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                                  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 March 31, 2002

                                       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

     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.
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                            PSEG ENERGY HOLDINGS INC.
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                                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.......................    20

   Item 3. Qualitative and Quantitative Disclosures About
           Market Risk...............................................    32


PART II.  OTHER INFORMATION
---------------------------
   Item 1. Legal Proceedings.........................................    34

   Item 6. Exhibits and Reports on Form 8-K..........................    34

   Signature.........................................................    35

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                            PSEG ENERGY HOLDINGS INC.
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                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

<PAGE>
<TABLE>
<CAPTION>


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

                                                                                        For the Quarters Ended
                                                                                               March 31,
                                                                                   ----------------------------------
                                                                                       2002                2001
                                                                                   --------------     ---------------
<S>                                                                                    <C>                <C>
OPERATING REVENUES
   Energy Service Revenues..................................................           $   95             $   97
   Electric Generation and Distribution Revenues............................               92                  -
   Income from Capital and Operating Leases.................................               58                 47
   Income from Joint Ventures and Partnerships..............................               20                 33
   Interest and Dividend Income.............................................                9                  5
   Gain on Withdrawal from Partnership Interests............................                7                 51
   Net Losses on Investments................................................               (5)               (15)
   Other....................................................................               14                  7
                                                                                   --------------     ---------------
       Total Operating Revenues.............................................              290                225
                                                                                   --------------     ---------------
OPERATING EXPENSES
   Operation and Maintenance................................................               99                 93
   Electric Energy Costs....................................................               45                  -
   Administrative and General...............................................               31                 28
   Depreciation and Amortization............................................               11                  5
                                                                                   --------------     ---------------
       Total Operating Expenses.............................................              186                126
                                                                                   --------------     ---------------
OPERATING INCOME...........................................................               104                 99
OTHER (LOSS) INCOME
   Foreign Currency Transaction Loss........................................              (52)                 -
   Change in Fair Value of Derivative Financial Instruments.................               10                  1
   Other....................................................................                -                  1
                                                                                   --------------     ---------------
     Total Other (Loss) Income..............................................              (42)                 2
                                                                                   --------------     ---------------
INTEREST EXPENSE-NET........................................................              (57)               (38)
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
   CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE....................                5                 63
INCOME TAXES................................................................                -                (10)
                                                                                   --------------     ---------------
INCOME BEFORE EXTRAORDINARY ITEM AND
   CUMULATIVE EFFECT OF A CHANGE IN ACOUNTING PRINCIPLE.....................                5                 53
    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.................................................................                 5                 60
Preferred Stock Dividend Requirements.......................................               (6)                (6)
                                                                                   --------------     ---------------
EARNINGS AVAILABLE TO
   PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED.............................           $   (1)            $   54
                                                                                   ==============     ===============
See Notes to Consolidated Financial Statements.

</TABLE>
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<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)

                                                                                   (Unaudited)
                                                                                    March 31,          December 31,
                                                                                      2002                 2001
                                                                                 ----------------    -----------------
<S>                                                                                   <C>                 <C>
CURRENT ASSETS
   Cash and Cash Equivalents...............................................           $    68             $    56
   Accounts Receivable:
     Trade, net of doubtful accounts - 2002, $7; 2001, $7..................               264                 244
     Affiliated Companies..................................................                59                   -
     Other.................................................................                28                  21
   Notes Receivable........................................................               142                  26
   Assets Held for Sale....................................................               457                 422
   Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts..................................................................                14                  19
    Inventory..............................................................                15                  18
   Other Current Assets....................................................                11                   3
                                                                                 ----------------    -----------------
       Total Current Assets................................................             1,058                 809
                                                                                 ----------------    -----------------

PROPERTY, PLANT AND EQUIPMENT
   Electric Generation and Distribution Assets.............................               732                 863
   Construction in Progress................................................               369                 345
   Real Estate.............................................................               114                 115
   Property and Equipment..................................................                75                  88
                                                                                 ----------------    -----------------
        Total..............................................................             1,290               1,411
   Accumulated Depreciation and Amortization...............................              (167)               (190)
                                                                                 ----------------    -----------------
       Net Property, Plant and Equipment...................................             1,123               1,221
                                                                                 ----------------    -----------------

INVESTMENTS
   Capital Leases - Net....................................................             2,820               2,784
   Corporate Joint Ventures................................................             1,161               1,111
   Partnership Interests - Net.............................................               595                 659
   Other Investments.......................................................                62                  63
                                                                                 ----------------    -----------------
       Total Investments...................................................             4,638               4,617
                                                                                 ----------------    -----------------

OTHER ASSETS
   Goodwill................................................................               600                 628
   Deferred Costs..........................................................                66                  84
   Other...................................................................                80                  80
                                                                                 ----------------    -----------------
       Total Other Assets..................................................               746                 792
                                                                                 ----------------    -----------------

   TOTAL ASSETS............................................................            $7,565              $7,439
                                                                                 ================    =================
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>


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

                                                                                      (Unaudited)
                                                                                       March 31,           December 31,
                                                                                          2002                 2001
                                                                                    -----------------    -----------------
<S>                                                                                     <C>                  <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year........................................           $    288             $    270
   Short-Term Borrowings Due to Public Service Enterprise Group Incorporated.                  3                   38
   Accounts Payable:
     Trade...................................................................                116                  100
     Taxes..................................................................                  18                   21
     Interest...............................................................                  68                   49
     Other...................................................................                 41                   66
     Affiliated Companies....................................................                  3                   49
   Billing in Excess of Costs and Estimated Earnings on Uncompleted Contracts                 25                   19
   Non-Recourse Notes Payable................................................                284                  285
    Borrowings Under Lines of Credit.........................................                272                  300
                                                                                    -----------------    -----------------
       Total Current Liabilities.............................................              1,118                1,197
                                                                                    -----------------    -----------------

NONCURRENT LIABILITIES
   Deferred Income Taxes and Investment and Energy Tax Credits...............              1,241                1,211
   Other Noncurrent Liabilities..............................................                132                  101
                                                                                    -----------------    -----------------
       Total Noncurrent Liabilities..........................................              1,373                1,312
                                                                                    -----------------    -----------------

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

MINORITY INTERESTS...........................................................                 58                   66
                                                                                    -----------------    -----------------

CAPITALIZATION
   Project Level, Non-Recourse Long-Term Debt................................                769                  744
   Senior Notes..............................................................              1,644                1,644
   Medium Term Notes.........................................................                252                  252
                                                                                    -----------------    -----------------
       Total Long-Term Debt..................................................              2,665                2,640
                                                                                    -----------------    -----------------

   STOCKHOLDER'S EQUITY
     Common Stock, Issued: 100 Shares........................................                  -                    -
     Preferred Stock.........................................................                509                  509
     Additional Paid-in Capital..............................................              1,690                1,490
     Retained Earnings.......................................................                509                  510
     Accumulated Other Comprehensive Loss....................................               (357)                (285)
                                                                                    -----------------    -----------------
       Total Stockholder's Equity............................................              2,351                2,224
                                                                                    -----------------    -----------------

TOTAL LIABILITIES AND CAPITALIZATION.........................................             $7,565               $7,439
                                                                                    =================    =================
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)
                                                                                               For the Quarters Ended
                                                                                                      March 31,
                                                                                        --------------------------------------
                                                                                             2002                  2001
                                                                                        ---------------      -----------------
<S>                                                                                         <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Income.................................................................              $   5               $   60
   Adjustments to Reconcile Net Income to Net Cash Flows from Operating
Activities:
     Depreciation and Amortization............................................                 14                    3
     Deferred Income Taxes (Other than Leases)................................                 13                  (15)
     Leveraged Lease Income, Adjusted for Rents Received......................                 15                    2
     Investment Distributions.................................................                  3                   36
     Undistributed Earnings from Affiliates...................................                (14)                 (25)
     Change in Fair Value of Derivative Financial Instruments.................                (10)                  (1)
     Foreign Currency Transaction Loss........................................                 52                    -
     Net Losses on Investments................................................                  5                   15
     Gain on Withdrawal from Partnership Interests............................                 (7)                 (51)
     Proceeds from Withdrawal from Partnership Interests......................                  7                   50
     Cumulative Effect of a Change in Accounting Principle....................                  -                   (9)
     Net Changes in Certain Current Assets and Liabilities:
       Accounts Receivable...................................................                 (76)                   6
       Accounts Payable.......................................................                (62)                  52
       Other Current Assets and Liabilities...................................                 30                   (6)
     Other....................................................................                  6                    2
                                                                                        ---------------      -----------------
     Net Cash (Used in) Provided by Operating Activities......................                (19)                 119
                                                                                        ---------------      -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Investments in Partnerships and Joint Ventures............................                 (95)                (108)
   Return of Capital from Partnerships........................................                 89                    1
   Additions to Property, Plant and Equipment.................................                (77)                  (9)
   Acquisitions, Net of Cash Acquired.........................................                  -                   (9)
   Other......................................................................                (60)                   1
                                                                                        ---------------      -----------------
     Net Cash Used in Investing Activities....................................               (143)                (124)
                                                                                        ---------------      -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net Decrease in Short-Term Debt............................................                (28)                (386)
   Net (Decrease) Increase in Short-Term Affiliate Borrowings.................                (35)                  29
   Proceeds from Contributed Capital..........................................                200                    -
   Proceeds from Long-Term Debt...............................................                 43                  554
   Repayment of Long-Term Debt................................................                  -                 (160)
   Cash Dividends Paid........................................................                 (6)                  (9)
   Other......................................................................                  4                    -
                                                                                        ---------------      -----------------
     Net Cash Provided by Financing Activities................................                178                   28
                                                                                        ---------------      -----------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents..................                 (4)                   -
Net Change in Cash and Cash Equivalents.......................................                 12                   23
Cash and Cash Equivalents at Beginning of Period..............................                 56                   22
                                                                                        ---------------      -----------------
Cash and Cash Equivalents at End of Period....................................             $   68               $   45
                                                                                        ===============      =================
Supplemental Disclosure of Cash Flow Information:
     Cash Payments During the Period for:
       Income Taxes...........................................................             $   48               $    2
       Interest...............................................................             $   33               $   21
Non-Cash Financing Activities:
       Debt Assumed with Companies Acquired...................................             $    -               $   92

See Notes to Consolidated Financial Statements.
</TABLE>

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                            PSEG ENERGY HOLDINGS INC.
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                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

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).  Unless the context  otherwise
indicates, all references to "Energy Holdings",  "we", "us" or "our" herein mean
PSEG Energy  Holdings  Inc.  and its  consolidated  subsidiaries.  We have three
principal direct  wholly-owned  subsidiaries;  PSEG Global Inc.  (Global),  PSEG
Resources  Inc.   (Resources)  and  PSEG  Energy   Technologies   Inc.   (Energy
Technologies).

     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 and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with our
Notes  contained in the 2001 Annual Report on Form 10-K.  These Notes update and
supplement matters discussed in the 2001 Annual Report on Form 10-K.

     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 Sheet was
derived from the audited consolidated  financial statements included in the 2001
Annual Report on Form 10-K. Certain  reclassifications of prior period data have
been made to conform with the current period presentation.

Note 2.  Accounting Matters

     On January 1, 2002 we adopted  the  Financial  Accounting  Standards  Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible  Assets" (SFAS 142).  Under SFAS 142,  goodwill is considered a
nonamortizable  asset and is subject to an annual review for  impairment  and an
interim  review  when  certain  events or  circumstances  occur.  The  impact of
adopting  SFAS 142 is likely to be material to our  Consolidated  Statements  of
Income. We are required to complete our analysis of implementing SFAS No. 142 by
June 30,  2002,  and the related  financial  statement  impact is required to be
recorded  by  December  31,  2002.  Any  impairment  losses,  as of the  date of
adoption, would be recognized as the cumulative effect of a change in accounting
principle in the first  interim  period,  if  applicable.  If certain  events or
changes  in  circumstance  indicate  that  goodwill  might  be  impaired  before
completion of the  transitional  goodwill  impairment  test,  goodwill  shall be
tested for impairment  and any impairment  loss shall be recorded as a component
of  operating  expenses.  For further  analysis of our  goodwill as of March 31,
2002, see Note 5. Commitments and Contingencies.


