................................             248                 295
   India (5) ..................................................................             247                  51
   Tunisia (6) ................................................................             227                 155
   Other.......................................................................             902                 684
                                                                                   ----------------    ----------------
       Total...................................................................        $  4,420            $  2,990
                                                                                   ================    ================

(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  identifiable   assets  are  net  of  foreign  currency   translation
     adjustment of $(310) million  (pre-tax) as of September 30, 2001 and $(225)
     million (pre-tax) as of December 31, 2000.

(3)  Amount is net of foreign currency  translation  adjustment of $(79) million
     (pre-tax)  as of  September  30,  2001 and $(44)  million  (pre-tax)  as of
     December 31, 2000.

(4)  Amount is net of foreign currency translation  adjustment of $(212) million
     (pre-tax)  as of  September  30, 2001 and $(167)  million  (pre-tax)  as of
     December 31, 2000.

(5)  Amount is net of foreign  currency  translation  adjustment of $(4) million
     (pre-tax)  as of  September  30,  2001 and  $(2)  million  (pre-tax)  as of
     December 31, 2000.

(6)  Amount is net of foreign  currency  translation  adjustment of $(4) million
     (pre-tax)  as of  September  30,  2001 and  $(1)  million  (pre-tax)  as of
     December 31, 2000.

</TABLE>

<PAGE>

Note 7.  Comprehensive Income
<TABLE>
<CAPTION>

                                                                           Quarter Ended          Nine Months Ended
                                                                          September 30,             September 30,
                                                                      ----------------------    ----------------------
                                                                        2001         2000          2001         2000
                                                                      --------    ----------    ---------    ---------
                                                                                   (Millions of Dollars)

<S>                                                                    <C>         <C>           <C>          <C>
Net Income......................................................       $  29       $  27         $ 106        $  60
Foreign currency translation adjustments (A)....................         (37)         (8)          (75)          12
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.................................................         (18)         --           (19)          --
                                                                      --------    ----------    ---------    ---------
Comprehensive income............................................       $ (26)      $  19         $  (3)       $  72
                                                                      ========    ==========    =========    =========

(A)  Net of tax of $4 million and $1 million for the  quarters  ended  September
     30, 2001 and 2000,  respectively,  and $8 million and $(1)  million for the
     nine months ended September 30, 2001 and 2000, respectively.

</TABLE>

Note 8.  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  $238 million as of September 30, 2001. A  substantial  portion of
such  guarantees is cancelled 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,  through  Dhofar  Power  Company  (DPCO),  signed a
20-year  concession with the government of Oman to privatize the electric system
of Salalah. A consortium led by Global and several major Omani investment groups
owns DPCO.  The  project  will  enhance  the  existing  network  of  generation,
transmission and delivery assets and is expected to add 195 MW of new generating
capacity.  The project achieved  financial  closure in August 2001 and commenced
construction  in September  2001. The project is expected to achieve  commercial
operation  by March 2003.  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
with the California  Department of Water Resources to provide 340 MW of electric
capacity to California from three new natural  gas-fired  peaker plants that GWF
Energy  expects  to build and  operate  in  California.  Total  project  cost is
estimated at $310 million. The first plant, a 90 MW facility,  was completed and
began operation in August 2001.  Global's  permanent equity  investment in these
plants,  including  contingencies,  is not expected to exceed $100 million after
completion of project financing, expected to occur in 2002.

     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.  Global's closing for this acquisition is scheduled
for the fourth quarter of 2001 and may be dependent  upon  resolution of certain
matters  regarding  applicable  tax  rates.  Electroandes  is the sixth  largest
electric  generator in Peru with a 6% market  share.  Electroandes'  main assets
include four hydroelectric  facilities with a combined installed capacity of 183
MW and 460 miles of  transmission  lines  located in the Central  Andean  region
(northeast  of Lima).  In addition,  Electroandes  has the  exclusive  rights to
develop  a 100 MW  expansion  of an  existing  station  and a 150 MW  greenfield
hydroelectric  facility.  In 2000,  Electroandes  generated  1,150  gigawatts of
electrical  energy,  of which 97% was sold through power purchase  agreements to
mining companies in the region.