<PAGE>
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                            PSEG ENERGY HOLDINGS INC.
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             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued


     On January 1, 2002 we adopted SFAS No. 144,  "Accounting  for Impairment or
Disposal  of  Long-Lived  Assets"  (SFAS  144),  and  there was no effect on our
Consolidated  Statements  of  Income.  Under  SFAS 144  long-lived  assets to be
disposed  of are  measured  at the lower of  carrying  amount or fair value less
costs to sell,  whether  reported in  continued  operations  or in  discontinued
operations. Discontinued operations will no longer be measured at net realizable
value or include amounts for operating  losses that have not yet occurred.  SFAS
144 also broadens the reporting of discontinued  operations.  A long-lived asset
shall be tested for  impairment  whenever  events or  changes  in  circumstances
indicate that its carrying  amount may be impaired.  For additional  information
relating  to  potential  asset   impairments,   see  Note  5.   Commitments  and
Contingencies.

     In July 2001, the FASB issued SFAS 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.  We are
currently  evaluating  this  guidance  and  cannot  determine  the impact on our
financial  position,  results of operations,  or net cash flows.  However,  such
impact could be material.

Note 3.  Income Taxes

     We file a consolidated Federal income tax return with PSEG. We have entered
into tax allocation  agreements  with PSEG which provide that we will record our
tax  liabilities as though we were filing  separate  returns and will record tax
benefits to the extent  that PSEG is able to receive  those  benefits.  Deferred
income taxes are provided for the temporary differences between book and taxable
income, resulting primarily from the use of revenue recognition under the equity
method  of  accounting  for  book  purposes,  as well as the use of  accelerated
depreciation  for tax purposes and the recognition of fair value  accounting for
book purposes.  We defer and amortize investment and energy tax credits over the
lives  of the  related  properties.  Our  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  many  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
and the foreign  income taxes are a component  of our equity in earnings  rather
than included as a component of our income tax provision.

     Our effective tax rate was 0% and 22% for the quarters ended March 31, 2002
and 2001,  respectively.  The  reduction in the effective tax rates was due to a
35% tax benefit  associated  with the $47 million  pre-tax loss, net of minority
interests,  related  to the  consolidated  losses at  Empresa  Distribuidora  de
Electricidad de Entre Rios S.A. (EDEERSA) in Argentina.  This tax benefit offset
the tax expense  recorded  in  connection  with  Resources'  pre-tax  income and
Global's pre-tax income, excluding the impacts of EDEERSA, and resulted in a net
tax benefit of less than $1 million for the quarter ended March 31, 2002.

Note 4.  Financial Instruments and Risk Management

     Our  operations  are  exposed  to market  risks from  changes in  commodity
prices,  foreign currency exchange rates,  interest rates and equity prices that
could affect our results of operations  and financial  condition.  We manage our
exposure to these  market  risks  through our regular  operating  and  financing
activities  and, when deemed  appropriate,  hedge these risks through the use of
derivative  financial  instruments.  We use the term  "hedge" to mean a strategy
designed to manage risks of  volatility  in prices or rate  movements on certain
assets,  liabilities or anticipated  transactions and by creating a relationship
in  which  gains  or  losses  on   derivative   instruments   are   expected  to
counterbalance  the losses or gains on the assets,  liabilities  or  anticipated
transactions   exposed  to  such  market  risks.  We  use  derivative  financial
instruments  as risk  management  tools which are  consistent  with our business
plans and prudent business practices and not for speculative purposes.


<PAGE>
     The notional amounts of derivatives do not represent  amounts  exchanged by
the parties  and,  thus,  are not a measure of our  exposure  through our use of
derivatives.

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
March  31,  2002 and  December  31,  2001  were  $28  million  and $34  million,
respectively.

Foreign Currencies

     We conduct  our  business  on a  multinational  basis in a wide  variety of
foreign currencies. Our objective for foreign currency risk management policy is
to preserve the  economic  value of cash flows in  currencies  other than the US
Dollar. Our policy is to hedge significant probable future cash flows identified
as  subject  to  significant  foreign  currency  variability.  In  addition,  we
typically hedge a portion of our exposure resulting from identified  anticipated
cash  flows,   providing  the  flexibility  to  deal  with  the  variability  of
longer-term  forecasts as well as changing market conditions,  in which the cost
of hedging may be excessive relative to the level of risk involved.  Our foreign
currency   hedging   activities  to  date  include  hedges  of  US  Dollar  debt
arrangements in operating  companies that conduct  business in currencies  other
than the US Dollar.

     As of March 31, 2002,  Global and  Resources  had  international  assets of
approximately $3.5 billion and $1.4 billion,  respectively. For further analysis
of our  international  assets,  see Note 6.  Financial  Information  by Business
Segments.

     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 US
Dollars and therefore, not subject to foreign currency risk.

     Global's   international   investments   are  primarily  in  projects  that
presently,   or  upon   completion  are  expected  to,  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 Dollar,
there is a corresponding  change in Global's investment value in terms of the US
Dollar.  Such change is reflected  as an increase or decrease in the  investment
value and Other  Comprehensive  (Loss) Income (OCI),  as part of the  cumulative
translation  adjustment,  a separate  component of Stockholder's  Equity.  As of
March 31,  2002,  net foreign  currency  devaluations  have reduced the reported
amount of our total Stockholder's Equity by $320 million, of which $159 million,
$84 million and $63 million  were  caused by the  devaluation  of the  Brazilian
Real,  Chilean  Peso  and  Argentine  Peso,  respectively.  For the net  foreign
currency  devaluations  for the  quarter  ended  March  31,  2002,  see  Note 7.
Comprehensive Income.

     Global holds a 60% ownership  interest in Carthage  Power Company  (CPC), a
Tunisian generation  facility under  construction.  The Power Purchase Agreement
(PPA), signed in 1999, contains an embedded derivative that indexes a portion of
the fixed Tunisian Dinar payments to US Dollar exchange rates. The indexation of
the PPA to the US Dollar  is  considered  an  embedded  derivative  and has been
recognized and valued separately as a derivative  financial  instrument.  As the
Dinar  depreciates or  appreciates in relation to the US Dollar,  the derivative
increases or decreases in fair value equal to the  discounted  present  value of
additional units of foreign  currency  (measured in US Dollars) over the life of
the PPA.  The  cumulative  fair value is  recorded on the  Consolidated  Balance
Sheets as an asset or liability.  To the extent that such indexation is provided
to hedge foreign  currency debt exposure,  the offsetting  amount is recorded in
OCI. Amounts will be reclassified from OCI to Consolidated  Statements of Income
over the life of the debt  beginning on the date of commercial  operation of the
project,  expected  to occur in the second  quarter of 2002.  To the extent such
indexation is provided to hedge an equity return in US Dollars,  the  offsetting
amount is recorded in the  Consolidated  Statements  of Income as a component of
Other (Loss) Income. As of March 31, 2002, we recorded a derivative asset of $40
million related to the US Dollar indexation of the PPA. During the first quarter
of 2002, a gain of $4 million, net of tax and minority interest, was recorded to
our Consolidated  Statements of Income as a result of a net increase in the fair
value of the derivative.

     Global holds a 32% ownership interest in a Brazilian  distribution company,
Rio Grande Energia (RGE),  whose debt is denominated in US Dollars.  As of March
31, 2002, Global's pro-rata share of such debt was approximately $60 million. In
order to hedge the risk of  fluctuations  in the  exchange  rate between the two
currencies associated with the debt principal payments due in May, June and July
2002, RGE entered into a series of three forward exchange  contracts to purchase
US Dollars for Brazilian Reais in December 2001.  Global's share of the notional
value of these  contracts,  which  expire in the same  months as the  respective
principal  payments are due, is approximately $12 million.  These contracts were
established as hedges for accounting  purposes,  and  accordingly  the change in
fair value was  recorded in OCI.  As of March 31,  2002,  Global's  share of the
derivative  liability  associated  with these  contracts  was $2 million and the
change in fair value for the three months  ended March 31, 2002 was  negligible.
Additionally,  in order to hedge the risk of  fluctuations  in the exchange rate
between the two currencies associated with the interest payment due in May 2002,
RGE  entered  into a cross  currency  interest  rate swap in January  2002.  The
instrument converts the variable  LIBOR-based  interest payments to variable CDI
(the Brazilian inter-bank offered rate) based payments.  As a result, RGE hedged
its  foreign  currency  exposure  but is still at risk  for  variability  in the
Brazilian CDI interest rate during the terms of the instruments.  Global's share
of the notional value of this instrument is approximately  $1 million.  The fair
market value of the  instrument as of March 31, 2002, and the change in the fair
market  value of the  instrument  for the three months ended March 31, 2002 were
negligible to our  Consolidated  Balance Sheets and  Consolidated  Statements of
Income. Further, in order to hedge the risk of fluctuations in the exchange rate
between the two currencies  associated  with the principal  payments due in May,
June and July of 2003  through  2005,  RGE entered into a series of nine similar
cross  currency  interest  rate swaps in  January  2002.  Global's  share of the
notional value of the instruments totals  approximately $15 million per year for
the  instruments  maturing in May, June and July of 2003 through 2004 and totals
approximately  $19 million for the  instruments  maturing in May,  June and July
2005.  For  accounting  purposes,  the  fluctuations  in the  fair  value of the
interest rate  components of these cross  currency swaps were not recorded under
hedge accounting rules and were recorded directly to the Consolidated Statements
of Income.  As of March 31, 2002, these contracts had an aggregate fair value of
approximately  $1 million  and an  aggregate  change in fair value for the three
months ended March 31, 2002 of approximately $1 million.

     Through its 50% joint venture,  Meiya Power  Company,  Global holds a 17.5%
ownership  interest in a Taiwanese  generation  project under construction where
the construction  contractor's fees, payable in installments  through July 2003,
are payable in Euros. To manage the risk of foreign  exchange rate  fluctuations
associated  with these  payments,  the project  entered into a series of forward
exchange  contracts to purchase Euros in exchange for Taiwanese  Dollars.  As of
March 31, 2002, Global's share of the fair value and aggregate notional value of
these  forward  exchange  contracts was an asset of less than $1 million and $16
million,  respectively.  These forward  exchange  contracts  were  designated as
hedges  for  accounting  purposes  and were  recorded  to OCI,  resulting  in an
increase to OCI of $1 million,  net of tax, for the three months ended March 31,
2002.

     During  2001,  Global  purchased  100%  interest  in  Sociedad  Austral  de
Electricidad S.A. (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.  In order to economically  hedge final
Chilean Peso denominated  payments required for the acquisition,  Global entered
into a forward exchange contract to purchase Chilean Pesos for US Dollars.  Upon
settlement  of the  transaction,  Global  recognized  an  after-tax  loss  of $1
million.  Furthermore,  as  a  requirement  to  obtain  certain  debt  financing
necessary to fund the acquisition, and in order to hedge against fluctuations in
the US Dollar to Chilean Peso foreign  exchange  rates,  Global entered into two
forward  contracts with notional values of $75 million each to exchange  Chilean
Pesos  for US  Dollars.  These  transactions  expire  in  October  2002  and are
considered hedges for accounting purposes.  As of March 31, 2002, the derivative
liability value of $15 million has been recorded to OCI, net of taxes.

Interest Rates

     We are  subject  to the risk of  fluctuating  interest  rates in the normal
course of business.  Our policy is to manage  interest rate risk through the use
of fixed rate debt,  floating rate debt and interest rate swaps. As of March 31,
2002, a  hypothetical  10% change in market  interest rates would result in a $3
million  change in annual  interest costs related to our short-term and floating
rate debt.

     Global is constructing  electric generation  facilities in Oman, Poland and
Tunisia.  The operating companies of these facilities have entered into interest
rate  swaps  to lock in  fixed  interest  rates  on up to  $599  million  of its
construction  loans.  Such interest rate swaps hedge the value of the cash flows
of future interest  payments.  The gross notional amounts,  interest rates, fair
values and impacts to  Accumulated  OCI as of March 31,  2002 are listed  below.
Global  currently  owns 81%,  55%,  and 60% of the Oman,  Polish,  and  Tunisian
investments, respectively:
<PAGE>
<TABLE>
<CAPTION>

                                             Oman                  Poland                          Tunisia
                                           ----------    ---------------------------    -----------------------------
                                             US $           US $        Polish Zloty        US $            Euro
                                            Tranche       Tranche         Tranche         Tranche          Tranche
                                           ----------    -----------   -------------    -----------    --------------
                                                            (Millions of Dollars, where applicable)
<S>                                           <C>           <C>             <C>             <C>              <C>
Notional Amount..........................     $70           $108            $47             $57              $63
Pay Rate.................................    6.3%           8.4%           13.3%            7.0%            5.2%
Receive Rate.............................    LIBOR         LIBOR           WIBOR*          LIBOR          EURIBOR**
Fair Value ..............................    $(1)          $(28)           $(22)            $(4)            $(1)
Balance in Accumulated OCI...............     $1            $10              $7              $1               -
Percent Ownership........................     81%           55%             55%             60%              60%
Maturity.................................    2018           2010            2010            2009            2009

      *  WIBOR- Warsaw Inter-Bank Offered Rate
      ** EURIBOR-Euro Area Inter-Bank Offered Rate
</TABLE>

     The  ineffective  portion of these  interest  rate swaps is recorded in the
Consolidated  Statements  of Income.  During the quarter  ended March 31,  2002,
Global  recorded  a loss of less  than $1  million,  after  taxes  and  minority
interest, due to the ineffectiveness of such interest rate swaps.

     Global holds  investments  in various  generation  facilities in the United
States  that are  accounted  for under the  equity  method  of  accounting  and,
therefore, are not consolidated in Global's financial statements. Global holds a
50%  indirect  ownership  in two  investments  located in Texas and a 50% direct
ownership in one investment in Hawaii  (collectively the investees),  which hold
US Dollar  denominated debt with variable interest payments tied to LIBOR rates.
In order to lock in  fixed  interest  rates on such  debt,  the  investees  each
entered into  interest  rate swaps to hedge the value of the cash flows of their
future interest  payments.  As of March 31, 2002, the aggregate notional balance
of these swaps was $317 million (Global's share was $159 million),  the weighted
average fixed  interest  rate paid was 6.9% and Global's  share of the aggregate
fair value of these  swaps was a  liability  of $10  million.  These  swaps were
designated as hedges for  accounting  purposes and, as a result,  changes in the
fair value of the hedge were recorded in OCI.

     The fair value of interest  rate swaps,  designated  and  effective as cash
flow hedges, are initially recorded in OCI. Reclassification of unrealized gains
or losses on cash flow hedges of  variable-rate  debt  instruments from OCI into
earnings  occurs as interest  payments  are accrued on the debt  instrument  and
generally offsets the change in the interest accrued on the underlying  variable
rate debt.  We  estimate  reclassifying  $11  million  of losses  from cash flow
hedges, including our pro-rata share from our equity method investees,  from OCI
to our Consolidated Statements of Income over the next 12 months.

Credit Risk

     Credit risk  relates to the risk of loss that we would incur as a result of
nonperformance  by  counterparties,  pursuant to the terms of their  contractual
obligations.  We have established credit policies that we believe  significantly
minimize our exposure to credit risk.  These  policies  include an evaluation of
potential counterparties' financial condition, including credit ratings.

Note 5. Commitments and Contingencies

Argentine Economic Crisis

     As of March 31, 2002,  our aggregate  investment  exposure in Argentina was
$585 million.  The $632 million of  investment  exposure as of December 31, 2001
was  reduced by $47 million  during the quarter  ended March 31, 2002 due to the
charge associated with a change in the functional currency from the US Dollar to
the Argentine Peso, as noted below.  Investments include $165 million in the 90%
owned distribution company,  EDEERSA; and $420 million in our minority interests
in three  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)  and two  generating  companies,  Central
Termica San Nicolas  (CTSN),  and Parana  which are under  contract  for sale to
certain  subsidiaries  of the AES  Corporation  (AES).  Goodwill  related to our
investment  in EDEERSA is  approximately  $63  million  and is  included  in our
investment exposure.

     The Argentine  economy has been in a state of recession  for  approximately
five years.  Continued  deficit spending in the 23 Argentine  provinces  coupled
with low growth and high  unemployment has  precipitated an economic,  political
and social crisis. Toward the end of 2001, a liquidity crisis ensued causing the
Argentine  government to default on $141 billion of national  debt. The economic
crisis was fueled by political  instability and social unrest as 2002 began. The
present Argentine Federal government is in the process of developing an economic
plan to avert a return to the economic instability and hyperinflationary economy
of the 1980s. In early January 2002, the decade-old  convertibility formula that
maintained  the  Argentine  Peso at a 1:1  exchange  rate with the US Dollar was
abandoned.  In early February 2002, the Argentine Peso began to float and was no
longer pegged to the US Dollar.  In the first day of the free floating  formula,
the currency  weakened to a rate of 2 Pesos per 1 US Dollar. At the end of March
2002, the currency  weakened further to a rate of 2.90 Pesos per 1 US Dollar. As
of April 30, 2002, the currency  weakened  further to a rate of 2.96 Pesos per 1
US Dollar.

     In the Province of Entre Rios,  where EDEERSA is located,  the  electricity
law  provided  for a  pass-through  of  devaluation  to the  end-user  customer.
Customers' bills were to be first computed in US Dollars and then converted into
Pesos for billing.  This mechanism assured that devaluation would not impact the
level of US Dollar revenues an electric distribution company received.  However,
in January 2002, the Argentine  Federal  government  implemented a new emergency
law that prohibits any foreign price or currency indexation and any US Dollar or
other foreign  currency  adjustment  clauses relating to public service tariffs,
thus prohibiting the pass through of the costs of devaluation to customers.  The
provincial  governments  have  been  requested  to  adopt  this  provision.  The
provincial  government  of the Province of Entre Rios has recently  adopted this
provision as well as a law that requires  public  service  companies  within the
Province  including  EDEERSA  to accept  payment  for all billed  services  in a
provincial  promissory note, the "Federal".  The terms of the "Federal"  require
principal  payment at maturity in an equal amount of Argentine  Pesos.  However,
the "Federal" is not freely  convertible in the financial markets into Argentine
Pesos or US Dollars. Approximately 75% of cash receipts generated from EDEERSA's
operations are currently settled in "Federals".  There are ongoing  negotiations
to remedy this situation, although no assurances can be given. While we continue
to operate EDEERSA,  there has been an adverse impact to the financial condition
and cash flows of EDEERSA  due to its  inability  to pass  through  the costs of
devaluation to customers and its receipt of an illiquid provincial currency.  We
are pursuing remedies on several fronts,  including holding discussions with the
Province  and  United  States   government   officials  both   individually  and
collectively with a coalition of international investors, and are pursuing legal
recourse  under the Bilateral  Investment  Treaty  between the United States and
Argentina.  We have been  notified  by  lenders of the  occurrence  of events of
default related to the Parana,  EDEN, EDES and EDELAP credit facilities,  all of
which assets are under  contract to be sold to certain  subsidiaries  of AES. If
Argentine  conditions do not improve,  Global's other  Argentina  properties may
also default on non-recourse  obligations in connection  with other  financings.
Currently,  we cannot predict the outcome of our ongoing  negotiations  with the
lenders.

     The situation in Argentina is quite uncertain and highly volatile. While it
is likely that some or all of our  investment  in  Argentina  is  impaired,  the
continued  lack of stability in the  political and economic  environment  causes
significant  variability in the quantification of value.  However, the continued
passage  of  time  without  a  credible  solution  and  continuing   instability
diminishes the prospect of recovery.  Other  potential  impacts of the Argentine
economic,  political  and social  crisis,  include  increased  collection  risk,
further   devaluation  of  the  Peso,   potential   nationalization  of  assets,
foreclosure  of our assets by lenders and an  inability  to complete the pending
sale of  certain  Argentine  assets  to  certain  subsidiaries  of  AES.  Global
anticipates that evolving  economic and political  events,  ongoing  discussions
with regulators about tariff levels,  and discussions with lenders should enable
it to reach a determination of value in the second quarter of 2002.

Functional Currency - Argentine Operations

     As of December  31,  2001,  the  functional  currency of EDEERSA was the US
Dollar, as all revenues, most expenses and all financings were denominated in US
Dollars  or were  linked  to the US  Dollar.  As a US Dollar  reporting  entity,
EDEERSA's monetary accounts denominated in Pesos, such as short-term receivables
or  payables,  were  re-measured  into the US Dollar  with a  minimal  impact to
earnings. At December 31, 2001, our 90% share of EDEERSA's US Dollar denominated
debt was approximately $76 million.  This debt is non-recourse to us. Due to the
recent  events  described  above,  we have  changed the  functional  currency of
EDEERSA's  operations  to the  Argentine  Peso,  effective  March 1, 2002.  As a
result, all monetary accounts  denominated in US Dollars were re-measured to the
Argentine Peso,  including the US Dollar  denominated  debt using the applicable
exchange rate of 2.90 Pesos per 1 US Dollar.  This resulted in a pre-tax loss of
approximately $47 million after deductions for minority interest for the quarter
ended March 31, 2002. In addition to this impact on our Consolidated  Statements
of Income,  the recorded  amount of our net  investment in EDEERSA  decreased by
approximately  $100 million due to the  translation  adjustment  as of March 31,
2002.

Assets Held for Sale-Certain Argentine Projects

     On August 24, 2001, Global entered into a Stock Purchase  Agreement to sell
its  minority  interests  in EDEN,  EDES,  EDELAP,  CTSN and Parana,  to certain
subsidiaries  of AES.  The  transaction  is subject to  regulatory  approval and
consent of lenders.

     On February 6, 2002, AES notified  Global that it was terminating the Stock
Purchase Agreement.  In the Notice of Termination,  AES alleged that a Political
Risk Event, within the meaning of the Stock Purchase Agreement, had occurred, by
virtue of certain decrees of the Government of Argentina, thereby giving AES the
right to  terminate  the  Stock  Purchase  Agreement.  Global  disagrees  that a
Political  Risk  Event as  defined  in the Stock  Purchase  Agreement,  which is
limited to  expropriation  of assets,  has occurred and has so notified  AES. In
April 2002,  Global filed a lawsuit in New York State Supreme Court for New York
County  against AES to enforce its rights  under the Stock  Purchase  Agreement,
which it will vigorously  pursue. We cannot predict the ultimate outcome of this
matter.

     As of March 31,  2002,  we had  approximately  $19 million of interest  and
other  receivables  due  from  the  AES  Corporation  as  provided  for  in  the
transaction documents.

     In the first quarter of 2002, the Administrative Agent for the non-recourse
project  financing  for Parana  notified  Global that the Parana  Project was in
default and a $28 million equity commitment was accelerated by two weeks. Global
made such  payment  in March  2002 and it is  included  in the $585  million  of
investment exposure.

Dispute of Power Contract-Tanir Bavi

     Global owns a 74% interest in Tanir Bavi Power Company  Private Ltd. (Tanir
Bavi), which owns and operates a 220 MW barge mounted, combined-cycle generating
facility.  The plant commenced  combined-cycle  commercial operation in November
2001. Power from the plant is being sold under a seven-year fixed price PPA with
the Karnataka Power  Transmission  Company Limited  (KPTCL),  a State affiliated
entity, formerly known as Karnataka Electricity Board.

     Tanir Bavi has been in dispute  with KPTCL  regarding  the terms of payment
specified  in the PPA  relating  to the fixed  portion of the  tariff,  which is
approximately  US  $.04  per  kilowatt-hour.   The  amount  of  the  dispute  is
approximately half of this fixed amount. During the first quarter of 2002, KPTCL
referred the dispute to the  government of Karnataka,  which  directed  KPTCL to
accept Tanir Bavi's  position.  Prior to KPTCL's  acceptance of such  direction,
however,  the  Karnataka  Electricity  Regulatory  Commission  (KERC)  exercised
jurisdiction  over the matter  and  requested  that  KPTCL not  comply  with the
requests of the  government of Karnataka  until KERC had reviewed the matter.  A
hearing was held in May 2002, at which KERC determined that the disputed amounts
could not be paid until the parties complied with the dispute resolution process
called for in the PPA. KERC did not rule on the merits  regarding the arrearages
but directed the parties on the process of the dispute.  The dispute  resolution
process could take several months.

     Beginning in January 2002,  approximately  50% of the disputed amounts were
subject to a reserve  established by Global.  Beginning in the second quarter of
2002, Global began to reserve 100% of the disputed amount. As of March 31, 2002,
the amount in dispute due from KPTCL was $22 million, net of reserves,  of which
our share was $16 million.  We cannot predict the outcome due to the uncertainty
of the dispute resolution  process.  If there was an unfavorable outcome in this
matter,  we would be  required  to  recognize  a loss of up to our  share of the
entire unrecovered and unreserved amount in dispute,  and the recorded amount of
the  goodwill  could be impaired.  In addition,  an  unfavorable  outcome  would
adversely impact this project's future earnings and cash flows and could lead to
an  impairment  of the  existing  $27  million of goodwill  associated  with the
project.