<PAGE>

     In August 2001, Global purchased a 94% equity stake in SAESA and all of its
subsidiaries  from  COPEC.  The  SAESA  group  of  companies  consists  of  four
distribution  companies  and one  transmission  company  that  provide  electric
service in the  southern  part of Chile.  Additionally,  Global  purchased  from
COPEC,  approximately  14% of Frontel not owned by SAESA.  SAESA also owns a 50%
interest in the Argentine  distribution  company Empresa Electrica del Rio Negro
S.A. Collectively, the companies serve more than 615,000 customers. The purchase
approximated  $460 million,  including a tender offer for 6% of publicly  traded
SAESA shares in October 2001.

     In August 2001,  Global  entered into an agreement to sell its interests in
several joint ventures in Argentina to a subsidiary of the AES Corporation (AES)
for $376  million.  The  transaction  will  involve the transfer of Global's 30%
interest in three Argentine  distribution  companies,  Empresa  Distribuidora de
Energia Norte S.A. (EDEN),  Empresa Distribuidora de Energia Sur S.A. (EDES) and
Empresa  Distribuidora La Plata S.A. (EDELAP), a 19% share in the 650 MW Central
Termica San Nicolas power plant (CTSN),  and a 33% interest in the 830 MW Parana
power plant (Parana) nearing the completion of  construction.  Payment terms for
the  transaction  include a 10% down payment with the  remainder of the purchase
price  payable  under a promissory  note to be issued by a subsidiary  of AES to
Global and collateralized by AES subsidiary's interest in the assets. The assets
pending  sale are  classified  as  Assets  Held For  Sale.  Consummation  of the
transaction  is subject to the parties  obtaining  certain lender and regulatory
approvals and is expected to occur in early 2002.

     As of September 30, 2001,  Global's  investments  in the Texas  Independent
Energy (TIE) partnership  include $161 million of loans that earn interest at an
annual rate of 12%. Of the $161 million  currently  outstanding,  $83 million is
scheduled  to be repaid in full in February  2002 and $78 million will be repaid
over the next 12 years.

     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 material  adverse effect on its financial
statements  as a result of these  proceedings,  although  no  assurances  can be
given.

Note 9. 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  $7 million and $24 million for the quarter and nine months  ended
September 30, 2001, respectively. As of September 30, 2001, Energy Holdings' and
its   subsidiaries'   related  party   payables   related  to  these  costs  was
approximately $2 million.

     For the nine months ended September 30, 2001, PSEG invested $400 million of
additional  equity in Energy  Holdings,  the proceeds of which were used to fund
additional investments at Global.

<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
Reports on Form 10-Q for the  quarters  ended  March 31,  2001 and June 30, 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' Earnings Available to PSEG for the quarter and nine months
ended  September  30, 2001  increased $2 million or 10% and $48 million or 117%,
respectively,  from the comparable  periods in 2000.  Earnings Available to PSEG
increased  for both  periods  primarily  due to earnings  from  Global's  recent
acquisitions and Interest Income recorded on certain notes receivable and loans,
and Resources'  higher  leveraged  lease income,  partially  offset by increased
Interest Expense,  lower earnings from Global's investment in Rio Grande Energia
(RGE) and lower earnings at Energy Technologies.  Earnings Available to PSEG for
the nine  months  ended  September  30,  2001 were also  impacted by the gain on
Global's   withdrawal  from  its  interest  in  the  Eagle  Point   Cogeneration
Partnership  (Eagle Point),  partially  offset by a net decrease in the carrying
value of publicly traded equity securities within certain leveraged buyout funds
at Resources.

Energy Holdings -- Revenues

     Revenues  increased  $126  million  or 68% and $166  million or 29% for the
quarter  and nine  months  ended  September  30,  2001,  respectively,  from the
comparable periods in 2000.