Goodwill

     We are required to adopt SFAS 142 in 2002,  which requires certain goodwill
impairment  testing.  For a  comprehensive  discussion  of SFAS 142, see Note 2.
Accounting Matters.

     As of March  31,  2002,  the  carrying  value of  consolidated  unamortized
goodwill was $600 million, of which $451 million was recorded in connection with
Global's  acquisitions of SAESA and Electroandes in Chile and Peru in August and
December 2001,  respectively.  The amortization  expense related to goodwill was
approximately $3 million for the year ended December 31, 2001.

     As of March 31,  2002,  our pro-rata  share of goodwill  included in equity
method  investees  totaled $378 million.  In accordance with generally  accepted
accounting  principles,  such goodwill is not consolidated on our balance sheet.
Global's  share  of the  amortization  expense  related  to  such  goodwill  was
approximately $8 million for the year ended December 31, 2001.

     We are in the  process  of  finalizing  our  evaluation  of the  effect  of
adopting  SFAS 142 on the recorded  amount of goodwill at RGE,  EDEERSA,  Energy
Technologies  and Tanir Bavi. It is likely that the entire carrying value of the
goodwill at EDEERSA  and Energy  Technologies  is  completely  impaired,  that a
material portion of the goodwill at RGE up to approximately half of the recorded
carrying  value is  impaired  and  that the  goodwill  at  Tanir  Bavi  could be
impaired.  The goodwill at EDEERSA is included in the $585 million of investment
exposure associated with our assets in Argentina.

     As of March 31, 2002, our consolidated unamortized goodwill of $600 million
and pro-rata share of goodwill in equity method investees of $378 million was as
follows:
<TABLE>
<CAPTION>

                                                                                                  As of
                                                                                             March 31, 2002
                                                                                             --------------
                                                                                          (Millions of Dollars)
Consolidated Goodwill
Global
<S>                                                                                             <C>
  EDEERSA ...................................................................................   $ 63
  SAESA .....................................................................................    315
  Electroandes ..............................................................................    136
  Tanir Bavi ................................................................................     27
  ELCHO .....................................................................................      6
                                                                                                ----
             Total Global Goodwill ..........................................................    547
                                                                                                ----

Energy Technologies .........................................................................     53
                                                                                                ----
             Total Consolidated Goodwill ....................................................   $600
                                                                                                ----

Pro-Rata Share of Equity Method Investment Goodwill
Global
   RGE ......................................................................................   $140
   Chilquinta ...............................................................................    174
   Luz del Sur ..............................................................................     39
   Kalaeloa .................................................................................     25
                                                                                                ----
       Total Pro-Rata Share of Equity Method Investment Goodwill ............................   $378
                                                                                                ----
           Total Goodwill ...................................................................   $978
                                                                                                ====
</TABLE>

Other

     In 2002,  we  adopted  SFAS 144.  SFAS 144  requires  periodic  reviews  of
long-lived  assets for impairment and supercedes  SFAS 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of".
Review is generally initiated by a certain event or series of events that causes
a change in the  operation  or business  environment  in which we  operate.  The
recent  economic  crisis in Argentina  will cause us to initiate a review of our
Argentine  operations  under  SFAS  144 and will  likely  result  in a  material
impairment to our Consolidated Statements of Income.

     As of March 31, 2002, we had $50 million,  or 1%, of our assets invested in
the Turboven generation facilities,  located in Venezuela.  Recently,  Venezuela
has been subject to a loss of capital as the country's  debt has been subject to
a credit  rating  downgrade.  In February  2002,  the  government  of  Venezuela
abandoned the crawling currency peg and allowed the Venezuelan  Bolivar to float
freely with the US Dollar. The Bolivar devalued approximately 18% since year-end
2001 from 758 Bolivars to 1 US Dollar to 921 Bolivars to 1 US Dollar as of March
31, 2002. The Turboven power purchase  contracts are indexed to the US Dollar as
are the fuel supply costs.  This implies that a devaluation  will not impact the
level of US Dollar revenues realized as allowed by the power purchase contracts.
Our near term income statement  exposure relates to our net monetary position in
Bolivars.  Since Turboven is a US Dollar functional  entity, any receivables and
payables in Bolivars  must be  re-measured  to the US Dollar.  The impact of the
re-measurement  is recorded as a loss or gain to our Consolidated  Statements of
Income.  The recent  decision  to devalue  the  Bolivar  did not have a material
adverse  impact on our  financial  position,  results of  operations or net cash
flows.

     We,  and/or  Global  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 $188 million as of March 31, 2002. The guarantees consist of a $61
million equity  commitment for  Elektrocieplownia  Chorzow Sp. Z o.o. (ELCHO) in
Poland,  $56 million of various  guarantees  for Dhofar Power Company in Oman, a
$25 million  guarantee for Chilquinta  Energia,  S.A.  (Chilquinta) in Chile and
Peru,  and various  other  guarantees  comprise the  remaining  $46  million.  A
substantial portion of such guarantees is cancelled upon successful  completion,
performance  and/or  refinancing of construction debt with non-recourse  project
debt.

     In the normal course of business,  Energy Technologies secures construction
obligations with performance bonds issued by insurance  companies.  In the event
that Energy Technologies'  tangible equity falls below $100 million, we would be
required to provide  additional  support  for the  performance  bonds.  Tangible
equity is defined as net equity  less  goodwill.  As of March 31,  2002,  Energy
Technologies  had  tangible  equity  of  $111  million  and  performance   bonds
outstanding  of  approximately  $130  million.  The  performance  bonds  are not
included in the $188 million of guaranteed obligations, discussed above.

     In May 2001,  GWF Energy LLC (GWF Energy),  a 50/50 joint  venture  between
Global and Harbinger GWF LLC,  entered into a 10-year power  purchase  agreement
(PPA) with the California Department of Water Resources (CDWR) to provide 340 MW
of electric  capacity to  California  from three new natural  gas-fired  peaking
plants,  Hanford,  Henrietta  and Tracy  Peaking  Plants.  Total project cost is
estimated at  approximately  $335 million.  The Hanford  Peaking  Plant, a 90 MW
facility,  was  completed  and began  operation  in August 2001.  The  Henrietta
Peaking  Plant,  a  90  MW  facility,  is  currently  under  construction,  with
completion  expected  in  July  2002,  and the  Tracy  Peaking  Plant,  a 160 MW
facility, is in the permitting process. Permitting for the Tracy Peaking project
has been delayed significantly. The California Energy Commission is not expected
to issue a permit  allowing  the start of  construction  before  the end of June
2002. This date does not allow sufficient time to complete  construction  before
the final  Commercial  Operations  Date  deadline  of October 31, 2002 under the
contract.  On February 28, 2002, GWF Energy asserted a force majeure claim under
the provisions of its contract for an appropriate extension of the deadline.

     On April 24, 2002, GWF Energy  received  notice from the CDWR rejecting GWF
Energy's  force majeure  claim.  We and Global are  evaluating  the  appropriate
course of action to protect GWF  Energy's  rights  under the CDWR PPA.  Global's
permanent equity  investment in these plants,  including  contingencies,  is not
expected to exceed $100 million after completion of project financing,  which is
currently  expected to occur in late 2002 or in 2003.  For a description  of the
loans to GWF Energy, see Note 8. Related-Party Transactions.

     On February  25,  2002,  the Public  Utilities  Commission  of the State of
California (CPUC) and the State of California  Electricity Oversight Board filed
complaints with the Federal Energy  Regulatory  Commission  (FERC) under Section
206 of the Federal Power Act against  sellers,  which pursuant to long-term FERC
authorized  contracts,  provide  power  to  the  CDWR.  GWF  Energy  is a  named
respondent  in  these  proceedings.   The  complaints,  which  address  over  40
transactions  embodied in over 30 contracts  with over 20 sellers,  allege that,
collectively,  the specified  long-term  wholesale power contracts are priced at
unjust and  unreasonable  levels and request FERC to abrogate  the  contracts to
enable  the  State  to  obtain  replacement  contracts  as  necessary  or in the
alternative, to reform the contracts to provide for just and reasonable pricing,
reduce the length of the  contracts  and strike from the  contracts the specific
non-price  conditions  found to be unjust and  unreasonable.  On April 25, 2002,
FERC  consolidated  the two  dockets  and set the  contracts  of GWF  Energy and
certain other respondents, including the ten year PPA, for hearing "to determine
whether  the  dysfunctional  California  spot  markets  adversely  affected  the
long-term  bilateral markets and, if so, whether  modification of any individual
contract at issue is warranted."  FERC determined  that the GWF contract,  among
others, was entitled to presumption of validity,  requiring the CPUC to prove it
was "against the public interest." FERC also strongly  encouraged the parties to
negotiate settlements and directed a settlement judge to be appointed to oversee
such  negotiations.  GWF Energy has indicated to representatives of the State of
California its  willingness to enter into  negotiations in an attempt to resolve
differences  between the  parties.  GWF Energy  plans to attend FERC  settlement
conference  discussions in mid-May. We cannot predict the outcome of this matter
or its impact on future earnings or cash flows.

     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 (81%  ownership) and several major Omani
investment  groups owns DPCO.  The project will enhance the existing  network of
generation,  transmission and distribution  assets and is expected to add 200 MW
of new generating capacity.  The project achieved financial closure in September
2001 and construction on the project commenced in the same month. 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 January 2002, Global completed negotiations to buy a 35% interest in the
590 MW (electric) and 618 MW (thermal)  coal-fired  Skawina CHP Plant (Skawina),
located in Southern  Poland.  As part of the  transaction,  Global will purchase
additional  shares at  closing,  which will make  Global the  majority  owner of
Skawina.  The transaction  includes the obligation to purchase additional shares
in  2003  that  will  bring  Global's  aggregate  interest  in  Skawina  CHP  to
approximately  75%.  Skawina  supplies  electricity to three local  distribution
companies and heat mainly to the city of Krakow, under annual one-year contracts
consistent  with  current  practice  in  Poland.  The sale is part of the Polish
Government's  energy  privatization  program.   Global's  equity  investment  is
expected to be approximately $44 million.


<PAGE>
     The Brazilian Consumer  Association of Water and Energy has filed a lawsuit
against RGE (of which Global is a 32% owner), and two other utilities,  claiming
that  certain  value  added  taxes and the  residential  tariffs  that are being
charged  by such  utilities  to their  respective  customers  are  illegal.  RGE
believes  that its  collection  of the  tariffs  and  value  added  taxes are in
compliance with applicable tax and utility laws and regulations. While it is the
contention  of RGE that the  claims  are  without  merit,  and that it has valid
defenses and potential third party claims, an adverse determination could have a
material  adverse effect on our financial  condition,  results of operations and
net cash flows.

     RGE is also currently engaged in a dispute with its regulator, ANEEL, which
is  seeking  to  mandate  a  reduction  in  RGE's  fixed  asset  base  due  to a
pre-privatization  review of Companhia  Estadual de Energia's (CEEE) asset base.
This  pre-privatization  review was not brought to the  attention of the bidders
during the RGE  privatization  process.  The result of such a decrease  in RGE's
fixed asset base would be a likely reduction in RGE's tariff of approximately $8
million during the next rate case as RGE's return on fixed assets would be above
the accepted  level.  RGE is currently  contesting the matter.  We do not expect
that there will be a material adverse effect on our financial condition, results
of  operations  and net cash  flows as a result  of this  dispute,  although  no
assurances can be given.

     We and our equity  method  investees  are involved in various legal actions
arising in the normal course of business.  We do not expect that there will be a
material  adverse effect on our financial  condition,  results of operations and
net cash flows as a result of these  proceedings,  although no assurances can be
given.

Note 6.  Financial Information by Business Segments

Information related to the segments of our business is detailed below:
<TABLE>
<CAPTION>
                                                       Global (A)    Resources     Energy      Other (B) Consolidated
                                                                                Technologies                 Total
---------------------------------------------------------------------------------------------------------------------
                                                                         (Millions of Dollars)

  For the Quarter Ended March 31, 2002:
  ------------------------------------
<S>                                                    <C>          <C>          <C>          <C>          <C>
  Total Operating Revenues........................     $  137       $   53       $  101       $   (1)      $  290
  Segment Net Income (Loss) Available to PSEG.....     $  (10)      $   14       $   (3)      $   (2)      $   (1)

  For the Quarter Ended March 31, 2001:
  ------------------------------------
  Total Operating Revenues........................     $   89       $   33       $  102       $    1       $  225
  Extraordinary Loss on Early Retirement of Debt..     $   (2)      $    -       $    -       $    -       $   (2)
  Cumulative Effect of a Change in
    Accounting Principle..........................     $    9       $    -       $    -       $    -       $    9
  Segment Net Income (Loss) Available to PSEG.....     $   55       $    3       $   (3)      $   (1)      $   54

  As of March 31, 2002:
  --------------------
  Total Assets....................................     $4,122       $3,091       $  286       $   66       $7,565

  As of December 31, 2001:
  -----------------------
  Total Assets....................................     $4,074       $3,026       $  290       $   49       $7,439
---------------------------------------------------------------------------------------------------------------------
<FN>
(A)  For the quarter  ended  March 31,  2002,  Global  recorded an after tax and
     after minority  interest  charge of $31 million to recognize the effects of
     changing from the functional  currency at EDEERSA from the US Dollar to the
     Argentine Peso.

(B)  Other  activities  include amounts  applicable to Energy  Holdings  (parent
     corporation),   Enterprise  Group  Development  Corporation,  PSEG  Capital
     Corporation and intercompany eliminations.
</FN>
</TABLE>
<PAGE>
Our geographic information is disclosed below.
<TABLE>
<CAPTION>

                                                    Revenues (1)                            Assets (2)
                                             ----------------------------       -------------------------------------
                                               For the Quarters Ended                          As of
                                                     March 31,                     March 31,            December 31,
                                             ----------------------------
                                                2002            2001                 2002                   2001
                                             ------------     -----------       --------------         --------------
                                               (Millions of Dollars)                   (Millions of Dollars)

<S>                                             <C>              <C>                 <C>                   <C>
United States.............................      $135             $174                $2,677                $2,675
Foreign Countries.........................       155               51                 4,888                 4,764
                                             ------------     -----------          -----------           ----------
Total.....................................      $290             $225                $7,565                $7,439
                                             ============     ===========          ===========           ==========

Assets in foreign countries include:
   Netherlands.................................................................      $  921                $  911
   Chile.......................................................................         917                   880
   Argentina...................................................................         636                   737
   Peru........................................................................         547                   520
   India.......................................................................         315                   288
   Brazil ....................................................................          302                   282
   Tunisia.....................................................................         268                   245
   Other.......................................................................         982                   901
                                                                                  ------------           ------------
Total.........................................................................       $4,888                $4,764
                                                                                  ============           ============
<FN>
(1)  Revenues  are  attributed  to  countries  based  on  the  locations  of the
     investments.

(2)  Assets  are  comprised  of  investment  in  corporate  joint  ventures  and
     partnerships  that are  accounted for under the equity method and companies
     in  which  we  have  a  controlling  interest  for  which  the  assets  are
     consolidated  on our  financial  statements.  Amount is net of pre-tax  and
     minority interest foreign currency  translation  adjustment of $393 million
     and $283 million as of March 31, 2002 and December 31, 2001, respectively.
</FN>
</TABLE>

     The  table  below  reflects  our  investment  exposure  in  Latin  American
countries:

                                              Investment Exposure
                                      -------------------------------------
                                       March 31,            December 31,
                                          2002                  2001
                                      -------------        ----------------
                                             (Millions of Dollars)
     Argentina.......................   $     585          $     632
     Brazil..........................         476                467
     Chile...........................         528                542
     Peru............................         425                387
     Venezuela.......................          52                 53

     The investment  exposure consists of invested equity plus equity commitment
guarantees.  The  investment  exposure  in these  Latin  American  countries  is
Global's.
<PAGE>
================================================================================
                            PSEG ENERGY HOLDINGS INC.
================================================================================

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Concluded

Note 7.  Comprehensive Income
<TABLE>
<CAPTION>

                                                                                             For the Quarters Ended
                                                                                                   March 31,
                                                                                          ---------------------------
                                                                                             2002            2001
                                                                                          ------------    -----------
                                                                                             (Millions of Dollars)
<S>                                                                                        <C>              <C>
Net income...........................................................................      $     5          $   60
Currency translation adjustments.....................................................          (62)             (2)
Cumulative effect of a change in accounting principle................................            -             (15)
Current period declines in fair value of financial derivative instruments - net......          (13)             (1)
Reclassifications to earnings - net..................................................            3               -
                                                                                           -----------     ----------
Comprehensive (loss) income..........................................................      $   (67)         $   42
                                                                                           ===========     ==========
</TABLE>

Note 8. Related-Party Transactions

Administrative Costs

     PSEG  Services  Corporation  (Services)  provides and bills  administrative
services to us on a monthly basis.  Our costs related to such services  amounted
to approximately $5 million for the quarter ended March 31, 2002.

Additional Paid-in Capital

     For the three months ended March 31, 2002,  PSEG  invested  $200 million of
additional  equity in us, the  proceeds  of which were used to repay  short-term
debt and fund additional investments at Global.

Loans to TIE

     In April 1999, Global and its partner,  Panda Energy  International,  Inc.,
established  Texas  Independent  Energy,  L.P. (TIE), a 50/50 joint venture,  to
develop, construct, own, and operate electric generation facilities in Texas. As
of March 31,  2002,  Global's  investments  in the TIE  partnership  include $76
million of loans that earn  interest at an annual rate of 12% that are  expected
to be repaid over the next 10 years.

Loans to GWF Energy

     In May 2001, GWF Energy, a 50/50 joint venture between Global and Harbinger
GWF LLC,  entered  into a 10-year PPA with the DWR to provide 340 MW of electric
capacity to California from three new natural  gas-fired peaking plants that GWF
Energy  expects  to build and  operate  in  California.  Total  project  cost is
estimated at approximately $335 million. The first plant, a 90 MW facility,  was
completed  and began  operation  in August  2001.  The second plant is currently
under  construction,  with completion expected in July 2002, and the third plant
is in the permitting  process.  Global's  permanent  equity  investment in these
plants,  including  contingencies,  is not expected to exceed $100 million after
completion of project  financing,  which is currently  expected to occur in late
2002 or in 2003. Pending  completion of project  financing,  Global has provided
GWF Energy approximately $98 million of secured loans to finance the purchase of
turbines.  The turbine  loans bear interest at rates ranging from 12% to 15% per
annum and are  payable  in  installments  beginning  May 31,  2002,  with  final
maturity no later than  December 31, 2002.  Global has also  provided GWF Energy
$27 million of working capital loans that bear interest at 20% per annum and are
convertible  into equity at  Global's  option on various  dates  expiring in May
2002.


<PAGE>


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

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

Overview and Future Outlook

     The electric and gas utility industries in the United States and around the
world continue to experience  significant change.  Deregulation,  restructuring,
privatization and  consolidation are creating  opportunities for us. At the same
time, competitive pressures are increasing.

     We are a  major  part  of  Public  Service  Enterprise  Group  Incorporated
(PSEG's)  growth  strategy.  In order to  achieve  this  strategy,  Global  will
selectively  focus on generation and  distribution  investments  within targeted
high-growth  regions.   Resources  will  utilize  its  market  access,  industry
knowledge and transaction structuring  capabilities to expand its energy-related
financial investment portfolio. We are evaluating the future prospects of Energy
Technologies'  business model and its fit in our portfolio given the slower pace
of retail  deregulation  in the markets in which we operate.  Resources'  assets
generate cash flow and earnings in the near term,  while  investments  at Global
generally  have a longer time horizon  before  achieving  expected cash flow and
earnings. Also, Resources' passive lower-risk assets serve to balance the higher
risk associated with operating assets at Global and Energy Technologies.

     While Global realized  substantial growth in 2001,  significant  challenges
began  developing  during  the  fourth  quarter  of 2001  and into  2002.  These
challenges include the Argentine economic crisis, the soft power market in Texas
and the  worldwide  economic  downturn.  As a result,  Global has  refocused its
strategy,  from  one of  accelerated  growth  to one  that  places  emphasis  on
increasing the efficiency and returns of its existing assets.

     Future revenue growth will be partially offset by the reduction of revenue,
anticipated in 2002 from certain  generation  facilities in California and Texas
due to lower energy prices, and distribution  facilities in Argentina due to the
current economic, political and social crisis. Global has investment exposure of
$585  million  in four  distribution  companies  and two  generation  plants  in
Argentina and we are evaluating such  investments for potential  impairment.  In
addition,  as part of the  implementation  of SFAS 142, the goodwill  associated
with Rio Grande Energia S.A.  (RGE),  Empresa  Distribuidora  de Electricidad de
Entre Rios S.A.  (EDEERSA),  Energy  Technologies  and Tanir Bavi Power  Company
Private Ltd. (Tanir Bavi) is being evaluated for potential  impairment.  Under a
worst case  scenario,  if the results of these  evaluations  indicate a complete
impairment  of all such  assets,  we would  record an  approximate  $735 million
pre-tax and pre-minority  interest,  $473 million  after-tax and  after-minority
interest  charge to our  Consolidated  Statement of Income in 2002. The related,
worst case charge to equity would be  approximately  $410 million due to the $63
million charge to Other Comprehensive (Loss) Income (OCI) previously recorded in
the first quarter of 2002. We expect to complete our evaluations of these issues
during the second  quarter of 2002.  For  further  discussion  of the  Argentine
economic crisis and our investment exposure, potential goodwill impairments, and
certain other  contingencies,  see Note 5. Commitments and  Contingencies of the
Notes to Consolidated Financial Statements.  For further discussion of the Texas
power market, see "Business Environment."

     Access to sufficient capital from external sources and from PSEG as well as
the  availability  of cash flow and earnings from Global and  Resources  will be
essential to fund future  investments.  We  continuously  evaluate our plans and
capital  structure in light of available  investment  opportunities  and seek to
maintain the flexibility to pursue strategic growth investments.  Depending upon
the level of investment  activity,  we anticipate  obtaining  additional  equity
contributions  from PSEG as  necessary  to maintain  our growth  objectives  and
targeted capital structure.  The availability of equity capital from PSEG cannot
be assured since it is dependent upon our  performance and the needs of PSEG and
PSEG's other subsidiaries.


<PAGE>
     Following  are the  significant  changes  in or  additions  to  information
reported  in our 2001  Annual  Report on Form 10-K  affecting  our  consolidated
financial  condition  and the  results  of  operations  of us and  those  of our
subsidiaries.  This discussion refers to our Consolidated  Financial  Statements
(Statements) and related Notes to Consolidated  Financial Statements (Notes) and
should be read in conjunction with such Statements and Notes. Unless the context
otherwise  indicates,  all references to "Energy Holdings",  "we", "us" or "our"
herein mean PSEG Energy Holdings Inc. and its consolidated subsidiaries.

Results of Operations

Energy Holdings -- Revenues

     Our revenues increased $65 million or 29% to $290 million from $225 million
for the quarter ended March 31, 2002 as compared to the same period in 2001.

     Revenues at Global  increased  $48 million or 54% to $137  million from $89
million for the  quarter  ended March 31, 2002 as compared to the same period in
2001 primarily attributable to consolidated Electric Generation and Distribution
and Other revenues of $98 million  recorded in connection with the  acquisitions
of  Elektrocieplownia  Chorzow Sp. Z o.o. (ELCHO) in the fourth quarter of 2000,
EDEERSA in the second quarter of 2001,  Sociedad  Austral de Electricidad  S.A.,
(SAESA) in the third quarter of 2001,  Empresa de Electricidad de los Andes S.A.
(Electroandes) in the fourth quarter of 2001, and the commencement of operations
at Tanir Bavi in the second quarter of 2001.  Revenues further  increased by $10
million due to improved earnings from RGE as certain generation costs previously
expensed,  were  reclassified as they were due to be recovered from customers in
the future.  These increases were partially  offset by a decrease of $43 million
in gains due to Global's  withdrawal of its interest in Eagle Point Cogeneration
Partnership  (Eagle  Point)  and  reduced  earnings  of $11  million  from Texas
Independent  Energy,  L.P. (TIE) and GWF. In December 2000, Global withdrew from
its interest in Eagle Point in exchange for a series of payments  through  2005,
expected to total up to $290  million.  Such  payments will be made in each year
until 2005,  provided certain  operating  contingencies are met. With respect to
Eagle Point,  Global  expects to record a total of $46 million in the second and
third quarters of 2002, as operating contingencies for the facility are expected
to be met.  Losses  at TIE  increased  $5  million  due to lower  energy  prices
resulting  from an  over-supply  of  energy in the Texas  power  market.  Global
expects this trend in the Texas power market to continue  until  2004-2005  when
market  prices are  expected to  increase,  as older less  efficient  plants are
expected to be retired and the demand for  electricity  is expected to increase.
Earnings at GWF decreased by $6 million as high energy prices in the  California
power market did not return to more normalized levels until late January 2001.