     Revenues for the quarter ended  September 30, 2001 increased $77 million at
Global,  primarily  attributable  to the $70 million of Electric  Generation and
Distribution  revenues  recorded in connection with the acquisitions of ELCHO in
the third quarter of 2000,  EDEERSA in the second quarter of 2001,  SAESA in the
third quarter of 2001, and the  commencement  of operations at Tanir Bavi in the
second quarter of 2001. In addition, revenues benefited from the increase of $17
million in Interest  Income  recorded in  connection  with the  promissory  note
pending Global's sale of its interest in three Argentine distribution companies,
EDEN, EDES and EDELAP,  and the CTSN and Parana power plants, to a subsidiary of
AES, the loans to TIE, and the note received as consideration for the withdrawal
from its interest in Eagle Point.  Increased  earnings from other  projects also
benefited  the increase in revenues for the quarter  ended  September  30, 2001.
These  increases were partially  offset by lower revenues of $9 million due to a
reduction  in  earnings  at RGE,  an  electric  distribution  company in Brazil,
primarily  related  to the  adverse  effect  of  exchange  rate  changes  in the
Brazilian Real and the continued economic slowdown in Brazil and $7 million from
lower  revenues  from  Global's  withdrawal  from its interest in Eagle Point in
January 2001.

     Revenues for the quarter ended  September 30, 2001 increased $10 million at
Resources  primarily  due  to  higher  leveraged  lease  income  from  continued
investment in such financing transactions.

     Revenues for the quarter ended  September 30, 2001 increased $39 million at
Energy  Technologies   primarily  due  to  increased  sales  in  its  mechanical
contracting business.

     Revenues  for the nine  months  ended  September  30, 2001  increased  $132
million  at  Global  primarily  attributable  to the  $70  million  of  Electric
Generation  and   Distribution   revenues   recorded  in  connection   with  the
acquisitions  of ELCHO in the  third  quarter  of 2000,  EDEERSA  in the  second
quarter of 2001,  SAESA in the third quarter of 2001,  and the  commencement  of
operations  at Tanir  Bavi in the  second  quarter of 2001.  A net  increase  in
revenues of $33 million was realized  from the gain on the  withdrawal  from its
interest in Eagle Point partially  offset by lower equity in earnings related to
the  withdrawal  from its interest in Eagle Point in January  2001. In addition,
revenues  benefited from an increase of $30 million in Interest  Income recorded
in connection  with the note received as  consideration  for the withdrawal from
its interest in Eagle Point,  the loans to TIE, and the promissory  note pending
the sale of EDEN, EDES, EDELAP, CTSN and Parana to a subsidiary of AES. Revenues
increased an additional  $10 million from  increased  earnings at Chilquinta and
Luz del Sur.  Increased earnings from other projects also benefited the increase
in revenues for the nine months ended  September 30, 2001.  These increases were
partially offset by lower revenues of $21 million due to a reduction in earnings
at RGE primarily  related to the adverse  effect of exchange rate changes in the
Brazilian Real and the continued economic slowdown in Brazil.

     Revenues for the nine months ended  September 30, 2001 increased $3 million
at  Resources  primarily  due to improved  revenues  of $35 million  from higher
leveraged lease income from continued  investment by Resources in such financing
transactions  and increased  limited  partnership  income.  These increases were
partially offset by lower Net Investment Gains (Losses) of $32 million, of which
$28  million  resulted  from a net  decrease in the  carrying  value of publicly
traded equity securities within certain leveraged buyout funds.

     Revenues for the nine months ended September 30, 2001 increased $31 million
at Energy  Technologies  due to increased  sales in its  mechanical  contracting
business.

Energy Holdings -- Operating Expenses

     Operating  expenses increased $98 million or 84% and $98 million or 25% for
the quarter and nine months ended  September  30, 2001,  respectively,  from the
comparable periods in 2000.

     Operating  expenses for the quarter ended  September 30, 2001  increased by
$57  million  at  Global,   primarily  attributable  to  the  operating  results
consolidated  in connection with the  acquisitions of SAESA,  ELCHO and EDEERSA,
and the commencement of operations at Tanir Bavi. Energy Technologies' operating
expenses  increased  by $42 million due to an increase in the volume and cost of
mechanical contract sales.