     Revenues at Resources  increased $20 million or 61% to $53 million from $33
million for the  quarter  ended March 31, 2002 due to an increase of $11 million
in higher leveraged lease income from continued  investment by Resources in such
financing  transactions  and $10 million  primarily  due to reduced  losses with
respect  to the  marking  to market of  publicly  traded  equity  securities  in
Resources' investments in leveraged buyout funds.

Energy Holdings -- Operating Expenses

     Operating  expenses  increased $60 million or 48% to $186 million from $126
million for the  quarter  ended March 31, 2002 as compared to the same period in
2001. The increase was primarily due to Electric Energy Costs of $45 million and
increased  depreciation  and  amortization of $6 million  recorded in connection
with  the  acquisitions  of  ELCHO,  EDEERSA,  SAESA,   Electroandes,   and  the
commencement of operations at Tanir Bavi.


<PAGE>
Energy Holdings -- Net Interest Expense and Preferred Dividends

     Net Interest Expense and Preferred  Dividends  increased $19 million or 43%
to $63 million from $44 million for the quarter ended March 31, 2002 as compared
to the same period in 2001.  The increase was primarily due to interest  expense
of $12 million associated with the $550 million 8.5% Senior Notes issued in June
2001 and  increased  interest  expense  of $3 million  associated  with the $400
million of 8.625%  Senior Notes issued in February  2001.  The proceeds from the
sale of Senior Notes were used for general  corporate  purposes,  including  the
funding  of the  aforementioned  acquisitions.  In  addition,  interest  expense
increased an additional $7 million from  non-recourse  financings at Tanir Bavi,
SAESA,  EDEERSA and  Electroandes.  Partially  offsetting  these  increases  was
reduced  interest  expense of $4 million  associated  with the repayments of $35
million PSEG Capital  Corporation (PSEG Capital) 6.73% Medium-Term Notes in June
2001 and $135 million 6.74% Medium-Term Notes in October 2001.

     At March 31, 2002 and December 31, 2001, we had total debt  outstanding  of
$3.512  billion and $3.533  billion,  respectively,  of which $1.113 billion and
$1.070 billion respectively, was non-recourse to us.

Energy Holdings - Earnings Before Interest and Taxes (EBIT) Contribution

     The results of operations  for each of our business  segments are explained
below  with  reference  to the EBIT  contribution.  We  borrow on the basis of a
combined credit profile to finance the activities of our subsidiaries.  As such,
the capital  structure of each of the  businesses is managed by us. Debt at each
subsidiary is evidenced by demand notes with us and PSEG Capital.

                                                 For the Quarters Ended
                                                        March 31,
                                                 ----------------------
                                                   2002         2001
                                                 --------     ---------
                                                  (Millions of Dollars)
EBIT:
     Global ................................        $20         $78
     Resources .............................         49          29
     Energy Technologies ...................         (4)         (5)
     Other .................................         (3)         (2)
                                                 --------     ---------
Total EBIT .................................        $62         $100
                                                 ========     =========

Global

     Until the fourth quarter of 2000, Global's investments  consisted primarily
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 are  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 55%  economic
interest in ELCHO,  a power plant in Poland with the  expectation of an increase
to a 90% economic interest by 2003.


<PAGE>
     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 and an additional 6% interest in the fourth  quarter of
2001 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.  In the  fourth  quarter  of 2001,  Global
acquired  Electroandes,  a hydroelectric  generation and transmission company in
Peru.  The  accounts of Global  include the assets,  liabilities,  revenues  and
expenses of majority-owned  subsidiaries over which Global exercises control and
for which control is other than temporary.

Summary Results - Global
                                                    For the Quarters Ended
                                                           March 31,
                                                    ------------------------
                                                      2002            2001
                                                    ---------       --------
                                                     (Millions of Dollars)
Revenues...................................            $137            $89
Expenses...................................              74             13
                                                    ---------       --------
Operating Income...........................              63             76
Other (Loss) Income........................             (43)             2
                                                    ---------       --------
EBIT.......................................             $20            $78
                                                    =========       ========

     Global's  EBIT  contribution  decreased  $58 million or 74% for the quarter
ended  March 31,  2002 from the  comparable  period in 2001  primarily  due to a
change in the functional currency of EDEERSA from the US Dollar to the Argentine
Peso. Due to a change in the functional  currency,  $76 million of non-recourse,
US Dollar  denominated  debt was marked to the Argentine Peso that resulted in a
$52 million pre-tax and pre-minority interest charge to Other (Loss) Income. The
decrease  to Other  (Loss)  Income was  partially  offset by an  increase of $10
million in the change of derivative fair value. For a further  discussion of the
effects of a change to the functional  currency of EDEERSA from the US Dollar to
the Argentine  Peso and the economic,  political and social crisis in Argentina,
see Note 5.  Commitments  and  Contingencies  of the  Notes to the  Consolidated
Financial Statements. For a further description of the change of derivative fair
value, see Note 4. Financial Instruments and Risk Management of the Notes to the
Consolidated Financial Statements.

     In addition to the  reduction  in Other  (Loss)  Income,  Operating  Income
decreased $13 million  attributable to several  factors  including a decrease of
$43  million  in gains  from  Global's  withdrawal  and  subsequent  sale of its
interest in Eagle Point and reduced earnings of $11 million from TIE and GWF and
$4 million from Chilquinta Energy, S.A.  (Chilquinta) and Luz del Sur. Partially
offsetting the decreases in Operating  Income was the recognition of $20 million
in Operating Income for SAESA and Electroandes, two acquisitions made subsequent
to March  31,  2001 and $10  million  from  Tanir  Bavi  and PPN,  two  projects
commencing  operations  subsequent  to March 31, 2001.  Further  offsetting  the
decreases were improved  financial results at RGE and ELCHO totaling $13 million
and  reduced  operating  expenses  of $6  million at Global  primarily  due to a
reduction in compensation expense.


<PAGE>
Resources

     Resources earns its leveraged lease revenues 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.

Summary Results - Resources
                                                       For the Quarters Ended
                                                              March 31,
                                                       ------------------------
                                                         2002            2001
                                                       ---------       --------
                                                        (Millions of Dollars)
Revenues..........................................       $53             $33
Expenses..........................................         4               4
                                                       ---------       --------
Operating Income and EBIT.........................       $49             $29
                                                       =========       ========

     Resources' EBIT  contribution  increased $20 million or 69% for the quarter
ended March 31, 2002 from the comparable period in 2001. The increase was due to
higher  leveraged  lease  income of $11 million  from  continued  investment  by
Resources in such financing  transactions and reduced losses of $10 million with
respect  to the  marking  to market of  publicly  traded  equity  securities  in
Resources' investments in 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
                                                        For the Quarters Ended
                                                               March 31,
                                                        ------------------------
                                                          2002           2001
                                                        ---------       --------
                                                         (Millions of Dollars)
Revenues..........................................        $101            $102
Expenses..........................................         105             107
                                                        ---------       --------
Operating Income and EBIT.........................        $ (4)           $ (5)
                                                        =========       ========

     Energy Technologies' EBIT contribution increased $1 million for the quarter
ended March 31, 2002 from the comparable period in 2001.

Liquidity and Capital Resources

     The following  discussion  of our  liquidity and capital  resources is on a
consolidated  basis,  noting  the uses and  contributions  of our  three  direct
operating subsidiaries, Global, Resources and Energy Technologies.


<PAGE>
Financing Methodology

     Our  capital  requirements  and  those  of our  subsidiaries  are  met  and
liquidity provided by internally  generated cash flow,  external  financings and
equity  contributions from PSEG. We make equity  contributions from time to time
to our subsidiaries to provide for part of their capital and cash  requirements,
generally relating to long-term investments.  At times, we utilize inter-company
dividends  and  inter-company  loans to  satisfy  various  subsidiary  needs and
efficiently  manage our and our subsidiaries'  short-term cash needs. Any excess
funds  are  invested  in  accordance  with  guidelines  adopted  by our Board of
Directors.

     External  funding  to meet our  needs is  comprised  of  corporate  finance
transactions  and bank  credit  agreements.  The  debt  incurred  is our  direct
obligation.  We use some of the proceeds of this debt to make equity investments
in our subsidiaries.

     The  availability  and cost of external  capital  could be affected by each
subsidiary's  performance  as well as by the  performance  of  their  respective
subsidiaries  and  affiliates.  This could  include the degree of  structural or
regulatory separation between us and our subsidiaries and between Public Service
Electric and Gas Company and its non-utility affiliates and the potential impact
of  affiliate  ratings  on  consolidated  and  unconsolidated   credit  quality.
Additionally,  compliance with applicable  financial  covenants will depend upon
future financial position and levels of earnings and net cash flows, as to which
no assurances can be given.

     Financing for Global's  projects and  investments is generally  provided by
non-recourse project financing  transactions.  These consist of loans from banks
and other  lenders  that are  typically  secured by project and special  purpose
subsidiary assets and/or cash flows.  Non-recourse transactions generally impose
no  obligation  on the  parent-level  investor to repay any debt incurred by the
project borrower.  However, in some cases,  certain obligations  relating to the
investment  being  financed,   including  additional  equity  commitments,   are
guaranteed  by Global  and/or us.  Further,  the  consequences  of  permitting a
project-level  default could include loss of any invested equity by us or any of
our subsidiaries.

Debt Covenants, Cross Default Provisions,  Material Adverse Changes, and Ratings
     Triggers

     Our debt indenture and credit  agreements and the credit  agreements of our
subsidiaries and PSEG contain cross-default  provisions under which a default by
us or by  specified  subsidiaries  or by  PSEG  involving  specified  levels  of
indebtedness  in other  agreements  would result in a default and the  potential
acceleration  of  payment  under such  indentures  and  credit  agreements.  For
example, a default with respect to specified  indebtedness of us or Global of $5
million or more,  including our or Global's equity  contribution  obligations in
subsidiaries'  non-recourse  transactions,   as  set  forth  in  various  credit
agreements,  could  cause  a  cross-default  in one of our or our  subsidiaries'
credit agreements and potential acceleration  thereunder. A default with respect
to  specified  indebtedness  in an  aggregate  amount of $50 million for each of
PSEG, PSEG Power,  and Public Service  Electric and Gas Company,  and $5 million
for us,  including  relevant equity  contribution  obligations in  subsidiaries'
non-recourse   transactions   could  cause  a  cross-default  in  PSEG's  credit
agreements and potential acceleration thereunder.

     If such a default were to occur,  lenders,  or the debt  holders  under our
indenture or any of our or our  subsidiaries'  credit agreements could determine
that debt payment obligations may be accelerated. A declaration of cross-default
could  severely  limit our  liquidity and restrict our ability to meet our debt,
capital and, in extreme cases,  operational cash requirements.  Any inability to
satisfy  required  covenants  and/or  borrowing  conditions could have a similar
impact.  This would have a material  adverse effect on our financial  condition,
results of operations and net cash flows, as well as those of our subsidiaries.

     In addition,  our credit  agreements and those of PSEG and our subsidiaries
generally  contain  provisions  under which the lenders  could refuse to advance
loans in the event of a material adverse change in the borrower's, and as may be
relevant,  our,  business or  financial  condition.  In the event that we or the
lenders in any of our or our subsidiaries'  credit  agreements  determine that a
material adverse change has occurred, advances of loan funds may be limited.

     Some of these credit agreements also contain maximum debt to equity ratios,
minimum  cash flow  tests and other  restrictive  covenants  and  conditions  to
borrowing.  Compliance with applicable  financial covenants will depend upon our
future  financial  position and the level of earnings and cash flow, as to which
no assurances  can be given.  As part of our  financial  planning  forecast,  we
perform  stress  tests  on  our  financial  covenants.  These  tests  include  a
consideration  of the impacts of potential asset  impairments,  foreign currency
fluctuations,  and other items.  Our current  analyses and projections  indicate
that, even in a worst-case scenario with respect to our investments in Argentina
and  considering  other  potential  events,  we will  still  be able to meet our
financial covenants.

     Our debt indenture and credit  agreements and those of our  subsidiaries do
not contain any  "ratings  triggers"  that would  cause an  acceleration  of the
required  interest and principal  payments in the event of a ratings  downgrade.
However,  in the event of a downgrade we and/or our  subsidiaries may be subject
to  increased  interest  costs on certain  bank debt.  We and Global may have to
provide  collateral  for  certain  of our and their  equity  commitments  if our
ratings  should fall below  investment  grade.  This would increase our costs of
doing business.

     PSEG  Capital  has a $650  million  Medium  Term Note (MTN)  program  which
provides for the private  placement of MTNs.  This MTN program is supported by a
minimum net worth  maintenance  agreement  between  PSEG  Capital and PSEG which
provides, among other things, that PSEG (1) maintain its ownership,  directly or
indirectly,  of all  outstanding  common stock of PSEG  Capital,  (2) cause PSEG
Capital to have at all times a positive  tangible net worth of at least $100,000
and (3) make sufficient  contributions of liquid assets to PSEG Capital in order
to permit it to pay its debt  obligations.  At March 31, 2002 and  December  31,
2001, total debt outstanding under the MTN program was $480 million, maturing in
2002 and 2003.

Regulatory Restrictions

     Capital  resources  and  investment  requirements  could be affected by the
outcome  of  proceedings  by the New  Jersey  Board of  Public  Utilities  (BPU)
pursuant  to  its  Energy  Master  Plan  and  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 us, on PSE&G. As a result of the Focused
Audit, the BPU ordered that, among other things:

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

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

     (3)  PSEG  would  (a)  limit  debt  supported  by  the  minimum  net  worth
          maintenance  agreement between it and PSEG Capital to $650 million and
          (b) make a good-faith  effort to eliminate  such support over a six to
          ten year period from May 1993; and (4) Energy Holdings would pay PSE&G
          an  affiliation  fee of up to $2 million a year which is to be used to
          reduce customer rates.

     In the 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  order  might be
warranted.  The BPU is  expected to consider  this  matter  later this year.  We
believe that this issue will be satisfactorily resolved,  although no assurances
can be given.  We will  eliminate  PSEG  Capital  debt by the end of the  second
quarter of 2003 as required by the Focused Audit.

     In addition,  if PSEG were no longer to be exempt under the Public  Utility
Holding Company Act of 1935 (PUHCA), we and our 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. We believe
that this would not have a material  adverse effect on our financial  condition,
results of operations and net cash flows.

     Over the next several years,  we and our  subsidiaries  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 our financial condition,
results of operations and net cash flows.

Short-Term Liquidity

     We have the following credit facilities for various funding purposes and to
provide us liquidity. These agreements are with a group of banks and provide for
borrowings with maturities of up to one year. The following table summarizes our
various facilities as of March 31, 2002.
<PAGE>

Energy Holdings

<TABLE>
<CAPTION>

                                                         Expiration          Total        Primary           Amount
                                                             Date           Facility      Purpose        Outstanding
                                                        ---------------    -----------   -----------    -------------
                                                                                     (Millions of Dollars)
<S>                                                            <C>            <C>                          <C>
364-day Revolving Credit Facility...................       May 2003           $  200      Funding          $    -
Five-year Revolving Credit Facility.................       May 2004              495      Funding             265
Uncommited Bilateral Agreement......................         N/A                 100      Funding               7
                                                                           -----------                  -------------
       Total.......................................                           $  795                       $  272
                                                                           ===========                  =============
</TABLE>

     The five-year facility also permits up to $250 million of letters of credit
to be issued of which $14 million were outstanding as of March 31, 2002.

     Financial covenants contained in these facilities include the ratio of cash
flow  available  for debt service  (CFADS) to fixed  charges.  At the end of any
quarterly  financial  period  such  ratio  shall not be less than  1.50x for the
12-month period then ending. As a condition of borrowing, the pro-forma CFADS to
fixed charges  ratio shall not be less than 1.75x as of the quarterly  financial
period ending  immediately  following the first anniversary of each borrowing or
letter of credit issuance. CFADS includes, but is not limited to, operating cash
before  interest  and  taxes,   pre-tax  cash   distributions   from  all  asset
liquidations and equity capital  contributions  from PSEG to the extent not used
to fund investing  activity.  In addition,  the ratio of  consolidated  recourse
indebtedness to recourse  capitalization,  at the end of any quarterly financial
period,  shall not be greater  than 0.60 to 1.00.  This ratio is  calculated  by
dividing the total recourse  indebtedness by the total recourse  capitalization.
This ratio  excludes the debt of PSEG Capital  which is supported by PSEG. As of
March 31, 2002, the latest 12 months CFADS coverage ratio was 5.2x and the ratio
of recourse indebtedness to recourse capitalization was 0.43 to 1.00.

     Compliance with applicable  financial covenants will depend upon our future
financial  position  and the level of  earnings  and cash  flow,  as to which no
assurances  can be given.  In  addition,  our  ability to  continue  to grow our
business will depend to a significant degree on PSEG's ability to access capital
and our ability to obtain additional financing beyond current levels.

     It is intended that Global and Resources will provide our earnings and cash
flow for  long-term  growth.  Resources'  investments  are  designed  to produce
immediate  cash  flow and  earnings  that  enable  Global  to  focus  on  longer
investment  horizons.  During  the next five  years,  we will  need  significant
capital to fund our planned  growth.  Capital is  expected  to be provided  from
additional debt financing, equity from PSEG and operating cash flows.

Capital Requirements

     We plan to  continue  the growth of  Resources.  Global has  refocused  its
strategy,  from  one of  accelerated  growth  to one  that  places  emphasis  on
increasing the efficiency and returns of its existing assets.  We are evaluating
the future prospects and opportunities of Energy Technologies' business. For the
quarter ended March 31, 2002, our  subsidiaries  made net  investments  totaling
approximately $143 million. These investments included additional investments in
existing  generation  and  distribution   facilities  and  projects  by  Global.
Partially  offsetting  these  investments was an $88 million loan repayment from
TIE.  For  a  discussion  of  the  loans  to  TIE,  see  Note  8.  Related-Party
Transactions of the Notes to Consolidated Financial Statements.

     In 2002, capital expenditures to fund Global's anticipated acquisitions and
existing  generation and distribution  projects are expected to approximate $150
million of equity for projects currently under construction or contract. Capital
expenditures  to fund Resources'  investments  are expected to approximate  $400
million.  Resources has committed to invest  approximately  50% of the total and
the remaining expenditures are discretionary and are dependent upon availability
of potential investments meeting certain profit thresholds. We have $288 million
of long-term  debt due within one year,  including  $228 million of  Medium-Term
Notes maturing in 2002.

Discussion of Critical Accounting Policies

     The accounting  policies  listed below are policies that involve the use of
both  objectively  and  subjectively  derived  information  to record  financial
statement   transactions  in  accordance  with  Generally  Accepted   Accounting
Principles (GAAP) applied in the United States.  The use of subjective  judgment
and estimates by management is a critical  element in the  application  of GAAP.
The principles below were determined to be most significant in the determination
of our  financial  statements  for the  years  presented,  and will  impact  our
financial statements prospectively.

Leveraged Leases

     A leveraged  lease is recorded by applying  cash flows to lease  income and
amortization  on a  constant  return  basis  throughout  the lease  term.  A key
assumption  in our lease  transactions  is the residual  value at the end of the
lease term.  The residual  value is estimated at the beginning of the lease term
and is reviewed  annually for  adequacy.  If management  were to determine  that
there is a permanent  impairment  to the residual  value of an asset  subject to
lease,  the reduction  must be recorded  immediately.  Appreciation  in residual
value is not booked immediately,  but is deferred until termination of the lease
transaction normally through the purchase of the asset by the lessee.

     Lease accounting also includes  estimates of the likelihood of a borrower's
ability to pay the rent contractually derived in the transaction. If significant
uncertainty exists over the level of rent to be received, or rent is deferred to
future periods, the income accrual must be reduced to reflect lower estimates of
future lease income.  In the event of default by a lessee,  the leased asset may
be recorded on the balance sheet along with the related non-recourse debt.

     Lease  accounting also includes  estimates of future tax rates.  Changes in
statutory  rates could  affect the level of lease income  recorded,  as tax cash
flow is a key component of income in a lease transaction.

Percentage of Completion Accounting

     Percentage of completion  accounting is applied to construction and service
contracts by Energy Technologies. This method involves estimates of gross profit
percentage  at the  inception of a contract  term. As contract work is complete,
the gross profit is recognized in our Income Statement.  If there is a change in
the expected contract gross profit, the change is recognized  immediately in the
Consolidated  Statements of Income.  The  determination of gross profit includes
significant  use of contract  estimates,  both of  variables  that are  directly
within our control, and those that are not.

Measurement of Derivative Financial Instruments

     We use derivative financial instruments to hedge floating interest rate and
foreign currency exposure in many markets where we invest.  Derivative financial
instruments  must be  valued  and  recorded  as  assets  or  liabilities  in the
financial  statements.  The  derivation  of value  includes  estimates of future
interest  rates  and  exchange  rates  that  are  often  quite  volatile.  For a
discussion  of our  derivative  financial  instruments,  see  Note 4.  Financial
Instruments  and  Risk  Management  of  the  Notes  to  Consolidated   Financial
Statements.


<PAGE>
Use of Fair Value Accounting

     Resources  applies fair value  accounting  for certain  securities  held in
Limited  Partnership  interests  that  have  quotable  market  prices  on liquid
exchanges.  For other  securities in the  portfolio  that do not trade on liquid
exchanges,  securities are carried at cost unless a valuation report prepared by
the fund manager  indicates a permanent  impairment  in value below cost.  While
objectively  derived,  the  volatility of  securities  markets over the past few
years has caused significant  fluctuations in security prices.  For example,  we
recorded net pretax (losses)/gains from fair value adjustments or security sales
totaling $(16) million,  $(4) million and $24 million for the three years ended,
December 31, 2001, December 31, 2000 and December 31, 1999, respectively.  While
the carrying value of the trading  portfolio was only $34 million as of December
31,  2001,  it is  possible  that a  volatile  market  could  cause  significant
fluctuations in our reported income in prospective periods.

Accounting for the Effects of Goodwill

     Our 2002  Consolidated  Statements  of Income  will  likely  be  materially
impacted by the application of SFAS 142. This new standard, effective in January
2002,  requires  the amount of any  goodwill  impairment  to be disclosed in the
second quarter and recorded by the fourth quarter of 2002, applied retroactively
to the first quarter.  The basic difference between previous accounting guidance
and this new standard is that a  discounted  cash flow test must be performed to
test goodwill for impairment under the new standard, compared to an undiscounted
cash flow test required  under the old standard.  The new test must be completed
using data as of January 1, 2002.  Any  amounts  impaired  using data as of that
date will be recorded as a  "Cumulative  Effect of an  Accounting  Change".  Any
amounts  impaired under the new test using data after that date will be recorded
as a component of Operating  Expenses.  The  discounted  cash flow tests require
broad assumptions and significant  judgment to be exercised by management.  This
includes projections of future energy prices, customer demand,  operating costs,
rate relief from  regulators,  customer  growth and many other  items.  While we
believe that our assumptions  are reasonable,  actual results will likely differ
from our projections.

     For an analysis of our existing  goodwill as of March 31, 2002, see Note 5.
Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Accounting for Long-Lived Assets

     SFAS 144, a new  standard  related to testing  assets for  impairment,  was
adopted on January 1, 2002.  Testing under SFAS 144 is  essentially  the same as
the asset  impairment  tests we performed under SFAS 121. This test consisted of
an undiscounted cash flow test to determine if an impairment existed, and, if an
impairment  existed,  a discounted  cash flow test would be done to quantify it.
The new standard is broader in that it includes discontinued  operations as part
of its scope.  This test requires the same judgment to be employed by management
in  building  assumptions  related to future  earnings of  individual  assets or
investments as was required in determining  potential impairments of goodwill as
discussed above.