     Operating  expenses for the nine months ended  September 30, 2001 increased
by $61 million at Global,  primarily  attributable to the consolidated operating
results from the acquisitions of SAESA,  ELCHO, and EDEERSA and the commencement
of operations at Tanir Bavi. Energy  Technologies'  operating expenses increased
by $37 million due to an increase in the volume and cost of mechanical  contract
sales,  cost overruns of mechanical  contracts and the increased cost of outside
services  due  to  the  continued  integration  of  its  mechanical  contracting
business.  These increased costs at Energy Technologies were partially offset by
a reduction in restructuring charges.

Energy Holdings -- Net Interest Expense and Preferred Stock Dividend
                   Requirements

     Net Interest  Expense and Preferred Stock Dividend  Requirements  increased
$23 million or 62% and $25 million or 21% for the quarter and nine months  ended
September 30, 2001, respectively, from the comparable periods in 2000.

     As of September 30, 2001 and December 31, 2000,  Energy  Holdings had total
debt  outstanding of $3.231 billion and $2.182 billion,  respectively,  of which
$681  million  and  $354  million,  respectively,  was  non-recourse  to  Energy
Holdings. The increase of $1.049 billion in outstanding debt for the nine months
ended  September 30, 2001 was  primarily  related to the sale of $400 million of
8.625%  Senior  Notes due 2008 in February  2001 and $550 million of 8.5% Senior
Notes due 2011 in July 2001.  The net  proceeds  were used for the  repayment of
short-term debt  outstanding  from  intercompany  loans from PSEG and borrowings
under  revolving  credit  facilities  and to  fund  the  growth  of  Global  and
Resources.  Borrowings  under the revolving  credit  facilities and intercompany
loans  from PSEG  were used to fund the  growth  of  Global  and  Resources.  In
addition,  the  non-recourse  debt increased due to the  acquisitions  of SAESA,
Tanir Bavi and  EDEERSA and the  continued  drawdown  of the loan  facility  and
working capital facility agreements by these consolidated projects and ELCHO and
Carthage Power Company  (Carthage) located in Rades,  Tunisia.  Interest expense
incurred by projects under construction is capitalized.

<PAGE>

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                    Nine Months Ended
                                                            September 30,                      September 30,
                                                      ---------------------------        ---------------------------
                                                        2001            2000               2001            2000
                                                      -----------     -----------        -----------     -----------
                                                                         (Millions of Dollars)
<S>                                                     <C>             <C>                <C>             <C>
EBIT:
Global............................................      $   52          $   36             $  152          $   85
Resources.........................................          46              35                122             120
Energy Technologies...............................          (2)              1                (19)            (15)
Other.............................................          (1)             (3)                (5)             (6)
                                                      -----------     -----------        -----------     -----------
    Total EBIT....................................      $   95          $   69             $  250          $  184
                                                      ===========     ===========        ===========     ===========
</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 30 operating generation
projects totaling 4,964 MW (1,935 MW net of other partners'  interests)  located
in the United States, Argentina,  China, India, Poland and Venezuela. Global has
ownership  interests  in 15  projects  totaling  3,210  MW  (1,577  MW  net)  in
construction  or advanced  development  that are  located in the United  States,
Argentina, China, India, Italy, Oman, Poland, Taiwan, Tunisia and Venezuela. For
a discussion of the pending sale of certain projects  located in Argentina,  see
Note 8. Commitments and Contingencies of Notes.

     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 were 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 Carthage Power Company,
an electric generation facility under construction in Rades, Tunisia from 35% to
60% and  completed  project  financing for a 90% economic  interest in ELCHO,  a
power plant in Poland.

     In the first quarter of 2001,  Global increased its interest in Tanir Bavi,
an electric  generation facility in India from 49% to 74%. In the second quarter
of 2001,  Global  increased  its interest in EDEERSA,  an electric  distribution
facility  in  Argentina  from 41% to 90%. In the third  quarter of 2001,  Global
purchased  a 94%  interest in SAESA,  a group of  companies  consisting  of four
distribution  companies  and one  transmission  company  that  provide  electric
service in Chile and a distribution company in Argentina. 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.

<PAGE>
     Summary Results - Global
<TABLE>
<CAPTION>

                                                            Quarter Ended                    Nine Months Ended
                                                            September 30,                      September 30,
                                                      ---------------------------        ---------------------------
                                                        2001            2000               2001            2000
                                                      -----------     -----------        -----------     -----------
                                                                         (Millions of Dollars)
<S>                                                     <C>             <C>                <C>             <C>
EBIT:
Revenues......................................          $  125          $   48             $  251          $  119
Expenses......................................              71              14                 98              37
                                                      -----------     -----------        -----------     -----------
Operating Income..............................              54              34                153              82
Other Income..................................              (2)              2                 (1)              3
                                                      -----------     -----------        -----------     -----------
EBIT..........................................          $   52          $   36             $  152          $   85
                                                      ===========     ===========        ===========     ===========

</TABLE>

     Global's EBIT  contribution  increased $16 million or 44% and increased $67
million or 79% for the quarter and nine months ended September 30, 2001 from the
comparable periods in 2000, respectively.

     The Global EBIT  contribution  increase for the quarter ended September 30,
2001 was primarily  attributable to a net $16 million increase in EBIT resulting
from the earnings  related to the  acquisitions of ELCHO in the third quarter of
2000, EDEERSA in the second quarter of 2001, SAESA in the third quarter of 2001,
and the  commencement of operations at Tanir Bavi in the second quarter of 2001.
In addition,  EBIT benefited from an increase of $17 million in Interest  Income
recorded in connection  with the  promissory  note pending  Global's sale of its
interest in three Argentine distribution  companies,  EDEN, EDES and EDELAP, and
the CTSN and Parana power  plants to a subsidiary  of AES, the loans to TIE, and
the note received as consideration for the withdrawal from its interest in Eagle
Point.  EBIT from other  projects  also  benefited  the increase in EBIT for the
quarter ended September 30, 2001. These increases were partially offset by lower
revenues of $9 million due to a reduction in earnings at RGE  primarily  related
to the adverse  effect of exchange  rate changes in the  Brazilian  Real and the
continued  economic  slowdown in Brazil and $7 million from lower  revenues from
Global's withdrawal from its interest in Eagle Point in January 2001.

     The Global EBIT  contribution  increase for the nine months ended September
30,  2001 was  primarily  attributable  to a net $33  million  increase  in EBIT
realized  from the gain on the  withdrawal  from its  interest  in Eagle  Point,
partially  offset by lower equity in earnings related to the withdrawal from its
interest in Eagle Point in January 2001. A net $21 million  increase in EBIT was
realized  from the earnings  related to the  acquisitions  of ELCHO in the third
quarter  of 2000,  EDEERSA in the  second  quarter  of 2001,  SAESA in the third
quarter of 2001, and the  commencement of operations at Tanir Bavi in the second
quarter of 2001. In addition,  EBIT benefited from an increase of $30 million in
Interest Income recorded in connection with the promissory note pending Global's
sale of its interest in three Argentine distribution  companies,  EDEN, EDES and
EDELAP,  and the CTSN and Parana power plants, to a subsidiary of AES, the loans
to TIE,  and the note  received as  consideration  for the  withdrawal  from its
interest in Eagle Point. EBIT increased an additional $10 million from increased
earnings at Chilquinta  and Luz del Sur. EBIT from other projects also benefited
the  increase  in EBIT for the nine  months  ended  September  30,  2001.  These
increases  were  partially  offset by lower  revenues  of $21  million  due to a
reduction in earnings at RGE primarily related to the adverse effect of exchange
rate  changes in the  Brazilian  Real and the  continued  economic  slowdown  in
Brazil,  and a $4 million increase in corporate  operating  expenses incurred as
Global  continues to grow its  business.  Other  Income  decreased by $4 million
primarily due to $3 million of foreign  currency  transaction  gains recorded in
2000 and a $1 million reduction in the fair value of derivatives in 2001.