     We have $585  million  of  investment  exposure  in  Argentina.  Due to the
economic,  political and social crisis in Argentina,  our investments  there are
faced with considerable fiscal and cash flow uncertainties. As a result of these
events, an impairment test of these investments is required. However, due to the
vast uncertainty related to the situation in Argentina,  reasonable  assumptions
related to the environment in Argentina  cannot be easily made. As the situation
continues  to  evolve,  we will be able to  develop  assumptions  related to the
environment in Argentina and these  investments and will complete our impairment
test.

     In  addition  to  impairment  testing  for the  Argentine  investments,  an
impairment test for Energy Technologies is also being done as negative operating
cash flow of certain parts of that entity indicate a potential impairment.


<PAGE>
     These  tests are  required  whenever  events or  circumstances  indicate an
impairment  may exist.  Examples of  potential  events  which  could  require an
impairment test are when power prices become depressed for a prolonged period in
a market, when a foreign currency significantly  devalues, or when an investment
generates negative operating cash flows. Any potential impairment of investments
under these circumstances is recorded as a component of operating expenses.

Foreign Currency Accounting

     Our financial  statements are prepared using the US Dollar as the reporting
currency.  In accordance with SFAS 52 "Foreign  Currency  Translation",  foreign
operations  whose  functional  currency  is  deemed  to be the  local  (foreign)
currency, asset and liability accounts are translated into US Dollars at current
exchange  rates and revenues and expenses  are  translated  at average  exchange
rates  prevailing  during  the  period.  Translation  gains and  losses  (net of
applicable  deferred  taxes) are not included in determining  net income but are
reported  in Other  Comprehensive  (Loss)  Income  (OCI).  Gains  and  losses on
transactions  denominated in a currency  other than the functional  currency are
included in the results of operations as incurred.

     The determination of an entity's functional currency requires  management's
judgment.  It is  based  on an  assessment  of the  primary  currency  in  which
transactions  in the local  environment  are  conducted,  and  whether the local
currency can be relied upon as a stable  currency in which to conduct  business.
As economic  and  business  conditions  change,  we are required to reassess the
economic  environment and determine the  appropriate  functional  currency.  The
impact of foreign  currency  accounting  could have a material adverse impact on
our  financial  condition,  results  of  operation  and net  cash  flows.  For a
discussion of the recent change of the functional currency from the US Dollar to
the Argentine Peso at EDEERSA,  see Note 5. Commitments and Contingencies of the
Notes to Consolidated Financial Statements.

Environmental Matters

     Global has ownership  interests in facilities,  including  operating  power
plants and  distribution  companies  and power plants under  construction  or in
development, in numerous countries. These include the United States (California,
Hawaii, Maine, New Hampshire, Pennsylvania and Texas), Argentina, Brazil, Chile,
China, India, Italy, Oman, Peru, Poland,  Taiwan,  Tunisia and Venezuela.  These
operations are subject to compliance with  environmental laws and regulations by
relevant  authorities at each location,  which may include air and water quality
control, land use, disposal of wastes, aesthetics and other matters. In order to
achieve  compliance,  expenditures  may be needed  for  construction,  continued
operation or remediation of new and existing facilities and sites.

     As Global  pursues  new  opportunities,  it will be required to comply with
applicable  environmental  laws and  regulations.  Global  attempts to take such
expenditures into consideration when considering an investment;  however,  there
can be no assurance that  environmental laws and regulations will not change. If
environmental  laws  or  regulations  change  in  the  future,  there  can be no
assurance that our financial condition, results of operations and net cash flows
will not be materially and adversely affected. We are committed to operating our
businesses  cleanly,   safely  and  reliably  and  strive  to  comply  with  all
environmental laws,  regulations,  permits and licenses.  However,  despite such
efforts, there have been instances of non-compliance,  although no such instance
resulted in revocation  of any permit or license or caused a materially  adverse
effect on our financial condition, results of operations and net cash flows.

     We do not anticipate any material capital  expenditures  for  environmental
control facilities or in connection with compliance with federal, state or local
environmental  laws and regulations in 2002 or in connection with the generation
projects  currently in construction or advanced  development.  We do not believe
that compliance with federal, state and local environmental laws and regulations
will have a  material  adverse  effect on our  financial  condition,  results of
operations and net cash flows.


<PAGE>
Business Environment

     We continue to evaluate 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
Argentine  Peso,  Brazilian  Real, the Chilean Peso, the Peruvian Nuevo Sol, and
the Venezuelan  Bolivar,  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
March 31,  2002,  $2.5  billion  or 33% of our  assets  were  invested  in Latin
America,  specifically in Argentina,  Brazil, Chile, Peru and Venezuela and $107
million or 1% of our assets were comprised of leveraged leases of seven aircraft
leased to five separate lessees.

     As of December  31, 2001,  Global had $281 million  invested in two 1000 MW
gas-fired  combined-cycle  electric  generating  facilities in Texas,  including
approximately  $165 million of loans  earning an annual rate of 12%. Of the $165
million  outstanding  at December 31,  2001,  $88 million was repaid in February
2002.  TIE's  funding  for  these  payments  to Global  were  made  from  equity
contributions  of $44 million  from Global and $44  million  from Panda  Energy.
Earnings  and cash  distributions  from TIE during 2001 were $15 million and $25
million, respectively,  below expectations due to lower energy prices, resulting
from the  over-supply  of energy  in the  Texas  power  market  and mild  summer
temperatures  suppressing  demand in the region.  Global  expects  this trend to
continue  until the  2004-2005  time frame when  market  prices are  expected to
increase,  as older less efficient plants in the Texas power market are expected
to be retired and the demand for  electricity is expected to increase.  However,
no  assurances  can be given as to the  accuracy  of  these  estimates.  Current
projections  of future  cash  flows for each  plant,  using  independent  market
studies  for  estimating  gas and  electricity  prices,  market  heat  rates and
capacity prices, do not indicate the investment to be impaired.  We believe that
those  independent  market studies are the best available for estimating  future
prices. This impairment test was done in accordance with SFAS 121 at the project
level and no assurance can be given as to the accuracy of the  projections  used
in the analysis.

     We  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 our
financial condition, results of operations and net cash flows.


<PAGE>
       ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     The risk inherent in our market risk sensitive instruments and positions is
the  potential  loss arising from adverse  changes in commodity  prices,  equity
security prices, interest rates and foreign currency exchange rates as discussed
below. Our policy is to use financial instruments to manage risk consistent with
our business plans and prudent practices.  PSEG has a Risk Management  Committee
comprised of executive  officers,  which utilizes an independent  risk oversight
function  to  ensure  compliance  with  corporate   policies  and  prudent  risk
management  practices  for  all  of  its  subsidiaries,  including  us  and  our
subsidiaries.

     Counterparties expose us to credit losses in the event of nonperformance or
nonpayment. We have a credit management process which is used to assess, monitor
and mitigate counterparty exposure. In the event of nonperformance or nonpayment
by a major counterparty, there may be a material adverse impact on our financial
condition, results of operations and net cash flows.

Commodity Risk

     We are subject to  commodity  price risk  related to the selling  prices of
electricity at our merchant  generation  facilities,  particularly  in the Texas
power market.  For a comprehensive  discussion of our generation plants in Texas
and the Texas power market, see "Business Environment", shown above.

Equity Securities

     Resources has  investments in equity  securities  and limited  partnerships
which invest in equity  securities.  Resources carries its investments in equity
securities at their approximate fair value. 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
March  31,  2002 and  December  31,  2001,  were $28  million  and $34  million,
respectively.  A sensitivity analysis has been prepared to estimate our exposure
to market  volatility of these  investments.  The potential change in fair value
resulting  from a  hypothetical  10%  change  in quoted  market  prices of these
investments  would  result in a $2 million  change in  revenues  for the quarter
ended March 31, 2002.

Interest Rates

     We are  subject  to the risk of  fluctuating  interest  rates in the normal
course of business.  Our policy is to manage  interest  rates through the use of
fixed rate debt,  floating  rate debt and interest  rate swaps.  As of March 31,
2002, a  hypothetical  10% change in market  interest rates would result in a $2
million  change in interest  costs related to short-term and floating rate debt.
For a description of interest rate swaps, see Note 4. Financial  Instruments and
Risk Management of the Notes to Consolidated Financial Statements.

Foreign Currencies

     We conduct  our  business  on a  multinational  basis in a wide  variety of
foreign currencies. Our objective for foreign currency risk management policy is
to preserve the  economic  value of cash flows in  currencies  other than the US
Dollar.  Our policy is to hedge  significant  cash flows,  which are probable of
occurring,   and   identified  as  subject  to  significant   foreign   currency
variability. In addition, we typically hedge a portion of our exposure resulting
from identified  anticipated cash flows,  providing the flexibility to deal with
the variability of longer-term  forecasts as well as changing market conditions,
in which the cost of  hedging  may be  excessive  relative  to the level of risk
involved.  Our foreign currency hedging  activities to date include hedges of US
Dollar  debt  arrangements  in  operating  companies  that  conduct  business in
currencies other than the US Dollar.

Accounting Matters

     For a discussion of significant  accounting matters, see Note 2. Accounting
Matters of the Notes to Consolidated Financial Statements.

FORWARD LOOKING STATEMENTS

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

     In addition to any assumptions  and other factors  referred to specifically
in connection  with such  forward-looking  statements,  factors that could cause
actual   results  to  differ   materially   from  those   contemplated   in  any
forward-looking statements include, among others, the following:

     o    because a significant portion of our business is conducted outside the
          United States,  adverse  international  developments  could negatively
          impact our business;
     o    credit,  commodity,  and  financial  market  risks may have an adverse
          impact;
     o    the electric industry is undergoing substantial change;
     o    generation operating performance may fall below projected levels;
     o    we and our  subsidiaries  are subject to substantial  competition from
          well capitalized participants in the worldwide energy markets;
     o    our ability to service debt could be limited;
     o    if our  operating  performance  or cash flow from  minority  interests
          falls below projected levels, we may not be able to service our debt;
     o    power  transmission  facilities  may impact our ability to deliver our
          output to customers;
     o    government regulation affects many of our operations;
     o    environmental regulation significantly impacts our operations;
     o    insurance coverage may not be sufficient;
     o    acquisition, construction and development may not be successful;
     o    changes  in  technology  may make our  power  generation  assets  less
          competitive; and
     o    recession, acts of war or terrorism could have an adverse impact.

     Consequently, all of the forward-looking statements made in this report are
qualified  by these  cautionary  statements  and we cannot  assure  you that the
results or developments anticipated by us will be realized, or even if realized,
will  have  the  expected  consequences  to or  effects  on us or  our  business
prospects,  financial  condition or results of operations.  You should not place
undue  reliance on these  forward-looking  statements  in making any  investment
decision.  We  expressly  disclaim  any  obligation  or  undertaking  to release
publicly any updates or revisions to these forward-looking statements to reflect
events or circumstances that occur or arise or are anticipated to occur or arise
after  the  date  hereof.  In  making  any  investment  decision  regarding  our
securities,  we are not  making,  and you should not infer,  any  representation
about  the  likely   existence  of  any  particular   future  set  of  facts  or
circumstances.  The  forward-looking  statements  contained  in this  report are
intended  to  qualify  for the safe  harbor  provisions  of  Section  27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended.


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

                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

     New  Matter.  See Pages 12 and 13. AES  termination  of the Stock  Purchase
Agreement,  relating  to the sale of certain  Argentine  assets.  New York State
Supreme Court for New York County (Docket No. 60155/2002) PSEG Global, et al vs.
The AES Corporation, et al.

     In addition,  see  information  on the following  proceedings  at the pages
indicated:

     (1)  Form  10-K  Page 25.  See Pages 15 and 16.  Complaint  filed  with the
          Federal  Energy  Regulatory  Commission  addressing  contract terms of
          certain Sellers of Energy and Capacity under Long-Term  Contracts with
          the  California  Department  of  Water  Resources.   Public  Utilities
          Commission  of  the  State  of  California  v.  Sellers  of  Long-Term
          Contracts to the California  Department of Water Resources FERC Docket
          No. EL02-60-000.  California Electricity Oversight Board v. Sellers of
          Energy and Capacity  Under  Long-Term  Contracts  with the  California
          Department of Water Resources FERC Docket No. EL02-62-000.

                    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:


          Date of Report            Items Reported
          --------------            --------------
          February 6, 2002                5
          April 16, 2002                5 & 7



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

                                    SIGNATURE

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


                            PSEG ENERGY HOLDINGS INC.
                                  (Registrant)


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




Date: May 15, 2002