     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                    Nine Months Ended
                                                             September 30,                      September 30,
                                                       ---------------------------        ---------------------------
                                                         2001            2000               2001            2000
                                                       -----------    ------------        -----------    ------------
                                                                          (Millions of Dollars)
<S>                                                      <C>            <C>                 <C>            <C>
Revenues.........................................        $    50        $    40             $   134        $   131
Expenses.........................................              4              5                  12             11
                                                       -----------    ------------        -----------    ------------
Operating Income and EBIT........................        $    46        $    35             $   122        $   120
                                                       ===========    ============        ===========    ============

</TABLE>


     Resources' EBIT contribution increased $11 million or 31% and $2 million or
2% for the quarter and nine months ended  September 30, 2001 from the comparable
periods in 2000, respectively.

     The Resources' EBIT  contribution  increase for the quarter ended September
30, 2001 was  primarily  due to higher  leveraged  lease  income from  continued
investment in such financing transactions.

     The  Resources'  EBIT  contribution  increase  for the  nine  months  ended
September  30,  2001  was  due to  improved  revenues  of $3  million  primarily
attributable  to higher  leveraged  lease income of $34 million  from  continued
investment  in such  financing  transactions,  partially  offset  by  lower  Net
Investment  Gains (Losses) of $32 million,  of which $28 million resulted from a
net decrease in the carrying value of publicly traded equity  securities  within
certain leveraged buyout funds.

     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                   Nine Months Ended
                                                              September 30,                     September 30,
                                                       ------------------------------    -----------------------------
                                                          2001             2000             2001             2000
                                                       ------------     -------------    ------------     ------------
                                                                           (Millions of Dollars)
<S>                                                      <C>              <C>              <C>              <C>
Revenues..........................................       $  135           $   96           $  348           $  317
Expenses..........................................          137               95              369              332
                                                       ------------     -------------    ------------     ------------
Operating Income..................................           (2)               1              (21)             (15)
Other Income......................................           --               --                2               --
                                                       ------------     -------------    ------------     ------------
EBIT..............................................       $   (2)          $    1           $  (19)          $  (15)
                                                       ============     =============    ============     ============
</TABLE>

     Energy Technologies' EBIT contribution  decreased $3 million and $4 million
for the quarter and nine months ended  September 30, 2001,  from the  comparable
periods in 2000, respectively.

     The Energy  Technologies EBIT  contribution  decrease for the quarter ended
September 30, 2001 resulted  primarily from lower margins  recorded on increased
sales.

     The Energy  Technologies  EBIT  contribution  decrease  for the nine months
ended  September  30, 2001 resulted  primarily  from cost overruns of mechanical
contracts  and lower  margins on sales  recorded  in the third  quarter of 2001.
Energy Technologies also experienced an increase in the cost of outside services
due to the continued  integration of its mechanical  contracting  business.  The
EBIT contribution  decrease was partially offset by a reduction in restructuring
charges.

<PAGE>

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 Matters

     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,  owned by 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)  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

(3)  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 Final Order,  modifications  to or relief from the
Focused Audit might be warranted.  PSE&G must make a filing in the first quarter
of 2002 to address the  provisions  of the  Focused  Audit in light of the Final
Order.  Energy Holdings  believes that the BPU order issued in 1986 with respect
to the formation of PSEG (Holding Company Order), the Final Order and The Energy
Competition Act provide the appropriate regulatory framework in the restructured
electric and gas  markets,  and that the  provisions  of the Focused  Audit,  if
applicable,  will not  adversely  affect  its  financial  condition,  results of
operations  or net cash flows.  Regulatory  oversight  by the BPU to assure that
there is no harm to utility ratepayers from non-utility  investments is expected
to continue  under the Holding  Company  Order.  At September  30, 2001,  Energy
Holdings' assets were approximately 28% of PSEG's  consolidated  assets and PSEG
Capital debt amounted to $615 million.

     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  nine  months  ended  September  30,  2001,  Energy  Holdings'
subsidiaries made net investments totaling  approximately $1.311 billion.  These
net  investments  included  leveraged  lease  investments  of  $442  million  by
Resources and net  investments of $871 million by Global,  primarily  related to
the  acquisition  of SAESA  and  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.

     For the nine months ended September 30, 2001, PSEG invested $400 million of
additional  equity in Energy  Holdings,  the proceeds of which were used to fund
additional investments at Global

     For a discussion of Global's pending  investments,  see Note 8. Commitments
and Contingencies of Notes.

External Financings

     As of September 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 of which $91 million are  outstanding  as of  September  30,
2001. The 364-day facility and the five-year facility mature in May 2002 and May
2004,  respectively.  As of September 30, 2001, Energy Holdings had $200 million
borrowed under its revolving credit facilities.

     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.

     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.  In September 2001,  Energy
Holdings  filed a  registration  statement  with the SEC relating to an exchange
offer for, or the resale of, these Senior Notes.  The exchange offer is expected
to be completed during the fourth quarter of 2001.

     In September 2001, Energy Holdings filed a registration  statement with the
SEC  relating  to an exchange  offer for, or the resale of, the $400  million of
8.625% Senior Notes due 2008 sold in February 2001. The exchange offer for these
notes is expected to be completed during the fourth quarter of 2001.

     In October 2001, Energy Holdings obtained an uncommitted  credit line of up
to $100 million from a single  financial  institution,  which can be accessed as
market conditions warrant.

     In October  2001,  $135  million of 6.74%  medium term notes (MTN)  matured
under the PSEG  Capital  MTN  program  and were  refinanced  with funds from the
issuance of short-term debt at Energy Holdings.

     In October 2001, PSEG Chile Holdings,  a wholly-owned  subsidiary of Global
and a $US functional currency entity closed on $150 million of project financing
related to its investment in SAESA, a Chilean Peso functional  currency  entity.
The debt is variable  and is based on LIBOR.  In  connection  with this  project
financing,  PSEG  Chile  Holdings  entered  into two  foreign  currency  forward
exchange  contracts  with a  total  notional  amount  of $150  million.  The two
contracts  were  entered  into to hedge the peso/US  dollar  exposure on the net
investment. This transaction qualifies for hedge accounting under SFAS 133.

Foreign Operations

     As of September 30, 2001,  Global and Resources  had  approximately  $3.014
billion  and  $1.406  billion,  respectively,  of  international  assets.  As of
September  30,  2001,   foreign  assets  represented  60%  of  Energy  Holdings'
consolidated assets and the revenues related to those foreign assets contributed
30% to consolidated revenues for the nine months ended September 30, 2001.

     As of September  30, 2001,  approximately  $2.207  billion or 31% 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 41% since year-end 2000 from 1.9510 to
$1US to  2.7631  to $1US as of  September  30,  2001  and the  Chilean  Peso has
devalued  approximately 25% since year-end 2000 from 573.90 to $1US to 720.82 to
$1US as of September 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  $118 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 4. Financial Instruments and Risk Management of the Notes.

Business Environment

     Energy  Holdings is currently  evaluating the economic  consequences of the
September  11,  2001  terrorist  attacks  on the United  States  and  subsequent
developments,  particularly  their impact on accelerating the continued economic
slowdown in the United States and  worldwide.  The  consequences  of a prolonged
recession  may  include  the  continued  weakening  of  certain  Latin  American
currencies,  including  the Brazilian  Real and the Chilean  Peso,  lower energy
prices in power  markets,  including  power  markets  where  Global  invests  in
merchant  generation  assets,  and further  credit rating  downgrades of certain
airlines in the United States and  worldwide.  As of September 30, 2001,  $2.207
billion  or 31% of Energy  Holdings'  assets  were  invested  in Latin  America,
specifically in Brazil, Argentina, Chile, Peru and Venezuela and $196 million or
2% of Energy  Holdings'  assets were  comprised of  leveraged  leases of sixteen
aircraft  leased to six separate  lessees.  Energy  Holdings  cannot predict the
impact of any further currency devaluations,  continued economic slowdown, lower
energy prices and potential lessee payment defaults;  however, such impact could
have a material adverse effect on its financial condition, results of operations
and net cash flows.

Accounting Matters

     For a  discussion  of SFAS 133 and related DIG issues,  and SFAS 141,  SFAS
142, SFAS 143, and SFAS 144 see Note 3. 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;

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

o    acts of war and terrorism.

<PAGE>

                           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 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>
                                    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 M. DiRisio
                         -------------------------------
                                Derek M. DiRisio
                          Vice President and Controller
                         (Principal Accounting Officer)


Date: November 1, 2001